scholarly journals Capital Structure and The Profitability of Listed Retail Firms

2018 ◽  
Vol 10 (1) ◽  
pp. 171
Author(s):  
Jason Stephen Kasozi
Keyword(s):  
Capital Structure ◽  
Negative Relationship ◽  
Order Theory ◽  
Debt Financing ◽  
Retail Sector ◽  
Short Term ◽  
Return On Assets ◽  
Pecking Order Theory ◽  
Policy Interventions

The South African retail sector continues to experience a decline in sales and returns amidst growing external competition and a drop in consumer confidence stemming from the recent credit downgrades in the country. Yet, firms in this sector appear to maintain high debt to equity levels. This study investigated whether the capital structure practices of these firms influence their profitability. A Panel data methodology, using three regression estimators, is applied to a balanced sample of 16 retail firms listed on the Johannesburg Securities Exchange (JSE) during the period 2008-2016. The analysis estimates functions relating capital structure composition with the return on assets (ROA). Results reveal a statistically significant but negative relationship between all measures of debt (short-term, long-term, total debt) with profitability, suggesting a possible inclination towards the pecking order theory of financing behaviour, for listed retail firms. Additionally, retail firms are highly leveraged yet over 75% of this debt is short-term in nature. Policy interventions need to investigate the current restrictions on long-term debt financing which offers longerterm and affordable financing, to boost returns. While this study’s methodology differs slightly from earlier studies, it incorporates vital aspects from these studies, and simultaneously specifies a possible model fit.  This helps to capture unique but salient characteristics like the transitional effects of debt financing on firm profitability.  It therefore delivers some unique findings on the financing behaviour of retail firms that both in form policy change, while stimulating further research on the phenomenon. 

scholarly journals Capital Structure and The Profitability of Listed Retail Firms

2018 ◽  
Vol 10 (1(J)) ◽  
pp. 171-181
Author(s):  
Jason Stephen Kasozi
Keyword(s):  
Capital Structure ◽  
Negative Relationship ◽  
Order Theory ◽  
Debt Financing ◽  
Retail Sector ◽  
Short Term ◽  
Return On Assets ◽  
Pecking Order Theory ◽  
Policy Interventions

The South African retail sector continues to experience a decline in sales and returns amidst growing external competition and a drop in consumer confidence stemming from the recent credit downgrades in the country. Yet, firms in this sector appear to maintain high debt to equity levels. This study investigated whether the capital structure practices of these firms influence their profitability. A Panel data methodology, using three regression estimators, is applied to a balanced sample of 16 retail firms listed on the Johannesburg Securities Exchange (JSE) during the period 2008-2016. The analysis estimates functions relating capital structure composition with the return on assets (ROA). Results reveal a statistically significant but negative relationship between all measures of debt (short-term, long-term, total debt) with profitability, suggesting a possible inclination towards the pecking order theory of financing behaviour, for listed retail firms. Additionally, retail firms are highly leveraged yet over 75% of this debt is short-term in nature. Policy interventions need to investigate the current restrictions on long-term debt financing which offers longerterm and affordable financing, to boost returns. While this study’s methodology differs slightly from earlier studies, it incorporates vital aspects from these studies, and simultaneously specifies a possible model fit.  This helps to capture unique but salient characteristics like the transitional effects of debt financing on firm profitability.  It therefore delivers some unique findings on the financing behaviour of retail firms that both in form policy change, while stimulating further research on the phenomenon. 

scholarly journals Does Capital Structure Drive Profitability in the Energy Sector?

Energies ◽  
2021 ◽  
Vol 14 (16) ◽  
pp. 4803
Author(s):  
Monika Wieczorek-Kosmala ◽  
Joanna Błach ◽  
Iwona Gorzeń-Mitka
Keyword(s):  
Capital Structure ◽  
Order Theory ◽  
Energy Sector ◽  
Short Term ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
The Czech Republic ◽  
Listed Firms ◽  
Large Panel

This paper investigates the factors that determine the profitability of non-listed energy firms from four central European countries: Hungary, Poland, Slovakia, and the Czech Republic. We apply the regression analysis, on a large panel of firm-year observations for the 2015–2019 timespan, to verify the hypothesis on the inversed relationship between leverage and profitability of the companies performing in the energy sector. Our results support the inversed relationship for debt in total and long-term debt, which are consistent with the assumptions of the pecking order theory. However, for short-term debt, we have found a direct relationship, which confirms the assumptions of the trade-off theory of capital structure. Our work contributes to the existing debate on the interplay between financial leverage and profitability, by providing evidence for a large panel of non-listed firms, from a single sector (energy)-oriented perspective.

