Corporate Capital Structure Research Articles

Impact of Market Timing on Corporate Capital Structure: Evidence from the UK IPO Market

Impact of Market Timing on Corporate Capital Structure: Evidence from the UK IPO Market

Corporate governance and capital structure as driving force for financial performance: Evidence from non-financial listed companies in Pakistan.

Corporate governance and capital structure as driving force for financial performance: Evidence from non-financial listed companies in Pakistan.

Pecking order, earnings management and capital structure

Most of studies imply that firms decrease or increase their debt capacity in context of pecking order theory or agency problems. On this point, the setting of this study is based on two main problems related to capital structure: the first is determining the source of funds for financing investments, and the second is solving the conflict between shareholders and managers, or the agency problem. The objective of this study is to provide evidence about how firms establish their capital structure in relation to pecking order theory and the agency problem by controlling earnings management in the context of Indonesian firms. This study conducts logistic regression on 28 firms in the consumer goods industry listed on the Indonesia Stock Exchange from 2010 to 2017.This study finds that pecking order theory determines the capital structure of most Indonesian firms with high debt. The results imply that agency problems are unable to explain corporate capital structure and earnings management is not effective for motivating Indonesian firms to establish corporate governance.

Zombies on the Brink: Evidence from Japan on the Reversal of Monetary Policy Effectiveness

How does unconventional monetary policy affect corporate capital structure and investment decisions? We study the transmission channel of quantitative easing and its potential diminishing returns on investment from a corporate finance perspective. Using a rich bank-firm matched data of Japanese firms with information on corporate debt and investment, we study how firms adjust their capital structure in response to the changes in term premia. Investment responds positively to a reduction in the term premium on average. However, there is a significant degree of cross-sectional variation in firm response: healthier firms increase capital spending and cash holdings, while financially vulnerable firms take advantage of lower long-term yields to refinance without increasing investment.

Does the corporate capital structure theory apply to banks? Evidence from the field

This paper investigates the value relevance of banks’ capital structure voluntary choices, their determinants, and preference in terms of funding mix policy models, using a unique survey-based dataset gathered through a face-to-face interview structured questionnaire, conducted to a sample of 51 Portuguese banks’ CEOs (89.5% survey response rate), over the 1989-1998 period. Survey participants, elicited ownership structure managerial control, growth opportunities, reputation in banking markets, financial flexibility, information signaling, bank size, share listing, business risk, dividend policy, and debt tax-shields, as the most relevant capital structure determinants at the bank level. The supervisory and regulatory discipline was indicated as the more influential external determinants for capital structure choice. A majority of 60 percent of state-owned bank CEOs declared a preference for following pre-determined guidelines on bank funding as capital structure policy model. Almost 53 percent of the privately-owned bank CEOs revealed a significant preference for the tradeoff capital structure policy model. The pecking order and the market-timing theories received moderate to weak preference. The paper extends the literature, providing field evidence that banking capital structure choice do matter and may be explained within the framework of the conventional corporate capital structure theory.

Does the Corporate Capital Structure Theory Apply to Banks? Evidence from the Field

Does the Corporate Capital Structure Theory Apply to Banks? Evidence from the Field

Pengaruh Struktur Aktiva Dan Profitabilitas Terhadap Struktur Modal (Studi Kasus PT Ultrajaya Milk Industry and Trading Company Tbk. Tahun 2009-2018)

The research was conducted at PT Ultrajaya Milk Industry and Trading Company TBK. As the food and beverage industry as one of the industry that contributes the highest to gross domestic product (GDP) to the sector of processing industry in Indonesia. In 2012, the food and beverage industry contributed 7.14% to GDP in Indonesia. A descriptive quantitative is the type in this study, the analytical technique used in this research is to use various tests namely classical assumptions, T-Test and F-test and coefficient of determination. Using multiple regression analysis is the most appropriate method for the lysis of the influence of asset structure and profitablity on the capital structure of PT Ultrajaya Milk Industry and Trading Company Tbk. From 2009-2018. The impact of independent variables on dependent variables is 74.8% while the remaining 13.6% are described by variables or other factors not incorporated into this model, so it is evident that the independent variables of the assets and profitability structure have had a strong impact on the corporate capital structure of PT Ultrajaya Milk Industry and Trading Company Tbk in year 2009-2018.

