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ПЕРМСКИЙ ФИЛИАЛ ФЕДЕРАЛЬНОГО ГОСУДАРСТВЕННОГО АВТОНОМНОГО ОБРАЗОВАТЕЛЬНОГО УЧРЕЖДЕНИЯ ВЫСШЕГО ОБРАЗОВАНИЯ

«НАЦИОНАЛЬНЫЙ ИССЛЕДОВАТЕЛЬСКИЙ УНИВЕРСИТЕТ

«ВЫСШАЯ ШКОЛА ЭКОНОМИКИ»

Факультет экономики, менеджмента и бизнес-информатики

Выпускная квалификационная работа

Capital structure deviation from an optimal level: the influence on the value of Russian companies

Влияние отклонения структуры капитала российских компаний от оптимального уровня на их стоимость

Семченко Полина Сергеевна

Пермь, 2020 год

Abstract

The aim of the present study is to investigate an influence of capital structure deviations from its optimal level on the value of Russian companies. The empirical part consists of two stages. The first step was to determine an optimal capital structure with the use of the minimum WACC method and regression equation model and calculate the deviation of a current debt-equity ratio from the optimum found. At the second stage an estimation of the effect of this deviation on company's value was done. Data utilized was provided by International Laboratory of Intangible-driven Economy (IDLAB) of the HSE-Perm. The sample consisted of observations of Russian companies over the period 2010-2014. The analysis of results acquired by two methods of optimum calculation was done. So, it was revealed that capital structure deviations of Russian companies from their optimal levels do not negatively affect their value regardless a method of calculation of an optimum. Furthermore, the findings witnessed that behavior of Russian companies do not conforms the premise of the Capital Structure Theory.

Целью данного исследования является изучение влияния отклонений структуры капитала от оптимального уровня на стоимость российских компаний. Эмпирическая часть состоит из двух этапов. Первым шагом является определение оптимальной структуры капитала с использованием метода минимального WACC и регрессионного уравнения, после чего будет проведен расчет отклонения текущего отношения долга к собственному капиталу от найденного оптимума. На втором этапе будет осуществлена оценка влияния данного отклонения на стоимость компании. Использованные данные были предоставлены Международной лабораторией экономики нематериальных активов (МЛЭНА) ВШЭ-Пермь. Выборка включает наблюдения по российским компаниям за период с 2010 по 2014 год. Было проведено сравнение результатов, полученных с помощью двух методов расчета оптимума. Было выявлено, что отклонения структуры капитала российских компаний от их оптимальных значений не оказывают негативного влияния на их стоимость независимо от метода расчета оптимума. Более того, результаты показали, что поведение российских компаний не соответствует предполагаемому в Теории компромисса.

Contents

Introduction

1. Theoretical Framework

1.1 Concept of company's value

1.2 Capital structure as one of the crucial determinants of company's value

2. Research problem and hypothesis

3. Methodology

3.1 Method of calculation of an optimal capital structure by using minimum WACC approach

3.3 Methodology of analysis of an influence of capital structure deviations from optimal levels on companies' value

3.4 Sample description

4. Empirical results

4.1 WACC calculation results

4.2 First regression results

4.3 Second regression results

4.4 Interpretation of the final results

Conclusion

Bibliography

Introduction

Almost all modern companies strive to carry out their business activities as efficiently as possible in order to beat their competitors in conditions of fierce competition of a market economy. In order to assess effectiveness degree of their work, firms consider a large number of different financial indicators. However, the company's value is recognized as the most crucial factor today. This indicator makes it possible to conclude how successfully companies conduct their economic activities, which, in turns, allows to determine the further direction of their development (Ittner and Larcker, 2001; Malmi and Ikдheimo, 2003).

Today, Value Based Management (VBM) is a paramount concept in management sciences. The aim of this approach is to organize corporate actions in order to create company's value. Its practical tools ought adjust and coordinate the main CES strategy and their decision-making procedure, inner business processes of a company, work of internal systems and employees' thinking. So, these VBM methods are applied by a company when it focuses on a higher level of its value, which is potentially achievable (Firk et al., 2016).

In order to achieve this aim, company's management has to control a great number of different aspects of a firm's activity and development strategy. These factors are organization of supply chain, equipment modernization, R&D expenditures, marketing and retail strategies, politics toward employees and many others. However, among all the above issues, one of the most important problems is the search and choice of source and type of company's financing (Gill, Obradovich, 2012).

Despite of a wide range of examined in numerous studies determinants of company's value, the majority of researchers consider capital structure to be one of the key factors which determine company's value (Masulis, 1983). Academic works of this kind investigate how various changes in the debt-equity ratio affect company's value. At the same time, it is important to note that the problem of a deviation of a capital structure from its optimal level is of a particular interest of researches. Today, this issue comes to the fore of the economic science instead of a question of a simple change in a debt-equity ratio itself.

