dEjournals Home Page
International Journal of Engineering and Management Sciences
Register Current issue Forthcoming Archives Indexing & Abstracting Submission Contact Search
Register Login
IJEMS

Vol. 10 No. 2 (2025)
Economics

What Drives Capital Financing in Europe? Evidence from Listed Firms in Germany

Published:
2025-05-15
DOI Linkhttps://doi.org/10.21791/JEMS.2025.07.
Authors
Kaiwan Hasan Salih,
Shakhawan Saeed Sangawi,
Rebwar Hussein Salih
View
PDF
Keywords
Capital Financing Profitability Firm Size Growth Liquidity
License

Copyright (c) 2025 Kaiwan Hasan Salih, Shakhawan Saeed Sangawi, Rebwar Hussein Salihl

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

How To Cite
Selected Style: APA
Salih, K. H., Sangawi, S. S. ., & Salih, R. H. . (2025). What Drives Capital Financing in Europe? Evidence from Listed Firms in Germany. International Journal of Engineering and Management Sciences, 10(2), 14-31. https://doi.org/10.21791/JEMS.2025.07.
Received 2025-03-02
Accepted 2025-05-08
Published 2025-05-15
Abstract

This article analyzed the factors that affect the capital financing of German non-financial corporations listed on the German Stock Exchange from 2017 to 2021. By applying a panel data regression model and the Generalized Least Squares (GLS) approach, the results show that the debt-to-assets ratio, equity multiplier, and long-term debt ratio are significantly impacted negatively by profitability as determined by the assets return. Firm size is positively correlated with both the equity multiplier and the long-term debt ratio, suggesting that larger companies use more long-term debt. Growth has a significant positive impact on the equity multiplier and long-term debt ratio but has little influence on the debt-to-assets ratio. Long-term debt is unaffected by liquidity, although the debt-to-assets ratio and equity multiplier are adversely impacted. The GMM method is used during the robustness check, and the findings are consistent with the major GLS  findings. These results highlight how important firm-specific factors are in influencing choices about financial structure. The results of this research may be used as a guide for companies operating in Europe and offer valuable information about how to optimize capital structures in various financial contexts. Policymakers could also use the results of this investigation as a reference for creating financial laws and regulations that facilitate non-financial enterprises' access to financing and effective capital allocation.

