Search results

1 – 10 of over 25000
Article
Publication date: 5 October 2015

Muhammad Naveed, Suresh Ramakrishnan, Melati Ahmad Anuar and Maryam Mirzaei

This study aims to examine the existence of capital structure dynamics and speed of adjustment during different economic periods. This study adds to the existing body of…

1320

Abstract

Purpose

This study aims to examine the existence of capital structure dynamics and speed of adjustment during different economic periods. This study adds to the existing body of literature by investigating the factors influencing adjustment process toward target debt in developing economies.

Design/methodology/approach

By employing two-step generalized method of moment (GMM) and sensitivity analysis, the study highlights critical factors which affect firms’ adjustment mechanism for target debt.

Findings

Dynamic GMM estimations confirm the substance of past leverage on current debt, which recognizes the existence of dynamic capital structure. The findings corroborate that adjustment process is subject to trade-off between convergence rate and cost of being off-target. The fraction of financing of Pakistani firms confirms the pattern of pecking order hypothesis. The outcome of study clearly validates the significance of dynamic trade-off modeling for optimal capital structure.

Research limitations/implications

As more data become available, the authors would extend this study to investigate the sectoral analysis to find how capital structure dynamics are different across sectors and how distinctive behavior of each sector differently affects the adjustment process toward target debt across each sector. In addition, sector-level and macro-economic factors could be incorporated to examine how external factors affect the firm’s speed of adjustment across sectors.

Practical implications

The present study provides valuable insights for banking and corporate sector, mainly in Pakistan. The companies could take into consideration the firm-level factors which affect the adjustment process toward target debt. Likewise, the borrowing and lending procedures could be advanced by complying with dynamic mechanism of speed of adjustment. Furthermore, the findings of this research provide obstinate grounds for future research.

Originality/value

Both the use of dynamic GMM adjustment model and sensitivity analysis along with Sargan test validate the health of instruments and values.

Details

Journal of Chinese Economic and Foreign Trade Studies, vol. 8 no. 3
Type: Research Article
ISSN: 1754-4408

Keywords

Open Access
Article
Publication date: 24 February 2020

Sangho Kim

This study investigates the dynamic production structure of the Japanese manufacturing industry by using the adjustment cost approach. The study is to shed some light on the…

1023

Abstract

Purpose

This study investigates the dynamic production structure of the Japanese manufacturing industry by using the adjustment cost approach. The study is to shed some light on the unique dynamic structure of the Japanese manufacturing industry. The study attempts to help design and predict industrial policies that are implemented to enhance domestic investments by the Japanese government.

Design/methodology/approach

This study obtains a system of dynamic factor demand and output supply equations by applying the dual approach to the intertemporal value function as represented by the Hamilton–Jacobi equation. By using industrial panel data for 1973–2012 of the Japanese manufacturing industry, the study estimates the system of the behavioral equations and corresponding elasticities. The study uses hypothesis tests and dynamic elasticities to investigate the dynamic structure of the Japanese manufacturing industry.

Findings

Estimation results show that labor and capital are quasi-fixed variables that adjust about 0.2 percent annually to the long-run optimum levels. Estimated adjustment rates are very slow as often presumed about the Japanese manufacturing industry, which uses lifetime employment practice and slow decision-making process in investment decisions. The results also show that output supply and factor demand elasticities vary greatly depending on time horizon. Factor demand increases when its own price increases in the short run, suggesting that factor adjustment is mostly determined factor prices in the past due to sluggish factor adjustment. However, factor demand becomes a normal downward-sloping curve in the long run as factor adjustment gets completed.

Originality/value

Japanese manufacturing firms hire employees through lifetime contract to exploit the benefits of dynamic learning-by-doing and execute investments carefully considering all the possible impacts. Under the strategy, adjustment costs for changing workers and capital stock are minimized. Dynamic adjustment model is expected to shed some light on the unique dynamic structure of the Japanese manufacturing industry. However, researches regarding the dynamic factor adjustment of the Japanese manufacturing industry are hard to find. This study is expected to fill the research vacuum.

Details

Journal of Asian Business and Economic Studies, vol. 28 no. 1
Type: Research Article
ISSN: 2515-964X

Keywords

Article
Publication date: 14 September 2022

Apoorva Arunachal Hegde, Venkateshwarlu Masuna, Ajaya Kumar Panda and Satish Kumar

This paper aims to conduct bibliometric analysis on the studies dealing with capital structure’s speed of adjustment (SoA) and identify the prominent themes while suggesting…

Abstract

Purpose

This paper aims to conduct bibliometric analysis on the studies dealing with capital structure’s speed of adjustment (SoA) and identify the prominent themes while suggesting future research directions in the area. The existing reviews broadly focus on the capital structure, which provides the scope for conducting a review on this sub-aspect of capital structure.

Design/methodology/approach

This study uses a three-stage process to conduct this review: identification of academic journals, selection and analysis of target papers. This study uses a combination of bibliometric tools and a system thinking approach to assess the current status of publications and emerging themes within the literature.

