The vast majority of previous empirical works analyses the capital structure of firms in economies with highly developed stock markets. Chapter iii concepts and theories of capital structure and profitability. The purpose of this thesis is to investigate the impact of the capital structure determinants on the smes borrowing behavior. The modern theory of capital structure was established by. Evidence from hotel and restaurant companies in sri lanka a. Determining optimal capital structure not only assists business for long term sustainability but also affects profitability of the. The focus of this study is to discuss these factors influencing the capital. Determinants of capital structure czech journal of economics and. Four important theories are used to explain the capital structure. A study on determinants of capital structure in india. Its choice and determinants related to many different factors. In section 1 the most prominent theoretical and empirical findings are surveyed.
Determinants of bank capital structure the impact of basel iii may 2016 abstract this paper examines which determinants of bank capital structure are reliably decisive for 15 publicly traded european and american banks from 2006 to 2015. We also investigate how firmspecific factors such as profitability, firm size, tangibility of assets and depreciation to total assets along with the macroeconomic factor such as inflation influence the capital. These are the tradeoff, agency, contracting cost and information costs theories. Determinants of corporate capital structure among private. Introduction the influential paper of modigliani and miller on capital structure irrelevancy has been followed by extensive theoretical research to determine the optimal capital structure. The determinants of bank capital structure request pdf. However, even after decades of active theoretical and empirical research, what determines a companys capital structure remains an empirical question in. Capital structure and its determinants in the united kingdom a decompositional analysis alan a.
The determinants of the capital structure of listed on. While in period of boons and inflation, the companys capital should consist of share capital generally equity shares. The analysis casts out that size, tangibility and profitability are influencing variables in the financial structure. Evidence from an economy without stock market ignacio munyo.
Figure 1 distribution of book capital ratios the objective of this paper is to examine whether capital requirements are indeed a firstorder determinant of banks capital structure using the crosssection and timeseries variation. In addition to this, the two variables profitability and growth established negative relationship and the remaining four variables tangibility, size, age and taxshield showed positive relationship with capital structure. Empirical analysis introduction the sound financing practices of corporate sector in terms of the implication for future financing and thereby investment depends on capital structure. Determinants of capital structure an empirical evidence, us by ra the university of lahore, pakistan. In this study, we attempted to analyze the determinants of capital structure for indian firms using a panel framework and to investigate whether the capital structure models derived from western settings provide convincing explanations for capital structure decisions of the indian firms. Determinant factors of the capital structure of a firm an empirical. Capital structure, a reading prepared by pamela peterson drake 4. Hence this study will utilize panel data regression analysis to empirically examine the impact of different determinants on three leverage measures. Titman and wessels perform an empirical study on the determinants of capital structure choice in the united states. The study substantiates the findings of most of the researches conducted on capital structure, concluding that there is an optimal capital structure that is affected by a. The decision on the capital structure poses many challenges for companies. Determinants of the capital structure of ghanaian firms. This paper investigates the determinants of capital structure of financial service firms in china. Determinants of capital structure a study of oil and gas.
Pdf the financing decision is one of the most important imperative in corporate finance. This paperwork investigates the relative importance of five factors upon the capital structure decisions of romanian firms listed at the bucharest stock exchange. Furthermore identifying the determinants of capital structure also can help investors and managers of firm as it will provide better understanding of the firm capital structures strategy by considering companies characteristics in order. Determinants of capital structure theoretical aspects corporate finance literature has focused on two broad categories of explanation for capital structure viz. One of the most strategic decisions being faced by the. Determinants of capital structure univerzita karlova. Research baral 2004 entitled determinants of capital structure. First, it examines a much broader set of capital structure theories, many of. Bevan and jo danbolt cnemeconomics, london business school, sussex place, regents park, london nw1 4sa. Abstract this paper analyzes the determinants of the sources of funding for the firms of an economy without stock market. Pdf this paper examines the theoretical and empirical determinants of firms capital structure choice. The roles of firm and countryspecific determinants.
Capital structure, leverage, firmspecific factors, countryspecific factors, international evidence. The most advantageous debt equity mix plays an important role in attaining objective of investors of the firm. A case study of listed companies of nepal revealed the following things. The capital structure is all about the mixture of debt and equity. Ajanthan department of accounting, university of jaffna, sri lanka abstract purpose the aim of this study is to find out the factors that affect the capital structure of hotels and restaurant companies and. The paper employs panel regression approach to investigate capital structure impact on firms performance in morocco, based on the result of haussmann test, fixed effect fit the first model better. The theory of trade off was developed by kraus and litzenberger 1973 arguing that the companies choose their optimal.
Factors affecting the capital structure the dependent variable are. Firms capital structure determinants and financing choice. Booth et al 2001 examine the capital structure decisions of firms operating in ten emerging markets brazil, mexico, india, south korea, jordan, malaysia, pakistan. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. Since hundreds of articles have been written about capital structure and its determinants since the 1958 paper by mm, one must be aware of the fact that different measures of capital structure. Empirical evidence from kuwait ahmad mohammad obeid gharaibeh assistant professor, dept. Theory on capital structure capital structure is defined as the specific mix of debt and equity a firm uses to finance its operations. Introduction capital structure refers to the way a firm finances its assets through some combination of equity, debt, or securities. Debt comes in the form of bond issues or longterm notes. Financial directors have to grapple with questionwhat is the. Regression is run by considering six explanatory variables that include firms size, tangibility, growth, earnings.
Abstractwe investigate the determinants of capital structure of public listed companies on bursa malaysia, singapore stock exchange and thailand stock exchange from 2004 to 20. Capital market conditionin the lifetime of the company, the market price of the shares has got an important influence. Determinants of capital structure an empirical evidence, us. Capital structure, bank size, dividend payout, profitability, tangible assets, business risk, tax and banking industry introduction determinants of capital. During the depression period, the companys capital structure generally consists of debentures and loans. It is therefore essential to study the emerging economies as individual countries rather than see them collectively as a group. Our results show that profitability, nondebt tax shield, size, tangibility, and liquidity are significant determinants of the capital structure, size being. Several researchers argue that the determinants of capital structure are significantly affected by factors such as the laws and regulations of the country, corporate and personal tax systems and corporate governance. The capital structure is how a firm finances its overall operations and growth by using different sources of funds. The impact of capital structure determinants on smes leverage. Determinants of capital structure in nigerian banking sector.
Using a relative regression of accounting data for 36 ashare financial listed companies over the years 20052009, an empirical study on determinants of capital structure in financial industry is conducted. The study extends empirical work on capital structure theory in three ways. The determinants of capital structure choice sheridan titman and roberto wessels abstract this paper analyzes the explanatory power of some of the recent theories of optimal capital structure. The purpose of this research is to find out the capital structure of listed firms in the sugar industry of pakistan. A comparative study of public and private firms 1 i. The study finds that a particular industrys capital structure exhibits unique attributes, which are usually not visible in the combined analysis of many sectors. It is the employment of an asset source of finance for which. With view to enhance the reliability of the tests, two separate models on the book value of leverage as dependent variables short term debt and long term debt. Capital structure of kse listed pharmaceutical companies have been studied by taking leverage as the dependant variable. Determinants of capital structure empirical evidence from. The empirical data suggests that such goals can be achieved by an optimal combination of debt and equity which may result in a low average weighted cost of. The less profitable firms are those mainly financed. The question of a firms optimal capital structure and the determinants of. In particular, the pecking order theory of capital structure, with past profitability being the major determinant of leverage, is supported.
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