scholarly journals Macroeconomic uncertainty, corporate governance and corporate capital structure

2018 ◽  
Vol 14 (3) ◽  
pp. 301-321 ◽  
Author(s):  
Yee Peng Chow ◽  
Junaina Muhammad ◽  
A.N. Bany-Ariffin ◽  
Fan Fah Cheng
Keyword(s):  
Corporate Governance ◽  
Capital Structure ◽  
Good Governance ◽  
Policy Makers ◽  
Content Type ◽  
Corporate Capital ◽  
Macroeconomic Uncertainty ◽  
Corporate Capital Structure ◽  
Governance Quality ◽  
The Relationship

PurposeThe purpose of this paper is to examine how corporate governance moderates the relationship between macroeconomic uncertainty and corporate capital structure.Design/methodology/approachThis paper employs the two-step system generalized method of moments regression, considering a sample of 907 listed non-financial firms from seven Asia Pacific countries during the period 2004-2014.FindingsThis study finds that macroeconomic uncertainty has a significant negative impact on the capital structure decisions of firms. The results also reveal that the overall effect of macroeconomic uncertainty on capital structure among firms with better governance quality is significantly negative. The evidence suggests that corporate governance acts as an effective mechanism to curb the usage of leverage during times of high volatility. Further analysis shows that board independence, the separation between the roles of CEO and chairman of the board and blockholders’ ownership are effective governance mechanisms, whereas similar observations do not hold for board size and institutional ownership.Research limitations/implicationsThe findings of this study may be useful to policy makers to formulate appropriate policies to mitigate the adverse effects caused by macroeconomic uncertainty. This is important because macroeconomic uncertainty may have potential destabilizing effects on a country’s or region’s development by jeopardizing the firms’ ability to formulate sound investment, production and financing decisions. Additionally, the results suggest that good governance quality can act as a check and balance to ensure that firms use less leverage when they are facing volatility in the macroeconomic environment. These findings could help to reinforce the importance of good governance among policy makers of a country as well as managers of firms.Originality/valueThe authors make the first attempt to examine the moderating effect of corporate governance on the relationship between macroeconomic uncertainty and corporate capital structure.

Corporate governance and firm performance: empirical evidence from Pakistan

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Farooq ◽  
Amna Noor ◽  
Shoukat Ali
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Firm Size ◽  
Good Governance ◽  
Positive Impact ◽  
Least Square ◽  
Local Context ◽  
Content Type ◽  
Governance Index ◽  
Governance Quality

Purpose The purpose of this research is to look into the governance–performance relationship in the context of critical firm characteristics, such as firm size. Design/methodology/approach Based on total assets, sample firms were classified as small or large. The governance index, which is based on 29 governance provisions covering the audit committee, board committee, ownership and compensation structure of the respective firm, measures governance quality among sample firms. A higher governance index indicates a higher level of governance quality and vice versa. Accounting and market value measures are used to determine firm profitability. The authors used the two-stage least square (2SLS) method of estimation of the model to eliminate the simultaneous equation bias. Findings Corporate governance (CG) appears to have a positive impact on accounting return and market indices (Tobin’s Q), but it has little impact on return on equity. In terms of firm size, larger companies profited more from better governance implementation than smaller firms that lacked these principles, thus improving CG. The findings indicate that small businesses should improve their governance mechanisms to reap the benefits of CG in terms of increased profitability. Research limitations/implications There are certain drawbacks to this research. First, the authors omitted qualitative aspects of CG from the CG index, such as the board’s decision-making process, directors’ perceptions of the board’s position and directors’ age and qualifications. Such a qualitative component will improve the governance index in the future while building the governance index. Second, as the current study only looks at the nonfinancial sector, caution should be exercised before applying the findings to the entire population. Practical implications The findings show that companies that follow good governance standards have better accounting and market efficiency than those that do not. As a result, good governance practices can help firms in developing countries improve their performance. Academic researchers, regulators, investors, lenders and practitioners can find the findings useful in establishing a true relationship between firm performance and CG practices in Pakistan. Originality/value The relationship between governance and profitability in the context of firm size is examined in this research. Firms with varying resources and ability to implement CG codes have varying effects on profitability. To the authors’ knowledge, there was a gap in the literature that addressed this topic in the local context.

