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 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 Empirical Investigation of Symmetric and Asymmetric Target Adjustment Models: Capital Structure of Non-Financial Firms in Jordan

2017 ◽  
Vol 9 (3) ◽  
pp. 133 ◽  
Author(s):  
Bashar K. Abu Khalaf
Keyword(s):  
Capital Structure ◽  
Stock Exchange ◽  
Interaction Model ◽  
Firm Characteristics ◽  
Leverage Ratio ◽  
Financial Firms ◽  
Large Size ◽  
Amman Stock Exchange ◽  
Target Leverage ◽  
The Impact

The different capital structure theories propose the possible asymmetric behavior of capital structure. Thus, this paper empirically investigates whether non-financial Jordanian firms follow symmetrical or asymmetrical adjustment model. Then, an interaction model with the size and profitability (firm characteristics) investigated the impact of low/high profit and small/large size on the adjustment of leverage towards the target leverage ratio. This paper covered the period of 14 years (2002-2015) for a total of 110 companies listed on Amman Stock Exchange (75 industrial and 35 services). Results indicate that although Jordanian firms seek a target leverage ratio, their adjustment towards that target is Asymmetrical and high profitable and large companies tend to adjust faster than low profitable and small size companies.

scholarly journals Ownership structure and capital structure: Evidence from the Jordanian capital market (1995-2003)

2006 ◽  
Vol 3 (4) ◽  
pp. 99-107 ◽  
Author(s):  
Ghassan Omet
Keyword(s):  
Capital Structure ◽  
Ownership Structure ◽  
Firm Growth ◽  
Main Stream ◽  
Leverage Ratio ◽  
Growth Prospects ◽  
The Impact ◽  
Structure Choice ◽  
Capital Structure Choice ◽  
The Capital Structure

The capital structure choice has generated a lot of interest in the corporate finance literature. This interest is due to several reasons including the fact that the mix of funds (leverage ratio) affects the cost and availability of capital and thus, firms’ investment decisions. To date, much of the empirical research has been applied on companies listed on advanced stock markets. This literature considered a variety of factors such as company size, profitability, asset tangibility, firm growth prospects and ownership structure as possible determinants of the capital structure choice. This paper examines the finances of Jordanian listed companies and the impact of their ownership structure on the capital structure choice. Based on a panel data methodology (1995-2003), the results indicate that while Jordanian companies are not highly leveraged, their ownership structure does have a significant impact on capital structure, and that much of the main-stream determinants of capital structure are applicable to the Jordanian scene.

scholarly journals Determinants of the Firm’s Capital Structure: Evidence from Dhaka Stock Exchange

2021 ◽  
Vol 37 (2) ◽  
pp. 27-41
Author(s):  
Muhammad Shahadat Hossain Siddiquee ◽  
Abdulla Abu Saker
Keyword(s):  
Social Science ◽  
Capital Structure ◽  
Stock Exchange ◽  
Least Square ◽  
Policy Implications ◽  
Annual Data ◽  
Explanatory Variables ◽  
The Core ◽  
Growth Opportunity ◽  
The Capital Structure

The core objective of the study is to explore empirically the determinants of the capital structure measured in terms of leverage and the existence of linkages in the capital structure of the companies enlisted in the Dhaka Stock Exchange (DSE) using the recent ten years’ historical annual data from 2006 to 2015. The theoretical attributes of the capital structure have been examined using the tangibles assets, profitability, size of the company, and growth opportunity as explanatory variables. Findings from the Feasible Generalized Least Square (FGLS) reveal that tangibility, size, and growth opportunity contributes positively to the capital structure whereas profitability impacts the capital structure negatively. These findings might have serious policy implications for achieving desired capital structure for the companies enlisted in the DSE. Social Science Review, Vol. 37(2), Dec 2020 Page 27-41

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.

scholarly journals Determinants of Capital Structure in Industrial Companies: Conservative Policy—Applied Study on Jordanian Industrial for the Period (2014-2016)

