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Article
Publication date: 13 November 2023

Bahadır Karakoç

This study investigates the significance of trade credit (TC) as an alternative source of funding in financing the growth of financially dependent firms.

Abstract

Purpose

This study investigates the significance of trade credit (TC) as an alternative source of funding in financing the growth of financially dependent firms.

Design/methodology/approach

Panel data analysis using the difference generalized method of moments (GMM) and fixed-effects ordinary least squares (FE-OLS) is conducted on annual data from publicly listed firms across a number of developing economies. The data cover the period from 2003 to 2019.

Findings

The findings indicate that financially dependent firms rely on TC to manage their growth, especially when they have exhausted their debt capacity. This dependence on TC displays a cyclical pattern. As firms enhance their financial position, they tend to scale back their dependence. Nevertheless, firms with significant growth opportunities continue utilizing TC for at least two years after their initial identification as financially dependent.

Practical implications

The author's conclusion highlights that TC can be a valuable and accessible source of funding, especially in developing economies where the real sector may require alternative financing channels. Hence, TC has the potential to play a very significant role in financing corporate growth in these economies.

Originality/value

The current study adds to the existing body of literature by revealing that access to alternative sources of finance is also critical for firms that are dependent on external sources and for firms that have exhausted their financial debt capacity.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 8 August 2023

Bilal Haider Subhani, Umar Farooq, Khurram Ashfaq and Mosab I. Tabash

This study aims to explore the potential impact of country-level governance in corporate financing structures.

Abstract

Purpose

This study aims to explore the potential impact of country-level governance in corporate financing structures.

Design/methodology/approach

A two-step system generalized method of moment was used due to the endogeneity issue. The whole sample comprises 3,761 firms in five economies – China, India, Pakistan, Singapore and South Korea – from 2007 to 2016.

Findings

The results indicate that the debt option for financing is not favorable under governments with an adequate governance arrangement. However, there is a direct and significant link between country governance and equity financing because in adequate governance arrangements, the possibilities of information asymmetry are minimal and businesses consider equity a more appropriate and safer financing instrument. In contrast, firms prefer to trade-credit financing in poor governance economies, which confirms an adverse link between trade credit and adequate governance.

Practical implications

The country’s governance should be considered a sensitive matter when deciding about corporate financing.

Originality/value

This arrangement of variables has not been previously analyzed in the literature, suggesting the study’s novelty.

Details

Society and Business Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-5680

Keywords

Open Access
Article
Publication date: 3 October 2023

Viktor Ström, Nima Sanandaji, Saeid Esmaeilzadeh and Mouna Esmaeilzadeh

The purpose of this paper is to investigate the potential link between Sweden’s high reliance on equity capital financing among small and medium-sized enterprises (SMEs) and its…

Abstract

Purpose

The purpose of this paper is to investigate the potential link between Sweden’s high reliance on equity capital financing among small and medium-sized enterprises (SMEs) and its recognition as the most innovative economy in Europe according to the European Innovation Scoreboard (EIS). This paper examines the idea that the high levels of trust within Swedish society can explain why private equity financing is more prevalent among Swedish SMEs.

Design/methodology/approach

To test these ideas, the authors use data from the Survey on Access to Finance for Enterprises to measure the private equity reliance of firms. The authors also use the EIS to measure the innovation capacity of nations and various aspects of SMEs’ innovation activities. Finally, societal levels of trust are measured through the World Value Survey.

Findings

First, the authors find that European countries with a higher proportion of SMEs relying on equity financing tend to be ranked as more innovative by the EIS. Second, the authors find that the correlation between a nation’s share of SMEs relying on equity financing and their level of innovation activities is marginally stronger for product innovations than for business process innovations. Third, the authors find that countries with higher levels of trust tend to have higher equity capital reliance among SMEs.

Originality/value

This study builds upon previous research on equity capital and SMEs’ innovation activity while introducing new insights into the relationship between societal trust and equity financing.

