scholarly journals Testing the capital structure of Portuguese family businesses

2021 ◽  
Vol 32 (87) ◽  
pp. 510-527
Author(s):  
Luciana J. Pestana ◽  
Luís Pereira Gomes ◽  
Cristina Lopes
Keyword(s):  
Capital Structure ◽  
Family Business ◽  
Management Strategies ◽  
Adjustment Costs ◽  
Optimal Level ◽  
Order Theory ◽  
Specific Pattern ◽  
Family Businesses ◽  
The Impact ◽  
The Capital Structure

ABSTRACT The main objective of this study is to empirically test capital structure decisions in Portuguese family-owned businesses under trade-off theory (TOT) and pecking order theory (POT) and attend to the relationships between family/business interaction and agency conflicts. Family-owned businesses are essential for the development of economies, but the financing logic they adopt is not yet adequately clarified by scientific research, especially as they are more exposed to the constraints of markets imperfections. The specific pattern of business ownership may affect the financing decision and the ability to obtain funds externally. This issue is more relevant in economies where family business initiatives and less sophisticated management strategies are expressive. The greater convergence of interests in family businesses and the consequent decrease in agency costs may lead to higher levels of recognized reputation and thus easier access to indebtedness. The empirical study uses static models and dynamic panel models in order to analyze data from 4,952 Portuguese family-owned firms over the period from 2009 to 2016: the TOT following the partial debt adjustment model, and the POT following the model of the impact of the deficit of funds on debt and the model of the relationship between debt and the determinants of financing. The results of the individual tests suggest that Portuguese family-owned businesses adjust debt at the target ratio, albeit influenced by adjustment costs that keep them distant from the optimal, as well as use sources other than debt when a financial deficit occurs. Although the impact of the financial deficit is greater in total debt ratio, the velocity of adjustment to the optimal level is higher in short-term debt. Evidence from a joint test confirms that both theories explain part of the capital structure of Portuguese family-owned businesses.

scholarly journals Investigating the Impact of Firm Characteristics on Capital Structure of Quoted and Unquoted SMEs

2017 ◽  
Vol 7 (1) ◽  
pp. 144
Author(s):  
Mostafa S. ELbekpashy ◽  
Khairy ELgiziry
Keyword(s):  
Capital Structure ◽  
Control Variable ◽  
Order Theory ◽  
Explanatory Models ◽  
Short Term ◽  
Pecking Order Theory ◽  
Leverage Ratio ◽  
Two Samples ◽  
The Impact ◽  
The Capital Structure

This study aims to enhance the understanding of SMEs’ capital structure in Egypt. The study tests the impact of asset structure, size, profitability, liquidity, growth, age, and ownership structure as independent variables on the leverage ratio. Three alternative variables are used as a proxy for leverage: total, long term, and short term leverage. The study further investigates the significance of the relationship between the economic sector as a control variable and the three leverage ratios. Multiple regression analysis is used to develop the explanatory models for two samples of SMEs. The first sample comprises of 28 firms, which represent all listed and traded SMEs in Egypt as of 31/12/2016, covering the period from 2008 till 2015. The second sample includes panel data of 95 non-quoted SMEs. The overall model recommends that all the independent and control variables are significantly explaining the capital structure decisions of SMEs in Egypt.  The results of the two samples show a high degree of similarities. The managerial ownership is found to be negatively correlated to short term leverage, while the block holding ownership is positively correlated to the total and the short term leverage. Moreover, the sector shows a significant relationship with the capital structure. The results of the study demonstrate that the best explanation of the SMEs behavior in Egypt is the pecking order theory. Finally, the study introduces useful recommendations for policy makers and SMEs’ management in Egypt.

Testing the pecking order theory of capital structure in an Islamic legal system: the case of Saudi Arabia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Moncef Guizani ◽  
Ahdi Noomen Ajmi
Keyword(s):  
Stock Market ◽  
Capital Structure ◽  
Order Theory ◽  
Ordinary Least Squares ◽  
Financial Instruments ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Content Type ◽  
The Impact ◽  
The Capital Structure

