Dynamic Model of Optimal Capital Structure: Evidence from Nigerian Listed Firms

2017 ◽  
Vol 18 (3) ◽  
pp. 590-604 ◽  
Author(s):  
Rubi Ahmad ◽  
Oyebola Fatima Etudaiye-Muhtar
Keyword(s):  
Capital Structure ◽  
Stock Exchange ◽  
Adjustment Costs ◽  
Dynamic Adjustment ◽  
Listed Firms ◽  
Optimal Capital Structure ◽  
Developed Economies ◽  
Tax Shield ◽  
Financial Firms ◽  
Optimal Capital

Examination of optimal capital structure in financial markets with imperfections suggests that when deviations from optimal capital structure occur, adjustment costs may prevent firms from moving towards target capital structure. However, previous studies on the capital structure of non-financial firms in Nigeria did not consider these imperfections and adjustment costs. It is against this background that this study investigates the dynamic adjustment to target capital structure by non-financial firms listed on the Nigerian Stock Exchange. By utilizing a framework that provides for the determination of adjustment costs, the results reveal the existence of dynamic adjustment to optimal capital structure suggesting attempts made by the sampled firms to maximize shareholders wealth. A comparison of the adjustment costs with those of firms in more developed economies shows that Nigerian firms have higher costs of adjustment indicating that the level of development of the market is important in lowering transaction costs. In addition, tangibility of assets, non-debt tax shield, growth opportunity, firm size, profitability and inflation significantly influence Nigerian firms’ optimal capital structure.

scholarly journals STRUKTUR MODAL OPTIMAL DAN KECEPATAN PENYESUAIAN: STUDI EMPIRIS DI BURSA EFEK INDONESIA

2017 ◽  
Vol 20 (3) ◽  
pp. 305
Author(s):  
Firda Nosita
Keyword(s):  
Capital Structure ◽  
Stock Exchange ◽  
Practical Implication ◽  
Trade Off ◽  
Optimal Capital Structure ◽  
Financial Firms ◽  
Structure Adjustment ◽  
Adjustment Speed ◽  
Optimal Capital ◽  
Target Leverage

The research investigate whether non-financial firms listed on the Indonesian Stock Exchange made capital structure adjustment towards optimal capital structure and the determinants of adjustment speed in context of trade-off theory for 2009-2014 period. Existence of tax benefit that generates by debt interest payment causing firms arranged their capital structure in order to maximize debt utilizing. Debt utilizing would be make default problem and bankruptcy if it excess firm’s capacity that determine by some firm’s characteristic. Because of optimal capital structure unobservable, so they will be estimate by using some variable which are influencing in capital structure arrangement such tangibility. profitability, size and growth opportunities. The results indicate that non-financial firms in Indonesia follows dynamic trade-off theory with make capital structure adjustment towards optimal capital structure but still underleveraged and need 2,45 years to adjust their capital structure. Distance between actual capital structure and optimal capital structure and financial surplus/deficit are influenced speed of adjustments, while current liabilities is not influenced speed of adjustment. Thus, the practical implication is the companies must be consider and compare their actual capital structure and their optimal capital structure in order to get the benefit from the adjustment by not adding the posibility of bankruptcy due to these adjustment. Capital structure decision also related with various external policy, for instance, accesability to external funding such as creditors, investor and government which influence their adjustment. This research has some limitation, proxies are used in determining the target leverage was only four variables and this study did not addres macroeconomic variables that may affect the adjustment and adjustment speed.

scholarly journals EFFECT OF CREDIT RATING ON CAPITAL STRUCTURE: A STUDY ON NON-FINANCIAL FIRMS IN PAKISTAN

2012 ◽  
Vol 12 (1) ◽  
Author(s):  
Keyword(s):  
Capital Structure ◽  
Credit Rating ◽  
Stock Exchange ◽  
Credit Ratings ◽  
Least Square ◽  
Statistical Tool ◽  
Ordinary Least Square ◽  
Optimal Capital Structure ◽  
Financial Firms ◽  
The Impact

