scholarly journals The Optimization of Capital Structure in Maximizing Profit and Corporate Value

2017 ◽  
Vol 8 (1) ◽  
pp. 41
Author(s):  
Kharisya Ayu Effendi
Keyword(s):  
Capital Structure ◽  
Descriptive Analysis ◽  
Order Theory ◽  
Corporate Value ◽  
Pecking Order ◽  
Quantitative Descriptive Analysis ◽  
Pecking Order Theory ◽  
Optimal Capital Structure ◽  
Optimal Capital ◽  
Quantitative Descriptive

The purpose of this research was to determine the optimal capital structure which could maximize profits and corporate value. The used method was quantitative descriptive analysis. Moreover, the data used was secondarydata in the Jakarta Islamic Index (JII) from 2011 to 2015. The results of this research show that companies which have optimal capital structure are in line with the trade-off theory models. The capital structure is optimal if thedebt levels are to a certain extent so that the corporate value will increase. However, if the debt limit passes the certain degree, profit and corporate value will decrease. Meanwhile, pecking order theory in this research doesnot conform and cannot be said to be optimal because of the low debt level describing the opposite result with the theory as low profits.

scholarly journals Optimal Capital Structure Vs. Pecking Order Theory: A Further Test

2011 ◽  
Vol 2 (8) ◽  
Author(s):  
Arvin Ghosh ◽  
Francis Cai
Keyword(s):  
Capital Structure ◽  
Single Point ◽  
Order Theory ◽  
Set Covering ◽  
Pecking Order ◽  
Data Set ◽  
Pecking Order Theory ◽  
Optimal Capital Structure ◽  
Debt Level ◽  
Optimal Capital

In this paper we have used the Compustat data-set covering 1983-2003 to test empirically whether a firms' capital structure follows "optimal capital structure" or” pecking order theory"(POT) as advanced by Professor Stewart Myers. Using the industry mean as a predictor of a firm's capital structure, we have found that in general, a firm's debt level is moving toward the industry's mean is not significantly different from that it is moving further away from the industry mean, while a firm's debt level is moving toward the industry mean is very high when it is above the industry mean.   The empirical result suggests that the optimal capital structure is not a single point, rather a range of values from zero to the industry mean within which a typical U.S. firm will be indifferent to the firm's debt level.  In other words, a firm will only adjust to the optimal capital structure when the firm's debt level is out of this range.  Out result also generally agrees with the pecking order theory, that is, firms prefer using internal financing as opposed to using external financing.  Furthermore, when external funds are required, a firm prefers debt financing to equity financing.

scholarly journals Pecking Order Theory and Trade-Off Theory of Capital Structure: Evidence from Indonesian Stock Exchange

The Winners ◽  
2012 ◽  
Vol 13 (1) ◽  
pp. 40
Author(s):  
Priska Ralna Eunike Culata ◽  
Tri Gunarsih
Keyword(s):  
Capital Structure ◽  
Stock Exchange ◽  
Empirical Studies ◽  
Listed Companies ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Trade Off ◽  
Optimal Capital Structure ◽  
Optimal Capital

Numerous empirical studies in the finance field have tested many theories for firms’ capital structure. The pecking order theory and the trade-off theory of capital structure is among the most influential theories of firms’ capital structure. The trade-off theory predicts optimal capital structure, while the pecking order theory does not predict an optimal capital structure. According to pecking order theory,  the order of financial sources used is the source of internal funds from profits, short-term securities, debt, preferred stock and common stock last. The main objective of this study is to econometrically test whether the listed companies in Indonesian Stock Exchange follow the pecking order theory or the trade-off theory. Samples in this study are public companies listed during 2009-2010. The research questions are tested by running regression models.  The empirical result of this study shows that the pecking order theory is not supported, while the trade-off theory is supported. This suggests that the capital structure of listed companies in Indonesian Stock Exchange is financed based on optimal capital structure, not by the order financial resources.

scholarly journals New evidences on determinants of capital structure from the Indian manufacturing industry

2016 ◽  
Vol 13 (3) ◽  
pp. 82-88 ◽  
Author(s):  
Pradeepta Sethi ◽  
Ranjit Tiwari
Keyword(s):  
Capital Structure ◽  
Manufacturing Industry ◽  
Order Theory ◽  
Manufacturing Firms ◽  
Indian Government ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Optimal Capital Structure ◽  
Financing Decisions ◽  
Size Growth

In the backdrop of Make in India push by Indian government the purpose of this study is to examine the determinants of capital structure towards a better understanding of financing decisions to be undertaken by the Indian manufacturing firms. The data for the analysis is drawn from COSPI manufacturing index of Centre for Monitoring Indian Economy (CMIE). Our sample is an unbalanced panel of 1077 firms over the period 2000-01 to 2012-13. We apply system-GMM to study different factors that affect the leverage decision of firms in India. The findings of the study reveals that the choice of optimal capital structure can be influenced by factors such as profitability, size, growth, tangibility, non-debt tax shields, uniqueness and signal. We also find the existence of both pecking order theory and static trade-off theory in the case of Indian manufacturing firms. The results thus obtained are robust across the different proxies of leverage

scholarly journals Studies of Firm Capital Structure Determinants in Poland: An Integrative Review

e-Finanse ◽  
2015 ◽  
Vol 11 (4) ◽  
pp. 1-22 ◽  
Author(s):  
Andrzej Cwynar ◽  
Wiktor Cwynar ◽  
Robert Dankiewicz
Keyword(s):  
Capital Structure ◽  
Dominant Role ◽  
Empirical Studies ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Listed Firms ◽  
Optimal Capital Structure ◽  
Specific Factors

