Capital Structure Research Articles

HUMAN CAPITAL AND PROFITABILITY: CASE of TURKISH BANKING SECTOR

This study aims to examine the effect of human capital on profitability of Turkish banking sector by a panel data covering 2009.q1-2022.q4. Throughout this aim, a research model based on a dependent variable as return on equity is set up. The independent variable to be focused is the Human Capital Efficiency Coefficient -mostly considered as the most significant sub-coefficient of the Value-Added Intellectual Coefficient Methodology developed by Ante Pulic (2004)- to measure intellectual capital efficiency. Besides, three control variables are included in the model to proxy balance sheet structure, assets quality and liquidity. Levin-Lin-Chu (LLC), Im-Pesaran-Shin (IPS) and Augmented Dickey Fuller (ADF) Fisher panel unit root tests, and Pedroni (1999) panel co-integration test are conducted in the econometric analyses to test the stationarity and co-integration among the series. Long term co-integration coefficients are estimated by Fully Modified Ordinary Least Squares (FMOLS) methodology proposed by Pedroni (2000). The empirical findings indicate the existence of a statistically significant and positive relationship between human capital and profitability; and statistically significant and negative relationships among human capital and assets quality, and human capital and liquidity. Another finding is that there exists no statistically significant relationship between human capital and balance sheet structure.Levin-Lin-Chu (LLC), Im-Pesaran-Shin (IPS) and Augmented Dickey Fuller (ADF) Fisher panel unit root tests, and Pedroni (1999) panel co-integration test are conducted in the econometric analyses to test the stationarity and co-integration among the series. Long term co-integration coefficients are estimated by Fully Modified Ordinary Least Squares (FMOLS) methodology proposed by Pedroni (2000). The empirical findings indicate the existence of a statistically significant and positive relationship between human capital and profitability; and statistically significant and negative relationships among human capital and assets quality, and human capital and liquidity. Another finding is that there exists no statistically significant relationship between human capital and balance sheet structure.

Nexus of firm specific variables and capital structure decisions: an evidence from Asia Pacific region amid covid-19 crisis times

Nexus of firm specific variables and capital structure decisions: an evidence from Asia Pacific region amid covid-19 crisis times

The Impact of Employee Stock Ownership Plans on Capital Structure Decisions: Evidence from China

The determination of the capital structure is a critical component of a company’s financial decision-making process. The question of how to optimize a firm’s capital structure to increase its value has been a significant topic of interest within the financial community. The employee stock ownership plan (ESOP) has developed rapidly in China’s capital market over the past decade, providing a suitable context for studying the impact of employee equity incentives on capital structure decisions. This paper employs cross-sectional ordinary least squares regression models and unbalanced panel fixed effect models to investigate the impact of employee stock ownership plans (ESOPs) on firms’ capital structure decisions. The analysis is conducted on a sample of Chinese A-share listed companies on the Shanghai and Shenzhen Stock Exchanges. The research considers both static capital structure choice and dynamic capital structure adjustment. We find that the implementation of an ESOP reduces the level of corporate debt and accelerates the dynamic adjustment of capital structure, suggesting that employee equity incentives play a role in optimizing firms’ capital structure decisions. We also find that the impact of ESOPs on the dynamic adjustment of capital structure is asymmetric. Specifically, the implementation of ESOPs markedly accelerates the downward adjustment of capital structure, yet has no impact on the upward adjustment of capital structure. Further analysis demonstrates that the impact of ESOPs on capital structure decisions is contingent upon the macroeconomic environment, industry characteristics, corporate governance, and ESOP contract designs. First, the optimization of ESOPs on capital structure decisions is more pronounced in an economic boom environment, in a poor market climate, or in competitive industries. Second, the reduction effect of ESOPs on corporate debt is more pronounced in non-state-owned companies, high-tech companies and those with lower ownership concentration. In contrast, the acceleration effect of ESOPs on capital structure adjustment is more pronounced in state-owned companies, non-high-tech companies and those with higher ownership concentration. Ultimately, ESOPs financed by loans from a firm’s major shareholders—or with a longer lock-up period, smaller shareholding size or executive subscription ratio—demonstrate a more pronounced optimization effect on capital structure decisions. This paper not only contributes to the existing literature on the relationship between equity incentives and capital structure decisions, but also provides guidance for listed companies on the reasonable design of their ESOPs and the optimization of their capital structure decisions.