Purpose- Aim of this study was to investigate whether the credit rating is an important determinant other than the firm's characteristic to obtain optimal capital structure focusing on the research hypothesis that the firms with higher credit along with the other factors (FTOA, ROA and Size) tend to have more debt in their capital structure of firms rated by P?CR? and Karachi Stock Exchange (KSE). Methodology/Sample- For this research, sample size of 48 observations (3 years data of 16 firms) was taken on the basis of convenience sampling. Results obtained by using Ordinary Least Square Model (OLS) as statistical tool to test the hypothesis Findings- Analysis clearly suggested that credit ratings do have an impact on firm's capital structure. It was concluded that firms with higher credit ratings along with other factors (FTOA, ROA and Size) do not tend to have more debt in their capital structure. Implications- Outcomes of this research might help investors, debtors and other stakeholders of the firms (rated by PACRA) to understand the impact of credit rating on firm's debt ratio and the overall dynamics and mechanism of capital structure.

scholarly journals Does corporate ownership affect capital structures and adjustment of capital structures — evidences from Chinese listed companies

2009 ◽  
Vol 6 (4) ◽  
pp. 532-541 ◽  
Author(s):  
Zhengwei Wang ◽  
Wei Lin ◽  
Michael Keefe
Keyword(s):  
Capital Structure ◽  
Transition Economy ◽  
Structural Difference ◽  
Firm Characteristics ◽  
Financial Friction ◽  
Listed Firms ◽  
Optimal Capital Structure ◽  
Study Results ◽  
Optimal Capital ◽  
The Difference

In Chinese transition economy, compared with state-owned firms, private firms face higher financial friction in financing activities, but have more incentive to adjust toward optimal capital structure to maximize the shareholders‟ benefit. Based on panel data of China’s listed firms from 1998 to 2007, we compare the capital structures of state-owned and privately-owned listed firms. The empirical results show that there is structural difference in static capital structure between state-owned and private listed firms while controlling for firm characteristics. We then investigate the difference in dynamics of the capital structure between these two groups of firms. Further study results tell us that the adjustment to an optimal capital structure to be faster for the private firm than for the state-owned firm.

scholarly journals The influence of profitability, size, and growth on the capital structure in consumer goods companies

2019 ◽  
Vol 7 (2) ◽  
Author(s):  
Yovilanda Anggraeni Puspitasari ◽  
Diah Ekaningtias
Keyword(s):  
Regression Analysis ◽  
Capital Structure ◽  
Consumer Goods ◽  
Stock Exchange ◽  
Study Data ◽  
Optimal Capital Structure ◽  
Internal Funds ◽  
Optimal Capital ◽  
Operational Activities ◽  
The Capital Structure

Capital structure is a very important element needed by companies to conduct the companies’ operational activities. Companies must determine whether to use internal funds first or external funds to finance investment in getting an optimal capital structure. The purpose of this study is to examine the influence of the variables of profitability, size and growth on the capital structure in consumer goods companies. Multiple regression analysis is used to analyze the data in this study. Data analysis is conducted on consumer goods companies listed on the Indonesia Stock Exchange period 2012-2016. Based on the analysis, it is found that profitability, size, and growth have an effect on capital structure in consumer goods companies listed on the Indonesia Stock Exchange 2012-2016.

ANALISIS FAKTOR-FAKTOR YANG MEMPENGARUHI STRUKTUR MODAL PADA PERUSAHAAN BATUBARA

2020 ◽  
Vol 3 (2) ◽  
pp. 109
Author(s):  
Rahmad Fuadiantoni ◽  
Suratna Suratna ◽  
Indro Herry Mulyanto
Keyword(s):  
Capital Structure ◽  
Growth Rates ◽  
Financial Management ◽  
Stock Exchange ◽  
National Development ◽  
Sales Growth ◽  
Optimal Capital Structure ◽  
Optimal Capital ◽  
Operating Leverage ◽  
The Capital Structure