For each company it is extremely important to achieve an optimal level of its capital structure because excess of borrowed funds as well as lack of them makes cost of a loan capital excessively high. A high level of debt can significantly reduce tax payments (owing to a tax shield). In turn, it brings additional benefits to investors. On the other hand, if a fraction of borrowed fund is excessively high, it may negatively affect company's ability to service its debts. Consequently, it is obvious that firm's management has to find the most optimal level of debt, which will provide a company with an opportunity to take advantage of a tax shield and, at the same time, to remain in safety in terms of bankruptcy risks (Lui et al., 2017).

However, company's expenses on its capital structure could be minimized by optimizing the ratio of own and borrowed funds. It is a really serious matter for a business, because such unjustified costs entail various negative consequences. First of all, they hamper firm's development, weaken its competitiveness and lead to a conflict with its shareholders (Miao, 2005). capital value regression

So, company's CEOs straggle to find the optimal ratio of own and borrowed funds in order to increase the investment attractiveness of the business, which, in turn, facilitate company's development, growth and finally maximizing its value. Thus, the optimal capital structure of the company comes to the fore in the process of evaluating value of a business.

Though, in real practice it is not an easy task to determine, achieve and maintain an optimal capital structure. There are some serious obstacles toward this desirable state of a firm. First of all, this situation significantly depends on market conditions, an interest rate in particular. In case when it is too low, it will encourage company's management to lend more. And, inversely, only if a company has an acute need in monetary assets, will it use borrowed resources. Such a factor as shareholders' behavior also engenders capital structure deviations, because an additional equity issue is interpreted as a dilution of their shareholding. Equity issue also can be understood as a negative signal by investors on a market due to information asymmetry. Also, in the context of Western sanctions against Russia these obstacles become more complex to overcome and significantly hamper achieving capital structure optimization.

It is important to mention that the optimal and target capital structure are disparate notions. In economic theory the optimal capital structure is commonly understood as a ratio of own and borrowed funds that minimize the cost of using both sources of financing, and, simultaneously, maximizes market value of a company (Gill et all., 2011). As for target structure, it considers only the debt ratio which would be chosen by a company under the condition that the information is symmetric and there are not transactional or other adjustment costs (Hovakimian et al., 2001). So, in this research the optimal capital structure will be investigated.

However, if a definition of an optimal capital structure level is more or less unitary for the vast majority of scientific investigations, methods of its calculation substantially differ in various researches. Despite more than fifty years of continual development, there is not a single approach of defining an optimal point of a capital structure. In a great number of articles authors use their own methods based on different assumptions. Thus, it is obvious that there is some uncertainty in a scientific community about the precise approach of calculation an optimal debt-equity ratio.

Notwithstanding, in spite of the fact that this issue is of a great importance, there are almost no scientific works which analyze whether a deviation of an existing capital structure of a company from its optimal level affects value of Russian enterprises.

Moreover, there are some peculiarities of Russian economic system which may distort some basis of VBM. Firstly, Russian companies prefer to have more borrowed funds in their capital structure than equity. So, it is still a question if such pattern leads to their maximum value or some features of Russian markets obstruct maximization of their value. Furthermore, Russian capital market is a developing one, thus, its financial instruments are not very liquid and efficient. Consequently, it is also an ambiguous issue, if the capital theory is applicable and efficacious in Russia. Thereby, a question remains whether an optimal capital structure ensures company's maximum value in Russian. Possibly, it is not important for domestic investors and shareholders if a debt-equity ratio of a firm is optimal because they know that it does not maximize company's value.

Furthermore, it became obvious that there is a gap in the study of capital structure in countries with emerging economies (Vo, 2017; Khemiri, Noubbigh, 2018). This issue is of a great importance for the research because it addresses all mentioned theories from the perspective of Russian economy because, nowadays, Russia is reckoned among countries with developing economy. At the same time, the review of existing studies has witnessed the lack of empirical works where data from Russian companies were used. Besides, Russian economic practice does not have enough experience of implementing capital structure management as a tool of VBM. It is happening due to the fact that our country has recently proceeded to a market economy in comparison with Europe and the United States. Besides, the concept of capital structure optimization as one of key tools of VMB was developed in a Western economic practice where an extensive experience of its application was accumulated (Novikov, Novikova, 2012).

In this regard, the lack of sufficient theoretical and empirical experience in questions of application of the Value Based Management approach in Russian economic practice justifies relevance of this research. This work will contribute to a poorly studied problematic area of a nature of interrelation between deviations of a capital structure of Russian companies from their optimal levels and their value.

