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1 – 10 of over 25000The “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…
Abstract
Purpose
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.
Design/methodology/approach
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.
Findings
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.
Originality/value
The research of this paper has certain academic value for further understanding of the issues.
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Xiaodong Xia, Weida Chen and Biyu Liu
The purpose of this paper is to investigate the optimal production and financing strategies for the closed-loop supply chain (CLSC) composed of a capital-constrained original…
Abstract
Purpose
The purpose of this paper is to investigate the optimal production and financing strategies for the closed-loop supply chain (CLSC) composed of a capital-constrained original equipment manufacturer (OEM) and a risk-averse authorized remanufacturer (RM).
Design/methodology/approach
The authors formulate four models with different scenarios, namely, the OEM has sufficient capital; the OEM has limited capital without financing; the OEM adopts debt financing strategy; and the OEM adopts equity financing strategy. The equilibrium solutions of each scenario are obtained by backward induction method, the influences of risk aversion coefficient on the equilibrium solutions are examined and the OEM's optimal financing strategy is found by comparison analysis.
Findings
When the OEM's initial capital is limited and the equity dividend ratio is less than a certain threshold, the equity financing strategy is more advantageous for the OEM. However, if the OEM's initial capital is extremely scarce and the dividend proportion is large, the OEM prefers the debt financing strategy. When considering financing, consumer surplus always decreases as the risk aversion factor increases; the debt financing strategy is more environmentally friendly compared with the equity financing strategy. Only the debt financing strategy can make both members in the CLSC achieve a win-win situation in a certain region when the dividend ratio is sufficiently large.
Research limitations/implications
It will be more fascinating if the model extends to such a case that the production operation situation in the CLSC composed of multiple OEMs in multiple periods. Furthermore, the remanufacturer's risk-averse information is asymmetry may be more realistic in our daily life.
Originality/value
There are three main differences from the existing research. One is that the remanufacturer's risk aversion originates from the uncertain remanufacturing cost instead of the uncertain market demand. Another is that the boundary conditions of the OEM prefer to adopt debt financing is obtained through the envelope theorem with Lagrange multiplier method. Last but not the least, this paper provides a good theoretical reference and practical guidance for the OEM to make the rational financing strategy selection in face of different degree of capital scarcity in the CLSC system. The value of the three aspects provides a theoretical basis for the optimal operation decisions of capital-constrained manufacturer considering the remanufacturer's risk aversion in the CLSC operation system.
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Moncef Guizani and Ahdi Noomen Ajmi
The purpose of this paper is to examine whether the basic premises according to the pecking order theory (POT) provide an explanation for the capital structure mix of firms…
Abstract
Purpose
The purpose of this paper is to examine whether the basic premises according to the pecking order theory (POT) provide an explanation for the capital structure mix of firms operating under Islamic principles.
Design/methodology/approach
Pooled ordinary least squares, fixed and random effects regressions were performed to test the POT applying data from a sample of 66 Islamic-compliant firms listed on Saudi Stock Market over the period 2006–2016.
Findings
The results show that sale-based instruments (Murabahah, Ijara) track the financial deficit quite closely followed by equity financing and as a last alternative to finance deficit, Islamic-compliant firms issue Sukuk. In the crisis period, these firms seem more reliant on equity, then on sale-based instruments and on Sukuk as last option. The study findings also indicate that the cumulative financing deficit does not wipe out the effects of conventional variables, although it is empirically significant. This provides no support for the POT attempts by Saudi Islamic-compliant firms
Research limitations/implications
This research contributes to the theory of capital structure in re-validating the findings of a previous theoretical and empirical study. It helps understand the capital structure of Islamic-compliant firms in comparison with conventional firms. It highlights some areas where further research on topics related to capital structure of Islamic-compliant firms is needed. The failure of the POT to explain Saudi firms’ financing choices strongly pushed researchers to test the market timing theory for the Saudi Stock Market. Further research studies could re-examine the trade-off theory in the absence of interest tax shield as in an Islamic economy.
Practical implications
From a managerial perspective, this research can serve firm executive managers in their financing decisions to add value to the companies. Furthermore, policymakers, bankers and standard-setting organizations should undertake more collective work to simplify the process of issuing Islamic financial instruments including Sukuk. Moreover, the Saudi Government has to encourage the private sector to be more innovative in developing products and services that are in line with Sharia principles. Finally, to attract investors, the Capital Market Authority has to encourage transaction, efficiency and liquidity of Islamic financial instruments.
Originality/value
The proposed study presents several originalities. First, it explores the implications of relevant Islamic principles on financing preferences of Saudi firms. Second, the present study enables us to investigate what the sudden abundance of liquidity, generated by the record levels of oil prices, implied for the firms’ financing behavior. Finally, it provides further evidence on the impact of financial crisis on the firms’ capital structure choice in a period of considerable slowdown in the world.