Findings

This study has found a progressive evolution of SoA in capital structure research from 1984 to 2021. Studies largely focus on implementing the dynamic models to analyse the impact of adjustment costs, dynamic economic conditions, corporate governance practices and other variables on the firms’ adjustment speed and financial decisions. The network analysis of citations, keywords and clusters gives further knowledge on the intellectual structure of the data.

Research limitations/implications

This study is highly dependent on the papers available within the SCOPUS database. Studies not included herein are not part of this analysis, which may or may not bear an effect on the study’s findings.

Originality/value

To the best of the authors’ knowledge, the application of systems engineering concept of “system thinking approach” to identify literature gap and suggest directions for forthcoming research is the first of its kind, thus adding a novel and multidisciplinary aspect to this study.

Details

Qualitative Research in Financial Markets, vol. 15 no. 2
Type: Research Article
ISSN: 1755-4179

Keywords

Article
Publication date: 5 June 2023

Apoorva Arunachal Hegde, Ajaya Kumar Panda and Venkateshwarlu Masuna

This paper aims to investigate the non-homogeneity in the speed of adjustment (SoA) of the capital structure of manufacturing companies. It also attempts to study the key…

Abstract

Purpose

This paper aims to investigate the non-homogeneity in the speed of adjustment (SoA) of the capital structure of manufacturing companies. It also attempts to study the key determinants that accelerate the speed of adjustment towards the target leverage level.

Design/methodology/approach

Using the dynamic panel fraction (DPF) estimator on the partial adjustment model, the study captures the heterogeneous SoA of 2,866 firms across eight prominent sectors of the Indian manufacturing industry from 2009 to 2020. To ensure robustness, the empirical inferences of DPF are cross-verified with the estimates of panel-corrected standard errors (PCSE).

Findings

The authors find a combination of the capital structure's slow, moderate and rapid adjustment speed along with the relevance of trade-off theory. Interestingly, the lowest and fastest SoA is recorded by the dwindling textile sector and expanding food and agro sector, respectively. Profitability, firm size, asset tangibility and non-debt tax shields are the key firm-specific parameters that impact the SoA towards the target.

Originality/value

Availing the rarely employed estimator ‘DPF’ and the objective of documenting diverse and non-uniform adjustment speeds across the Indian manufacturing sectors marks a novel addition to capital structure literature.

Details

Journal of Advances in Management Research, vol. 20 no. 5
Type: Research Article
ISSN: 0972-7981

Keywords

Article
Publication date: 6 May 2014

Tesfaye T. Lemma and Minga Negash

The purpose of this paper is to examine the role of institutional, macroeconomic, industry, and firm characteristics on the adjustment speed of corporate capital structure within…

2802

Abstract

Purpose

The purpose of this paper is to examine the role of institutional, macroeconomic, industry, and firm characteristics on the adjustment speed of corporate capital structure within the context of developing countries.

Design/methodology/approach

The authors considers a sample of 986 firms drawn from nine developing countries in Africa over a period of ten years (1999-2008). The study develops dynamic partial adjustment models that link capital structure adjustment speed and institutional, macroeconomic, and firm characteristics. The analysis is carried out using system Generalized Method of Moments procedure which is robust to data heterogeneity and endogeneity problems.

Findings

The paper finds that firms in developing countries do temporarily deviate from (and partially adjust to) their target capital structures. Our results also indicate that: more profitable firms tend to rapidly adjust their capital structures than less profitable firms; the effects of firm size, growth opportunities, and the gap between observed and target leverage ratios on adjustment speed are functions of how one measures capital structure; and adjustment speed tends to be faster for firms in industries that have relatively higher risk and countries with common law tradition, less developed stock markets, lower income, and weaker creditor rights protection.

Research limitations/implications

Future research should focus on examination of the adjustment speed of debt maturity structure. Identification of industry-specific characteristics that affect the pace with which firms adjust their capital structure to the optimum is another possible avenue for future research.

Practical implications

Our findings have practical implications for corporate managers, governments, legislators, and policymakers.

Originality/value

The study focuses on firms in developing countries for which the literature on adjustment speed of capital structure is virtually non-existent. Furthermore, unlike previous works on capital structure, it explicitly models industry variable as one of the determinants of adjustment speed. Therefore, it contributes to the literature on capital structure and adjustment speed in general and to the literature on developing countries in particular.

Details

Journal of Applied Accounting Research, vol. 15 no. 1
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 10 January 2024

António Carvalho, Luís Miguel Pacheco, Filipe Sardo and Zelia Serrasqueiro

The behavioural theory adds a new paradigm of analysis with the assumptions of the decision maker’s cognitive biases and their repercussions on financing decisions. The aim of the…

Abstract

Purpose

The behavioural theory adds a new paradigm of analysis with the assumptions of the decision maker’s cognitive biases and their repercussions on financing decisions. The aim of the study is to analyse the repercussions of these biases on the adjustment speed of firm’s capital structure toward the optimal level.