Purpose The purpose of this paper is to examine whether the basic premises according to the pecking order theory (POT) provide an explanation for the capital structure mix of firms operating under Islamic principles. Design/methodology/approach Pooled ordinary least squares, fixed and random effects regressions were performed to test the POT applying data from a sample of 66 Islamic-compliant firms listed on Saudi Stock Market over the period 2006–2016. Findings The results show that sale-based instruments (Murabahah, Ijara) track the financial deficit quite closely followed by equity financing and as a last alternative to finance deficit, Islamic-compliant firms issue Sukuk. In the crisis period, these firms seem more reliant on equity, then on sale-based instruments and on Sukuk as last option. The study findings also indicate that the cumulative financing deficit does not wipe out the effects of conventional variables, although it is empirically significant. This provides no support for the POT attempts by Saudi Islamic-compliant firms Research limitations/implications This research contributes to the theory of capital structure in re-validating the findings of a previous theoretical and empirical study. It helps understand the capital structure of Islamic-compliant firms in comparison with conventional firms. It highlights some areas where further research on topics related to capital structure of Islamic-compliant firms is needed. The failure of the POT to explain Saudi firms’ financing choices strongly pushed researchers to test the market timing theory for the Saudi Stock Market. Further research studies could re-examine the trade-off theory in the absence of interest tax shield as in an Islamic economy. Practical implications From a managerial perspective, this research can serve firm executive managers in their financing decisions to add value to the companies. Furthermore, policymakers, bankers and standard-setting organizations should undertake more collective work to simplify the process of issuing Islamic financial instruments including Sukuk. Moreover, the Saudi Government has to encourage the private sector to be more innovative in developing products and services that are in line with Sharia principles. Finally, to attract investors, the Capital Market Authority has to encourage transaction, efficiency and liquidity of Islamic financial instruments. Originality/value The proposed study presents several originalities. First, it explores the implications of relevant Islamic principles on financing preferences of Saudi firms. Second, the present study enables us to investigate what the sudden abundance of liquidity, generated by the record levels of oil prices, implied for the firms’ financing behavior. Finally, it provides further evidence on the impact of financial crisis on the firms’ capital structure choice in a period of considerable slowdown in the world.

A Study of Determinants of Capital Structure through Panel Data Analysis of Firms Listed in NSE CNX 500

2016 ◽  
Vol 20 (4) ◽  
pp. 267-277 ◽  
Author(s):  
Barnali Chaklader ◽  
Deepak Chawla
Keyword(s):  
Capital Structure ◽  
Control Variable ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Trade Off ◽  
Tax Shield ◽  
Debt Tax Shield ◽  
The Impact ◽  
The Capital Structure

This study contributes to the capital structure literature by investigating the determinants of capital structure of firms listed in NSE CNX 500. The period of the study is 2008–2015, the period starting from the year of global slowdown. This study is an attempt to study the capital structure of firms listed in National Stock Exchange in the post liberalization period. The objectives of the study are to study the impact of independent variables such as growth, profitability, tangibility, liquidity, size and non-debt tax shield on financial leverage and also to find out whether the results are in line with the pecking order theory or the trade-off theory of capital structure. Size is taken as a control variable. Our study supports the trade-off theory for all variables such as growth, profitability, size tangibility and non-debt tax shield. Liquidity is the only independent variable that goes in accordance with the pecking order theory. Thus, this study is more inclined towards the trade-off theory.

scholarly journals Factors Influencing Capital Structure of Vietnam's Real Estate Enterprises: A Move from Static to Dynamic Models

2015 ◽  
Vol 22 (04) ◽  
pp. 76-91
Author(s):  
Minh Pham Tien ◽  
Dung Nguyen Tien
Keyword(s):  
Real Estate ◽  
Capital Structure ◽  
Dynamic Models ◽  
Adjustment Costs ◽  
Order Theory ◽  
Pecking Order Theory ◽  
Factors Affecting ◽  
The Real Estate ◽  
Real Estate Enterprises ◽  
The Capital Structure

In this study, which investigates the determinants of capital structure of Vietnam’s listed real estate companies, we conduct a comparative analysis of static and dynamic models, finding out several factors affecting the capital structure. By applying panel data for 47 listed companies in the real estate domain from 2008 to 2013, we find that static panel models and dynamic estimators provide significantly different results. To finally identify the capital structure determinants, we then employ the system-GMM estimation. The empirical results indicate that the pecking order theory dominates the static trade-off theory as for the Vietnam’s listed real estate companies, which are also found to partially adjust their capital structure toward the target capital structure at a low speed (α = 0.452), implying that these have to face quite large adjustment costs.

scholarly journals Impact of capital structure on bank profitability in the Federation of Bosnia and Herzegovina

