Capital Structure and Profitability in Emerging Market New Ventures: Insights from Trinidad and Tobago

PurposeBuilding on pecking order theory, this study seeks to understand the various financial factors that influence top management's decision regarding the company’s capital structure. The authors attempt to understand and analyse whether the capital structure of mid‐ and small‐cap firms is affected by cash surplus scaled to total assets. Along with other determinants of capital structure such as liquidity, profitability, tangibility, market capitalisation and age, this is considered one of the major factors. Cash surplus is calculated using data from the cash flow statement. It is defined as the difference in cash from operating activities and that from investing activities and is scaled to total assets. To the best of the authors’ knowledge, this is the first study to regress cash surplus scaled to total assets and other determinants over leverage to examine the impact on mid‐ and small‐cap firms. The pecking order theory was found to hold for firms earning cash surplus.Design/methodology/approachData were collected from the CMIE Prowess database of all firms listed on the NIFTY Small cap 250 index and NIFTY Midcap 150 index. The data of non-financial firms belonging to the midcap and small-cap sector, listed on the National Stock Exchange of India from 2012 to 2019 were considered. After cleaning the data, an unbalanced panel of 171 companies totalling 1,362 observations for the NIFTY Small-cap 250 index and another panel of 96 companies with 761 observations for the NIFTY Midcap 150 index was created. Panel data regression analysis was used to determine the effect of cash surplus scaled to total assets on the firms' capital structure.FindingsThis study demonstrates how small- and midcap firms' behave differently in taking capital structure decisions. Pecking order theory was found to hold for firms earning cash surplus as a proportion of total assets (Surplusta).Research limitations/implicationsThe study was conducted through data available on secondary sources and database. The study can be better conducted by conducting a primary survey too. Further study may be conducted with a blend of secondary and questionnaire method. The results can be compared to check the similarity in findings.Practical implicationsManagers can benefit from the findings when making decisions on long- and short-term loans. This study can help managers in terms of the financial variables that have a role to play in the financial leverage of the company. The decision of the managers of midcap or small-cap firms would be different. Factors influencing short- and long-term borrowings are different. Academics can discuss whether there is any difference in the influence of capital structure variables of small- and midcap companies and the reasons for such differences. Judicious decisions on capital structure will create wealth for the shareholders as the right decision about leverage would result in a proper cost of capital. The findings also add to the existing literature on the Pecking order theory.Social implicationsAcademics can discuss whether there is any difference in the influence of capital structure variables of small- and midcap companies and the reasons for such differences.Originality/valueThe study extends the existing literature by demonstrating that the capital structure of mid and small-cap firms is affected by cash surplus scaled to total assets. The pecking order theory was found to hold for firms earning cash surplus. This study can inform the practitioners about the financial variables that have a role to play in the company's financial leverage. As the results and significance of the variables of the midcap or small-cap firms are different, the decisions of the managers of these firms would be separate for the capital structure of their firms. The study also infers that the factors influencing short and long-term borrowings are different. The study determines whether managers' decision-making in such companies is different in terms of raising short- and long-term loans. The study attempts to guide managers in considering the different variables that would influence their capital structure decisions, particularly the decision to include debt in the capital. Financial variables need not be of equal importance for managers belonging to small- and midcap companies.

