Pecking Order Theory Research Articles

Tekstil ve Hazır Giyim Firmalarında Sermaye Yapısının Belirleyicileri Üzerine Ampirik Bir Çalışma

This study aims to analyse the factors that influence the capital structure decisions of Turkish listed textile and apparel firms over the period from 2010 to 2019. The results of Driscoll and Kraay’s (1998) panel regression model show that the leverage ratio is significantly and negatively affected by firm size, profitability, liquidity, asset tangibility, and is positively affected by non-debt tax shields, growth opportunities, earnings volatility, and GDP growth. The pecking order theory seems to be the most successful in explaining the determinants of the capital structure of Turkish textile and apparel firms.

Bankaya Özgü ve Makroekonomik Faktörlerin Bankaların Sermaye Yapısı Üzerine Etkisi

This study aims to investigate the bank-specific and macroeconomic factors that affect the capital structure of banks. The study used panel data from 42 banks operating in Turkey from year 2003 to 2017. In the analysis, total, long-term and short-term debt ratios are used as a proxy for capital structure. The findings show that bank size, growth opportunity, interest rate and exchange rate positively affect the three leverages, while profitability has a negative effect. Most of this study findings are related to the expectations of pecking order theory.

THE IMPACT OF COVID-19 ON INTERNALLY GENERATED REVENUE OF SOUTH-WEST NIGERIA

Purpose: the paper investigated the impact of COVID-19 on the Internally Generated Revenue (IGR) of southwest Nigeria comprising Ekiti state, Lagos state, Ogun state, Ondo State, and Osun state, Oyo state.
 Methodology: the authors sourced data from secondary sources; the Internally Generated Revenue was obtained from the annual publication of the National Bureau of Statistics covering 2019 and 2020 and the COVID-19 confirmed cases were obtained from National Disease Control Centre.
 Findings: The result showed that paired correlation of IGR 2019 and 2020 showed a strong positive correlation and the same was also true of COVID-19 cases and IGR 2020 (p = 0.001). The result of the t-test showed no significant difference (p > 0.05) between IGR 2019 and IGR 2020 quarter on quarter.
 Unique Contribution to Theory, Practice and Policy: The result supported two theories; The ‘Pecking Order Theory and Ability-To-Pay, Internally Generated Revenue focuses on funds derived within the state, just like internal financing to a firm. The internally generated revenue did not decline during the pandemic because taxes were paid since the majority were paid salaries during the pandemic and transactions were conducted online via platforms, more importantly, the Central Bank of Nigeria did not shut down so economic activities were not paralyzed but migrated to online. The study proved that in times of crisis, IGR may not be adversely affected if all the channels of generating income are available to taxpayers. This aids budget and planning during a crisis period, furthermore, the government will be able to plan and channel funds to areas of need accordingly. The result further supported the new model of working; people can work remotely and pay their taxes despite the lockdown.

The impact of liquidity on the capital structure of construction companies

The purpose of this research is to examine the effect of liquidity on the capital structure of construction sub-sector companies listed on the Indonesia Stock Exchange. Data was collected using secondary data and library research. The population used in this study comprised all construction sub-sector companies listed on the Indonesia Stock Exchange from 2013–2020. In determining the sample, this research applied the purposive sampling method. This study used a sample of 10 construction sub-sector companies and managed and analyzed a total of 80 observational data using E-views software. The results indicate that liquidity has no significant effect on capital structure as measured by LTDAR. However, liquidity had a significant negative effect on capital structure as measured using DAR, DER, STDAR, LTDER, and STDER. The results support the pecking order theory, which states that liquidity and capital structure have a negative relationship.

