Е.Г. Демидова
This study, covering the metallurgical sector of the Russian economy, aims to contribute to filling the gap associated with insufficient study of the sectoral determinants of the capital structure in emerging markets. This determined the purpose of the study: to empirically test the presence of a linear and nonlinear relationship between the debt burden and the return on equity of Russian metallurgical companies, identify the optimal leverage zone, as well as to establish how the profitability of sales, asset turnover, tax and interest burden and to what extent determine the choice of capital structure. Materials and methods. The empirical base consisted of the financial statements of fifty Russian metallurgical companies for the period from 2015 to 2024. To classify companies by their level of financial leverage, the share of equity in total assets (the equity ratio) was used. To assess the relationship between capital structure and performance, a risk-return matrix method was used, identifying four quadrants based on leverage and return on equity. For a more in-depth analysis, return on equity was decomposed using DuPont’s threeand five-factor models. A Pearson correlation analysis was conducted, including calculating paired correlation coefficients between return on equity, return on sales, asset turnover, equity multiplier, tax factors, and interest rate factors. A correlation analysis was also performed in subgroups identified by debt burden. Results. No linear relationship was found between capital structure (equity multiplier) and return on equity: the correlation coefficient was minus 0.08 and is not statistically significant. Significant correlations were revealed: between return on sales and the equity multiplier (r = minus 0.42), asset turnover and the equity multiplier (r = plus 0.38), interest burden and the equity multiplier (r = minus 0.35). Subgroup analysis showed a non-linear nature of the relationship: in the critical debt zone (equity share less than 20 percent) r = minus 0.18; in the moderate debt zone (equity share 20-35 percent) r = plus 0.42; in the low debt zone (equity share 35-50 percent) r = plus 0.09. The optimal leverage zone was identified the equity shares of 20-35 percent, where the relationship is positive and the strongest. Conclusion. In the Russian metallurgy, the choice of capital structure in itself is not a direct driver of shareholder returns. The key determinants of capital structure are return on sales, asset turnover, and the existing interest burden. The tax factor, contrary to the classical Modigliani-Miller theory, does not stimulate borrowing. The identified nonlinearity and the existence of an optimal leverage zone confirm the applicability of the compromise theory and hierarchy theory, while the negative correlation between the interest burden and the equity multiplier is consistent with the theory of financial constraints. The obtained results allow financial managers of metallurgical companies to make informed decisions about capital structure depending on the debt burden zone.