Revisiting the Corporate Governance–Firm Performance Nexus in Vietnam: Does Capital Structure Really Matter?

In this article, we investigate whether the capital structure moderates the corporate governance–firm performance nexus of Vietnamese firms. This study uses data from state-owned joint-stock companies to test the proposed hypotheses in two phases. In the first phase, we adopted and adapted the corporate governance quality (CGQ) index for the Association of Southeast Asian Nations (ASEAN) nations to design a questionnaire to evaluate the CGQ of state-owned joint-stock companies. In the second phase, we collected information from the company’s reports to assess CGQ, cross-check the data and finalise our evaluation. Then regression models were run to test two proposed hypotheses. Empirical findings show that CGQ exerts a positive impact on Vietnamese state-owned joint-stock companies’ performance. Moreover, our result confirms that firms’ capital structure moderates the CGQ–firm performance nexus. Our study implies that the government should promulgate legal frameworks and policies to establish superior legal infrastructure to build trust for investors and improve CGQ in state-owned enterprises. JEL Classification: M10, M12, M48, N40

Capital Structure And Earnings Per Share: An Empirical Analysis Of Selected Companies Listed On The Nigerian Exchange Group

Focussing on the moderating influence of company size, this study analyses the implication of capital structure on earnings per share (EPS) for a subset of businesses listed on the Nigeria Exchange Group. The research examines data from fifteen publicly listed food and drink firms over a certain time frame using a random effects model. According to the results, some parts of the capital structure, like LDTA and EQTA, significantly boost earnings per share (EPS), while others, like TPTA, have the opposite effect. Including company size as a moderating variable significantly improves the model's explanatory power. The modified R-squared value goes up from 7.5% to 55.8%. Firm-specific features heavily influence capital structure decisions and their influence on financial viability. Firm size should be a major aspect in financing decisions, according to the report, since larger organisations are better able to optimise their capital structure to boost profitability. Corporate managers, lawmakers, and investors can benefit from the study's new findings, which add to the current literature by demonstrating how business size affects the correlation between capital structure and profitability

Capital structure: Its effects on earnings volatility, cash flows, and financial performance in commercial banks

This study aimed to clarify the effect of capital structure on earnings volatility and cash flows in the commercial banking sector. The research focused on all 15 banks listed on the Amman Stock Exchange, and data were gathered from their financial statements between 2018 and 2022. The study employed multiple regression analysis to assess the data and test hypotheses. Previous studies have shown mixed results, with some finding a positive relationship between capital structure and financial performance, while others presented opposing views. The findings of this study provide statistical evidence that the debt-to-asset ratio (DTA) positively influenced operating cash flows and their volatility, while negatively affecting profits and their volatility. Additionally, the debt-to-equity ratio (DETE) positively impacted operating cash flows, their volatility, and profit volatility. These results suggest that banks should aim for a balanced capital structure to maintain stable profits and cash flows over time. This requires careful consideration of risks, regulatory requirements, market conditions, and the cost of capital. A balanced approach, involving both debt and equity financing, helps banks manage the risks of fluctuating cash flows and profits.