The Effect of Capital Structure on the Performance of Marginal Oil Fields in Nigeria

Marginal fields are pivotal to wealth creation and indigenous participation in the oil and gas industry. Despite the potential role of marginal fields in economic growth, indigenous operators are confronted with financing fields development. This study examined the relationship between capital structure and performance of producing marginal oil fields in Nigeria. Ten fields operated by five companies were empirically investigated between 2011 and 2021. Firm’s performance indicators are accounting-based measurement namely, Return on Asset (ROA) and Return on Equity (ROE). Capital structure measures are equity, long term debt and short-term debt. Panel Corrected standard errors regression technique was employed to analyse time series cross sectional data. Findings indicate that there was a significant positive relationship between equity and performance of Marginal fields in Nigeria. These corroborate Pecking order theory that firms use retained earnings first, then debts. Long term debt and short-term debt show negative relationship with marginal field operators’ performance. This could be attributed to the high cost of borrowing in Nigeria and the unwillingness of local banks to grant loans without adequate collateral.

CASH - CASH FLOW SENSITIVITY: EVIDENCE FROM EMERGING MARKETS

This study analyzes cash-cash flow sensitivity by comparing financially constrained and unconstrained firms in eight markets. 486 manufacturing firms are examined between 2005 and 2018 using the Generalized Method of Moments. These firms are categorized based on size, age, and Size-Age, Sales-Age, and Kaplan and Zingales indices. We find that both constrained and unconstrained firms evince positive cash-cash flow sensitivity. Although unconstrained firms obtain external financing easily, they prefer to first use internally generated funds in accordance with the pecking order theory. The results also reveal that cash-cash flow sensitivity cannot be used to test financial constraints in emerging markets.

DIVIDEND POLICY AS A SUPPLY OF COMPANY FINANCIAL FLOWS IN THE PERSPECTIVE OF INFORMATION ASYMMETRY AND OWNERSHIP STRUCTURE

Dividend policy is one of the important factors that supply the company's financial flows and operational activities. This study examines the determinants of dividend policy from the perspective of information asymmetry and institutional ownership. The research sample is the companies listed on Indonesia Stock Exchange that pay dividend consecutively from 2016 to 2020. The method of analysis is SEM-PLS operated with WarpPLS 8.0. The results showed that high information asymmetry between company management and shareholders encourages managers to reduce dividend payments for the purpose of providing company capital and production activities. Furthermore, the existence of institutional ownership supports managers' policies and prefers that company profits should be used to supply capital, not be distributed to shareholders. This finding is consistent with the pecking order theory and also implicates the need for a corporate governance system to be improved to give better protection to the investors.

Determinan Struktur Modal: Perspektif Pecking Order Theory dan Trade-off Theory

This study aims to determine how much influence the asset structure, non-debt tax shields, firm size and profitability have on the capital structure of the Food and Baverages Sub-Sector Companies listed on the Indonesia Stock Exchange. The method used in this study is a quantitative method. The data analysis technique used in this research is multiple regression analysis. Asset structure has a positive and significant impact on the capital structure of companies listed in the Food and Beverage Industry Sector on the IDX for the 2014-2018 period. With the value of the beta coefficient included in the low category, the results of this study are in accordance with the Trade-off theory. Non-debt tax shields have no significant effect on the capital structure of companies listed in the Food and Beverage Industry Sector on the IDX for the 2014-2018 period. With the value of the beta coefficient being very low, the results of this study are not in accordance with the trade-off theory. Firm size has a significant effect on the capital structure of companies listed in the Food and Beverage Industry Sector on the IDX for the 2014-2018 period. With a low beta coefficient value. The results of this study are not in accordance with the pecking order theory. Profitability has a positive and significant effect on the capital structure of companies in the Food and Beverage Industry Sector Listing on the IDX for the 2014-2018 period. With the value of the beta coefficient is included in the low category. The results of this study are in accordance with the pecking order theory.

