The less profitable firms are those mainly financed. Empirical evidence from kuwait ahmad mohammad obeid gharaibeh assistant professor, dept. Determinants of capital structure an empirical evidence, us by ra the university of lahore, pakistan. Financial directors have to grapple with questionwhat is the. Once the available and relevant financial sources for a uruguayan firm are defined, their determinants are analyzed. The question of a firms optimal capital structure and the determinants of.
The decision on the capital structure poses many challenges for companies. The paper employs panel regression approach to investigate capital structure impact on firms performance in morocco, based on the result of haussmann test, fixed effect fit the first model better. In addition to this, the two variables profitability and growth established negative relationship and the remaining four variables tangibility, size, age and taxshield showed positive relationship with capital structure. Chapter iii concepts and theories of capital structure and profitability. Theory on capital structure capital structure is defined as the specific mix of debt and equity a firm uses to finance its operations. It is the employment of an asset source of finance for which. 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. Capital structure and its determinants in the united kingdom a decompositional analysis alan a. It is therefore essential to study the emerging economies as individual countries rather than see them collectively as a group.
Its choice and determinants related to many different factors. Determinants of capital structure univerzita karlova. The impact of capital structure determinants on smes leverage. The modern theory of capital structure was established by. This paper investigates the determinants of capital structure of financial service firms in china. The objective of this paper is to examine whether capital requirements are indeed a firstorder determinant of banks capital structure using the crosssection and timeseries variation in our sample of large, publicly traded banks spanning 16 countries the united states and the eu. Evidence from an economy without stock market ignacio munyo. Pdf the financing decision is one of the most important imperative in corporate finance. The study finds that a particular industrys capital structure exhibits unique attributes, which are usually not visible in the combined analysis of many sectors. Using a relative regression of accounting data for 36 ashare financial listed companies over the years 20052009, an empirical study on determinants of capital structure in financial industry is conducted. Department of accounting and finance, university of glasgow, 6571. The study substantiates the findings of most of the researches conducted on capital structure, concluding that there is an optimal capital structure that is affected by a. In particular, the pecking order theory of capital structure, with past profitability being the major determinant of leverage, is supported.
Determinants of capital structure theoretical aspects corporate finance literature has focused on two broad categories of explanation for capital structure viz. In section 2 the potential determinants of capital structure are summarized and theoretical and empirical evidence concerning these determinants is provided. However, even after decades of active theoretical and empirical research, what determines a companys capital structure remains an empirical question in. This paper approached the issues of capital structure by evidencing commercial banks in ethiopia to uncover the firm level determinant factors of capital structure. Factors affecting the capital structure the dependent variable are. The theory of trade off was developed by kraus and litzenberger 1973 arguing that the companies choose their optimal. The determinants of capital structure choice sheridan titman and roberto wessels abstract this paper analyzes the explanatory power of some of the recent theories of optimal capital structure. 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. Determinants of capital structure in nigerian banking sector.
In this study, we attempted to analyze the determinants of capital structure for indian firms using a panel framework and to investigate whether the capital structure models derived from western settings provide convincing explanations for capital structure decisions of the indian firms. A comparative study of public and private firms 1 i. The focus of this study is to discuss these factors influencing the capital. Purpose although understanding the capital structure of firms has been quite commonplace in the empirical literature, there is admittedly limited evidence as regards the determinants of capital. Several researchers argue that the determinants of capital structure are significantly affected by factors such as the laws and regulations of the country, corporate and personal tax systems and corporate governance.
While in period of boons and inflation, the companys capital should consist of share capital generally equity shares. Our results show that profitability, nondebt tax shield, size, tangibility, and liquidity are significant determinants of the capital structure, size being. Capital structure, bank size, dividend payout, profitability, tangible assets, business risk, tax and banking industry introduction determinants of capital. 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. With view to enhance the reliability of the tests, two separate models on the book value of leverage as dependent variables short term debt and long term debt. Research baral 2004 entitled determinants of capital structure. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. The vast majority of previous empirical works analyses the capital structure of firms in economies with highly developed stock markets. Determinant factors of the capital structure of a firm an empirical. The purpose of this research is to find out the capital structure of listed firms in the sugar industry of pakistan. Thirdly, a comparison of past and current evidence in terms of dutch institutional settings is presented. First, it examines a much broader set of capital structure theories, many of. Determining optimal capital structure not only assists business for long term sustainability but also affects profitability of the.
Evidence from hotel and restaurant companies in sri lanka a. The study extends empirical work on capital structure theory in three ways. Firms capital structure determinants and financing choice. Introduction capital structure refers to the way a firm finances its assets through some combination of equity, debt, or securities. Regression is run by considering six explanatory variables that include firms size, tangibility, growth, earnings. Capital structure, a reading prepared by pamela peterson drake 4. One of the most strategic decisions being faced by the. Figure 1 distribution of book capital ratios the objective of this paper is to examine whether capital requirements are indeed a firstorder determinant of banks capital structure using the crosssection and timeseries variation.
Abstract this paper analyzes the determinants of the sources of funding for the firms of an economy without stock market. This study aims to investigate whether the capital structure choice of malaysian electrical and electronic manufacturing companies that are listed in the bursa malaysia can be explained by factors that have been found by most studies as dominant determinants of capital structure company size, profitability, asset tangibility, liquidity and. Ajanthan department of accounting, university of jaffna, sri lanka abstract purpose the aim of this study is to find out the factors that affect the capital structure of hotels and restaurant companies and. Capital structure, leverage, firmspecific factors, countryspecific factors, international evidence. Pdf this paper examines the theoretical and empirical determinants of firms capital structure choice. During the depression period, the companys capital structure generally consists of debentures and loans. Introduction the influential paper of modigliani and miller on capital structure irrelevancy has been followed by extensive theoretical research to determine the optimal capital structure. The empirical data suggests that such goals can be achieved by an optimal combination of debt and equity which may result in a low average weighted cost of. Bevan and jo danbolt cnemeconomics, london business school, sussex place, regents park, london nw1 4sa.
Empirical analysis introduction the sound financing practices of corporate sector in terms of the implication for future financing and thereby investment depends on capital structure. Determinants of capital structure have received much attention among the researchers. The capital structure is all about the mixture of debt and equity. Hence this study will utilize panel data regression analysis to empirically examine the impact of different determinants on three leverage measures. Debt comes in the form of bond issues or longterm notes. Capital market conditionin the lifetime of the company, the market price of the shares has got an important influence.
These are the tradeoff, agency, contracting cost and information costs theories. The firms capital structure, or financial leverage, constitutes this studys dependent variable. This paperwork investigates the relative importance of five factors upon the capital structure decisions of romanian firms listed at the bucharest stock exchange. The determinants of the capital structure of listed on. Determinants of capital structure a study of oil and gas. 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. 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. The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Four important theories are used to explain the capital structure.
The analysis casts out that size, tangibility and profitability are influencing variables in the financial structure. The most advantageous debt equity mix plays an important role in attaining objective of investors of the firm. Booth et al 2001 examine the capital structure decisions of firms operating in ten emerging markets brazil, mexico, india, south korea, jordan, malaysia, pakistan. The determinants of bank capital structure request pdf. Titman and wessels perform an empirical study on the determinants of capital structure choice in the united states. Determinants of corporate capital structure among private. The purpose of this thesis is to investigate the impact of the capital structure determinants on the smes borrowing behavior. Capital structure of kse listed pharmaceutical companies have been studied by taking leverage as the dependant variable. Determinants of the capital structure of ghanaian firms. A study on determinants of capital structure in india. Determinants of capital structure czech journal of economics and.