The Qualitative Relationship Between Banks and SMEs in Wales

2021 ◽  
pp. 175-199
Author(s):  
Atsede Woldie ◽  
Hooman Hagshenas ◽  
Brychan Celfyn Thomas
Keyword(s):  
Asymmetric Information ◽  
Small Businesses ◽  
Order Theory ◽  
The Other ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
External Finance ◽  
Other Hand ◽  
Qualitative Relationship

A long-term or close and intense relationship with banks could help overcome the main problems like asymmetric information. Using collateral is another way to overcome the effects of asymmetric information. The findings show that having collateral does not reduce loan costs, and on the other hand it will increase the availability of finance for small businesses. In general, small businesses use pecking order theory in choosing their formal sources of finance. Because of their lack of knowledge, they are not completely aware of available sources of finance. Banks are the first and most important external finance provider for small businesses, so having a good long-term relationship with banks can help them to overcome problems like asymmetric information, which would influence their access to more finance. Collateral is the other way to access more finance and it can help small businesses in their relationship with banks, especially in a period of unsustainability to reduce the risks for banks.

The Qualitative Relationship Between Banks and SMEs in Wales

2017 ◽  
pp. 86-110
Author(s):  
Atsede Woldie ◽  
Hooman Hagshenas ◽  
Brychan Celfyn Thomas
Keyword(s):  
Asymmetric Information ◽  
Small Businesses ◽  
Order Theory ◽  
The Other ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
External Finance ◽  
Other Hand ◽  
Qualitative Relationship

A long-term or close and intense relationship with banks could help overcome the main problems like asymmetric information. Using collateral is another way to overcome the effects of asymmetric information. The findings show that having collateral does not reduce loan costs, and on the other hand it will increase the availability of finance for small businesses. In general, small businesses use pecking order theory in choosing their formal sources of finance. Because of their lack of knowledge, they are not completely aware of available sources of finance. Banks are the first and most important external finance provider for small businesses, so having a good long-term relationship with banks can help them to overcome problems like asymmetric information, which would influence their access to more finance. Collateral is the other way to access more finance and it can help small businesses in their relationship with banks, especially in a period of unsustainability to reduce the risks for banks.

scholarly journals Crowdfunding Under Market Feedback, Asymmetric Information And Overconfident Entrepreneur

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Anton Miglo
Keyword(s):  
Asymmetric Information ◽  
Capital Structure ◽  
Behavioral Finance ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Information Approach ◽  
Different Types ◽  
Market Feedback ◽  
Managerial Overconfidence

AbstractThis article is the first one that considers a model of the choice between the different types of crowdfunding, which contains elements of the asymmetric information approach and behavioral finance (overconfident entrepreneurs). The model provides several implications, most of which have not yet been tested. Our model predicts that equity-based crowdfunding is more profitable than reward-based crowdfunding when an entrepreneur is overconfident. This is because the entrepreneur learns from the sale of shares before making production decisions. The model also predicts that an equilibrium can exist where some firms use equity-based crowdfunding, which contrasts the results of traditional theories (which have rational managers), for example, the pecking-order theory. It also contrasts traditional behavioral finance literature (e. g. Fairchild, R. 2005. “The Effect of Managerial Overconfidence, Asymmetric Information, and Moral Hazard on Capital Structure Decisions.” ICFAI Journal of Behavioral Finance 2 (4).) where equity is not issued in equilibrium.

scholarly journals Determinants of Debt Structure in Ace Market Busr Malaysia: A Panel Data Analysis

2018 ◽  
pp. 390-395
Keyword(s):  
Panel Data ◽  
Capital Structure ◽  
Significant Relationship ◽  
Panel Data Analysis ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Trade Off ◽  
Tax Shield

This study was conducted with the aim to examine the relevance of different financing theories namely Agency Theory, Trade-Off Theory and Pecking Order Theory to explain capital structure choices among firms in “Access, Certainty, Efficiency” (ACE) Market of Bursa Malaysia. The ACE Market is the financing source for the high-growth and technology requirements of middle-sized firms. The literature on debt policy decision making in the ACE market have been scant, leading the scholars to realize the necessity of performing more studies in this field. To further explain this issue, this study performed a quantitative analysis on a panel data sample of 60 ACE firms from 2005 to 2016. Three proxies for leverage namely total, long-term and short-term debts were examined based on the total assets and equity in six regression models. From seven variables examined in this study, findings indicated a significant relationship between warrant and debt in all models. In addition, liquidity, firm size, profitability and leverage showed significant relationship in all the models except for long-term debt. However, reputation, non-debt tax shield and interest tax shield were seen significant in some models. Trade-off Theory and Pecking Order Theory can jointly clarify determinants of firms’ capital structure in the ACE Market.

