Capital structure determinants muhammad minhas azeem msc applied chemistry department of applied chemistry and biotechnology gc university faisalabad, pakistan capital structure and its determinants 2. The impact of capital structure determinants on small and medium. The firms capital structure, or financial leverage, constitutes this studys dependent variable. Accordingly, financial managers will principally want to know the relationships between certain firmspecific measures and the debt ratio. Finding the suitable capital structure for small and medium size enterprises, smes, is vital. Results suggest that age, size, level of intangible activity, ownership structure and the provision of collateral are important determinants of the capital structure in smes. 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. The purpose of this paper is to study the status of studies on capital structure determinants in the past 40 years. Even though there are several factors contribute to the institutional performance, determinants of the capital structure play an important role. The paper investigates the determinants of capital structure in nigerian listed insurance firms using data obtained from annual report of the sampled firms for the period 20012010. 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.
Capital structure meaning and factors determining capital. The determinants of capital structure choice titman. This paper highlights the major gaps in the literature on determinants of capital structure and also aims to raise specific questions for future research. It is the employment of an asset source of finance for which. The empirical results show that h 0 is rejected because there is positive relationship in capital structure and financial performance. The purpose of this thesis is to investigate the impact of the capital structure determinants on the smes borrowing behavior. Determinants of capital structure in the nigerian chemical. Though an understanding of capital structure of banks is required, much research has not been conducted on the topic. Thus, it shows the capital arrangement which excludes shorterm borrowings. Determinants of capital structure mba knowledge base.
There is a significance impact of capital structure on financial performance. Most empirical studies that examine the determinants of capital structure have been done for developed or specific country and there is little evidence in subsahara africa. The study extends empirical work on capital structure theory in three ways. Page 2 definition the capital structure of a firm is the mix of. Pdf the aim of this study is to indicate the influence of several internal determinants on capital structure in different european countries and. Capital structure determinants of small and medium. Purpose the purpose of the article was to examine the determinants influencing the capital structure in. 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 optimal capital structure is below 100% debt since the tax advantage is traded against the probability of bankruptcy cost. Capital structure, as its name itself signifies, is the composition of the capital employed by the firm from various sources of finance. A combined assessment of capital structure determinants in.
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. 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. Once the available and relevant financial sources for a uruguayan firm are defined, their determinants are analyzed through cross section econometric models. During the depression period, the companys capital structure generally consists of debentures and loans. Several influential studies have suggested that social capitals roots are buried in centuries of cultural evolution fukuyama 1995. The static tradeoff theory suggests that the optimal capital structure does exist. 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. Capital market conditionin the lifetime of the company, the market price of the shares has got an important influence. Pdf the determinants of capital structure choice scinapse. Proper capital structure leads the firm to achieve the better performance and ensures the sustainability in its operation. Determinants of capital structure have received much attention among the researchers. Generally it covers up all features of the topic but particularly it is associated to textile industries capital structure listed at kse. It is the permanent source of financing for a firm which is represented by longterm debt, preferred stock and net worth. The theory of trade off was developed by kraus and litzenberger 1973 arguing that the.
First, it extends the range of theoretical determinants of capital structure by examining some recently developed theories that have not, as yet, been analyzed empirically. A study on determinants of capital structure in india. Thirdly, a comparison of past and current evidence in terms of dutch institutional settings is presented. The term structure means the arrangement of the various parts. Determinants of social capital social capital research. Exploring the determinants of financial structure in the. The goal of this chapter is to discuss the various theories that help to explain the determination of capital structure. 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. It is shown that the more discretionary investment opportunities a firm faces,the lower its financial leverage. The purpose of this paper is to fill the gap in the literature relating to capital structure determinants of banks in subsaharan africa. This study seeks to identify the determinants of indian central psus capital structure.
A21 that it is important to maintain optimum levels of debt and equity in that capital structure, decision makers must constantly be in control of capital structure determinants. In section 1 the most prominent theoretical and empirical findings are surveyed. A combined assessment of capital structure determinants in a. An organizations capital structure consists of longterm common stock, preferred stock and retains earning. This topic investigates many features that affect the capital structure determinants.
Capital structure and financial performance have the negative relationship. The determinants of the capital structure of listed on stock. 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. 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 funds. The advantage of combining cross section and time series data is that it enables the. Various capital structure researches have come to the conclusion that the combination of leverage related cost and tax advantage of the debt, results in an optimal capital structure. Determinants of capital structure in nigeria article pdf available in international journal of innovation and applied studies 34.
Introduction capital structure refers to the way a firm finances its assets through some combination of equity, debt, or securities. Evidence from commercial banks in ethiopia submitted by me for the award of the degree of master of science in finance and investment of mekelle university, is original work and it hasnt been presented. Determinants of capital structure a study of manufacturing. Purpose the purpose of the article was to examine the determinants influencing the capital structure in groups of micro, small and mediumsized enterprises. The impact of capital structure determinants on smes leverage. Capital structure a reading prepared by pamela peterson drake outline 1. Acta universitatis agriculturae et silviculturae mendelianae brunensis, 20, lxi, no. We show that better rated firms have significantly more stable leverage ratios over time. Jan 20, 2015 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. Determinants of capital structure for listed construction.
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. 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. 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. Similarly an attempt to combine such estimates with the assumption of simple partial or. Mar 19, 2008 in this paper we investigate the capital structure determinants of greek, french, italian, and portuguese small and mediumsized enterprises smes.
