Credit supply and corporate capital structure: evidence from Pakistan

2016 ◽  
Vol 5 (2) ◽  
pp. 250-267 ◽  
Author(s):  
Amjad Iqbal ◽  
Tanveer Ahsan ◽  
Xianzhi Zhang
Keyword(s):  
Panel Data ◽  
Capital Structure ◽  
Dynamic Panel Data ◽  
Manufacturing Firms ◽  
Short Term ◽  
Dynamic Panel ◽  
Content Type ◽  
Corporate Capital ◽  
Credit Supply ◽  
Corporate Capital Structure

Purpose – The purpose of this paper is to investigate the relevance of credit supply for corporate capital structure decisions of manufacturing firms in Pakistan. Design/methodology/approach – The implicit assumption in much of the work on capital structure is that for a firm, the availability of incremental capital depends solely on its characteristics. However, the capital market frictions suggest that suppliers of credit may also affect firms’ ability to borrow. The authors investigated this intuition by employing dynamic panel data estimators using 8,984 firm-year observations for the period 1990-2010. Findings – The results show that short-term debt is a major source of financing in these firms. Further, credit supply plays a significant role in these firms’ capital structure decisions and hence, they increase their short-term debt (main financing source) with an increase in credit supply in the market while payoff their long-term debt with internal funds. Practical implications – The findings of this study can enhance the practitioners’ and analysts’ understanding of capital structure of manufacturing firms in a bank dominated financial system, like Pakistan. Also, it can provide them more insight in understanding the alternative choices of financing and the reasons why firms prefer one over the other. Originality/value – To the authors’ best knowledge, this is the first study in Pakistan that considers both supply-side as well as demand-side factors of capital structure and applies dynamic panel data techniques.

scholarly journals Determinants of Capital Structure on Trading and Manufacturing Enterprises: A Case of Nepal

NCC Journal ◽  
2019 ◽  
Vol 4 (1) ◽  
pp. 163-170
Author(s):  
Shanker Dhodary
Keyword(s):  
Capital Structure ◽  
Comparative Research ◽  
Manufacturing Firms ◽  
Coverage Ratio ◽  
Manufacturing Enterprises ◽  
Corporate Capital ◽  
Secondary Sources ◽  
Growth Opportunity ◽  
Corporate Capital Structure ◽  
Size Growth

This study mainly aimed at examining the determinants of capital structure in Nepalese trading and manufacturing firms. The study has covered eleven major on-financial enterprises of trading and manufacturing firm’s specific variables. Firm’s size, growth opportunity, asset tangibility, profitability, firm’s age, liquidity and interest coverage ratio have selected as variables to examine their effect on corporate capital structure. The study used both descriptive and causal comparative research design to examine the determinants of capital structure. Data required for undertaking the study were collected from secondary sources. For each enterprise, financial data for 10 fiscal years covering the period of F/Y 2005/2006 to F/Y 2015/2016.The study concluded that asset tangibility, profitability, liquidity and interest coverage ratio are the major determinants of corporate capital structure in Nepalese trading and manufacturing firms.

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.

Analysis of capital structure stability of listed firms in China

2019 ◽  
Vol 10 (2) ◽  
pp. 213-228 ◽  
Author(s):  
Kelvin Henry Kyissima ◽  
Gong Zhang Xue ◽  
Thales Pacific Yapatake Kossele ◽  
Ahmed Ramadhan Abeid
Keyword(s):  
Panel Data ◽  
Capital Structure ◽  
Fixed Effects ◽  
Structure Stability ◽  
Individual Investors ◽  
Content Type ◽  
Corporate Managers ◽  
Listed Firms ◽  
Financing Decisions ◽  
Corporate Capital Structure

Purpose The purpose of this paper is to analyze the corporate capital structure stability of listed firms in China during the period 1990–2013. Design/methodology/approach The study uses panel data from a sample of 716 firms that have been listed in China for at least 15 years. A fixed-effects panel data regression model with time effects is used in the estimation. Findings The findings show that size, profitability and investment opportunities have a significant influence on capital structure, whereas the tangibility of assets is not found to be significant. Few industries show significance in explaining differences and variation in leverage ratios. Social implications It is recommended by this study that corporate managers of listed firms in China should consider leverage ratios variation while choosing the capital structure. Originality/value This study can be helpful in assisting companies to make financing decisions and setting up strategies relevant in their growth and profitability. The study will also have a significant assistance to bring to light corporate issues to policy makers, especially in the areas of both equity and debt financing, particularly the bond market. To the society, this study will show the nature of Chinese-listed companies, and it can assist individual investors in making decisions regarding companies in which they hold investments and in making meaningful comparisons with other companies. The paper also aims at contributing to the existing literature on the empirical study on capital structure.