A Financing Constraints Paradox? Internal Finance and Capital Structure Link for Tourism Firms: Asian Emerging Market evidence

The aim of the study is to investigate the relationship between the internal financial and capital structure of an organization in the travel and tourism sector. The study shows how financial constraints on tourism companies affect their ability to finance themselves. The study also shows a relationship between tax shielding and financial leverage. This study analyzes panel data collected over a 21 year period, from 1998 to 2019, from over 100 publicly traded tourism companies in three Asian countries. A panel data methodology and the generalized method of moments estimation (GMM) were used in this empirical study. To support our hypothesis, using a generic method to evaluate parameter estimation will be our most effective method to improve the literature. Overall, the results show that financially stressed tourism firms use their option of debt-free tax avoidance to increase leverage. There is also a positive correlation between tax haven and leverage for firms with limited resources. The correlations between financial leverage and corporate debt supported by the results theoretically support the pecking order. By providing useful insights into the tax shielding of non-debt, which is significantly correlated with leverage for firms operating in tourism, this study closes the gap in firms’ capital structure decisions regarding access to finance. JEL Classification: G0, G01, L25

Transmission of Monetary policy impulses on the Capital Structure of Manufacturing firms: Evidence from an Emerging Economy

A country's monetary policy influences a firm's economic decisions by influencing the cost of external debt offered to firms by commercial banks. However, research on the effect of monetary policy on the capital structure of firms located in bank credit-driven developing economies is limited. This research paper tries to fill that gap by examining the effects of monetary policy impulses on the short- and long-term capital structure of firms in an emerging economy. Using quadratic econometric equation and GMM regression model study analyzes annual financial data of 2575 non-financial firms belonging to 8 manufacturing sectors covering the duration of 13 years ranging from 2009 to 2021. The results show a curvilinear relationship between monetary policy impulses and firms' capital structure in different manufacturing industry sectors. Monetary policy was found to have a different impact on short-term and long-term borrowings of financially flexible and inflexible manufacturing firms.

Struktur Modal, Rasio Aktivitas, dan Ukuran Perusahaan terhadap Harga Saham Sektor Pertambangan yang Terdaftar di Jakarta Islamic Index

Purpose: This study aims to determine the influence of capital structure, activity ratio, and firm size on the stock prices of the mining sector listed on the Jakarta Islamic Index (JII). Methodology: The population of this study comprises mining sector companies listed on the Jakarta Islamic Index in 2019-2023. A purposive sampling technique was used. Results: The results of this study show that capital structure has no effect on stock prices, activity ratio has a positive and significant effect on stock prices, and company size has a negative and significant effect on stock prices. Limitations: This study used limited data for the 2019-2023 period, the results may not apply for different periods. The research sample is focused on mining sector companies; therefore, the results cannot be generalized to all companies or industries. This study does not consider macroeconomic or other factors. Contribution: This research is expected to provide a clear view of how mining sector companies can optimize stock prices in the capital market.

Debt and debt tax benefit: Evidence from Indonesia debt-to-equity cap reform

This study scrutinizes the effects of Indonesia’s 2016 debt-to-equity cap reform (thin capitalization rule) on capital structure, highlighting the role of debt tax benefits. The reform curtails debt tax benefits and furnishes a quasi-experimental setting, allowing a comparison between firms affected by the reform and those unaffected. Focusing on private firms and employing an entropy balancing weighted difference-in-difference approach, we elucidate that the reform results in a substantial 9.7 percentage point reduction in the debt ratio and a 5.3 percentage point increase in the stock ratio. Additionally, utilizing a pseudo tax cut reform framework combined with an isolated impact of the zero marginal debt tax benefit, we identify an implied tax elasticity of debt around 0.88, contributing to the observed decline in the debt ratio. Notably, smaller firms exhibit a more pronounced response, and the stock ratio undergoes a significant metamorphosis, suggesting the need for nuanced policy adjustments. Overall, the study underscores the profound influence of debt tax benefits in shaping corporate financing decisions.

