Determinants Of Capital Structure Decisions Research Articles

Determinants of capital structure decisions: an empirical analysis of small and medium enterprises in Ghana from 2016 to 2020

Determinants of capital structure decisions: an empirical analysis of small and medium enterprises in Ghana from 2016 to 2020

Determinants of capital structure decisions: an empirical analysis of small and medium enterprises in Ghana from 2016 to 2020

Determinants of capital structure decisions: an empirical analysis of small and medium enterprises in Ghana from 2016 to 2020

Trade Off and Pecking Order Capital Structure Theories in Tourism Sector in the Portuguese Central Region

The present study aims to identify the predominant theory in financing decisions, and which are the determinants of the capital structure of small and medium enterprises (SMEs) of the tourism sector in the Central Region of Portugal. The statistical method applied was the econometric model of linear regression, using a sample of 606 SMEs in the tourism sector in the Central Region, for a period of analysis between 2011 and 2018. The focus on the tourism sector is due to its importance in the Portuguese economy and to the existence of few studies, particularly in the Central Region. In the analysis of the determinants of capital structure decisions we used as explanatory variables profitability, asset tangibility, size, total liquidity, other non-debt tax shields, risk and age of SMEs. The results obtained suggest that the capital structure decisions follow more closely the assumptions of the Pecking Order theory but may also follow the assumptions of the Trade-Off theory. Therefore, this paper enhances that Trade-Off and Pecking Order Theories are not mutually exclusive in explaining the capital structure decisions of SMEs. We may conclude that SMEs firstly finance themselves with retained earnings, then use external financing and finally resort to capital increases. Keywords: determinants of capital structure, SMEs, tourism sector, pecking order theory, trade-off theory

Impact of corporate governance on capital structure: mediating role of cost of capital

PurposeThis paper contributes to the existing literature by extending the empirical work on the relationship between corporate governance and capital structure by analyzing the mediating role of cost of capital in the non-financial firms listed on the Pakistan Stock Exchange (PSX).Design/methodology/approachThe sample for this study includes non-financial firms listed on the Pakistan Stock Exchange (formerly Karachi Stock Exchange) for the period of 2004–2016. Based on 1800 firm-year observations, three approaches of panel data analysis are applied for the step-wise analysis of the underlying study. Firstly, Pooled OLS is applied. Secondly, fixed and random effect panel regression followed by the Hausman test to check the unobservable individual heterogeneity of the data. Hausman test indicates that the fixed-effects model is the most appropriate model for the sample panel data.FindingsThe study's findings are that board size, board composition, CEO/Chair duality, institutional ownership and managerial ownership have statistically significant direct effect on the firm's financing decisions. However, CEO/Chair duality, institutional ownership and managerial ownership have significant indirect effect on firm's capital structure decisions. The interesting finding of the paper is on the evidence of mediating role of cost of capital in the nexus of corporate governance and capital structure. Moreover, some conventional determinants of capital structure, including the firm's size, asset structure of the firm, profitability, business risk and growth, are found as determinants of capital structure decisions of the firms.Research limitations/implicationsThere are a few limitations to our study which could be addressed by upcoming research. We did not include all the four mechanisms of corporate governance including board structure, audit structure, compensation structure and ownership structure. However, we used only five important attributes including board size, board composition and CEO/Chair duality form board structure, managerial ownership and institutional ownership form ownership structure of corporate governance as our explanatory variables to examine their impact on the capital structure choices of the firms. Future studies may fill this research gap by involving some other attributes of corporate governance and analyzing their effectiveness and impact on value relevant capital structure decisions. Further, due to limited time and resources, we only tested the mediating role of cost of capital, hence, future researchers can analyze the mediating and moderating roles of different variables which may influence the relationship between corporate governance and capital structure choices of the firms.Practical implicationsThe study has many valuable guidelines and practical implications for the financial managers of the corporations. Our results will facilitate the policymakers in setting their corporate governance policies and practices and making the value relevant capital structure decisions in compliance with the implications of corporate governance mechanism. In addition, our study provides the empirical evidence in accordance with the argument that good governance practices, particularly the voluntary disclosures by the firm may reduce the information asymmetry which, ultimately, reduces the agency cost and the cost of capital for the firm. However, while deciding the financial policy of the corporations, managers can use our findings in order to assess the effectiveness of corporate governance practices employed by the firm in achieving the optimal capital structure at which the weighted average cost of capital is at its minimum level.Originality/valueThis paper contributes to the literature by investigating the mediating role of the cost of capital in the relationship between corporate governance and capital structure decisions of the firms. This paper provides empirical evidence that corporate governance indirectly affects capital structure decisions through the mediating role of cost of capital.

