Proper capital structure leads the firm to achieve the better performance and ensures the sustainability in its operation. Four important theories are used to explain the capital structure. The objectives of this study are to identify the significant determinants of capital structure of the listed. Determinants of capital structure czech journal of economics and.
Empirical evidence from kuwait ahmad mohammad obeid gharaibeh assistant professor, dept. Our results show that profitability, nondebt tax shield, size, tangibility, and liquidity are significant determinants of the capital structure, size being. In section 1 the most prominent theoretical and empirical findings are surveyed. Determinants of capital structure an empirical evidence, us. Evidence from an economy without stock market ignacio munyo. The paper contributes to the capital structure literature by investigating the determinants of capital structure of firms operating in the asia pacific region, in four countries with different legal, financial and institutional environments, namely thailand, malaysia, singapore and australia. Chapter iii concepts and theories of capital structure and profitability. Abstract this paper analyzes the determinants of the sources of funding for the firms of an economy without stock market. Pdf determinants of capital structure and testing of theories. Its choice and determinants related to many different factors. The theory of trade off was developed by kraus and litzenberger 1973 arguing that the companies choose their optimal capital structure. 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. Once the available and relevant financial sources for a uruguayan firm are defined, their determinants are analyzed through cross section econometric models. Determinants of the capital structure of ghanaian firms. This study makes several important contributions to the existing studies of capital structure. Hence, we confirm the recent evidence on the determinants of capital structure for non financial.
In section 2 the potential determinants of capital structure are summarized and theoretical and empirical evidence concerning these determinants is provided. Determinants of capital structure univerzita karlova. Even though there are several factors contribute to the institutional performance, determinants of the capital structure play an important role. Determinants of capital structure in nigerian banking sector. It is therefore essential to study the emerging economies as individual countries rather than see them collectively as a group. The theory of trade off was developed by kraus and litzenberger 1973 arguing that the companies choose their optimal capital structure by by evaluating the revenue and costs, debt. Theory on capital structure capital structure is defined as the specific mix of debt and equity a firm uses to finance its operations. Pdf the financing decision is one of the most important imperative in corporate finance. Determinants of capital structure theoretical aspects corporate finance literature has focused on two broad categories of explanation for capital structure viz.
A study on determinants of capital structure in india. Mubeen, riaqa and nazam, muhammad and batool, aneela and riaz, maria, the determinants of capital structure. 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 structure. Introduction capital structure refers to the way a firm finances its assets through some combination of equity, debt, or securities. Based on the data availability, the following determinants of capital structure are analysed in this paper. The study concludes that debt is preferred in the capital structure of firms in the it sector of the united states. Capital structure, bank size, dividend payout, profitability, tangible assets, business risk, tax and banking industry introduction determinants of capital structure. A comparative study of public and private firms 1 i. As a result of these studies, some broad categories of capital structure determinants. In this paper we investigate the capital structure determinants of greek, french, italian, and portuguese small and mediumsized enterprises smes.
The period of the study was from 2008 to 2016 using a panel data regression analysis to understand the impact of various independent variables over leverage. The question of a firms optimal capital structure and the determinants of. Capital structure, textile firms, stock exchange and pakistan. 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.
Determinants of capital structure a study of oil and gas. Booth et al 2001 examine the capital structure decisions of firms operating in ten emerging markets brazil, mexico, india, south korea, jordan, malaysia, pakistan. Determinants of capital structure an empirical evidence, us by ra the university of lahore, pakistan. In particular, the pecking order theory of capital structure, with past profitability being the major determinant of leverage, is supported. We also investigate how firmspecific factors such as profitability, firm size, tangibility of assets and depreciation to total assets along with the. First, it examines a much broader set of capital structure theories, many of which have not previously been analyzed empirically. Capital structure leverage level of the firm determined by several factors. The determinants of the capital structure of listed on. This paper analyzes the determinants of the sources of funding for the firms of an economy without stock market. This research led to the development of a model of capital structure determinants by integrating factors related to. This paper analyzes the explanatory power of some of the recent theories of optimal capital structure. 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.
A major shortcoming of capital structure studies on developing economies is that they generally restrict their analyses to large publiclytraded manufacturing firms. Capital structure consists of debt as well as internal and external equity. The study extends empirical work on capital structure theory in three ways. Inclusion of other possible determinants of capital structure, such as availability of internal funds, tax effects and risk, while significant, do not affect the importance of discretionary investment. A case from sugar industry of pakistan november 2016. This paper approached the issues of capital structure by evidencing commercial banks in ethiopia to uncover the firm level determinant factors of capital structure. Evidence from tanzanian nonfinancial listed companies bundala, ntogwa nghabi p. Capital structure, a reading prepared by pamela peterson drake 4. Financial directors have to grapple with questionwhat is the. The capital structure is all about the mixture of debt and equity.
Existing empirical research on capital structure has been largely confined to the. 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 roles of firm and countryspecific determinants. Evidence from pakistani manufacturing companies 8 journal of banking and finance management v1.
Are the determinants of capital structure country or firm. The analysis casts out that size, tangibility and profitability are influencing variables in the financial structure. First, it examines a much broader set of capital structure theories, many of. Capital structure is fundamentally permanent long term financing of a firm. 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. It is the employment of an asset source of finance for which. Pdf the determinants of capital structure choice scinapse. 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 this study like liquidity of firms, non debt tax shields like depreciation, more collateral net fixed assets, earnings volatility, size of firms, net commercial trade position and firms profits have impact on the capital structure choice.
Both theoretical and empirical capital structure studies have generated many results that attempt to explain the determinants of capital structure. In accordance with the capital structure theory, the importance of firm level determinants of capital structure, tangibility, profitability and size are confirmed. The main aims of this study are to determine the factors which affect capital structure of corporations operating in energy sector and to detect capital structure theories with which capital structure of energy sector companies would comply. The theory provides insight into a firms capital structure decision in a capital. An analysis of factors influencing the capital structure. The modern theory of capital structure was established by. We investigate the determinants of capital structure of public listed companies on bursa malaysia, singapore stock exchange and thailand stock exchange from 2004 to 20.
We compare the capital structures of smes across countries and differences in country characteristics, asset structure, size, profitability, risk, and growth and how these may impact capital structure choices. Section 2 considers the firm level determinants of capital structure. The objectives of this study are to identify the significant determinants of capital structure of the listed manufacturing companies in bangladesh and to test the. The decision on the capital structure poses many challenges for companies. 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. It is shown that the more discretionary investment opportunities a firm faces,the lower its financial leverage. International journal of management sciences and business research, vol. Capital structure hierarchical analysis firmlevel determinants industrylevel determinants countrylevel determinants abstract we analyze the in. The less profitable firms are those mainly financed. Scribd is the worlds largest social reading and publishing site.
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