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Article
Publication date: 5 October 2020

Zélia Serrasqueiro, Fernanda Matias and Julio Diéguez-Soto

This paper seeks to analyze the family firm's capital structure decisions, focusing on the speed of adjustment (SOA) as well as on the effect of distance from the target…

Abstract

Purpose

This paper seeks to analyze the family firm's capital structure decisions, focusing on the speed of adjustment (SOA) as well as on the effect of distance from the target capital structure on the SOA towards target short-term and long-term debt ratios in unlisted small and medium-sized family firms.

Design/methodology/approach

Methodologically, we use dynamic panel data estimators to estimate the effects of distance on the speeds of adjustment towards those targets. Data for the period 2006–2014 were collected for two research sub-samples: one sub-sample with 398 family firms; the other sub-sample contains 217 non-family firms.

Findings

The results show that the deviation from the target debt ratios impacts negatively on the speeds of adjustment towards target short-term and long-term debt ratios in unlisted family firms. These results suggest that family firms, deviating from target debt ratios, face deviation costs, i.e. insolvency costs, inferior to the adjustment costs, i.e. transaction costs. Therefore, family firms stay away from the target debt ratios for a long time than do non-family firms.

Research limitations/implications

The research sample comprises a low number of family firms, therefore for future research we suggest increasing the size of the sample of family firms to get a deeper understanding of family firms' SOA towards capital structure. Additionally, we suggest the analysis of other potential determinants of the speed of adjustment towards target capital structure.

Practical implications

The results obtained suggest that the distance from the target short-term and long-term debt ratios can be avoided if these firms do not depend almost exclusively on internal finance to adjust towards target capital structure. Moreover, for policymakers, we suggest the creation/promotion of alternative external finance sources, allowing reduced transaction costs that contribute to a faster adjustment of small family firms towards target capital structure.

Originality/value

The most previous research focusing on capital structure decisions have focused on listed family firms. To fill this gap, this study examines the speed of adjustment towards target debt ratios in the context of unlisted family firms. Moreover, transaction costs are a function of debt maturity, therefore this study examines separately the speeds of adjustment towards target short-term and long-term debt ratios. This paper shows that the adjustment costs (i.e. transaction costs) could hold back family firms from rebalancing its capital structure.

Details

Journal of Family Business Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2043-6238

Keywords

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Article
Publication date: 8 May 2018

Fei Liu, Chao Bian and Christopher Gan

This paper aims to examine whether government intervention acts as a substitution mechanism for laws and institutions in affecting firms’ long-term debt financing decision…

Abstract

Purpose

This paper aims to examine whether government intervention acts as a substitution mechanism for laws and institutions in affecting firms’ long-term debt financing decision and the moderating effect of firm ownership on the relationship between law and finance in Chinese capital market.

Design/methodology/approach

This study uses ordinary least squares with standard errors clustered at the firm level in the regressions. To address the potential endogeneity problem, the authors also use the system generalized method of moments in their estimation.

Findings

The results show that both long-term bank debt and long-term bank debt maturity structure ratios are positively related to government intervention. The results also reveal that with improvement in the legal environment, public non-state-owned firms have more access to long-term bank debt in the regions where the level of government intervention is low.

Research limitations/implications

Government intervention appears to replace laws and institutions in influencing the allocation of financial resources in China.

Originality/value

The finding suggests the necessity of increasing the protection of both creditors and investors, and shows the importance of a free and independent judiciary system in allocating funds to private firms. The results also imply that the non-state-owned Chinese firms also benefit from the improved laws and institutions.

Details

Journal of Asia Business Studies, vol. 12 no. 2
Type: Research Article
ISSN: 1558-7894

Keywords

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Article
Publication date: 28 January 2011

Zélia Serrasqueiro

The purpose of this paper is to analyze the importance of information asymmetry in the relationships between Portuguese SME's capital structure decisions and creditors…

Abstract

Purpose

The purpose of this paper is to analyze the importance of information asymmetry in the relationships between Portuguese SME's capital structure decisions and creditors, comparing the results of service SME with those found in manufacturing SMEs.

Design/methodology/approach

Two samples of Portuguese SMEs are considered: one sample is composed by 610 unlisted service SMEs; and, the other sample is made up by 381 unlisted SMEs in manufacturing industry, for the period 1999‐2006. To estimate the results, the two‐step estimation method is used, to control possible bias arising from data selection. In the first step, probit regression is used. In the second step, after the control for possible data bias, dynamic panel estimators are used.

Findings

The results obtained suggest that information asymmetry in the relationships between SMEs and creditors has a greater relative influence on capital structure decisions of service SMEs than on those of manufacturing SMEs.

