Pecking Order Theory Research Articles

The Testing Of Pecking Order Theory For Behavior Financing In The Company's Life Stage

The diversity of behavior financing occurs in companies listed on the Indonesian capital market and still leaves debate on theoretical assumptions so that the researchers are motivated to do this research. This research aims to investigate the behavior financing of each stage of the company's life, specifically for young, mature and waning ages as the repressentations of Pecking Order Theory (POT) financing behavior. The object of this research is a manufacturing company that is listed Indonesian capital market at least 3 years after the IPO and has a complete financial performance report. The results of the regression analysis results behavior of sales growth, profitability behavior, dividend behavior, retained earnings behavior, free cash flow behavior, risk behavior, size behavior and financial leverage behavior, shows various behaviors in each stage of the company's life. Behavior financing at the young and waning stages tends to favorPOTbehavior rather than trade-off behavior financing. In the mature stage, the behavior of profitability, retained earnings,FCF, and size do not supportPOTbehavior tends to lead to trade-off financing behavior.

Corporate Financial Strategy in an Emerging Market: Evidence from Indonesia

This paper focuses on strategic corporate financial decisions related to capital structure to increased firm value, moderated by the COVID-19 pandemic under MM theory, trade-off theory, and pecking order theory. The analytical method used is panel data analysis, with observations of 1828 non-financial companies on the Indonesia Stock Exchange from the years 2019 to 2021. The results show that there is an effect of capital structure on firm value in a positive direction, and the moderating role of the COVID-19 pandemic weakens the effect of capital structure on firm value. The findings show that capital structure only has a significant effect on firm value for the debt-dominant group, but not for the equity-dominant group. The moderating effect of the COVID-19 pandemic affects firm value for the debt-dominant group, but not for the equity-dominant group.

Nonprofit Capital Structure and Financial Determinants of Nonprofit Debt Instruments

Nonprofits that want to finance infrastructure need to design a capital structure - the mix of accumulated funds and external debt - that can raise enough capital while minimizing borrowing costs. Many scholars test two competing capital structure theories - the pecking order and static trade-off theories - in the nonprofit context by examining the determinants of leverage but cannot find results that conclusively support either theory. The inconsistent results raise the question of whether the applicability of two theories vary by debt instruments, due to the varying issuance costs, and default risks associated with debt instruments To answer these questions, I investigate the financial determinants of the use of debt instruments by nonprofits using IRS 990 form data on public charities from 2010 to 2016 and two-step Heckman selection models. I find the pecking order theory can explain the use of tax-exempt bonds better, while the static trade-off theory can interpret the use of mortgages better. When nonprofits have diversified revenue streams, and rely on a predictable source of revenue, nonprofits increase the use of mortgages but reduce the use of tax-exempt bonds. This paper makes theoretical contributions by delineating the applicability of pecking order and static trade-off theories. Keywords: nonprofits, capital structure, mortgages, tax-exempt bonds

Capital Structure and Its Determinants—A Comparison of European Top-Rated CSR and Other Companies

Corporate social responsibility (CSR), ethics, and sustainability have become an inseparable part of the discourse of modern business. Applying linear regression and comparison of intervals of beta-coefficients, we focused on the mediating role of CSR in the relations between capital structure and its determinants. Examining the sample of European large caps, we observed that CSR companies are significantly more leveraged than non-CSR ones. The influence of the corporate income tax rate and depreciation and amortization on leverage does not differ significantly between CSR and non-CSR companies. Moreover, tax shields seem to be insignificant for both CSR and non-CSR companies. However, we should stress that, for depreciation and amortization, the beta coefficient has a different significance in the model of CSR companies, compared to the model of non-CSR companies. Also, the difference between the models regarding the relations of leverage and asset tangibility is worth noting. Non-CSR companies with a higher proportion of fixed assets have lower leverage. This result was not confirmed for CSR companies. The hypothesis that CSR replaces the role of collateral cannot be confirmed. Available cash influences leverage negatively in both models, supporting the pecking-order theory. This result is much stronger for non-CSR companies compared to CSR ones. This study found fewer statistically significant differences between CSR and non-CSR companies regarding capital structure determinants than were expected.