The corporate finance literature has focused on explaining the determinants of firms target capital structure and speed of adjustment using the well-established theories such as pecking order, signaling and trade-off theories. However, less attention has been paid to understanding the financing behavior of farm businesses using these theories. Unlike corporate firms with professional management, farm businesses are different in a way that family members participate in management, the owner is often the manager, the decision-making unit is small, and farms heavily depend on government subsidies to stabilize income. These distinctive setting in farm business may result in different patterns of capital structure decision-making. Hence, we evaluate the application of corporate finance theories in the context of understanding the relationship between target capital structure and profit in the farm business. We use a dynamic partial adjustment model to examine the determinants of capital structure and speed of adjustment, and detect capital structure theories with which the leverage ratio of farm business would comply. Our sample comprises a panel of 1500 Dutch farms over the years 2001 to 2015. We find strong evidence that farms prefer internal funds to external funds. Profit is negatively related to leverage, supporting the pecking order theory, which has often been rejected for large firms. Consistent with the signaling theory, we find that size is positively related to leverage. Farm asset structure, growth, investment, and earnings volatility significantly determine the target capital structure. An interesting finding is that farm leverage is highly persistent and that lagged leverage is the best predictor of subsequent leverage ratios. Also, farms appear to have target leverage ratio and are reported to adjust their leverage towards the optimal level. The speed of adjustment to the target capital ranges from 8.6% to 63%, and varies by farm size and farm. This evidence further confirms the existence of dynamics in the farm capital structure decision. This article provides insights to understanding the dynamic nature of farm capital structure and the applicability of capital structure theories in the farm business.

Numerous empirical studies in the finance field have tested many theories for firms’ capital structure. The pecking order theory and the trade-off theory of capital structure is among the most influential theories of firms’ capital structure. The trade-off theory predicts optimal capital structure, while the pecking order theory does not predict an optimal capital structure. According to pecking order theory, the order of financial sources used is the source of internal funds from profits, short-term securities, debt, preferred stock and common stock last. The main objective of this study is to econometrically test whether the listed companies in Indonesian Stock Exchange follow the pecking order theory or the trade-off theory. Samples in this study are public companies listed during 2009-2010. The research questions are tested by running regression models. The empirical result of this study shows that the pecking order theory is not supported, while the trade-off theory is supported. This suggests that the capital structure of listed companies in Indonesian Stock Exchange is financed based on optimal capital structure, not by the order financial resources.

Influence of profitability and capital structure of firm size in agriculture company listed on the indonesia stock exchange (idx), used all ratio profitabilitasn, are: Gross Profit Margin, Net Profit Margin, Return On Asset, Return On equity, Return On invesment, and Earning pershare. The purpose of this study is to determine whether these ratio profitabilitasn affect capital structure of firm size in agriculture company listed on the indonesia stock exchange (IDX). There search sample was determined by the method of purposive sampling based on the criteria company, in order to obtain a sample 4 companies.with multiple linier regression test, F test and R2 test with error limit 5%=0,05. This results of this study showed multiple regressions Y=5,005 – 114X1 – 0,22X2 + 17X3 – 0,41X4 – 0,41X5 - 0,03X6. The results of research obtained correlation coeffecient value (R) equal to (696). Coeffecient of determination R2 is (485). This means that independent variables explain Gross Profit Margin, Net Profit margin, Return On equity, Return on asset, Return on Invesment, Earning pershare impact on capital structure of 48,5% the remaining 51,5% influenced by other factors. Based on the results of F test with Fcount value of 2,024 then it can be Gross Profit Margin have positive significant impact on the capital structure. Net profit margin have a positive significant impact on capital structure, Return On Equity have positive significant impact on capital structure. Return On asset have positive significant impact on capital structure. Return On Invesment have positive significant impact on capital structure and Earning Per Share not have positive significant impact on capital structure.Keyword :Profitability, Capital Structure.

