The dynamics of capital structure in the presence of zakat and corporate tax

2014 ◽  
Vol 7 (1) ◽  
pp. 89-111 ◽  
Author(s):  
Nur Azura B.T. Sanusi
Keyword(s):  
Capital Structure ◽  
Stock Exchange ◽  
Data Access ◽  
Series Data ◽  
Kuala Lumpur ◽  
Corporate Tax ◽  
Content Type ◽  
Wealth Tax ◽  
The Impact ◽  
The Capital Structure

Purpose – The purpose of this paper is to determine the impact of wealth tax (zakat) and corporate tax (CT) on the firm's capital structure. The pioneering works of capital structure were introduced by Modgliani and Miller (1958). Subsequently, these studies were extended by other authors such as Elton and Gruber (1970), Miller (1977), DeAngelo and Masulis (1980), Mackie-Mason (1990), Harris and Raviv (1991), Rajan and Zingales (1995) and Booth et al. (2001). The diversity of the study covers from the advantage of CT to the cost of debt financing. The empirical evidence has also been applied to different countries with a good data access and different legal and accounting environments. However, this study is still relevant especially on the advantages of wealth tax, and the utilization of Islamic debt and equity financing to the firm's capital structure. Design/methodology/approach – The study uses the sample of Malaysian firms that are listed in the Kuala Lumpur Stock Exchange. The cross-sectional and time-series data covering 422 companies from 1996 to 2000 are compiled from the database published by the Kuala Lumpur Stock Exchange. All the sample firms are listed as a syariah company that normally pays the wealth tax. These data, then, are used to examine the effects of several explanatory variables, i.e. wealth tax and CT, and several controlled variables on firm capital structure decisions. Findings – The results showed that, first, the significance of wealth tax is consistent with the argument that firms that pay high wealth tax should be financed with relatively more debt. Second, as the CT rate is raised, firms are subjected to lower CT rates which would lead them to utilize more debt in their capital structures. Third, a significant relationship exists between age, size, return on assets, volatility, industry classification, tangible assets and bankruptcy with the capital structure. Originality/value – This paper viewed the tax benefits and the zakat payments in isolation. However, the tax deductions and the zakat payments are both expected to influence the capital structure decisions. The paper will study this decision and reveal the determinants that influence the capital structure decisions in general and the specific choice of payments, i.e. tax and zakat payments.

The impact of co-structure of capital, profitability and corporate growth opportunities on stock exchange in Indonesia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Teddy Chandra ◽  
Achmad Tavip Junaedi ◽  
Evelyn Wijaya ◽  
Martha Ng
Keyword(s):  
Capital Structure ◽  
Structural Equation ◽  
Stock Exchange ◽  
Reciprocal Relationship ◽  
Growth Opportunities ◽  
Content Type ◽  
Reciprocal Influence ◽  
Growth Opportunity ◽  
The Impact ◽  
The Capital Structure

PurposeThe purpose of this paper is (1) to determine the factors that significantly influence the capital structure, (2) to determine the factors that significantly influence profitability, (3) to find the factors that significantly influence growth opportunities, (4) to find reciprocal influence between capital structure and profitability and (5) to find reciprocal influence between capital structure and growth opportunity.Design/methodology/approachThe population of this research is a manufacturing company listed on the Indonesia Stock Exchange during the period of 2010–2016. The number registered in the manufacturing sector is 144 companies. The sampling technique applied is purposive sampling. The fulfillment criteria are companies that have been approved before 2010. Another criterion is that the company is not delisting during the observation period. From that total of population, companies that meet the requirements are 117 companies. This observation was conducted for seven years since 2010–2016, so the center of the analysis of this research was a total of 819. The inferential statistics method used to analyze the research data is generalized structural component analysis (GSCA).FindingsThe results of this study indicate that (1) the factors that influence the capital structure include effective tax rate, financial flexibility, growth, uniqueness, asset Utilization, firm size and tangibility; (2) factors that affect profitability include liquidity, growth, firm age, uniqueness, tangibility, volatility, advertising and asset turnover; (3) growth opportunity have a negative and significant influence on capital structure. This means an increase in growth opportunity can be defined as an increase in depreciation that will not be used as collateral for managers to increase debt. This increase in debt will have an impact on reducing growth opportunities; (4) profitability and capital structure have a two-way causality relationship, which means they influence each other and (5) capital structure and growth opportunities have a negative reciprocal relationship.Originality/valueThe authenticity of the study is implied in the following explanation: The authors try to examine the reciprocal effect of capital structure on profitability and capital structure on growth opportunities and the factors that influence these two endogenous variables that have never been done by previous researchers. This research is motivated by research conducted by (Chathoth and Olsen, 2007; Jian-Shen Chen et al., 2009; Yang et al., 2010) using the structural equation model (SEM). However, this study uses GSCA as a method of research analysis.

