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The Informational Cascades Theory in Debt Capacity Calculation: The Evidence from Russian Companies

Author: Anna N. Zadorozhnaya

Abstract:

The article presents the informational cascades theory in the context of behavioural finance and reviews the empirical results of testing this theory both on developed and emerging markets. The analysis of the regulations on debt capacity of several companies from different sectors gives grounds to conclude that Russian practice comply with the findings of the informational cascades theory. Company management apply quite frequently a standard approach to establishing debts position and limits for debt capacity on the basis of existing proportions in their sector and comparison with indicators of analogous companies. The broad spectrum of functions and time limitations of the management make such approach clearly justified. However, it sounds reasonable that it can be complemented by some more formalized models for evaluation of the optimal level of debt position.

Keywords: capital structure; informational cascades theory; debt capacity; debt limits.

For citation:

Zadorozhnaya A. N. Otrazhenie teorii informatsionnykh kaskadov v praktike opredeleniya limitov dolgovoy nagruzki rossiyskimi kompaniyami [The Informational Cascades Theory in Debt Capacity Calculation: The Evidence from Russian Companies]. Izvestiya Uralskogo gosudarstvennogo ekonomicheskogo universiteta – Journal of the Ural State University of Economics, 2016, no. 1 (63), pp. 51–56.