The capital structure and financial position of companies in Iceland year 2005 to 2014. The impact of the financial crisis and other factors on debt-levels

• Main Authors: Þráinsdóttir, Anna Rut, Magnússon, Gylfi
• Format: Article in Journal/Newspaper
• Language: Icelandic
• Published: Research in applied business and economics 2016
• Subjects: Capital structure; financial position; financial crisis; restructuring; G01; G31; Fjármagnsskipan; fjárhagsleg endurskipulagning; Draga; Iceland
• Online Access: https://ojs.hi.is/index.php/efnahagsmal/article/view/a.2016.13.2.3

An excessive level of debt can be very detrimental for companies as the financial crash in Iceland clearly showed. The goal of this project is to analyze the capital structure and financial position of Icelandic companies and in particular address the lack of research into the finances of small firms. The analysis is in three parts. First we look at the finances of companies, categorized by size, by analyzing financial reports from year 2005 to 2014. Then we look at various often quoted financial indicators and analyze trends and changes over time. The emphasis is on measures related to debt but we also look at indicators on solvency and profitability. Finally, we use multi-variable regression analysis to determine what factors can explain debt levels, including size, age, tangible assets, profitability and depreciation and amortization. We find that debt is the prevailing method of financing for Icelandic companies and that debt levels in 2014 were similar to those seen before the crash of 2008. The crash led to an increase of net debt of Icelandic companies by almost 50% in 2008. At the end of the year almost half of Iceland’s companies had negative equity. Asset poor companies were hit harder than their counterparts that had more substantial assets, showing well how vulnerable companies with little equity are in a downturn. The regressions returned some surprising results. Large size and profitability seemed to lead to lower debt levels while a longer life span, substantial tangible assets and high levels of depreciation and amortization seemed to lead to increased debt. We conclude that it is vital for the Icelandic economy to reduce incentives to debt financing, replacing it with higher equity levels to improve the health of Icelandic companies and prepare them better for economic shocks in a shock-prone economy. Óhófleg skuldsetning getur haft alvarleg áhrif á rekstur fyrirtækja eins og berlega kom í ljós hérlendis í efnahagshruninu. Markmiðið með þessari rannsókn er að draga upp skýra mynd af ...