A study on the capital structure determinants of FMCG companies in India

2021 ◽  
pp. 2150008
Author(s):  
Poornima BG ◽  
Pushpender Kumar
Keyword(s):  
Capital Structure ◽  
Order Theory ◽  
Short Term ◽  
Pecking Order Theory ◽  
Factors Affecting ◽  
Tax Shield ◽  
Total Debt ◽  
Debt Tax Shield ◽  
The Capital Structure

Fast Moving Consumers Goods (FMCG) sector is the fastest and the fourth largest sector of the Indian economy. This study attempts to identify the critical factors affecting the financing decisions of 15 FMCG companies using panel framework and tries to investigate whether the factors considered provide convincing explanation as per the capital structure models like peking order theory, trade-off theory and Agency theory developed over a period of time. The data are collected from CMIE Prowess database for the period 2008 to 2019. The variables considered are profitability, size, non-debt tax shield, tangibility, uniqueness, liquidity and origin. It is found that Pooled OLS is the appropriate model for explaining the factors influencing the short-term debt, long-term debt and total debt as the dependent variables. It is evident that the short-term debt of the company is influenced by profitability, non-debt tax shield and liquidity of the company; the long-term debt is influenced by profitability, tangibility and origin of the company; and the total debt is affected by profitability, size and liquidity of the company. The factors which are significant confirm to the expected behavior with respect to pecking order theory of capital structure.

scholarly journals Firm-level determinants of capital structure in the MENA region

2020 ◽  
Vol 2 (3) ◽  
pp. 1-12
Author(s):  
Doaa El-Diftar
Keyword(s):  
Capital Structure ◽  
Order Theory ◽  
Firm Characteristics ◽  
Short Term ◽  
Mena Region ◽  
Pecking Order ◽  
Firm Level ◽  
Pecking Order Theory ◽  
The Impact

This paper investigates the behavior of firm characteristics on capital structure in firms in the MENA region. The outcomes of this research are important to bridge the gap between the theory and the practical decisions related to capital structure. The research studies the impact of firm characteristics on levels of debt from three different perspectives; short-term debt, long-term debt, and total debt. The study is applied to 416 firms from nine countries of the MENA region (Bahrain, Qatar, Saudi Arabia, UAE, Oman, Kuwait, Egypt, Jordan, and Tunisia) over some time from 2007-2016. Various econometrics techniques are used to reinforce the generated results. The results show that a firm's profitability and liquidity levels have a significant inverse impact on leverage, whereas; firm's size has a direct impact. The empirical results also show that asset tangibility and market value impact leverage differently depending on the type of debt used. Overall, the results reinforce the importance of both the pecking order theory as well as the trade-off theory in explaining capital structure decisions in the MENA region, with the results being more significant concerning the pecking order theory.

scholarly journals Factors that Determine the Capital Structure: An Empirical Study on Low-cost Airlines

2018 ◽  
Vol 65 (3) ◽  
pp. 227-246 ◽  
Author(s):  
Kasım Kiracı ◽  
Nurhan Aydin
Keyword(s):  
Capital Structure ◽  
Low Cost ◽  
Panel Data Analysis ◽  
Order Theory ◽  
Financial Data ◽  
Short Term ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
The Capital Structure

Abstract The purpose of this study is to identify the factors that determine the capital structure of low-cost airlines. Accordingly, it is aimed to test the factors that determine the capital structure in low-cost airlines in the context of capital structure theories. In the study, 15 airline companies, which had continuous financial data during the 2004-2015 period, were examined empirically. Panel data analysis was used as a method in the study. Findings of the study show that low-cost airlines generally operate based on the trade-off theory while borrowing in the short-term and based on the pecking order theory while borrowing in the long-term.

scholarly journals The Effects of Capital Structure on Banks’ Performance, the Ugandan Perspective

2019 ◽  
Vol 67 (3) ◽  
pp. 853-868
Author(s):  
Isah Serwadda
Keyword(s):  
Capital Structure ◽  
Positive Relationship ◽  
Negative Relationship ◽  
Bank Performance ◽  
Short Term ◽  
Return On Assets ◽  
Total Debt ◽  
Net Interest Margin ◽  
Interest Margin

The paper aims to investigate the effects of capital structure on banks’ performance on Ugandan banks for a ten years period, 2006–2015 with a sample of 20 commercial banks. The study employs four performance indicators of return on equity, return on assets, net interest margin and cost to income ratio to determine bank performance. Panel regression models are used to determine the effects of capital structure on bank performance. Independent variables are sub‑divided into capital structure variables namely; long‑term debt to total assets, short‑term debt to total assets and total debt ratio and then control variables are bank size and tangibility of assets. Results portray that there is a positive relationship between capital structure variables and bank performance. It’s between long‑term debts, total debt with net interest margin. There is also a positive relationship between total debt and return on assets. It is still the same between total debt and returns on equity. However, there is a negative relationship between short‑term debt and return on assets. The results also signify a positive relationship between bank size and net interest margin. It is still the same between bank size and returns on equity plus return on assets. There is a negative relationship between the tangibility of assets and net interest margin. It is also the same with return on equity. The findings propose that profitable banks rely more on debt financing as their financing option. This is advanced by the fact that approximately 68 % of total assets are represented by short‑term debts for Uganda’s commercial banks. This further implies that Ugandan banks largely depend on short‑term debt financing for their business operations compared to long‑term debt. Hence the study recommends that executive banking management teams plus policymakers should design prudent financing decisions aimed at reducing overreliance on debts to yield optimal capital structure levels. This will enable banks to remain at the top of the profitability game competitively in the banking industry.

