In financial management, capitalstructure is a systematic method for financing the operating activities through equity, debt or combination of the both. It is also referred to as a degree of debt in the capital arrangement of a business. However, it is a significant and an important decision for corporate firms. The business operations are significantly dependent on managing the cost of capital which is determined through capitalstructure of an organization. Hence, the objective of designing capitalstructure strategy is for reducing the borrowing cost and maximizing returns from acquired capital which has been acquired from various resources.The main purpose of our study is to empirically investigate the determinants of capitalstructure in the context of Pakistan. The balanced panel data set of our study is constructed using annual reports for 30 non-financial firms listed at Pakistan Stock Exchange for the period 2008 to 2017. We utilized Ordinary Least Squares estimation technique to estimate the econometric model. The empirical findings present that profitability and tangibility are key determinants for capitalstructure of firms in Pakistan. Moreover, tangibility has positive association with leverage. It shows that creditors are attracted by firms having high tangible assets. It is due to sureness for reclamation of their loans. On the other hand, profitability showed negative association with leverage. It implies that more profitable firms do not take external debts due to availability of cash reserves that they created from profits. Further, our study suggests the relevance of theories namely trade-off static theory and pecking order theory for identifying the determinants of capitalstructure in Pakistan.
Using panel data methodology, the determinants of capitalstructure in 34 Australia listed property trusts (A-REITs) are investigated for the period 2003-2008. Empirical results reveal that profitability, growth opportunity, and operational risk are negatively related to leverage while size is positively related. Tangibility is found to be insignificant and property sector effects are inconsistent in various models. Furthermore, industry specific factors of stapled management structure and international operations have significant negative signs, showing that A-REITs with these features should have lower gearing levels. The signs of the determinants show that both pecking order theory and the trade-off theory are at work in explaining the capitalstructure of A-REITs, although more evidence exists to validate the latter theory. The study also shows that A-REITs issued more public debt than seasoned equity issues at a ratio of 1:1.2 from 2000-2008.
One of the unique banking in Indonesia is that there are regional development banks (BPD), which is a government-owned bank districts.
regional development banks categorized as focused bank, ie the bank with regional focus. The objectives of this research is determinants of capitalstructure in region development bank (Bank Pembangunan Daerah). This research is to test the impact of different explanatory variables of capitalstructure internal and external factors. The external variables of the economy of a country in Indonesia are regional autonomy, economic crisis and bank policy of government. The internal factor or characteristics of an individual bank are profitability, loans and size. The population consists of 26 community development banks. The study 14 regional development banks because of difficulty in getting the data. The period under study is from 1995 to 2010. The results showed the variable regional autonomy negative impact on leverage because obtain additional funds from the local government.
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Abstract. Construction of infrastructure in Indonesia was one of the main developments in the reign of Jokowi, period 2015-2019.
Encouraged by the government and industrial revolution, many companies required additional capital for its development. It changed capitalstructure and might disturb the optimality of capitalstructure. Companies in the infrastructure sector had higher current capital expenditure compared to other sectors. Managers had to put more attention on the capitalstructure of infrastructure companies because it has to be managed properly in order to maximize company value as a company goal. This research aimed to analyze determinants of capitalstructure, determinants of capitalstructure target, and the speed of adjustment of infrastructure companies. The population is all companies in infrastructure, utilities, and transportation sector listed in Indonesia Stock Exchange. This research used secondary data from audited company reports to be analyzed using unbalanced panel data regression with GLS estimators. The models used are static and dynamic capitalstructure based on the trade-off theory. Determinants of capitalstructure based on static model is profitability, tangibility, and growth. Profitability and tangibility have positive significant effect on leverage ratio, while growth has negative significant effect. Determinant of capitalstructure target based on dynamic model is profitability. It has negative significant effect on leverage ratio target. Regression of dynamic model showed that there was an optimal target of capitalstructure in infrastructure companies that was being adjusted with adjustment speed of 49% per year. It also indicated that infrastructure companies need 6 years 10 month to close the gap between current and optimal target of capitalstructure. Findings of this research are expected to help manager in financing management and enrich financial literature.