Design/methodology/approach

Based on a partial adjustment model, the study uses the Dynamic Panel Fractional estimator to analyse panel data from 4,990 Portuguese entrepreneurial firms.

Findings

The results show that the cognitive overconfidence bias impacts the entrepreneurial firm’s capital structure. In fact, the firms run by overconfident managers adjust more slowly than their counterparts. Furthermore, the findings suggest that entrepreneurial firms make relatively fast adjustments toward the optimal debt level and follow a hierarchical financing order in the funding process.

Practical implications

The results of this paper are not only interesting to the academia, but also contain practical implications for corporate, institutional and business policy and governance. First, the paper introduces a new measure of cognitive bias in optimistic managers, which is useful for current and future academic research. Also, in practical terms, the findings of the paper reveal that when a company is contemplating hiring a manager, it should consider whether they need an optimistic or non-optimistic manager based on the company's present life cycle or situation.

Originality/value

The current analysis extends the existing literature. The study suggests that financial classical and behavioural paradigms should not be separated, which can provide evidence to help narrow the gap between these two major perspectives.

Details

Journal of Small Business and Enterprise Development, vol. 31 no. 1
Type: Research Article
ISSN: 1462-6004

Keywords

Article
Publication date: 18 May 2020

Tanveer Ahsan, Sultan Sikandar Mirza, Bakr Al-Gamrh and Muhammad Zubair Tauni

The purpose of this study is to explain the adjustment rate toward the target capital structure of Chinese nonfinancial listed firms and to investigate the impacts of the…

Abstract

Purpose

The purpose of this study is to explain the adjustment rate toward the target capital structure of Chinese nonfinancial listed firms and to investigate the impacts of the split-share reforms (2005–2006) on the capital structure adjustment rate.

Design/methodology/approach

The authors control for the unobserved heterogeneity and the fractional nature of the adjustment rate by applying an unbiased dynamic panel fractional estimator on the unbalanced panel data of 27,545 firm-year observations of Chinese nonfinancial firms listed during 1998–2015.

Findings

The authors find that Chinese firms adjust at an annual rate of 19–27% to reach their capital structure targets. The authors also find a positive impact of the split-share reforms on the adjustment rates of Chinese nonfinancial firms toward their target capital structure. Split-share reforms also helped Chinese firms to increase the use of equity financing in their capital structure.

Practical implications

The authors argue that the government should strengthen capital markets to enable easy access to more financing options so that Chinese firms can acquire cheaper external financing.

Originality/value

To the best of authors' knowledge, this is the first study that applies an unbiased dynamic panel fractional estimator on an extended data set of 27,545 firm-year observations of Chinese nonfinancial firms listed during 1998–2015.

Details

Journal of Economic Studies, vol. 47 no. 6
Type: Research Article
ISSN: 0144-3585

Keywords

Abstract

Details

Agricultural Markets
Type: Book
ISBN: 978-0-44482-481-3

Article
Publication date: 11 January 2013

Manoj Subhash Kamat and Manasvi M. Kamat

This study aims to find whether the Indian private corporate sector follow stable cash dividend policies, whether dividends smoothen earnings, estimate the implicit target…

Abstract

Purpose

This study aims to find whether the Indian private corporate sector follow stable cash dividend policies, whether dividends smoothen earnings, estimate the implicit target dividend ratio, and examine the determinants along with speed of adjustment of dividends towards a long run target ratio.

Design/methodology/approach

The study uses the instrumental variable (IV) approach for dynamic panel data for 1971‐2010 periods controlling for economic reforms. The GMM‐in‐levels model, GMM‐in‐first‐differences and GMM‐in‐systems are alternatively estimated to include other lag structures.

Findings

In the post‐reform period lower dividends are consistent with rapid growth in the economic environment and the tendency to smoothen dividends has considerably decreased over time. The estimated model suggests dividends substitute for less opportunity for internal growth and increased general likening to relatively retain their earnings and finance their growth, unlike the past.

Research limitations/implications

Limitation to capture substitution, ownership and self selection effects stems up from data as the Annual Studies RBI does not include such variables, does not capture qualitative data and disallows identification of the firm.

Practical implications

The paper documents long run trends and inter‐temporal dividend patterns controlling economic reforms for a relatively larger number of public limited firms nearing four decades for an emerging economy.

Originality/value

This is a first attempt to take a holistic view of dividend using rich set of unexplored dynamic panel data on Indian firms controlling for reforms using contemporary econometric models and analyzes issues relating determinants, smoothening and stability of the corporate dividend structure.

Details

Journal of Asia Business Studies, vol. 7 no. 1
Type: Research Article
ISSN: 1558-7894

Keywords

Abstract

Details

Economic Complexity
Type: Book
ISBN: 978-0-44451-433-2

1 – 10 of over 25000