DETERMINANTS OF CAPITAL STRUCTURE IN NIGERIAN OIL AND GAS SECTOR

Subject matter: The Oil and Gas sector no doubt is Nigeria’s topmost foreign exchange earner and determines the country’s gross domestic products (GDP) as well as the yardstick for Nigeria’s national annual budget metrics. The prime of place of this sector’s performance makes its funding (capital structure) very vital to the respective companies and overall performance of the economy. Goal: This study therefore examines the determinants of capital structure decisions in the Oil and Gas sector. Tasks: Ultimately, the outcome of this study would benefit the Oil and Gas companies in making their capital structure decisions on preferred source of capital (loans or equity or a combination), the sector as a whole in terms of capacity and the regulatory authority in their assets performance monitoring. Method: The investigation has been performed using panel data procedure for a sample of seven Oil and Gas companies listed on the Nigerian Stock Exchange during 2008–2019. The study uses leverage as the dependent variable and five explanatory variables namely, liquidity, size, tangibility, non-debt tax shield and profitability. The study employed infoview (9.0) statistical software which assisted greatly in the understanding of the behaviour of variables used and the final results. Results: The results show that Liquidity has a negative relationship with leverage unlike other variables that have positive and relationship with the dependent variable. The relationship established between liquidity and leverage confirms that most of the companies under review look inwards in their financing activities (and may consider external financing for critical expansion and tax savings), our findings further reveal that the relationships between the variables is in tandem with the pecking order theory. Conclusions: The research concludes that there exists a relationship between leverage (capital structure) and the various determinants above. The research recommends that policy makers should consider the restructuring of the equities market to pave ways for more participatory financing especially now that the investors’ confidence is gradually building up, develop the bonds market and also seek flexible conditions for accessing loans especially to the larger firms in the oil and gas industry.

Capital Structure Decision: Micro- and Macroeconomic Determinants in Malaysia

This paper attempts to analyse the determinants of capital structure decisions among Malaysian firms by considering both the firm-specific (micro-economic) and the macro-economic factors. Using a sample covering 612 listed firms across major business sectors in the Bursa Malaysia during a span of ten recent years (2009-2018), the analysis proposes that both the micro- and macro-economic determinants are relevant for decision makers in understanding the financial leverage of firms. Panel data regressions suggest a significant positive relationship of non-debt tax shield, firm size, tangibility, interest rate and stock market development with debt ratio of firms. Meanwhile, a significant negative relationship is found for profitability, liquidity and gross domestic product. While the macro-economic variables are proposed to be fundamentally important in this study, they do not affect the roles of commonly proposed firm-specific factors implied by the existing capital structure theories. The results are also robust across the estimations with pooled ordinary least squares, fixed effects and random effects models. This paper particularly focuses on providing empirical evidence from the Malaysian market, extendable to cover the other countries for future investigations.

SPEED OF ADJUSTMENT PADA STRUKTUR MODAL: ANALISIS BERDASARKAN SIKLUS HIDUP PERUSAHAAN DI INDONESIA

At each stage of the life cycle, companies use different considerations to determine capital structure decisions. This study analyzes differences in company speed of adjustment towards optimal capital structure, based on the company's life cycle in Indonesia. The sample used 74 manufacturing companies from 2013 to 2017. The result is that the maturity company has a greater speed of adjustment than the introduction stage company. While the speed of adjustment at the growth stage there is no difference with the speed of adjustment at the introduction stage. Other findings in this study, the distance between the optimal capital structure and the realized capital structure reduces the difference in speed of adjustment at the maturity and introduction stages. So the conclusion is the company's life cycle becomes a determinant of capital structure decisions