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Various factors may influence project finance when a multi-sourced debt financing strategy is used for financing capital investments, in general, and public infrastructure…
Abstract
Purpose
Various factors may influence project finance when a multi-sourced debt financing strategy is used for financing capital investments, in general, and public infrastructure investments, in particular. Traditional indicators lack comprehensive consideration of the influences of many internal and external factors, such as investment structure, financing mode and credit guarantee structure, which exist in the financing decision making of BOT projects. An effective approach is, thus, desired. The paper aims to discuss these issues.
Design/methodology/approach
This paper develops a financial model that uses an interval number to represent the uncertain factors and, subsequently, conducts a standardization of the interval number. Decision makers determine the weight of each objective through the analytic hierarchy process. Through the optimization procedure, project investors and sponsors are provided with a strategy regarding the optimal amount of debt to be raised and the insight on the risk level based on the net present value, as well as the probability of bankruptcy for each different period of debt service.
Findings
By using an example infrastructure project in China and based on the comprehensive evaluation, comparison and ranking of the capital structures of urban public infrastructure projects using the interval number method, the final ranking can help investors to choose the optimal capital structure for investment. The calculation using the interval number method shows that X2 is the optimal capital structure plan for the BOT project of the first stage of Tianjin Binhai Rail Transit Z4 line. Therefore, investors should give priority to selecting a capital contribution ratio of 45 per cent for this investment.
Research limitations/implications
In this paper, some parameters, such as depreciation life, construction period and concession period, are assumed to be deterministic parameters, although the interval number model has been introduced to analyze the uncertainty indicators, such as total investment and passenger flow, of BOT rail transport projects. Therefore, more of the above deterministic parameters can be taken as uncertainty parameters in future research so that calculation results fit actual projects more closely.
Originality/value
This model can be used to make the optimal investment decision for a project by determining the impact of uncertainty factors on the profitability of the project in its lifecycle during the project financial feasibility analysis. Project sponsors can determine the optimal capital structure of a project through an analysis of the irregular fluctuation of the unpredictable factors in project construction such as construction investment, operating cost and passenger flow. The model can also be used to examine the effects of different capital investment ratios on indicators so that appropriate measures can be taken to reduce risks and maximize profit.
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Stratos Papadimitriou and Panos Mourdoukoutas
This article takes a close look at the ways US, Israeli, and Irish policy makers have addressed the start‐up equity‐financing gap. US policy makers have been indirect, providing…
Abstract
This article takes a close look at the ways US, Israeli, and Irish policy makers have addressed the start‐up equity‐financing gap. US policy makers have been indirect, providing funds and creating the regime conducive to the growth of the private venture capital industry. Israeli policy makers have been less indirect, taking equity positions in start‐ups, and in venture capital funds in partnership with the private sector. Irish policy makers have been direct, setting up and managing start‐up venture capital funds.
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Min Maung and Reza H. Chowdhury
The purpose of this paper is to determine whether corporate investment in real fixed assets in hot issue markets leads to higher income to shareholders than that in other equity…
Abstract
Purpose
The purpose of this paper is to determine whether corporate investment in real fixed assets in hot issue markets leads to higher income to shareholders than that in other equity market conditions.
Design/methodology/approach
The authors address the research question in two steps: first, the authors identify how security issuances in hot and cold issue markets influence corporate investment decisions. Second, the authors examine how debt- and equity-financed investments in two different market conditions affect future holding period returns. The sample includes an unbalanced panel data set consisting of all non-financial and non-utility US companies from 1973 to 2006. The authors apply both firm- and industry-level fixed effect methods to estimate the coefficients of two separate empirical models.
Findings
The authors find that equity issuances increase firms' capital investments in hot issue markets. These equity-financed investments in hot equity markets result in higher returns to shareholders compared to those in other market conditions. Therefore, there exists a window of opportunity for firms to issue new equities and make investments, which in turn improve shareholders' wealth.
Practical implications
The findings convey a critical message to corporate managers about the right timing of equity-financed capital investments.
Originality/value
While earlier research focuses on determining a specific equity market condition that favours new issuances, this paper determines a particular equity market condition when firms typically choose value-enhancing equity-backed projects for investment.
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Ziran Li, Keri L Jacobs and Georgeanne M Artz
There is little reason a priori to expect that a cooperative firm’s capital needs are different from a non-cooperative firm’s needs if the two firms are otherwise similar in…
Abstract
Purpose
There is little reason a priori to expect that a cooperative firm’s capital needs are different from a non-cooperative firm’s needs if the two firms are otherwise similar in function and size and operate within similar market economies. However, the notion that cooperatives face capital constraints that investor-owned firms (IOFs) do not is a persistent theme in the literature. The paper aims to discuss these issues.
Design/methodology/approach
The authors revisit this hypothesis with an empirical examination of capital constraints in a panel data set of US agricultural supply and grain cooperatives and IOFs.
Findings
The findings are mixed. While the authors find little to suggest that cooperatives face financial constraints on borrowing in the short run, relative to IOFs, the authors do find some evidence that for long-term investments, a capital constraint may exist.
