The sense and availability of industry standards of indebtedness for businesses in the Czech republic

Abstract

The aim of this article was to reveal attitude of businesses in the Czech Republic towards capital structure optimization and the use of industry standards a s benchmarks for their level of leverage. Despite several decades of capital structure theories deve lopment and refinement, none of the theories indicating how managers should act seem to be ready to determine the definite ratio of debt and equity used in corporate capital structure yet. The use of debt offers a company both pluses by creating more investment opportunities, and minuses associated with the higher risk for investors. Most capital structure models assume vigorous approach o f companies towards capital structure optimization. Companies may, however, exert rather a passive approach towards their capital structure. The questionnaire survey indicated that majority of respondents had no target value of the debt ratio. This contrib ution was focused on the sense and availability of sectoral recommendations concerning corporate indebtedness that might serve as a useful benchmark for companies. By comparing financial ratios to other businesses in the same industry, it is possible to ma ke judgements about a company’s basic financial health. The sense of the use of industry standards for the debt ratio is that the ratio appropriate for other firms in a similar branch should be appropriate for the company as well. Availability of industry standards in countries with highly developed capital markets is extensive. Availability and accessibility of industry standards for companies in the Czech Republic proofed to be requiring more effort and knowledge. The questionnaire survey indicated that m ost respondents don't use industry standards for the debt ratio as they have no interest in comparison with the indebtedness in the sector. However, there was a noticeable group of respondents which stated that they don’t use any industry standards for ind ebtedness at present, but they would appreciate if such standards were more accessible.