Therefore, the issuance of shares of the company is possible only when the company already has such a number of borrowed capital that any increase in it will lead to a sharp increase in costs associated with potential bankruptcy.

Thus, the avoidance of external financing allows managers not to disclose in sufficient detail information regarding the effectiveness of their work, hiding some important points. The use of retained earnings generally frees managers from having to provide any information to outside parties, and raising debt financing requires less disclosure of information than additional issue of shares (due to lower riskiness for the investor). Therefore, the capital structure may be suboptimal due to the management's attempt to avoid the disciplining effect of the capital market, which occurs when using external sources of financing.

The pecking order theory of capital structure reveals the procedure for choosing sources of financing that firms adhere to in conditions of information asymmetry, when the market is unable to accurately estimate the value of companies: companies, first of all, are guided by their own funds and retained earnings, then issue debt obligations, and last but not least, it issues shares to finance its activities. [14]

According to this theory, the main determinant of capital structure can be an indicator of a company's internal financial deficit, although profitability and the nature of a company's assets can also serve as indicators of how companies follow a given theory. [21]

1.3.5 SIGNALING THEORY

In the Miller-Modigliani models it was assumed that investors and the management of the corporation have the same information about the prospects of the corporation, i.e. decisions are made under conditions of symmetry of information. The market knows the cash flows generated by the assets of the company, and it can correctly estimate its capital. In the real world, management is more aware of investment opportunities and the degree of undervalued or overvalued stocks. Market prices do not reflect all information, information is not publicly available, and managers can give signals to the market through financial decisions (choice of capital structure or dividend policy). This situation is called information asymmetry and is taken into account in signaling theory.

The Stephen Ross model suggests that managers can influence the perceived level of risk by investors. Managers, being the sole owners of reliable information about the functioning of the company, can send investors certain signals about the prospects for the development of the company. [22]

Model Background:

1. Managers are the only owners of reliable information about the prospects of the company;

2. According to the results of work, managers receive remuneration as a certain share of the market value of the company;

3. Managers seek to maximize their well-being;

4. The perception of signals by investors does not change.

The main conclusion of the work is evidence that managers have no incentives for distorting signals that are sent to the market.

The model assumes that the financial decisions of a manager can influence the perception of risk by investors. The real level of risk of cash flows may not change, but managers, as monopolists on information about future cash flows, can choose signals about development prospects. The Ross model justifies the choice of signals from the point of view of managers (their welfare). It is assumed that managers receive remuneration based on work results, as a certain share of the market valuation of the entire company (market valuation of all cash flows generated by the company's assets). [22]

Optimistic managers prefer to issue bonds in order not to sell undervalued stocks. Pessimistic managers will also choose a bond loan in order not to give a negative signal to the market. Raising capital through the issuance of shares will be the last resort. In order to make decisions on the capital structure, the previous development of the company and the current and projected profitability of the activity should be taken into account. The compromise model cannot explain why, given the equality of other factors (one industry, one degree of risk), companies with high profitability choose low financial leverage values. The concept of choosing sources of financing, built on a signal model, allows us to explain this paradox. Highly profitable companies earn enough profits and do not need to attract other, less preferred sources of funding.

According to the Poitevin (1989), new entrant firms' potential competition can be differentiated with the use of signal. Entrants that are low cost usually signal this fact by the way of debt application; whereas high cost ones can only use equity. [23]

If the work of the manager is made dependent on the market valuation of capital, then it is possible, based on the signaling models, to formulate recommendations for signaling to the market. Schematically, the conclusions on the most interesting models and recommendations are given in the table below.

Table 1.

As determinants that would reflect the ideas of this theory of capital structure, we can consider the size of a company, the nature of assets, and the ratio of dividends and net profit of a company. [28]

1.3.6 MARKET TIMING THEORY

The concept of “market timing” in relation to the field of corporate finance in the most general sense means that management decisions are made by the company's management given the current situation in the stock market. The impact of the dynamics of market prices of shares affects the choice of a source of financing, the determination of the moment of an initial public offering, making decisions on the repurchase of shares, strategic decisions in the field of mergers and acquisitions and so on. However, for us, only those corporate decisions that are associated with a change in the ratio of borrowed and own funds of the company, namely issues and redemptions of shares, are important. In this case, market timing will be understood as the constant monitoring of the market situation and the selection of the most favorable moment for raising equity capital.