References
  1. [1] F. Balázs and B. N. Patrícia, “The role of venture capital in the bridging of funding gaps – A real options reasoning,” Annals of University of Oradea - Economic Science, vol.24, no. 1, pp. 825-830, 2015.
  2. [2] B. Elvira and I. Hágen, “Menedzsment Control-A Számviteli Mutatószámoktól a Versenyképes Stratégiáig,” Act. Carol. Rob., vol. 7, no. 2, pp. 19–36, 2017.
  3. [3] K. H. Salih, S. S. Sangawi, and K. A. Kamal, “The Impact of the Cash Flow, Solvability, and Working Capital on Accounting Profitability with Capital Structure as a Mediation,” J. Account. Financ. Stud., vol. 19, no. 68, pp. 318–331, 2024. doi: 10.34093/678r6n84
  4. [4] A. M. Ahmed, D. P. Nugraha and I. Hágen “Assessing the Impact of COVID-19 on Capital Structure Dynamics : Evidence from GCC Economies,” Econ., vol. 12, no. 5., pp. 1–18, 2024. Doi: 10.3390/economies12050103
  5. [5] J. R. Farel, F. M. Leon and Y. E. Purba, “Determinant Factors of Profitability of the Indonesian Non- Financial SMEs PEFINDO Index,” J. Econ. Resour., vol. 7, no. 2, pp. 57–70, 2024.
  6. [6] D. L. Azra, Y. S. J. Nasution and N. F. A. Hasibuan, “The Effect of Profitability, Liquidity on Capital Structure with Profit Growth as Moderating Variable,” J. La Bisecoman, vol. 05, no. 04, pp. 662–681, 2024, doi: 10.37899/journallabisecoman.v5i4.1480.
  7. [7] F. Modigliani and M. H. Miller, “The cost of capital, corporation finance and the theory of investment,” Am. Econ. Rev., vol. 48, no. 3, pp. 261–297, 1958. http://www.jstor.org/stable/1812919.
  8. [8] A. Kraus and R. H. Litzenberger, “Optimal financial leverage,” J. Finance, pp. 911–922, 1973. doi: 10.2307/2978343
  9. [9] F. Modigliani and M. H. Miller, “Corporate Income Taxes and the Cost of Capital: A Correction,” Am. Econ. Rev., vol. 53, no. 3, pp. 433–443, 1963. https://www.jstor.org/stable/1809167
  10. [10] S. C. Myers, “Determinants of corporate borrowing,” J. financ. econ., vol. 5, no. 2, pp. 147–175, 1977, doi: 10.1016/0304-405X(77)90015-0.
  11. [11] M. C. Jensen and W. H. Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” J. financ. econ., vol. 3, no. 4, pp. 305–360, 1976, doi: 10.1016/0304-405X(76)90026-X.
  12. [12] C. Dewi and F. Fachrurrozie, “The Effect of Profitability , Liquidity , and Asset Structure on Capital Structure with Firm Size as Moderating Variable,” Account. Anal. J., vol. 10, no. 1, pp. 32–38, 2021, doi: 10.15294/aaj.v10i1.44516.
  13. [13] S. Orlova, J. T. Harper and L. Sun, “Determinants of capital structure complexity,” J. Econ. Bus., vol. 110, pp. 1-19, 2020, doi: 10.1016/j.jeconbus.2020.105905.
  14. [14] M. Melgarejo Duran and S. A. Stephen, “Internationalization and the capital structure of firms in emerging markets: Evidence from Latin America before and after the financial crisis,” Res. Int. Bus. Financ., vol. 54, pp. 1-10, 2020, doi: 10.1016/j.ribaf.2020.101288.
  15. [15] P. F. Ikrima, C. R. Maghfirah, K. Tamara et al. “The Effect of Profitability, Liquidity, Company Size on Capital Structure (Study on Real Estate and Property Companies) Listed on The Indonesian Stock Exchange (Bei) For the Period (2020-2022),” Proceeding 2nd Medan Int. Econ. Bus. Vol., vol. 2, no. 1, pp. 1983–1991, 2024.
  16. [16] A. M. Ahmed, M. N. Ali and I. Hágen, “Corporate Governance and Capital Structure: Evidence from Europe,” Int. J. Prof. Bus. Rev., vol. 8, no. 7, pp. 1–22, 2023, doi: 10.26668/businessreview/2023.v8i7.1663.
  17. [17] J. Oláh et al., “A trust approach to the financial performance of information and communications technology enterprises,” Polish J. Manag. Stud., vol. 20, no. 1, pp. 332–343, 2019, doi: 10.17512/pjms.2019.20.1.29.
  18. [18] D. I. Purnamasari and P. Yuliana, “The Influence of Capital Structure , Company Growth , Liquidity , and Profitability on Company Value in Food and Beverages Sector Companies Listed on the IDX for 2017 - 2022,” Soc. Sci. Humanit. J., vol. 8, no. 3, pp. 34562–34575, 2024. doi: 10.18535/sshj.v8i03.952
  19. [19] S. S. Sangawi and S. A. Abdulla, “Impact of Working Capital and Liquidity on Accounting Profitability of Insurance Companies Listed on the Iraqi Stock Exchange (ISX) In 2018-2022,” Acad. J. Int. Uni. Erbil., vol. 1, no. 2, 77–88, 2024.
  20. [20] W. Rohimah and U. K. Oktaviana, “The Determinants of Financial Stability of Islamic Banks in ASEAN,” J. Islam. Econ. Financ. Stud., vol. 5, no. 1, pp. 26–41, 2024.