Proactive Capital Structure Adjustments: Evidence from Corporate Filings

AbstractWe use new hand-collected data from corporate filings to study the drivers of corporate capital structure adjustment. Classifying firms by their adjustment frequencies, we reveal previously unknown patterns in their reasons for financing and the financial instruments used. Some are consistent with existing theory, whereas others are understudied. Many leverage changes are outside of the firm’s control (e.g., executive option exercise) or incur negligible adjustment costs (e.g., credit-line usage). This implies a lower frequency of proactive leverage adjustments than indicated by prior research using accounting data, suggesting that costs of adjustment are higher, or the benefits lower, than previously thought.

Supply-side structural reform and dynamic capital structure adjustment: Evidence from Chinese-listed firms

The literature extensively discusses the increasing commitment toward comprehensive structural reform of China's economy as it targets to achieve high quality and sustainable economic growth. This research investigates the inherent relationship between supply-side structural reform (SSSR) and dynamic capital structure adjustment in Chinese-listed firms. Our results show that SSSR's introduction has significantly improved the adjustment speed toward the optimal debt ratio, especially for firms with high indebtedness and low investment performance. Importantly, China's bond market plays a crucial role through SSSR for firms' debt ratio to adjust toward their optimal level. However, there is no such evidence among state-owned enterprises (SOEs), suggesting that the structural reform concerning corporate capital structure for SOEs is more challenging and longstanding when compared with non-SOEs.

Eurobond Flotation by Russian Corporations and Finance Institutions

Eurobonds are one of the key instruments of international corporate financing. The article studies Eurobond market as a source of raising cash by Russian corporations and finance institutions. It provides structural parameters of Eurobonds and depicts types of securities available on debt market for Russian issuers (issues with one or several tranches, benchmark issues). The author analyzes results of Russian issuers’ flotation, including high activity on Eurobond market of exporting companies and successful flotation of ruble Eurobonds. The article studies transaction aspects of Eurobonds market: the role of principle participants of the deal (leading managers, global coordinators, book-runners) and key stages of the security flotation process (getting the credit rating, preparation of legal papers, syndication and marketing on market). It makes a comparative analysis of key instruments of raising finance by Russian borrowers on international markets of debt capital – Eurobonds and syndicated credits. These instruments both compete and supplement each other, which was proven by using the combination of Eurobonds and syndicated credits by leading borrowers. The article comes to the conclusion that combined use of these debt instruments for solving a wide range of finance problems is optimal for corporate capital structure and finance institutions.

The Impact of Internationalization of the Boardroom on Capital Structure

We develop a theoretical model based on several theories, mainly pecking order theory and theory of information economics, as well as on theoretical arguments provided by economic sociology and psychology to investigate for the first time the impact of the presence of a foreign board member on capital structure. The sample of study covers 3773 non-financial U.S. firms and includes 23,196 observations over the period from 2010 to 2018. We used pooled OLS, fixed effects, random effects, and the general method of moments (GMM) in order to analyze the impact of foreign directors on capital structure after controlling for a range of factors, including size, year, and industry effects. The results of this empirical analysis support the proposed hypothesis. Of particular note is the finding that the proportion of foreign directors on the board correlates negatively with debt structure. Furthermore, we demonstrate that our findings hold up in the face of all appropriate robustness checks. Our study contributes to the existing literature by including an international dimension of board diversity, specifically the influence of foreign directors on corporate capital structure. We argue that increasing international diversity in the boardroom improves both the quantity and quality of the information exchange between insiders and shareholders, thereby reducing adverse selection costs.

Systematic Risk, Creditor Protection and Leverage – A Cross-Country Analysis

The influence of systematic risk exposure on corporate financing decisions is receiving increasing attention in the empirical capital structure research. While most recent studies of the US-market show, that systematic risk (measured with asset beta) affects corporate capital structure decisions, little is known about cross-country differences regarding this relationship. In this paper we use institutional factors that represent the protection of creditors to explore the interaction effects between country-specific factors and asset beta on financing decisions. Our findings indicate, that (i) on average, firms with higher asset beta use less debt, (ii) the protection of creditor rights mitigate the negative impact of asset beta on leverage, (iii) the negative effect of asset beta on leverage is more pronounced for firms with higher levels of leverage and (iv) that especially in countries with weak protection of creditor rights, firms with high asset beta choose less leverage in economic downturns.

