The results indicate that most of the determinants of capital structure suggested by capital structure theories appear to be relevant for swedish firms. Determinants of organizational structure free download as powerpoint presentation. Because leverage reduces free cash flow and creates performance. In their crosssectional study of the determinants of capital structure, rajan and zingales 1995 examine the extent to which, at the level of the individual firm, gearing may be explained by four key factors, namely, markettobook, size, profitability and tangibility. Aydin ozkan 2003 conducted study on the determinants of the capital structure of the selected uk firms. Determinants of capital structure for listed construction. We find a remarkable consistency in sign, significance and economic magnitude. Determinants of financial capital use agecon search. The determinants of capital structure choice free download as powerpoint presentation. Researchers can utilize this paper to develop stronger models for research into the capital structure determinants for emerging economies. J alternative approaches to the theory of choice in risktaking situations, econometrica, october, 1951 comprehensive survey of work doaie on theory. Originalityvalue to the authors knowledge, this is the first study that investigates the determinants of capital structure of hotels and restaurant companies in sri lanka. The impact of capital structure determinants on smes leverage.
Common factors of leverage such as pro t, size, growth, risk, asset structure. For that reason, agency theory expected negative relationship between tangibility and leverage. Section three introduces the capital structure determinants offered by the literature and. Abstract this paper models the capital structure decision facing partnerships and tests the implications using panel. Chen, robert lensink and elmer sterken august1998 abstract this paper studies the determinants of capital structure choice of dutch. Thus, the current study fills the gap in the literature and provided an evidence, using recent and long data, of determinants of capital structure of banking sector in gcc region 1. 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. Most of the discussed studies explored the determinants of capital structure in various markets. Empirical evidence from kuwait ahmad mohammad obeid gharaibeh assistant professor, dept. Effects of leverage on the shareholders return or earnings per share have already.
Since the seminal work of modigliani and miller 1958 on the irrelevance of capital structure in investment decision, a rich theoretical. Presentation of a research paper written by sheridan titman and roberto wessels. The results of the study also reveal that companies that have a free float rate between %50 and %75 have lower degrees of leverage and the degree of leverage. Size, age, profitability, growth, operating risk, and asset. Sep 07, 2006 we analyze the importance of firmspecific and countryspecific factors in the leverage choice of firms from 42 countries around the world. Determinants of capital structure theoretical aspects corporate finance literature has focused on two broad categories of explanation for capital structure viz. Mar 19, 2008 in this paper we investigate the capital structure determinants of greek, french, italian, and portuguese small and mediumsized enterprises smes. The determinants of the capital structure of listed on stock. It is important to know what factors determine this, because debt structure has implications for the value of a firm and thereby its ability to raise funds for future investment activity. Rationale of the research capital structure is the object of this research which is a combination of debt and equity capital.
Determinants of organizational structure organizational. Capital structure theories 1 net income approach ni suggested by durand it says a change in the capital structure will lead to a corresponding change in the overall cost of capital as well as the total value of the firm if the ratio of debt to equity is increased, the weighted average cost of capital will decline, while the value of the firm. This study examines the determinants of capital structure decisions of firms, specifically for small and. The determinants of capital structure choice capital. He examined the empirical determinants of borrowing decisions of firms and. The paper investigates the determinants of capital structure of micro and. Some evidence from banks abstract this paper documents that standard crosssectional determinants of firm leverage also apply to the capital structure of large banks in the united states and europe. Therefore, it was observed that analysis of capital structure is incomplete without a detailed examination of all forms of corporate debt. 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. The factors influencing the capital structure or determinants of capital structure are discussed as follows financial leverage or trading on equity.
Most empirical studies that examined the determinants of capital structure have been done for specific country and there is little evidence of gcc region. In pakistan, mashar and nasr 11 suggest that asset tangibility, profitability and roa are negatively correlated with debt. Many studies including pandey 2001 have identified various determinants of capital structure, which generally include tangibility of assets, size, growth, profitability, and age of firms. Thus, the current study fills the gap in the literature and provided an evidence, using recent and long data, of determinants of capital. Abstract this paper analyzes the determinants of the sources of funding for the firms of an economy without stock market. Several studies on the determinants of bank capital structure using explanatory variables are also used in examining the capital structure of nonbank companies such as amidu 2007, heider and. Determinants of capital structure presentation capital.
Download limit exceeded you have exceeded your daily download allowance. Since the modigliani and miller 1958 proposition that. Recommended articles citing articles 0 references bhaduri, 2002. We analyze the importance of firmspecific and countryspecific factors in the leverage choice of firms from 42 countries around the world. Another factor which can affect the capital structure of a firm is a financial crisis. A study on determinants of capital structure in india. Determinants of capital structure presentation free download as powerpoint presentation.