scholarly journals The Effect of Pecking Order, Trade-Off and Market Timing Theories onCapital Structure in Commercial Banking Companies Listed on IDX

2017 ◽  
Vol 7 (2) ◽  
Author(s):  
Laely Aghe Africa
Keyword(s):  
Capital Structure ◽  
Market Timing ◽  
Order Theory ◽  
Commercial Banking ◽  
Management Policy ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Trade Off ◽  
Total Debt

Capital structure has an impact on the short and long term. Funding provided by banks is inseparable from the availability of funds from third parties in the form of savings, demand deposits and deposits. The entry of third party funds must be balanced with the funds disbursed by the company. Therefore, management policy greatly determines the position and composition of funding. This study aims to analyze and determine several capital structure theories, namely Pecking Order Theory, Trade-Off Theory and Market Timing Theory. The variable of Pecking Order Theory is represented by funding deficit, long-term debt, and total debt. The variable of Trade-Off Theory is represented by tangible assets, growth, size, profitability, total debt, and long-term debt. The variable of Market Timing Theory is represented by Equity Finance Weighted Average of market to book ratio and leverage ratio. This research is quantitative research. The samples used in this study are 100 data of commercial banking companies listed on IDX period 2011 - 2015. Data are obtained using purposive sampling method from banks registered at www.idx.go.id. Multiple Liner Regression is used in analyzing data using SPSS IBM 23. The results of the research show that Trade-Off and Market Timing Theoriescan be implemented by banking companies in terms of determining capital structure. This research implication is to enhance management choices, especially on how to set capital structure of the company.

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.

Impact of cash surplus on firm’s capital structure: validation of pecking order theory

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Barnali Chaklader ◽  
B. Padmapriya
Keyword(s):  
Capital Structure ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Content Type ◽  
Financial Variables ◽  
Factors Influencing ◽  
Short And Long Term ◽  
The Capital Structure

PurposeBuilding on pecking order theory, this study seeks to understand the various financial factors that influence top management's decision regarding the company’s capital structure. The authors attempt to understand and analyse whether the capital structure of mid‐ and small‐cap firms is affected by cash surplus scaled to total assets. Along with other determinants of capital structure such as liquidity, profitability, tangibility, market capitalisation and age, this is considered one of the major factors. Cash surplus is calculated using data from the cash flow statement. It is defined as the difference in cash from operating activities and that from investing activities and is scaled to total assets. To the best of the authors’ knowledge, this is the first study to regress cash surplus scaled to total assets and other determinants over leverage to examine the impact on mid‐ and small‐cap firms. The pecking order theory was found to hold for firms earning cash surplus.Design/methodology/approachData were collected from the CMIE Prowess database of all firms listed on the NIFTY Small cap 250 index and NIFTY Midcap 150 index. The data of non-financial firms belonging to the midcap and small-cap sector, listed on the National Stock Exchange of India from 2012 to 2019 were considered. After cleaning the data, an unbalanced panel of 171 companies totalling 1,362 observations for the NIFTY Small-cap 250 index and another panel of 96 companies with 761 observations for the NIFTY Midcap 150 index was created. Panel data regression analysis was used to determine the effect of cash surplus scaled to total assets on the firms' capital structure.FindingsThis study demonstrates how small- and midcap firms' behave differently in taking capital structure decisions. Pecking order theory was found to hold for firms earning cash surplus as a proportion of total assets (Surplusta).Research limitations/implicationsThe study was conducted through data available on secondary sources and database. The study can be better conducted by conducting a primary survey too. Further study may be conducted with a blend of secondary and questionnaire method. The results can be compared to check the similarity in findings.Practical implicationsManagers can benefit from the findings when making decisions on long- and short-term loans. This study can help managers in terms of the financial variables that have a role to play in the financial leverage of the company. The decision of the managers of midcap or small-cap firms would be different. Factors influencing short- and long-term borrowings are different. Academics can discuss whether there is any difference in the influence of capital structure variables of small- and midcap companies and the reasons for such differences. Judicious decisions on capital structure will create wealth for the shareholders as the right decision about leverage would result in a proper cost of capital. The findings also add to the existing literature on the Pecking order theory.Social implicationsAcademics can discuss whether there is any difference in the influence of capital structure variables of small- and midcap companies and the reasons for such differences.Originality/valueThe study extends the existing literature by demonstrating that the capital structure of mid and small-cap firms is affected by cash surplus scaled to total assets. The pecking order theory was found to hold for firms earning cash surplus. This study can inform the practitioners about the financial variables that have a role to play in the company's financial leverage. As the results and significance of the variables of the midcap or small-cap firms are different, the decisions of the managers of these firms would be separate for the capital structure of their firms. The study also infers that the factors influencing short and long-term borrowings are different. The study determines whether managers' decision-making in such companies is different in terms of raising short- and long-term loans. The study attempts to guide managers in considering the different variables that would influence their capital structure decisions, particularly the decision to include debt in the capital. Financial variables need not be of equal importance for managers belonging to small- and midcap companies.