FACTORS INFLUENCING ENTERPRISE PERFORMANCE OF SMALL AND MEDIUM SIZE ENTERPRISES (SMES) IN MALAYSIA

In this research, SME business owners, top management, shareholders and financial managers are recommended and additionally implicit that they have direct involvement in the financial decision making of the respective enterprise, specifically in selecting debt or equity financing options. The design of the sampling technique is depicted trailed by the discussion of research instrument development. The sample size of a total of 210 respondents who met the predefined characteristics to contribute the insightful information related to corporate finance among SMEs in Malaysia. The findings revealed that a positive relationship exists between productivity and enterprise performance, as well as between enterprise size and enterprise performance. Likewise, there is a positive relationship between enterprise expansion and enterprise performance, as well as enterprise age and enterprise performance. Finally, a positive relationship has been identified between asset tangibility and enterprise performance. This study implies a new research framework consists of enterprise productivity, enterprise age and growth, working capital, enterprise size and asset tangibility as the determinant of capital structure decisions towards enterprise performance. JEL: L10, L20, P12, D24 Article visualizations:

SMALL AND MEDIUM SIZE ENTERPRISES (SMES) IN MALAYSIA: A CONCEPTUAL UNDERPINNING OF CAPITAL STRUCTURE DECISIONS AND FIRM PERFORMANCE

This research emphasises the conceptual underpinning of capital structure decisions and firm performance among Small and Medium Size Enterprises (SMEs) in Malaysia. The capital structure of a firm can be partitioned into two major groups, particularly debt and equity financing. Equity financing arises when a firm offers some of its ownership rights to raise capital for further growth, expansion and investment activities. However, the definition of capital structure is the proportion of debt and equity to the total capital carried by a firm. The study found that the relationship between growth opportunity and firm performance is positively related to firm performance. It explains most of the SMEs whom with better growth opportunities will have greater access to finance and more sources in selecting financing options compared to low growth firms in Malaysia. The finding also justifies that the oldest of the firm age, the higher creditworthiness and better historical records that provide a more considerable reputation and trust to financial institutions. In investigating the relationship between asset tangibility and firm performance among SME in Malaysia, this study proves a positive relationship between the asset tangibility and firm performance. Finally, the number of literature on SMEs capital structure in Malaysia is relatively limited. Therefore, the recommendation for future research to study on other determinants of capital structure decisions which did not utilise in this study, for example, liquidity, non- debt tax shield and financial flexibility to examine the impact of capital structure decisions of SMEs. JEL: L10, L20, P12, D24 Article visualizations:

Traditional or behavioural? A combined decision making trial and evaluation laboratory and analytic network process approach for capital structure determinants of Turkish companies

AbstractThe aim of this study, following a new approach under the irrationality of managers, is to investigate the most effective determinants of capital structure decisions by combining traditional capital structure determinants with managerial‐behavioural biases. In line with this objective, considering the capital structure decision as one that employs multicriteria decision making, two of the multicriteria decision‐making methods—namely, Decision Making Trial and Evaluation Laboratory (DEMATEL) and Analytic Network Process (ANP)—are integrated into a hybrid method to analyse the interdependent relationships among traditional capital structure determinants and managerial‐behavioural biases and to prioritize them by making dual comparisons. Our findings show that managerial‐behavioural biases, not traditional capital structure determinants, are more effective in the capital structure decision and that anchoring is the most influential among managerial‐behavioural biases.

Determinants of capital structure decisions among publicly listed Islamic banks

This research aims to examine bank specific, market and regulatory determinants of leverage and capital structure based on a panel data of publicly listed Islamic banks in 12 countries over the period 2008-2017. Apart from testing standard corporate finance parameters using both OLS and M-Estimators, this study adds several idiosyncratic and regulatory environment related determinants of leverage unique to Islamic banks. The significance of potential determinants is tested for market and book leverage as well as newly introduced ‘Islamic banking leverage’. Overall, the results show that Islamic banks with higher growth opportunities, tangibility, low profitability and low risk are likely to have a high leverage. Similarly, the findings suggest important role played by debt market conditions, share of investment accounts and regulatory environment in such decisions, providing an evidence of the significance of trade-off and pecking order theory in capital structure in Islamic banks. The results are more robust for market and Islamic banking leverage, rather than book leverage. The findings offer insights to regulators, standard setters and especially Islamic banks regarding parameters to strengthen their capital, enhance resilience and thus contribute to the stability of relevant financial. This paper is among the few extant studies that focus on listed Islamic banks and tests determinants based on stock market data.

