The Impact of Loan Capital on the Baltic Listed Companies’ Investment and Growth


  • Rasa Norvaišienė Kauno technologijos universitetas
  • Jurgita Stankevičienė Kauno technologijos universitetas
  • Rytis Krušinskas Kauno technologijos universitetas


Loan capital and investment made with the help of it, grant strategic competitive advantages to companies. Loan capital and investment often are the elements supplementing each other: growth in investment results in the growth of loan capital and vice versa. But the conflicts of interests between shareholders, managers and creditors precondition either underinvestment or overinvestment, which, in its turn, has a negative impact on corporate value. Such an ambiguous influence of loans on corporate investment and growth is one of relevant fields of corporate finance governance that requires extensive analysis. Empirical tests performed by different authors are based on the data analysis of developed countries’ companies and the obtained results are rather ambivalent. So far, no research into interaction between investing and financial decisions has been carried out in the Baltic countries. To investigate the impact of loan capital on the investment and growth of the Baltic companies, financial indicators of Lithuanian, Latvian and Estonian listed companies from the annual reports-prospectuses published by these companies were used. The research includes only non-financial companies’ data because financial institutions adopt specific decisions on investing and financing, which are preconditioned by other factors. The research covers the period of 2000-2006 and uses the data of 76 companies (data from all listed non-financial Baltic companies: 35 companies from Lithuania, 28 from Latvia, 13 from Estonia). To determine the strength of influence of corporate debts and other specific factors on investment, the multidimensional analysis of correlation between the level of investment and such indicators, as cash flow, debt ratio, the level of non-current debts, the ratio of debts and the market value of asset, growth possibilities, sales, was used. To check the reliability of the obtained correlation, the value p was used. The presented findings show statistically important values when the level of significance is 0.01 (i.e. correlation between indicators was considered reliable and significant, when p < 0.01) and 0.05 (i.e. correlation between indicators is significant and reliable when the value p < 0.05). The research findings showed the effect of overinvestment in Latvian companies but the effect of underinvestment in Estonian and Lithuanian companies in the period in question. With the aim to determine whether the impact of loan capital on investment manifests itself alike in companies with different growth possibilities, the study was made on the dependence between investment and specific corporate indicators for the group of companies with a low Q (Tobin’s Q < 1) and the group of companies with a high Q (Tobin’s Q > 1). The obtained results show that in the Baltic countries the constraining effect of debt was recorded only among the companies with high growth opportunities. In the meantime, the capital structure of companies with low growth opportunities had no clear impact current investing. The results of research into the impact of capital structure on the growth of Baltic companies show that a higher level of debts preconditions a lower corporate value and smaller opportunities of growth.

Additional Files