  21. [21] A. M. Ahmed et al., “Effect of Firm Size on the Association between Capital Structure and Profitability,” Sustain. Artic., vol. 15, no. 14, pp. 1–18, 2023. doi: 10.3390/su151411196
  22. [22] S. S. Sangawi et al., “An Investigation into the Impact of Profitability on Annual Growth Rate among the Listed Manufacturing Companies on the Iraqi Stock Exchange,” Tikrit J. Adm. Econ. Sci., vol. 19, no. 64, pp. 720–739, 2023. doi: 10.25130/tjaes.19.64.2.38
  23. [23] C. Dang, Z. F. Li and C. Yang, “Measuring Firm Size in Empirical Corporate Finance,” J. Bank. Financ., vol. 86, no. January, pp. 159–176, 2018, doi: 10.2139/ssrn.2345506.
  24. [24] F. Balázs and B. N. Patrícia, “Mit jelez a tulajdonosi szerkezet? – A tulajdonosi szerkezet és a vállalkozások teljesítményének kapcsolata információs aszimmetriák mellett a magyarországi kockázatitőke-befektetések tükrében,” Vezetéstudomány, vol. 50, no. 7–8, pp. 31–38, 2019, doi: 10.14267/VEZTUD.2019.07.03
  25. [25] S. A. Ross, “The Determination of Financial Structure: The Incentive-Signalling Approach,” Bell J. Econ., vol. 8, no. 1, pp. 23–40, 1977, doi: 10.2307/3003485.
  26. [26] M. WIECZOREK-KOSMALA, J. BŁACH and J. TRZĘSIOK, “Comparative Study of The Relevance of Equity Financing in European SMEs,” J. Bus. Econ. Manag., vol. 21, no. 6, pp. 1543–1560, 2020.
  27. [27] A. Croce, D. D. Adda and E. Ughetto, “Venture capital financing and the financial distress risk of portfolio firms: How independent and bank-affiliated investors differ,” Small Bus. Econ., vol. 44, no. April, pp. 1–18, 2014, doi: 10.1007/s11187-014-9582-4.
  28. [28] U. Andrusiv et al., “Experience and prospects of innovation development venture capital financing,” Manag. Sci. Lett., vol. 10, pp. 781–788, 2020, doi: 10.5267/j.msl.2019.10.019.
  29. [29] L. Grilli, B. Mrkajic and G. Latifi, “Venture capital in Europe : social capital , formal institutions and mediation effects,” Small Bus. Econ., vol. 51, no. 7, pp. 393–410, 2018.
  30. [30] F. A. Frimpong et al., “Venture capital as innovative source of financing equity capital after the financial crisis in Spain,” Cogent Bus. Manag., vol. 9, no. 1, pp. 1–21, 2022, doi: 10.1080/23311975.2022.2087463.
  31. [31] A. M. Ahmed, “The Relationship Between Firm Size and Profitability ‘Evidence from the Commercial Banks in Iraq,’” Sci. J. Cihan Univ. – Sulaimaniya, vol. 6, no. 1, pp. 145–156, 2022, doi: http://dx.doi.org/10.25098/6.1.34.
  32. [32] I. Ahmad, J. Oláh, J. Popp and D. Máté, “Does business group affiliation matter for superior performance? Evidence from Pakistan,” Sustain., vol. 10, no. 9, pp. 1–19, 2018, doi: 10.3390/su10093060.
  33. [33] B. K. Baik, N. Berfeld and R. S. Verdi, “Do Public Financial Statements Influence Private Equity and Venture Capital Financing?,” Am. Account. Assoc., pp. 1–20, 2024, doi: 10.2308/TAR-2022-0437.
  34. [34] A. I. Kato, “A Literature Review of Venture Capital Financing and Growth of SMEs in Emerging Economies and an Agenda for Future,” Acad. Entrep. J., vol. 27, no. 1, pp. 1–18, 2021.
  35. [35] J. Xu and B. Wang, “Intellectual Capital, Financial Performance and Companies’ Sustainable Growth: Evidence from the Korean Manufacturing Industry,” Sustain. Artic., vol. 10, no. 12, pp. 1–15, 2018, doi: 10.3390/su10124651.
  36. [36] P. M. Madhani, “The Resource - Based View (RBV): Issues and Perspectives,” PACE, A J. Res. Prestig. Inst. Manag., vol. 1, no. 1, pp. 43–55, 2010.
  37. [37] M. J. Mwende, W. Muturi and A. Njeru, “Effect of Equity Finance on Financial Performance of Small and Medium Enterprises in Kenya,” Int. J. Bus. Soc. Sci., vol. 10, no. 5, pp. 60–75, 2019, doi: 10.30845/ijbss.v10n5p7.
  38. [38] F. Jaoui, O. Amoussou and F. H. Kemeze, “Catch me if you can ’ on drivers of venture capital investment in Africa,” African Dev. Rev., vol. 34, no. 1, pp. 1–25, 2023, doi: 10.1111/1467-8268.12655.
  39. [39] B. Erika and I. Hágen Zsombor, “BSC modellel a kereskedelmi tevékenységet ellenőrző vállalkozások versenyképességének növeléséért,” Controll. INFO, vol. 3, no. 1, pp. 42–46, 2015.
  40. [40] M. Li and L. Wei, “The Path of Digital Trandsformation Driving Enterprise Growth the Moderating Role of Financing Constraints,” Int. Rev. Financ. Anal., vol. 96, no. A, pp. 1–34, 2024.