The impact of environmental performance on capital structure and firm performance: the case of Turkey

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ismail Kalash
Keyword(s):  
Capital Structure ◽  
Financial Performance ◽  
Stock Returns ◽  
Environmental Performance ◽  
Positive Impact ◽  
Stock Exchange ◽  
Ordinary Least Squares ◽  
Content Type ◽  
The Impact ◽  
The Capital Structure

Purpose The purpose of this study is to investigate the effect of environmental performance on the capital structure and financial performance of Turkish listed firms. Design/methodology/approach This study used data of 49 firms listed on Istanbul Stock Exchange during the period between 2014 and 2019, resulting in 205 firm-year observations. The environmental performance data were drawn from the carbon disclosure project Turkey climate change reports. Ordinary least squares and binary logistic regression models were used to examine whether environmental performance impacts the capital structure and financial performance. Findings The findings of this research revealed that environmental performance significantly positively affects the firm leverage. Findings also showed that environmental performance has a significantly positive impact on return on assets, operating profitability and return on equity, but no significant impact on stock returns. Practical implications Given the increased borrowing costs for Turkish firms after the 2018 currency crisis in Turkey, the findings of this study are very important as they enable managers of Turkish firms to make better decisions related to capital structure and to understand the role of environmental performance in reducing the cost of debt and enhancing financial performance. Originality/value To the author’s knowledge, this research is the first to investigate the effect of environmental performance on capital structure in the Turkish context, and is one of few that explained how environmental performance affects the financial performance of Turkish firms.

scholarly journals The impact of operating leverage on the capital structure of Johannesburg Stock Exchange-listed firms before and after the 2008 global financial crisis

2018 ◽  
Vol 11 (1) ◽  
Author(s):  
Matabane T. Mohohlo ◽  
Johan H. Hall
Keyword(s):  
Financial Crisis ◽  
Capital Structure ◽  
South African ◽  
Global Financial Crisis ◽  
Stock Exchange ◽  
Johannesburg Stock Exchange ◽  
The Global Financial Crisis ◽  
Operating Leverage ◽  
The Impact ◽  
The Capital Structure

The financial leverage-operating leverage trade-off hypothesis states that as financial leverage increases, management of firms will seek to reduce the exposure to operating leverage in an attempt to balance the overall risk profile of a firm. It is the objective of this study to test this hypothesis and ascertain whether operating leverage can indeed be added to the list of factors that determine the capital structure of South African firms. Forty-six firms listed on the Johannesburg Stock Exchange between 1994 and 2015 are analysed and the impact of operating leverage is determined. The results are split into two periods, that is, the period before the global financial crisis (1994–2007) and after the global financial crisis (2008–2015). The impact of operating leverage during these two periods is then compared to determine whether a change in the impact of operating leverage on the capital structure can be observed especially following the crisis. The results show that the conservative nature of South African firms leading up to 2008 persisted even after the global financial crisis. At an industry level, the results reveal that operating leverage does not have a noticeable impact on capital structure with the exception of firms in the industrials sector of the South African economy.

