The Effects of Capital Structure Decisions on Financial Risk and Failure: A Research on BIST Food Companies1

2022 ◽  
pp. 117-148
Author(s):  
Serdar Yaman ◽  
Turhan Korkmaz
Keyword(s):  
Capital Structure ◽  
Financial Risk

Effect of Capital Structure Determinants on Profitability: With Special Reference to Iron and Steel Sector Units of India

2016 ◽  
Vol 6 (2) ◽  
Author(s):  
Neeraj Gogia
Keyword(s):  
Capital Structure ◽  
Sample Size ◽  
Financial Risk ◽  
Iron And Steel ◽  
Coverage Ratio ◽  
Independent Variables ◽  
Operating Profit ◽  
Return On Capital ◽  
Steel Sector ◽  
Equity Ratio

This paper is an attempt to study the capital structure of Indian Steel Industry and its major determinants. In this study, almost 50% of companies out of 22 sample size are bearing highly debt driven in their capital structure and it creates financial risk to the debt driven companies. Debt driven companies have obligation to pay interest irrespective of profit made or loss incurred by the firms. Hence we tried to find out which are the various factors significantly explaining the return on capital employed. For which we have considered four independent variables from early studies and employed correlation analysis, multiple regression analysis techniques and ANOVA in this study to test the dependency of the return on capital employed ratio on independent variables. The researcher found three variables such as debt equity ratio, operating profit ratio and interest coverage ratio respectively having significant impact on the return on capital employed to ratio of selected sample size of steel companies.

Capital structure optimization for build–operate–transfer (BOT) projects using a stochastic and multi-objective approach

2009 ◽  
Vol 36 (5) ◽  
pp. 777-790 ◽  
Author(s):  
Sungmin Yun ◽  
Seung Heon Han ◽  
Hyoungkwan Kim ◽  
Jong Ho Ock
Keyword(s):  
Capital Structure ◽  
Financial Risk ◽  
Optimal Level ◽  
Operating Income ◽  
Financial Responsibility ◽  
Multi Objective ◽  
Equity Ratio ◽  
Privately Financed ◽  
Private Investors ◽  
Private Financing

Private financing has long been recognized as playing an important role in providing public infrastructure facilities worldwide. Private investors–operators, however, are often exposed to the financial risk of low profitability due to the inaccurate forecast of facility demand, operating income, and maintenance costs. From the operator’s perspective, a sound and thorough financial feasibility study is required to establish the appropriate capital structure of a project. To this end, operators are likely to reduce the equity amount to minimize the level of risk exposures, whereas creditors or lenders continue to raise it in an attempt to secure a decent level of financial responsibility from the operators. This paper presents an optimized capital structure model for both creditors and operators to reach an agreement for a balanced structure that synchronizes both profitability and repayment capacity. The model is developed with the use of Monte Carlo simulation and a multi-objective generic algorithm (GA) for drawing an optimal level of equity ratio. Results of a case study on a railway project show that the proposed model provides a proper range of capital structure for privately financed infrastructure projects while accounting for the project-specific risks under variable conditions.

THE CAPITAL STRUCTURE OF ISLAMIC BANKS UNDER THE CONTRACTUAL OBLIGATION OF PROFIT SHARING

1999 ◽  
Vol 02 (03) ◽  
pp. 243-283 ◽  
Author(s):  
TALLA AL-DEEHANI ◽  
RIFAAT AHMED ABDEL KARIM ◽  
VICTOR MURINDE
Keyword(s):  
Capital Structure ◽  
Average Cost ◽  
Financial Risk ◽  
Cost Of Capital ◽  
Weighted Average ◽  
Market Value ◽  
Profit Sharing ◽  
Islamic Banks ◽  
Contractual Obligation ◽  
Islamic Bank

Islamic banks are established with the mandate of conducting all their transactions in conformity with Islamic precepts which prohibit, among other things, the receipt and payment of interest. Unlike conventional (non-Islamic) commercial banks, Islamic banks mobilise funds primarily via investment accounts using profit sharing contracts. In this paper, we argue that the concept of financial risk, on which modern capital structure theories are based, is not relevant to Islamic banks. Given the contractual obligation binding the Islamic bank's shareholders and investment account holders to share profits from investments, we propose a theoretical model in which, under certain assumptions, an increase in investment accounts financing enables the Islamic bank to increase both its market value and its shareholders' rates of return at no extra financial risk to the bank. We theoretically demonstrate that such a process leads to an increase in the Islamic bank's market value but does not alter its weighted average cost of capital, i.e. the weighted average cost of capital of the Islamic bank remains constant. The evidence obtained from estimating and testing the model on annual accounts drawn from a sample of 12 Islamic banks lends support to our theoretical predictions, as do the results from counterfactual simulations and sensitivity experiments. Hence, in the context of Islamic banks both our theoretical and empirical results provide a new dimension to the theory of capital structure, which is based on a mixture of only debt and equity financing. In general, viewed against the main competing tenets of the traditional school and the MM standpoint, our results provide an encompassing paradigm on the theory of capital structure.

