Formation Of Capital Structure Research Articles

Capital structure formation in stock exchange listed companies of the Visegrad Group: a dynamic approach

Purpose: The article aims to analyze the impact of selected factors on the level of financial leverage in stock exchanges listed companies of the Visegrad Group, and to determine whether the direction of this impact is consistent with the assumptions of the trade-off theory or the pecking order theory. Design/methodology/approach: The analysis covered 259 non-financial companies listed in the years 1998-2020 on the stock exchanges in the Visegrad Group countries. The results of the dynamic panel econometric model estimates were verified via appropriate statistical tests. The calculations were carried out using the Gretl package. The subject of the analysis entailed the impact of profitability, liquidity, growth opportunities, company size and asset structure on the capital structure of the entities under examination. Findings: Taking the country-specific effect into account, it has been demonstrated that the company capital structure decisions are consistent with the pecking order theory. Considering the companies surveyed as separate panels, in distribution by each individual country, a negative, a statistically significant correlation has been confirmed between debt and profitability only. Relative to other factors, divergent results were obtained for individual Visegrad Group countries, which does not negate the validity of the statement that the capital structure decisions of the companies analyzed are consistent with the pecking order theory. The dynamic nature of capital structure was confirmed for all Visegrad Group companies, considered collectively and individually, except for Poland. Research limitations/implications: The research takes into account only quoted companies, so its results do not explain capital structure behavior of other companies. The research is a contribution to further analyses of the capital structure, which covers all types of enterprises. Practical implications: Knowing the characteristics describing the activities of a given company and the country in which the company operates, analysts can determine on the basis of estimated models what capital structure is typical for a given company. In addition, the analyst is able to identify the effect of the country, i.e. compare companies in terms of capital structure. Originality/value: The study takes into account the impact of ‘country factor’. It made possible to identify main internal factors characterizing capital structure of the enterprises operating in different economic conditions. Moreover, dynamic nature of capital structure was taken into account. The results can be generalized for all V4’s companies listed on the stock exchange. The conducted research may be addressed to analysts, investors and managers of companies as well as researchers conducting research in this area. Keywords: capital structure, pecking order theory, trade-off theory, panel modeling, Visegrad Group countries. Category of the paper: Research paper.

Determinants of capital structure formation in internationalised companies

Determinants of capital structure formation in internationalised companies

Culture of Individualism and Uncertainty Avoidance in the G20 Countries’ Industries: An Analysis of Capital Structure and Performance

The objective was to analyze the influence of the dimensions of national culture (individualism and uncertainty avoidance) in the relationship between the choice of capital structure formation and the performance of companies in the G20 countries from 2013 to 2018, all in the industrial segment. The companies and countries that make up the sample, which totaled 3,431 companies with all countries and 14,743 observations. The analyzes were performed by econometric structural equations. The results showed a significant and positive relationship between the capital structure and the performance of companies. In evaluating the interaction between the capital structure variable and the cultural dimension of individualism and uncertainty avoidance, they were positively and statistically significant in the performance of companies, proving that culture has an influence on the relationship between structure and performance. Finally, emerging and developed markets were checked separately, demonstrating that in emerging markets the relationship of structure with performance to culture moderation was less affected by national culture (individualism and uncertainty avoidance) than in relation to developed countries.

Influence of Capital Structure on Corporate Performance of Listed Firm in PSX: Role of External Factors

Purpose: A company’s capital structure is a blend of its equity and debt financing and is considered a significant factor in the valuation of any firm. The decisions related to capital structure formation play an integral role for the firms, therefore; this research tends to explore the factors of capital structure and their impact on firm performance. For this purpose, financial data for different listed companies in PSX has been gathered, and dividends and taxes are used as firm external factors. Design/Methodology/Approach: To examine the impact, the panel data has been used for the period 2016-2020 and panel least square has been applied. Findings: The findings suggest that among the variables current ratio, dividends, taxation, total debt to total equity ratio, and the firm size are statistically significant to profitability. The study also concludes that dividends and tax have a greater impact on capital structure and firm performance. Implications/Originality/Value: Managers and owners of the firms must make sure that their profits are used for future investments rather than payment of debts to avoid bankruptcy.