Corporate governance, globalization and firm performance in emerging economies

2018 ◽  
Vol 67 (8) ◽  
pp. 1310-1333 ◽  
Author(s):  
Neha Saini ◽  
Monica Singhania
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Panel Data ◽  
Foreign Capital ◽  
Good Governance ◽  
Foreign Ownership ◽  
Foreign Firms ◽  
Content Type ◽  
Governance Practices ◽  
The Relationship

PurposeThe purpose of this paper is to examine relationship between corporate governance (CG) and firm performance for a set of 255 foreign-funded firms in the form of foreign direct investment (FDI) and private equity (PE). The authors employ a wide range of CG measures including board size, meetings, board gender and foreign ownership which are used as the proxy of globalisation and control variables like firm age, leverage, firm size and capital expenditure to arrive at a conclusion.Design/methodology/approachPanel data set of 255 (187 companies funded by foreign capital in the form of FDI, and 68 companies having foreign capital in the form PE) companies listed on Bombay Stock Exchange, for the period of eight years (2008–2015) are analysed by using static (fixed and random effects) and dynamic (generalised method of moments (GMM)) panel data specifications to examine the relationship among CG, globalisation and firm performance.FindingsThe empirical results of static model indicate the relationship between CG and performance of foreign firms, which are not very strong in India. This is due to the fact that most of the firms are not following the guidelines and regulations strictly in the initial period of sample years. Diversity in board is found as an important variable in accessing firm performance. And the authors also found that foreign firms are very particular about the implementation of CG norms. The results of GMM model highlight the interaction term of foreign ownership with governance indicators. CG is having a positive and significant impact over performance, inferring that higher foreign ownership (in the form of FDI and PE) in firm leading to positive effect on profitability.Practical implicationsThe investor’s preference of financing a unit is guided by the performance of a firm. Investors are more inclined towards high-performing firms, and hence higher profitability leads to higher inflow of capital. The result indicates that higher accounting and market performance may be achieved by good governance practices, in turn, leading to reduced agency costs. Countries with high governance scores attract more of foreign capital. Similar to the best governed countries, the companies having good governance practices attract more foreign inflows in the form of capital.Originality/valueWhile previous literature considered a single measurement framework in the form of a CG index, the authors tried to incorporate a range of CG indicators to study the effect of globalisation and CG on firm performance. The authors segregated foreign-owned funds into two parts, especially FDI and PE. This paper examined heterogeneity in the form of FDI-funded and PE-funded firms, as no prior literature is available which has evaluated different sets of foreign funds simultaneously on CG.

Equity market timing and capital structure: evidence on post-IPO firms in Indonesia

2019 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Dewi Ratih
Keyword(s):  
Capital Structure ◽  
Market Timing ◽  
Equity Market ◽  
Content Type ◽  
Corporate Capital ◽  
Corporate Capital Structure ◽  
Short Run ◽  
Practical Implications ◽  
Equity Market Timing

Purpose The purpose of this paper is to analyze and evaluate the impacts of equity market timing on corporate capital structure policies in Indonesia by apply Baker and Wurgler’s analytical approach to firms in Indonesia to see, first, if that approach applies to Indonesian firms and, second, if it can be generalized to other emerging markets. Design/methodology/approach This study will focus on capital structure policies based on Market Timing Theory in developing countries, which uses the panel data of companies listed in Indonesian Stock Exchange after IPO. The companies used as research object are 70 firms in the non-financial/non-banking sector with the observation period of 2000–2015. The period of measurement is five years after IPO. Using a past market value in which equity market timing is measured in two-time measurements, i.e. yearly timing and long-term timing to prove its persistence. Findings Consistent with equity market timing theory, the results suggest that firms tend to issue equities when their market valuations are relatively higher than their book values and their past market values are high. As a consequence, the firms become underleveraged or have their debts reduced in the short run. The results of long-term measurement on equity market timing do not appear to affect the firms’ capital structure decisions due to the firms’ relatively quick adjustments of optimal capital structures. The conclusion is that equity market timing is an important element in the short run but not in the long run. Research limitations/implications The results of this study describe how firms in Indonesia take advantage of temporary market share fluctuations through equity market timing in their capital structure policies before ultimately making adjustments to the directions they are targeting. Practical implications The use of equity market timing is more aimed at reducing the debt ratio and avoiding unfavorable conditions in the debt market, as well as taking advantage of the capital gains derived from the differences in their stock prices. This study also has practical implications on investment policies that need to consider the adaptation factor of the industrial environment when it comes to making capital structure decisions, including how the entity must take policy when uncertain economic conditions. Social implications Through the research behavior of capital structure more in-depth decision is expected to provide an overview for investors widely in determining investment policy. Thus, the investment strategy is more planned and can also anticipate unexpected conditions. Originality/value This research is the first study to analyze and to evaluate the impacts of equity market timing on corporate capital structure policies on post-IPO firms in Indonesia. This research is an empirical study that investigates the relevance of equity market timing considerations in the determination of debt-equity choices in the capital structure, included in the conditions of the global financial crisis.