Rahmad Fuadiantoni, Student Identity Number 152140102, Business Administration Study Program, Faculty of Social and Political Sciences, National Development University "Veteran" Yogyakarta. Title of research Analysis of Factors Affecting Capital Structure of Coal Companies Listed on Indonesia Stock Exchange Period 2012-2016. Advisor Suratna and IndroHerry Mulyanto.This study aims to determine the factors that affect the capital structure of coal companies listed on the Indonesia Stock Exchange either partially or simultaneously. This type of research is explanatory research. The sampling technique used is purposive sampling. Of the 22 coal companies listed on the Indonesia Stock Exchange, only 19 companies were taken as samples, because they have complete financial statements for 2012-2016. The analysis technique used is multiple linear regression analysis, which was previously tested with the classical assumption test and hypothesis testing using partial t test, simultaneous F test with a level of significance of 5%.The result of this research, asset structure has significant effect to capital structure. This is evidenced by a significance value of 0.017 (p ≤ 0.05). Operating leverage has a significant effect on capital structure. This is evidenced by a significance value of 0.036 (p ≤ 0.05). The level of sales growth has a significant effect on capital structure. This is evidenced by a significance value of 0.028 (p ≤ 0.05). Profitability has a significant effect on capital structure. This is evidenced by the significance value of 0.032 (p ≤ 0.05). Liquidity significantly affects the capital structure. This is evidenced by a significance value of 0.029 (p ≤ 0.05). Asset structure, operating leverage, sales growth rate, profitability, and liquidity simultaneously have a significant effect on the capital structure. This is evidenced by the significance value of F of 0.000 (p ≤ 0.05).          Conclusion, partially asset structure variables, operating leverage, sales growth rates, profitability, and liquidity have a significant effect on the capital structure. While simultaneously asset structure variables, operating leverage, sales growth rates, profitability (ROA), and liquidity have a significant effect on the capital structure. Research suggestions, for companies, companies should have plans and strategies in financial management to establish an optimal capital structure in order to maximize company profits and value. For financial management in determining the optimal capital structure should consider the factors that affect the capital structure of the asset structure, operating leverage, the level of sales growth, profitability, and liquidity. By considering these factors it is expected that the management will be easier in determining the optimal capital structure. For the researcher, for the next research should be able to use or add variables and samples in order to get better results and extend the period or time period in the observation, because the opportunity to obtain more information.

scholarly journals Optimum Capital Structure Adjustment Speed on Companies Listed in Indonesia Stock Exchange

2019 ◽  
Vol 15 (1) ◽  
pp. 60-68
Author(s):  
Suramaya Suci Kewal
Keyword(s):  
Capital Structure ◽  
Firm Size ◽  
Stock Exchange ◽  
Business Risk ◽  
Trade Off ◽  
Significance Level ◽  
Optimal Capital Structure ◽  
Structure Adjustment ◽  
Adjustment Speed ◽  
Optimal Capital

AbstractThis study examines the existence of adjustments in the speed of the company's capital structure to achieve an optimal capital structure in accordance with the dynamics of trade-off and other factors affecting the company's capital structure adjustment.   The optimal capital structure is estimated by using several variables, namely tangibility, firm size, profitability, liquidity, asset utilization, and business risk. The factors used to predict the optimal capital structure adjustment speed in this study are the distance between the capital structure and the optimal capital structure and financial deficit. The data analysis technique in this study is multiple linear regression with a significance level of 5%. The obtained results indicate that companies on the IDX are adjusting towards the optimal capital structure. The speed of adjustment is 0.128 so it can be concluded that the company's adjustment remains below its optimal debt level. The test results also prove that distance and financial deficit/surplus have no influence on the company's capital structure adjustment speed. Keywords: capital structure, dynamics trade offKecepatan Penyesuaian Struktur Modal Optimal Perusahaan di Bursa Efek IndonesiaAbstrakPenelitian ini menguji keberadaan penyesuaian kecepatan struktur modal perusahaan menuju ke struktur modal optimal sesuai dengan dynamics trade off dan faktor-faktor yang mempengaruhi kecepatan penyesuaian struktur modal optimal perusahaan. Struktur modal optimal diestimasi dengan menggunakan beberapa variabel yaitu tangibility, firm size, profitability, liquidity, asset utilization, dan business risk. Faktor-faktor yang digunakan untuk menduga kecepatan penyesuaian struktur modal optimal pada penelitian ini adalah jarak antara struktur modal dengan struktur modal optimal (distance) dan financial deficit/surplus. Teknik analisis data yang digunakan pada penelitian ini adalah regresi linier berganda dengan tingkat signifikansi sebesar 5%. Hasil yang diperoleh menunjukkan perusahaan-perusahaan di BEI melakukan penyesuaian menuju struktur modal optimal. Kecepatan penyesuaian sebesar 0,128 sehingga dapat disimpulkan bahwa perusahaan-perusahaan melakukan penyesuaian masih di bawah tingkat hutang optimalnya. Hasil pengujian juga membuktikan bahwa tidak terdapat pengaruh distance dan financial deficit/surplus terhadap kecepatan penyesuaian struktur modal perusahaan. Kata Kunci: struktur modal, dynamics trade off