Therefore, according to our sample the determinants of capitalstructure show some differences for private and listed companies. Some of the firm level variables are not considered by listed firms for the capitalstructure decision. Listed firms do not consider collateral for long term debt financing, while private firms follow the maturity matching principle. Profitability of the firm does not have any impact on debt financing for listed firms. But private firms follow pecking order. As firm size increases, leverage and debt maturities increase for private firms; however, it has no effect on listed firms. Being small firms affect leverage and debt maturities negatively for both private and listed firms. GDP per capita and growth do not have any effect on short term debt financing decisions for listed firms. However, for private firms, as GDP per capita and growth rate increase, short term debt financing increases. Both types of firms react inflation same way. On the other hand, listed firms do not consider interest rate for the debt financing decisions as opposed to private firms. Tax has different impact on debt financing decisions of private and listed companies. For private firms, as tax increases, leverage increases; whereas it does not affect long term or short term borrowing. For listed firms, as tax increase, long term debt financing increase, while short term decrease but it does not affect the leverage. So, listed firms increase their long term borrowing to take advantage of tax shields.
determinants of capitalstructure in Japanese firms. It is consist with the previous studies which put forward by Rjan and Zingales, Myers and Haris and Ravis, William and so on (Rajan R. G. et. al., 1995, Myers S., 1984, Haris M. et. al., 1991, William L. M. et. al., 2007). The one way ANOVA analysis shows that different industries have different performance in the different approaches of financing funds. In the view of long term debt, customer services and utilities have a more significant high long term debt than other industries which can be explained by the trade-off theory. On the other hand, in the view of short term debt, industry and basic material have negative behaviour with short term debt finance. The reason of such negative relationship can be explained by the pecking order theory. Moreover, firms with more intangible asset would like to finance their funds by using internal finance. It means that firms with more intangible asset such as health care would like to have less than other industries both in long term debt and short term debt.
This paper investigates the determinants of capitalstructure based on a sample of 2,804 non-financial Portuguese firms, from 2000 to 2009. A standard capitalstructure model is estimated controlling for firm-specific and market factors commonly used in the literature. The model is further estimated for sub samples of firms based on size, growth opportunities and leverage, as well as for the time periods before and during the international financial crisis. The result show that firms’ capitalstructure decision seems to conform more with the pecking order theory, rather than with the tradeoff theory. This is also true for different groups of firms based on size, growth opportunities and leverage. Finally, the results suggest that firms have adjusted their leverage as the international 2008 crisis begun.
of firm is market value of firm rose earlier and can be calculated by market value of debt and market value of equity. firstly, MM (1958) introduced the theory of irrelevancy and try to prove that capitalstructure decisions never affect value of firm with live proof theory was drawn but again after years MM realized that financial decisions do affect the value of firm MM (1963) also explained how existence of taxes decrease the cost on debt and increase the value of firm as its very controversial issue with study empirically it might said that debt ratio can be close to actual objective of business. Perhaps, various cross sectional studies are conducted to secure the benefit of shareholder and the creditors. Therefore can say that financial decisions are governs by both the demand and supply of fund. Main purpose of study is to understand the determinants’ of capitalstructure in media firm.
CapitalStructure and the theories related to it are the primary subjects of research in corporate finance. This paper has attempted to find the determinants of capitalstructure of the Albanian firms. Six firm’s specific variables namely tangibility, liquidity, profitability, size, risk and non- debt tax shields and three macroeconomic factors (GDP growth rate ,inflation rate and prime lending rate) have been added as independent variables to measure their effect on firm’s leverage.
This paper attempts to investigate the determinants of the capitalstructure of a sample of 1456 listed companies on the Hong Kong Stock Exchange from 2005 to 2010.
However, 226 companies have to be excluded from the analysis because the data is not complete. This study uses 1230 companies to make the investigation to determine the capitalstructure of Chinese listed companies. The relationship between size, profitability, liquidity, growth opportunity, asset structure, business risk and tax shield with leverage are highlighted. The findings show that size, profitability, business risk and tax shield are highly significant at 1% level in determining the capitalstructure while liquidity is significant at 10% level. However, growth opportunity and asset structure are not significant determinants of capitalstructure in China.