Firm, industry, and country level determinants of capital structure: evidence from Pakistan

2016 ◽  
Vol 5 (3) ◽  
pp. 362-384 ◽  
Author(s):  
Tanveer Ahsan ◽  
Man Wang ◽  
Muhammad Azeem Qureshi
Keyword(s):  
Corporate Governance ◽  
Capital Structure ◽  
Economic Conditions ◽  
Governance Mechanism ◽  
Short Term ◽  
Policy Makers ◽  
Content Type ◽  
Financial Firms ◽  
Country Level ◽  
Corporate Governance Mechanism

Purpose The purpose of this paper is to find out firm, industry, and country level determinants of capital structure of Pakistani listed non-financial firms. Design/methodology/approach The authors use a fixed effects panel data model over a 39 years (1972-2010) unbalanced panel data of Pakistani non-financial listed firms to determine the factors that influence capital structure of these firms. Findings The authors find that Pakistani firms prefer retained earnings to finance their business projects, and debt is easily available for experienced firms. Moreover, socio-economic collusive networks, poor corporate governance mechanism along with weak legal system provide these firms an opportunity to pass on their risk to the creditors (banks). Research limitations/implications The data set does not contain factors characterizing inter-industry heterogeneity, therefore, the authors use mean industry leverage and mean industry profitability to explore if any relationship exists between leverage of firms, and their respective industry leverage/profitability. Practical implications Pakistani non-financial firms are highly leveraged increasing their probability to face financial distress in erratic economic conditions. As such, the policy makers need to develop capital markets of Pakistan to enable a resilient corporate capital structure. Further, erratic economic conditions of Pakistan create uncertain business environment yielding short-term opportunities and to finance them Pakistani firms use short-term debt as a main financing source. The policy makers need to improve corporate governance mechanism and strengthen legal system that will go a long way to develop Pakistani capital market on sound and sustainable footing. Originality/value This is the first study that uses an extended number of variables and discovers financial behavior of firms in a bank-based economy having limited financing options, and facing erratic economic conditions.

scholarly journals Uncertainty and Capital Structure: Evidence from an Emerging Country

2021 ◽  
Vol 11 (2) ◽  
pp. 1700-1715
Author(s):  
Hoang Duc Le
Keyword(s):  
Capital Structure ◽  
Policy Makers ◽  
Corporate Capital ◽  
Emerging Country ◽  
Corporate Capital Structure ◽  
Lag Model ◽  
High Level ◽  
General Method Of Moments ◽  
The Impact ◽  
General Method

This paper investigates the impact of uncertainty on corporate capital structure. Using a sample consists of manufacturing firms listed in the Vietnamese Stock Market during the period from 2010 to 2019, we find that an increase in uncertainty can lead to a reduction in the corporate use of debt. This result is robust when we use a lag model or a System General Method of Moments to deal with the endogeneity problems. Moreover, our result shows that firms decrease their leverage when facing a high level of uncertainty because the increase in leverage during the heightened uncertainty periods may reduce firms’ investment. Given that firms in emerging countries in general and in Vietnam in particular rely significantly on debt financing, the results of our paper suggest that policy makers should have solutions to mitigate the adverse impact of uncertainty on firm leverage.

