scholarly journals Bank Loan Financing Decisions of Small and Medium-Sized Enterprises: The Significance of Owner/Managers’ Behaviours

2018 ◽  
Vol 10 (5) ◽  
pp. 231 ◽  
Author(s):  
Forbeneh Agha Jude ◽  
Ntieche Adamou
Keyword(s):  
Order Theory ◽  
Study Data ◽  
Bank Loans ◽  
Bank Loan ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Financing Decisions ◽  
Loan Financing ◽  
Finance Theory ◽  
External Equity

The objective of this study is to highlight the influence of entrepreneurs’ behaviour on the decisions to apply for bank loans. A mixed research methodology known as triangulation was employed in order to achieve the objective of the study. Data were sourced from a stratified randomly selected sample of 450 Cameroonian SMEs and analysed using logistic regression. The result of the study revealed that both control aversion and overconfidence behaviours of the owner/managers influence significantly the decisions of SMEs to apply for bank loans.  From the result, it is found that behavioural finance theory explains the decisions of SMEs to seek for bank credits. Contrary to the predictions of the pecking order theory, managerial behaviours such as the fear to loss the control of the firm, and overconfidence provide explanations on the decisions of SMEs to seek for bank loans. For instance, the fact that debt does not entail any loss of business control urges SMEs to prefer debt than external equity.

scholarly journals Testing the pecking order theory of capital structure: the case of Islamic financing modes

2020 ◽  
Vol 6 (1) ◽  
Author(s):  
Moncef Guizani
Keyword(s):  
Capital Structure ◽  
Random Effect ◽  
Order Theory ◽  
Equity Financing ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Corporate Financing ◽  
Financing Decisions ◽  
Executive Managers ◽  
The Capital Structure

AbstractThe purpose of this paper is to examine whether or not the basic premises according to the pecking order theory provide an explanation for the capital structure mix of firms operating under Islamic principles. Pooled OLS and random effect regressions were performed to test the pecking order theory applying data from a sample of 66 Islamic firms listed on Kingdom of Saudi Arabia stock market over the period 2006–2016. The results show that sale-based instruments (Murabahah, Ijara) track the financial deficit quite closely followed by equity financing and as the last alternative to finance deficit, Islamic firms issue Sukuk. In the crisis period, these firms seem more reliant on equity, then on sale-based instrument and on Sukuk as last option. The study findings also indicate that the cumulative financing deficit does not wipe out the effects of conventional variables, although it is empirically significant. This provides no support for the pecking order theory attempted by Saudi Islamic firms. This research highlights the capital structure choice of firms operating under Islamic principles. It explores the implication of the relevant Islamic principles on corporate financing preferences. It can serve firm executive managers in their financing decisions to add value to the companies.

scholarly journals New evidences on determinants of capital structure from the Indian manufacturing industry

2016 ◽  
Vol 13 (3) ◽  
pp. 82-88 ◽  
Author(s):  
Pradeepta Sethi ◽  
Ranjit Tiwari
Keyword(s):  
Capital Structure ◽  
Manufacturing Industry ◽  
Order Theory ◽  
Manufacturing Firms ◽  
Indian Government ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Optimal Capital Structure ◽  
Financing Decisions ◽  
Size Growth

In the backdrop of Make in India push by Indian government the purpose of this study is to examine the determinants of capital structure towards a better understanding of financing decisions to be undertaken by the Indian manufacturing firms. The data for the analysis is drawn from COSPI manufacturing index of Centre for Monitoring Indian Economy (CMIE). Our sample is an unbalanced panel of 1077 firms over the period 2000-01 to 2012-13. We apply system-GMM to study different factors that affect the leverage decision of firms in India. The findings of the study reveals that the choice of optimal capital structure can be influenced by factors such as profitability, size, growth, tangibility, non-debt tax shields, uniqueness and signal. We also find the existence of both pecking order theory and static trade-off theory in the case of Indian manufacturing firms. The results thus obtained are robust across the different proxies of leverage

scholarly journals The Simultaneity of Corporate Financial Decisions Under Different Levels of Managerial Ownership: A Case of Pakistani Listed Firms