This study aims to analyze and explain the factors that influence capital structure. Capital structure (CS) is measured by Debt to Equity Ratio (DER). Profitability is determined by Return on Assets (ROA) and Net Profit Margin (NPM). Loan to Deposit Ratio (LDR) is used as an indicator of risThis study aims to analyze and explain the factors that influence capital structure. Capital structure (CS) is measured by the Debt to Equity Ratio (DER). Profitability is determined by Return on Assets (ROA) and Net Profit Margin (NPM). Financial to Deposit Ratio (FDR) is used as an indicator of risk. Firm size is projected with Ln TA. The population of this study is all Islamic banks contained in Bank Indonesia, with observation periods starting in 2010 until 2018. The selection of samples in this study is a purposive sampling method. Data analysis and hypothesis testing were carried out by using the Eviews 11 program. The results of the study showed that sharia banking companies, all the independent variables simultaneously had a significant effect on the capital structure. Return on Assets (ROA) and firm size have affected the capital structure. Islamic bank managers in Indonesia choose the capital structure obtained from internal funds and the larger the company, it is necessary to arrange capital structure, to obtain the sustainability of the company in the future.k. Firm size is projected with Ln TA. The population of this research is all Islamic banks contained in Bank Indonesia, with observation periods starting in 2010 until 2017. The selection of samples in this study is purposive sampling method. Data analysis and hypothesis testing were carried out by structural equation model approach using the SPSS program. The results of the study showed that in Islamic sharia companies, all the independent variables simultaneously had a significant effect on the capital structure, partially only the Loan to Deposit Ratio (LDR) variable that did not affect the capital structure, while the other independent variables had a significant temporary effect on conventional Research conducted by the researchers themselves used some of the same variables and using the PLS 3.0 analysis tool there were similar results that only risks did not affect the capital structure. The conclusion of this study is that there is no difference in capital structure in Islamic banking companies and conventional banking companies.

Macro uncertainties and tests of capital structure theories across renewable and non-renewable resource companies

Objective – Capital structure policy is a strategic decision related to the selection of funding sources. The best mixed of capital structure will produce a low cost of capital, which in turn can maximize the value of the company. This study aims to determine the effect of company size as a moderator on the relationship of capital structure and its determinant factors on manufacturing companies in Indonesia and Malaysia. Methodology – Data were collected from 40 manufacturing companies listed on the Indonesia Stock Exchange and 130 manufacturing companies listed on the Bursa Malaysia during 2008-2017. This study will analyze the determinants of capital structure consisting of liquidity, profitability, tangibility and efficiency as well as company size as a moderating variable. The research method uses panel data regression. Findings – The company size provides a moderating effect on the relationship between capital structure with liquidity, profitability, tangibility and efficiency, and this moderation effect is strengthened in large companies in Indonesia. Instead, this moderation effect is weakening for large companies in Malaysia Novelty – Research shows that the "modified pecking order" model is better able to explain the capital structure, policies of manufacturing companies in Indonesia and Malaysia compared to the traditional pecking order and trade off theory models. Type of Paper: Empirical Keywords: Capital Structure; Pecking Order Theory; Trade Off Theory; Manufacturing Company; Moderating Effect. Reference to this paper should be made as follows: Sari, M; Netti, S.N; Sulastri, S. 2019. Firm Size as Moderator to Capital Structure-Its Determinants Relations, J. Fin. Bank. Review 4 (3): 108–115 https://doi.org/10.35609/jfbr.2019.4.3(4) JEL Classification: G23, G30, G32.