The market tracking factor was first included in the capital structure model by M. Baker and J. Wurgler in their 2002 published paper. The authors argued that market tracking may not be just one of the parameters affecting the total debt-equity ratio of a company, but to influence this ratio in a decisive way. [29] Market tracking theory postulates the long-term impact of stock market tracking on companies' capital structure. According to this theory, the capital structure is the cumulative effect of all past company actions to track the market. This means that the company does not have a target capital structure.

According to the Market timing theory of capital structure, which was proposed by Baker and Wurgler (2002), firms try to time the market before issuing new equity or buying back the shares. This theory postulates that deciding how to finance a company's financial needs is solved by timing the equity market. [30]

As assumed in the theory, companies attempt to get the advantage of the market by issuing equity when they find out that the shares are overrated, whereas they prefer issuing debt if the interest rates are considered to be low. [31] In real world practice, market timing is considered to be a crucial aspect of financial decisions of a company. A great deal of evidence and studies can be mentioned to support the market timing theory according to Baker and Wurgler (2002). First, analysis of their study proves that firms tend to prefer issue equity rather than debt if they are sure that market value is higher than book value or previous market values. However, they would rather buy their stocks back when they identify that the vise verse is true, which means market value is low. Second, analyzing long-term stock returns indicates that on average, equity market timing is successful. Third, expectations of earnings predictions and realizations of equity issues show that firms also prefer to issue equity when they find out that investors are passionate about prospects of earnings. Baker and Wurgler also notes that rising funds to finance the company, low leverage companies act completely different from the ones with high leverage. The formers usually tend to issue equity when the market values are higher than the rate of market-to-book, whereas highly leveraged firms would rather do so they find out that the market value is lower. [31] Thus, changes in share prices have an impact on target capital structure of a firm.

It should be noted that there is no complete unity regarding the content of the concept of a favorable market situation in the context of market tracking in the scientific literature. Many authors, M. Baker and D. Wagler, D. Jenter, linked the choice of moment for attracting equity capital with the identification of deviations of the market price of shares from its fair evaluation from the point of view of company management. In this case, market tracking means the desire of companies to issue shares during periods of market revaluation. In particular, P. Schultz [43] argues that the issue of shares in a period of favorable market conditions is not in itself evidence of market tracking, and tracking only takes place under the condition of incomplete market efficiency and the possibility of the existence of deviations of fundamental value stock from market. Other authors [Jenter D. 32] emphasize that management can estimate the price of a share both on the basis of objective information, not taken into account by the market for one reason or another, and on the basis of the manager's subjective view. Studies confirm that it is often a subjective opinion, and not the possession of specific internal information that leads management to disagree with the market valuation of shares. In this regard, it makes sense to talk about the deviation of the market price from the subjective assessment of the company's management of the fair value of the stock (perception of mispricing). [32]

Market timing is also interpreted as the ability of a company's management to predict future market returns for stocks. In this regard, a favorable moment for the issue is the period immediately before the expected fall in market yield - this allows you to attract the maximum amount of funds when placing a specified number of shares. [33]

At first glance, this approach is significantly different from the previous one: in practice, the statement that stocks are overvalued is equivalent to assuming a future reduction in their value (assuming that all available information about a company is sooner or later reflected in market prices). On the other hand, the interpretation of market tracking as the ability to predict future returns allows for a variety of indicators that allow management to draw conclusions about the expected dynamics of quotes. Therefore, this approach, in contrast to the previous one, makes it possible to determine market tracking, including for the case of an initial public offering (when it is impossible to compare the current market price with the fundamental value of shares).

