scholarly journals Determinants of Capital Structure for Malaysian Shariah-Compliant Firms: The Impact of Revised Screening Methodology

2020 ◽  
Author(s):  
Norfhadzilahwati Rahim ◽  
Fauzias Mat Nor ◽  
Nurainna Ramli ◽  
Ainulashikin Marzuki
Keyword(s):  
Capital Structure ◽  
Financial Stability ◽  
Panel Data Analysis ◽  
Negative Relationship ◽  
Large Firms ◽  
Method Of Moment ◽  
Speed Of Adjustment ◽  
Lagged Dependent Variable ◽  
Target Leverage ◽  
The Impact

This study investigates two main objectives. Firstly, the determinants of capital structure were examined for each sector among Malaysian Shariah-compliant firms, and whether the inclusion of Islamic debt (leverage 1 and leverage 2) has led to different results due to changes in the screening methodology. Secondly, this paper analyzes the target Capital Structure and Speed of Adjustment for both before and after the Revised Screening Methodology. This study employs panel data analysis by using generalized method of moment (GMM). The sample consists of 192 Shariah-compliant companies in Malaysia during the period of 1999 to 2017. The results demonstrated that the firm has target capital structure and identified specific determinants that have affected the capital structure of Shariah-compliant firms in Malaysia. Moreover, the findings have also revealed certain implications toward large firms. Large firms tend to generate more income and profit, however at the same time, these firms require more debt to support investment activities. Hence, with regards to profitability, this study identified a negative relationship between profitability and leverage for Shariah-compliant firms for all sectors. Shariah-compliant firms with high profitability will use a lower leverage in their financial activities. Thus, the results strongly support the pecking order theory. Other than that, this study found that the lagged dependent variable (lagged leverage 1 and leverage 2) presented a positive significance, and concluded that the speed of adjustment takes approximately 2 years. This suggests that the Shariah-compliant firms close approximately by 30% to 70% of the gap between current and target capital structure within one and two years. Furthermore, the findings on the target leverage level imply that after the revised screening methodology was introduced in November 2013, the speed of adjustment became faster than before the implementation of the new screening methodology. Thus, it is important for management to maintain the target leverage during financial decision making, which in turn strengthens the firm’s Shariah-compliant financial stability and sustainability, and continue to remain listed as Shariah-compliant securities. This paper provides an overview of capital structure behaviour in Malaysia.  

scholarly journals Dynamic Capital Structure Adjustment and the Impact of Fractional Dependent Variables

2015 ◽  
Vol 50 (5) ◽  
pp. 1105-1133 ◽  
Author(s):  
Ralf Elsas ◽  
David Florysiak
Keyword(s):  
Capital Structure ◽  
Corporate Finance ◽  
Unobserved Heterogeneity ◽  
Speed Of Adjustment ◽  
Structure Adjustment ◽  
Dependent Variables ◽  
Target Leverage ◽  
The Impact ◽  
Biased Estimates ◽  
Structure Research

AbstractResearchers in empirical corporate finance often use bounded ratios (e.g., debt ratios) as dependent variables in their regressions. Using the example of estimating the speed of adjustment toward target leverage, we show by Monte Carlo and resampling experiments that commonly applied estimators yield severely biased estimates, as they ignore that debt ratios are fractional (i.e., bounded between 0 and 1). We propose a new unbiased estimator for adjustment speed in the presence of fractional dependent variables that also controls for unobserved heterogeneity and unbalanced panel data. This new estimator is suitable for corporate finance applications beyond capital structure research.

Panel Data Analysis of Determinants of Leverage in the Automobile Industry in India

GIS Business ◽  
2018 ◽  
Vol 13 (2) ◽  
pp. 29-47
Author(s):  
Vibha Tripathi
Keyword(s):  
Panel Data ◽  
Capital Structure ◽  
Automobile Industry ◽  
Panel Data Analysis ◽  
Negative Relationship ◽  
Order Theory ◽  
Ordinary Least Squares ◽  
Pecking Order ◽  
Trade Off ◽  
Coverage Ratio

The study tries to investigate the key determinants of capital structure of leading automobile companies and the Automobile Industry in India. The study also tracks the theory implications, i.e. trade off vs. pecking order in these firms and the industry in general. An attempt is to see, if individually each sample company and the whole industry are influenced by the same determinants of capital structure. Pooled ordinary least squares and panel data econometric techniques such as fixed effect models are used to investigate the most significant determinants that affect the capital structure choice of 10 leading companies categorized as BSE Auto Top 100 and the Automobile Industry as a whole for a period of 14 years from 2000–2001 to 2013–2014. The study reveals some interesting facts and results. Multiple regression analysis reveals that while profitability and size are significant determinants in most of the leading companies; NDTS, Growth, and Debt service coverage ratio are not significant for these companies. While the Panel data results of the Automobile Industry as a whole reveals that profitability is the only significant determinant having negative relationship with debt equity ratio; and the other variables are insignificant. Also individual companies coefficient results shows implications of mix of pecking order and trade off theories while the panel data results of the whole Industry strongly supports the Pecking order theory.

Do corporate diversification and earnings management practices affect capital structure?