How do Spanish unlisted family firms rebalance their capital structures?

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zélia Serrasqueiro ◽  
Fernanda Matias ◽  
Julio Diéguez-Soto
Keyword(s):  
Capital Structure ◽  
Transaction Costs ◽  
Family Firms ◽  
Adjustment Costs ◽  
Dynamic Panel Data ◽  
Future Research ◽  
Short Term ◽  
Content Type ◽  
Speed Of Adjustment

PurposeThis paper seeks to analyze the family firm's capital structure decisions, focusing on the speed of adjustment (SOA) as well as on the effect of distance from the target capital structure on the SOA towards target short-term and long-term debt ratios in unlisted small and medium-sized family firms.Design/methodology/approachMethodologically, we use dynamic panel data estimators to estimate the effects of distance on the speeds of adjustment towards those targets. Data for the period 2006–2014 were collected for two research sub-samples: one sub-sample with 398 family firms; the other sub-sample contains 217 non-family firms.FindingsThe results show that the deviation from the target debt ratios impacts negatively on the speeds of adjustment towards target short-term and long-term debt ratios in unlisted family firms. These results suggest that family firms, deviating from target debt ratios, face deviation costs, i.e. insolvency costs, inferior to the adjustment costs, i.e. transaction costs. Therefore, family firms stay away from the target debt ratios for a long time than do non-family firms.Research limitations/implicationsThe research sample comprises a low number of family firms, therefore for future research we suggest increasing the size of the sample of family firms to get a deeper understanding of family firms' SOA towards capital structure. Additionally, we suggest the analysis of other potential determinants of the speed of adjustment towards target capital structure.Practical implicationsThe results obtained suggest that the distance from the target short-term and long-term debt ratios can be avoided if these firms do not depend almost exclusively on internal finance to adjust towards target capital structure. Moreover, for policymakers, we suggest the creation/promotion of alternative external finance sources, allowing reduced transaction costs that contribute to a faster adjustment of small family firms towards target capital structure.Originality/valueThe most previous research focusing on capital structure decisions have focused on listed family firms. To fill this gap, this study examines the speed of adjustment towards target debt ratios in the context of unlisted family firms. Moreover, transaction costs are a function of debt maturity, therefore this study examines separately the speeds of adjustment towards target short-term and long-term debt ratios. This paper shows that the adjustment costs (i.e. transaction costs) could hold back family firms from rebalancing its capital structure.

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.

scholarly journals Real exchange rate undervaluation and sectoral growth in South Africa

2018 ◽  
Vol 9 (4) ◽  
pp. 462-476
Author(s):  
Brian Tavonga Mazorodze ◽  
Dev D. Tewari
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Panel Data ◽  
Real Exchange Rate ◽  
Positive Impact ◽  
Dynamic Panel Data ◽  
Dynamic Panel ◽  
Content Type ◽  
Sectoral Growth ◽  
The Impact

PurposeThe purpose of this paper is to establish the empirical link between real exchange rate (RER) undervaluation and sectoral growth in South Africa between 1984 and 2014.Design/methodology/approachThe study employs a dynamic panel data approach estimated by the system generalised method of moments technique in a bid to control for endogeneity.FindingsThe authors find a significant positive impact of undervaluation on sectoral growth which increases with capital accumulation. Also, the authors confirm that undervaluation promotes sectoral growth up to a point where further increases in undervaluation retards growth.Practical implicationsThe results confirm the importance of policies that keep the domestic currency weaker to foster sectoral growth.Originality/valueThe originality of this paper lies in establishing the impact of exchange rate undervaluation on growth at a sector level in the context of South Africa using a dynamic panel data approach.

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.

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