Consequently, the purpose of this study is to determine the effect of capital structure deviations of Russian companies from the optimal levels on their value. Besides, in this paper will be scrutinized the most common methods of calculation an optimal capital structure and, in turns, studied the difference between their impacts on company's value.

The first chapter of this work will be devoted to the investigation of the VBM concept and key determinants of company's value. After that, the main Capital Structure theories will be scrutinized from the perspective that debt-equity ratio is one of the crucial factors affecting company's value. Also basic approaches of determination of its optimal level will be studied, and, in turn, two of them would be chosen for the further econometric research. The research problem and hypothesis of this work will be specified in the second chapter. The third section will cover the empirical part of the work: from examination of the sample to used formulas and econometric models. The analysis of the acquired results will be made in the final chapter in order to determine main laws of interrelations between deviations of a capital structure from an optimal level on company's value.

1. Theoretical Framework

1.1 Concept of company's value

Within a framework of the economic theory it is assumed that the main goal of any entrepreneurship is to increase the prosperity of the company's owner. In the management science there are two main approaches of achieving this aim: maximizing profit and maximizing company's value. Historically, profit maximization approach emerged earlier. However, by the end of the 20th century economists realized its invalidity because there were observed companies with a large profit which, at the same time, were insolvent (Slater, Olson, 1996). At that moment fundamentally new management approach was invented - the Value Based Management concept (VBM).

In the context of this management concept, a clear understanding of the notion of company's value and competent application of its quantitative methods are the crucial skills. Together they allow a company's CEO to make the right management decisions and can ensure success to a business in the market competition. In turn, estimation of company's value is the paramount criterion in the process of developing the right management strategy (Firk et al., 2019).

Numerous modern investigations have confirmed the efficacy of implementation Value Based Management today, in spite of the fact that for the first time it was proposed at the end of the last century. The work by Firk et al. (2016) is one of such studies where the empirical analysis of US companies revealed that the use of VBM led to an increase of the internal (residual profit) and external (market to book ratio) company's value. Furthermore, these results clarified that VBM had a positive effect on company's performance because it led to improvements of business financial indicators. Besides, it was also proved that if company's executives as well as external institutions at the national level focused on the market value of the company, the interrelation between VBM and company's performance increased.

Nowadays, the Value Based Management is the main concept which is used in a process of formulation business strategy. With the high paste of development of the modern financial markets the indicator of company's value is coming to the fore for the majority of firms. It is worth noticing, that market value of a firm is interpreted as the total value of all its shares and debt. In other words, it is the price which makes the sale of a company possible under conditions of free competition.

This indicator is primarily important for public joint-stock companies whose shares are being sold on stock markets. For companies of this type market value is especially important in the process of developing its dividend policy on which the prosperity of business owners is dependent (Barros et al., 2019). Moreover, maximization of company's value is a direct way increasing its investment attractiveness which, in turn, facilitates company's growth and development (Rodrigues et al., 2019).

Unfortunately, today in Russia assessment of the company's value is predominantly carried out with the help of classical approaches, which, in turn, impedes the effective management of the company's value in the form of accounting and control (Domnina, 2014). Simultaneously, some specific peculiarities of the modern Russian business environment make it difficult to implement and successfully apply VBM. This due to some crucial internal obstacles such as poorly developed financial planning and data forecasting systems, insufficient attention towards business process analysis and a traditional managers' approach to focus on sales and profit. Moreover, one of the main impediments to extension of VBM is a high level of involvement of Russian government into the business sector. Government is more concerned about maintenance of stabile profit, because it ensures a certain amount of taxes and completion of state-guaranteed orders which is absolutely contradicts the main idea of VBM.

As for business owners themselves, they also do not pay enough attention to the analysis of indicators which describe company's value. High standards of the quality of business analysis are the last but not least hindrances which hamper the implementation of the VBM concept in Russia. There are some serious problems in modern Russia concerning the correct use of data from capital markets for the professional calculation of economic profit and value via financial models (Ivashkovskaya, 2004).

For the successful implementation of the concept it is necessary to have a clear understanding of profound principles of work of VBM's tools. Numerous studies devoted to company's value have made it possible today to highlight its crucial determinants and some rules of their use. These drivers are common for the majority of modern companies, regardless of the industry: company size, profitability and the extent of company's assets intangibility (Lie and Lie, 2002). Luo and Wang (2018) added an industry affiliation factor to this group.