This study investigates the impact of rights issues on the financial performance of banking companies listed on the Indonesia Stock Exchange (IDX) from 2019 to 2023. Using a comparative analysis of key financial ratios—Current Ratio (CR), Debt-to-Equity Ratio (DER), Return on Assets (ROA), Net Profit Margin (NPM), and Price-to-Earnings Ratio (PER)—the research aims to determine whether significant differences exist before and after rights issues. The findings reveal that rights issues significantly improve liquidity (CR) and market valuation (PER) while reducing reliance on debt (DER). However, profitability ratios (ROA and NPM) decline, indicating inefficiencies in asset utilization and operational performance. The results align with the Signaling Theory and Pecking Order Theory, suggesting that rights issues send positive market signals but require better capital management to enhance profitability. This study contributes to the literature by providing sector-specific insights into the banking industry in an emerging market context, offering valuable implications for management and investors. Abstrak: Penelitian ini mengkaji dampak rights issue terhadap kinerja keuangan perusahaan perbankan yang terdaftar di Bursa Efek Indonesia (BEI) periode 2019-2023. Dengan menggunakan analisis komparatif terhadap rasio keuangan utama—Current Ratio (CR), Debt-to-Equity Ratio (DER), Return on Assets (ROA), Net Profit Margin (NPM), dan Price-to-Earnings Ratio (PER)—penelitian ini bertujuan untuk mengetahui apakah terdapat perbedaan signifikan sebelum dan setelah rights issue. Hasil penelitian menunjukkan bahwa rights issue secara signifikan meningkatkan likuiditas (CR) dan valuasi pasar (PER) serta mengurangi ketergantungan pada utang (DER). Namun, rasio profitabilitas (ROA dan NPM) mengalami penurunan, mengindikasikan inefisiensi dalam pemanfaatan aset dan kinerja operasional. Temuan ini sejalan dengan Signaling Theory dan Pecking Order Theory, yang menyatakan bahwa rights issue memberikan sinyal positif kepada pasar namun memerlukan manajemen modal yang lebih efektif untuk meningkatkan profitabilitas. Penelitian ini memberikan kontribusi literatur dengan menyajikan wawasan spesifik sektor perbankan dalam konteks pasar berkembang, serta implikasi penting bagi manajemen perusahaan dan investor

By examining the factors that determine the capital structure for Turkish Real Estate Investment Trusts (REITs) in Borsa Istanbul (BIST) over the period 2014-2020, we attempt to present a contribution to the capital structure literature. In our study, we use panel data analysis that provide us proofs about the impact of financial performance, stock performance, and corporate structure on capital structure decisions of REITS. Some of the findings are remarkably similar to those of prior studies in this array of literature while our independent variables and capital structure may seem to be connected differently from the leading capital structure theories (“pecking order theory and trade-off theory”). The prominent capital structure theories of pecking order and trade-off theory likewise receive mixed support, although the link between capital structure and our independent variables appears to be skewed. As a result, the theory’s assumptions indicate that capital structure changes are driven by survival.

The main aim of this study is to investigate the factors that affect the capital structure of the Egyptian firms for building materials and construction sector and to analyze capital structures and whether optimal capital structure exists or not. A number of relevant theories of capital structure are reviewed, namely; the trade-off, pecking order and agency theories, in order to initiate some testable propositions concerning these factors that determine the capital structure of the building materials and construction Egyptian firms. This exploration is performed using panel data procedures for a sample of 18 firms listed on the Egyptian Stock Exchange during the period from 2003 thru 2012. The results recommended that profitability is negatively related to debt ratios (LTDR, TDR); whereas firm tangibility is positively linked to the debt ratios. Size, Non-debt taxes shields, liquidity and growth opportunities do not appear to be significantly related to the debt ratios. The findings of this study are consistent with the predictions of the trade-off theory, pecking order theory, and agency theory which show that capital structure models derived from these theories provide some help in understanding the financing behavior of Egyptian firms for building materials and construction sector. This study provided some groundwork to explore the factors that determine the capital structure of Egyptian firms for building materials and construction sector upon which a more detailed study could be based. Furthermore, findings should assist corporate managers to optimize their capital structure decisions. To the best of the authors’ knowledge, this study considers from the pioneering studies that explore the factors that determine the capital structure of the Egyptian building materials and construction firms by using the most recent available data. Moreover, this study to a certain extent goes to confirm the similarity of factors that affect the capital structure decisions in both developing and developed countries.