scholarly journals Firm, Country and Macroeconomic Determinants of Capital Structure: Evidence from Turkish Banking Sector

2014 ◽  
Vol 3 (3) ◽  
pp. 47-58 ◽  
Author(s):  
Nuri Baltacı ◽  
Hasan Ayaydın
Keyword(s):  
Capital Structure ◽  
Firm Size ◽  
Financial Risk ◽  
Banking Sector ◽  
Order Theory ◽  
Dynamic Panel Data ◽  
Gdp Growth ◽  
Firm Level ◽  
Macroeconomic Factors ◽  
Country Level

This study explores the significance of firm-specific, country, and macroeconomic factors in explaining variation in leverage using a sample of banks from Turkish banking sector. The analysis is based on quarterly firm-level data from Turkish banking sector in 2002–2012. We aims to contribute to the empirical capital structure literature in the following ways. Our first contribution comes from assessing the importance of firm-specific factors, country-level factors and industrial factors for capital structure decisions in Turkish banking sector. Second, we employ appropriate and advanced dynamic panel data estimators, Blundell and Bond’s (1998) generalized methods of moment’s estimators (GMM System). We find that leverage is significantly and positively associated with average industry leverage, firm size and GDP growth. We find also that leverage is significantly and negatively associated with tangibility, profitability, inflation and financial risk. The regression results for leverage are both theoretically and empirically plausible for banks in Turkey. Moreover, tangibility, profitability and GDP growth are consistent with the predictions of the pecking order theory, while firm size is consistent with the predictions of the trade-off theory. Our findings suggest that the capital structures of financial and non-financial firms are ultimately determined by the same drivers.

THE ROLE OF FINANCIAL RISK IN MANAGING THE CAPITAL STRUCTURE AND PERFORMANCE OF RUSSIAN COMPANIES

2021 ◽  
Vol 4 (198) ◽  
pp. 56-61
Author(s):  
G.A. Nekrasova ◽  
Keyword(s):  
Capital Structure ◽  
Financial Management ◽  
Financial Risk ◽  
Negative Impact ◽  
Return On Assets ◽  
Return On Equity ◽  
Debt Burden ◽  
Financial Management System ◽  
And Performance ◽  
The Capital Structure

Issues related to the formation and optimization of the capital structure are an important component of the company's financial management system. The effectiveness of decisions depends on external and internal factors that affect the financial activities of the company, including financial risk. The article reveals the concept of financial risk and assesses its role in the analysis of the relationship between the capital structure and profitability indicators. It is established that the negative impact of the level of debt in the capital structure on the return on assets weakens as the financial risk increases, measured in terms of current liquidity coefficients and interest coverage. An increase in the debt burden leads to an increase in the return on equity when the company has enough funds to service the debt and the revenue variation is at an average level.

scholarly journals THE EFFECT OF ASSET STRUCTURE, CAPITAL STRUCTURE, AND MACRO ECONOMICS ON FINANCIAL RISK MANAGEMENT, PROFITABILITY PERFORMANCE, GOING CONCERN AND VALUE OF THE FIRM AND GCG AS MODERATED VARIABLES IN COMPANIES LISTED IN JAKARTA ISLAMIC INDEX

2019 ◽  
Vol 3 (03) ◽  
Author(s):  
Solichah Solichah ◽  
Tri Ratnawti ◽  
Srie Hartutie Moehaditoyo
Keyword(s):  
Risk Management ◽  
Capital Structure ◽  
Quantitative Research ◽  
Financial Risk ◽  
Sampling Method ◽  
Stock Exchange ◽  
Research Data ◽  
Financial Risk Management ◽  
Going Concern ◽  
Testing Techniques

The population in this study were 30 sharia stock companies listed on the Jakarta Islamic Index in the period 2013 to 2017. The research sample of 16 companies were selected using a purposive sampling method with certain criteria. This type of research is quantitative research, with research data obtained from the IDX website (Indonesia stock exchange) and data testing techniques using PLS test equipment. The results showed that 1) asset structure has no significant effect on financial risk management, 2) asset structure has a significant effect on profitability performance, 3) asset structure has a significant effect on going concern 4) asset structure has a significant effect on the value of the firm 5) capital structure has significant effect on financial risk management 6) capital structure has a significant effect on profitability performance, 7) capital structure has a significant effect on going concern, 8) capital structure has no significant effect on the value of the firm, 9) macroeconomic has a significant effect on financial risk management, 10) Macroeconomic has a significant effect on profitability performance, 11) Macroeconomic has a significant effect on going concern, 12) Macroeconomic has a significant effect on the value of the firm, 13) Financial risk management has a significant effect on the value of the firm, 14) Financial Risk Ma Management has a significant effect on profitability performance, 15) Profitability performance has a significant effect on going concern, 16) Profitability performance has a significant effect on the value of the firm, 17) Going concern has a significant effect on the value of the firm 18) GCG moderates going concern has a significant effect on value of the firm 19) GCG moderates the profitability performance significantly influences the value of the firm 20) GCG moderates the financial risk management does not significantly influence the value of the firm, and at last,21) GCG significantly influences the value of the firm. Keywords: asset structure, capital structure, macroeconomic, financial risk management, profitability performance, going concern, GCG, value of the firm