CAPITAL STRUCTURE AND FINANCIAL STABILITY AT NON-FERROUS METTALURGY ENTERPRISES IN KAZAKHSTAN

The company's financing sufficiency and sustainability are achieved through the effective use of borrowed and own funds, which guarantees companies' solvency and creditworthiness. Failure to create directions for the capital structure formation at each development stage and improper use of borrowed funds leads to a limitation of the development pace and non-fulfilment of strategic directions. It leads to non-compliance with the owners' interests. The capital structure optimization plays a crucial role in making decisions on activities and financing investment projects. Although scientists from different countries have widely studied this topic, this topic still requires an in-depth study on the example of developing countries. Since most scientific papers are written only at the organizational level, the impact of leverage on various industries has yet to be studied. The paper aims to analyze the determinants and tools for creating capital structure in the metallurgical industry. It will allow us to determine ways to improve its financial stability. By identifying the factors that affect the capital structure, we can identify the factors that affect the company's overall sustainability. This will allow us to study the capital structure patterns in developing countries and help determine ways to improve its financial stability.

Correlation-and-regression analysis of the influence of macroeconomic factors on capital structure of Russian corporations under crisis conditions

The study reveals the influence of macroeconomic factors on decisions about the optimal capital structure formation under financial globalization, in view of ever-changing factors of the external economic and geopolitical environment. The study is aimed at empirical testing of hypotheses on how the level of financial leverage of corporations depends on traditional determinants during and after the financial crisis under the emerging market conditions in Russia. The study deals with a large data set of 49 public joint stock companies from 7 leading Russian economic sectors for the period from 2011 to 2017. According to the correlation-and-regression analysis results (1) the use of traditional theories of capital structure under the conditions of current financial globalization in a country with a developing economy proves to be ineffective for the optimal capital structure formation (2) the corporate capital structure formation is strongly influenced by macroeconomic factors, which is most evidently manifested during and after the crisis (3) the financial crisis exerts a strong influence on the corporate capital structure (4) the determinant of stock market development has a significant influence on leverage and plays a prominent role in making financial decisions after the financial crisis.

STRATEGY FOR THE FORMATION OF OPTIMAL CAPITAL STRUCTURE WITH SWOT ANALYSIS IN PHARMACEUTICAL SUBSECTORS COMPANIES

<p><em>This study aims to determine the optimal capital structure formation in pharmaceutical sub-sector companies during the period 2014 - 2019 by analyzing profitability, dividend policy, and the SWOT matrix model by analyzing strengths, weaknesses, opportunities, and threats and being the basis for formulating various alternatives. These strategies can be carried out by company management. The company's profitability is not optimal; the company can still distribute dividends. And the results of the study illustrate that the capital structure of the pharmaceutical sub-sector company is not yet optimal. The average proportion of long-term debt capital structure of pharmaceutical sub-sector companies is 18.43% debt and 81.57% equity. Calculation of company value from 2014 - 2019 using the Modigliani Miller approach with a debt proportion of 0% - 100% shows that the highest company value of pharmaceutical sub-sector companies is in the composition of 30% debt and 70% equity. The total WACC averages 47% of the debt. By producing a WACC of 1.92% - 16.89% with a total average WACC of 10%. By considering the WACC, it is concluded that the optimal capital structure for the average pharmaceutical sub-sector company is in the composition of 30% to 60% of the debt.</em><em> </em><em>Meanwhile, the average WACC is 11.10%, and with financial distress, the average WACC value is 10%. Based on considering the company value and WACC above, the capital structure of the pharmaceutical sub-sector company is not optimal. The optimal capital structure will result in high Firm Value and the lowest cost of capital. The results of this study have implications for financial performance, capital structure, firm value, the weighted average cost of capital (WACC), and SWOT analysis, which need to be optimized to achieve optimal capital structure.</em><em></em></p>