The objective of this study is to evaluate influence of growth potential, profitability, company size, ratio between capital structure and its target, short-term loan, asset maturity, growth of GDP and inflation rate towards capital structure SOA. The study involved secondary data in the form of financial reports from manufacturing companies listed in Indonesian Stock Exchange (ISE) published in ISE website, www.idx.co.id , and National Bureau of Statistics data about Indonesian economy published in www.bps.go.id , National Bureau of Statistics. From the result of partial adjustment model estimation, significant leverage lag shows that Indonesian manufacturing companies adjust their capital structure towards target leverage with SOA of 64.73% per year. This finding confirms in Darminto and Manurung (J Bus Manag 1(1):35–52, 2008) that capital structure SOA of Indonesian companies is relatively faster than that in the developed countries like USA (30%) (Flannery and Rangan in J Financ Econ 79(3):469–506. http://doi.org/10.1016/j.jfineco.2005.03.004 , 2006). Capital structure SOA of manufacturing companies in Indonesia is similar to Ramjee and Gwatidzo (Medit Account Res 20(1):52–67, 2012)’s study on capital structure SOA of manufacturing companies in South Africa (between 62.3 and 65.5% per year). Originality of this study is capital structure measurement used in the study. Until recently, two major theories, trade-off theory and pecking order theory, have been used to explain capital structure of companies. Previous studies evaluated both theories separately. This study is based on “dynamic trade-off theory” in which the trade-off theory and pecking order theory are evaluated simultaneously instead of partially.

1. Introduction The presence of debt started when Luca Pacioli introduced his accounting equation in interpretation that firms are obtaining their assets by using liabilities and equities. After years, debt always show up in most of firm's financial reports and generally attracting the investors in capital market. The existence of debt inflicting some questions in context of capital structure, such as is debt a requirement for most of firms in term to finance their investment activities in objective to achieve the target profit? or is debt just a policy for other intentions?. These issues about capital structure of the firms are still in debate around academicians especially in context of trade off theory and pecking order theory since debt has playing its own role which makes the capital structure still a puzzle (Myers, 1984; Nechaev and Antipina, 2016; Thalassinos et al., 2010; Vovchenko et al., 2017; Fetai, 2015). Myers (2001) proposes two conditional theories of capital structure for explaining why firms obtaining debt, which are trade off and pecking order. According to Myers (2001), in perspective of trade off, firms as tax payers generally shall look for optimum debt in term to get tax shield, while in perspective of pecking order, firms shall avoid debts if their internal fund such as retained earnings sufficient for financing their expenditures or investments (Boldeanu and Tache, 2016). In contrast, the findings by Baker and Wurgler (2002), Klein, O'Brien, and Peters (2002), Hovakimian, Hovakimian, and Tehranian (2004), Alti (2006), Elliott, Kant, and Warr (2008), Thalassinos et al. (2015), Allegret et al. (2016), Duguleana and Duguleana (2016) and Brendea (2012) show that the market timing hypothesis can become an alternative explanation about capital structures of the firms, where the valuations by investors for share prices in capital market shall trigger the effects of pecking order or trade off in flexible. As developing country, the Indonesia has many firms with various debt. Limited to the samples, based on data from Indonesia Stock Exchange (www.idx.co.id) the trends of average total debts to total assets ratio are 52.33% for year of 2011, 48.06% for year of 2012, 49.88% for year of 2013, 48.99% for year of 2014, and 50.25% for year of 2015. The trends show that the average of debt to asset ratios for firms in period of 2011 to 2015 are fluctuate in range of almost or even half by their total assets which means most assets of these firms are financed by debts. The study proceeds the next sections as follows, section 2 reviews the relevant literatures and hypothesis development. Section 3 presents the samples, variable definitions and the regression models. Section 4 presents the result and discuss the findings, and finally section 5 concludes the findings. 2. Literature Review 2.1. Trade off theory and pecking order theory Similar to Myers (2001), Elliott, Kant, and Warr (2008) propose that, the model of capital structure can be viewed in perspectives of two main theories which are trade off theory and pecking order theory. Moreover, Elliott, Kant, and Warr (2008) explain that, in perspective of pecking order theory, the firms shall choose the equities with lower cost of capital which implies that the firms shall finance their investments by use their internal funds then by external funds, while in perspective of static trade off theory, the firms in periodically shall adjust their capital structure until it reach the optimum portion. Sunder and Myers (1999) prove empirically that, the mature firms tend to adopt pecking order model in term to determine their capital structure rather than trade off model. Sunder and Myers (1999) also explain that, although debts shall give tax benefit to firms but the over debts shall make the firms bear the financial distress costs. According to Cheng and Shiu (2007), in view of pecking order theory, the existence of asymmetry information between insiders and outsiders makes firms use their internal fund rather than debts in term for financing the investments, and that why pecking order assumes the firms tend to decrease their debts when they get profit. …