The authors of the market timing theory, M. Baker and J. Wurgler, identified two possible explanations for its presence. The first is based on a dynamic model of the financing hierarchy, the second on the existence of the possibility of a time-underestimation / revaluation of shares by the market. The third valid justification is based on the theory of autonomy of investment managers. [34]

1.3.7 THE AGENCY COSTS THEORY

Agency conflicts are a consequence of agency relations, the emergence of the latter occurs at the time of delegating the management functions for remuneration to the agent. [35] The company for capital owners is an investment object, and their main goal is to maximize their well-being by increasing the value of the business. For managers, the company also represents a source of income, but in this case it does not depend on high capitalization. The main reason for the emergence of an agency conflict is the realization by managers of their own interests. [36]

Relations between owners and creditors are also potentially conflicting. The cause of the conflict here is also the difference in goals. Lenders are entitled to a portion of the company's income, which contains the amount of principal and interest on it, and in the event of bankruptcy on a portion of the property. But after transferring the principal amount to the borrower, they lose control over these funds. Shareholders dispose of this capital through managers, the profitability and risk of the company depends on them.

Conducting operations with high risk leads to an increase in the required yield and a decrease in the market value of borrowed funds. Debt obligations that do not have priority over new ones will lose a part of their value, since a larger number of creditors will claim cash flows and company assets.

If the outcome is favorable, the owners will receive the super-profits, and the lenders will receive their fixed payment (corresponding to the stated risk level), but in the opposite situation, the lenders will take on part of the loss. A similar situation arises when management decides to increase the level of financial leverage, which would entail an increase in the company's return on equity.

The main factors determining the agency conflict: incomplete information and risk aversion. It is possible to distinguish the following types of agency relations and, accordingly, potential conflicts:

1. between managers and owners;

2. between owners and creditors;

3. between creditors and managers.

M. Jensen and V. Meckling in their study of the effectiveness of contractual relations focused on information asymmetry and behavioral opportunism and concluded that managers often make decisions in favor of their interests in order to increase their own well-being. [37]

In order to prevent such actions and stimulate managers, shareholders are forced to bear agency costs, which make certain adjustments to the process of optimizing the capital structure. Agency costs are aimed at organizing control over the activities of managers, the introduction of existing systems of motivation, separation of powers, etc.

Agency costs arising from the separation of management and control functions in a company can have a significant effect on the effectiveness of corporate governance. The strategy of optimization of agency costs should be related to the rationale and rationality of their use. To reduce agency costs, corporate governance mechanisms are used. In aggregate, they allow to reduce agency costs. Ways to reduce agency costs are presented in the table.

Table 2

Possible suggestions to reduce agency costs

* A - Agency conflict between "shareholders-managers" * B - Agency conflict between "shareholders-creditors" Source: Лисицкая Т.С (2017) [38]

Agency conflicts have an impact on the formation of capital structure, however, by regulating the debt burden, agency costs can be reduced. The increase in borrowed capital on the one hand increases the likelihood of bankruptcy and the cost of debt financing. At the same time, the adoption of new obligations and the reduction of free cash flow disciplines the management regarding the rational use of resources. [39]

Thus, it is possible to reduce agency costs for management, since this decision will provide an additional incentive for effective work to decision makers. Increasing requirements for external control by creditors will also limit the opportunistic behavior of management.

One of the functions of the Board of Directors should be the control, mediating the increase of management responsibility to shareholders and for the results of their activities. For quality control, automation is necessary, which provides access to real-time commercial information. The main way to mitigate agency conflicts remains motivation in the form of incentives in the form of rewards for the work done. Common ways that have a positive impact on both types of conflicts are increasing the transparency of information and improving the legal system. Reducing the asymmetry of information can reduce the risks of lenders and increase the confidence of owners in management. [40] Within the legal framework, it is necessary to increase the protection of the interests of capital owners and increase the responsibility of its temporary users.

The formation of an optimal capital structure, as an important component of the effective activity of a company, on the one hand depends on the degree of agency conflict. The aggravated agent conflict of the first type “shareholders-managers” has a direct impact on the choice of sources of financing. On the other hand, to neutralize the agency conflict of this type, one of the ways is to increase the debt load, which will reduce the amount of free cash flows and introduce monitoring by loans, and thus another leverage will be put on managers. However, there will be additional costs for creditors. Thus, in order to increase the efficiency of the company, it is necessary to smooth out agency conflicts and reduce the degree of their impact on the capital structure. To mitigate agency conflicts, it is also necessary to develop corporate ethics, compliance with which will reduce agent costs. [41] For contracting entities, there is an acute issue of capital structure, since the high capital intensity of products increases the level of use of debt financing. Reducing the conflict "shareholders-managers" is possible by increasing the debt burden, but it should be borne in mind that the level of debt for such companies is very high. A special place should be given to raising the level of corporate ethics and informational transparency for leveling the agency conflict of the first and second types, respectively.

