scholarly journals Does National Debt Matter? -Analysis Based on The Economic Theories

2021 ◽  
Vol 9 (3) ◽  
pp. 100-103
Author(s):  
Alex Han
Keyword(s):  
Global Financial Crisis ◽  
Government Expenditure ◽  
The United States ◽  
Order Theory ◽  
National Debt ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Long Run ◽  
Retained Earnings ◽  
A Company

The national debt has been increasing at a higher percentage than the GDP of the United States. Since the 2008 Global Financial Crisis, national increased dramatically since the country borrowed to finance its expenditures. Moreover, with the onset of the Covid-19 pandemic, national debt increased to 105% of the GDP. There have been worries about whether the national debt is a matter of concern, and many theories have been developed to explain national debt. The classical economists advocated for a     balanced budget where taxes finance government expenditure. Keynes argued that governments should borrow to finance their spending to avoid a decrease in demand. The pecking order theory argued that when businesses use all their retained earnings, they should prefer debts to equity to finance their    expenditures. Trade-off theory advocated for financing through debt because it is cheaper. Debt     payments of a company are deductible through tax, and less risk is involved when taking debt than    equity. Finally, the neoclassical economists assumed that government debt has a one-time maturity and pays the current interest rate. Using the concepts of these theories, it is clear that national debt should not be a matter of concern because it is cheaper to pay debt than equity and debt benefits a country in the long run.

scholarly journals Internal or External Financing: New Evidence on Investor Reaction in Indonesian Manufacturing Firms

2021 ◽  
Vol 22 (2) ◽  
Author(s):  
Rifki Fikasari ◽  
Yustrida Bernawati
Keyword(s):  
Order Theory ◽  
Manufacturing Firms ◽  
Least Square ◽  
Internal Source ◽  
External Financing ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Internal Financing ◽  
Retained Earnings ◽  
Investor Reaction

Research aims: This study aims to examine investor reaction to financing sources due to its pecking order theory hierarchy.Design/Methodology/Approach: This research used a purposive sampling method of manufacturing listed firms on the Indonesia Stock Exchange, which were tested utilizing Ordinary Least Square and SPSS software.Research findings: The results showed that the investor reacted negatively to internal financing measured by the firm's retained earnings. Conversely, this research found that investors reacted positively to external financing in measurement, leverage, and equity issuance. Furthermore, the results revealed that leverage had a more positive reaction than equity issuance.Theoretical contribution/Originality: This research contributes to the pecking order theory literature to test how investor reacts to which source of financing is chosen due to its hierarchy. There is evidence that Indonesian manufacturing firms had inadequate internal financing, which made investors react negatively, and investors tended to choose leverage over equity as external financing.Practitioner/Policy implication:  Our study contributes to the firm's management to carefully choose financing sources to fulfill the investor interest. This research also suggests that the firm produces more profit to provide adequate internal source financing as the research results showed that investors preferred internal than external financing. Furthermore, when there is inadequate internal financing, the firm's management should use leverage over equity.Research limitation/Implication: First, our study employed total liability rather than debt to leverage measurement. Second, our study only provided evidence of negative reactions to show that the firm failed to provide adequate internal financing sources rather than examined the level of adequate internal financing sources.

The Importance of Financial Theories for SME Capital Structure Decisions

2020 ◽  
pp. 82-95
Author(s):  
João Lussuamo ◽  
João Lopes ◽  
Márcio José Sol Pereira Oliveira
Keyword(s):  
Capital Structure ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Trade Off ◽  
Sme Finance ◽  
Investment Opportunities ◽  
Scopus Database ◽  
Retained Earnings ◽  
The Web

This chapter aims to analyze the importance of financial theories for SME capital structure decisions. The financial theories considered for this study were trade-off theory and pecking order theory. From the various empirical evidences researched in the Web of Science and Scopus database, it was found that most SME capital structure decisions follow the financial theory of hierarchical hierarchy, that is, the SME finance their investment opportunities through retained earnings, debt issuance, and finally stock issuance.

scholarly journals Determinants of Debt-Equity Choice – Evidence from Poland

2015 ◽  
Vol 5 (2) ◽  
pp. 1-8 ◽  
Author(s):  
Bogna Kazmierska-Jozwiak ◽  
Jakub Marszałek ◽  
Paweł Sekuła
Keyword(s):  
Capital Structure ◽  
Stock Exchange ◽  
Negative Relationship ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Significant Negative Relationship ◽  
Warsaw Stock Exchange ◽  
Growth Prospects ◽  
A Company

