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This paper focuses on Ṣukūk issuance determinants in Gulf Cooperation Council (GCC) countries. Given the dual characteristic of debt and equity of Ṣukūk as well as their unique benefits of social responsibility, the author questions whether the theories of capital structure, the trade-off and the pecking order are able to well explain the Ṣukūk issuance.

First, the author verifies these theories using capital structure determinants and regresses the Ṣukūk change on these determinants. Second, the author tests the trade-off theory with the target debt model and third, verifies the pecking order theory using the fund flow deficit model.

The empirical results show that capital structure determinants fail to explain both theories. The author confirms that the Ṣukūk change is significatively linked to the deviation from a Ṣukūk target. So, issuing firms balance the marginal costs of Ṣukūk and their benefits of religiosity and social responsibility toward a target debt. The author finds no evidence of the pecking order theory.

This study contributes to corporate finance theory and corporate social responsibility. It verifies if capital structure theories proved in conventional financing can well explain Islamic bonds issuance given their social responsibility benefits.

Managers and investors would pay attention to the social factors explaining Ṣukūk issuance in their finance and investment decisions. They would be enhanced to use this financing tool knowing its social unique benefits. This also should encourage governments to enhance this socially responsible financing. Rating agencies would be motivated to evaluate Ṣukūk and firms would improve the quality and relevance of disclosure to get the best rating.

The author highlights the social factors explaining Ṣukūk issuance and enhances corporate social responsibility (CSR).

The author extends the few literature testing capital structure theories for Islamic bonds and highlights the specific social responsible features of Ṣukūk that would bridge their issuance to capital structure theories. So the author enhances the concept of Islamic CSR. Tying capital structure theories to CSR would also help developing Islamic finance theory as a unique social responsible framework.

The purpose of this paper of this study is to examine the possible factors contributing to the issue of inconclusiveness in capital structure studies. This study also attempts to provide logical explanations to the unresolved issue of inconsistencies in the relationship between factors identified and leverage in capital structure studies. Comparisons are also made between the emerging market and the developed market to see whether the findings are consistent with both market landscapes.

This study employs two models in its methodology which are static and dynamic models to examine the effects of using different models in the study. The fixed effect model and partial adjustment model represent the static and dynamic models, respectively. The dynamic model is estimated using generalized method of moments. This study also uses six definitions of leverage to examine the impact of using different leverage definition in capital structure studies. To test the robustness of the findings comparison were made with past studies done by other researchers on developed markets.

This study found that the use of different models (with the same leverage definition) and different leverage definitions (using the same model) give different results including signs. Inconsistencies were more obvious in the different leverage definitions (using the same model) compared to the use of different models (with the same leverage definition). There was also evidence that the findings were consistent with both the emerging and the developed markets as other studies on developed markets also report inconsistent results when using different models and different leverage definitions.

The sample chosen focussed only on firms in three emerging markets (Malaysia, Thailand and Singapore) thus it may not be sufficient for generalization.

The issue of inconclusive results and findings in capital structure studies keeps recurring but no study has been done to further understand the issue. Using data from the selected countries, this paper attempts to fill this gap in the literature.

Introduction: Financial failure is a concept that may arise from many internal and external factors such as operational, financial, and economic items and may incur serious losses. Over-indebtedness arising from managerial misjudgments may cause high financial distress, insufficiency, and bankruptcy. In this regard, determination of effects of capital structure decisions on financial failure risk is crucial.

Aim: The main purpose of this study is to explore the relationship between capital structure decisions and financial failure risk. For this purpose, data from Borsa İstanbul (BIST) for listed food and beverage companies for the period from 2004 to 2019 is used. Another purpose of this study is to compare the financial failure models considering capital structure theories.

Method: In the study, capital structure decisions are associated with five different financial ratios; while the financial failure risk is proxied by financial failure scores of Altman (1968), Springate (1978), Ohlson (1980), Taffler (1983), and Zmijewski (1984). Therefore, five different panel data models are used for testing these hypotheses.

Findings: The results of panel data analysis reveal that capital structure decisions have statistically significant effects on financial failure risk for all models; however, those effects vary from one financial failure model to another. Also, the results show that in the models in which financial failure risk is proxied by the Altman (1968) and Taffler (1983) scores, the aggressive financial policies increase the financial failure risk. However, regarding the models in which financial failure risk is proxied by the Springate (1978), Ohlson (1980), and Zmijewski (1984) scores, aggressive financial policies decrease the financial failure risk.