Hungarian Model of the Restructuring Process - National Report

As a result of the transposition obligation in Article 34 of Directive (EU) 2019/ 1023 of the European Parliament and of the Council on restructuring frameworks and insolvency, Act LXIV of 2021 (hereinafter - referred to as the Restructuring Act) on restructuring and the amendment of certain acts with the purpose of legal harmonisation was promulgated on 3 June 2021, effective as of of 1 July 2022 for any legal persons struggling with financial difficulties not yet insolvent. The creation of a restructuring model prescribed by the EU directive was implemented by the Hungarian legislator through the opening of a non-contentious court procedure ordered within the jurisdiction and exclusive competence of the Metropolitan Court of Budapest. The primary aim of this paper is to develop a complex and comprehensive picture of the restructuring procedure as placed within the system of insolvency and reorganisation procedures in Hungary. Firstly, the paper showcases the unified EU objectives set out by the directive within the system of European insolvency procedures. Secondly, it describes the Hungarian procedural rules and the most important related legal institutions adopted to implement these objectives. Section 6 of the Restructuring Act sets out that the aim of restructuring is to adopt and implement a restructuring plan with some or all of the creditors and thus prevent the debtor’s future insolvency and ensure the debtor’s financial viability. For the purpose of reaching this objective, therefore, restructuring constitutes measures aiming at restoring the financial balance of the debtor, including changing the composition, the conditions or the structure of the debtor’s assets and liabilities and any other part of the debtor’s capital structure. Among these measures, the Restructuring Act lists as example the sale of the debtor’s property or part thereof, or the sale of any participation in the debt. The condition for restructuring is the likelihood of the company’s insolvency. The definition of the likelihood of insolvent Directive (EU) on restructuring frameworks and insolvency, European insolvency procedures, insolvency and reorganisation procedures, restructuring plan, non-contentious court procedure bears a central significance here: it constitutes the entrance point into the restructuring procedure. In addition to the definition of insolvency, Section 2(2) of the Restructuring and Insolvency Directive renders the interpretation of the probability of insolvency into Member State jurisdiction. Among the Explanatory notes the Restructuring Act defines the likelihood of becoming insolvent as a situation in which there are reasonable grounds for believing that the debtor will be unable to meet his/her outstanding payment obligations when they fall due, unless further measures are taken. Keywords: Directive (EU) on restructuring frameworks and insolvency; European insolvency procedures; Insolvency and reorganisation procedures; Restructuring plan; non-contentious court procedure

Colonial Racial Capitalism and Violence: Theorising the Relationship between Empire and Israeli Settler Colonialism

This article theorises the relationship between empire and Israeli settler colonialism through the interplay between violence and capital accumulation in colonial racial capitalism. It argues that Israel's genocidal violences of land theft is the means and grounds for Israeli and US imperial capital accumulation. This can be observed in the genocidal operation in the Gaza Strip. The first section contextualizes the genocide in the Gaza Strip within a larger structure of genocide. The section highlights the centrality of the conquest of land in the Zionist settler colonial project and how that appealed to the British empire in the early parts of the twentieth century. The second section examines why the US empire has actively participated in the genocide. States in the US imperial bloc essentially reduce the whole question of Palestine to a simple equation where Palestinian liberation does not equate with their own economic interests, while Israeli settler colonialism does. Though there exists a tension between imperial and settler colonial interests around the question of what kind of violence is preferable for capital accumulation, the article concludes by arguing that a transformation of the logics and systems of colonial racial capitalism cannot arise without activism and pressure from below on states and capitalist structures.

The Influence of Deleveraging the Excessive Debt Firms on Investment Efficiency

Under China's deleveraging policy scenario, this study analyzes the deleveraging effect of excessive leverage firms on investment efficiency and the influence of arbitrage risk on the deleveraging effect. The results show that deleverage lowers over-investment and, to some extent, alleviates under-investment. Deleverage can further bolster corporate performance while boosting investment efficiency. In addition, arbitrage risk in the capital market negatively moderates the impact of deleveraging on investment efficiency, specifically through the transaction cost mechanism. Arbitrage risk weakens the deleveraging effect on investment efficiency mainly through managerial catering to short-term investor sentiment. This study provides capital structure literature with new evidence by examining whether deleveraging to the firms’ expected capital structure influences investment efficiency. We also provide evidence that capital markets moderate the deleveraging effect by arbitrage risk.