The question of debt-equity choice has so far been widely discussed in literature. The aim of the paper is to analyse the determinants of capital structure of Polish enterprises. We analysed factors that may impact the indebtedness. This analysis fills in the gap in worldwide studies with the case of a country representing the group of „emerging markets”. The paper examines capital structure determinants of non-financial companies listed on the Warsaw Stock Exchange. We used five independent variables compatible with the up-to-date achievements in the field. The results indicate that there is an evidence of a significant negative relationship between the size of a company, its growth rate, profitability, tangibility and the level of total debt. The study shows positive relationship between growth prospects of the company and the debt level. The results of the study indicate that the pecking order theory better explains the changes in indebtedness of analysed companies than other capital structure theories. Obtained results are mostly consistent with earlier studies conducted in the Poland and with studies in Western economies.

scholarly journals Capital Structure Determinants in Family Firms: An Empirical Analysis in Context of Crisis

2018 ◽  
Vol 11 (4) ◽  
pp. 65 ◽  
Author(s):  
Stefania Migliori ◽  
Fabrizio Maturo ◽  
Francesco Paolone
Keyword(s):  
Capital Structure ◽  
Agency Costs ◽  
Family Firms ◽  
Global Financial Crisis ◽  
Order Theory ◽  
Negative Influence ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Structure And Agency ◽  
Combined Use

The purpose of this paper is to investigate the capital structure of family firms in a context of crisis. Specifically, it aims to discover whether and how the determinants of their capital structure have a different impact on firms’ leverage before and during the recent global financial crisis. Considering the pecking order theory (POT), trade-off theory (TOT), and agency theory (AT), this study analyzes 1,502 Italian medium family firms comparing the pre-crisis (2005-2007) and crisis (2008-2010) periods. This research shows that that current liquidity, asset structure, and agency costs are the most important variables in influencing medium family firms' leverage, in both the pre-crisis and crisis periods. Moreover, during the crisis, agency costs increase and have a negative influence on the short-term leverage highlighting that crisis contingencies influence the agency-based effects on family firm's leverage. Furthermore, our findings highlight that a more exhaustive understanding of family firms’ capital structure can be achieved through the combined use of different theories.

Qualitative Research on Critical Issues In Halal Logistics

2013 ◽  
Vol 1 (2) ◽  
pp. 131 ◽  
Author(s):  
Mohamed Syazwan Ab Talib ◽  
Lim Rubin ◽  
Vincent Khor Zhengyi
Keyword(s):  
Capital Structure ◽  
Agency Theory ◽  
Random Effect ◽  
Random Effect Model ◽  
Order Theory ◽  
Specific Factor ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Corporate Financing ◽  
Financing Decision

This is a preliminary study developed to explore the determinants of capital structure of Shariah-compliant firms listed in Bursa Malaysia. This study is primarily motivated by the issue of the determinants still being inconclusive in the area of capital structure. The study is performed using the static models namely Pool Ordinary Least Square, Fixed Effect and Random Effect Model. Empirical analysis on the determinants reveals that country specific factor which is GDP and sector specific factor which is industry concentration are also significant in influencing the corporate financing decisions in this country along with firm specific factors such as efficiency, bankruptcy risk, profitability, tangibility, liquidity and size of the firm. The findings revealed that results are sensitive to models employed in the study. Nevertheless, the applicability of capital structure theories such as the trade-off theory, agency theory and pecking order theory diverge across sectors in Malaysia. The pecking order theory and agency theory are found to be the dominant theories governing the corporate financing decision in the country as well. It indicates strong evidence of hierarchy practised in firms’ financing decision. The finding on agency theory being dominant justifies the function of short-term debt as a controlling mechanism to mitigate the agency problem arises within firms across sectors. 

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 Testando a teoria de hierarquização de fontes de financiamento nas empresas brasileiras

2005 ◽  
Vol 16 (37) ◽  
pp. 37-45 ◽  
Author(s):  
Otávio Ribeiro de Medeiros ◽  
Cecílio Elias Daher
Keyword(s):  
Cross Section ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory

O presente trabalho testa se a teoria conhecida como Pecking Order Theory ou Teoria de Hierarquização de Fontes de Financiamento (THFF) fornece explicação empírica para a estrutura de capital das empresas no Brasil. De acordo com essa teoria, a estrutura de capital seria resultante de um funding hierarquizado, em que os recursos gerados internamente teriam prioridade, seguidos pela emissão de dívida e, apenas em último caso, pela emissão de ações. Em sua forma forte, a THFF sustenta que emissões de ações nunca ocorreriam, enquanto, em sua forma fraca, volumes limitados de emissões são aceitáveis. A metodologia do estudo empírico envolve regressões em cross-section e testes de hipóteses para especificações oriundas da teoria em questão para as formas forte e fraca. Os resultados levam a concluir que a teoria testada, em sua forma fraca, é aplicável às empresas brasileiras, o mesmo não ocorrendo com a sua forma forte. Mostram, também, que a qualidade de ajustamento das regressões para o Brasil é significativamente melhor do que aquelas relatadas para empresas norte-americanas e que as empresas brasileiras parecem estar mais próximas da forma forte da THFF do que as norte-americanas. A amostra consiste de 132 empresas de capital aberto e os dados contábeis referem-se a 2001.

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