Originality of the Study: To the best of our knowledge, this chapter is original and important in terms of revealing the effects of capital structure decisions on the financial failure risk and comparing the financial failure models.

Implications: The results revealed that the risk of financial failure models represented by Altman (1968) and Taffler (1983) scores are found to be statistically stronger and more successful in meeting theoretical expectations compared to other models. Therefore, it would be more appropriate to refer Altman’s (1968) and Taffler’s (1983) financial failure models in financial failure risk measurements.

This research paper aims to explore the relationship of financial performance and capital structure of Indian pharma firms of BSE 500, the impact of research and development (R&D) expenditure on financial performance and also explore the moderating role of competitive intensity between the existing relationship of capital structure and firm performance.

The balanced panel data of listed pharma firms of BSE 500 are used for the research study, and the present study adopts both the panel and ordinary least square (OLS) estimation techniques to draw the results.

The results exhibit that the high debt ratio is harmful for the accounting performance of the selected sample of pharma firms of BSE 500. Besides, market competition negatively moderates the relationship between capital structure and firm performance.

The research findings provide evidence for the policymakers/regulators that the sample firms should discourage the high debt financing in the presence of competitive intensity in the product marketplace.

The core contribution of the current research is to examine impact of R&D expenditure on financial performance and the moderating role of market competition on the relationship of capital structure and firm performance to the best of the authors' knowledge, and no single study has previously explored this relationship in the context of BSE 500 pharma firms.

The objective of this paper is twofold: first, to model the value of the firm in the presence of contingent capital and multiple growth options over its life cycle in a stochastic universe to ensure financial stability and recover losses in case of default and second, to clarify how contingent convertible (CoCo) bonds as financial instruments impact the leverage-ratio policies, inefficiencies generated by debt overhang and asset substitution for a firm that has multiple growth options. Additionally, what is its impact on investment timing, capital structure and asset volatility?

The current paper elaborates the modeling of a dynamic problem with respect to the interaction between funding and investment policies during multiple sequential investment cycles simultaneously with dynamic funding. The authors model the value of the firm in the presence of contingent capital that provides flexibility in dealing with default risks as well as growth options in a stochastic universe. The authors examine the firm's closed-form solutions at each stage of its decision-making process before and after the exercise of the growth options (with and without conversion of CoCo) through applying the backward indication method and the risk-neutral pricing theory.

The numerical results show that inefficiencies related to debt overhang and asset substitution can go down with a higher conversion ratio and a larger number of growth options. Additionally, the authors’ analysis reveals that the firm systematically opts for conservative leverage to minimize the effect of debt overhang on decisions so as to exercise growth options in the future. However, the capital structure of the firm has a substantial effect on the leverage ratio and the asset substitution. In fact, the effect of the leverage ratio and the risk-shifting incentive will be greater when the capital structure changes during the firm's decision-making process. Contrarily to traditional corporate finance theory, the study displays that the value of the firm before the investment expansion decreases and then increases with asset volatility, instead of decreasing overall with asset volatility.

The study’s findings reveal that funding, default and conversion decisions have crucial implications on growth option exercise decisions and leverage ratio policy. The model also shows that the firm consistently chooses conservative leverage to reduce the effect of debt overhang on decisions to exercise growth options in the future. The risk-shifting incentive and the debt overhang inefficiency basically decrease with a higher conversion ratio and multiple growth options. However, the effect of the leverage ratio and the risk-shifting incentive will be greater when the capital structure changes during the firm's decision-making process.

The firm's composition between assets in place and growth options evolves endogenously with its investment opportunity and growth option financing, as well as its default decision. In contrast to the standard capital structure models of Leland (1994), the model reveals that both exogenous conversion decisions and endogenous default decisions have significant implications for firms' growth option exercise decisions and debt policies. The model induces some predictions about the dynamics of the firm's choice of leverage as well as the link between the dynamics of leverage and the firm's life cycle.

This paper aims to test the significance of unobservable firm-specific effects on a capital structure model.

The paper employs the restricted least squares method to test the significance of unobservable firm-specific effects in a fixed effects model that includes unobservable effects against a pooled ordinary least squares model that excludes unobservable effects.

The empirical findings indicate that models that include unobservable firm-specific effects are correctly specified.

The limitation of this study comes from lack of data to measure unobservable effects such as managerial ability or managerial skills. Future research can develop index measures of managerial ability or managerial skills and borrow from management theory to explain the connection between managerial ability or managerial skills and firms' capital structure.