Effect of Capital Structure on the Relationship Between Corporate Governance and Corporate Value of Companies Listed at the Nairobi Securities Exchange

The capital market authorities of different areas have from time to time issued regulations and guidelines for good corporate governance practices ensuring thorough and proper management of listed companies to align the interest of all stakeholders, ensure firm sustainability, and optimize corporate value. Despite these interventions, cases of corporate underperformance and failures attributed to financial distress and governance weakness continue to increase in magnitude and frequency. The main objective of the study was to determine the intervening effect of capital structure on the relationship between corporate governance and corporate value of companies listed at the Nairobi Security Exchange (NSE). The study tests hypothesis that there is no intervening effect on the capital structure on the relationship between corporate governance and corporate value for companies listed at the NSE. The key theories underpinning the study were agency theory as the main guiding theory and the trade-off theory. The data was acquired from past audited financial statements of companies listed at the NSE. The study used a census survey for sixty-four listed companies at the NSE. The analysis covered a period of five years between 2013 and 2017. Corporate Governance was measured by a composite of Board Independence, Board Size, Board Composition, and Corporate Gender Diversity. Capital structured was measured by leverage Different performance metrics have been used to evaluate corporate value worldwide by regulators and scholars. This study used Tobin - Q which has become an important tool for measuring corporate performance due to its incorporation of the market value of shares in its computation. The study adopts a positivism research philosophy and descriptive design. Descriptive statistics and diagnostic tests were conducted on the data thereafter inferential statistics namely correlations analysis and regression analysis were used to test the hypothesis. The panel data procedure was considered more appropriate as the sample data contained both cross-sectional and time-series data. The diagnostics tests were used to test for bias in the model and the regression used to test the strength and direction of the variables. Baron and Kenny (1986) approach was used to test the intervening effect of capital structure on the relationship between corporate governance and corporate value. The finding was that capital structure had no significant intervening effects on the relationship between corporate governance and corporate value. This research contributes to the line of literature that examines the desirability of corporate governance in enhancing corporate value. These insights in explaining corporate governance, capital structure, and corporate value relationships are useful for academic understanding and business and public policy formulations. Keywords: Corporate governance, capital structure, agency theory, trade off theory, corporate value. DOI: 10.7176/RJFA/11-17-10 Publication date: October 31 st 2020

Equity Financing Efficiency Measurement of Listed Companies in Strategic Emerging Industries based on DEA

Equity financing is an important part of corporate capital structure decision-making. The level of financing efficiency is of great significance to the survival and development of Listed Companies in strategic emerging industries. In order to measure the equity financing efficiency of Listed Companies in strategic emerging industries, this paper uses data envelopment analysis (DEA) model to measure and study, taking 208 listed companies of strategic emerging industries as samples, through three input indicators. The paper calculates the DEA evaluation value of each decision-making unit from 2014 to 2018, and analyzes the efficiency of equity financing in different years and the comparative analysis among seven industries. The conclusion of this paper is: according to DEA–BCC model, the equity financing efficiency of Listed Companies in strategic emerging industries is generally low, mainly distributed in the lower efficiency range, pure technical efficiency and scale efficiency are mostly distributed in the higher efficiency range every year, most of the returns to scale are decreasing, and the equity financing efficiency exists unbalanced development among industries. According to DEA Malmquist model, the total factor productivity of seven strategic emerging industries tends to decline, the highest is new energy vehicles, which is 0.985, and the lowest is energy conservation and environmental protection, which is 0.951. The impact of technological change will be greater, followed by the change of scale efficiency. We should constantly improve the internal management level of the company, carry out technological innovation, select the correct financing channels, and coordinate the use of funds to create the maximum value.

Social trust and the speed of corporate leverage adjustment: evidence from around the globe

AbstractWe examine the relation between social trust and the speed of leverage adjustment (SOA) around the world. Using a large international sample (65 countries, 1996–2016), we find that social trust has a positive effect on SOA. In the cross section, we find that the positive effect of social trust on the SOA is more pronounced for: (i) over‐levered firms; (ii) firms with higher information asymmetry; (iii) firms with lower ease of financing; and (iv) firms located in countries with weaker governance quality. Overall, we highlight the role of social trust in shaping corporate capital structure.

EXPORT INTENSITY AND LEVERAGE: AN EMPIRICAL ANALYSIS OF SPANISH SMES

The aim of this study was to contribute to the literature debate on financial behavior and corporate capital structure by focusing on two aspects. First of all, we analyzed how the intensity of exports and therefore the percentage weight of foreign sales compared to total sales affect the leverage of companies. Secondly, we have analyzed which are the most significant factors influencing the financial behavior of SMEs. The financial information for the analysis were collected from the Sabi database of Bureau Van Dijk (BVD). To select the companies to be included in the sample, we followed a methodology capable of ensuring that the sample of export oriented and non-export oriented companies was adequately represented. The overall sample size was 2000 companies. The analysis showed that export intensity has a negative and significant impact on leverage, suggesting that as exports increase, leverage decreases. In addition, profitability and business risk are negatively related to leverage, while the tangibility of the assets and growth correlates positively with leverage.