Entrepreneurial Financing Practices and Growth of Youth Owned Micro and Small Enterprises in Kenya

Despite the importance of MSEs to the Kenyan economy, the rate at which new firms are formed, have stagnated and the already established MSEs younger than 5 years are collapsing a great deal. This study thus sought to establish the effect of entrepreneurial financing on growth of youth owned Micro and Small Enterprises in Kenya. The study was guided by the following specific objectives; to establish the effect of digital credit on growth of youth owned Micro and Small Enterprises in Kenya, to assess the effect of banks and microfinance lenders on growth of youth owned Micro and Small Enterprises in Kenya, to determine the effect of equity financing on growth of youth owned Micro and Small Enterprises in Kenya, and to find out the effect of investors on growth of youth owned Micro and Small Enterprises in Kenya. The study was anchored on technology adoption theory, influential theory, pecking order theory, and agency theory. The researcher used descriptive research design. The target population for this study was 2672 MSEs in Kenya. Yamane formula was used to determine study sample size which was 348 owners of the MSEs. The researcher used simple random sampling to select the sample. Questionnaire was used as the research tool. The study piloted the questionnaire on 17 MSEs from Kiambu County (5% of sample size). The study employed both quantitative and qualitative methods of data analysis. Qualitative data analysis involved coding and systematically putting into themes the open ended questions which was analyzed through content analysis and presented in prose form. Quantitative data was analyzed using descriptive and inferential statistical techniques. Descriptive statistics was used to present the main characteristics of the sample and involved use of mean, measures of dispersion and percentages. Correlation analysis was used to investigate the relationship between study variables. The study used SPSS version 25 software to carry out regression analysis. Data was presented using tables, and figures to make them reader friendly. The study concludes that digital credit has a positive and significant effect on growth of youth owned Micro and Small Enterprises in Kenya. In addition, the study concludes that banks and microfinance lenders has a positive and significant effect on growth of youth owned Micro and Small Enterprises in Kenya. Further, the study concludes that equity financing has a positive and significant effect on growth of youth owned Micro and Small Enterprises in Kenya. The study also concludes that investors have a positive and significant effect on growth of youth owned Micro and Small Enterprises in Kenya. In addition, the youth owned SMEs should consider interest rates charged, repayment duration and collateral required before accessing the credit facility Keywords: Entrepreneurial Financing Practices, Growth, Micro and Small Enterprises

Does National Governance Affect the Capital Structure of Listed Firms during the COVID-19 Pandemic?

This study estimates the macro-economic factors affecting the listed small and medium enterprises' capital structures in Vietnam from 2010 to 2020. The author conducts the quantitative method (generalized method of moments—GMM) with valid instrument variables to solve the endogeneity in regression models, which refers to the determinants of capital structures. Based on the trade-off theory and the pecking order theory, the author provides evidence of macro-economic factors and firm-specific factors in explanations for the capital choices of the Vietnamese firms, including national governance, inflation, COVID-19, firm age, and asset structure. In particular, this study highlights how national governance and COVID-19 influence the capital structure of small and medium enterprises in Vietnam. Doi: 10.28991/ESJ-2023-SPER-04 Full Text: PDF

Determinants of choice between equity issuance, equity repurchase and debt issuance of South African companies listed on the Johannesburg Stock Exchange

Purpose: The introduction of dual decisions (such as the issue of shares and the issue of debt; the repurchase of shares and the repayment of debt; and share issues and share repurchases) has provided an order of preference of financing decisions influenced by company-specific attributes. The aim of this study is to investigate determinants of choice of South African companies listed on the Johannesburg Stock Exchange (JSE) between different financing decisions.Design/methodology/approach: Data were obtained from Integrated Real-time Equity System (IRESS), a reliable supplier of financial data. Data of 90 companies were analysed. A logistic regression model (fixed effect) was used, and multinomial logistic regression (fixed effect) was done using a generalised structural equation model.Findings/results: The research findings highlight the significance of the trade-off theory, the pecking order theory and models based on asymmetric information in elucidating financing decisions in a developing country. The findings extend empirical evidence of determinants of choice between equity issuance, equity repurchase, the no-transaction alternative and debt issuance decisions in South Africa’s emerging economy. The findings also suggest that South African companies listed on the JSE must evaluate company-specific variables and theories that correspond to such variables if they wish to make better financing decisions.Practical implications: The findings will help corporate decision-makers decide between equity issuance, equity repurchase and debt issuance. The findings will also help shareholders make better investment decisions.Originality/value: The article investigates the determinants of choice between four financing decisions and the no-transaction alternatives within the same framework.