CHAPTER 2. EMPERICAL STUDIES

It is evident that globally, an increasing number of studies have been done on capital structure and profitability of the firm so far but it is an undeniable fact that the results are quite different and inclusive. The main object of analyzing the capital structure of a firm is to improve the relationship of the profitability and capital structure, as the results achieved so far are still mixed and contradictory. The differences of the results could be attributed to various factors such as country specific, industry specific and firm specific. [42]

There is also a great deal of empirical research on the structure of capital. Some studies are aimed at identifying the optimal capital structure, the second - at determining the determinants of the capital structure, others - at establishing the applicability of a particular capital structure theory or comparing different theories among themselves, etc.

There were much more empirical studies for developed countries than for developing countries. This thesis can be explained from the point of view that, often, the financial data on companies in developed countries is many times larger, since the databases that collect company characteristics and performance are more developed and simply exist longer than similar databases in developing countries . Moreover, data for developed countries, most often, of higher quality, which significantly affects the results of empirical studies. [28]

2.1 CAPITAL STRUCTURES IN DEVELOPING COUNTRIES

The study of the capital structure of companies operating in developing markets is of interest to researchers in connection with the distinction of countries with emerging capital markets from developed countries. Researchers raise the question of whether there are any factors and concepts specific to these markets, or the theoretical concepts used by companies in developed countries are applicable to the capital structure of companies in developing countries. In addition, a study of the capital structure of emerging markets allows us to look at the processes of capital structure adjustments that occur as a result of changes in factors in the development of markets. Factors affecting the capital structure can be divided into factors determined by the external and internal environment of the company. As a rule, to identify the specifics of factors in emerging markets, these markets are compared with the United States or other developed countries. Next, the specifics of emerging markets will be considered in accordance with the factors of capital structure.

Table: 3

The specifics of some external factors of the company in emerging capital markets

Source: Gerasimova S.M. (2012: 21) [44]

Thus, the following important characteristics of emerging markets that affect the capital structure of companies can be identified:

* Restricted access to sources of capital.

* High information asymmetry and agency costs.

* High macroeconomic risks for investors, created by macroeconomic instability, constantly changing environment. [44]

Table: 4

The specifics of some of the internal factors of the company in emerging capital markets

Source: Gerasimova S.M. (2012: 21)

Thus, it is possible to identify the following specific internal characteristics of the company that may affect the capital structure:

* High ownership concentration.

* Low level of corporate governance.

The article will then examine the methodology for studying the capital structure of companies and identify the features of its empirical analysis in emerging capital markets. [44]

2.2 CAPITAL STRUCTURES IN DEVELOPED COUNTRIES

In general, most of the studies conducted in developed countries prove that main sources of financing for the developed markets are retained earnings. Rajan and Zingales did one of the earliest studies of capital structure in G7 countries (US, UK, Canada, Germany, Japan, France, Italy) in 1995. In their work, leverage was used as a dependent variable, whereas independent variables in the research were size, tangibility, leverage profitability and the market/book ratio. The findings of the research prove that in all countries the leverage is negatively correlated with profitability with the exception of Germany. Additionally, leverage and assets tangibility have a positive link in all of the countries studied. [45]

According to Dessi and Robertson who carried out a research into the Debt, Incentives and Performance, using the Evidence from UK Panel Data, using the financial leverage has a positive impact on companies' performance. Furthermore, they also found out that firms with slow rate of growth tries to take advantage of possible growth chances by attracting more debt, which are spent to gainful and beneficial projects to improve their financial profitability. [46]