2015 ◽  
Vol 7 (4) ◽  
pp. 360-378 ◽  
Author(s):  
Ranjitha Ajay ◽  
R Madhumathi
Keyword(s):  
Capital Structure ◽  
Earnings Management ◽  
Management Practices ◽  
Negative Relationship ◽  
Corporate Diversification ◽  
Content Type ◽  
Diversification Strategies ◽  
Market Product ◽  
Diversified Firms ◽  
The Impact

Purpose – The purpose of this paper is to empirically examine the impact of earnings management on capital structure across firm diversification strategies. Design/methodology/approach – The study focuses on firms operating in the manufacturing sector (diversified and focused). Panel data methodology compares diversification strategies and identifies the impact of diversification strategy with earnings management practices on capital structure decision. Findings – International and product diversified firms have lower levels of leverage than focused firms in their capital structure. Asset-based earnings management is positive for diversified (market/product) firms. Earnings management using discretionary expenditure (project based) is found to be higher for market diversified but product-focused firms. Earning smoothing method is found to be significant for focused firms and shows a negative relationship with capital structure. Originality/value – This study offers an insight into the relationship between corporate diversification, earnings management and capital structure decisions of manufacturing firms. The results provide an important contribution to accounting and strategy literature. A distinction is made between market- and product-diversified firms and influence of earnings management practices (asset-based, project-based and earnings smoothing (ESM)) on capital structure decisions. Diversified firms (market/product) tend to have lower levels of leverage than focused firms and earnings management practices within firm groups significantly influence the capital structure decisions.

scholarly journals Impact of Population Aging on Carbon Emission in China: A Panel Data Analysis

2018 ◽  
Vol 10 (7) ◽  
pp. 2458 ◽  
Author(s):  
Weidong Li ◽  
Xin Qi ◽  
Xiaojun Zhao
Keyword(s):  
Panel Data ◽  
Carbon Emission ◽  
Population Aging ◽  
Panel Data Analysis ◽  
Negative Relationship ◽  
Modern Society ◽  
Eastern Region ◽  
Low Carbon ◽  
Stirpat Model ◽  
The Impact

The impact of population structure on carbon emission has always been a key area of research in modern society. In this paper, we propose a new expanded STIRPAT model and panel co-integration method to analyze the relationship between population aging and carbon emission, based on the provincial panel data in China from 1999 to 2014. Empirical results show that there exists a significant inverted U-shaped curve between the population aging and carbon emission. There also exist regional discrepancies, where the impact of the population aging on carbon emission in the eastern region is significantly positive. By contrast, a negative relationship arises in the central and western regions. Finally, several suggestions for low carbon development are provided.

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 Capital Structure-Firm Value Nexus: Moderating Role of Profitability

2020 ◽  
Vol 11 (2) ◽  
pp. 375-386
Author(s):  
Hamed Ahmad Almahadin ◽  
Yazan Salameh Oroud
Keyword(s):  
Capital Structure ◽  
Firm Value ◽  
Panel Data Analysis ◽  
Policy Implications ◽  
Ample Evidence ◽  
Functional Models ◽  
The Impact ◽  
The Relationship ◽  
Moderating Role

This study aims to investigate the moderating role of profitability in the relationship between capital structure and firm value in Jordan, as an example of an emerging economy. For this purpose, two functional models were formulated to capture the direct relationship as well as the interaction impact of capital structure on firm value. The robust empirical findings of panel data analysis provide strong evidence of an adverse relationship between capital structure and firm value. The findings confirm that the impact of capital structure appears to be complicated in nature and difficult to examine without controlling for the interaction of profitability as one of the major determinants. Therefore, studying the interaction effect provides ample evidence and enhances the understanding of the link between firm value and capital structure. The empirical results of the study may provide important insights and policy implications to decision-makers.

Heterogeneity and Asymmetry in Speed of Leverage Adjustment: The Indian Experience

2016 ◽  
Vol 19 (03) ◽  
pp. 1650019 ◽  
Author(s):  
Surenderrao Komera ◽  
P. J. Jijo Lukose
Keyword(s):  
Capital Structure ◽  
Cash Flow ◽  
Emerging Market ◽  
Adjustment Costs ◽  
Group Affiliation ◽  
Cross Sectional ◽  
Speed Of Adjustment ◽  
Business Group Affiliation ◽  
Optimal Leverage ◽  
Target Leverage

In this paper, we examine firms' capital structure adjustment behavior and estimate their “speed of adjustment” toward optimal leverage ratios by employing a dynamic, partial adjustment model. We find that sample firms on an average offset half of the deviation from their target leverage ratios in less than one and half (1.41) years. Such evidence suggests optimal capital structure behavior among sample firms. Further, we report cross sectional heterogeneity and asymmetry in speed of adjustment estimates, resulting from varied leverage adjustment costs across the sample firms. We find higher speed of adjustment estimates among larger sample firms suggesting higher leverage adjustment costs for smaller firms. Business group affiliation does not seem to influence the costs of sample firms' leverage adjustment. Over-levered firms report higher speed of adjustment estimates, suggesting that sample firms do not consider debt financing as a “disciplining mechanism” for managers. Further, we find lower speed of adjustment estimates for sample firms with higher cash flow, implying that Indian markets do not actively accommodate firms' cash flow needs. Thus, our findings reveal complex asymmetric information problems and consequent varied leverage adjustment costs among emerging market firms.