Nonetheless, there are some researches on this problem area where the impact of non-traditional determinants on the company's value is studied. For instance, Ito (1991) revealed that M&A activity raise market value of Japanese target and acquisition companies but facilitate decrease of value of American ones. Berzkalne and Zelgalve (2014) ascertain that company's value should rise simultaneously with an increase of proportion of its intellectual capital. Sheikh (2018) claims that fierce market competition and strong power of a company's CEO has a positive impact on company's value, and their simultaneous presence in a company ensures an effective implementation of the VBM concept. One of the most popular issues of information disclosure has been examined by Fatemia et al. (2018). They found that strength ESG (environmental, social and governance) policy promote an increase of company's value, however, disclosure of information about the company's ESG policy itself facilitate the reduction of value of a business.

The analysis of the researches focusing on various aspects of the VBM approach has revealed that it is not a simple task and its initial adoption in a company is only a halfway to success. In order to get maximum benefit from VBM it is necessary to make fundamental transformations in the whole corporate structure and requires considerable expenses. Still, if company's owners are ready for such changes and its CEO implement VBM properly, it will provide company with the right strategy for its value maximization (Haspeslagh et al., 2001).

However, despite numerous researches the narrower issue of the efficacious use the capital structure as a tool of controlling company's value still remains at the center of theoretical economic discussions. This is due to the fact that nowadays there is a clear understanding of a process of reaching and maintaining an `optimal' capital structure for a particular firm. Furthermore, it has also been proved that any company should strive to achieve such a structure. However, all these assertions are theoretical assumptions. So, rules of their practical implementation and possible consequences are still ambiguous.

In this regard, the aim of this work is to study the influence of deviations of a capital structure from its optimal level on company's value. Therefore, in the framework of this study the capital structure of a company is of the greatest interest among all other determinants of company's value.

1.2 Capital structure as one of the crucial determinants of company's value

Company's policy which is directed at finding sources of financing, as well as on their control, has to be efficient in order to provide a business with an opportunity to become closer to success in terms of its financial and operating results. Therefore, the company's CEO has to be competent and professional in the area of making decisions about reaching the optimal debt and equity ratio in a capital structure of a company (Cappa et al., 2019).

The importance of this management matter lies in the fact that the majority of company's performance indicators, one of which is a financial result one, depend on the choice of capital structure. Due to this, the problem of searching the optimal capital structure becomes more complex in terms of achieving the main aim of the VBM concept. The choice of the right debt-equity ratio promotes minimization of the company's total capital costs and, at the same time, maximization of company's value (Vajchulis, 2007).

Before referring to the problem of methods of determination of an optimal capital structure and its crucial determinants, it is important to briefly consider academic background of the modern theoretical basis of the capital structure theory. Due to the fact that capital structure is a central notion of the present study it is of a major significance to clearly identify the relevant and precise definition of a debt-equity ratio. Furthermore, capital structure is one of the key elements of company's strategy because its success depends on the efficacy of search a proper sources and proportion of borrowed and own funds. In other words, company can benefit from the right combination of debt and equity not only by increasing its output and sales, but also by raising its value.

It were Modigliani and Miller who started researches in this direction. In their work `The Cost of Capital, Corporation Finance and the Theory of Investment' the interrelation between capital structure and company's value was examined for the first time. In that research authors claimed that company's capital structure does not affect its value (Modigliani and Miller, 1958). This conclusion is in total contradiction to the modern approach. Thus, it is important to note that Modigliani and Miller, made a number of crucial assumptions in their conception, the most important of which was that the company operates in perfect capital markets, while others were about perfect information, absence of taxes, transaction and bankruptcy costs (Filatova et al., 2008). But since such markets do not really exist and other aspects seem to be unrealistic, this conclusion of Modigliani-Miller's work turned out to be irrelevant (Sohrabi, Movaghari, 2019). Despite this fact, their work has contributed to the evolution of the finance theory and facilitated the development of this area of ??economic science. That is why, the Modigliani-Miller's theorem is not viewed as an evidence of the interrelation between changes in capital structure and company's value does not exist. Nowadays, this theory is considered as a theoretical and practical attempt to identify the necessary conditions which should ensure independence of company's value from structure of its capital (Ibragimov, 2009).

However, lately Modigliani and Miller continued their research and introduced taxes into their model. So, they found that companies benefited from tax shield due to emergence of the new condition. Thus, the cost of borrowed capital decreased and it led to the growth of company's value (Modigliani and Miller, 1963).

In the present state of modern management theory Modigliani and Miller tried to solve one of the main problems of the financial management of a company. They strived to find an optimal capital structure. During the next decades there were consistently removed all Modigliani-Miller's assumption and their ideas were transformed into the wide range of capital structure theories (Ibragimov, Panferov, 2014).