Further analysis of the publicly traded American countries during the period between 1950 and 2003 was dedicated to find out elements that have a credible influence on leverage. Determinants of leverage used by the authors were as following: tangibility, industry's median leverage, market-book ratio, logarithm of profits and total assets. The results of their research show that debt financing inversely impact profitability, which leads to the notion that the companies with higher profit used less debt financing. [47]

Drobetz and Fix studied 124 non-financial companies of Switzerland on SPI (Swiss Performance Index) and tested the leverage projections of the pecking order theory and the trade-off theory. The conform that leverage is inversely linked to profitability. [48]

An important issue in the study of concepts of capital structure is the analysis of factors affecting the capital structure. The most comprehensive studies in this field over the past ten years have been carried out by such Western economists as Graham and Harvey, Bancel and Mitoo, Frank and Goyal, Fama and French, and others on the example of Western European and American companies. In the process of researching the works of the above authors, it was revealed that the capital structure in western countries has significant differences. Below is Table 5, which shows the main results of studies of Western European and American scientists in this field over the last a few decades, presents the fundamental factors affecting the capital structure, as well as belonging to a particular theory of capital structure.

Table: 5

Analysis of studies to determine the optimal capital structure on the example of Western European and American companies

The work of Graham and Harvey [49], is one of the most well-known studies in this area. In it, the authors analyze the materiality of the main theoretical factors in choosing the capital structure, as well as their influence in determining the price of capital. In this paper, the method of questioning financial directors is used to test the use in practice of certain provisions of a number of concepts of capital structure, in particular: the Trade-off theory, Pecking Order theory, Market Timing Theory.

2.3 CAPITAL STRUCTURES IN UZBEKISTAN AND RUSSIA

The researches done in the emerging markets to analyze the capital structure mainly focus on the debt to equity ratio as companies' determinants. There are quite a number of reasons to explain why these problems raise interest. One of the most significant is institutional differences of the capital markets and investment risks than those of developed ones. [28]

The studies in the field of capital structure of the emerging markets mainly concentrated on the debt to equity ratio. Balancing the financial mix correctly plays a key role in the companies' financial architecture, including internal corporate governance instruments, ownership structure, debt-to-equity which are considered vital elements of the value of a firm. [58] It is also proved that capital structure is also crucial to develop the relationship between companies' shareholders appropriately.

Several authors have studied specific institutional factors and characteristics of the Russian companies but still much room is left for further studies and development according to I. Ivanov. [64] Ivashkovskaya and Solntseva found out that in the capital structure of the Russian companies, there is a positive correlation between state ownership and financial leverage. However, they did not included the explanation of the identified phenomenon. In their work, Salla and Benjamin conducted a bit deeper research in to the Russian market and included a special feature of the Russian market: oligarch ownership. [65] the results of their study show that both oligarch and state ownership have a positive impact on the long-term leverage. Salla and Benjamin mentioned that oligarch ownership is a national feature of the Russian market. Main reason behind this fact is that most of the bank in Russia are state owned (40-50%). As a matter of this fact, the companies with the higher proportion of shares held by the state have an easier access to finance the companies externally by attracting bank credit. Similarly, enterprises controlled by oligarchs get the advantage of their political interconnections for the attraction of debt financing from the banks. [66] As a result of the above mentioned facts, it could be concluded that companies in Russia do not have the same opportunity to attract external finance, in contrast to state-owned and oligarch controlled firms. [64]

Evgeny V. Ilyukhin also conducted research to identify the determinants of capital structure of the Russian listed companies. The study included 48 non-financial companies for the period of 2009-2015. The author found out that most significant and reliable determinants are size of the firm, industry mean and growth opportunity. Non-debt tax shield, stock market return and profitability are considered moderate determinants. [67] The result obtained from the study confirms certain proposes and results suggested by other researchers such as Ivashkvoskaya, Slonteva, 2007 and Goyal, Frank 2009.

As a way of summary, the results achieved from the analyses of the emerging markets indicate that traditional factors are usually the same for all countries. The difference can be noted just in the level of the influence. However, it should be noted that factors which decrease or intensify asymmetry of information are considered to be significant in the emerging markets. According to Irina V., most common typical model for the emerging markets can be as below:

L= f (NDT, Tangibility, Profitability, Risk, Size, Agency) [28].

