FINANCIAL PREFERENCES OF LISTED FIRMS IN EMERGING MARKET: THEORY AND PRACTICE IN THE CASE OF THAILAND

2012 ◽  
Vol 01 (06) ◽  
pp. 134-142
Author(s):  
Suveera Srijaroen ◽  
Jun Jiang
Keyword(s):  
Capital Structure ◽  
Stock Exchange ◽  
Empirical Test ◽  
Emerging Market ◽  
Explanatory Power ◽  
Theory And Practice ◽  
Financial Leverage ◽  
Market Theory ◽  
Listed Firms ◽  
Tax Shield

The study aims to identify the determinants of Thai listed firms’ capital structure using derived theoretical-based models from CAPM and Hamada equations, which incorporate the control variables, i.e. company’s operating performance and capital size, with time-invariant and random effects, for improving the explanatory power of the model. The empirical test employs the quarterly data covering the year 2006 to 2010 from the Stock Exchange of Thailand. The results showed that the tax shield and industry classification explicitly demonstrate material relevance to the alteration of the firm’s degree of financial leverage. The results also showed that the fixed assets merely exert moderate influences on the firm’s willingness to implement a policy of increasing financial leverage. Conclusively, none other relevant factors possess a significant impact on the choice of capital structure, in the case of Thailand.

scholarly journals An Empirical Test of Capital Structure Theories for the Vietnamese Listed Firms

2019 ◽  
Vol 12 (3) ◽  
pp. 148 ◽  
Author(s):  
Nguyen ◽  
Ho ◽  
Vo
Keyword(s):  
Capital Structure ◽  
Stock Exchange ◽  
Empirical Test ◽  
Empirical Studies ◽  
Order Theory ◽  
Asia Pacific ◽  
Method Of Moment ◽  
Pecking Order Theory ◽  
Factors Affecting ◽  
Listed Firms

Raising capital efficiently for the operations is considered a fundamental decision for any firms. Since the 1960s, various theories on capital structure have been developed. Various empirical studies had also been conducted to examine the appropriateness of these theories in different markets. Unfortunately, evidence is mixed. In the context of Vietnam, a rising powerful economy in the Asia Pacific region, this important issue has been largely ignored. This paper is conducted to provide additional evidence on this important issue. In addition, different factors affecting the capital structure decisions from the Vietnamese listed firms are examined. The Generalized Method of Moment approach is employed on the sample of 227 listed firms in Ho Chi Minh City stock exchange over the period from 2008 to 2017. Findings from this study suggest that the Vietnamese listed firms follow the trade-off theory to determine their capital structure (i.e., to determine the optimal debt level). In contrast, no evidence has been found to confirm that the pecking order theory can explain the financing decisions of the Vietnamese listed firms, as previously expected. In addition, findings from this study also indicate that ‘Fund flow deficit’ and ‘Change in sales’ are the most two important factors that affect the amount of debt issued for the Vietnamese listed firms. Implications for academics, practitioners, and the Vietnamese government have also been emerged from the findings of this paper.

scholarly journals Board of Director Independence and Financial Leverage in the Absence of Taxes

2017 ◽  
Vol 9 (4) ◽  
pp. 90
Author(s):  
Omar Almania
Keyword(s):  
Saudi Arabia ◽  
Capital Structure ◽  
Negative Relationship ◽  
Independent Directors ◽  
Financial Leverage ◽  
Listed Firms ◽  
Tax Shield ◽  
Board Of Director ◽  
Significant Negative Relationship ◽  
Director Independence

This paper investigates whether board of director independence affects the financial leverage of listed companies in Saudi Arabia. Although many studies have investigated capital structure theories, there are limited studies that consider board of director independence as a determinant of capital structure especially in the absence of tax regime. In a tax free regime, financial leverage would not be perceived as a tool to increases firm performance since firms cannot exploit the tax shield. This study employs panel data of 122 non-financial listed firms during the period 2012-2015. The results show a significant negative relationship between the presence of independent directors and capital structure; the independent directors appeared to play a significant role in motivating managers to pursue a low level of leverage among Saudi listed firms. This finding is robust to different model specifications.