Details

International Journal of Innovation Science, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1757-2223

Keywords

Article
Publication date: 10 May 2023

Omar Ikbal Tawfik and Hamada Elsaid Elmaasrawy

The purpose of this study is to examine the effect of companies’ Shariah compliance (SC) debt financing decisions, financing with retained earnings (REs), cash holdings, capital…

Abstract

Purpose

The purpose of this study is to examine the effect of companies’ Shariah compliance (SC) debt financing decisions, financing with retained earnings (REs), cash holdings, capital expenditures and dividend pay-out policies.

Design/methodology/approach

The sample consisted of 1,648 firm-year observations of GCC non-financial firms from various industries. The authors scrutinised the firms over a period of eight financial years from 2012 to 2019. To analyse the research hypotheses, the authors used a panel data model using ordinary least squares and generalised method of moments, depending on historical data.

Findings

The results of this study show a negative effect of SC on debt financing decision and dividend pay-out policies but a positive effect on financing decision with REs, cash holdings and the decision on capital expenditures.

Practical implications

This study's findings provide a better understanding of the role of restrictions of financing options in SC companies on financing decisions in the GCC. Whether religious or simply interested in investing in SC companies, investors can benefit from knowing that these companies make financial decisions that may affect their short- and long-term profits for policymakers and regulators. This study may be valuable in evaluating the effect of restrictions imposed by Islamic Shariah on how firms make different financial decisions. Policymakers should encourage the issuance of Islamic financial products and prepare two financial indicators to classify SC firms.

Originality/value

The main contribution of this study is to obtain empirical evidence on the effect of SC on a set of financial decisions. To the best of the authors’ knowledge, this study is the first to focus on non-financial companies committed to Shariah. They do not depend on interest-bearing loans for their financing but are limited to financing by shares, financing with REs and financing using various Islamic financing formulas.

Details

Journal of Islamic Accounting and Business Research, vol. 15 no. 1
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 29 June 2021

Shivalik Singh and Bala Subrahmanya Mungila Hillemane

The purpose of this paper is to ascertain the factors determining the choice of sources of finance for a tech startup over its lifecycle.

1179

Abstract

Purpose

The purpose of this paper is to ascertain the factors determining the choice of sources of finance for a tech startup over its lifecycle.

Design/methodology/approach

This study adopts simple random sampling technique to choose 93 sample tech startups in Bangalore. Further, this study employs the primary data collection from the sampled startups under study through a semi-structured questionnaire and in-depth interviews with the founders/CEOs of these startups. Furthermore, it carries out binary logistic regression analysis to primarily examine the likelihood of a tech startup to approach and access a particular source of finance over its lifecycle.

Findings

Our results indicate that a tech startup's choice for a financial source varies with its lifecycle stage and financial requirements. We find that while in its early stage, a tech startup's choice of a financial source is limited to business angels (BA), in the growth stage, it approaches the institutional sources, viz. Venture Capital (VC), Corporate Venture Capital (CVC), Banks and Private Equity (PE) firms alternatively. Out of the three major categories of financial requirements: Human Capital (HC), Research Capital (RC) and Social Capital (SC), the requirement for HC and SC is predominantly funded by VCs, while the acquisition of RC is facilitated by early stage investors (BAs) as well as growth stage investors (CVC and PEs).

Research limitations/implications

The research implication of the study lies in bringing out the need to understand both the nature and the quantum of financial requirements of tech startups would influence the sources of finance it would approach and obtain finance for its operations and growth.

Practical implications

The major policy implication of the study refers to the need to promote the diverse sources of finance to meet the diverse needs of finance in different stages of a tech startup's lifecycle. Particularly in an emerging economy, where we do not see the emergence and growth of highly innovative tech startups, the need to promote adequate availability of RC is especially important.

Originality/value

This study makes a key contribution to the entrepreneurial finance literature by empirically investigating the factors determining a tech startup's propensity to approach and access a particular source of finance over its lifecycle.

Details

International Journal of Emerging Markets, vol. 18 no. 8
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 2 January 2024

Arbenita Kllokoqi, Ardi Parduzi and Jeton Mazllami

The purpose of this study is to examine the financial challenges faced by agricultural enterprises in the Republic of Kosovo. It aims to compare the various forms of financing…

Abstract

Purpose

The purpose of this study is to examine the financial challenges faced by agricultural enterprises in the Republic of Kosovo. It aims to compare the various forms of financing used in Kosovo with those in European Union (EU) countries. The study seeks to highlight opportunities and challenges with a focus on how they can learn from the experiences of EU countries.