The influence of religion on the determinants of capital structure: the case of Saudi Arabia

2020 ◽  
Vol 11 (2) ◽  
pp. 472-497
Author(s):  
Somaiyah Alalmai ◽  
Abdullah M. Al-Awadhi ◽  
M. Kabir Hassan ◽  
Arja Turunen-Red
Keyword(s):  
Saudi Arabia ◽  
Capital Structure ◽  
Corporate Financing ◽  
Content Type ◽  
Explanatory Variables ◽  
Corporate Capital ◽  
Corporate Capital Structure ◽  
Internal Funds ◽  
Islamic Society ◽  
Potential Challenge

Purpose This study aims to investigate whether a religious environment affects a firm capital structure. Design/methodology/approach The authors use data from Saudi Arabia with a highly Islamic religious environment. The authors use an extreme bounds analysis (EBA), which provides a reliable analysis of the determinants of capital structure and aids the process of selecting explanatory variables when there is model uncertainty. Findings The authors find that firms in such an Islamic environment are relatively less leveraged compared to firms in a non-Islamic environment. The authors also find that firms located in an Islamic environment have different determinants of capital structure than firms located in a non-Islamic environment. Specifically, the Islamic society creates decision makers who are more risk averse, thus leading to a preference for corporate financing using internal funds. Practical implications The results imply a potential challenge for growth-seeking firms located in religious Islamic societies. Originality/value This study is one of the first to examine the determinants of corporate capital structure in Saudi Arabia using EBA.

Impact of corporate governance on capital structure: mediating role of cost of capital

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Aisha Javaid ◽  
Mian Sajid Nazir ◽  
Kaneez Fatima
Keyword(s):  
Corporate Governance ◽  
Capital Structure ◽  
Cost Of Capital ◽  
Stock Exchange ◽  
Institutional Ownership ◽  
Managerial Ownership ◽  
Content Type ◽  
Mediating Role ◽  
The Relationship

PurposeThis paper contributes to the existing literature by extending the empirical work on the relationship between corporate governance and capital structure by analyzing the mediating role of cost of capital in the non-financial firms listed on the Pakistan Stock Exchange (PSX).Design/methodology/approachThe sample for this study includes non-financial firms listed on the Pakistan Stock Exchange (formerly Karachi Stock Exchange) for the period of 2004–2016. Based on 1800 firm-year observations, three approaches of panel data analysis are applied for the step-wise analysis of the underlying study. Firstly, Pooled OLS is applied. Secondly, fixed and random effect panel regression followed by the Hausman test to check the unobservable individual heterogeneity of the data. Hausman test indicates that the fixed-effects model is the most appropriate model for the sample panel data.FindingsThe study's findings are that board size, board composition, CEO/Chair duality, institutional ownership and managerial ownership have statistically significant direct effect on the firm's financing decisions. However, CEO/Chair duality, institutional ownership and managerial ownership have significant indirect effect on firm's capital structure decisions. The interesting finding of the paper is on the evidence of mediating role of cost of capital in the nexus of corporate governance and capital structure. Moreover, some conventional determinants of capital structure, including the firm's size, asset structure of the firm, profitability, business risk and growth, are found as determinants of capital structure decisions of the firms.Research limitations/implicationsThere are a few limitations to our study which could be addressed by upcoming research. We did not include all the four mechanisms of corporate governance including board structure, audit structure, compensation structure and ownership structure. However, we used only five important attributes including board size, board composition and CEO/Chair duality form board structure, managerial ownership and institutional ownership form ownership structure of corporate governance as our explanatory variables to examine their impact on the capital structure choices of the firms. Future studies may fill this research gap by involving some other attributes of corporate governance and analyzing their effectiveness and impact on value relevant capital structure decisions. Further, due to limited time and resources, we only tested the mediating role of cost of capital, hence, future researchers can analyze the mediating and moderating roles of different variables which may influence the relationship between corporate governance and capital structure choices of the firms.Practical implicationsThe study has many valuable guidelines and practical implications for the financial managers of the corporations. Our results will facilitate the policymakers in setting their corporate governance policies and practices and making the value relevant capital structure decisions in compliance with the implications of corporate governance mechanism. In addition, our study provides the empirical evidence in accordance with the argument that good governance practices, particularly the voluntary disclosures by the firm may reduce the information asymmetry which, ultimately, reduces the agency cost and the cost of capital for the firm. However, while deciding the financial policy of the corporations, managers can use our findings in order to assess the effectiveness of corporate governance practices employed by the firm in achieving the optimal capital structure at which the weighted average cost of capital is at its minimum level.Originality/valueThis paper contributes to the literature by investigating the mediating role of the cost of capital in the relationship between corporate governance and capital structure decisions of the firms. This paper provides empirical evidence that corporate governance indirectly affects capital structure decisions through the mediating role of cost of capital.