Target capital structure for managerial decision making: Dynamics and determinants

The study examines the dynamics and determinants of target capital structures among manufacturing firms listed on the Nigeria Stock Exchange during the period from 2012 to 2021. The study is motivated by the disparity in the Speed of Adjustment (SOA) to target leverage, which is influenced by firm-specific attributes largely dependent on macroeconomic indices. Therefore, understanding the determinants of SOA to target leverage is germane because no two macro-economic environments are the same. A longitudinal research design is used with a population of 75 manufacturing firms. The sample consists of 42 firms, drawn using a simple random technique. Secondary data is sourced from the annual report. Generalized Method of Moments is the estimation technique. The result shows that manufacturing firms adjust to a target capital structure with a high speed of 72%. This confirms the application of dynamic trade-off theory among listed manufacturing firms in Nigeria. Profitability, firm size, and asset tangibility are significant determinants of SOA to a target capital structure, confirming pecking order, agency, and static trade-off theories, respectively. Tax shelter and growth were not significant determinants. The study concludes that there is evidence of dynamic adjustment to the optimal capital structure of listed manufacturing firms in Nigeria. Governments and policymakers in firms should make effective policies that aid speedy access to long-term funds by these firms to increase their SOA to target capital structure.

Selected Factors Influencing Financial Sustainability of Women-Owned Manufacturing Small and Medium Enterprises in Westlands Sub County, Nairobi, Kenya

Most women-owned enterprises (WoEs) experience financial sustainability challenges mostly manifested by failure of these enterprises before their third year of operation. This research examined influence of selected factors on financial sustainability of women-owned manufacturing SMEs in Westlands Sub County, Nairobi, Kenya. Access to credit, level of education, competition, and technology were conceived as the independent variables while financial sustainability was the dependent variable. The underpinning theory is the Pecking Order Theory and the Resource-Based View of the firm. A descriptive research design utilizing a quantitative approach was adopted for this study. The target population was 195 WoEs from which a sample size of 131 was reached. Using simple random sampling, the final sample size was 111 respondents indicating a response rate of 84.7%. A structured questionnaire was used to gather information for this research and these was analyzed using SPSS. The study found that access to credit, competition, technology and level of education significantly affected the financial sustainability of these firms. These findings have implications for WoEs management, the government, and development partners. Keywords: Women-Owned Enterprises, Financial Sustainability, Access to Credit, Technology, Competition and Manufacturing

Funding marketing resources and capabilities during a recession: an empirical examination of top corporate advertisers

