Finally, in the forth study, we provide a firm-level analysis of the relation between corruption, growth, and public governance in Vietnam. Empirical work in this area has lagged behind the theoretical research, perhaps because the relevant firm attributes are expressed in terms of fairly abstract concepts that are not directly observable. Also see Schwartz and Aronson , Scott , and Scott and Martin for evidence of industry effects in capital structure choice. The current study reproduces some of these relationships in a more recent dataset but also identifies significant nuances across industrial environments. The model was found to be capable of providing satisficing solutions to multiple goals simultaneously by minimizing the deviation from the objective function after assuming that the decision maker is an optimist and does not attempt to satisfy all objectives fully.
The robustness of the pecking order behavior significantly differs between smaller and bigger companies. Furthermore, we include institutional shareholdings, including state agency shareholdings, state-owned shareholdings and privately owned shareholdings, as corporate governance variables to examine the effects of corporate structure on the debt financing behaviours. Customers, workers, and suppliers of firms that produce unique or specialized products probably suffer relatively high costs in the event that they liquidate. This analysis would argue for an inverse relationship between business risk and financial leverage, a phenomenon that has been confirmed in some empirical studies using different conceptualizations of business risk, such as, variance in sales growth Thies and Klock, 1992 and volatility of demand Chung, 1993. Our model is designed to circumvent a methodological problem in traditional regression analysis stemming from the use of scaling e.
This,nding can not be explained by either the pecking order theory or the tradeo,theory; the pecking order may be reversed for small rms,that prefer external equity to debt nancing, while the tradeo theory may miss some important aspects of capital structure decisions. Dit sal van firmas vereis word om bewus te wees van die verskillende faktore wat 'n invloed op hul kapitaalstruktuur-besluite kan hê. The results are illustrated by a simple numerical example. Hence, multinationality should be associated with strategic responsiveness as real option structures allow the corporation to exploit new initiatives and pursue alternative actions. We find that banks and insurers have target capital structures.
From the financing hierarchy point of view, this study finds that Malaysian managers regard the use of internal funds for financing projects as the most important source of financing. Second, financial liberalisation has a significant impact on the capital structure speed of adjustment. Overall, my results highlight the need to account for the marginal value of financial flexibility in empirical tests of capital structure theory. Further, firms which have a high marginal value of financial flexibility that do raise large amounts of financing in the current period are significantly more likely to issue equity than transitory debt in order to preserve debt capacity. This paper investigates the relationship between capital structure, ownership structure and firm performance using a sample of French manufacturing firms.
The major contending theories of capital structure as well as their predictions are considered. For shareholders the rate of dividend is not fixed and the Board of Directors has no legal obligation to pay dividends even if the profits have been made by the company. The study was conducted for a period of 14 years, from 1995 to 2008. It measures the coverage of fixed financial charges interest plus repayment of principal, if any to net cash inflows. The results showed that out of seven variables three profitability, size, non-debt tax shields are statistically significantly related to leverage, and four are growth, tax, tangibility of assets, payout are statistically insignificantly related with leverage. A company should make the best use of its size in planning the capital structure. Bankruptcy and distress risk go beyond on balance sheet items including off balance sheet exposures.
We provide evidence that in Cournot Bertrand competition, leverage negatively positively affects market share. The main purpose of this study is identifying the determinants of capital structure of banks in Pakistan by using firm s level determinants of capital structure. In the preliminary analysis, manufacturing companies, commercial banks, insurance companies, and finance companies were included. Without correction, this problem potentially yields a spurious relation between the dependent and explanatory variables. These arguments suggest that large firms should be more highly leveraged. Finally, measurement errors in the proxy variables may be correlated with measurement errors in the dependent variables, creating spurious correlations even when the unobserved attribute being measured is unrelated to the dependent variable. The bankruptcy cost theory suggests the lower bankruptcy costs, the higher debt level.
Purpose — The purpose of this paper is to study the dynamics of capital structure in the context of Indian manufacturing companies in a partial-adjustment framework during the period 1993-1994 to 2007-2008. But the company cannot go in for debt if its existing capital structure is already overloaded with debt. Data The variables discussed in the previous sections were analyzed over the 1974 through 1982 time period. Using these performance measures we examine if more efficient firms choose more or less debt in their capital structure. I n recent years, A number of theories have been proposed to explain the variation in debt ratios across firms. In this sense, although the results suggest that capital structures are chosen systematically, they are in line with Miller's argument that the costs and benefits associated with this decision are small. This positive correlation could be put forth as evidence in support of the hypothesis that firms with assets that have high collateral value choose high debt levels.
This study used panel data fixed approach model. To achieve this goal, firms should use an optimal combination of debt and equity, which will consequently result in the lowest weighted average cost of capital. The sector also has a higher level of debt, and so a hypothesised tax-induced higher debt level for the services sector, which has the highest corporate tax rate, is rejected. However, the evidence suggests that borrowing is increased to the extent that the higher operating income leads to an increase in the book value of equity through increases in retained earnings. However, due to the unusual sign problem in the constant term of the model, manufacturing companies were excluded in final analysis.
It is also the case that relatively large firms tend to be more diversified and less prone to bankruptcy. This result helps to explain why young, high-growth firms tend to have lower debt ratios than the pecking order or traditional tradeoff models predict. Both authors are from the University of California, Los Angeles, and Wessels is also from Erasmus University, Rotterdam. For this reason, the arguments put forth in the previous subsections also suggest a negative relation between debt and growth opportunities. The first study investigates how competitive behavior and market uncertainty affect the capital structure of a firm in the U.
The papers by Titman , Bradley, Jarrell, and Kim , Auerbach , and Long and Malitz examine variables that are similar to some of those examined here. Very briefly, this method assumes that, although the relevant attributes are not directly observable, we can observe a number of indicator variables that are linear functions of one or more attributes and a random error term. Multiple regressions are run to test a range of hypotheses. The study investigates capital structure practices in the Indian industry through a sample of top 500 companies classified in 19 industries for a 10 year period 1998-2007 for 67 variables including the leverage variables. First, transaction costs reduce dramatically in the post liberalisation regime, and the associated speed of adjustment is more pronounced, and statistically significant for the post liberalisation epoch.