  41. [41] I. Wulandari and I. Wulandari, “The Effect of Profitability , Liquidity and Company Size on Capital Structure in Companies Listed on the Indonesian Stock Exchange,” J. Syntax Admiration, vol. 5, no. 7, pp. 2577–2588, 2024. doi: 10.46799/jsa.v5i7.1277
  42. [42] R. M. Mardan et al., “The Determinants of Capital Structure: Evidence From Indonesia,” Int. J. Prof. Bus. Rev., vol. 8, no. 5, pp. 1–30, 2023. doi: 10.26668/businessreview/2023.v8i5.878
  43. [43] A. Moradi and E. Paulet, “The firm-specific determinants of capital structure – An empirical analysis of firms before and during the Euro Crisis,” Res. Int. Bus. Financ., vol. 47, pp. 150–161, 2019, doi: 10.1016/j.ribaf.2018.07.007.
  44. [44] R. K. Ronoowah and B. Seetanah, “Corporate governance, capital structure, and firm performance: a panel VAR approach,” SN Bus. Econ., vol. 3, no. 14, pp. 1–30, 2023.
  45. [45] A. Flabiya and S. Sunarto, “The Influence of Managerial Ownership, Profitability on Company Value With Dividend Policy as Moderation,” JASa (Jurnal Akuntansi, Audit dan Sist. Inf. Akuntansi), vol. 6, no. 2, pp. 178–187, 2022.
  46. [46] T. M. Almomani, M. I. S. Obeidat, and M. A. Almomani, “Capital Structure and Firm Value Relationship: The Moderating Role of Profitability and Firm Size Evidence from Amman Stock Exchange TAREQ,” WSEAS Trans. Environ. Dev., vol. 18, no. 102, pp. 1073–1084, 2022.
  47. [47] M. N. Ali and A. M. Ahmed, “The Effect of Capital Structure on Financial Performance ‘Applied study in Turkish Stock Exchange,’” Eurasian J. Manag. Soc. Sci., vol. 2, no. 3, pp. 43–57, 2021, doi: 10.23918/ejmss.v2i3p43.
  48. [48] M. Hirdinis, “Capital structure and firm size on firm value moderated by profitability,” Int. J. Econ. Bus. Adm., vol. 7, no. 1, pp. 174–191, 2019, doi: 10.35808/ijeba/204.
  49. [49] Ngatno, E. P. Apriatni, and A. Youlianto, “Moderating effects of corporate governance mechanism on the relation between capital structure and firm performance,” Cogent Bus. Manag., vol. 8, no. 1, 2021, doi: 10.1080/23311975.2020.1866822.
  50. [50] W. Anwar, S. Liaqat, and M. Waris, “Moderating Role of Corporate Governance in the Relationship between Corporate Structure and Firm Performance: A Case Study of Pakistani Non-Financial Firms,” iRASD J. Econ. Vol., vol. 4, no. 3, pp. 400–418, 2022.
  51. [51] S. Yussif and T. Gujral, “Capital Structure as A Determinant Of Financial Performance Of CCUs In Ghana.,” Libr. Prog. Int., vol. 44, no. 3, pp. 8150–8159, 2024.
  52. [52] F. Mahmood et al., “Working capital financing and firm performance: a machine learning approach Faisal,” Rev. Quant. Financ. Account., vol. 18, no. july, pp. 1–37, 2023, doi: 10.1007/s11156-023-01185-w.
  53. [53] A. Syafrizal, R. N. Ilham, D. Muchtar, and Wardhiah, “Effect of Capital Adequacy Ratio, Non-Performing Financing, Financing to Deposit Ratio, Operating Expenses and Operational Income on Profitability at Pt. Bank Aceh Syariah,” J. Manag. Res. Util. Financ. Digit. Assets Eff., vol. 1, no. 4, pp. 312–322, 2023.
  54. [54] M. Rafid et al., “Analysis of Liquidity Ratios, Profitability Ratios, and Capital Structures on Financial Distress Conditions in Service Companies During the Covid-19 Period,” J. Darma Agung, vol. 30, no. 2, pp. 614–622, 2022.
  55. [55] H. Abdullah and T. Tursoy, “Capital structure and firm performance: evidence of Germany under IFRS adoption,” Rev. Manag. Sci., vol. 15, no. 2, pp. 379–398, 2021, doi: 10.1007/s11846-019-00344-5.
  56. [56] N. A. Ramli, H. Latan and G. T. Solovida, “Determinants of capital structure and firm financial performance-A PLS-SEM approach: Evidence from Malaysia and Indonesia,” Q. Rev. Econ. Financ., vol. 71, pp. 148–160, 2019, doi: 10.1016/j.qref.2018.07.001.
  57. [57] A. M. Ahmed and I Hágen, “Corporate Governance and Its Relationship with Financial Performance in Iraq,” Act. Car. Rob., vol. 13, no. 1, 76–89. doi: 10.33032/acr.4099.
  58. [58] J. Bai, H. C. Sung, and L.Yuan, “Feasible Generalized Least Squares for Panel Data with Cross-Sectional and Serial Correlations,” Empr. Econ.., vol. 60, 309–326. doi: 10.1007/s00181-020-01977-2.
Database Logos
DOAJ MTMT SHERPA EIRHPLUS EBSCO CROSSREF Ulrichsweb Dimensions AI Scilit BASE miar OpenAire Index Copernicus Vrije Universiteit Amsterdam