This paper aims to identify the determinants of capitalstructure for publicly listed Qatari companies, using a panel data of publicly listed companies over the period of 2004-2008. Identifying the determinants of capitalstructure for publicly listed Qatari companies is important because Qatar is a fast growing developing country with institutional features likely to be quite distinct from those in developed and most other developing countries, especially in terms of its tax policies. All Qatari owned companies and joint ventures are exempted from corporate income taxes. Qatar levies corporate income taxes on foreign companies at rates from 5 percent to 35 percent of net profits, including profits from majority-owned Qatari joint ventures exceeding 100,000 Qatari riyals (approximately US$ 30,000). Under Law No. 13 of 2002, the Ministry of Finance may grant a tax holiday of up to ten years for new foreign investments in key sectors. Other foreign companies may be granted tax exemptions on a case-by-case basis by monarchical Decree. However, in 2008 a new law has been issued which exempts non Qatari shareholders of certain Qatari shareholding companies from tax. This law is effective from 3 April 2008. In addition, dividends are generally not taxed. Tax is assessed on the share of profits allocable to foreign shareholders according to the financial statements of a company, as adjusted for tax purposes. Capital gains are aggregated with other income and are subject to tax at the regular corporate income tax rates. Moreover, Zakat payment in Qatar is not institutionalized. However, Qatar does have a Zakat Fund which is voluntary. Therefore, this study contributes to the existing literature by providing additional evidence from the Qatari context which can be described as distinct from the other contexts that have been researched before, especially in terms of the corporate tax regime.
School of Economics, University of Nairobi
doi: 10.19044/esj.2017.v13n7p277 URL:http://dx.doi.org/10.19044/esj.2017.v13n7p277
This paper contributes to the capitalstructure literature by investigating the determinants of capitalstructure of agricultural firms in Kenya, using annual data for the period 2010-2015. An empirical model to analyze the determinants was specified and estimated using both fixed and random effects estimation techniques. The estimation results provide evidence that profitability, liquidity, age and size of the firm are significant determinants of capitalstructure. Specifically, the results reveal a negative relationship between profitability and long term debt and a positive relationship between age of the firm and long term debt. We also established a positive influence of age on short term debt, while a negative link is evident between liquidity, the size of the firm and short term debt. The evidence adduced is important for forming credit markets policies for agricultural firms both at the macro and the micro level.
Some financial experts believe that the market value of the firm increases with the increase in leverage. This basically indicates that firm having more proportion of debt financing achieves the optimal capitalstructure but certainly this statement is denied by other financial experts. So it leads to an open question whether any optimal point in the capitalstructure exists and if there exists an optimal point then what are the potential determinants. An extensive amount of research has been done on the related topic in developed countries and job of the researcher is to identify the potential determinants in a different market and also analyze that either the conclusions drawn from the different theoretical and empirical researches are valid enough for developing markets such as Pakistan. This paper basically addresses the question that what are the determinants of capitalstructure in Textile sector of Pakistan. There are different worldwide studies showing different results about financing behavior of companies. Previously Booth et al.
However, there is still a lack of studies spanning a large number of countries and different firm types simultaneously (Joeveer, 2005).
Previous studies among large firms’ shows some factors that seem to have influences on capitalstructure decisions among them. This particular study incorporates those factors namely profitability, firm’s size, asset tangibility, firm’s growth, firm’s age, non-debt tax shields and liquidity. Reviews on these studies are used to support the decision on selecting those factors to be tested in this study. Analysis of factors used in investigating into capitalstructure decisions among SMEs shows that factors selected in this study were among the factors that mostly included in the previous studies concerning the determinants of capitalstructure among SMEs. Interestingly, firm’s size was included in all selected studies. This might be an important factor in differentiating financial practices among SMEs as most definitions of SME divided SME into different groups such as micro, small and medium enterprises. The next factor that usually included when studying the determinants of capitalstructure among SMEs is firm’s growth.
Reliability measures consistency in research (Drost, 2011). This means that if the same research is carried out several times using the same research instrument, similar results should be found.
For validity and reliability, research goals were clearly defined, and previous literature reviewed to make it possible to link conclusions to previous studies. An appropriate methodology was used as a way of ensuring validity of the research. The sample used for the study consisted only of retailing firms so as to be able to determine the determinants of capitalstructure for the retailing sector. This made it possible for this study to measure what it was supposed to measure. Data was collected from Inet BFA, a reliable source, and appropriately prepared for analysis in Eviews. An appropriate research instrument for analysis, panel data analysis, was used for this study. All the variables used in the study were analysed using the same Eviews statistical instrument, this was to ensure consistency in the study. The study covered a 10 year period using the same variables for reliability. This ensured sufficient number of observations to be made for more accurate findings. Data analysis was performed several times to ensure consistency and reliability of results.