The theory provides insight into a firms capital structure decision in a capital. A combined assessment of capital structure determinants in a developing economy oscar briones oscar briones, universidad espiritu santo ecuador the author is a finance researcher and lecturer email. This paper analyzes the determinants of the sources of funding for the firms of an economy without stock market. The capital structure of a company is made up of debt and equity securities that comprise a firms financing of its assets.
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. Evidence from an economy without stock market ignacio munyo. Here the data is described, measures of institute of economic studies, charles university, prague and idet, department of eco. Abstract this paper analyzes the determinants of the sources of funding for the firms of an economy without stock market. By combining crosssectional data with timeseries data which is panel data. Empirical research about determinants ofthe capital structure of financial institutions covered various countries see for example, australia. While in period of boons and inflation, the companys capital should consist of share capital generally equity shares. Songb afaculty of management and administration, macao university of science and technology, avenida wai long, taipa, macao, peoples republic of china bschool of economics and finance and center for china financial research. Determinants of capital structure univerzita karlova.
Determinants of capital structure and impact capital structure on firm value. The determinants of capital structure evidence from commercial banks in ethiopia by kibrom mehari fisseha reg. Determinants of capital structure theoretical aspects corporate finance literature has focused on two broad categories of explanation for capital structure viz. 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. This research investigates the determinants of the capital structure of small and medium enterprises smes using a unique database that includes over 19,000 brazilian firms and spans years of data. Most studies are focused towards understanding the. It is therefore essential to study the emerging economies as individual countries rather than see them collectively as a group. 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. Three essays on capital structure determinants hosein maleki, ph. Marques and santos provided evidence that the impact of taxation at the bank level, bankruptcy and financial distress are moderate influence on banks capital structure.
Once the available and relevant financial sources for a uruguayan firm are defined, their determinants are analyzed. This study contributes in the existing literature by examining the determinants of capital structure of. It has been observed that an organizations worth is independent of the capital structure. Are the determinants of capital structure country or firm. 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. Pdf determinants of capital structure and impact capital. Capital structureleverage level of the firm determined by several factors.
Firms capital structure determinants and financing choice. Pdf this paper examines the theoretical and empirical determinants of firms. Pdf the determinants of capital structure of firms. This study makes several important contributions to the existing studies of capital structure. Determinants of capital structure empirical evidence from. Let us make an indepth study of the meaning, concept, importance and factors of capital structure.
The paper identifies the most important determinants of capital structure of 870 listed indian firms comprising both private sector companies and government companies for the period 20012010. Common factors of leverage such as pro t, size, growth, risk, asset structure. It abstains from issuing either debt or equity thus controls their prices from fluctuation that firms. Moreover, studies have been done on both listed and nonlisted firms. Concordia university, 2016 the first essay studies the influence of credit ratings on the timeseries evolution of corporate capital structures. Determinants of capital structure an empirical evidence, us. This study caters to the impact of firm capital structure and quality on firm market value by studying listed firms. Kleff and weber 2004 examined the determinants of capital structure of german banks during the period of 1992 and 2001. Most empirical studies that analyze the determinants of capital structure have been done for individual countries, thus limiting the generalization and ability of the results of such studies. The capital structure puzzle is unravelled and a clear. This paper presents an empirical examination of determinants of the capital structure of a sample of 299 irish small and mediumsized enterprises smes. Determinants of capital structure in irish smes springerlink.
Study initiates the major determinants of capital structure and their different aspects. Also see schwartz and aronson 30, scott 31, and scott and martin 32 for evidence of industry effects in capital structure choice. This research led to the development of a model of capital structure determinants by integrating factors related to. Irrelevance theorem a benchmark striking result is that under fairly general conditions, the value of the firm defined as the sum of value of debt and. Chapter iii concepts and theories of capital structure and profitability. The capital structure of the firm represents its investment and financing strategy. The determinants of the capital structure of listed on. The econometric analysis employs the system generalized method of moments estimator gmmsys and two strong results.
Some organizations prefer more debt while others prefer more equity in financing their assets. Financial leverage refers to the use of debt to acquire. Capital structure theory asks what is the optimal composition between debt and equity. Researchers are still not agreed regarding the factors, which influence organizations capital structure, although plenty of research has been carried out which focus on primary determinants of capital structure. Cbepr002501 research project submitted to the department of accounting and finance, college of business and economics, mekelle university, for the partial fulfillment of the degree of master of finance and investment. 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. 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.
Ten independent variables and three dependent variables have been tested using regression analysis. 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. So capital structure means the arrangement of capital from different sources so that the longterm funds needed for the business are raised. This paper investigates the determinants of capital structure of financial service firms in china. 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. They possibly will need to know the factors that influence the capital structure of their firms.
Determinants of capital structure evidence from libya. In section 2 the potential determinants of capital structure are summarized and theoretical and empirical evidence concerning these determinants is provided. Commercial banks played a major role in start of financial crisis of 200708. Determinants of capital structure an empirical evidence, us by ra the university of lahore, pakistan. Read our full article on the sources of social capital the determinants are numerous and varied and there is both a lack of consensus and a lack of evidence to support the propositions. Determinants of the capital structure of small and medium. The theory of trade off was developed by kraus and litzenberger 1973 arguing that the companies choose their optimal. 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. The data set used in the analysis is constructed by merging companies.