2019 ◽  
Vol 10 (2) ◽  
pp. 147
Author(s):  
Mohamad Helmi bin Hidthiir ◽  
Muhammad Farhan Basheer ◽  
Saira Ghulam Hassan
Keyword(s):  
Agency Theory ◽  
Random Effect ◽  
Order Theory ◽  
Managerial Ownership ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Financial Decisions ◽  
Listed Firms ◽  
Financing Decisions ◽  
The Impact

Purpose- The prime objective of the current study is to investigate the interdepended of financial decision. In addition to that the impact of different level of managerial ownership on the interdepended of financial decisions is also examined agency theory, pecking order theory and the signaling theory are used as the theoretical lenses to draw the theocratical framework.Design/methodology/approach- The balance panel of 161 nonfinancial firm over the period of five years from 2013 to 2017 is used to achieve the research objectives. Polled OLS, Fixed effect and Random effect estimates are employed to answer the reach questions Findings- The managerial ownership with an average mean ownership of 39 is appeared at the top. Interestingly more than 75 percent firms are being controlled by mangers and in more than 60 percent firms of our sample the controlling managers hold more than 40 percent of shares. The Wu Hausman test is performed to determine the existence of the endogeneity problem.  The results indicates that the financial decisions namely cash holding decisions, financing decisions and investment decisions has significant impact on each other. Where the managerial ownership is in nonlinear relationship with financial decisions. The results of the study are also providing support to agency theory, pecking order theory and the signaling theoryResearch implications- The study will be helpful for policymakers, researchers, corporate personals and financial institutions in understanding the interrelationship between financing decisions and the role of managerial ownership in there interdepended.Originality/value- The study is among the pioneering studies on the issue and will provide policy guideline on the said issues.

scholarly journals COMPARATIVE STUDY OF THE RELEVANCE OF EQUITY FINANCING IN EUROPEAN SMES

2020 ◽  
Vol 21 (6) ◽  
pp. 1543-1560
Author(s):  
Monika Wieczorek-Kosmala ◽  
Joanna Błach ◽  
Joanna Trzęsiok
Keyword(s):  
Order Theory ◽  
Equity Financing ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Eu Countries ◽  
Internal Funds ◽  
Financing Gap ◽  
External Equity ◽  
The Eu ◽  
Academic Debate

This paper contributes to the academic debate on the pecking order theory and SMEs equity financing, in this equity financing gap. In order to address this problem, this study relies on the empirical design that is driven by the premises of the pecking order theory and distinguishes between the relevance of internal funds vs. external equity. The main aim of this study is to investigate whether the relevance of equity financing for European SMEs is driven by the country-specifics (captured by the clusters of the EU countries) and whether there are any other factors that may potentially explain the relevance of internal funds or external equity, with respect to SMEs performance and characteristics. For that purposes the SAFE survey data were used to run non-parametric and correlations analysis. The results have clearly indicated that there are statistically significant differences between the clusters of the EU countries (if we differentiate between core and peripheral EU countries in particular). It was also found that there is no unified pattern of the associations between the relevance of equity financing and SMEs performance and characteristics, thus these associations seem to be influenced by the country-specifics as well.

Does financing behavior of SME entrepreneurs of Bangladesh follow capital structure theory?-an investigation into Pecking Order Theory

2020 ◽  
pp. 2050037
Author(s):  
Md. Rostam Ali ◽  
Rustom Ali Ahmed ◽  
Rushafa Tasnim Tisha ◽  
Md. Ashikul Islam
Keyword(s):  
Capital Structure ◽  
Information Asymmetry ◽  
Order Theory ◽  
Bank Loan ◽  
Structure Theory ◽  
Primary Data ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Debt Market ◽  
Capital Structure Theory

This study attempts to investigate whether the financing preferences of small and medium enterprises (SMEs)’ entrepreneurs of Bangladesh follow capital structure theory by investigating into Pecking Order Theory (POT). For this study, cross-sectional primary data have been collected through questionnaire. The answers of the questions have been measured through five points Likert Scale. The scores were analyzed using mean score. To analyze the data, some descriptive statistics have been used. Besides, one sample one tail [Formula: see text]-test has been applied to test the hypotheses. The study finds that the entrepreneurs themselves do not believe that there is an information asymmetry in debt market. But their perception regarding debt market ascertained the presence of the information asymmetry between SME sector (entrepreneurs of SME) and the debt market (banks). The answers of respondents are statistically significant that they want to use the retained profits first, bank loan as second and want to issue external equity (taking partner/s) as a third option among these three alternatives of additional financing. This tendency of the respondents towards financing is consistent with POT. Therefore, Government policy for motivating SMEs to keep formal accounting should be introduced to reduce the information asymmetry in debt market along with taking proper initiatives to increase accessibility of SMEs to institutional credit.