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This study investigated the determinants of capitalstructure of insurance companies in Ghana. The study employed panel regression model in examining the capitalstructure of insurance companies in Ghana with financial statements of twelve insurance companies covering the period, 2002-2007.The results show that both the static trade-off and pecking order theories are important in explaining the capitalstructure of insurance companies in Ghana. Firm size, profitability and growth were statistically significant in relation to leverage. The positive relationship between firm size and leverage is an indication that, large insurance companies tend to employ more debt in their capitalstructure. This is because they are more diversified and have less probability of bankruptcy. The negative relationship between profitability and leverage is an indication that profitable insurance companies prefer internal sources of finance to external sources, hence less debt in their capitalstructure. However, the positive relationship between growth and leverage proves that growing insurance companies depend more on debt to finance their growth. These are very important variables influencing the financing decisions of insurance companies in Ghana. The other firm level variables were statistically insignificant.
The purpose of the research is to study the determinants of capitalstructure of leasing companies in Pakistan listed on Karachi Stock Exchange during the period of 2006- 2015. In this study data was collected from at Karachi Stock Exchange .In this study experts and professional can break down whether the practices in the exact corporate world are identified with the hypothetical perspectives of capitalstructure. This part of research provide us a review of the theoretical framework literature on capitalstructure whether the significance of leverage benefits and its cost will run the managers to make decisions based on leverage of capitalstructure and its market opportunities for guiding them to various debts and equity issues? Do managers have leverage targets change over the time or they adjust equity debt ratio continuously or they don’t have targeted leverage to maintain? The unit of investigation is the recorded firms in PSX record with the negligible specialists' impedance. Study defines adjusted panel information which was gathered from secondary sources. The study applies econometrics displaying utilizing both single condition and diminishes condition models for panel information. Panel econometric procedures specifically pooled common minimum squares, settled impacts, and irregular impacts were utilized to research the effect of capitalstructure on execution of finance related firms recorded on the Karachi Stock Exchange from 2006-2015.
In addition, Nagano (2003) carried out a comparison study between East Asian countries capital structures which are Indonesia, Korea, Malaysia, Philippines and Thailand in the period after the Asian financial crises. They find a significant reliance of firms in these countries on the usage of external short-term debt. The sample of the study consisted of non-financial firms for the period from 1992 to 2001. The study concluded that cross-country investigation shows that the finance behaviour of the firms in these countries follows the pecking order theory. The firms first prefer the internal generated funds, then they will chose short-term bank loans. The study also concludes that there is no relationship between issuing equity and the level of debt which could be linked to the aftermath of the financial crisis which reveals that high stock prices are not the motivation of equity issuance in the region. The findings also show that there are differences in the determinants of capitalstructure between these countries.
2.4.1 Analysis of selected previous empirical research
Antoniou et al. (2002) researched the determinants of capitalstructure of French, British and German companies using panel data from 1969-2000. They chose to examine these countries together as they are characterised by different financial systems and traditions, something that may affect the amount of leverage in a company. Surprisingly enough, their findings suggest that factors affect the three countries in the same way despite of this. Further they get a positive relationship between leverage and size, while the opposite is the case for growth and leverage. For fixed assets, profitability and effective tax rates, they discover that the factors varies in the direction and degree of influence on leverage across the sample countries. This shows that capitalstructure decisions do not only depend on firm-specific factors, but also the environment the company operates in.
The intended aim of conducting this study was to provide the empirical evidence regarding influence of capitalstructuredeterminants and its impact on company performance. This study has tested the influence of six determinants on capitalstructure, through using the Least Squaremethod by consecutively multiple regression analysis on the data set for the period FY2000 to FY2013 of JK Tyres and industries ltd. The multiple regression analysis suggests that the model explains around 96.3% of the variation in the dependent variable. The adjusted explanation of the model is about 94.4%. The independent variables- WACC, company size, debt-equity ratio, profitability ratio, dividend payout ratio and financial leverage proves to be statistically significant determinants of capitalstructure. The findings of study validate a strong positive dependence of determinants of capitalstructure on the financial performance of the company.