Research of the relationship between the structure of sources of financing and the value of the company are numerous in developed markets and for non-financial companies. However, in the markets of developing countries, and especially in the banking sector, the range of research is much narrower. In this paper, we investigate the existence, direction and intensity of the relationship between capital structure and profitability of banks in the Federation of B&H. The entire population of banks in the Federation of B&H, in the period from 2009-2018, served as a sample. As independent variables, parameters of the structure of financing sources, we chose the debt-to-assets ratio, and debt-to-equity ratio, and as dependent variables, bank value indicators, we took profitability measures, i.e., ROA, ROE, and the net profit margin. In addition to the variables that describe the capital structure, the relationship of which is the topic of this paper, as control variables we used additional variables specific to banks, which describe the bank's liquidity, credit risk exposure, operating cost management, size, and market share. The impact of the macroeconomic environment is observed through the assessment of inflation and gross national income per capita, which indicate the direction of the economic cycle for a given year. The results of the research testify to the weak connection between the structure of sources of financing and return on assets, i.e., the negative connection between financial leverage and return on capital. This outcome first relativizes the significance of Modigliani-Miller's position on the irrelevance of capital structure, and then raises the question of the validity of traditional theory. The establishment and management of the capital structure of local banks can only be explained by the pecking order theory.

This study aims to analyze the effect of capital structure and net profit margin on company value in transportation and logistics sub-sector companies with a sample of 21 companies listed on the Indonesian stock exchange using the purposive sampling method and based on the 2018-2021 sampling criteria. Based on the results of statistical analysis, it can be concluded that capital structure has a significant effect on the firm value of the transportation and logistics sector studied. this is proven by using the t test with a significant value of 0.003 > 0.05 and tcount 3.040 > ttable 1.989. so it can be concluded that capital structure has a significant effect on value based on statistical analysis it can be concluded that the net profit margin has no effect on the value of the companies in the transportation and logistics sector being studied. this is proven by using the t test with a significant value of 0.205 > 0.10 and tcount 1.277 < ttable 1.989. conclude that net profit margin has no effect on company value. it can be concluded that capital structure and net profit margin have a significant effect on company value in transportation and logistics sector companies listed on the Indonesia Stock Exchange in 2018-2021, with Fcount is 5.272 > Ftable 3, 11 significant value of 0.007 is smaller than the targeted significant level of 0.05. R Square of 0.115. This means that there is a contribution of 11.5% from the independent variables, namely capital structure (X1) and net profit margin (X2) to firm value (Y). While the remaining 88.5% is contributed or influenced by other variables.

The capital structure of companies is substantial for every company because the capital structure of com-panies has a direct effect on the financial position of the company. This research aims to get empirical evi-dence on the influence of financial performance that is represented by sales growth, net profit margin, re-turn on equity and cost of fund to the capital structure. This research takes 12 samples of automotive and component companies which are listed in Indonesia Stock Exchange from 2015-2018. The method used in the research by using multiple linear regression analysis by the research aim on simultaneously and par-tial influence contribution analysis. This study concludes that independent variables sales growth, net profit margin, return on equity and cost of the fund are simultaneously have a positive influence and signif-icant with capital structure. The independent variables that have a positive and significant influence on the capital structure are sales growth, net profit margin and return on equity and cost of fund. However, inde-pendent variables that partial have significance influence to the capital structure is net profit margin. It means that the net profit margin is the best representation of independent variables to appraise that capital structure on automotive and component company .