Bankarstvo ◽  
2021 ◽  
Vol 50 (3) ◽  
pp. 73-108
Author(s):  
Valentina Bošnjak ◽  
Džafer Alibegović
Keyword(s):  
Capital Structure ◽  
Banking Sector ◽  
Operating Cost ◽  
National Income ◽  
Order Theory ◽  
Traditional Theory ◽  
Pecking Order Theory ◽  
The Impact ◽  
The Relationship ◽  
The Capital Structure

Research of the relationship between the structure of sources of financing and the value of the company are numerous in developed markets and for non-financial companies. However, in the markets of developing countries, and especially in the banking sector, the range of research is much narrower. In this paper, we investigate the existence, direction and intensity of the relationship between capital structure and profitability of banks in the Federation of B&H. The entire population of banks in the Federation of B&H, in the period from 2009-2018, served as a sample. As independent variables, parameters of the structure of financing sources, we chose the debt-to-assets ratio, and debt-to-equity ratio, and as dependent variables, bank value indicators, we took profitability measures, i.e., ROA, ROE, and the net profit margin. In addition to the variables that describe the capital structure, the relationship of which is the topic of this paper, as control variables we used additional variables specific to banks, which describe the bank's liquidity, credit risk exposure, operating cost management, size, and market share. The impact of the macroeconomic environment is observed through the assessment of inflation and gross national income per capita, which indicate the direction of the economic cycle for a given year. The results of the research testify to the weak connection between the structure of sources of financing and return on assets, i.e., the negative connection between financial leverage and return on capital. This outcome first relativizes the significance of Modigliani-Miller's position on the irrelevance of capital structure, and then raises the question of the validity of traditional theory. The establishment and management of the capital structure of local banks can only be explained by the pecking order theory.

Role of Credit Rating in determining Capital structure: Evidence from Non-Financial sector of Pakistan

2020 ◽  
Vol 38 (3) ◽  
Author(s):  
Shoaib Ali ◽  
Imran Yousaf ◽  
Muhammad Naveed
Keyword(s):  
Capital Structure ◽  
Credit Rating ◽  
Least Square ◽  
Annual Data ◽  
Leverage Ratio ◽  
Financial Decisions ◽  
Financial Firms ◽  
High Level ◽  
The Impact ◽  
The Capital Structure

This paper aims to examine the impact of external credit ratings on the financial decisions of the firms in Pakistan.  This study uses the annual data of 70 non-financial firms for the period 2012-2018. It uses ordinary least square (OLS) to estimate the impact of credit rating on capital structure. The results show that rated firm has a high level of leverage. Moreover, Profitability and tanagability are also found to be a significantly negative determinant of the capital structure, whereas, size of the firm has a significant positive relationship with the capital structure of the firm.  Besides, there exists a non-linear relationship between the credit rating and the capital structure. The rated firms have higher leverage as compared to the non-rated firms. The high and low rated firms have a low level of leverage, while mid rated firms have a higher leverage ratio. The finding of the study have practical implications for the manager; they can have easier access to the financial market by just having a credit rating no matter high or low. Policymakers must stress upon the rating agencies to keep improving themselves as their rating severs as the measure to judge the creditworthiness of the firm by both the investors and management as well.

scholarly journals Testing the pecking order theory of capital structure: the case of Islamic financing modes

2020 ◽  
Vol 6 (1) ◽  
Author(s):  
Moncef Guizani
Keyword(s):  
Capital Structure ◽  
Random Effect ◽  
Order Theory ◽  
Equity Financing ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Corporate Financing ◽  
Financing Decisions ◽  
Executive Managers ◽  
The Capital Structure

AbstractThe purpose of this paper is to examine whether or not the basic premises according to the pecking order theory provide an explanation for the capital structure mix of firms operating under Islamic principles. Pooled OLS and random effect regressions were performed to test the pecking order theory applying data from a sample of 66 Islamic firms listed on Kingdom of Saudi Arabia stock market over the period 2006–2016. The results show that sale-based instruments (Murabahah, Ijara) track the financial deficit quite closely followed by equity financing and as the last alternative to finance deficit, Islamic firms issue Sukuk. In the crisis period, these firms seem more reliant on equity, then on sale-based instrument and on Sukuk as last option. The study findings also indicate that the cumulative financing deficit does not wipe out the effects of conventional variables, although it is empirically significant. This provides no support for the pecking order theory attempted by Saudi Islamic firms. This research highlights the capital structure choice of firms operating under Islamic principles. It explores the implication of the relevant Islamic principles on corporate financing preferences. It can serve firm executive managers in their financing decisions to add value to the companies.

