scholarly journals Impact of capital structure on bank profitability in the Federation of Bosnia and Herzegovina

Bankarstvo ◽  
2021 ◽  
Vol 50 (3) ◽  
pp. 73-108
Author(s):  
Valentina Bošnjak ◽  
Džafer Alibegović
Keyword(s):  
Capital Structure ◽  
Banking Sector ◽  
Operating Cost ◽  
National Income ◽  
Order Theory ◽  
Traditional Theory ◽  
Pecking Order Theory ◽  
The Impact ◽  
The Relationship ◽  
The Capital Structure

Research of the relationship between the structure of sources of financing and the value of the company are numerous in developed markets and for non-financial companies. However, in the markets of developing countries, and especially in the banking sector, the range of research is much narrower. In this paper, we investigate the existence, direction and intensity of the relationship between capital structure and profitability of banks in the Federation of B&H. The entire population of banks in the Federation of B&H, in the period from 2009-2018, served as a sample. As independent variables, parameters of the structure of financing sources, we chose the debt-to-assets ratio, and debt-to-equity ratio, and as dependent variables, bank value indicators, we took profitability measures, i.e., ROA, ROE, and the net profit margin. In addition to the variables that describe the capital structure, the relationship of which is the topic of this paper, as control variables we used additional variables specific to banks, which describe the bank's liquidity, credit risk exposure, operating cost management, size, and market share. The impact of the macroeconomic environment is observed through the assessment of inflation and gross national income per capita, which indicate the direction of the economic cycle for a given year. The results of the research testify to the weak connection between the structure of sources of financing and return on assets, i.e., the negative connection between financial leverage and return on capital. This outcome first relativizes the significance of Modigliani-Miller's position on the irrelevance of capital structure, and then raises the question of the validity of traditional theory. The establishment and management of the capital structure of local banks can only be explained by the pecking order theory.

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: Empirical Evidence from Turkey

2018 ◽  
Vol 8 (1) ◽  
pp. 31 ◽  
Author(s):  
Merve Gizem Cevheroglu-Acar
Keyword(s):  
Capital Structure ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Tax Shield ◽  
Financial Firms ◽  
Independent Variable ◽  
Debt Tax Shield ◽  
The Relationship ◽  
The Capital Structure

The primary aim of this study is to identify the firm-specific determinants of the capital structure of non-financial firms in Turkey and to test whether the determinants offered by financial theory are able to provide convincing explanations for non-financial firms in Turkey. Because the relationship between liquidity and capital structure is not well examined for Turkish market in the context of capital structure theories, we include liquidity as independent variable in our models in addition to profitability, growth, non-debt tax shields, size, tangibility, and risk. We use panel regression as econometric model and cover the period from 2009 to 2016. Our results show that profitability, non-debt tax shield, size, tangibility, and liquidity are significant determinants of the capital structure, size being the most robust one. On the other hand, growth and volatility are not significantly related with the leverage. Moreover, we conclude that capital structure decisions of non-financial firms in Turkey are mostly consistent with the hypothesis of pecking order theory rather than trade-off theory.

Testing the pecking order theory of capital structure in an Islamic legal system: the case of Saudi Arabia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Moncef Guizani ◽  
Ahdi Noomen Ajmi
Keyword(s):  
Stock Market ◽  
Capital Structure ◽  
Order Theory ◽  
Ordinary Least Squares ◽  
Financial Instruments ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Content Type ◽  
The Impact ◽  
The Capital Structure

Purpose The purpose of this paper is to examine whether the basic premises according to the pecking order theory (POT) provide an explanation for the capital structure mix of firms operating under Islamic principles. Design/methodology/approach Pooled ordinary least squares, fixed and random effects regressions were performed to test the POT applying data from a sample of 66 Islamic-compliant firms listed on Saudi Stock Market over the period 2006–2016. Findings The results show that sale-based instruments (Murabahah, Ijara) track the financial deficit quite closely followed by equity financing and as a last alternative to finance deficit, Islamic-compliant firms issue Sukuk. In the crisis period, these firms seem more reliant on equity, then on sale-based instruments 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 POT attempts by Saudi Islamic-compliant firms Research limitations/implications This research contributes to the theory of capital structure in re-validating the findings of a previous theoretical and empirical study. It helps understand the capital structure of Islamic-compliant firms in comparison with conventional firms. It highlights some areas where further research on topics related to capital structure of Islamic-compliant firms is needed. The failure of the POT to explain Saudi firms’ financing choices strongly pushed researchers to test the market timing theory for the Saudi Stock Market. Further research studies could re-examine the trade-off theory in the absence of interest tax shield as in an Islamic economy. Practical implications From a managerial perspective, this research can serve firm executive managers in their financing decisions to add value to the companies. Furthermore, policymakers, bankers and standard-setting organizations should undertake more collective work to simplify the process of issuing Islamic financial instruments including Sukuk. Moreover, the Saudi Government has to encourage the private sector to be more innovative in developing products and services that are in line with Sharia principles. Finally, to attract investors, the Capital Market Authority has to encourage transaction, efficiency and liquidity of Islamic financial instruments. Originality/value The proposed study presents several originalities. First, it explores the implications of relevant Islamic principles on financing preferences of Saudi firms. Second, the present study enables us to investigate what the sudden abundance of liquidity, generated by the record levels of oil prices, implied for the firms’ financing behavior. Finally, it provides further evidence on the impact of financial crisis on the firms’ capital structure choice in a period of considerable slowdown in the world.