The enterprise capital structure management model

Purpose. To create management algorithms for the enterprises capital structure and mathematical formalization of optimization of this structure. To investigate the dynamics of changes in the share of profitable enterprises to assess, analyze and forecast changes in the capital structure of homogeneous groups of enterprises. Methodology. Both empirical and theoretical methods of cognition are used to conduct the research. Methods of scientific observation and comparison are used to form the topic of scientific work, goals and objectives of the study. Methods of analysis and synthesis, induction and deduction, abstraction are used to determine the essential features of capital structure management. Methods of system structuring and modeling are used to create a mathematical model. The analogy method is used to find the weight factor of the objective function. The axiomatic method and the method of convergence from the abstract to the concrete were used for the practical application of the mathematical model, in particular, to analyze the dynamic index of related companies, stratified by size, industry, and so on. Findings. The dynamics of the preconditions for changing the capital structure is studied, the regularities of this change for groups of homogeneous enterprises are revealed. The uneven influence of the crisis on the approaches to the formation of capital structure in groups of homogeneous enterprises is revealed, and the reasons for this are investigated. The similarity of tendencies of formation of capital structure in groups of inhomogeneous enterprises is pointed out. A correlation was found between the decrease in the share of equity and a significant prevalence of external borrowing with an increase in net loss. Moreover, it is established that enterprises, whose total amount of equity and current liabilities is stable and comparable in size with external borrowing, show a decrease in losses. Originality. Algorithms for capital structure management and a mathematical model for optimizing capital structure are proposed. A method of comparative analysis of changes in capital structure for homogeneous groups of enterprises has been introduced, which provides an opportunity to assess the impact of external risks and crisis factors in the past and predict the necessary changes in capital structure during both the new crisis and after the crisis. Practical value. The developed algorithms and mathematical model can be used in research and management practice to manage capital structure. Useful for different categories of professionals are approaches to the analysis of capital structure, the results of the analysis of the causes of change, the study on trends and their consequences for homogeneous enterprises.

The importance of a company’s capital structure in financial relations

Purpose: The main objective of this research was to determine the impact of capital structure on the profitability of Croatian companies. The second objective was to analyze the consistency of the way in which capital structure is managed with respect to the existing theories of capital structure. Methodology: A survey was conducted on the sample of Croatian companies for the period from 2009 to 2019 using panel model GMM estimation. In order to be included in the sample, all shares listed on the Zagreb Stock Exchange were considered which meet the liquidity criterion and are part of the non-financial sector. Accordingly, the sample consists of 30 shares. Results: The research established a significant relationship between capital structure and profitability, with a negative sign. With these results, Croatian companies are placed alongside other companies from countries that belong to the group of developing countries, and diametrically opposed to the results obtained for the markets of developed countries. Indirectly, the validity of theories of capital structure formation on the Croatian market was tested, and it was proved that the behavior of Croatian companies can best be described by settings of the trade-off theory of capital structure. Conclusion: For Croatian companies, this means that any further use of debt will lead to a decline in profitability. Consequently, this means that domestic companies cannot make significant use of the current situation of low interest rates on loans, and therefore they lag behind in terms of the level of investments made.

USING THE CONCEPT OF TRANSACTION COSTS IN CAPITAL STRUCTURE MANAGEMENT

The article discusses the theoretical aspects of issues related to the assessment of capital, the formation of its structure from the point of view of making management decisions in cost formation on its attraction and maintenance. The concept of “capital” is clarified from the point of view of its formation and subsequent efficiency assessment. The approach to the formation of capital structure concepts of the modern period on the development basis is justified. The method of estimating the cost of capital and the formation of the target capital structure, based on the inclusion of transaction costs in the cost of capital, which allows you to more accurately determine the size of these costs in relation to the amount of equity and more accurately generate the weighted average cost of capital of the organization. The empirical nature of the study allows us to use the proposed method of forming the capital structure in relation to various (individual) conditions of the organization’s functioning, followed by clarification of the parameters of decision-making based on the set goals of the organization’s activities.