Analysis of the determinants of Russian companies was expanded by I. Ivanov by including the factor of the presence of oligarchs in the structure of owners. According to the results, these companies tend to attract more long-term loans. [64]

An analysis of the degree of elaboration of the problem of the formation of the capital structure of Uzbek organizations in modern conditions shows that many aspects of this problem are still not sufficiently studied. Even not a single article, relating to the capital structure of companies in Uzbekistan has been published, which means still has not been paid enough attention to this field. This applies, for example, to the study of the formation of the capital structure of Uzbek organizations, the study of the influence of internal and external factors, which allow forming the capital structure of Uzbek organizations, as well as determining the optimal capital structure of Uzbek organizations. The researches about

the Uzbek companies' financial leverage seems to be limited and provides much room for study and improvement.

2.4 LITERATURE REVIEW

There is also a great deal of empirical research on the structure of capital. Some studies are aimed at identifying the optimal capital structure, the second - at determining the determinants of the capital structure, others - at establishing the applicability of a particular capital structure theory or comparing different theories among themselves and.

There were much more empirical studies for developed countries than for developing countries. This thesis can be explained from the point of view that, often, the financial data on companies in developed countries is many times larger, since the databases that collect company characteristics and performance are more developed and simply exist longer than similar databases in developing countries. . Moreover, data for developed countries, most often, of higher quality, which significantly affects the results of empirical studies (Ivashkovskaya, Solntseva, 2007).

Of the many studies on the determinants of capital structure in developed countries, we can highlight studies on the United States (Titman, Wessels, 1988) [21], on the G-7 countries [for Great Britain, Germany, Italy, Canada, USA, France and Japan] (Rajan, Zingales , 1995) [45] and across the UK (Adedeji, 2002). [59]

From the above-mentioned studies, it can be distinguished certain patterns in the determinants of the capital structure for developed countries. Firstly, the nature of the assets and the size of the company have a positive effect on the financial leverage indicator in all the works where their statistical significance was found. Secondly, the company's profitability and non-debt tax shield have a negative correlation with financial leverage indicators. Finally, investment opportunities, or growth opportunities, influence the financial leverage indicators in two ways, which can be explained from the point of view of various theories of capital structure.

According to Rajan and Zingales, leverage was used as a dependent variable, whereas independent variables in the research were size, tangibility, leverage profitability and the market/book ratio. The findings of the research prove that in all countries the leverage is negatively correlated with profitability with the exception of Germany. Additionally, leverage and assets tangibility have a positive link in all of the countries studied.

Turning to a review of empirical studies conducted in developing countries, it could be noted that most of these studies were conducted for countries of the Asian continent.

A striking example of research in growing markets is research on Malaysia (Pandey, 2001), China (Huang and Song, 2002), Russia (Ivashkovskaya, Solntseva, 2007) [60], [61], [28].

From the studies of the researchers above we can distinguish certain patterns in the determinants of the capital structure for developing countries. First, in most studies, the size of the company, the level of risk and the tangibility have a positive effect on financial leverage, whereas profitability and dividends have a negative effect on dependent variables. Investment opportunities, as in the case of developed countries, have a dual influence on financial leverage.

Summarizing the above, we can identify certain trends. Most of the studies (for both developed and developing countries) considered the most important determinants of profitability, size, tangibility, growth rate, non-debt tax shield and investment opportunities.

Table: 6

It would be useless to conduct a study of the determinants of capital structure without having the expected signs of these determinants. Many of the above determinants have double signs and, therefore, a double influence on the choice of capital structure.

The size of a company can both positively and negatively affect the level of financial leverage of a company (Rajan and Zingales, 1995). On the one hand, larger firms are less likely to go bankrupt and, accordingly, more easily gain access to borrowed funds. On the other hand, the size of the firm may signal the amount of information available to outside investors, with the growth of which investors tend to prefer stocks to debt.