Practical implications

Given the increasing importance of service SMEs in the Portuguese economy for stimulating employment, business volume, and consequently economic growth, it would be advisable for policy makers to create special long‐term lines of credit, with advantageous terms, so that Portuguese service SMEs, when internal finance is insufficient, can finance more efficiently the growth opportunities and the strategies for diversification. In addition, since SMEs' capital structure decisions present differences, both concerning the sector of industry and over time, the measures adopted by policy makers should differentiate their measures between industry sectors and over time.

Originality/value

First, this paper is pioneering in comparing the adjustment of actual short‐ and long‐term debts, in service and manufacturing SMEs, towards the respective target ratios. Second, it is pioneering in using dynamic estimators and in using the two‐step estimation method, in studies of determinants of capital structure decisions of service and manufacturing SMEs.

Details

Management Research Review, vol. 34 no. 1
Type: Research Article
ISSN: 2040-8269

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Article
Publication date: 11 December 2017

Sung Gyun Mun and SooCheong (Shawn) Jang

The purpose of this study was to extend the understanding of restaurant firms’ overall debt and equity financing practices by considering what drives equity financing…

Abstract

Purpose

The purpose of this study was to extend the understanding of restaurant firms’ overall debt and equity financing practices by considering what drives equity financing. More importantly, this study attempted to identify whether an optimal financial leverage point exists in the relationship between debt financing and equity financing for restaurant firms.

Design/methodology/approach

This study used fixed-effects regression models with a sample of 1,549 unbalanced firm-year panel data to identify restaurant firms’ financial practices and the impacts of financial constraints.

Findings

First, restaurant firms tend to issue long-term debt to pay back existing debt. However, the amount of debt does not exactly match the debt’s maturity. Second, small restaurant firms’ net debt financing, as well as net equity financing, has an inverted-U-shaped relationship with financial leverage. Finally, the effect of financial leverage on external financing significantly differs between small and large restaurant firms.

Practical implications

Restaurant firms routinely use both debt and equity financing interchangeably to manage their financial constraints and target debt ratio. Further, firm size is an important indicator of financial constraints, while equity financing plays an important role in managing an optimal target debt ratio.

Originality/value

This study is unique in that it considers determinants of restaurant firms’ long-term debt financing as well as equity financing. This study also examines differences in long-term debt and equity financing practices between financially constrained and unconstrained firms.

Details

International Journal of Contemporary Hospitality Management, vol. 29 no. 12
Type: Research Article
ISSN: 0959-6119

Keywords

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Article
Publication date: 9 February 2021

Kofi Mintah Oware and T. Mallikarjunappa

The purpose of the study is to examine the effect of corporate social responsibility (CSR) on debt financing (natural logarithm of debt and leverage ratios) of listed firms.

Abstract

Purpose

The purpose of the study is to examine the effect of corporate social responsibility (CSR) on debt financing (natural logarithm of debt and leverage ratios) of listed firms.

Design/methodology/approach

Using content analysis for data extraction, the study examines listed firms on the Bombay Stock Exchange (BSE) from 2010 to 2019 financial year. It uses a quantile regression and panel fixed effect regression as the model's application.

Findings

The study shows that CSR expenditure has a positive and strong correlation with debt financing (i.e. natural logarithm of long-term and short-term debts). The first findings show that CSR expenditure has a negative and statistically significant association with total leverage ratio, using conditional mean and median percentile. However, there is a positive and statistically significant association between CSR expenditure and long-term leverage ratio at the 25th and 50th percentile. The second findings show that CSR expenditure has a positive and statistically significant association with long-term debt but an insignificant association with short-term debt and total debt under a conditional mean average. The application of quantile regression addresses the values that fall outside the confidence interval and therefore document a positive and statistically significant association between CSR expenditure and debt financing (short-term debt, long-term debt and total debt) at the 25th, 50th and 75th percentile.

Originality/value

The introduction of quantile regression gives a novelty in CSR and debt financing study, which to the best of the authors’ knowledge, has not received any attention. Similarly, firms have better information on how to position their CSR expenditure to attract providers of debt financing.

Details

Journal of Financial Reporting and Accounting, vol. 19 no. 4
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 7 January 2019

Karren Lee-Hwei Khaw

This study aims to examine the relation between long-term debt and internationalization in the presence of the agency costs of debt and business risk.

Abstract

Purpose

This study aims to examine the relation between long-term debt and internationalization in the presence of the agency costs of debt and business risk.

Design/methodology/approach

Sample firms consist of 517 non-financial listed firms in Malaysia, with 4,197 firm-year observations from the year 2000 to 2014. This study uses panel data regressions and a series of robustness tests to examine the hypotheses.

Findings

The results show that multinational corporations (MNCs) are more likely to sustain less long-term debt than domestic corporations (DCs) to mitigate the costs related to agency problem and firm risk. Meanwhile, foreign-based MNCs maintain less long-term debt than local-based firms, and the finding is more significant at a higher degree of internationalization. Robustness tests confirm the negative relations.