Dynamic Model of Optimal Capital Structure: Evidence from Nigerian Listed Firms

2017 ◽  
Vol 18 (3) ◽  
pp. 590-604 ◽  
Author(s):  
Rubi Ahmad ◽  
Oyebola Fatima Etudaiye-Muhtar
Keyword(s):  
Capital Structure ◽  
Stock Exchange ◽  
Adjustment Costs ◽  
Dynamic Adjustment ◽  
Listed Firms ◽  
Optimal Capital Structure ◽  
Developed Economies ◽  
Tax Shield ◽  
Financial Firms ◽  
Optimal Capital

Examination of optimal capital structure in financial markets with imperfections suggests that when deviations from optimal capital structure occur, adjustment costs may prevent firms from moving towards target capital structure. However, previous studies on the capital structure of non-financial firms in Nigeria did not consider these imperfections and adjustment costs. It is against this background that this study investigates the dynamic adjustment to target capital structure by non-financial firms listed on the Nigerian Stock Exchange. By utilizing a framework that provides for the determination of adjustment costs, the results reveal the existence of dynamic adjustment to optimal capital structure suggesting attempts made by the sampled firms to maximize shareholders wealth. A comparison of the adjustment costs with those of firms in more developed economies shows that Nigerian firms have higher costs of adjustment indicating that the level of development of the market is important in lowering transaction costs. In addition, tangibility of assets, non-debt tax shield, growth opportunity, firm size, profitability and inflation significantly influence Nigerian firms’ optimal capital structure.

scholarly journals Financial Leverage and Firms’ Performance: Empirical Investigation of KSE-100 Index

ETIKONOMI ◽  
2018 ◽  
Vol 17 (1) ◽  
pp. 45-56 ◽  
Author(s):  
Farhan Ahmed ◽  
Iqra Awais ◽  
Muhammad Kashif
Keyword(s):  
Capital Structure ◽  
Financial Performance ◽  
Stock Exchange ◽  
Optimal Level ◽  
Annual Data ◽  
Financial Leverage ◽  
Return On Assets ◽  
Return On Equity ◽  
Listed Firms ◽  
The Impact

Capital generation to fund everyday operations and long-term expansions is a constant concerning element in the corporate world. This study aims to investigate the optimal level of capital structure that firms can adopt to improve their financial performance given the industry dynamics and economic circumstances of the country. Using Hausman’s specification test, annual data for the period 2005 – 2014 of Karachi Stock Exchange (KSE) 100 index listed securities has been collected to analyze the impact of financial leverage on the firms’ performance. Return on assets, return on Equity, and TOBIN’s Q are the proxies of financial performance analyzed against financial leverage for the KSE 100 index listed firms. The finding of the paper indicates that capital structure, leverage, interest cover and sales growth as most significant variables impacting firms’ profitability.   DOI: 10.15408/etk.v17i1.6102

The Impact of Financial Crisis on the Determinants of Capital Structure of Listed Firms in India

2017 ◽  
Vol 18 (1) ◽  
pp. 101-121
Author(s):  
Naliniprava Tripathy ◽  
Aman Asija
Keyword(s):  
Financial Crisis ◽  
Capital Structure ◽  
Stock Exchange ◽  
Explanatory Power ◽  
Random Effect ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Listed Firms ◽  
The Impact

This study investigates the impact of 2007 financial crisis on the performance of capital structure of 88 non-financial companies listed on National Stock Exchange of India during the period between January 2003 to May 2014 by using Fixed Effect (FE) and Random Effect (RE) Models. The study has divided the data period into two distinct time intervals: (2003 -2007) as “pre-crisis” periods and (2008 – 2014) as “post-crisis” periods. The determinants of capital structure such as size, liquidity, profitability, and tangibility are used in the analysis. The findings show that tangibility and size have a greater influence on capital structure decision before crisis period. The findings also show that the coefficient of profitability is negative, displaying an inverse relationship with leverage. The study concludes that pecking order theory has more explanatory power in comparison to other theories in explaining the factors that determine the capital structure decision of listed firms of India.