RELATIONSHIP BETWEEN WORKING CAPITAL MANAGEMENT PRACTICES AND FINANCIAL PERFORMANCE BY REGISTERED PROPERTY DEVELOPERS IN KENYA

Purpose: Working capital management is acknowledged as a very significant element in examining performance of firms. In property development sector, large developers dominate the market but there still exist a huge housing hollow. Property development firm faces challenges in areas of working capital management that limits them in fulfilling the housing needs of citizens and further exposes the firms to poor financial performances. The current study sought to establish the relationship between working capital management practices and financial performance by registered property developers in Kenya. Specifically, the study sought to investigate the relationship between debtors’ management practices, inventory management practices, cash management practices and creditors’ management practices and financial performance by registered property developers in Kenya.
 Methodology: The study was anchored on Agency Theory, The Theory of Working Capital Management, The Trade- off Theory and The Pecking Order Theory. The population of the research was seventy-six registered property developers in Kenya. The unit of observation comprised of finance managers. A census approach was employed in the study. The study utilized both primary and secondary data where structured questionnaires were used to gather primary data while a secondary data collection was used in gathering secondary data from the respective firm’s financial reports. Both inferential and descriptive statistics were employed in analyzing the collected data and results presented in form of tables and figures.
 Findings: The results of the analysis revealed that Cash Management Practices, Debtors’ Management Practices, Creditors’ Management Practices and Inventory Management Practices positively and significantly relates with financial performances of registered property developers in Kenya. The study concluded that Cash Management Practices, Debtors’ Management Practices, Creditors’ Management Practices and Inventory Management Practices positively and significantly relates with financial performances of the property developers.
 Unique contribution to theory, policy and practice: The study recommends the management of registered property developers in Kenya to enhance their practices in Cash Management, Debtors’ Management, Creditors’ Management and Inventory Management since the practices positively and significantly relates with financial performance of the property developers.

The Nexus Between Capital Structure and Stock Prices: Evidence from Non-agricultural Firms in Vietnam

The paper used the generalized least square (GLS) method to investigate the nexus between capital structure and stock price of 438 non-agricultural firms listed in Vietnam Stock Exchange for the period 2014-2020. The empirical results indicate that capital structure negatively significant impacts on stock price. In turn, the stock price affects positively and significantly capital structure. The empirical evidence shows that the market timing, the signaling and the pecking order theories are appropriate to explain the nexus between capital structure and stock price of non-agricultural companies in Vietnam.

Capital Structure, Investment Decision and Financial Performance of SMEs in Uganda

The paper explored the relationship between capital structure, investment decision and financial performance of SMEs in Uganda a case of Central Uganda. The study adopted a descriptive, cross-sectional and correlational design. The sample size was 226 SMEs in Central Uganda. The findings point to a moderate significant positive relationship between capital structure, investment decision and financial performance of SMEs. Capital structure and financial performance of SMEs (r = 0.642, P-value = 0.000), investment decision and financial performance of SMEs (r = 0.488, P-value = 0.000). From the results, we confirm that capital structure, investment decision, predict up to 66.2% of the change in financial performance of Small and Medium Enterprises in Central Uganda. The results show good model fits and fig.2 defines the model of capital structure and investment decisions on financial performance of SMEs in Uganda and is encompassed of 4 proportions of capital structure in terms of Equity, Long term Debt, Short term debt as well as investment decisions and their predictive power on financial performance of SMEs in Uganda. Figure 2 and table 1 and 2 clearly indicate that capital structure and investment decisions are significantly associated with return on assets (ROA) which in turn leads to improved financial performance. The study recommends an appropriate mix of capital structure coupled with premeditated investment decisions so as to have improved financial performance of SMEs in Uganda. The current study underwrites to academic research by providing empirical proof to support theories pertinent to the elucidation of financial performance. The study was anchored on Pecking Order theory together with Modigliani&Miller theory and the results depict the behaviours that managers have while making decisions concerning capital structure and investment decisions. With such, the precursors of capital structure, investment decisions on financial performance of SMEs in Uganda and other related developing countries has been revealed.

Do the Firms Utilize Market Timing? Capital Structure of Restaurant Firms by Pecking Order and Market Timing Theories

ABSTRACT The purpose of this study is to examine whether restaurant firms prefer debt to equity financing and utilize market timing well in equity financing during firm value maximization. For this purpose, two theories were applied – pecking order and market timing. Secondary financial data was collected from restaurant firms based in the United States. Subsequently, bivariate correlation, fixed and random effects, and pooled Ordinary Least Square (OLS) analyses were performed on the statistical data. The analysis outcomes support the pecking order theory, meaning that restaurant firms rely significantly on debt over equity in financing decisions. The analysis outcomes of the market timing proxy indicate that restaurant firms either do not use market timing enough or do not have a sufficient window of opportunity (firm value maximization) for equity financing. Although the restaurant industry has a relatively higher liability ratio than other industries, its financing decisions combining debt and equity have never been examined. The theoretical and managerial implications have been suggested in terms of balancing debt and equity financing decisions and the influence of corporate governance structure on financing decisions.