The Finance of Cybersecurity: Quantitative Modeling of Investment Decisions and Net Present Value

Despite the growing literature on cybersecurity investment, significant gaps remain unaddressed. First, the existing literature does not differentiate between cybersecurity expenditures, namely investment versus spending, despite the differences in their financial treatments. Second, the literature predominantly employs economic and risk-based models, in which the incorporation of financial parameters is limited. Third, the literature focuses on quantifying market (stock) loss of cyberattacks or conducting a cost-benefit analysis of cybersecurity investments but has yet to bridge these two areas. Thus, our objective is to introduce a new financial model, the Alpha Model, that addresses these gaps. We first provide distinctions between cybersecurity investment (capital expenditure) and spending (operational expenditure). Grounded in Relative Valuation Models and Optimal Capital Structure Theory, we quantify the upper-bound of optimal cybersecurity investment by utilizing book and market values of equity and debt. We also demonstrate that the Net Present Values (NPV) of cybersecurity investment is considerably lower than its book value by incorporating financial parameters of equity and debt financing, inflation-adjusted capital cost, and tax credits of depreciation and interest. To validate our model, we empirically test it by using data from the S&P500 index during 2018–2023. We offer practical implications to key stakeholders, including: (1) industry executives to financially quantify cybersecurity investments and ascertain their actual NPVs, individually and collaboratively with supply chain partners; (2) cybersecurity solution providers to promote business investments in cybersecurity; and (3) insurance providers to price premiums with higher NPVs than the corresponding investments. We also offer several avenues for further research.

The impact of mandatory CSR regulation on corporate financial policy: Evidence from India

This study examines how mandatory CSR spending regulation implemented in India in 2014 impacted the financial policy of corporate firms in a quasi-natural experiment setup. The analysis shows that the debt level of treated firms decreased significantly following the CSR regulation; however, no corresponding change was observed in control firms. We attribute this decrease to the greater value that the equity of such firms commanded in capital markets following the regulation. Further, we show that this positive change in the relative importance of equity compared to debt in the post-regulation period helped firms move toward their target capital structure faster. These results remain robust for various model specifications, estimators, and sample selection procedures. Overall, these results conform to the predictions of the stakeholder and legitimacy based theories on CSR.

From FOSS to profit: Digital spatial technologies and the mode of production

Existing literature has scrutinized the impact of geospatial technologies from various angles. This article adopts a heterodox vantage point—the mode of production—to illuminate the intricate power dynamics woven into the fabric of these technologies. By focusing on the mode of production, we meticulously demonstrate how ostensibly novel digital technologies and geospatial data formats wield power within social relations of production. Responding to calls to scrutinize the political economy of spatial technologies and map-making tools, we aim to unravel the underpinning social relations, software development techniques, and technologies that shape file formats like GeoJSON and Esri Shapefile. By tracing the historical evolution of these formats, the article reveals how digital labor, both voluntary and expropriated, shapes the landscapes of profit-driven technology firms. The rise of open standards is not a departure from for-profit motives but rather a manifestation of the confluence of free, open, and for-profit. Ultimately, we argue that the intricate connections between digital technologies, geography, and capitalist structures enroll seemingly independent FOSS products into broader systems of capital accumulation. These findings highlight the far-reaching impact of geospatial technologies and their role in perpetuating and reshaping capitalist dynamics.

Consumption as Changemaking and Producers as Artists

Abstract In this article the authors perform a transnational feminist analysis of marketing strategies deployed in compassionate consumption. This strategy communicates to the consumer that consuming equals doing good. Using public-facing website data, the authors conduct a discourse analysis of alt-profit corporations, a term they coined to demonstrate yet another widespread strategy of late capitalism. Applying a transnational feminist perspective, they postulate that these alt-profits (meant to invoke “alternative” and “altruistic” actions by corporations) McDonaldize their marketing strategies to capitalize on consumer interests for sustainability, fair trade, “women’s empowerment,” and a desire to consume artisanal goods. They further argue that artisans from the Global South serving consumers in the Global North are framed as gendered and globalized in a way that helps sales. This is done purposefully using text and graphics, including digital storytelling, buzzwords, and vibrant photography. Contrary to the Marxist framework of alienation, artisans are presented as workers who find joy in their work. Alt-profits invite consumers to buy products and appreciate the unique experience of “meeting the artists.” The authors conclude that the formulaic pattern of communication used by alt-profits is both distinct to them yet also common in publicizing any compassionate consumption and ultimately negates the reality of current global markets necessitating exploitative capitalist structures such as opaque and unsustainable supply chains.