In this regard, one of the most substantial researches was made by Scott (1976). The author argued that the optimal level of company's debt (it was calculated as interest payments for the period) was an increasing function of the liquidation value of a company's assets, corporate tax rate and company's size. Thus, they concluded that the optimal capital structure of a company was a debt -equity ratio which provided the minimum level of average weighted capital costs and the maximum market value of a capital.

Before scrutinizing the interrelation between capital structure and company's value, it is important to consider the main principles of building a capital structure. There are two fundamental theories of forming company's capital structure, the so-called neoclassical theories: Trade-off Theory and Pecking Order Theory.

On the most extensively developed capital structure theory is the Trade-off Theory, which was firstly proposed by Kraus and Litzenberger (1973). The authors made an assumption that there could be found the optimal debt-equity ratio of a company's capital structure. In the work it was proved that the level of debt in such a structure should bring a balance to corporate taxes (tax shield is usually taken into consideration) and bankruptcy penalties. Thus, company's value grows simultaneously with an increase of a company's debt due to tax shield benefits. It grows till a certain amount after which a rise of bankruptcy risk starts to overweight and entail decrease of company's value.

The second most famous capital structure theory is Pecking Order Theory. For the first time, it was introduced by Donaldson (1961). However, that concept is focused on a pecking order of internal and external financial sources of a company, but on their joint influence on company's value. The main idea of Pecking Order theory was: it identifies a pecking order of internal financial sources over external ones and debt over equity too. If a firm struggle with a deficit of financing, its mangers will prefer to use internal capital primarily. Only when these inner financial sources are depleted the external ones are mobilized, but firstly managers will decide to issue bond and only after that, in case of a particular need, they will issue of equities. This concept was more extensively developed by Myers and Majluf (1984) and Ross (1977) who claimed that this pecking order is the consequence of information asymmetry between company's stockholders and its management (Laisi, 2016).

If Modigliani-Miller's theorem is based on assumption that the full information about company's activity is freely accessible on a market, the Pecking Order Theory rebuts this assertion. In his article Ross (1977) proposed his modification of the Pecking Order Theory - the incentive-signalling approach. Ross suggested that managers have more information about company's activity than other actors on the market. Therefore, the issue of bonds is considered as a positive signal by investors because they think that company's CEO can ensure fulfillment of all company's projects and commitments. Otherwise, investors treat issue of bonds as a negative signal which implicitly indicates an over-valuation of equities.

Empirical examinations of these basic concepts have shown their irrelevance. The study of Fama and French (2004) or Baker and Wurgler (2002) revealed that companies' behavior was opposite to the strategies of Trade-off and Pecking Order theories in particular (Frank and Goyal, 2003). In particular, companies did not immediately seek to return to the optimal level but allowed certain fluctuations to occur their existing capital structure deviated from the optimum. At the same time, the correlation between financial leverage and company's profitability was negative, which was in absolute contradiction to the main idea of the theory of compromise.

However, some modern researches make attempts to modify these theories in different ways. For example, Hackbarth (2008) introduced managers' traits to Trade-off Theory. As a result, there was made a conclusion that behavior of biased managers facilitated a growth of company's value and prevented them from conflicts with shareholders as well as approaches of mildly biased managers. So, the author suggested that there could be an interval for the optimal debt-equity ratio which boarders depends on risk tolerance levels of managers and shareholders.

The empirical evidence of the failure of traditional theories of capital structure and a behavioral finance (the new direction in the of finance theory) have occurred simultaneously. So, it has led to emergence and facilitated the development of a number of completely new approaches to the problem of finding an optimal capital structure. They are called behavioral theories and contradict the traditional assumption that all investors behave rationally. So, it is a Market Timing Theory, Managerial Investment Autonomy Theory, the theory of the influence of managers' personal qualities on a capital structure of a company and others and also Informational Cascades Theory which states that all companies in a particular industry chose the same debt-equity ratio as the leader of this sector (Soloduhina, Repin, 2008).

These theories have emerged recently that is why they remain largely unexplored. Nevertheless, the first empirical tests have been carried out (Fama and French, 2004; Baker and Wurgler, 2002; Jenter, 2005; Bikhchandani, Hirshleifer and Welch, 1992; Idem., 1998; Kahneman and Tversky, 1974; Idem., 1979; Idem., 1981; Idem., 1992) in order to investigate the efficacy of strategies of searching the optimal capital structure which were proposed in these theories.

So, capital structure considered as one of the key determinants of company's value in terms of a modern approach which concurs the Trade-Off Theory. A mechanism of an advantageous managing a capital structure was examined in numerous researches because it is a rather complex managerial tool. The success of its application depends on various factors, such as: peculiarities of an industry of company's specialization, its profitability, stage of its life cycle, tax regime, condition of a market of a company's main product, credit reputation of a company (MacDiarmid et al., 2018).

