The study finds that a particular industrys capital structure exhibits unique attributes, which are usually not visible in the combined analysis of many sectors. The aim of this paper is to examine the degree to which the determinants of smes capital structures differ between european countries. Firms capital structure determinants and financing choice by. The study of capital structure attempts to explain how listed firms utilise the mix of various forms of securities in order to finance investment. The paper shows that mispriced deposit insurance and capital regulation were of secondorder importance in determining the capital structure of large u. 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. 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. 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. The vast majority of previous empirical works analyses the capital structure of firms in economies with highly developed stock markets. Pdf determinants of capital structure of indian textile. The purpose of this research is to find out the capital structure of listed firms in the sugar industry of pakistan. Research baral 2004 entitled determinants of capital structure. 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. In order to explore the capital structure determinants of firms that provide high quality sustainability reporting, a model is built for the firms in the borsa istanbul sustainability.
Capital structure hierarchical analysis firmlevel determinants industrylevel determinants countrylevel determinants abstract we analyze the in. Titman and wessels perform an empirical study on the determinants of capital structure choice in the united states. Existing empirical research on capital structure has been largely confined to the. Booth et al 2001 examine the capital structure decisions of firms operating in ten emerging markets brazil, mexico, india, south korea, jordan, malaysia, pakistan. Determinants of capital structure mba knowledge base. While size, growth, risk, and nondebt tax shield are statistically insignificant determinants of capital structure. The analysis casts out that size, tangibility and profitability are influencing variables in the financial structure. A survey of european firms how firms make their capital structure decisions has been one of the most extensively researched areas in corporate finance. The decision on the capital structure poses many challenges for companies.
The evidence generally suggests the relevance of the pecking order hypothesis in explaining the financing choices of polish firms. 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 variety of internal and external factors. Determinants of the capital structure of ghanaian firms. The data was taken from secondary data source named as industry. 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. The study is based on data for four thousand smes, five hundred from each of eight european countries. This paper investigates the determinants of capital structure of financial service firms in china. Evidence from hotel and restaurant companies in sri lanka a. This article empirically investigates the factors determining capital structure of textile industry in indian context.
The determinants of the capital structure of listed on stock. Factors affecting the capital structure the dependent variable are. Determinants of the capital structure of chinese non. Capital structure and its determinants in the united kingdom a decompositional analysis alan a. A major shortcoming of capital structure studies on developing economies is that they generally restrict their analyses to large publiclytraded manufacturing firms. Thirdly, a comparison of past and current evidence in terms of dutch institutional settings is presented. Determinants of the capital structures of european smes. 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. A case study of listed companies of nepal revealed the following things. 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.
Determinants of capital structure a study of oil and gas. Consequently, we know little about the applicability of various capital structure theories to firms that are private, small, andor outside the manufacturing industry in these economies. 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. Determinants of capital structure empirical evidence from. The most advantageous debt equity mix plays an important role in attaining objective of investors of the firm. Bevan and jo danbolt cnemeconomics, london business school, sussex place, regents park, london nw1 4sa. A few theoretical studies have discussed the issue of determinants of capital structure choices. One of the most strategic decisions being faced by the. Theory and practice of capital structure in their crosssectional study of the determinants of capital structure, rajan and zingales 1995 examine the extent to which, at the level of the individual firm, gearing may be explained by four key factors, namely, markettobook, size, profitability and tangibility. Firms capital structure determinants and financing choice. The determinants of bank capital structure request pdf. Introduction capital structure refers to the way a firm finances its assets through some combination of equity, debt, or securities. 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.
Second, although we concur with the conventional direct impact of countryspecific factors on the capital structure of firms, we show that there is an indirect impact because countryspecific factors also influence the roles of firmspecific determinants of leverage. 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. Four important theories are used to explain the capital structure. 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.