Impact of firm characteristics on capital structure choice of Turkish SMEs

2015 ◽  
Vol 41 (3) ◽  
pp. 286-300 ◽  
Author(s):  
Ali Uyar ◽  
Mustafa Kemal Guzelyurt
Keyword(s):  
Financial Distress ◽  
Survey Methodology ◽  
Order Theory ◽  
Debt Ratio ◽  
Pecking Order ◽  
Financing Policy ◽  
Pecking Order Theory ◽  
Content Type ◽  
Financing Decisions ◽  
Structure Complexity

Purpose – The purpose of this paper is to investigate whether SMEs have a target debt ratio or not; who makes financing decisions for investments; the financing preferences; and which factors play a role in external financing policy of the firms. Design/methodology/approach – The authors adopted questionnaire survey methodology in the study. The questionnaire was administered to SMEs operating in Istanbul through e-mail, telephone, and fax in July 2011. For the analysis, the authors have adopted the non-parametric test of the Kruskal-Wallis. Findings – The study produced several important findings. Most of the surveyed firms do not follow a target debt ratio. Hence, the trade-off theory is not supported. Partners rather than professional managers are more likely to make financing choices in SMEs. The study has provided evidence regarding the implementation of the pecking order principle. Turkish SMEs primarily prefer internal funding sources over external ones and short-term debt over long-term debt. Thus, the pecking order theory is supported. General economic conditions, debt-paying ability of the firm, and financial distress risk play the most important role in outside financing decisions. Research limitations/implications – The study has got some limitations as all such studies have. First, it was conducted only on SMEs in Istanbul; hence it has a geographical limitation. Second, the findings may not be generalizable to large and publicly traded companies as the sample consists of only SMEs. For further study, similar research can be carried out across Turkey on a wider sample. Originality/value – The SMEs are different from large companies in a variety of ways, such as ownership structure, complexity of operations, financing sources, and so on. Hence, there is a need for empirical analysis conducted, particularly, on SMEs. The primary motivation for the study is the scarcity of such empirical works in general. Secondarily, SMEs make up a large proportion of companies in the Turkish economy. Therefore, the subject needs to be studied in Turkey.

scholarly journals The determinants of Sukūk issuance in GCC countries

2020 ◽  
Vol 28 (1) ◽  
pp. 25-45
Author(s):  
Imene Guermazi
Keyword(s):  
Social Responsibility ◽  
Capital Structure ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Content Type ◽  
Gcc Countries ◽  
The Social ◽  
Finance Theory ◽  
Corporate Social

PurposeThis paper focuses on Ṣukūk issuance determinants in Gulf Cooperation Council (GCC) countries. Given the dual characteristic of debt and equity of Ṣukūk as well as their unique benefits of social responsibility, the author questions whether the theories of capital structure, the trade-off and the pecking order are able to well explain the Ṣukūk issuance.Design/methodology/approachFirst, the author verifies these theories using capital structure determinants and regresses the Ṣukūk change on these determinants. Second, the author tests the trade-off theory with the target debt model and third, verifies the pecking order theory using the fund flow deficit model.FindingsThe empirical results show that capital structure determinants fail to explain both theories. The author confirms that the Ṣukūk change is significatively linked to the deviation from a Ṣukūk target. So, issuing firms balance the marginal costs of Ṣukūk and their benefits of religiosity and social responsibility toward a target debt. The author finds no evidence of the pecking order theory.Research limitations/implicationsThis study contributes to corporate finance theory and corporate social responsibility. It verifies if capital structure theories proved in conventional financing can well explain Islamic bonds issuance given their social responsibility benefits.Practical implicationsManagers and investors would pay attention to the social factors explaining Ṣukūk issuance in their finance and investment decisions. They would be enhanced to use this financing tool knowing its social unique benefits. This also should encourage governments to enhance this socially responsible financing. Rating agencies would be motivated to evaluate Ṣukūk and firms would improve the quality and relevance of disclosure to get the best rating.Social implicationsThe author highlights the social factors explaining Ṣukūk issuance and enhances corporate social responsibility (CSR).Originality/valueThe author extends the few literature testing capital structure theories for Islamic bonds and highlights the specific social responsible features of Ṣukūk that would bridge their issuance to capital structure theories. So the author enhances the concept of Islamic CSR. Tying capital structure theories to CSR would also help developing Islamic finance theory as a unique social responsible framework.