scholarly journals The Impact of CSR on the Capital Structure of High-Tech Companies in Poland

2021 ◽  
Vol 13 (10) ◽  
pp. 5467
Author(s):  
Barbara Grabinska ◽  
Dorota Kedzior ◽  
Marcin Kedzior ◽  
Konrad Grabinski
Keyword(s):  
Capital Structure ◽  
Financial Reporting ◽  
Academic Research ◽  
Debt Financing ◽  
High Tech ◽  
High Tech Industry ◽  
Reporting Practices ◽  
Csr Reporting ◽  
The Impact ◽  
The Capital Structure

So far, CSR’s role in the high-tech industry is not fully explained by academic research, especially concerning the most burdensome obstacle to firms’ growth: acquiring debt financing. The paper aims to solve this puzzle and investigate whether young high-tech companies can attract more debt by engaging in CSR activity. To address the high-tech industry specificity, we divided CSR-reporting practice into three broad categories: employee, social, and environmental and analyzed their impact on the capital structure. Our sample consists of 92 firm-year observations covering the period 2014–2018. Using a regression method, we found out that only employee CSR plays a statistically significant role in shaping capital structure. We did not find evidence for the influence of the other types of CSR-reporting practices. The results suggest that employees are the key resource of high-tech companies, and, for this reason, they are at the management’s focus. This fact is visible at the financial reporting level and, as we interpret results, is also considered by credit providers. In a more general way, our results suggest that firms tend to choose CSR based on the importance of crucial resources.

scholarly journals Determinants of Capital Structure within the Context of Corporate Governance in Egypt

2018 ◽  
Vol 13 (8) ◽  
pp. 26 ◽  
Author(s):  
Hanaa A. El-Habashy
Keyword(s):  
Corporate Governance ◽  
Capital Structure ◽  
Emerging Economy ◽  
Managerial Ownership ◽  
Listed Firms ◽  
Western Countries ◽  
Specific Factors ◽  
The Impact ◽  
The Capital Structure

This study aims to investigate the characteristics of corporate governance that impact the capital structure decisions in listed firms in Egypt, to test the efficiency of the research results conducted in the developed Western countries in an emerging economy. A sample of 240 observations from the most active non-financial companies collected in the period 2009-2014 was used for hypothesis testing. Multiple regression models (OLS) were used for data analysis. Seven variables are used in measuring the attributes of corporate governance; they are the managerial ownership, institutional shareholding, shares owned by a large block, board size, board composition, separation of CEO/Chair positions and audit type. Four ratios were calculated for measuring the capital structure, they are long-term and short-term debt to assets, total debt to assets and debt to equity. The results suggest that corporate governance attributes have a significant impact on the capital structure decisions of listed Egyptian companies. In addition, firm-specific factors such as profitability, tangibility, growth opportunities, corporate tax, firm size and non-debt tax shields influence the choice of capital structure in Egypt. The results showed the same relationship with what was obtained in developed Western countries. The paper offers some contribution in the literature and helps to understand the impact of corporate governance on Egypt's capital structure as an emerging economy.

scholarly journals Family business, director compensation and board efficacy: the case of Taiwan

2013 ◽  
Vol 11 (1) ◽  
pp. 81-91
Author(s):  
Tsun-Jui Hsieh ◽  
Yu-Ju Chen
Keyword(s):  
Firm Performance ◽  
Family Business ◽  
Positive Impact ◽  
Specific Pattern ◽  
Chinese Family ◽  
Outside Directors ◽  
Director Compensation ◽  
Outside Director ◽  
The Impact

This paper investigates the impact of outside directors on firm performance during legal transitions and examines how the roles of family business and director compensation influence board efficacy. By using Taiwanese listed companies as our sample, the empirical results show that outside directors who are appointed by legal mandate have less positive impacts on firm performance than outside directors appointed voluntarily. Family business weakens the positive impact of outside director on firm performance. The evidence further suggests that director compensation contributes to firm performance, particularly when outside directors are voluntarily appointed. The findings provide western managers with an understanding of how the typical Chinese family business affects board independence. We also demonstrate and incorporate the cultural and the ownership characteristics into the analysis to present a country-specific pattern that should be informative for foreign investors who are concerned about the quality of corporate governance in East Asia.

Sign in / Sign up

Export Citation Format

Share Document