So far, a great variety of research has been done in order to determine the key determinants of a company's capital structure. One of the most general list of capital structure determinants was obtained by Wessels and Titman (1988). The authors identified the following indicators as the most significant: asset structure, short-term tax shield, growth rate, the level of uniqueness of commodities, company's industry and size, volatility of a cash flow, company's profitability. Bradley et al. (1984) came to approximately the same conclusions, but the crucial difference is that the authors succeeded to identify the main determinants of capital structure for a company from any industry owing to examination of the sample of American companies which operated in 25 different industries. The acquired determinants were: volatility of company's profitability and its value, industry, expected costs of financial distress, the sum of short-lived tax shields. Also, they claimed that the type of connection and the strength of the determinant's impact on a capital structure depended on an industry in which a particular company operated.

In more modern studies, authors such as Frank and Goyal (2009) identified other determinants of a capital structure. They were: the median value of the leverage in the industry, market to book ratio, the composition of assets and their “tangibility” (i.e. the ratio of tangible and intangible assets), company's profitability, expectation of inflation. Results of researches devoted to the study of developing economies, concurred with the conclusions of developed ones and identify size and profitability of a company as the key variables (Deesomsak et al., 2004; Fraser et al., 2006; Delcoure, 2007; Chakraborty, 2010; Cйspedes et al., 2010; Thippayana, 2014; Sohrabi, Movaghari, 2019).

So, the preliminary results of the made review allows to identify five quite common and conventional determinants of its optimal point: profitability, size, tangibility of its assets, liquidity and company's value (Rajan and Zingales, 1995; Bevan and Danbolt, 2002; Bauer, 2004; Chen, 2004; Deesomsak et. al. 2004; Beattie et al., 2006; Fraser et al., 2006; Delcoure, 2007; Chakraborty, 2010; Qui and La, 2010; Cйspedes et al., 2010; Kedzior, 2012; Kouki, 2012; Mokhova and Zinecker, 2013). Though there are some specific conditions which have to be always taken into account: company's location, industry and structure of its management. However, company has always be very attentive and take into account some special and in some cases individual factors.

In previous section the need of capital structure as the crucial factor of company's value maximization was revealed. Therefore, it is worthwhile to observe more closely existing academic researches analyzing the effect of the debt-equity ratio on firm value.

Gill and Obradovich (2012) established that for all American companies the optimal capital structure had to include no more than 59.27% of debt because a higher point would negatively affect company's value. The same findings were obtained by Khemiri and Noubbigh (2018) who found the optimal threshold for sub-Saharan Africa companies. If firm's debt was lower than that level it contributed efficiently to the process of company's value creation. Consequently, when borrowed funds exceeded that optimal threshold, a firm struggled with financial distress.

In turn, Martellini et al. (2018) made an attempt not to just find some threshold but narrow this issue to the problem whether it is still relevant today to use capital structure as a key tool of VBM. The authors found that decisions about optimization of a company's debt structure (which is a part of a company's strategy of managing its capital structure) led to increase of company's value in the US. Demirgunes (2017) confirmed the relevance of this conclusion under the conditions of the developing Turkish economy.

On the contrary, some authors (Lemmon, Lins, 2003; Vo, Ellis, 2017; Ramli et al., 2019) found a revers correlation. There was found a negative interrelation between capital structure and company's value in firms with a high leverage ratio. Besides, negative relations between capital structure and productivity level of enterprise's production was witnessed too.

To conclude, the majority of scholars share the opinion that the main aim in a company's policy, which is focused at managing its financial sources, is to determine the optimal debt-equity ratio and find ways to achieve it. At the same time, it is recognized to be one of the most difficult tasks for a company's CEO. The solution of this problem is compounded by the fact that the use of loans as well as may lead to both positive and negative consequences (Ibrahimo, Barros, 2009). In the process of building a capital structure it is crucial to choose a debt-equity ratio which would ensure an increase of company's value at an acceptable for a particular firm level of risk. Subsequently, it should also facilitate an increase of return on equity, which is in the interests of company's shareholders and is the main aim of any business (Guner, 2016).

2. Research problem and hypothesis

In the previous chapter an analysis of Value Based Management concept and fundamental Capital structure theories was conducted. Also, the most significant determinants of company's value and its capital structure were scrutinized. Moreover, there was a review of modern researches which examined an impact of decisions about company's debt-equity ratio on various indicators of its performance, financial results and its value.

The study of various theoretical aspects of the company's value and capital structure theories has revealed a number of significant and ambiguous issues.