Impact of macroeconomic variables on corporate capital structure: a case of India

PurposeThe purpose of the paper is to examine the impact of macroeconomic variables on the capital structure of manufacturing companies in the Indian context.Design/methodology/approachThe paper employs panel regression technique (random effects model) on a sample of 1,029 listed Indian manufacturing companies divided into two categories – large-size companies and mid-size companies for the last ten years from FY 2008–09 to FY 2017–18. Two separate models pertaining to long-term leverage (TTL_TNW ratio) and total leverage (TOL_TNW) have been examined.FindingsMajor findings show that macroeconomic variables play a relatively more important role in deciding the long-term debt component in the capital structure of the firms as compared to short-term loans. Similarly macroeconomic variables are found to be more significant in case of large-size companies as compared to mid-size companies. Also, there is a negative relationship between market capitalisation and leverage and bank credit and leverage, whereas money supply has a positive relationship with leverage.Research limitations/implicationsThe study makes an important contribution to the existing literature in understanding better how macroeconomic variables play an important role in determining the capital structure of firms. In the present dynamic economic environment, such a study lays down the macro areas on which the academicians, policymakers and financial managers can focus with respect to corporate financing decisions. The firm-specific factors have not been taken into account. Inclusion of these factors will make the results more robust.Originality/valueThe study focusses on the impact of macroeconomic variables on the capital structure decision of the Indian firms. Several studies in this area have been done in the context of the developed countries. However, there are not many studies in the Indian context that examine the relationship between financing decision and macroeconomic variables. The results that have been derived in case of developed economies may not be extended in the Indian context as there are considerable differences across countries related to corporate and legal environment, taxation system, corporate governance laws, interest rate environments, banking system, sources of funds and so on. Therefore, it becomes important to focus on countries individually.

Carbon risk and corporate capital structure

This research exploits Australia's ratification of the Kyoto Protocol, which mandates the country to reduce carbon emissions, thereby exposing Australian firms to increased carbon risk, as a quasi-natural experiment to examine the causal effect of carbon risk on firm capital structure. We find that the Kyoto Protocol ratification leads to a decrease in financial leverage of heavy carbon emitting firms and such a decrease is more pronounced for financially constrained firms. Further analysis indicates that increased carbon risk leads to higher financial distress risk, which motivates firms to decrease financial leverage.

Specific Financial Sources of Insolvent and Healthy Enterprises

This paper is focused on corporate capital structure from the point of view of specific financial sources. These specific sources consist of liabilities provided by the entities closely connected to company itself such as subsidiaries, parent companies, or individual owners. The conducted research compares financing insolvent enterprises with financing companies without any existential difficulties. Specific sources can be distinguished according to their maturity and kind of providers how they are classified in balance sheets. The comparison is made on financial statements extracted from the prepaid corporate database Albertina. The obtained data sample consists of companies that belong to three industry branches specified according to CZ-NACE classification as CZ-NACE 25, CZ-NACE 28, and CZ-NACE F. Relative frequencies show which enterprises finance more by these specific sources and which kinds of sources are used more frequently. Ratio analysis presented by descriptive statistics expresses corporate capital structure and manifests the importance of these sources on financing. Gained results confirm if the insolvent entities tend to finance more through specific sources than their healthy counterparts. These findings could have serious consequences for insolvency proceedings and their results such as creditors' satisfaction level, assets monetization tempo. It is evident that it may influence business competitiveness, economic results and overall entrepreneurial stability.

Investor Protection, Stock Liquidity, and Capital Structure

This paper investigates empirically the impact of stock liquidity and investor protection on corporate capital structure. We predict that stock liquidity has a significantly negative impact on firm leverage and this negative impact is stronger in a country where the investor protection is strong. The sample consists of 2,203 firms listed in the UK, Germany, France, and Italy over the period from 2009 to 2018. Using a firm fixed effects model, we find evidence supporting our prediction. Our results are robust when we use a random effects model model, or when we employ an alternative measure of investor protection. Additionally, we find that an exogenous event that reduced the investor protection could dampen the negative impact of stock liquidity on firm leverage. Our paper suggests that future studies should consider the effects of factors related to the level of investor protection when investigating the relationship between stock liquidity and firm characteristics, such as firms’ default risk.