Originality/value
These short and long run differences have implications for the survival and growth of agricultural cooperatives. While in the short run, access to debt financing allows these firms to operative profitably, ultimately long-term large investments in technology and fixed assets will be required to maintain competitiveness in this industry.
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This paper aims to achieve scale, efficiency and mitigate high monitoring costs, and explores the efficacy of micro equity finance at the enterprise level. The study compares the…
Abstract
Purpose
This paper aims to achieve scale, efficiency and mitigate high monitoring costs, and explores the efficacy of micro equity finance at the enterprise level. The study compares the economic features of the proposed framework with interest-based debt finance.
Design/methodology/approach
This study uses a mathematical model to highlight the problem of agency costs including adverse selection and moral hazard.
Findings
Debt finance requires frequent repayments and indebtedness for financial inclusion. Conversely, the Islamic equity modes of financing in their current baseline structure suffer from high agency costs. By using enterprise level finance and distinct entry criterion for availing Islamic debt-based and micro equity finance, Islamic microfinance institutions (IMFIs) can reach the right targets and effectively mitigate the problem of adverse selection and high monitoring costs. The study suggests a framework in which equity financing could be used to fund microenterprises that will employ poor people with related skills.
Research limitations/implications
As the preferable modes of Islamic finance, i.e. Musharakah and Mudarabah, are not used by Islamic financial institutions (IFIs), empirical analysis of performance is not possible as they are rarely used.
Practical implications
The study suggests a workable model that can use Islamic equity-based modes of financing to improve microfinance outreach and achieve scale. The use of equity financing will help the Islamic finance industry to move toward its egalitarian vision, and the practical implementation of the model will help in reducing poverty in the Muslim majority countries.
Social implications
Muslim countries host half of global poverty, even though their share in global population is only one-fourth. Hence, there is need for solutions in achieving scale in poverty alleviation efforts.
Originality/value
Using a mathematical model, the paper presents agency problems in Islamic microfinance and proposes a solution through distinct entry criterion and enterprise level micro equity finance.
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Henry Tsai, Steve Pan and Jinsoo Lee
The purpose of this paper is to review and synthesize published contemporary hospitality financial management research from 1998 through 2009 and provide future research…
Abstract
Purpose
The purpose of this paper is to review and synthesize published contemporary hospitality financial management research from 1998 through 2009 and provide future research directions.
Design/methodology/approach
The authors began their initial literature search by entering into the ABI/INFORM database via ProQuest 19 pre‐identified keywords (i.e. debt, financing, ownership) related to the major functions of financial management, namely investing, financing, and dividend decisions, as well as commonly indexed keywords in hospitality finance research. The paper then expanded the authors' literature list through the reference lists of the studies that they initially identified. The authors limited their search to published studies between 1998 and 2009 and within hospitality journals written in English.
Findings
The paper identifies 98 published papers that represented the major work and efforts in expanding the body of knowledge in both the theoretical and practical perspectives of hospitality financial management. The major categories of papers include hospitality financing, investing, dividend policy, financial condition, and performance. Areas that warrant further investigation are noted throughout the paper.
Research limitations/implications
The papers review provides academics and practitioners an overview of the updated body of knowledge in the field and suggests the need for further in‐depth research to extend the literature and prompt better financial decision making for practitioners.
Originality/value
Since Harris and Brown's and Atkinson and Jones's reviews of past hospitality accounting and finance studies which mostly focused on the former, hospitality financial management research alone has grown noticeably in terms of diverse topics and sophistication of methodologies. To the authors' knowledge, no updated reviews that focus solely on hospitality finance research have been published in the last 12 years, and the need for such a task motivated them to conduct a review of recent research on this topic.
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The main aim of this paper is to report on a comprehensive survey of corporate financing decision‐making process in Sri Lankan listed companies and to compare these results with…
Abstract
Purpose
The main aim of this paper is to report on a comprehensive survey of corporate financing decision‐making process in Sri Lankan listed companies and to compare these results with those of similar studies conducted in developed markets.
Design/methodology/approach
The study was based on a survey questionnaire distributed among the chief executive officers (CEOs) of companies listed on the Colombo Stock Exchange, with the content of the questionnaire being based upon a review of theoretical and empirical literature in the field of finance.
Findings
The results demonstrate an adherence to a financial hierarchy, which appears to be the dominant financial policy among listed Sri Lankan companies. Corporate financing decisions seem to be influenced mostly by interest and tax considerations, while lesser weight is accorded to financial flexibility in determining the amount of funds to be raised externally through debt contracts. The evidence largely supports the propositions of the pecking order model, but also confirms some predictions found in static trade‐off theory.
Practical implications
Some of the most striking implications of the analysis relate to the under‐development of the local capital market, and the apparent need for an efficient financial system that spurs economic growth. An efficient capital market will in turn ensure that capital will be more easily channeled into financing investments.
Originality/value
This paper highlights how and why the determinants of capital structure decisions reported for developed capital markets may differ from those existing in transitional or emerging economies.
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