A Study of Determinants of Capital Structure through Panel Data Analysis of Firms Listed in NSE CNX 500

2016 ◽  
Vol 20 (4) ◽  
pp. 267-277 ◽  
Author(s):  
Barnali Chaklader ◽  
Deepak Chawla
Keyword(s):  
Capital Structure ◽  
Control Variable ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Trade Off ◽  
Tax Shield ◽  
Debt Tax Shield ◽  
The Impact ◽  
The Capital Structure

This study contributes to the capital structure literature by investigating the determinants of capital structure of firms listed in NSE CNX 500. The period of the study is 2008–2015, the period starting from the year of global slowdown. This study is an attempt to study the capital structure of firms listed in National Stock Exchange in the post liberalization period. The objectives of the study are to study the impact of independent variables such as growth, profitability, tangibility, liquidity, size and non-debt tax shield on financial leverage and also to find out whether the results are in line with the pecking order theory or the trade-off theory of capital structure. Size is taken as a control variable. Our study supports the trade-off theory for all variables such as growth, profitability, size tangibility and non-debt tax shield. Liquidity is the only independent variable that goes in accordance with the pecking order theory. Thus, this study is more inclined towards the trade-off theory.

scholarly journals The Relationship between Capital Structure and Financial Performance of the Company

2021 ◽  
Vol 91 ◽  
pp. 01002
Author(s):  
V.V. Tretiakova ◽  
M.S. Shalneva ◽  
A.S. Lvov
Keyword(s):  
Pharmaceutical Industry ◽  
Capital Structure ◽  
Financial Performance ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Market Capitalization ◽  
Negative Effect ◽  
The Impact ◽  
The Relationship

The article examines and analyzes the relationship of key performance indicators (ROA, ROIC, change in market capitalization and price-to-book ratio) and the capital structure of the company based on the pharmaceutical industry in the UK for the 2009-2019 period. The study seeks to provide a practical evidence on the impact of external financing on company’s financial performance and test applicability of the pecking order theory for the chosen companies. The research conducted uses panel data regression and Wald test to determine and analyze the effect of capital structure on the financial indicators of the company performance. The study used a sample of 185 UK companies from the pharmaceutical industry. The result of the research showed that equity has negative effect on price-to-book ratio and ROA and positive effect on change in market capitalization, while long-term debt has a positive relationship with price- to-book ratio and change in market capitalization. In addition, short-term debt has a negative effect on change in market capitalization, ROA and ROIC. The study also provides only partly coincidence of the results with the pecking order theory.

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 Determinants of the Capital Structure of Companies Listed on the Stock Exchanges of Argentina, Brazil and Chile: An Empirical Analysis of the Period from 2007 to 2016

2020 ◽  
Vol 12 (6) ◽  
pp. 18
Author(s):  
Marcelo Rabelo Henrique ◽  
Sandro Braz Silva ◽  
Antônio Saporito ◽  
Sérgio Roberto da Silva
Keyword(s):  
Panel Data ◽  
Capital Structure ◽  
Order Theory ◽  
Future Research ◽  
Stock Exchanges ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Speed Of Adjustment ◽  
Asset Growth ◽  
The Capital Structure

The present investigation refers to the determinants of the capital structure, using the technique of multiple regression through Panel Data of open capital companies in the stock exchanges of Argentina, Brazil and Chile, in order to know the behavior of determinants of the capital structure in relation to Trade-Off Theory (TOT) and Pecking Order Theory (POT). The POT offers the existence of a hierarchy in the use of sources of resources, while the TOT considers the existence of a target capital structure that would be pursued by the company. Sixteen accounting variables were used, in which five are dependent (related to indebtedness) and eleven are independent variables (explaining the determinants of the capital structure). It is observed that, with the use of the Panel Data, the determinants that seem to influence in a more accentuated way the levels of debt of the companies are: current liquidity, tangibility, return to shareholders, return of assets, sales growth, asset growth, market-to-book and business risk measured by the volatility of benefits. Suggestions for future research include the use of Panel Data to analyze other factors that may influence indebtedness, mainly taxes and dividends, as well as a deeper analysis of factors that may influence the speed of adjustment towards the supposed objective level.