Design/methodology/approach

The study is based on responses from agricultural enterprises in both the EU and Kosovo. Data was gathered through a survey conducted with 50 agricultural enterprises in Kosovo, whereas for EU context, information from the 2020 Survey on the Financial Needs and Access to Finance of EU Agricultural Enterprises (provided by EAFRD). Statistical data were processed using the Stata and SPSS programs.

Findings

In agriculture sector, loan is the primary form of financing to expand their activities and capacities, whereas financing for agricultural enterprises exhibits a negative relationship with the bureaucratic procedures associated with financing.

Research limitations/implications

The main research’s limitations include the unavailability of official data from the relevant institutions in Kosovo.

Practical implications

A possible implication arising from this research is the reliance of the development of agriculture enterprises on debt.

Social implications

Due to the lack of comprehensive data in this regard, is unable to analyze the specific impact of gender in financing patterns of these enterprises.

Originality/value

This study provides real data on the current situation of agricultural enterprises in Kosovo. Considering Kosovo’s goal to integrate with the EU, this comparative approach adds significant value to the study.

Details

Journal of Enterprising Communities: People and Places in the Global Economy, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1750-6204

Keywords

Article
Publication date: 7 November 2023

Islam Abdeljawad, Muiz Abu Alia and Muhannad Demaidi

Existing theories on the determining factors of corporate investment decisions raise the importance of financial market imperfections in explaining investment behavior. Many…

Abstract

Purpose

Existing theories on the determining factors of corporate investment decisions raise the importance of financial market imperfections in explaining investment behavior. Many factors have been proposed as drivers of investment, mainly in developed economies, while emerging countries have almost been neglected. The main purpose of this study is to examine the effect of financing constraints on the investment behavior of a small context, namely, Jordan, with an imperfect environment.

Design/methodology/approach

This study considers panel data regressions from the industrial companies traded at the Amman Stock Exchange with a total of 1,058 firm-year observations.

Findings

The results are able to demonstrate that business size, tangibility, market-to-book ratio, profitability, financial slack and leverage are major drivers of investment choices. The results support the importance of information asymmetry in explaining the investment behavior of firms. Nonetheless, the Q-theory is in place, as is firm agility.

Practical implications

Policies to reduce information asymmetry are immediately needed to help firms increase investments by providing them with access to training, technology and market information. They also should enhance the firms’ opportunities for growth. Moreover, they should make it easier for businesses to access financial slack, such as by improving access to credit and financial institutions. They also can work to improve the financial infrastructure to meet the financing needs of businesses. Finally, smaller businesses should be assisted by improving their ability to invest and grow.

Originality/value

To the best of the authors’ knowledge, this is one of the first studies, if any, to investigate this issue in a distinct environment. Despite the unique characteristics of Jordan, the findings are applicable to other countries that experience comparable political and economic circumstances because Jordan has traits common to many emerging nations.

Details

Competitiveness Review: An International Business Journal , vol. 34 no. 1
Type: Research Article
ISSN: 1059-5422

Keywords

Article
Publication date: 2 May 2023

Osama El-Ansary and Aya M. Ahmed

This paper aims to investigate whether managerial overconfidence has an impact on investment inefficiency beyond its influence on the use of internal financing or whether internal…

Abstract

Purpose

This paper aims to investigate whether managerial overconfidence has an impact on investment inefficiency beyond its influence on the use of internal financing or whether internal financing behaves as a full intermediary.

Design/methodology/approach

The study employed three dependent variables, namely business investment scale, overinvestment and underinvestment, and analyzed data from 282 firms across five different industries listed in 11 Middle East/North Africa (MENA) countries between 2013 and 2019 using regression analysis via least square dummy variable (LSDV).

Findings

The findings indicate that while internal financing can provide funding for investment opportunities and address capital shortages, it may also result in overinvestment, particularly in companies led by overconfident managers.