Family ownership, control and corporate capital structure

2016 ◽  
Vol 6 (2) ◽  
pp. 169-185 ◽  
Author(s):  
Hyungkee Young Baek ◽  
David D. Cho ◽  
Philip L Fazio
Keyword(s):  
Capital Structure ◽  
Family Firm ◽  
Management Control ◽  
Family Ownership ◽  
Content Type ◽  
Family Control ◽  
Book Value ◽  
Corporate Capital ◽  
Control Factors ◽  
Corporate Capital Structure

Purpose – The purpose of this paper is to explain how family firm ownership and management control affect corporate capital structure strategy after controlling for other significant variables. The authors argue that, although family ownership has a positive effect on a firm’s leverage, family control through the CEO position and equity performance moderate its impact. Design/methodology/approach – Using a stratified random sample of 200 US public firms in the S & P Small-Cap 600 index from 1999 to 2007, this study uses random effect panel regressions to test the impact of family ownership on market value and book value debt ratios and the moderating effects of family control and equity performance after controlling for firm, industry, and macroeconomic variables. Findings – The initial panel regression suggests that family ownership is not related to debt ratios. However, further examination with controls for family CEO and equity performance shows that family ownership is positively related to market and book value debt ratios, but its effect is offset by family control through the CEO position and equity performance. Research limitations/implications – This study’s methodology can be extended to examine how family firm governance factors affect other firm behaviors such as investment, risk management, and CEO compensation. Practical implications – Practitioners should consider family ownership and management control factors when establishing financing strategy. The Small Business Administration and other government agencies should make similar considerations when setting policies. Originality/value – This paper separates ownership and management control factors to explain why family firms use more or less leverage. This study, thus, reconciles the mixed results of prior studies, which do not differentiate between these two governance factors.

The nexus between corporate governance and records management in private and public hospitals in Ghana

2014 ◽  
Vol 24 (1) ◽  
pp. 32-55 ◽  
Author(s):  
Monica Mensah ◽  
Musah Adams
Keyword(s):  
Corporate Governance ◽  
Information Security ◽  
Good Governance ◽  
Public Hospitals ◽  
Records Management ◽  
Governance System ◽  
Content Type ◽  
Significant Relationships ◽  
Private And Public ◽  
The Relationship

Purpose – The purpose of this paper is to examine the relationship between corporate governance and records management in private and public hospitals in Ghana, with the aim of finding out how the effective and efficient management of a hospital's records can facilitate its governance obligations, which includes but not limited to accountability, transparency and information security. Design/methodology/approach – The study was informed by the triangulation of the Stakeholders' and Records Continuum Theories. Data used for analysis were drawn from 90 respondents from four hospitals with the use of questionnaires and personal observations. A total of 82 questionaries' were returned in their complete forms and used for the analysis. Linear regressions were performed to establish the relationship between corporate governance and records management. Findings – The key finding of the study was that, the hospitals generated different types of records in the course of their business activities but existing records management standards, practices and systems were inadequate and undermined the contribution records could make in support of the governance function in the hospitals. Results of a linear regression also revealed that positive and significant relationships exist between corporate governance and records management. Furthermore, all variables used as predictors of corporate governance had positive and significant relationships with records management except information security. Research limitations/implications – Participants were from four hospitals in only one Region in Ghana, and as such the results could not be generalised to the whole country. Practical implications – The study has established the recognition of the essential but often ignored conditions necessary for an effective and efficient governance system for hospitals. Originality/value – The study has demonstrated that the effective management of hospital records is a critical factor in providing capacity for hospitals' efficiency, accountability, transparency, information security and indeed good governance. This research has also contributed towards bridging the theoretical gap identified in the study.

Sign in / Sign up

Export Citation Format

Share Document