scholarly journals Testing capital structure theories for agricultural cooperatives

2019 ◽  
Vol 22 (1) ◽  
pp. 1-14 ◽  
Author(s):  
Yuxi (Lance) Cheng ◽  
Ani L. Katchova
Keyword(s):  
Capital Structure ◽  
Order Theory ◽  
Simultaneous Equation ◽  
Equation Model ◽  
Agricultural Cooperatives ◽  
Simultaneous Equation Model ◽  
Short Term ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Trade Off

This study investigates adjustments in capital structures for agricultural cooperatives and differences before and during the agricultural downturn which started in 2013. We estimate a simultaneous equation model to test for cooperatives’ capital structure strategies based on two main theories from the corporate finance literature: the trade-off theory and the pecking order theory. Estimation results reveal that agricultural cooperatives in the U.S. generally adjust to short-term financial targets for equity and debt, supporting the trade-off theory while there is little support for the pecking order theory within the agricultural cooperatives sector.

scholarly journals Debt Financing and Firm Performance: Evidence from an Emerging South-Asian Country

2019 ◽  
Vol 10 (1) ◽  
pp. 40
Author(s):  
Mohammad Mazibar Rahman ◽  
Umme Khadija Kakuli ◽  
Shahnaz Parvin ◽  
Ayrin Sultana
Keyword(s):  
Firm Performance ◽  
Capital Structure ◽  
Financial Performance ◽  
Negative Influence ◽  
Short Term ◽  
Return On Assets ◽  
Return On Equity ◽  
Firm Financial Performance ◽  
Total Debt

This paper aims to empirically investigate the impact of capital structure choice on the firm performance of the firms listed under the Dhaka Stock Exchange of Bangladesh. Multiple regression has been employed in this research to determine the relationship between the capital structure and the firm’s financial performance. Three ratios of financial performance, i.e., return on assets, return on equity, and gross margin, have been used as a sample of non-financial Bangladeshi companies, selected from 2010 to 2015. The study records numerous findings. First, the result shows a significant negative influence of long-term debt (LTD) and total debt (TTD) on firm financial performance measured by return on assets (ROA), but no significant relationship is found between short-term debt (STD) and this measure of firm’s financial performance. Moreover, the research found that there is no significant effect of short-term debt, long-term debt and total debt on the firm financial performance measured by return on equity (ROE). Finally, the result shows that a significant negative influence of short-term debt and total debt on firm performance measured by GM, but no significant relationship was found between long-term debt and financial performance. In general terms, the results of this study may suggest that capital structure has a negative influence on firms’ financial performance in Bangladesh.

Pecking Order Test at Varying Debt Levels: A Comparative Study of Indian and Chinese Firms

2019 ◽  
Vol 18 (2) ◽  
pp. 237-261
Author(s):  
Vandana Bhama ◽  
Pramod Kumar Jain ◽  
Surendra Singh Yadav
Keyword(s):  
Capital Structure ◽  
Order Theory ◽  
Jel Classification ◽  
Short Term ◽  
Pecking Order ◽  
Chinese Firms ◽  
Pecking Order Theory ◽  
High Level ◽  
Very High ◽  
Debt Levels

The present study tests the pecking order of firms at varying debt levels. The findings indicate that deficit firms at low debt levels raise significant amounts of debt, thus indicating the adherence to the pecking order theory. Deficit firms (from both countries) at exceptionally high debt levels do not adjust their capital structure by issuing less debt. In a surplus situation, Chinese firms at very high level redeem the substantial debt because of the dominance of short-term debt in their capital structure. In contrast, Indian surplus firms hesitate to redeem more debt if their existing debt levels are extremely high. JEL Classification: Q14, G32

scholarly journals Capital Structure and Firm Performance in Nigerian-Listed Companies

2016 ◽  
Vol 8 (3(J)) ◽  
pp. 54-74 ◽  
Author(s):  
Matthew Adeolu Abata ◽  
Stephen Oseko Migiro
Keyword(s):  
Firm Performance ◽  
Capital Structure ◽  
Negative Relationship ◽  
Debt Financing ◽  
Descriptive Statistics ◽  
The Other ◽  
Listed Firms ◽  
Business Failures ◽  
The Relationship

a number of business failures have not been reported in Nigeria arising from inability to payback nor does service debts .This paper empirically investigate the relationship between capital structure and firm performance in the Nigerian listed firms. A sample of 30listed firms out of a population of 173 were examined from 2005 to 2014 using multiple regression tools. Two hypotheses were formulated and tested using descriptive statistics and an econometric panel data technique to analyze the gathered data. An insignificantly negative correlation was found between financial leverage and ROA on one hand and a significantly negative relationship between debt/equity mix and ROE on the other hand. It is therefore recommended that firms should use long term liabilities to finance firm’s activities and mix debt/equity appropriately by ensuring that debt financing ratio is lower to enhance corporate performance and survival.

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