PurposeThis study aims to ask whether the funding behaviour of companies is different during a recession. Specifically, the authors study whether firms fund marketing resources and capabilities with internal or external financing during a recession and under which conditions of strategic financial flexibility debt might be used to fund marketing resources and capabilities in recessions.Design/methodology/approachThis study estimates empirical models using a newly merged data set covering 17 years, from 2000 to 2016. The authors merge firms’ marketing and financial information from Advertising Age, the American Customer Satisfaction Index, Compustat and the Centre for Research in Security Prices. The sample includes a panel of 653 firm-years of 67 top corporate advertisers.FindingsThe results indicate that firms take recessions as opportunities to be proactive and invest in short- and long-term marketing capabilities, companies with higher strategic financial flexibility relative to their industry peers tend to rely more on debt to fund short- and long-term marketing capabilities during recessions, firms use internal financing to fund their marketing budgets and short-term marketing capabilities in recessionary and non-recessionary periods and firms use internal financing and signals from past stock returns as mechanisms to fund long-term marketing capabilities.Research limitations/implicationsThe findings contribute to the body of knowledge on the antecedents of marketing resources and capabilities. The results extend the pecking order theory to include recessions and provide nuances of the financing drivers of resources and capabilities.Practical implicationsCompanies should be proactive during recessions and invest in short- and long-term marketing capabilities. When negotiating marketing budgets with chief financial officers, marketing practitioners could suggest the sources to finance specific marketing resources and capabilities. Based on the results of top corporate advertisers, the authors recommend companies to fund marketing capabilities with internal resources (e.g. cash flows, retained earnings), and if cash is not available, companies need to rely on their superior strategic financial flexibility to access long-term debt and fund investments in marketing capabilities. The authors also recommend companies to fund long-term marketing capabilities by re-allocating investments. As well, signals from past performance are an important source to gain access to capital and fund investments in long-term marketing capabilities.Originality/valueThis study provides a more complete picture of the financial antecedents of marketing resources and capabilities in general and during a recession. The authors provide light on the moderating role of strategic financial flexibility during recessions. This study also clarifies the potential signalling of past performance for funding marketing resources and capabilities.

Does Financial Leverage Fit Firm Performance During the COVID-19 Pandemic

The paper aims to determine the effect of financial leverage on the performance of Vietnamese small and medium enterprises during the COVID-19 pandemic. Based on the agency theory and pecking order theory, combined with the quantitative method, the financial leverage and COVID-19 are statistically significant factors affecting the performance of small and medium enterprises in Vietnam. Significantly, the author emphasizes that financial leverage has a positive effect on the performance during the pandemic. Furthermore, there is the existence of homoscedasticity and no-autocorrelation in the model when using feasible general least squares. It confirms that the model estimation is unbiased and reliable.

The Nexus Between Relationship of Environmental Uncertainty and Capital Structure: Corporate Governance as Moderator

Changes in the external environment create uncertainty for the company. This study aims to find empirical evidence of the effect of environmental uncertainty on the capital structure of companies moderated by corporate governance. The research was conducted on manufacturing companies in Indonesia during 2014-2018. Data were analyzed using moderated regression analysis. The findings show that the effect of environmental uncertainty on the company’s capital structure and the moderating ability of corporate governance strengthens the effect of environmental uncertainty on the company’s capital structure. The contribution of this finding is useful for company owners, where when environmental uncertainty is higher and corporate governance is getting better, it actually makes managers try to allocate greater debt into their capital structure. It is better if the owner does not easily believe in the results of performing of his managers and remains under periodic control. Another contribution of this finding is also reminiscent of the concept of pecking order theory, which has been underestimated.

Strategic Financial Management Part II: Seasoned Equity Offerings, Corporate Payout Policy, and the Case of Regulated Utilities

As discussed in the predecessor to this article that came out roughly two years ago, each of today's three dominant academic theories of capital structure has trouble explaining the financing behavior of public companies making seasoned equity offerings (SEOs) of their own stock. In conflict with the tradeoff theory, the authors' analysis of some 7,000 SEOs by U.S. industrial companies during the period 1970‐2017 finds that the vast majority, or roughly 80%, of them had the effect of moving the companies away from, rather than toward, their target leverage ratios. Inconsistent with the pecking order theory, SEO issuers have tended to be financially healthy companies with considerable unused debt capacity. And at odds with the market‐timing theory, SEOs appear to be driven more by the capital requirements associated with the large investment projects that tend to follow them than by favorable market conditions and overvalued stock prices.Nevertheless, consistent with the tradeoff theory, the authors also find that SEO issuers tend to follow their stock offerings with one or more debt offerings that have the effect of raising their leverage back toward their targets. And whereas all of the three theories are “single‐period models” suggesting some degree of shortsightedness and “opportunism” by financial managers, the authors' findings present a picture of long‐run‐value‐maximizing strategic management of corporate capital structures—one that takes account of the company's current leverage in relation to its longer‐run target, investment opportunities, and long‐term capital requirements, and the costs and benefits associated with alternative sequences of financing transactions.Building on their earlier article, the authors extend their analysis to examine the payout and well as leverage and investment decisions of SEO issuers—and expand their sample of some 7,000 industrial issuers to include another 1,500 SEOs by regulated utilities. In the wake of the SEOs, both dividends and repurchases tend to increase; but the payout rates for utilities were almost eight times higher than for industrials, and overwhelmingly take the form of dividends rather than buybacks.In the final sections of the article, the authors first attempt to explain the negative stock price reactions to the announcements of SEOs, and then speculate about the causes of the even more negative, and puzzling, long‐run stock returns to industrial, but not utility, SEO issuers.