Abstract We investigated 34 empirical studies aimed at examining the capital structure determinants in firms operating in Poland to test to what degree the financing patterns were steady during the observed period (2001-2012). Specifically, in conducting the survey we were motivated by the following research questions which constitute the objectives of the article: (1) which factors - country or firm-specific - are more relevant in explaining leverage in Poland, (2) which theory - trade-off or pecking order - gains greater support in Poland, and (3) what is the significance of the optimal capital structure notion in Poland. Our results show that financing patterns changed importantly during the last 20 years, which manifests itself mainly in gradual increase in debt ratios with a dominant role of short-term debt, along with the decrease in the importance of country-specific factors (especially in large-sized, listed firms). The signs of the associations between leverage and the key firm-specific factors remained relatively stable during the investigated period, with the exception concerning tangibility. These signs provide greater support for pecking order theory, with at most a moderate role of the target capital structure.

scholarly journals THE INFLUENCE OF CAPITAL STRUCTURE ON BALTIC CORPORATE PERFORMANCE / KAPITALO STRUKTŪRA BALTIJOS ĮMONĖSE

2011 ◽  
Vol 12 (4) ◽  
pp. 655-669 ◽  
Author(s):  
Julia Bistrova ◽  
Natalja Lace ◽  
Valentina Peleckienė
Keyword(s):  
Capital Structure ◽  
Order Theory ◽  
Equity Capital ◽  
Stock Exchanges ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Optimal Capital Structure ◽  
Time Period ◽  
The Baltic ◽  
The Impact

Seeking for the optimal capital structure lasts for more than 50 years and still is very topical, especially during the market turmoil as it happened in 2008. No perfect answer is yet provided to the question of how large debt amount should be kept on the accounts. The main objective of the present paper is to analyze the impact of capital structure decisions on the equity performance and on the profitability of the companies located in Baltics. The study covered the time period of 4 years (from 2007 till 2010) and the sample data of 36 “blue-chip” companies listed on the Baltic Stock exchanges. The results of the study discover positive relationship between stock performance and sufficiency of equity capital. Besides, there was found an inverse relationship between the level of debt and capital profitability confirming the pecking order theory that in the best case the company should use self-generated funds. Santrauka Optimalios kapitalo struktūros siekiama daugiau nei 50 metų ir tai vis dar yra labai aktualu, ypač per finansų krizę, įvykusią 2008 m. Kol kas nėra gauta galutinio atsakymo į klausimą – kokio dydžio skola turi būti laikoma sąskaitose. Pagrindinis šio straipsnio tikslas – išnagrinėti kapitalo struktūros sprendimų įtaką akcijų rinkai ir Baltijos šalių įmonių pelningumui. Tyrimas apėmė ketverių metų laikotarpį (nuo 2007 m. iki 2010 m.) ir 36 patikimiausių akcijų ,,blue chips“ duomenų, įtrauktų į Baltijos vertybinių popierių biržų sąrašus, pavyzdžius. Atlikus tyrimą nustatytas teigiamas ryšys tarp akcijų ir akcinio kapitalo pakankamumo. Be to, buvo nustatytas atvirkštinis ryšys tarp skolos lygio ir kapitalo pelningumo, patvirtinančio kapojimo kvotos teoriją, kad geriausiu atveju kompanija panaudos savo sukuriamus išteklius.

scholarly journals The behavior of capital structure: evidence from fast calibrated additive quantile regression

2021 ◽  
Vol 1 (1) ◽  
pp. 57-71
Author(s):  
Umut Uyar
Keyword(s):  
Capital Structure ◽  
Quantile Regression ◽  
Order Theory ◽  
Agency Cost ◽  
Annual Data ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Explanatory Variables ◽  
Optimal Capital Structure ◽  
The Relationship

In finance, capital structure decisions are crucial due to their impact on the value of a firm. Some theories assert that the value of a firm is irrelevant to those decisions. However, there is a growing literature that criticizes this idea. Those studies are constructed on some modern theories which called trade-off theory, agency cost theory, signaling theory, and pecking order theory. This paper investigates the relationship between optimal capital structure and capital structure components. The annual data gathered from 195 firms traded in Borsa Istanbul for the period 2011-2020 is used. The fast calibrated additive quantile regression approach is chosen because of its superior properties. In that method, there is not a strong assumption about the functional form of the relationships between the dependent variable and the explanatory variables. The results indicate that the relationships between the debt ratios and the capital structure components differ for each quantile and these relations are nonlinear. Furthermore, evidence is found that the relationships might be explained with the modern theories of capital structure.

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.

Financing Decisions and Performance of Italian SMEs in the Hotel Industry

2018 ◽  
Vol 60 (4) ◽  
pp. 335-354 ◽  
Author(s):  
Marco Botta
Keyword(s):  
Capital Structure ◽  
Financial Performance ◽  
Optimal Level ◽  
Pecking Order ◽  
Optimal Capital Structure ◽  
Financing Decisions ◽  
Medium Enterprise ◽  
Optimal Capital ◽  
And Performance ◽  
The Relationship

This study investigates the existence of an optimal capital structure for small and medium enterprise (SME) hotels through the analysis of the relationship between financing decisions and financial performance in a large sample of Italian hotel SMEs. The results show that hotel SMEs face an optimal capital structure that allows them to maximize returns to investors, while instead having both too little and too much debt reduces their financial performance. This notwithstanding, we show that hotel SMEs are not particularly concerned with optimizing their capital structure, and their funding behavior is deeply connected with the availability of internally available funds, a typical pecking order behavior, and they result extremely slow in converging toward their optimal level of leverage so that they could improve their performance by adopting a more sophisticated financial strategy.

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