Formation of funding sources for agribusiness organizations

The paper is devoted to summarizing the experience of forming sources of funding in emerging markets and analyzing the efficiency of capital use using the example of agricultural enterprises in the South of Russia. The literature review covers studies revealing the determinants of the formation of sources of capital funding in both developed and emerging markets. It is noted that the features of the establishment of business structures and the country’s financial system are factors in the choice of hierarchy theory by the management of companies in the formation of capital structure. A study of the impact of the weighted average cost of capital on return on assets was carried out using the example of agricultural enterprises in the South of Russia. The obtained results confirm the developed hypotheses about the negative impact of an increase in the volume of debt financing of agribusiness organizations on the return on assets, as well as about the choice of a conservative agricultural policy by agricultural organizations in forming funding sources. These results are close to the results of applied research on the formation of capital structure in other sectors of the Russian economy.

Innovation Strategy for Business: Financial Management Aspects

Nowadays business is risk-oriented and profit-oriented market activity, the mean of functioning in a market environment, at the same time conditioned by the specifics of a certain branch of the economy. Entrepreneurship is an integral part of the business, its innovative element. Innovation in business is the driving force of economic growth under unstable conditions of the present, requiring rapid adaptation to the dynamic changes of the socio-economic and political situation in Ukraine and abroad. The critical problem of innovation efforts enhancing is the absence of a proper innovation strategy concerned with financial risk and scarce financial capital. Moreover, the market is a stimulus for business development, and the shortage of financial resources (equity and debt) is its limit. In this article, we explore an essence and the role of the innovation strategy for business and its financial management aspects. We argue that the effectiveness of innovation activity depends, above all, on management effectiveness. There are a number of managerial tasks arise coming from peculiarities of innovative projects. The financial management is a key component of the management system of innovation strategies for business, which is very important for ensuring business efficiency under current market conditions. It plays the role of an important means of competition and maintaining a leading position in the markets of goods and services. A timely financial risk assessment of business and the capital structure formation for an innovation strategy are the main prerequisites for ensuring effectiveness. We offer a concept of the innovation strategy for business and, in particular, its financial management aspects. Key words: business, entrepreneurship, financial management, financial resources, financial risk, innovation, innovation strategy.

Firm and industry specific determinants of capital structure: Evidence from the Australian market

We demonstrate the importance of firm-specific and industry-specific factors in the leverage decision on a sample of Australian publicly listed companies from 1999 to 2012. Empirical findings show that some firm-specific factors vary across industries, whereas, several previous studies find an equal impact of these factors. In addition, we find that industry-specific factors have direct and indirect impacts on the formation of the capital structure of Australian firms, but the results of some industry-specific factors are subject to the choices of leverage ratios. Overall, we conclude that industry-specific factors are important in terms of corporate capital structure formation.

The firm-specific determinants of capital structure – An empirical analysis of firms before and during the Euro Crisis

This paper intends to address the effects of firm-specific characteristics on the formation of capital structure amongst a balanced panel sample of 559 firms in six European countries before and during the period of 1999–2015. We find that growth, profitability, tax shields and the effects of the Euro Crisis are significantly negatively related to leverage plus debt-to-equity ratio and are significantly positively correlated with net equity. Additionally, we detect that size, asset tangibility, non-debt tax shields and earnings volatility are significantly positively correlated with leverage along with debt-to-equity ratio and have a significantly negatively relation with net equity. Our model tests the effectivity of trade-off, pecking order and agency cost theories of capital structure. Besides, we divide the full sample into three subsamples illustrating different industries of retail trade and services, manufacturing and construction plus transportation and tourism. We find that the transportation and tourism industry is more negatively impacted by the Euro Crisis than the other two industries.