Research limitations/implications

The findings indicate that the ongoing debate on the debt financing puzzle can be explained by internationalization. Moreover, the findings suggest that in addition to the systematic differences between MNCs and DCs, studies on the debt financing and internationalization should also account for the systematic differences among MNCs such as the local-based MNCs, foreign-based MNCs and DCs that later expand their business operations abroad.

Practical implications

MNCs have to be responsive to the diverse institutional environments as they diversify their business operations geographically. When the adverse effects of internationalization outweigh the benefits, MNCs could use the long-term debt financing decision to mitigate the costs of doing business abroad. This is because debt financing is also a primary concern in the corporate financial decisions for the maximization of shareholders’ wealth.

Originality/value

This study contributes to the debt financing literature from the international perspective by providing evidence from an emerging market. In addition, this study highlights the importance of recognizing firms by their firm-specific characteristics, such as internationalization, given the systematic differences among firms.

Details

Journal of Asia Business Studies, vol. 13 no. 1
Type: Research Article
ISSN: 1558-7894

Keywords

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Article
Publication date: 23 January 2009

Joshua Abor and Nicholas Biekpe

The purpose of this study is to examine the determinants of capital structure decisions of small and medium enterprises (SMEs) in Ghana. The issue is very relevant…

Abstract

Purpose

The purpose of this study is to examine the determinants of capital structure decisions of small and medium enterprises (SMEs) in Ghana. The issue is very relevant considering that SMEs have been noted as important contributors to the growth of the Ghanaian economy.

Design/methodology/approach

Regression model is used to estimate the relationship between the firm level characteristics and capital structure measured by long‐term debt and short‐term debt ratios.

Findings

The results of the study suggest that variables such as firm's age, size, asset structure, profitability, and growth affect the capital structure of Ghanaian SMEs. Short‐term debt is found to represent an important financing source for SMEs in Ghana.

Originality/value

The findings of this study have important implications for policy makers and entrepreneurs of SMEs in Ghana.

Details

Journal of Economic Studies, vol. 36 no. 1
Type: Research Article
ISSN: 0144-3585

Keywords

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Article
Publication date: 1 March 2000

Paul C. Trogen

Despite balanced budget requirements, each year most states carry short term debt (STD) across fiscal years. Logit analysis results suggest structural fiscal stress causes…

Abstract

Despite balanced budget requirements, each year most states carry short term debt (STD) across fiscal years. Logit analysis results suggest structural fiscal stress causes states to carry STD across fiscal years. This strategy may not be rational, because STD is a tool for smoothing short-term shortfalls, and not for correcting structural fiscal stress. Cross sectional time series analysis results suggest both structural and cyclical factors influence the amount of year end STD. Findings suggest STD amounts fluctuate as a rational temporary replacement for long-term debt, growing when long term rates rise and decreasing when they fall.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 12 no. 3
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 1 January 1997

Jeffrey A. Zimmerman

This paper investigates the relationship between government borrowing and long‐term interest rates utilizing a loanable funds framework to describe the interest rate…

Abstract

This paper investigates the relationship between government borrowing and long‐term interest rates utilizing a loanable funds framework to describe the interest rate determination process. Three measures of government borrowing are examined. The results indicate that there is not a significant relationship between government borrowing and long‐term interest rates.

Details

Studies in Economics and Finance, vol. 17 no. 2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 25 January 2008

Tarek I. Eldomiaty and Mohamed H. Azim

The purpose of this paper is to examine firms' strategies to change long‐ and short‐term debt financing in Egypt. It aims to examine a list of capital structure…

Abstract

Purpose

The purpose of this paper is to examine firms' strategies to change long‐ and short‐term debt financing in Egypt. It aims to examine a list of capital structure determinants that include the basic assumptions of the three well‐known theories of capital structure: tradeoff, pecking order, and free cash.

Design/methodology/approach

The paper utilizes the properties of partial adjustment model for three heterogeneous systematic risk classes: high, medium and low. The sensitivity analysis is carried out using the “extreme bound analysis”.

Findings

The results indicate that Egyptian firms adjust short‐ and long‐term debt according to the class of systematic risk; long‐term debt is a source of financing at all classes of systematic risk; firms have obvious tendency to extent short‐ to long‐term one; medium risk firms adjust long‐term debt according to the industry average debt, and depend heavily on long‐term debt financing; firms depend significantly and constantly on the liquidity position to adjust short‐term debt levels; and medium risk firms are relatively affected by the basic assumptions of free cash flow and low‐risk firms are relatively affected by the assumptions of the pecking order theory.

Research limitations/implications

In general, the results provide evidence that the three theories have transitory effect from developed markets to transitional markets. In addition, the firm‐specific variables (industry characteristic, size and time) provide an additional support to the robustness of the results.

Originality/value

Few, if any studies, have been carried out in Egyptian data.

Details

International Journal of Emerging Markets, vol. 3 no. 1
Type: Research Article
ISSN: 1746-8809

Keywords

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