Debt financing and profitability of Czech automotive industry

Abstract

The study aimed at investigating the impact of debt on the profitability of Czech Automotive industry. Independent investigation of total debt, short term debt and long term debt has been done. Besides, the industry is composed of two units: vehicle manufacturers and component producers, the investigation has been done for both units independently. Panel data are analysed for 60 component producers and 10 vehicles manufactures during 2009-2014 using hierarchical regression model. The finding reveals that debt in general has a negative influence on the profitability of component producers. The impact is dominated by short term debt more than long term debt. However, the finding for vehicle manufacturers shows the positive relationship between debt and profitability. The result in this case is significantly influenced by long term debt.