Practical implications

Stakeholders, including shareholders and board of directors, should pay attention to the chief executive officer (CEO)'s behavioral aspects such as overconfidence in decision-making while undertaking new investment projects. Additionally, regulators and policymakers in emerging markets like MENA should re-evaluate the corporate governance framework, devise a corporate governance index and promote boardroom gender diversity as it can significantly reduce risk.

Originality/value

This study adds to the limited research on the impact of managerial overconfidence on investment efficiency in the MENA region. By focusing on this region, which has unique economic, political and social characteristics, the study provides new insights into the role of behavioral biases in investment decision-making in emerging markets.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Book part
Publication date: 25 October 2023

Anil Kumar Angrish

India launched Smart City Mission in 2015 with an objective of development of 100 smart cities with a completion deadline in 2019 that was extended till June 2023. Smart City…

Abstract

India launched Smart City Mission in 2015 with an objective of development of 100 smart cities with a completion deadline in 2019 that was extended till June 2023. Smart City Mission is an important mission in the backdrop that urban population in India is projected to be 67.55 crore in 2035 from 48.30 crore in 2020. Further, by 2035, the percentage of population in India at mid-year residing in ‘urban area’ will be 43.2% as per the United Nations – Habitat's World Cities Report 2022 and it will be just next to China's urban population in 2035 that is projected at 1.05 billion. A recent World Bank report (2022) estimated that India will need to invest US (United States) $840 billion over the next 15 years, i.e. US $55 billion per annum – into urban infrastructure if it has to effectively meet the needs of its fast-growing urban population.

This chapter focuses on financing of sustainable smart cities in India. This chapter summarises financing options explored by the government in the beginning, challenges faced in financing of Smart City Mission in India over a period due to various developments such as pandemic, delay in execution of projects under the Smart City Mission, among others. Finally, suggestions have been given for making financing means effective and sustainable. These suggestions are based on the gaps between the ‘financing means thought of’ in the beginning and ‘financing means actually applied’ while executing Smart City Mission in India. Financing part is worth exploring in the background that India had the fiscal deficit at 3.9% of Gross Domestic Product (GDP) in 2015–2016 and most recently, the country had the fiscal deficit at 6.71% of GDP in FY22. And the country also dealt with the pandemic like other economies and provided COVID-19 vaccine free of cost to all citizens. Insights are useful for any other economy with a similar sustainable and smart city mission while facing resource constraints.

Article
Publication date: 27 March 2023

Charilaos Mertzanis, Haitham Nobanee, Mohamed A.K. Basuony and Ehab K.A. Mohamed

This study aims to analyze the impact of corporate governance on firms’ external financing decisions in the Middle East and North Africa (MENA) region.

Abstract

Purpose

This study aims to analyze the impact of corporate governance on firms’ external financing decisions in the Middle East and North Africa (MENA) region.

Design/methodology/approach

The authors analyzed a unique set of panel data comprising 2,425 nonfinancial firms whose shares are traded on stock exchanges in countries in the MENA region. The authors fitted an ordinary least squares model to estimate the regression coefficients. The authors performed a sensitivity analysis using alternative measures of the critical variables and an endogeneity analysis using instrumental variable methods with plausible external instruments.

Findings

The results revealed that corporate governance characteristics of firms are strongly associated with their degree of leverage. They also showed that macrofinancial conditions, financial regulations, corporate governance enforcement and social conditions mitigate the impact of corporate governance on firms’ financing decisions.

Research limitations/implications

A larger sample size will further improve the results; however, this is difficult and depends on the extent to which increasing disclosure practices allow more corporate information to reach international databases.

Practical implications

This study provides new evidence on the role of corporate governance on firms’ financing decisions and documents the essential mitigating role of institutions, alerting managers to consider them.

Originality/value

This study is a novel attempt. Based on information from different data sources, this study explored the predictive power of corporate governance, ownership structures and other firm-specific characteristics in explaining corporate leverage in MENA countries. Overall, the analysis provides new evidence of the association between corporate governance and capital structure in the MENA region, highlighting the critical role of institutions.

Details

Corporate Governance: The International Journal of Business in Society, vol. 23 no. 5
Type: Research Article
ISSN: 1472-0701

Keywords

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