A non-debt tax shield (NDTS) often negatively affects the company's financial leverage (Huang and Song, 2002). This is explained by the fact that the non-debt tax shield replaces the tax benefits received by the company in the event of borrowing funds to finance its own activities. As a result of this argument, firms with a higher non-debt tax shield will have lower financial leverage.

The company's profitability (PROF) in two ways influences the financial leverage indicator. On the one hand, in accordance with the hierarchical theory of capital structure, there is a hierarchy of sources of financing. Accordingly, profitable companies will attract less borrowed capital. On the other hand, with the disciplining role of debt and a high level of corporate governance, company managers are forced to pay cash that is financed through debt issuance (Rajan and Zingales, 1995).

Growth opportunities (GRO) have both negative and positive effects on the debt ratio and total capital. Agency costs of non-optimal investment by company managers will be higher for those companies that have more investment opportunities. Accordingly, the investment opportunities available to companies will adversely affect the level of long-term financial leverage, but have a positive effect on the level of short-term financial leverage, since the issuance of short-term debt solves this problem. (Titman and Wessels, 1988).

Tangibility (TANG), on the one hand, has a positive effect on the ratio of borrowed and total capital, since the higher the share of non-current assets in the total assets of a company, the higher the residual value of the company in case of bankruptcy. This makes it easier for companies to access borrowed funds (Titman and Wessels, 1988).

However, there may also be a negative relationship due to the fact that companies with a smaller share of non-current assets can attract more borrowed funds in order to limit managers' freedom of action (i.e. to make managers work more efficiently) (Harris and Raviv, 1991) [62].

The tax has a positive relationship with endogenous variables, since tax benefits deducted from the amount subject to corporate taxation lead the company to increase borrowed funds (Titman, Wessels, 1988).

Table : 7

CHAPTER 3. DATA AND METHODOLOGY

The main objectives of this study is to analyze country differences of the capital structure between the top Russian and Uzbek non-financial firms, which are listed in Moscow Stock exchange and Tashkent stock exchange respectively. Additionally, this chapter also represents the data applied in this research, correlation matrix, the dependent and independent variables, as well as the econometric model used.

3.1 DATA AND SAMPLE

For analysis in this study, the non-financial companies with highest revenues have been selected from both Russian and Uzbek companies, which are listed in Moscow Stock exchange and Tashkent stock exchange respectively.

The sample consists of 50 Russian and 20 Uzbek companies. In the study 9 years of period is covered for both countries (from 2010 to 2018). As a main source of information, consolidated balance sheets and income statements have been used. In fact, to achieve a better result, the longer the period, the more reliable the result is. However, it is impossible to for the companies in Uzbekistan to find the open data or consolidated balance sheets for more than over the 9 years. For this reason, the data is limited by 9 year period.

Insurance and financial firms are excluded because of the fact that they report the leverage differently from the non-financial ones.

The quantitative data is presented in million Russian rubls (unless another measure is used). Providing that the data is given in another currency, they were transferred into rubl with the rate officially announced at the end of the each year, according to the Central Bank of the Russian Federation. (CBR)

3.2 HYPOTHESIS

The study is directed to compare the capital structure of the Russian (Listed on Moscow Stock Exchange) and Uzbek companies (listed on Tashkent Stock Exchange) from 2010 to 2018. The study seeks to analyze capital structure of both countries by testing the following hypotheses:

Most of the researches confirm the fact that profitable companies rely main on their internal financial sources rather than borrowing debt, which is as in Pecking order theory. Thus,

Hypothesis 1: profitability has a negative impact on leverage

Moreover, as large companies are able to take the advantage of attracting external finance easily [65], the second hypothesis will be as following;

Hypothesis 2: companies' size has a positive influence on their financial leverage.

Companies, which have higher proportion of tangible assets, are usually more probable to attract debt. [68] Additionally, enterprises with high proportion of tangible assets do better than ones with the higher proportion of intangible assets, which leads to higher costs because of the financial distress.

Hypothesis 3: company's assets tangibility has a positive impact on financial leverage.

3.3 DEPENDENT AND INDEPENDENT VARIABLES

As not much information available for Companies in Uzbekistan, the variables have been chosen considering the availability of the financial statements which can provide the necessary information to get the better picture of the country differences.