scholarly journals Capital Structure and Political Risk in an Emerging Market: Evidence from Companies Listed on the Stock Exchange of Mauritius

2018 ◽  
Vol 8 (3) ◽  
pp. 104 ◽  
Author(s):  
Lydie Myriam Marcelle Amelot ◽  
Subadar Agathee Ushad ◽  
Mattew Lamport
Keyword(s):  
Capital Structure ◽  
World Bank ◽  
Stock Exchange ◽  
Emerging Market ◽  
Negative Relationship ◽  
Political Risk ◽  
Time Frame ◽  
Financial Leverage ◽  
Developed Markets ◽  
Political Risks

Cashman, Harrison and Scheiler (2014) stated that companies with less political risk will use more debts than other organisations in other countries with more exposure to political risk. In particular, when there are low political risks, there will be more leverage and when there is high political uncertainty, there will be low debts indicating a negative relationship between financial leverage and political risk (Cashman, 2015). To this effect, this study will investigate the link between capital structure and political risk in an emerging market such as Mauritius. The data sample includes 30 financial and non- financial companies listed on the Stock exchange of Mauritius over a time frame ranging from 2011 to 2015 with a total number of 135 observations. The political risk was based on two World Bank indicators, namely political change index and corruption perceptions index. Based on a panel regression model, the empirical results show an insignificant relationship between financial leverage and political risk. In particular, it is implied that there is little evidence on the importance of political risk on firms’ decision in Mauritius due to the fact that Mauritian companies consider other types of risks to be more relevant when taking on more debts. The study adds to the existing literature on emerging markets and highlights the specificity of the Mauritian equity market relative to other developed markets.

scholarly journals Key Fundamental Factors and Long-run Price Changes in an Emerging Market—A Case Study of Karachi Stock Exchange (KSE)

2002 ◽  
Vol 41 (4II) ◽  
pp. 517-533 ◽  
Author(s):  
Mohammad Irfan Chaudhary ◽  
Mohammed Nishat
Keyword(s):  
Capital Structure ◽  
Stock Exchange ◽  
Emerging Market ◽  
Share Price ◽  
Relevant Factor ◽  
Direct Relation ◽  
Price Changes ◽  
Important Indicator ◽  
Share Prices ◽  
Long Run

Share prices are the most important indicator readily available to the investors for their decision to invest or not in a particular share. Theories suggest that share price changes are associated with changes in fundamental variables which are relevant for share valuation like payout ratio, dividend yield, capital structure, earnings size of the firm and its growth, [Wilcox (1984); Rappoport (1986); Downs (1991)]. Linter (1956) linked dividend changes to earnings while Shapiro valuation model (1962) showed dividend streams discounted by the difference in discount rate and growth in dividend should be equal to share price. This predicts direct relation between pay out ratio and the price-earning multiple. Conversely it means that there is an inverse relation between pay out ratio and share price changes. Several eventbased studies established direct relation between share price changes and either earnings or dividend changes [Ball and Brown (1968); Baskin (1989)]. Sharpe (1964) and Hamada (1972) suggested direct relation between share price changes and capital structure. Beaver, Kettler and Sholes (1970) showed that firms appear to pay less of their earnings if they have higher earning volatility. This suggests payout ratio as relevant factor for share price changes. Investigations of share price changes appear to yield evidence that changes in fundamental variable(s) should jointly bring about changes in share prices both in developed and emerging markets. However, the actual fundamental factors found to be relevant may vary from market to market. For example, changes in asset growth of firms are significant in the case of Japanese shares while earnings appear to be universally a relevant factor [Ariff, et al. (1994)]. However, it is widely agreed that a set of fundamental variables as suggested by individual theories is no doubt relevant as possible factors affecting share price changes in the short and the long-run [Ariff and Khan (2000)].

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