The findings imply that a capital structure model that excludes firm-specific effects could be mis-specified because such a model does not control for unobservable firm-specific factors such as managerial ability or managerial skills which have significant effects on firms' capital structure decisions.

The findings are important because the paper applies the restricted least squares method to test the significance of unobservable firm-specific effects. This technique has not been applied previously. The paper contributes to capital structure research in the fast growing South Africa.

With the majority of highway projects in China having entered their operational phases, the maintenance and repair of the pavement is receiving increasing attention. One problem that needs to be addressed urgently is that of how to raise the proper funds for highway maintenance to ensure the sustainable operation of the project. To this end, the aim of this study is to investigate the capital demand for operation and maintenance of a project by means of a refinancing scheme, in order to reduce the possibility of project bankruptcy and to enhance the economic value of the project.

Based on an analysis of the dynamic complexity of the highway pavement maintenance system, a Markov model is used to predict pavement performance, and an optimal capital structure decision model is proposed for highway public–private partnership (PPP) project refinancing, using the method of system dynamics (SD). The proposed model is then applied to a real case study.

Results show that the proposed model can be used to predict accurately the dynamic changes in the demand for road maintenance funds and refinancing during the period of operation, before making the optimal decision for the refinancing capital structure.

Although many scholars have studied the optimal refinancing capital structure of PPP projects, the dynamic changes inherent in the demand for maintenance funds for highway PPP projects are seldom considered. Therefore, in the approach used here the influence of the dynamic change of road maintenance capital demand on refinancing is investigated, and SD is used for the optimal capital structure decision-making model of highway PPP project refinancing, to make the decision-making process more reasonable and scientific.

According to the market timing theory, firms try to take advantage of windows of opportunity to raise capital by exploiting temporary cost fluctuations of alternative financing sources. In this context, the main objective of this paper is to examine the influence and persistence of market timing in the financing decisions of Brazilian firms that launched IPOs in the period from 2001 to 2011.

We analyze the influence of past market values on the capital structure of these firms, based on the main models proposed by Baker and Wurgler (2002), adapted to reflect the characteristics of Brazilian firms’ financial statements.

We find evidence of market timing, but this behavior is not sufficiently persistent in the period studied to the point of determining these firms’ capital structure. We believe the fact that Brazilian companies rarely carried out follow-on primary equity issues after floating their capital in the period analyzed, due to the presence of more advantageous financing sources (particularly from the national development bank, BNDES), explains the results. Therefore, Brazilian firms appear to be pay heed to different funding sources, in search of windows of opportunity, to guide their financing decisions and determine their capital structures.

The Brazilian capital market has been developing intensely in recent years, making it increasingly relevant to analyze the financing and investment decisions of the country’s listed companies. The Brazilian literature on capital structure is extensive, but few works have addressed the issue of market timing.

This paper seeks to explore the potential drivers of corporate capital structure.

The paper applies both fixed effects panel models and random effects tobit models to examine this issue. A sample of 379 firms is used across the period from 1991 to 2002.

It is found that corporate characteristics (firm size, firm risk, firm growth rate, firm profitability and asset tangibility) and corporate governance characteristics (board size and outside directorships) are the main drivers of capital structure of UK firms. In addition, the results show that changing the definition of capital structure may result in changing the sign and the significance of these potential drivers.

The paper argues that another dimension of the capital structure puzzle can be introduced which is related to the definition of capital structure used in prior studies. It is worth noting that the aim of this paper is not to provide an optimal set of factors that may affect the decision of capital structure, but to highlight the effect of the different definitions of capital structure that can be used by different studies, which makes the comparison between such studies difficult or even erroneous.

The “supply-side effect” brought about by the imperfection of the capital market has increasingly been concerned. The purpose of this paper is to study how will the uncertainty of equity financing brought about by the equity financing regulations in emerging capital market affect company's capital structure decisions.

This paper establishes a theoretical model and tries to introduce equity financing uncertainty into the company's capital structure decision-making. The paper uses mathematical derivation method to get some basic conclusions. Next, in order to characterize the quantitative impact of specific factor on capital structure, numerical solution methods are used.

The model shows that firm's value would decrease with the uncertainty of equity financing, because of the relationship between firm's future cash and their financing policies. The numerical solution of the model suggests that the uncertainty of equity financing is one of the important factors affecting the choice of optimal capital structure, the greater the uncertainty is, the lower optimal capital structure is.

The research of this paper has certain academic value for further understanding of the issues.