The Determinants of Capital Structure Decisions: Evidence from Chinese Listed Companies

In this paper, we examine the determinants of leverage in the context of China using a sample of 1844 Chinese non-financial firms over the period 2003 to 2010. This study shows that that the average leverage ratio of Chinese listed firms is similar to those observed in other developing countries. The study also finds thatsize, tangibility,volatilityand firm age are positively and significantly associated with leverage. Furthermore, firm’s profitability has statistically significantnegativeimpact on leverage. Furthermore, we find that we find that firm size, profitability, tangibility, volatility and firm age are the robust determinants of leverage of Chinese listed firms.

Capital structure determinants of shipbuilding companies

The objective of this paper is to ascertain the major determinants of capital structure decisions for globally listed shipbuilding companies, and how quickly these companies adjust their capital structures when deviating from their target leverage ratios. Using a range of multiple regression models we find size, asset risk and the market-to-book ratio to be the most influential observable determinants of capital structure, though unobserved company-specific effects remain highly influential. Shipbuilders can be said to have relatively lower adjustment than deviation costs compared to other industries, as they tend to adjust their capital structures significantly faster.

Determinants of Capital Structure Decisions among Ethiopian Micro Finance Institutions: Panel Data Evidence

Studies indicates that the capital structure of Microfinance Institutions have significant impact on the sustainability and outreach of these organizations. Hence, studying the factors that determine the capital structure of these organizations is imperative. Although the capital structure of financial firms have been studied by some scholars, such types of studies are rare in the MFI sector. Thus the purpose of this study is to investigate the determinants of capital structure in the Ethiopia MFI industry. To accomplish the objective of the study the quantitative research design is employed. The researcher used secondary data of 15 sample MFIs that fulfill the criteria of data availability from the MIX market database covering the period of 2003-2009. A panel data using Random Effect Multiple Regression model is used to analyze the standard determinants of capital structure. A sequential regression approach with two alternative specifications of model was employed. The research results show a negative and significant relationship between the MFI profitability, positive and significant relationship between MFI size, a negative and significant relationship between MFI tangibility and the leverage was found. On the other hand, the results show mixed results for the impacts of both age and growth rate on the leverage of Ethiopian MFIs. However, a negative but insignificant impact of business risk on leverage was found. The results of this study have delivered some insights on the capital structure theory. There could also be policies intended to encourage and creating conducive environment for MFIs to utilize debt as a viable source of finance in the era of increased commercialization of microfinance to meet their noble objective.

A Dynamic Econometric Modelling of the Determinants of Capital Structure of Listed Companies- A Mauritian Perspective

The gist of this paper is to empirically assess the determinants of capital structure decisions for 29 listed firms on the Stock Exchange of Mauritius for the period spanning 2006-2014. The paper employs the random coefficient estimation, deemed to be a novelty in the econometric literature to test for the dynamism of the model. According to the random coefficient estimates, the important determinants of leverage in Mauritius are profitability, liquidity, tangibility, growth opportunities and size. Business risk and age do not appear to have any significant effect on capital structure. The findings of the study offer several implications for policy making. Government policies aimed at developing the domestic bond market would be welcome as Mauritian firms face a shortage of funding options and heavy reliance on short term debt. Further governmental plans to boost the fluidity of equity issues and to reduce the associated costs are also advocated.

The Determinants of Capital Structure Decisions: New Evidence from Turkish Companies

Abstract This study conducts a comparative test of trade-off theory and pecking order theory using 131 publicly traded Turkish companies’ firm-level data between 2008 and 2014. The study also tries to exploit the differences between the capital structure decisions for various degrees of free float rate and foreign paid in capital, and for those that have various market values. According to the empirical results, although pecking order theory seems to better describe the capital structure of the firms, some of the determinants are suitable for trade-off theory. The results of the study also reveal that companies that have a free float rate between %50 and %75 have lower degrees of leverage and the degree of leverage varies for different market values of companies.