2019 ◽  
Vol 14 (2) ◽  
pp. 125 ◽  
Author(s):  
Abeer Al Abbadi
Keyword(s):  
Capital Structure ◽  
Interest Rates ◽  
Credit Rating ◽  
Stock Exchange ◽  
Industrial Companies ◽  
Tangible Assets ◽  
Conservative Policy ◽  
The Cost ◽  
The Impact ◽  
The Capital Structure

The study aimed to define the factors that determinate the capital structure for industrial companies in Jordan. By depending on theoretical references and literature review that related to capital structure, and to define the determinants that influenced the capital structure by depending on statistical analysis. The study used 15 companies of Amman stock exchange for the period 2014-2016. The study concluded multiple results. The most importantly, there is significant impact of profitability, interest rates, and the amount of tangible assets. And there is impact of investment opportunities, the size of company and to the adoption of conservative policy according to the comprehensive concept of indebtedness in building capital structure. There was no possible impact for financial distress. The study proposed recommendations. The most important recommendations are studying the underlying causes of reduction long term debt ratio to the total assets of many public share holding companies. Urging financial managers to study the capital structure and the factors that determinate it, in order to manage the capital structure of the companies according to scientific methodology. Urging companies to use Islamic instruments for funding the tangible assets .As it is appropriate to the prevailing economic conditions in the market in terms of profit rates. It is necessary to confirm the existence of a credit rating classification from international credit agencies that helps in issuance of instruments and corporate bonds, or to obtain credit. Urging companies using rent ending in ownership or finance leasing; and urging companies of tangible assets to obtain funding from Islamic and commercial banks especially, when the cost of borrowing and Islamic funding is less than the cost of the issuance of shares. The study suggested studying the determinate factors that makes some companies following the conservative policy in building the capital structure, and in maintaining high cash balances. The study affected the impact of the existence of financial organizations as board of directors in public shareholding companies determine and study the factors of building the capital structure.

scholarly journals STRUKTUR MODAL PERUSAHAAN-PERUSAHAAN NON KEUANGAN YANG TELAH GO PUBLIC DI BURSA EFEK INDONESIA BERDASARKAN TRADE OFF THEORY

2015 ◽  
pp. 1-13
Author(s):  
Donalson Silalahi
Keyword(s):  
Capital Structure ◽  
Empirical Evidence ◽  
Firm Growth ◽  
Stock Exchange ◽  
Growth Opportunities ◽  
Financial Firms ◽  
Trade Offs ◽  
The Cost ◽  
The Impact ◽  
The Capital Structure

This study aims, First, to obtain the empirical evidence about the capital structure of non-financial firms in Indonesia Stock Exchange. Second, to obtain the empirical evidence about the impact of capital structure on the value of non-financial firms in Indonesia Stock Exchange. Third, to obtain the empirical evidence about the impact of profitability, size of the firm, growth opportunity, the structure of assets, and the cost of bankruptcy to capital structure of non-financial firms in Indonesia Stock Exchange. To achieve these objectives, conducted research on companies listed on the Indonesia Stock Exchange. Research conducted on 163 companies with the observation period in 2011. All the required data obtained from the Indonesian Capital Market Directory. Furthermore, to explain the determinants of capital structure of the firm to used the t and F test with alpha 10 percent. Based on the results of the study, the conclusions as follows: First, the capital structure of the firm has a negative and significant effect on the value of the firm. Second, there is no optimal capital structure on a non-financial corporations. Third, the size of the firm, the structure of assets, and the cost of bankruptcy have positive and significant effect on the capital structure of the firm. Fourth, profitability and the growth opportunities of the firm does not significantly influence to the capital structure. Fifth, variations in the profitability, size of the firm, growth opportunities, the structure of assets, and the cost of bankruptcy are able to explain the variations of capital structure 10,2 percent. Sixth, the coefficient towards research results influence the profitability and bankruptcy costs the company is not in accordance with the trade-offs theory.