scholarly journals Dividend Policy as Moderating Variable to the Consumer Goods Company on the Indonesia Stock Exchange

2021 ◽  
Vol 12 (3) ◽  
pp. 189-196
Author(s):  
Nagian Toni ◽  
Enda Noviyanti Simorangkir ◽  
Thomas Sumarsan Goh
Keyword(s):  
Capital Structure ◽  
Consumer Goods ◽  
Dividend Policy ◽  
Stock Exchange ◽  
Company Size ◽  
Optimal Capital Structure ◽  
Company Value ◽  
Equity Ratio ◽  
Optimal Capital ◽  
Food And Drink

The capital market in Indonesia includes many companies from several sectors. One company that cannot be separated from the Indonesian stock market is a consumer goods company. The research aimed to analyze the effect of profitability and capital structure on the company with dividend policy as moderating variable to the consumer goods companies registered on the Indonesia Stock Exchange in the period of 2014-2018. The population in the research was consumer goods companies with subsector of food and drink, cigarette, cosmetic pharmacy, and household goods and appliances. The research applied purposive sampling and obtained 15 companies with 5 years of observation or around 75 samples. Then, the data were analyzed using Smart PLS 3.0. The analysis result shows that profitability, capital structure, and company size positively and significantly influence the company value. However, dividend policy cannot moderate the effect of profitability and capital structure on the company value. The dividend policy can moderate the effect of company size on the company value. Then, profitability, capital structure, and company size influence the company value of 88,6%, while the other factors influence the rest. Investors should decide on issuers with high profitability above 5%, the optimal capital structure with the debt-to-equity ratio between 0,8-1,2, and total assets above five trillion Rupiah.

scholarly journals Determinants of Capital Structure across Industries at Jakarta Stock Exchange

2008 ◽  
Vol 1 (1) ◽  
pp. 99-115
Author(s):  
Christina Christina ◽  
Johan Halim
Keyword(s):  
Capital Structure ◽  
Significant Relationship ◽  
Stock Exchange ◽  
Negative Relationship ◽  
Competitive Environment ◽  
Dividend Payout ◽  
Optimal Capital Structure ◽  
Optimal Capital ◽  
A Company ◽  
The Capital Structure

There are several objectives to be accomplished in this study. The main purpose of this research is to determine the nature of capital structure across non-finance industries in Indonesia, whether they prefer to use debt or equity as their source of financing. Subsequently, factors that influenced the capital structure of a company are then identified. In this study, the company’s profitability, size, and dividend payout are considered as those factors that have relationship with leverage. Finally, this research also conducted to examine whether a company’s capital structure decision affects its growth of shares price. In doing so, multiple regression analysis is used in order to determine whether there is relationship between variables tested. The sample of analysis includes 230 companies listed in Jakarta Stock Exchange from all industries, except finance, in 2006. The findings of this research confirm that, first of all, capital structure varies across industries. Each industry would have different decisions regarding its optimal capital structure, depends on several factors. This leads to the second findings, in which it proves that there is negative significant relationship between profitability and leverage, positive significant relationship between company’s size and leverage, and negative relationship between dividend payout and leverage. Finally, this research also verifies that there is no relationship between leverage and company’s growth of shares price, which means that the growth of shares price is not influenced by the company’s capital structure decision. Capital structure decision plays an important role in maximizing the firm’s value. By having the most optimal capital structure, firms might be able to push its cost to the minimum point, which then assist them in dealing with the competitive environment. Consequently, it is important to determine the factors that influence the capital structure of companies.

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