They possibly will need to know the factors that influence the. Following the seminal article from durand 1952 about costs of capital for business, capital structure theory had its debut with an article from modigliani and miller 1958 which developed a theoretical model concluding that a firms capital structure is irrelevant to its value, asserting that a firm consists of a set of assets representing a certain capacity to generate returns, at a. Ten independent variables and three dependent variables have been tested using regression analysis. A better understanding of the information asymmetry problem between firm and external investors is necessary to reduce the adverse selection costs, 2 corporate. The firms capital structure, or financial leverage, constitutes this studys dependent variable. The aim is to examine the impact of profitability roa, nondebt tax shield ndts, tangibility tang, liquidity liq, growthgr and size on the choice of debt in the capital structure of firms. Furthermore identifying the determinants of capital structure also can help investors and managers of firm as it will provide better understanding of the firm capital structures strategy by considering companies characteristics in order.
Previous studies suggest that there are differences in environments involving principals and agents among the countries even within similar bankcentered or marketcentered economies. Vietnamese real estate firms should focus on balance structure debt due to complicated impacts of the determinants to their capital structure. The purpose of this study is to find the relationship of capital structure decision with the performance of the firms in the developing market economies like pakistan. We also investigate how firmspecific factors such as profitability, firm size, tangibility of assets and depreciation to total assets along with the macroeconomic factor such as inflation influence the capital. Evidence from public listed companies in malaysia, singapore and thailand. Capital structure 30 june 2017 common template transition step 3 table 2d i from january 20 to 2018 identical to post 2018 with amount subject to pre basel iii treatment all figures are in sar000 page 5 of 9. Capital structure in the airline industry an empirical. The determinants of capital structure of 2439 nonbanking and nonfinance listed firms in india covering a period of 10 years, 2007 2017 are examined.
With regard to insurance companies, it was observed that the firmlevel determinants of capital structure explain insurer leveraging. Although drug supply is a key factor, we posit that the crisis is fundamentally fueled by economic and social upheaval, its etiology closely linked to the role of opioids as. Ex post facto research design was used to address the problem of this study. Determinants of capital structure and firm financial performance a plssem approach. Financial performance determinants of organi zations. The theory of trade off was developed by kraus and litzenberger 1973 arguing that the companies choose their optimal capital structure by by evaluating the revenue and costs, debt. Firms capital structure determinants and financing choice. However, the previous studies about capital structure still focus on the relationship of firmrelated characteristics on capital structure. May 28, 2017 the determinants of capital structure. Accepted 19 nov 2017, accepted author version posted online.
It can be defined as the employment of an asset or sources of funds for which the. The determinants of capital structure are mixed and different for shortterm and longterm indicators. Determinants of capital structure evidence from shariah compliant and noncompliant firms. Further, there is a significant difference of capital structure decision between the two sectors. Effects of leverage on the shareholders return or earnings per share have already. Financial crisis and capital structure determinants. Determinants of capital structure and testing of theories. Capital structure is determined by several factors, and consists of a particular combination of debt and equity which are used by firm in financing its investments.
Accordingly, the main purpose of this article is to identify the key determinants of the capital structure of portuguese firms with investments in angola. The implication of capital structure theories and the effect of the firm specific determinants on the capital structure in azerbaijan firms are tested over the 20072014 periods. Capital structure a reading prepared by pamela peterson drake outline 1. Determinants of capital structure mba knowledge base. International journal of management science and business administration, 43, pp. The guiding principle is to choose the capital structure that maximizes the value of the firm. Abstract this paper analyzes the determinants of the sources of funding for the firms of an economy without stock market. The theory of trade off was developed by kraus and litzenberger 1973 arguing that the companies choose their optimal. Second is to explore accounting policy implications. The study uses a panel data fixed effect approach to examine the determinants of capital structure over a ten year. This paper investigates the capital structure determinants of listed firms in india. In the section data, estimation methodology and model, the research methodology is presented.
This study caters to the impact of firm capital structure and quality on firm market value by studying listed firms. A study on determinants of capital structure in india. Suggested citation farrukh, wafa and asad, muzaffar, the determinants of capital structure. There should be an appropriate capital structure that generates the maximum profit for the organization, as too 1. Accordingly, financial managers will principally want to know the relationships between certain firmspecific measures and the debt ratio. Once the available and relevant financial sources for a uruguayan firm are defined, their determinants are analyzed.
Determinants of capital structure have received much attention among the researchers. Firms capital structure determinants and financing choice by. Culture, capital structure, and implications for accounting. The use of long term fixed interest bearing debt and preference share capital along with equity share capital is called financial leverage or trading on equity. Capital structure in the airline industry an empirical study of determinants of capital structure.
Consistent with similar studies, it was observed that banks have a target capital structure, and adjust to this target at an adjustment speed of 44%. Determinants of capital structure theoretical aspects corporate finance literature has focused on two broad categories of explanation for capital structure viz. The determinants of this study like liquidity of firms, non debt tax shields like depreciation, more collateral net fixed assets, earnings volatility, size of firms, net commercial trade position and firms profits have impact on the capital structure choice. Dec 29, 2016 we examine culture as a determinant of capital structure. Evidence from us companies 2 abstract this paper investigates the capital structure determinants profitability, firm size, intangible assets, risk, growth, tax rate of a sample of 45 us firms over three years 20092011. First is to contribute to the literature on the determinants of capital structure, which is currently replete with mixed findings. In section 1 the most prominent theoretical and empirical findings are surveyed.