Profil Keputusan Struktur Modal Pelaku Usaha Mikro, Kecil Dan Menengah

Research on capital structure so far has often been studied in the context of large companies and there are still few studies that explain it in the context of Micro, Small and Medium Enterprises (MSMEs). Not only that, research on capital structure has so far been dominated by research with a regression-based model and focuses on business characteristics, not individuals. In addition, the development of capital structure in Indonesia is also dominated by research from Java. This has become the author's interest in researching the capital structure of MSMEs in areas outside Java, more precisely in East Sumba Regency, East Nusa Tenggara Province (NTT). By using quantitative descriptive data analysis techniques on 208 samples of actors as long as MSME owners in East Sumba Regency, the results show that the capital structure decision profile of MSME actors in East Sumba follows the pecking order theory pattern, where MSMEs prioritize internal funding over external funding. However, this theory is not the only one in explaining the profile of capital structure decisions, because the trade-off theory is also illustrated even though the percentage is small.

Exploring Local Government Financing Strategies in China: A Capital Structure Perspective

This study analyzes how local governments use external financing instruments to adjust their capital structure. External financing instruments (public debt and public-private partnership [PPP]) have become critical options for most local governments to deal with budget constraints. We construct an indicator of the external financing ratio (EFR) to measure local governments’ dependency on external financing instruments. Based on the pecking order and tradeoff capital structure theories, we utilize city-level panel data in China between 2015 and 2019 to investigate the financing strategies of local governments. We report two main findings. First, the financing strategies of China’s local governments follow the pecking order theory. In other words, internal financing has priority over debt and then PPP. Second, consistent with the tradeoff theory, China’s local governments continuously adjust to a target EFR. In addition, compared with debt financing, the adjustment of PPP financing is relatively inelastic. Our study emphasizes the importance of public financial management reinforced by local governments to prevent fiscal risks in the context of intensified financial stress.

DETERMINANTS OF BANK CAPITAL STRUCTURE: EVIDENCE FROM INDONESIA

Abstract –The capital structure in banking has become discussed due to the competition with the fintech and bank digital and debate about the efficiency of its choices. The purpose of this paper is to investigate the dynamics that go into determining a bank's capital structure in Indonesia. The capital structure of Indonesian banks is examined using a panel regression model. Profitability, corporate tax, growth, collateral, and bank size all influence banks' financing or capital structure decisions, according to the findings of this study. The study's most important result is that debts finance more than 87 percent of banks' assets, with short-term obligations accounting for more than three-quarters of bank capital. This emphasizes the importance of short-term borrowing in Indonesian bank funding over long-term debts. The fundamental contribution of this article is the identification of factors that influence the capital structure of Indonesian banks.
 Keywords: Capital Structure Determinants; Banks; Trade-Off Theory; Pecking Order Theory

Impactos da pandemia de COVID-19 na relação entre estrutura de capital e desempenho: análise das empresas listadas na B3

Objective: This study aimed to identify, per sector, the impact caused by the Covid-19 pandemic on the relationship between Brazilian companies listed on B3 capital structure and performance.Method: Financial Statements data from 2019 and 2020 of 100 Brazilian companies that were listed in B3 were analyzed. After collecting data from the Economática® database, indebtedness, performance, and control variables were calculated.Originality: The results found may be useful for future studies on the capital structure, helping to enrich the Pecking Order Theory. The study intends to attract the interest of managers who seek to expand their knowledge on the subject.Results: The findings show that the Covid-19 pandemic negatively impacted all companies in the sample, increasing their indebtedness and, therefore, decreasing their performance, since the correlation between indebtedness and performance was negative. It was found that in all sectors the indebtedness variables showed a negative correlation with the measured performance variables.Contributions: This study contributes to the expansion of work on capital structure, especially as it presents results of Brazilian companies during Covid-19 period. Furthermore, it is possible to ratify Pecking Order Theory assumptions, or in other words managers adjust their resource preference to finance their firms.