scholarly journals The choice of the capital structure of the company according to the framework of theories of capital structure

2015 ◽  
Vol 4 ◽  
pp. 22-27
Author(s):  
Mitenkova E.N.
Keyword(s):  
Capital Structure ◽  
System Analysis ◽  
Credit Rating ◽  
Developed Countries ◽  
Order Theory ◽  
Share Price ◽  
Actual Problem ◽  
Pecking Order Theory ◽  
Tax Shield ◽  
The Capital Structure

This article deals with the actual problem of choosing capital structure of a company, because debt ratio has an influence on making strategic decisions of the long-term company’s development, its investment risks, potential interest conflicts between management, owners and lenders. The article analyzes the principles of the construction of capital structure in terms of classical and modern theories of capital structure using methods of scientific knowledge: system analysis, synthesis, logical analysis, empirical researches. According to the first theory of the capital structure, developed by M. Miller and F. Modigliani through a number of strict preconditions, capital structure does not affect the company’s value. By adding a tax factor authors showed that in this case the choice of capital structure affects the company’s value, because debt capital increases it by the value of the tax shield. According to trade-off theory the main determinants of capital structure are the size of the tax shield, the probability of bankruptcy and the credit rating. According to the theory of the signal the capital structure depends on such factors as the information asymmetry and the credit rating. According to the pecking order theory capital structure the choice of it is determined by the hierarchy of sources of financing: firstly companies prefer to use internal sources of financing, then - debt financing. According to the market timing theory the key factors of capital structure are share price fluctuations. Analysis of various theories of the capital structure has showed that most theories have been developed by economists represented countries with developed markets. But developed countries and emerging countries have a lot of differences, which have an impact on choosing capital structure by companies.

scholarly journals Capital structure determinants of hospitality sector SMEs

2016 ◽  
Vol 23 (1) ◽  
pp. 113-132 ◽  
Author(s):  
Luís Pacheco ◽  
Fernando Tavares
Keyword(s):  
Capital Structure ◽  
Small And Medium Enterprises ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Trade Off ◽  
Factors Affecting ◽  
Portuguese Economy ◽  
Hospitality Sector ◽  
The Capital Structure

The main objective of this article is to study the capital structure determinants of small and medium enterprises (SMEs) in the hospitality sector and how this can influence their level of indebtedness. Using panel data methodology and considering a sample of 43 Portuguese hotels, the authors study the capital structure determinants between 2004 and 2013. The study examines the indebtedness level in light of the two main theories – the Trade-off theory and the Pecking Order theory. The hospitality sector was chosen because of its importance in the Portuguese economy and because this particular sector has hardly been studied. In addition to total indebtedness, the authors extend the literature by analysing the differences between short-term and long-term indebtedness. The results obtained suggest that profitability, assets tangibility, firm dimension, total liquidity and risk are key factors affecting the capital structure of hospitality sector SMEs, while growth, other tax benefits and age were not deemed relevant. These results allow us to conclude that Trade-off and Pecking Order theories should not be considered in isolation to explain the capital structure of hospitality sector SMEs.

scholarly journals The Effect of Firm Size and Profitability on Firm Value with Capital Structure as Intervening Variables in Indonesia

2019 ◽  
Vol 4 (2) ◽  
pp. 55
Author(s):  
Indra Arifin Djashan
Keyword(s):  
Capital Structure ◽  
Firm Size ◽  
Firm Value ◽  
Stock Exchange ◽  
Company Performance ◽  
Purposive Sampling ◽  
The Impact ◽  
The Relationship ◽  
Intervening Variables ◽  
The Capital Structure

This study examines the impact of firm size and profitability on firm value with capital structure as an intervening variable in financial companies listed on the Indonesia Stock Exchange during three years. The method used for sampling is purposive sampling based on predetermined criteria. The number of samples in this study were 73 companies. Measurement of profitability is using ROA and ROE as one indicator to see company performance. The main purpose of companies that have gone public is to increase the prosperity of the owners or shareholders through increasing the value of the company. The results showed that the improvement of profitability and firm size may improve its capital structure. The improvement of profitability and the firm size may increase significantly the firm value. The results of mediating test showed that the capital structure is not able to mediate the relationship between the profitability and firm size to firm value

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