scholarly journals Do South African state-owned entities follow the pecking order theory of capital structure?

2021 ◽  
Vol 10 (1) ◽  
pp. 25-33
Author(s):  
Ferina Marimuthu ◽  
Stephanie Caroline Singh
Keyword(s):  
South African ◽  
African State ◽  
Order Theory ◽  
Debt Financing ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Investment Projects ◽  
Financing Decisions ◽  
Internal Funding ◽  
Section Sample

In corporate finance, the pecking-order theory suggests that companies adhere to a particular financing hierarchy, with internal funding taking preference over external funding, and debt financing taking preference over equity. This paper examines whether South African state-owned entities prioritize their financing sources as predicted by the pecking-order theory. A financing deficit variable comprising various cash flow-based components was used to test the theory. A panel regression model was employed using panel data estimators. Using a cross-section sample of 33 state-owned entities from 1995 to 2018, the study finds no evidence that South African state-owned entities follow a pecking order to finance investment projects. The pecking order theory proposition that costs of adverse selection are dominant for lower levels of leverage provides a reason for the financing deficit coefficient not being close to unity and hence an indication that the SOEs in South Africa do not follow the pecking order behavior in their financing decisions, an indication that South African capital market is still developing.

scholarly journals Insiders’ response to market valuation, and the timing of equity-debt dual issues by Japanese firms

2011 ◽  
Vol 8 (4) ◽  
pp. 275-290
Author(s):  
Ammar M. Eltayeb
Keyword(s):  
Market Timing ◽  
Order Theory ◽  
Market Valuation ◽  
Pecking Order ◽  
Stock Valuation ◽  
Pecking Order Theory ◽  
Equity Issues ◽  
Financing Decisions ◽  
Japanese Firms ◽  
Internal Funds

This paper examines the mutual effects of market valuation and firm’s internal performance on insiders’ response to stock valuation, and on their financing decision. Estimates of logit equations explaining the financing decisions of JASDAQ firms 1999-2010 reveal some interesting patterns. Consistent with the pecking-order theory, when insiders perceive the stock is overvalued, they are more likely to issue dual or debt only, after fully utilize internal funds. Further, when insiders think that the stock is correctly valued concomitantly with outstanding internal performance, they are more likely to issue debt or dual rather than equity only. Conversely, consistent with the market-timing theory, insiders focus mainly on equity issues when they believe the stock is correctly valued but firm performance is relatively low. Moreover, firm size and tangibility of assets are decisive characteristics for dual issuers.

scholarly journals The Pecking Order and Financing Decisions: Evidence From Changes to Financial-Reporting Regulation

2020 ◽  
pp. 0148558X2094506
Author(s):  
Patricia Naranjo ◽  
Daniel Saavedra ◽  
Rodrigo S. Verdi
Keyword(s):  
Capital Structure ◽  
Financial Reporting ◽  
Order Theory ◽  
External Financing ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Investment Policies ◽  
Financing Decisions ◽  
Cross Country ◽  
Debt Capacity

We use the staggered introduction of a major financial-reporting regulation worldwide to study whether firms make financing decisions consistent with the pecking order theory. Exploiting cross-country and within country-year variation, we document that treated firms increase their issuance of external financing (and ultimately increase investment) after the new regime. Furthermore, firms make different leverage decisions (debt vs equity) around the new regulation depending on their ex-ante debt capacity, which allows them to adjust their capital structure. Our findings highlight the importance of the pecking order theory in explaining financing as well as investment policies.

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