Chapter iii concepts and theories of capital structure and profitability. Department of accounting and finance, university of glasgow, 6571. The objectives of this study are to identify the significant determinants of capital structure of the listed manufacturing companies in bangladesh and to test the. Determining optimal capital structure not only assists business for long term sustainability but also affects profitability of the. The theory of trade off was developed by kraus and litzenberger 1973 arguing that the companies choose their optimal. A comparative study of public and private firms 1 i. Pdf determinants of capital structure and testing of theories. This paper approached the issues of capital structure by evidencing commercial banks in ethiopia to uncover the firm level determinant factors of capital structure. The capital structure of a firm is some mix of debt, internally generated equity, and new equity. 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. 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. In section 2 the potential determinants of capital structure are summarized and theoretical and empirical evidence concerning these determinants is provided.
First, we apply hierarchical linear modeling in order to assess the relative importance of those levels. Capital structure, a reading prepared by pamela peterson drake 4. Determinants of capital structure have received much attention among the researchers. It is the employment of an asset source of finance for which. A study on determinants of capital structure in india. Our results show that profitability, nondebt tax shield, size, tangibility, and liquidity are significant determinants of the capital structure, size being. 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. Box 3323, safat 34, kuwait abstract this paper investigates the determinants of capital structure in the context of three. 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 eu15 from 1991 until 2004. Determinants of capital structure theoretical aspects corporate finance literature has focused on two broad categories of explanation for capital structure viz. This paper analyzes the determinants of the sources of funding for the firms of an economy without stock market. The study extends empirical work on capital structure theory in three ways. Next, in order to test the relationship between capital structure and its potential determinants, multiple regression is run.
The research found that the profitability and assets tangibility are two key determinants of the capital structure decisions in tanzania. The study concludes that debt is preferred in the capital structure of firms in the it sector of the united states. Once the available and relevant financial sources for a uruguayan firm are defined, their determinants are analyzed through cross section econometric models. Profitability, tangibility and liquidity are statistically significant determinants of capital structure. Theory on capital structure capital structure is defined as the specific mix of debt and equity a firm uses to finance its operations. The objective of this paper is to identify the determinants of capital structure and discuss the key theories on capital structure. It is therefore essential to study the emerging economies as individual countries rather than see them collectively as a group. Evidence from pakistani manufacturing companies 8 journal of banking and finance management v1.
Determinants of capital structure a study of manufacturing. In particular, the pecking order theory of capital structure, with past profitability being the major determinant of leverage, is supported. The primary aim of this study is to identify the firmspecific determinants of the capital structure of nonfinancial firms in turkey and to test whether the determinants offered by financial theory are able to provide convincing explanations for nonfinancial firms in turkey. Evidence from the gcc countries wafaa sbeiti economics and business division, american university of kuwait p. 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. These are the tradeoff, agency, contracting cost and information costs theories. Common factors of leverage such as pro t, size, growth, risk, asset structure. Table 1 summarizes the determinants of capital structure choices, definitions, predicted empirical tested signs, and the results of previous empirical studies.
Financial directors have to grapple with questionwhat is the. In section 1 the most prominent theoretical and empirical findings are surveyed. Pdf the financing decision is one of the most important imperative in corporate finance. 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. The question of a firms optimal capital structure and the determinants of. Since the seminal work of modigliani and miller 1958 on the. Determinants of capital structure univerzita karlova. First, it examines a much broader set of capital structure theories, many of. The determinants of the capital structure of listed on. The external stimuli in the post financial liberalization period, whether in the form of fiscal or. Determinants of capital structure an empirical evidence, us. 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. 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.
Abstract decision on capital composition is a crucial decision for firms as it has major financial and profitability implications. Capital structure, a reading prepared by pamela peterson drake 1. The combination of debt and equity used to finance a companys projects is referred to as capital structure. Its choice and determinants related to many different factors. Several studies on the determinants of bank capital structure using explanatory variables are also used in examining the capital structure of nonbank companies such as amidu 2007, heider and.
Pdf the determinants of bank capital structure syed m. 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. We find all the factors examined in this study provide strong explanatory power for the capital structure decisions of the sampled public listed companies across all three countries. The capital structure is all about the mixture of debt and equity. Evidence from tanzanian nonfinancial listed companies bundala, ntogwa nghabi p. Determinants of the capital structure of chinese nonlisted. This results generally consisting of pecking order theory pot predictions as well as previous research papers. There are two widely acknowledged competing theories of capital structure. In chinas case, the applicability of these determinants on capital structure choices have been extensively tested, but. 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.