Capital structure decisions in a period of economic intervention

2020 ◽  
Vol 28 (3) ◽  
pp. 465-495 ◽  
Author(s):  
Maria Elisabete Neves ◽  
Zélia Serrasqueiro ◽  
António Dias ◽  
Cristina Hermano
Keyword(s):  
Capital Structure ◽  
Debt Crisis ◽  
Dynamic Panel Data ◽  
Debt Maturity ◽  
Economic Adjustment ◽  
Adjustment Programme ◽  
Content Type ◽  
Two Samples ◽  
The Impact ◽  
The Capital Structure

Purpose This paper aims to analyse the Portuguese companies’ determinants of capital structure. To reach this objective, the authors used data from 37 non-financial Portuguese large enterprises and from 4,233 non-financial small and medium enterprises for the period 2010-2016. Additionally, the authors selected a sub-period from 2010 to 2014 for a deeper understanding of the impact of the sovereign debt crisis and the Economic Adjustment Programme of Troika on the capital structure of those companies. Design/methodology/approach Three dependent variables were tested according to debt maturity, and a dynamic panel data model, namely, the generalised method of moments system estimator, was used to test the formulated research hypotheses following Arellano and Bover (1995) and Blundell and Bond (1998) to capture the dynamic nature of the firm’s capital structure decisions. Findings In general, the results point out that the capital structure decisions depend on a set of firm-specific factors, and that the effects of the determinants of the debt maturity ratios differ according to the type of firm, i.e. large/small firms, and the economic cycle. Originality/value To the best of the authors’ knowledge, this is the first study that has been carried out in Portugal by using two samples of large and small companies for analysing the effects of the Economic Adjustment Programme of Troika on the capital structure of companies. The authors seek to understand which type of companies suffered more because of the effects of the Economic Adjustment Programme of Troika during this period, and which are the capital structure determinants that present greater change. Contrary to what might be expected, large companies are the firms that suffer most from the Economic Adjustment Programme. Probably, because these companies are the most immediate, most scrutinised and those that must show abroad that the bank did not fund them in the long term, because of the imposition and limits to grant credit faced by the banks themselves.

scholarly journals The Effect of Firm Size and Profitability on Firm Value with Capital Structure as Intervening Variables in Indonesia

2019 ◽  
Vol 4 (2) ◽  
pp. 55
Author(s):  
Indra Arifin Djashan
Keyword(s):  
Capital Structure ◽  
Firm Size ◽  
Firm Value ◽  
Stock Exchange ◽  
Company Performance ◽  
Purposive Sampling ◽  
The Impact ◽  
The Relationship ◽  
Intervening Variables ◽  
The Capital Structure

This study examines the impact of firm size and profitability on firm value with capital structure as an intervening variable in financial companies listed on the Indonesia Stock Exchange during three years. The method used for sampling is purposive sampling based on predetermined criteria. The number of samples in this study were 73 companies. Measurement of profitability is using ROA and ROE as one indicator to see company performance. The main purpose of companies that have gone public is to increase the prosperity of the owners or shareholders through increasing the value of the company. The results showed that the improvement of profitability and firm size may improve its capital structure. The improvement of profitability and the firm size may increase significantly the firm value. The results of mediating test showed that the capital structure is not able to mediate the relationship between the profitability and firm size to firm value

scholarly journals The Capital Structure and It’s Impact on the Profitability of the FMCG Companies in India – A Study

2021 ◽  
Vol 04 (10) ◽  
Author(s):  
Dr. Amalesh Patra ◽  
Keyword(s):  
Capital Structure ◽  
Negative Impact ◽  
Positive Impact ◽  
Stock Exchange ◽  
Book Value ◽  
Coverage Ratio ◽  
Total Debt ◽  
Lm Test ◽  
The Impact ◽  
The Capital Structure