Xiaohong huang a dissertation submitted in partial fulfilment of the requirements of the university of twente for. Jan 19, 2014 furthermore, findings should help corporate managers and decision makers to make optimal capital structure decisions. Determinants of capital structure univerzita karlova. To be more accurate, the term capital structure, or financial structure, or financial plan of a company refers to the composition of the longterm sources of. 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.
The use of long term fixed interest bearing debt and preference share capital along with equity share capital is called financial leverage or trading on equity. A case of listed energy sector companies in pakistan. Read this article to learn about capital structure of a firm. Furthermore, findings should help corporate managers and decision makers to make optimal capital structure decisions. Evidence from hotels and restaurant companies in sri lanka. It is in the best interests of a company to find the optimal ratio of debt to equity to reduce their risk of insolvency, continue to be successful and ultimately.
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. In section 1 the most prominent theoretical and empirical findings are surveyed. The study employed secondary data from the annual reports and the nigerian stock exchange nse fact books covering the study period ordinary least square ols was. Determinants of capital structure in the nigerian chemical. Once the available and relevant financial sources for a uruguayan firm are defined, their determinants are analyzed.
This thesis finding shed lights on the necessity of using the maturity structure of debt shortterm debt and longterm debt as dependent variables. The determinants of the capital structure of listed australian. G31, g32 introduction he move towards a free market, coupled with the widening and deepening of various financial markets has provided the basis for the corporate sectors to optimally determine their capital structure. Their analysis is performed upon a firmlevel sample from each of the g7. The paper contributes to the literature by examining the determinants of corporate capital structure. This learning will endeavor to break down the determinants of capital structure in a systemic way and will give the useful and pertinent rule to any individual who needs to have an understanding of the subject. Pdf download for the determinants of the capital structure of listed. Theory and practice of capital structure in their crosssectional study of the determinants of capital structure, rajan and zingales 1995 examine the extent to which, at the level of the individual firm, gearing may be explained by four key factors, namely, markettobook, size, profitability and tangibility. This paper attempts to investigate the determinants of the capital structure of a sample of 972 listed companies on the shanghai stock exchange and shenzhen stock exchange in china in 2003. A comparative study of public and private firms 1 i. In this paper we investigate the capital structure determinants of greek, french, italian, and portuguese small and mediumsized enterprises smes. In 1963, the same authors introduced tax in the model and concluded that the leverage increased the value of the company and decreased, linearly, the weighted average cost of capital. Pdf determinants of capital structure in irish smes. Evidence from an economy without stock market ignacio munyo.
The research will present the fundamental determinants of capital. 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. But we also find significant differences in the determinants of long and shortterm forms of debt. Are the determinants of capital structure country or firm. Firms are more willing to finance their projects with short term debt, rather than long term debt. The determinants of bank capital structure request pdf. Mar 27, 2012 determinants of capital structure capital structure refers to the way a firm chooses to finance its assets and investments through some combination of equity, debt, or internal funds. A study on the determinants of the capital structure of ghanaian firms is an important research area that needs to be explored.
This paper presents an empirical examination of determinants of the capital structure of a sample of 299 irish small and mediumsized enterprises smes. Introduction how firms make their capital structure decisions has been one of the most extensively researched area in corporate finance. Prior research on capital structure by rajan and zingales 1995 suggests that the level of gearing in uk companies is positively related to size and tangibility, and negatively correlated with profitability and the level of growth opportunities. 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. To conduct this thesis, i have used the deductive approach, which is a similar approach suggested by the key reference of this study, michaels et al 1999. Available for free downloading from the factor markets.
The majority of empirical studies of capital structure, such as bradley et al. The determinants of capital structure are mixed and different for shortterm and longterm indicators. Vietnamese real estate firms should focus on balance structure debt due to complicated impacts of the determinants to their capital structure. First, we find that firmspecific determinants of leverage differ across countries, while prior studies implicitly assume equal impact of these determinants. Chapter iv determinants of profitability and capital. Capital structure and its determinants in the uk a. Various theories, namely, the tradeoff, pecking order and agency theories, are deployed to explain and predict the signs and significance of each factor identified by ragan and zingales 1995 and booth et.
Determinants of capital structure mba knowledge base. The determinants of the capital structure of listed on. In section 2 the potential determinants of capital structure are summarized and theoretical and empirical evidence concerning these determinants is provided. The study assessed the determinants of capital structure in nigerian chemical and paints companies listed in nigeria, for a period of five years from 2005 to 2009. Whereas size, growth rate and tax rate is positively related with. It is therefore essential to study the emerging economies as individual countries rather than see them collectively as a group. Pdf determinants of the capital structure of ghanaian firms.
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