Moreover, studies have been done on both listed and nonlisted firms. The factors influencing the capital structure or determinants of capital structure are discussed as follows financial leverage or trading on equity. The purpose of this paper is to study the status of studies on capital structure determinants in the past 40 years. Determinants of corporate capital structure in east asia.
The study examines the indebtedness level in light of the two main theories the tradeoff theory and the pecking order theory. Capital structure decisions have important implications on the value of the firm, as the components of the capital determine the cost of capital. Capital structure consists of debt as well as internal and external equity. Many studies have provided empirical evidence that firmrelated characteristics such as profitability, tangibility, firm growth, firm size and etc. The study aims to identify the capital structure determinants of the listed russian firms. No easy fix to its social and economic determinants the accepted wisdom about the us overdose crisis singles out prescribing as the causative vector. Pdf determinants of capital structure and testing of theories. Aug 14, 2017 the empirical evidence indicates weakening support for the pecking order hypothesis and increasing support for the tradeoff theory in australia.
Capital structure, profitability, growth, firm size, liquidity, the tangibility of assets, nondebt tax shield and leverage. The determinants of the capital structure of listed on. Determinants of bank capital structure the impact of basel iii may 2016 abstract this paper examines which determinants of bank capital structure are reliably decisive for 15 publicly traded european and american banks from 2006 to 2015. Most empirical studies that examined the determinants of capital structure have been done for specific country and there is little evidence of gcc region. Since hundreds of articles have been written about capital structure and its determinants since the 1958 paper by mm, one must be aware of the fact that different measures of capital structure. The determinants of the capital structure of listed on stock. The empirical results indicate that, there are only 2 explanatory and significant determinants of capital structure in azerbaijan firms. Evidence from us companies 3 introduction in modern corporate finance the capital structure is a controversial issue. Determinants of capital structure univerzita karlova. The objective of this study is to find out the determinants of capital structure of oman corporate.
Firms capital structure determinants and financing choice by industry in morocco. Apr 03, 2017 the purpose of this paper is to study the status of studies on capital structure determinants in the past 40 years. This paper highlights the major gaps in the literature on determinants of capital structure and also aims to raise specific questions for future research. Evidence from russia journal of corporate finance research, vol. Capital structure in the airline industry an empirical study. A study on cement sector of pakistan march 8, 2017. If utilized regression and correlation techniques by employing spss software to test the hypotheses.
Abstractthis paper investigates the determinants of capital structure in the context of the. This study is based on the financial data collected. Family businesses versus nonfamily firms, czech journal of economics and finance finance a uver, charles university prague, faculty of social sciences, vol. A study on the listed manufacturing companies in bangladesh.
Common factors of leverage such as pro t, size, growth, risk, asset structure. In section 2 the potential determinants of capital structure are summarized and theoretical and empirical evidence concerning these determinants is provided. Abstractwe investigate the determinants of capital structure of public listed companies on bursa malaysia, singapore stock exchange and thailand stock exchange from 2004 to 20. The empirical evidence indicates weakening support for the pecking order hypothesis and increasing support for the tradeoff theory in australia. Our measure for capital structure is leverage, the debt. Determinants of the capital structure of portuguese firms with. Capital structure determinants of hospitality sector smes. Pdf this paper aims to explore the capital structure of listed vietnamese companies in an updated.
Evidence from an economy without stock market ignacio munyo. Thus, the current study fills the gap in the literature and provided an evidence, using recent and long data, of determinants of capital structure of banking sector in gcc region 1. The purpose of this study is to examine the firmlevel determinants. Pdf the relationship of capital structure decisions with.
Capital structure, textile firms, stock exchange and pakistan. The paper identifies the most important determinants of capital structure of 870 listed indian firms comprising both private sector companies and government companies for the period 20012010. The real estate firms tend to use more debts to finance their investment. We investigate the determinants of capital structure of public listed companies. Determinants of capital structure a study of manufacturing. Our paper also contributes to another newly emerging strand of literature that emphasizes the role of legal environment in firms ability to raise external finance across countries. Pooled ordinary least square regression was applied to 36 engineering sector firms in pakistani market listed on the karachi stock exchange kse during the period 20032009. Determinants of the capital structure of portuguese firms. This study was aimed at ascertaining the effect of capital structure on commercial banks performance in nigeria for the period 2012 to 2016. The most important determinant for consumer firms is that of. Determining the factors affecting capital structure decisions of.
This study explores the determinants of capital structure of uk ftse 100 firms. Does capital structure influence company profitability. Capital structure determinants university of twente student theses. The major contending theories of capital structure as well as their. Using panel data methodology and considering a sample of 43 portuguese hotels, the authors study the capital structure determinants between 2004 and 20. The determinants of capital structure of ftse 100 firms in.
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