First of all, it is worth noting that in Russia only large national corporations, which are usually leaders in their industries concern about their investment attractiveness and market value. For some extent it is since Russia is one of the countries with developing economy and emerging financial market, thus, various financial instruments are not very efficacious and attractive for companies to use. Therefore, it is still an equivocal issue if Russian companies are even aimed at maximization of their market value. On the other hand, in case firms decided to pursue a maximum value goal it is also a rather vague question if capital structure optimization can be applied in Russia as a method of achieving such an aim.

With regard to the aspects mentioned above, it is worth noticing that Value Based Management has not been studied enough properly in such states like Russia, especially, in comparison with countries where the economy is highly developed.

Nonetheless, numerous studies devoted to the present issue have conducted on the firms from countries with developed economies. Their results proved the relevance of the pillar conclusion of the VBM concept: company's value increases as its capital structure comes close an optimal state (Masulis, 1983; Fernandez, 2002; Dionne, Garand, 2003; Novaes, 2003; Gill, Obradovich, 2012; Mu et al., 2017; MacDiarmid et al., 2018; Martellini et al., 2018).

Unfortunately, in the international practice the problem of interrelation between capital structure and company's value has rarely been studied in the countries with developing economies, and the results of such investigations are quite diverse. Some scholars claim that a decrease in total debt in the capital structure would inevitably lead to a decrease in firm's value which corresponds with the basic assumption of the VBM concept (Guner, 2016; Demirgunes, 2017). Others, on the contrary, concluded that that there is a negative interrelation between a capital structure and company's value in companies with a high leverage ratio (Vo and Ellis, 2017; Ramli et al., 2018). And the third just stated that there is a threshold of company's leverage (Long et al., 2017; Khemiri, Noubbigh, 2018).

So, taking into account the fact that Russia is closer to European market in terms of level of its economic development than to some emerging ones it is possible to hypothesize:

Hypothesis 1: A capital structure deviation of Russian companies from their optimal levels negatively affects their value.

The second problem which is worth mentioning, is that in the majority of studies, focused on the impact of capital structure on various indicators of company's performance, a great variety of different methods of calculation the optimal debt-equity ratio was implemented. Most scholars used their own methods (Scott, 1976; Graham, Harvey, 2001; Leary, Roberts, 2010; DeAngelo et al., 2011; Dang et al., 2012). For example, in their investigation Fischer et al. (1989) formalized the interrelation between capital structure and transaction costs by means of the evolutionary dynamics equation. In article written by Mauer and Triantis (1994) the multi-period model with conditional requirements was applied for examination of the influence of a company's capital structure managing policy on the results of its operational activity. One of the most specific methods was use by Dudley (2007) who used the nonlinear least squares method in order to build a model of multiple nonlinear regression. In turn, it illustrated how the basic classical determinants of a capital structure influence its state. In other works, the optimal level of a company's capital structure was taken from different scientific sources or was calculated by means of methodologies which were proposed by other researches in their works (Shahina, Kokoreva, 2010; Belozerov, Kokoreva, 2014; Kamenev, 2018; Cappa et al., 2019).

At the same time, there are more commonly used and less complex methods. In his article Loof (2004) offered companies to choose the debt ratio which equals an average leverage coefficient in their particular industry. Despite being a pretty simply method, this approach does not allow to consider some specific peculiarities of each company. Using a historical data for identifying the optimal capital structure is also a quite generally purposed method. It considers a great variety of factors which are important of an individual company and also allows to take into account changes occurred in a capital structure during the observed period (Hovakimian et al., 2001).

Thus, the abundance of such a wide range of different methods of defining the optimal company's capital structure suggests that there is not a general agreement about the definition of this notion and the universal way of its calculation in the scientific society. That is why in this work will be used two most widespread method: WACC and regression equation. The choice of the WACC concept stems from the fact that it has proved its relevance and efficacy in the Western economic practice. There it is most frequently put into practice by real European and American companies because it is relatively simple and, at the same time, advantageous methodology. So, as WACC method has not gain such popularity among Russian firms yet, it would be relevant to verify in Russian economic circumstances. By contrast, regression is one of the most common ways of calculation of a company's capital structure among all methods which are created by individual researchers. Such type of equation allows to examine a number of determinants at once, consider their joint effect and even nonlinear relations with capital structure. Besides, it is equally extensively used by both European and Russian scholars. Owing to reasons which have been mentioned above these two methods will be used in this work.

With regard to the VBM approach, its relevance has been proved only at the theoretical level. It means that in theory, any company should form and maintain its capital structure in such a manner that promotes maximization of its value. Despite the abundance of theoretical evidences of this crucial idea of VBM, it is acknowledged merely an item of a theory. At the same time, methods of its practical use, all possible consequences of its real application or derogations from scientific provisions are still a poorly studied area of economic science. Thus, a notion of the optimal capital structure still remains at the center of scientific debates. However, in the framework of this research it will be consider as a capital structure which allows to achieve the greatest possible company's value in the economic conditions of a particular country, industry and business (MacDiarmid et al., 2018). This determination complies with the pillar ideas of VBM which are undisputed.