STRATEGIC FINANCIAL ANALYSIS OF THE FLOUR-AND-CEREALS INDUSTRY’S ENTERPRISES CAPITAL

The article is devoted to the theoretical and methodological principles of strategic financial analysis of capital. The purpose of the investigation is to develop the methodology aspects of the capital structure optimization of the flour-and-cereals industry’s enterprises. Methodology. The dialectical method of understanding the economic processes is the theoretical and methodological basis of the investigation. Such methods are used for achieving the purpose of the article: analysis and synthesis, induction and deduction, abstract and logical method, comparison, modelling, methods of economic statistics, fuzzy sets. Results. On the basis of the present state of the methodology of the strategic financial analysis of company’s capital, it is theoretically grounded methodological approach to the capital structure optimization of the flour-and-cereals industry’s enterprises. As the result of the research, it is established that the level of equity profitability and effectiveness of company’s financial and economic activity are connected with the structure of funding sources. Therefore, to determine the target capital structure, it is proposed to take into account comprehensively such factors as the adjusted profitability of capital (assets) before interest and weighted average cost of capital. Since the company’s equity is characterized by a certain value, to determine the criterion of optimal capital structure, it is necessary to take into consideration the amount of expenses to maintain the existing funding structure. So, there is the necessity to use the modified model to assess the effect of financial leverage, considering the average cost of capital. The utilization of this criterion requires establishing additional limits of the optimal capital structure formation: restrictions on the functioning capital adequacy, on the level of financial stability, on the inalienability of differential of financial leverage, on the level of financial risk. The obtained results have the practical value because they contribute to systems integration of the strategic financial analysis of capital and the financial management requirements and create conditions for its implementation in practice of domestic enterprises. Value/originality. The suggested model of capital optimization can be used to determine its structure according to the necessity in loan capital and its limit value, which may involve the company at an acceptable level of financial risk.

Firm and Industry Specific Determinants of Capital Structure: Evidence from Australian Market Paper

We demonstrate the importance of firm-specific and industry-specific factors in the leverage decision of Australian firms. Empirical findings show that some firm-specific factors vary across industry, while prior literature assumes equal impact of these factors. In addition, we find that industry-specific factors have direct and indirect impact on the formation of capital structure of Australian firms.

A Binary Model Versus Discriminant Analysis to Corporate Bankruptcies for Emerging Market

The problem of the firm bankruptcy prediction was investigated by foreign researchers in the 1930s and it still remains relevant. Since publishing of the major Altman’s work (1968), based on multiple discriminant analysis, this methodological area has been considerably changed. Taking into consideration that new data have appeared in the course of time, companies’ average size has changed and the accounting standards have been changed (Altman (1977)) methods and models should be renewed to be appropriate for the present day situation. The purpose of this investigation is the revealing of factors causing bankruptcy and using models appropriate for prediction bankruptcy in the area of a construction industry during financial crisis. This investigation has been carried out on the basis of logit and probit analysis. The main reasons of bankruptcy revealed in the course of this investigation are the following: •non-optimal capital structure formation •ineffective liquidity management •decrease in assets profitability •decrease in short-term assets turnover The most reliable indicators, which give warning of bankruptcy ahead of others are financial instability and liquidity ratios.

Capital structure formation in multinational and local companies in the Baltic States

This paper investigates whether there are systematic differences in the capital structure formation of local companies and subsidiaries of multinational companies (MNCs) operating in the Baltic States over the period from 2000 to 2008. The analysis is based on panel data estimation on a sample covering 87,000 company-year observations. We find local companies to be more leveraged than MNCs, mainly explained by use of intra group equity financing, lower investment intensity and higher profit retention of the latter. However, MNCs appear to have had better access to external finance, resulting in their competitive advantage over local companies, especially in periods characterised by significant credit constraints. In contrast, local companies appear to have started to increase their leverage under relaxed credit constraints during the years of economic boom, demonstrating local companies’ greater vulnerability to adverse cyclical effects.

The information asymmetry and valuation effects on health care technology

The asymmetry in information between the managers of a health care firm and the rest of the market is of particular importance in corporate finance. This paper studies the effect that information asymmetry has on the financial behaviour of for-profit hospitals during the processes of capital structure formation and accumulation of the wealth needed to advance their health technology. The results indicate that information asymmetry matters in the formulation of a health firm's external and internal capital formation and thereby the extent of its ability to acquire technology. Risk of the market and abnormal cashflow returns are key measures of information asymmetry. As expected, the level of information asymmetry increases the drop observed in the stock price of the firm at or near the announcement date.