The purpose of this study is to examine the impact of the capital structure on the profitability of the companies under the FMCG sector listed in the National Stock Exchange (NSE) of India. The sample of 10 companies over 14 years from 2007 to 2020 is considered in this study. To examine the impact of capital structure on the profitability, Total Debt to Total Assets (TDTA) Debt- Equity (DE), Interest Coverage Ratio (ICR) consider as the independent variables, Price to Book Value Ratio (PBVR) and Growth (GROW) considered as the control variables and Return on Capital Employed (ROCE) considered as dependent variable (profitability). To fulfil the objective of the study Pearsons' Correlation has been conducted for testing the Collinearity, Shapiro- Wilk test has been run for normality test of the variables, to test the Stationary Hadri LM test, Kao and Pedroni test for cointegration test and to choose the appropriate model Hausman test and finally, for the result, I run Fixed Effect Model. The result of the Regression analysis showed that Total Debt to Total Assets (TDTA), Debt- Equity (DE), Interest Coverage Ratio (ICR), and Price to Book Value are the factors that have an impact on the Profitability (ROCE) of the company. The empirical result also suggests that total debt to Total Assets (TDTA), Interest Coverage Ratio (ICR), and Price to Book Value of the company have a positive impact but Debt -Equity has a negative impact on the ROCE

scholarly journals FAKTOR-FAKTOR STRUKTUR MODAL MENURUT TRADE OFF THEORY

2021 ◽  
Vol 26 (1) ◽  
pp. 55-67
Author(s):  
Farah Tri Megawati ◽  
Nana Umdiana ◽  
Lulu Nailufaroh
Keyword(s):  
Regression Analysis ◽  
Capital Structure ◽  
Quantitative Methods ◽  
Stock Exchange ◽  
Linear Regression Analysis ◽  
Manufacturing Companies ◽  
Corporate Tax ◽  
Trade Off ◽  
Tax Rate ◽  
The Capital Structure

This study purposed to examine the effect of Corporate tax rate and Non debt tax shield on their Capital Structure according to Trade Off Theory on manufacturing companiessubsector metal and allied product that listed in Indonesia Stock Exchange for period 2016-2019. The study was conducted uing quantitative methods with an associative approach.  The study population numbered 16 companies and 6 companies were sampled using purposive sampling.  The study was conducted at manufacturing companies subsector metal and allied product that listed in Indonesia Stock Exchange for period 2016-2019.  Classic assumption test using the test for normality, multicollinearity, autocorrelation, and heteroscedasticity.  The regression analysis used is multiple linear regression analysis.  Data was collected with the Financial Statement 2016-2019 and analyzed with IBM SPSS version 25. The results of this study indicate that the use of high debt to obtain a low corporate tax rate can cause a high risk for the company to go bankrupt, so the company prefers to use depreciation costs to obtain tax savings.  If the depreciation cost of the company is high, the company can also reduce the use of debt.  This shows that the higher the capital structure, the lower the corporate tax rate obtained by the company and the higher the NDTS, the lower the capital structure.  In this study, there are still many limitations and shortcomings namely the influence of the independent variable on the dependent variable can only explain by 63,2%.

scholarly journals The Impact of Capital Structure on the Financial Performance of the Jordanian Industrial Companies Listed on the Amman Stock Exchange for the Period 2012-2015

2018 ◽  
Vol 9 (2) ◽  
pp. 369
Author(s):  
Shireen Mahmoud AlAli
Keyword(s):  
Capital Structure ◽  
Financial Performance ◽  
Stock Exchange ◽  
Return On Assets ◽  
Return On Equity ◽  
Industrial Companies ◽  
Earnings Per Share ◽  
Amman Stock Exchange ◽  
The Impact ◽  
The Capital Structure