Finally, the literature review has identified that usually only two issues of the concept of capital structure are considered in articles. Firstly, how a current capital structure affects company's present state. Secondly, how a current debt-equity ratio can be changed or `optimized in order to improve indicators of company's performance and increase its value. Thereby, it can be concluded that the question about the effect of a deviation of a company's capital structure from the optimal level on company's value is still poorly examined.

Thus, in order to realize the aim of this work, it is necessary to determine a way of solving problems which were described. Therefore, the study should be carried out in accordance with the following plan:

1) The first step is to gather necessary data and create a representative sample which will be used in the further research;

2) Then, it is necessary to select an indicator which will reflect a current capital structure of Russian companies and, in turn, calculate it for all companies in the sample;

3) One of the most important part of the study is calculation the optimal level of all companies' capital structure by means of WACC and regression methods for the further comparison of their results;

4) After that, an effect of a capital structure deviation from an optimal level on the value of Russian companies will be assessed;

5) Subsequently, the acquired results have to be analyzed. This step includes not only a determination of a mechanism of the influence of capital structure deviations of Russian companies from their optimal levels on the value of these companies but also a comparison of effects depending on the method of calculation of the optimal point.

3. Methodology

In this chapter a used sample, criteria of indicators selection and observations for the sample will be described. Formulas of calculation of key indicators and the procedure of developing mathematical models which are necessary for the further analysis also will be considered there.

First of all, it is necessary to choose a method for calculating an optimal capital structure. In the economic theory, there are three main approaches:

1) The first group consists of methods based on the analysis of a financial statement. The main indicator in this approach is profit. One of such methods is the operating profit method, which allows to calculate a threshold value of borrowed funds in a capital structure. However, the methods of this group give an approximate assessment and it is a significant drawback;

2) The second group consists of methods based on a financial analysis of company's activity. This approach involves the use of indicators which value depends on the level of a business investment risk. This group includes the method of weighted average cost of capital - WACC;

3) The third group consists of methods also based on a financial analysis of company's activity, but the analysis is conducted by means of complex modeling methods (Ivashkovskaya, Kupriyanov, 2005). For example, in the work by Dang et al. (2012) a model of partial adaptation with switching modes was used. It allows to scrutinize company's pace of adaptation to changing economic conditions which is a quite specific determinant of a capital structure.

Based on the made literature review there were chosen two methods of calculation of an optimal and current capital structure: the weighted average cost of capital (WACC) and regression equation. This choice, first of all, was made due to the fact that these approaches are two most widely spread and frequently used ones and, in addition, give quite accurate results.

When it comes to the WACC method, this approach allows to obtain an accurate assessment of a real value of a weighted average cost of capital due to the further usage of the CAPM model, Hamada equation, method of a synthetic credit rating and real statistical data from Damodaran database. In turn, at the next stage of searching an optimum such an accurate estimation ensures obtaining a correct assessment of an optimal capital structure.

With regard to a regression equation, it is one of the most suitable methods for this research. It allows to find the best functional form to analyze relations between dependent and independent variables. In addition, the present study do not require special and quite elaborate models and regression equation is a very good approach because it is a quite simple one. At the same time, regression gives precise assessments of coefficients what ensure an accurate further investigation of the examined economic phenomenon. Moreover, it provides an opportunity to preserve all generalizations and assumptions. At the same time, a regression makes it possible to consider a large number of key characteristics that company's CEO should control if they want to devise the closest to an optimal level current capital structure.

3.1 Method of calculation of an optimal capital structure by using minimum WACC approach

For developed economies there is a quite common and well-proven group of the most crucial determinants of a capital structure. In contrast, Russian market has so many peculiarities which are disparate with the European economic conditions, that it is quite complicated to imply these factors in Russia. Also, Russian economic conditions hamper and make it really hard to choose a limited number of the most important determinants. In contrary, the WACC method provides us with an opportunity to estimate capital structure of Russian companies by using a simpler and more generalized approach. In addition, in a wide range of foreign scientific works WACC has been proved to be relevant and efficacious under conditions of a market economic system. Additionally, this approach has been justified to be suitable for Russian companies (Weaver, 2003; Ivashkovskaya, Kupriyanov, 2005; Mal'cev, 2011; Efremov, 2013; Brusov, 2013; Kamenev, 2018).

For calculation the optimal and current capital structure in the present paper was used the following formula:

, (1)

where: D - company's debt;

E - it is company's equity;

kd - it is return required by company's creditors;