The Impact of Firm Specific Factors on Capital Structure

The main aim of this study is to analyze the impact of firm specific factors on corporate capital structure decisions of firms. The analysis is based on the year end observations of 100 firms which are among the top 1000 industrial enterprises listed on Borsa Istanbul for the period 2005-2011. By using panel data methodology, five explanatory variables: tangibility, profitability, firm size, non-debt tax shields and growth opportunities are evaluated as the firm specific determinants of capital structure decisions. The leverage ratio which is the dependent variable of the analysis is used as the proxy of firms' capital structure. In order to test whether crucial results are robust to alternative leverage definitions, this study measures leverage as the firm's total debt to total asset and long term debt to total asset ratios by focusing both on book and market based measures. The major findings of the study with respect to financing decisions of firms provide significant and positive impact of tangibility on long term debt ratio, however it turns out to be inverse for total debt ratio. In addition, it is found that profitable firms tend to have lower leverage; and larger companies tend to have higher debt ratios compared to small ones. What is more, evidence support that firms with greater growth opportunities and non-debt tax shield reveal inverse relation with debt level. Except the impact of growth opportunities which is only significant for market based leverage ratios, the findings for all other variables are robust for different definitions of leverage.

Capital Structure and Political Risk in Asia-Pacific Real Estate Markets

This study investigates the determinants of capital structure decisions by real estate firms, with a specific focus on the impact of political risk on leverage. Using a sample of Asia-Pacific REITs and listed property trusts, we find those firms with properties located in countries characterized by relatively high degrees of political risk, such as political instability, and/or greater uncertainty in the ability to repatriate and monetize profits from international investment activities, employ less debt than their counterparts operating in more politically stable environments. This core finding remains robust to alternative sample selection criteria including the division of the sample into high versus low market-to-book value firms, and also holds within the subset of organizations that are active in raising additional capital in the secondary markets.

Capital structure decisions of globally-listed shipping companies

Debt capital has traditionally been the most important source of external finance in the shipping industry. The access that shipping companies nowadays have to the capital markets provides them with a broader range of financing instruments. As such, this study investigates the determinants of capital structure decisions using a sample of 115 exchange-listed shipping companies. We test whether listed shipping companies follow a target capital structure, and we analyze their adjustment dynamics after deviations from this target leverage ratio. When compared with industrial firms from the G7 countries, shipping companies exhibit higher leverage ratios and higher financial risk. Standard capital structure variables exert a significant impact on the cross-sectional variation of leverage ratios in the shipping industry. Asset tangibility is positively related to corporate leverage, and its economic impact is more pronounced than in other industries. Profitability, asset risk, and operating leverage are all inversely related to leverage. There is only weak evidence for market-timing behavior of shipping companies. Because demand and supply in the maritime industry are closely related to the macroeconomic environment, leverage behaves counter-cyclically. Using different dynamic panel estimators, we further document that the speed of adjustment after deviations from the target leverage ratio is lower during economic recessions. On average, however, the capital structure adjustment speed in the maritime industry is higher compared with the G7 benchmark sample. These findings indicate that there are substantial costs of deviation from the target leverage ratio due to high expected costs of financial distress. Our results have implications for shipping companies’ risk management activities.

Capital Structure and Assets Risk: Evidence from the Euro Area

Using a sample of non-financial listed firms located in the Euro area, I investigate the determinants of capital structure choices. In line with the traditional theoretical approach, and in contrast with previous empirical literature, I use a full market-value measure of leverage, estimated with the Black-Scholes-Merton model for pricing corporate debt. Differences in national tax rules are explicitly taken into account when estimating firm-specific marginal tax rates. In the cross-section regressions for firm leverage I find that some variables have similar effects across countries, while others play a different role. Assets risk, measured as the annualized volatility of the market enterprise value, is the best predictor of observed leverage ratios. The sector of activity is a significant factor in determining leverage decisions, even when assets’ risk is taken into account. Despite the monetary union and the increased financial integration in the Euro Area, nationality is still a significant determinant of capital structure decisions.