scholarly journals Struktur Modal dan Pembiayaan BPRS di Indonesia

2020 ◽  
Vol 14 (2) ◽  
pp. 135-142
Author(s):  
Multazam Mansyur Addury
Keyword(s):  
Capital Structure ◽  
Annual Data ◽  
Gdp Growth Rate ◽  
Panel Data Regression ◽  
Analysis Technique ◽  
Data Regression ◽  
Equity Ratio ◽  
Independent Variable ◽  
The Impact ◽  
The Capital Structure

The development of BPRS is expected to contribute to the market share of Islamic banking in Indonesia. This study aims to analyze the impact of capital structure on the BPRS financing. The object of this research is 164 BPRS in Indonesia, with a range of annual data from 2010 to 2017. The dependent variable is debt and equity-based financing (DEBF). The independent variable is measured using a debt to asset ratio (DAR) and debt to equity ratio (DER). In addition, this study also uses three control variables namely size, GDP growth rate, and provincial inflation. The data analysis technique used is panel data regression. The results show that the capital structure by DAR consistently had a positive and significant effect on the BPRS financing. Moreover, the capital structure by DER does not have a significant effect on the BPRS financing

scholarly journals Rating de Crédito e Estrutura de Capital: Evidências da América Latina

2013 ◽  
Vol 11 (3) ◽  
pp. 311 ◽  
Author(s):  
Dany Rogers ◽  
Wesley Mendes-da-Silva ◽  
Henrique Dantas Neder ◽  
Pablo Rogers Silva
Keyword(s):  
Latin America ◽  
Panel Data ◽  
Capital Structure ◽  
Credit Rating ◽  
Market Timing ◽  
Informational Content ◽  
America Latina ◽  
The Impact ◽  
The Capital Structure

This paper aims to analyze the impact of reclassifications trends in credit rating decisions in capital structure of listed non-financial companies in Latin America. To verify both the existence of this association were employed data belonging to all non-financial companies listed in Latin America, possessing ratings issued by the three major international ratings agencies international (i.e. Standard & Poor's, Moody's and Fitch) in January, 2010. When considering data for the period 2001-2010, through analysis of panel data, the main results suggest that the reclassifications of ratings seem have no informational content to the capital structure decisions of firms. However, some results indicate that companies classified in the worst levels of risk, and which are on the verge of the rating reclassifications, tend to use more debt than other companies, suggesting the existence of market timing.

scholarly journals Capital structure and performance of Middle East and North Africa (MENA) banks: an assessment of credit rating

2016 ◽  
Vol 11 (1) ◽  
pp. 77-91 ◽  
Author(s):  
Ahmed A. El-Masry
Keyword(s):  
Capital Structure ◽  
North Africa ◽  
Credit Rating ◽  
Bank Performance ◽  
Communication Tool ◽  
Policy Makers ◽  
Main Determinants ◽  
And Performance ◽  
The Impact ◽  
The Capital Structure

The firm’s credit rating is an important communication tool and previous research has shown that many companies consider it important in capital structure decisions. This study examines the determinants of capital structure in MENA banks. In addition, it investigates the determinants of credit rating. Further, the impact of credit rating and capital structure on banks’ performance is examined. Therefore, this study is an attempt to answer the following questions: 1) what are the main determinants of capital structure? 2) how does credit rating affect capital structure? 3) what are the main determinants of credit rating? and 4) what is the effect of capital structure and credit rating on bank performance? The sample covers 169 banks and is divided into two sub-samples: rated (79) and non-rated banks (90). The results indicate that credit rating directly affects the capital structure decisions as rated banks use more debts than non-rated banks. Banks’ performance is positively associated with credit rating and negatively with the capital structure. This study has an implication on investors in their decisions to invest in the banking industry. It also helpful for policy makers to understand how bank’s capital structure behaves so they could take it into consideration when issuing new regulations such as Basel

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