Valuing the Interest Tax Shield in the Central European Economies: Panel Data Approach

Capital structure is one of the most frequently discussed issues within Corporate Finance Theory. Optimizing the capital structure and value of the tax shield through the evaluation of its interests can lead to the increasing value of the enterprise, followed by the rising competitiveness and flexibility. The aim of this study is to provide a novel look at the value of the interest tax shield and its determinants in the emerging economies of the Visegrad Four. The model was created on a net sample of nearly 7,000 profitable enterprises between 2015 and 2019 using a one-way fixed effects model of panel data. Regional model results show five main determinants of the debt tax shield (Tangibility, Current Ratio, Gearing, Cost of debt and Size). Others, such as non-debt tax shield, business growth or profitability, are regional, and their impact varies depending on the economic conditions of the countries. The direction of influence of the main determinants indicates that, contrary to the assumed trade-off theory, profitable companies manage the capital structure and the value of tax shield according to the pecking order or modified pecking order theory. The tax shield is made up mostly of interest on short-term loans, which increases the risk of financial distress. There is a hierarchy of funding sources, from trade credit, through shortterm loans, to long-term loans, which are used in the analysed firms to the smallest extent. The structure of liabilities may be considered another determinant of the debt tax shield.

ANALYSIS OF DETERMINANTS OF CORPORATE CASH HOLDING OF LISTED MANUFACTURING COMPANIES ON THE MACEDONIAN STOCK EXCHANGE

In this study, we identify the determinants of cash holding in Macedonian manufacturing companies. The analysis was conducted using accounting data from publicly available financial statements of the sample of Macedonian industrial companies for the 2005 to 2019 period. The research was conducted through the prism of the postulates of the three main theories in corporate finance, i.e., the trade-off theory, pecking order theory,and thefree cash flow theory. To that end, we applied a panel regression analysis, while from the obtained results we assess which theoretical model best explains the cash management in Macedonian companies. We found that the cash to total assets ratio averaged 3.1%. The cash holding decreases with the decrease of the net working capital, financial leverage,cash flow variability, andcash conversion cycle. Cash holding increases with the increase of the company size, cash flow, debt maturity, and capital investments. We concluded that most of the results are in line with the pecking order theory, which indicates that Macedonian companies do not have predefined cash balances, and the cash holdings are abuffer between retained earnings and investments. The level of cash holding is not planned and is not optimized, but is determined during the work processes and depends on other business decisions.

Fundamental Factors of Financial Ratios and Discretionary Accruals in Influencing the Companies’ Fixed-Asset Investment Decisions

Research aims: This study aims to empirically prove the influence of profitability, solvency, liquidity, activity, dividend policy, and discretionary accruals on fixed-asset investment decisions.Design/Methodology/Approach: The researchers used consumer goods companies listed on the Indonesia Stock Exchange (IDX) from 2013 to 2019. Using the purposive sampling method, this study resulted in 163 bank-year observations. The data were then analyzed utilizing a fixed-effect model.Research findings: The results showed that profitability, liquidity, activity, and discretionary accruals positively affected fixed-asset investment. Meanwhile, the dividend policy negatively affected fixed-asset investment. This study strengthens the pecking order theory. In addition, the research sample used internal funds as a funding source for investment in fixed assets.Theoretical contribution/Originality: The variable added in the study distinguishing it from previous researchers is the discretionary accrual variable. Discretionary accruals have been proven to impact resource allocation, one of which is investment decisions. The additional discretionary accruals variable is expected to strengthen the influence of the consumer goods companies' fundamental factors on investment decisions in fixed assets.Practitioner/Policy implication: Investment in fixed assets in the consumer goods companies uses internal funds because these funds are low risk and support the company's sustainability.Research limitation/Implication: This study used dividend policy as one of the independent variables, and companies that did not distribute dividends could not be sampled.

Firm Characteristics and Working Capital Financing Adopted by Non-Financial Firms Listed at Nairobi Securities Exchange, Kenya

The working capital requirement is critical to any organization. However, the working capital of numerous non-financial firms listed at NSE has been negative. Thus, the study examined the influence of firm characteristics on working capital financing. Precisely, the study examined the influence of firm size, asset tangibility, profitability and leverage on working capital financing. Five theories, namely, Baumol design, pecking order theory, trade-off concept, economies of scale theory and profit maximization theory, informed the study. The study employed an explanatory research design. The target population were 45 non-financial firms listed at NSE. The study carried out a census of all the firms. The research collected secondary panel data. The study period was between 2015 and 2019. The results from the model fitness showed that firm size (log of total assets), asset tangibility, profitability (ROA) and leverage explain 64.70% of the variations in the working capital financing of the non-financial firms. The correlation results showed that firm size measured through the log of total assets, asset tangibility and profitability were positively associated with working capital financing. In contrast, leverage was found to be negatively associated with working capital financing. The regression results showed that firm size, asset tangibility and profitability have a significant positive effect on working capital financing. However, the regression results revealed that leverage has a significant negative effect on working capital financing. The study recommended non-financial firms listed at NSE look for strategies that increase their assets. Enormous firms are expected to be more financially stable with more investments, thus reducing borrowing. In addition, the firms should look for ways to increase asset tangibility. The firms can invest in more assets such as plant and equipment, buildings, computer equipment, software, furniture, land, machinery, and vehicles. Moreover, the non-financial firms listed at NSE to look for strategies to reduce the leverage levels. External funding of the operations, such as debts, should be used if all the other internal financing options are exhausted. Keywords: Firm size, asset tangibility, profitability, leverage, working capital financing, non-financial firms listed at NSE, Kenya

