The Impact of Firm Size on Corporate Indebtedness: A Case Study of Slovak Enterprises

Abstract

Abstract Research background: Debt is considered a normal part of enterprises these days. If enterprises do not have enough equity, they will start to use a large amount of debt which is mainly associated with indebtedness. Rising indebtedness can be a difficult financial situation for business entities in the form of default and inability to meet their liabilities. Purpose: The main aim of this paper is to perform a debt analysis of enterprises operating in sectors that are considered leading in the conditions of Slovakia, such as the manufacturing and construction sector, and subsequently, to examine whether the size of the enterprise has a significant impact on selected indebtedness ratios. Research methodology: Firstly, the debt analysis was performed using the six selected indebtedness indicators on a sample of 846 enterprises. Secondly, a more detailed analysis, focused on examining the existence of statistically significant differences between individual indebtedness ratios concerning the size of the enterprise, was realized using the non-parametric Kruskal-Wallis test. At the end of the research, the Bonferroni corrections were used to identify where the stochastic dominance occurred. Results: The impact of the enterprise’s size on the calculated indebtedness indicators is confirmed by the results of ANOVA, based on which it can be argued that statistically significant differences between the calculated indebtedness indicators exist between large and small enterprises, as well as an inequality of medians between large and medium-sized enterprises. As a result, the median values of the debt ratios of small and medium-sized enterprises are the same. Novelty: The contribution of this paper is a new feature of the application of debt analysis for the evaluation of corporate performance. There are only a few papers in Slovakia that focus in detail on an analysis of the indebtedness of individual enterprises and with an examination of the determinants that affect this indebtedness, which is, however, an added value of our contribution.