Do discretionary accruals affect firms’ corporate dividend policy? Evidence from France

2018 ◽  
Vol 16 (2) ◽  
pp. 333-347 ◽  
Author(s):  
Anis Ben Amar ◽  
Olfa Ben Salah ◽  
Anis Jarboui
Keyword(s):  
Earnings Management ◽  
Dividend Policy ◽  
Positive Impact ◽  
Panel Data Analysis ◽  
Negative Relationship ◽  
Discretionary Accruals ◽  
Additional Measure ◽  
Ample Evidence ◽  
Content Type ◽  
The Impact

Purpose In financial literature, dividend payout decisions are determined by factors such as debt, liquidity, profitability, size and risk. The purpose of this paper is to identify the effect of earnings management measured by discretionary accruals based on Dechow et al.’s (1995) model on dividend policy. Design/methodology/approach This research will use panel data analysis to test the effect of earnings management on dividend policy. The authors selected 280, French non-financial companies, listed on the CAC All Tradable index for the 2008-2015 period. Findings Using a sample of 2108 firm-year observations, the authors find a positive impact of earnings management on dividend policies of firms. Besides, there is a positive/negative relationship between the size of the firm and the dividend policy. Moreover, this paper has dealt with some factors such as debt, the risk of the firm and liquidity which may affect the corporate dividend policy. The results are robust as the authors adopted an additional measure of dividend policy. Practical implications The findings may have important implications for analysts, investors, regulators and academics. First, the study shows that earnings management is a common practice in the French context and constitutes a major objective of dividend policy. Better still, identifying the other variables that influence the dividend policy provides a clearer understanding of dividend policy for investors, analysts and academics alike. Second, the study provides ample evidence of agency problems between various partners in French capital markets, highlighting the necessity to establish new corporate governance mechanisms. This is highly relevant for policymakers in their quest for a better financial market. Originality/value This study extends the literature on the impact of dividend thresholds on earnings management by showing that firms run earnings to inform the market that the company can distribute dividends.

Does the speed of adjustment in regulation and supervision affect financial stability in developing countries?

2019 ◽  
Vol 27 (4) ◽  
pp. 453-463
Author(s):  
Chadi Azmeh
Keyword(s):  
Developing Countries ◽  
Economic Development ◽  
Financial Stability ◽  
Positive Impact ◽  
Financial Sector ◽  
Content Type ◽  
Speed Of Adjustment ◽  
Regulation And Supervision ◽  
Bank Regulation And Supervision ◽  
The Impact

Purpose This paper aims to examine the impact of bank regulation and supervision on financial stability. Financial sector reform, especially in developing countries, takes the form of a sudden adjustment in regulation and supervision. The main objective of the paper is to examine whether this fast and sudden adjustment in regulation and supervision has an undesirable impact on financial stability. Furthermore, the paper examines the role of real economic development in determining the impact of financial reform on financial stability. Design/methodology/approach Empirically, on a sample of 57 developing countries over the period 2000-2013, the author explored the impact of bank regulation and supervision on financial stability for different sub-groups of countries. The division is based on the real level of economic development and, most importantly, on the speed of adjustment in regulation and supervision. The study uses the cross-sectional–ordinary least square model. Each country has three observations (average 2000-2004, average 2005-2008 and average 2009-2013), which are convenient, with the date of the three surveys on regulation and supervision (2002-2006-2011). The period of the averages is selected to cover periods before and after the survey as regulation and supervision may be adopted before the survey and as its impact may persist for the period after. Findings The major finding of this study is that it supports the important role of the speed of adjustment in regulation and supervision, and its impact on financial stability. Soft adjustment in regulation and supervision has more positive impact on financial stability than fast adjustment. Activity restrictions have positive and significant impact on financial stability in soft adjustment countries’ group. On the other hand, in countries with fast adjustment, results show negative and statistically significant impact on financial stability, especially for supervisory independence. More time is needed for supervisors to adapt to new regulation and supervision and gain expertise to monitor financial condition of banks in a consistent manner. Results also show that the level of economic development is an important factor when testing the impact of regulation and supervision on financial stability. In lower income countries, more room is available for corruption in lending, which has a negative impact on financial stability. Practical implications This study advocates the necessity of taking the speed of adjustment in regulation and supervision by policymakers in developing countries, while initiating reform in the financial sector. Financial sector reform that takes the form of a sudden adjustment in regulation and supervision may have undesirable results in terms of financial stability. On the other hand, soft adjustment in regulation and supervision, which gives more room for supervisors to adapt and gain expertise, may have more positive impact on financial stability. Originality/value This paper is the first paper to explore new methods of calculating the speed of adjustment in regulation and supervision, and to examine whether the high speed of financial reform in developing countries has an undesirable impact on financial stability.

Sign in / Sign up

Export Citation Format

Share Document