DOES OPTIMAL CASH HOLDING MATTER IN MAINTAINING AND IMPROVING PROFITABILITY?

Purpose: This study aims to identify optimal cash holding factors and how they impact Pakistani-listed enterprises' profitability. Design/Methods: The trade-off and pecking order theories are investigated to develop hypotheses for testing the cash holding threshold influence on a firm's profitability on 201 selected firms extracted from the Osiris database between 2009 and 2018. Results/ Findings: The findings of the present study indicate that cash holdings, liquidity, financial flexibility, and operating cash flow significantly impact profitability. There is a two-threshold effect between the cash holding ratio and business profitability. The coefficient value is positive but decreases as the cash holdings ratio falls below 5.3%, indicating a non-linear relationship. Originality: The elements affecting the ideal cash holding ratio that Pakistani listed companies must maintain to ensure cash sustainability are examined in this study. Previous studies have focused on the determinants and motivations for cash holding. Still, it has never addressed how much cash a company should keep to achieve long-term profitability or cash independence.

Impact of Financial Leverage on Shareholders Return and Financial Performance: Evidence from Top 100 Listed Companies in National Stock Exchange

Financial management’s key objective is to enrich capital structure and financial decisions. The vital issue during capital structure decision-making is determining a firm’s proper balance of owed and owned capital. One globally accepted issue is financial leverage, popularly known as the “Double-edged Sword”. It can maximize the shareholders’ benefit and boost the company’s financial performance and vice versa. So an effort made “to find out the impact of financial leverage on shareholders return and financial performance of Top 100 National Stock Exchange companies in India”. National Stock Exchange registered companies as per market capitalization were obtained. The Descriptive Statistics, Panel-Data Regression Analysis (Breusch-Pagan LM Test, Hausman Test) and Structural Equation Model (SEM) were analyzed from 2017 to 2021. The Outcome illustrates that DER has a positive influence on ROE, CR and NPR which relating to the “Trade-off Theory”. DER has negative impact on EPS, ICR and TATR supporting “Pecking order Theory”. The framed empirical SEM act as a theoretical contribution to the future researchers.

Mind the gap: public equity as a financing solution for medium-sized enterprises and the influence of national culture

PurposeThis research focuses on the demand from medium-sized firms to access public equity as a source of finance. The acceptance of public equity differs strongly between countries, particularly between the United Kingdom and Germany. Therefore, this research aims to identify the impact of national culture on the decision to go public in these two countries.Design/methodology/approachThe theoretical framework builds on the satisficing theory of rationality, the pecking-order theory as well as Hofstede's cultural dimension theory. Using a questionnaire, over 1,000 medium-sized businesses in the United Kingdom and Germany were surveyed.FindingsThe findings demonstrate that British medium-sized firms are more open to using public equity as a source of finance than their German counterparts. The results indicate that national culture not only affects the decision to go public but also has a negative impact on uncertainty avoidance and long-term orientation.Originality/valueThe originality of the research lies in the focus on medium-sized firms and the effects of cultural differences between the United Kingdom and Germany. No previous research has explored how culture influences the decision to go public using a dataset generated from medium-sized firms in the United Kingdom and Germany.