STRATEGI KEUANGAN DAN PERTUMBUHAN: DAMPAK STRUKTUR MODAL, PROFITABILITAS, DAN UKURAN PERUSAHAAN TERHADAP NILAI PERUSAHAAN

Firm’s value is an important indicator that reflects the company's performance and future prospects. Determining firm’s value is influenced by various factors, including capital structure, profitability, and company size. This research focuses on the basic materials sector, which plays an important role in the economy and often faces the challenges of price and demand volatility. In the 2021-2022 period, this sector faces various dynamics that affect firm value. By using purposive sampling methods and multiple regression analysis, this research aims to identify the influence of capital structure, profitability and company size on firm value in the basic materials sector. The main finding of this research is that capital structure has a significant effect on firm value, while profitability and company size do not have a significant effect. These results contribute to understanding the relationship between financial factors and firm value in the basic materials sector. The implication of these findings is that investors can consider capital structure as a factor in making investment decisions, while company management needs to pay attention to capital structure management, profitability and company size to avoid a decline in firm value.

Pengaruh Struktur Modal, Ukuran Perusahaan dan Keputusan Investasi Terhadap Nilai Perusahaan Dengan Profitabilitas Sebagai Variabel Intervening Pada Perusahaan Subsektor Makanan dan Minuman yang Terdaftar di Bursa Efek Indonesia

This study aims to analyze the effect of Capital Structure, Company Size, and Investment Decisions on Firm Value with Profitability as an Intervening variable in Food and Beverage Subsector Companies listed on the Indonesia Stock Exchange for the 2018-2022 Period. The type of research used in this study is associative with a quantitative approach. The data collection method uses a survey sample. The population in this study amounted to 26 companies. Data analysis techniques using path analysis and multiple linear regression analysis. The results of this study indicate that Capital Structure has a negative and significant effect on Firm Value, Company Size and Profitability have a significant positive effect on firm value while Investment Decisions have a positive and insignificant effect on Firm Value. Capital Structure has a negative and significant effect on Profitability, while Company Size and Investment Decisions have a positive and insignificant effect on Profitability. While Profitability as an intervening variable is able to mediate Capital Structure, while Profitability as an intervening variable is unable to mediate Company Size and Investment Decisions on Firm Value.

Impact of Capital Structure on Profitability of Commercial Banks in Tanzania

This paper aims to examine the impact of capital structure on the profitability of commercial banks in Tanzania using panel data from 2017to 2021. Specifically, the study wants to investigate the impact debt and equity in capital structure on profitability of commercial banks in Tanzania. The study employed panel data research design and used secondary data which were extracted from audited financial statements of commercial banks. Return on assets was used as the dependent variables while independent variables were debt and equity capital as well as the debt-equity ratio. Result from the analysis indicates that initially the variables were not normally distributed which necessitate normalization of variables. Correlation analysis was performed and there was no multicollinearity problem between the variables. Based on Hausman test fixed effect model was selected as the appropriate model. The results from the analysis showed that 1% increase in debt capital increases profitability of commercial bank by 16.79%. The positive debt-profitability coefficient implies opportunities for enhancing profitability of commercial bank through debt financing. Result further revealed that 1 % increase in debt-equity ratio is associated with 18.07% decline in profitability. Which implies negative relationship between debt-equity ratio and profitability. On the other hand, increase in equity finance is associated with decline in profitability holding other factors constant. However, the study recommends a comprehensive assessment and consideration of situational factors while carrying out capital structure decision inverse relationship between debt-equity ratio also implies that excessive debt may pose financial risk and make the company less attractive to potential investors.