The purpose of this study was to identify the effect of the capital structure as a percentage of total liabilities to total assets on the financial performance of the Jordanian industrial companies listed on the Amman Stock Exchange for the period 2012-2015.The study population included all the Jordanian general industrial companies listed on the Amman Stock Exchange. The sample of the study included 10 industrial companies listed on the Amman Stock Exchange. The linear regression analysis was used to test the relationship between variables using the ordinary least squares method (OLS).The results showed that there is a positive significant impact on the capital structure of the industrial shareholding companies listed in the Amman Stock Exchange as measured by the ratio of equity to total assets, return on equity and return on assets and net earnings per share as an indicator of financial performance.The results also showed a negative significant impact on the capital structure of industrial shareholding companies listed on the Amman Stock Exchange as measured by total liabilities to total assets, return on equity and return on assets as an indicator of financial performance, and net earnings per share as an indicator of the financial performance indicators.

Does asymmetric information affect firm's financing decisions?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Munir Ahmad ◽  
Ahmed Imran Hunjra ◽  
Faridul Islam ◽  
Qasim Zureigat
Keyword(s):  
Asymmetric Information ◽  
Capital Structure ◽  
Stock Exchange ◽  
Generalized Method Of Moments ◽  
Fixed Effect Model ◽  
Content Type ◽  
Financing Decisions ◽  
Measures Of Asymmetry ◽  
Target Leverage ◽  
The Impact

PurposeThe authors examine the impact of asymmetric information on firm's financing decisions, the feedback effect of changes in capital structure on the level of asymmetric information, and the speed of adjustments in capital structure on its target leverage.Design/methodology/approachThe authors extract the data on 280 non-financial firms listed in the Pakistan Stock Exchange (PSX) from the DataStream. The authors implement the generalized method of moments (GMM), complemented by the fixed effect model (FEM) to estimate the model coefficients.FindingsThe authors find that asymmetric information significantly affects the financing decisions; and that on average, firms adjust 26% of the total debt toward their target capital structure. The negative effect from the difference between the observed and target changes in leverage on asymmetric information confirms that capital structure changes act as a signal for future profitability and helps the management to lower its level of asymmetric information.Originality/valueThe findings offer fresh insight into the effect of asymmetric information on financing decisions, as well as the speed of adjustment of capital structure toward its target leverage, in the context of the firms working in emerging markets like Pakistan. To the authors’ best knowledge, this is the first study to investigate the impact of asymmetric information on financing decisions that incorporate firm's age, size and the global financial crises 2007–2008. The authors construct an asymmetric information index using both accounting and finance measures of asymmetry.

The effects of the global financial crisis on the capital structure of EPRA/NAREIT Europe index companies

2015 ◽  
Vol 8 (1) ◽  
pp. 3-23 ◽  
Author(s):  
Giacomo Morri ◽  
Andrea Artegiani
Keyword(s):  
Financial Crisis ◽  
Real Estate ◽  
Capital Structure ◽  
Global Financial Crisis ◽  
Pecking Order ◽  
Trade Off ◽  
Content Type ◽  
The Global Financial Crisis ◽  
The Impact ◽  
The Capital Structure

Purpose – The purpose of this paper is to test whether the financial crisis has affected the capital structure of real estate companies in Europe and whether these impacts can be studied utilizing the variables traditionally used by the trade-off and pecking-order theories to explain the capital structure of companies. Design/methodology/approach – The study uses a fixed-effect panel regression analysis and a sample composed of companies included in the EPRA/NAREIT Europe Index. The effect of the financial crisis has been accounted for within the model by means of a dummy variable. Findings – The global financial crisis did have an impact on the capital structure of companies and the main variables traditionally used by the trade-off and pecking order theories proved to be suitable in explaining the capital structure of real estate companies. Real estate investment trusts are, on average, more leveraged than traditional real estate companies due to their special regulatory status. Research limitations/implications – The study is limited to the European market and UK companies in particular account for a large part of the sample. In addition, major regulatory differences between the various European countries are not taken into account in the model. Originality/value – Similar studies have been performed for the US and Australian market. However, the impact of the global financial crisis has not been traditionally considered in these studies.

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