A parallel algorithm for optimizing the capital structure contingent on maximum value at risk

Kybernetes ◽  
2015 ◽  
Vol 44 (3) ◽  
pp. 384-405 ◽  
Author(s):  
Ralf Östermark
Keyword(s):  
Parallel Processing ◽  
Capital Structure ◽  
Value At Risk ◽  
Financial Risk ◽  
Large Scale ◽  
Disjunctive Programming ◽  
Mixed Integer ◽  
Future Research ◽  
General Validity ◽  
Content Type

Purpose – The purpose of this paper is to measure the financial risk and optimal capital structure of a corporation. Design/methodology/approach – Irregular disjunctive programming problems arising in firm models and risk management can be solved by the techniques presented in the paper. Findings – Parallel processing and mathematical modeling provide a fruitful basis for solving ultra-scale non-convex general disjunctive programming (GDP) problems, where the computational challenge in direct mixed-integer non-linear programming (MINLP) formulations or single processor algorithms would be insurmountable. Research limitations/implications – The test is limited to a single firm in an experimental setting. Repeating the test on large sample of firms in future research will indicate the general validity of Monte-Carlo-based VAR estimation. Practical implications – The authors show that the risk surface of the firm can be approximated by integrated use of accounting logic, corporate finance, mathematical programming, stochastic simulation and parallel processing. Originality/value – Parallel processing has potential to simplify large-scale MINLP and GDP problems with non-convex, multi-modal and discontinuous parameter generating functions and to solve them faster and more reliably than conventional approaches on single processors.

scholarly journals FINANCIAL RISK ANALYSIS IN THE BUILDING SECTOR:A CASE STUDY OF ROMANIA (GALATI COUNTY)

Ekonomika ◽  
2010 ◽  
Vol 89 (1) ◽  
pp. 67-79
Author(s):  
Nicoleta Barbuta
Keyword(s):  
Capital Structure ◽  
Financial Risk ◽  
Building Sector ◽  
Balance Sheets ◽  
World Crisis ◽  
The World ◽  
The Government ◽  
Breakeven Point ◽  
Economic And Financial Crisis

The importance given to the problem of capital structure comes from the influence of debt on equity profitability (financial leverage) and the financial risk induced by debt. This paper is actually an analysis of the evolution of financial risk in the building sector during 2001–2008 on a sample of 11 enterprises in the Galati County, Romania. In this approach, we used information from the balance sheets of enterprises, provided by the Register of Commerce. To carry out this analysis two methods were used, which rely on the breakeven point and the leverage.Analysis of aggregate data reveal a low fluctuating trend of financial risk, which shows that by the end of 2008 the effects of the economic and financial crisis still have not been felt as much as statistics show in 2009. The conclusion that emerges from this study is that the world crisis produces major effects on the building sector, but they can be seen a bit later. The effects are disastrous for economy (lack of work, offs of staff, etc.), which is why the government began to seek solutions to relaunch this sector.p>

scholarly journals Is Capital Structure Important in Contemporary Finance Relations?

2020 ◽  
Author(s):  
Dean Učkar
Keyword(s):  
Capital Structure ◽  
Financial Markets ◽  
Behavioral Finance ◽  
Financial Risk ◽  
Stock Exchange ◽  
Investment Projects ◽  
Starting Point ◽  
The Subject ◽  
The Impact ◽  
Negative Link

t The various combinations of sources of financing that a business uses in its operations have multiple impacts on the generation of its cash flow. Such influence can be viewed from the aspect of forming the total cost of financing the company, from the aspect of investments where such an indicators represents the minimum level of required profitability of investment projects, as well as from the aspect of investors in an enterprise where different capital structure carries with it a different level of financial risk. It is therefore not surprising that there is considerable scientific interest in this issue and numerous researches conducted on this topic. Moreover, the relevance of the subject is also evidenced by the fact that there are numerous theories on the formation of capital structure and its consequences on the valuation of the company, that is, the influence on the market value of the company's shares. This paper will determine the average values of the formation of the capital and financial structure of Croatian companies listed on the Zagreb Stock Exchange. The analysis of 30 companies over a ten-year period from 2009 to 2018 will seek to show the impact that the formed capital structure has on profitability. By establishing a negative link between the selected debt indicators and the profitability indicators, the validity of contemporary capital structure theories, which have their starting point in behavioral finance and are specific for developed financial markets, has been rejected.

Sign in / Sign up

Export Citation Format

Share Document