scholarly journals Influência da estrutura de capital no desempenho econômico de empresas familiares e não familiares brasileiras

2021 ◽  
Vol 14 (1) ◽  
pp. 162-181
Author(s):  
Edgar Pamplona ◽  
Tarcísio Pedro da Silva ◽  
Wilson Toshiro Nakamura
Keyword(s):  
Order Theory ◽  
Family Businesses ◽  
Debt Ratio ◽  
Publicly Traded ◽  
Short Term ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Accounting Data ◽  
Publicly Traded Companies

Purpose – This research aims to verify the influence of the capital structure on the economic performance of the Brazilian family and non-family businesses.Design/methodology/approach – The research is characterized as descriptive, documentary, and quantitative, being the accounting data under analysis extracted from the Economatica® database. The sample is composed of 117 publicly traded companies listed in B3, being 68 family and 49 non-family with an analysis period from 2011 to 2015. To reach the objective, statistical techniques were used, with emphasis on multiple linear regression models.Findings – The results point out that the Short-term Debt Ratio (SDR) and Long-term Debt Ratio (LDR) negatively influence the performance of family businesses, while SDR and LDR have a negative and positive relationship, respectively, with the performance of the non-family business. Originality/value – In short, such results demonstrate that family businesses must follow the pecking-order theory prerogatives to maximize their performance, while managers of non-family organizations need to observe the assumptions of both theories – trade-off and pecking-order – according to the type of indebtedness (short or long term).

scholarly journals What are the determining factors in the capital structure decisions of small and medium-sized firms in Cabinda, Angola?,

2021 ◽  
Author(s):  
João Lussuamo ◽  
Zélia Serrasqueiro
Keyword(s):  
Capital Structure ◽  
Corporate Finance ◽  
Developing Country ◽  
Order Theory ◽  
Debt Maturity ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Determining Factors ◽  
The Capital Structure

Abstract The objective of this study was to analyze the determining factors that explain the capital structure decisions of small and medium-sized enterprises (SMEs) in the province of Cabinda, Angola. In this study, debt maturity was also analyzed and, therefore, total indebtedness was broken down into short, medium, and long-term debt ratios. This study is motivated the poor number of studies on the determinants of the capital structure of SMEs in developing countries, more specifically in Cabinda, Angola. This research is relevant for Corporate Finance, particularly regarding the capital structure of SMEs located in a developing country like Angola. Also, it corroborates previous studies on the applicability of the principles of the pecking-order theory to SMEs in developed countries. This research present contributions to Corporate Finance, as it identifies the determinants of the capital structure of SMEs in a developing country - considering the debt maturity -, through the analysis of total debt ratios-, short-, medium- and long-term debt. Based on a sample of 73 SMEs for the period between 2011 and 2016, we used panel data models (pooled OLS, fixed and random effects). The results of this study show that tangibility, age, liquidity, and non-debt tax shield are determining factors in the decisions of the capital structure of SMEs in the province of Cabinda, Angola. Furthermore, they suggest that these firms follow the principles of pecking-order theory in capital structure decisions. The research contributes to increase studies in Corporate Finance, particularly concerning the determinants of the capital structure of SMEs located in a developing country.

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 PENGUJIAN TEORI PECKING ORDER ATAS STRUKTUR MODAL (STUDI PADA ENTITAS TERBUKA DI INDONESIA)

2018 ◽  
Vol 13 (01) ◽  
Author(s):  
Winston Pontoh
Keyword(s):  
Capital Structure ◽  
Stock Exchange ◽  
Order Theory ◽  
Business Risk ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Public Firms ◽  
Listed Firms ◽  
Fixed Assets

Insufficient working capital for investment activities is a condition which make shareholders and other firm insiders commonly consider to determine additional source of funds. The decision of shareholders and other firm insiders in determining the source of funds for investment activities shall determine the form of firm capital structure. This study uses 236 listed firms in Indonesia Stock Exchange as the sample and take their financial information in period of 2010 to 2015 as data. In term of hypothesis testing, this study conducts path analysis at significance rate of 5%. Result of analysis shows that capital structures for public firms in Indonesia are tend to apply the model of pecking order theory. Empirically, public firms in Indonesia tend to decrease their usage for long term debt in circumstance if they are facing certain business risk. The study also shows that, profitability is not the main factor in determining firm capital structure in Indonesia.Keywords : pecking order, capital structure, business risk, profitability, fixed assets

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