Capital Structure, Corporate Governance, Equity Ownership and Their Impact on Firms’ Profitability and Effectiveness in the Energy Sector

This paper aimed to research the interrelation between capital structure, corporate governance, equity ownership, and how they affect firm performance. The sample used consisted of 10 leading-energy-sector companies traded in the NYSE, most of which rank among the largest companies in the world by market capitalization, while the US-based ones are also Fortune 500 companies. Over the eleven-year period examined, from 2009 to 2019, a sampling frame of 110 data series was gathered and analyzed using panel data methodologies. The impact of the key parameters of capital structure, corporate governance, and equity ownership was tested using regression analysis (panel data method) on firm performance, measured by profitability. Our results support a significant relation among major capital structure and corporate governance parameters and firm performance, whereas no evidence was found to support a significant impact of equity ownership on the dependent variable found ascertained. Furthermore, our findings support that in our sample firms, pecking order and agency cost theories play an important role in the financing of these firms, while static trade and irrelevance theory find no support.

Debt of Hotel Companies: The Impact of Company Characteristics and Crisis Periods

This paper studies the financial determinants of debt of Portuguese hotel companies using the main indicators suggested by the Trade-Off and the Pecking Order theories. The main objective of this study was to analyse the determinants that most contribute to the debt of Portuguese companies in the hotel industry. The study also aimed to understand the impact of crisis periods on the debt. Since data collected refers to the period between 2005 and 2020 it also analyses the impact of the 2008 financial crisis and, more recently, the global pandemic COVID-19. The results show that debt is negatively associated with profitability and age, and is positively associated with size, growth opportunities and tangibility. These results are in line with the Pecking Order theory, ranking the choice of financing methods. We can also conclude that the way hotels finance their assets will affect their level of debt. We also evidence that debt of Portuguese hotels companies increases in periods of crisis.
 Keywords: Debt; Hotels companies; Crisis; Capital Structure

The Effects of Financial Leverage on Firm Performance in Shariah-Listed Consumer Products & Services Firms

This study examined the effects of financial leverage on firm performance that focussed on Shariah-listed Consumer Products & Services firms in Malaysia from 2014 to 2018. The data for firm performance was Tobin's Q and return on asset, while debt-asset ratio, debt-equity ratio, and tangibility were indicators of financial leverage. This study applied a balanced panel regression model, including the pooled regression model, fixed-effect model, and random effect model. The results indicated that Tobin's Q is the best model to identify the impact of financial leverage on Shariah firm performance. The outcome showed that the financial leverage indicators had a significant and negative effect on Shariah firm's performance, in line with the assumption of the pecking order theory assumptions that internal financing will be the first option of financing compared to external financing. Keywords: Shariah firms, financial leverage, firm performance, Tobin’s Q, internal financing

Financial Crisis and the Payout Policy under Asymmetric Information

Pecking order theory predicts that the Information asymmetry makes firms reduce dividends to save internal cash because outside financing is more costly. Simultaneously, firms have an incentive to actively reduce the information gap by paying dividends. Dividend paying firms can build a good reputation which makes the future outside financing cheaper. We contribute to the literature by providing information about the marginal impact or the relative quantitative influence of the pecking order and the signaling incentive, and by showing how they evolve over the crisis period. In general, the pecking order dominates the signaling and the aggregate relation between the asymmetric information and the dividend proves to be negative. Reputation building takes a long time, the benefit of which can not be harvested in the short run. Contrarily, the pecking order driven benefit of reserving cash is immediate. Firms behave differently, in our 100 portfolios, we observe a significant increase in the marginal influence of the pecking order incentive during the crisis period. The decomposition between the crisis and the noncrisis period suggests that the knowledge of the competing two incentives can explain a significant additional portion of corporate payouts on top of the traditional dividend model of Fama and French.