Romaniv I. Sources of Capital Investments in Central and Eastern European Countries.

This paper presents research on capital structure formation. We investigate the influence of micro- (return on shareholders' funds and capital employed, profit margin, sales, fixed assets and value added dynamics, size, age, revenue volatility) and complex macro-factors (real interest rate, budget deficit, real effective exchange rate) upon debt raising policy of enterprises in Central and Eastern European countries (CEEC's) in 1996-2009. The most suitable method to be used for this purpose is three-level econometric analysis comprising county-, branch- and firm-specific research. We use panel regression approach at macro-level of our research, linear regression at middle-level and case-study at micro-level. We observe that whereas transnational companies tend to act according to trade-off theory, small and medium enterprises in CEEC's base their decisions on supply-driven implications of pecking order. Empirical results show that in case of economic downturn micro-factors minimize their influence upon debt raising policy of enterprises with macro-factors being dominant. This is due to conservative decision-making policy, supply-driven enterprise capital structure formation and underdevelopment of local financial markets lacking reasonable investment priorities. At middle level of the research we analyze companies in Ukraine, Poland, Czech Republic, Slovakia and Hungary that manufacture machinery and equipment. Empirical results show that increase in profit margin and return on shareholders' funds decreases company leverage, whereas the increase in return on capital employed and value added causes borrowings increase. We also observe that the influence is stronger for micro-factors at t-1 and weakens at t-2. This might be due to short- and mid-term financial planning prevailing in CEEC's. When added to micro-model, macro-factors do not cause quality increase for any countries analyzed, but Ukraine. We explain this by higher macro-dependence of local decision making process having inherited certain methods from planning economy. Based on overall research we develop set of recommendations aimed at improving corporate capital formation policy and widen access to finance for enterprises in Ukraine.