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Abstract

Asymmetries between the emerging capital and credit market in the Republic of Macedonia in addition to the restructure of the agricultural sector limit the agricultural companies’ financial decisions and their possibilities to profit. Considering capital market imperfections typically for transition economies this paper attempts to identify empirical evidences for structural determinants on Macedonian agricultural companies’ financial performance and to explain the financial strategy of these companies to earn profit. The relationship between the ratio on assets return is used to measure financial performance and structural determinants of capital, earnings and financial business. The relationship is econometrically tested by the specification of a fixed-effect model. Following previous studies relaying on the pecking-order theory and the trade-off theory, the analysis applies on a dynamic panel data consisting of 26 Macedonian agricultural companies originating from the former agrokombinates, during the period 2006-2010. The agricultural companies’ capital structure determinant is tested by the specification of two different models: the first model uses debt-to-equity ratio as a capital structure indicator and the second one uses the debt ratio. Results suggest that Macedonian agricultural companies in the short run are limited by pricing flexibility undertaking different strategies to increase profitability. More efficient strategies are undertaken by growing agricultural companies operating on their fixed assets. However these agricultural companies are confronting with inefficiencies in the use of working capital reducing the ability to supply at an increase market demand. Statistical evidences do not support the hypothesis of that high-levered agricultural companies in Macedonia have higher opportunities to profit. Probably due to asymmetries between the national capital and credit markets and agricultural companies, increasing risk exposure. Hence, Macedonian agricultural companies prefer more assets than debt, considering financial risk in the long run decisions. This strategy seems to be a good financial strategy for growing agricultural companies with the ability to generate sufficient liquidity to meet exogenous market conditions.

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