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Article

Imene Guermazi

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Research limitations/implications

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.

Practical implications

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.

Social implications

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

Originality/value

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.

Details

Islamic Economic Studies, vol. 28 no. 1
Type: Research Article
ISSN: 1319-1616

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Book part

Aida Brito, Carlos Pinho and Graça Azevedo

The present study aims to identify the determinants of the capital structure of restaurants firms in Portugal, as well as to analyze the application of capital structure…

Abstract

The present study aims to identify the determinants of the capital structure of restaurants firms in Portugal, as well as to analyze the application of capital structure theories in those companies.

In order to reach the objectives, a sample of 400 companies belonging to the restaurant sector was used. The analysis was carried out between 2008 and 2017, and multiple linear regression, based on panel data, was applied.

The obtained results allowed to verify that the considered variables have different effects on the capital structure of the companies under study and that the restaurant sector partially applies the trade-off, pecking order and signaling theories.

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Article

Erdinc Karadeniz, Serkan Yilmaz Kandir, Mehmet Balcilar and Yildirim Beyazit Onal

The purpose of this paper is to investigate the factors affecting capital structure decisions of Istanbul Stock Exchange (ISE) lodging companies.

Abstract

Purpose

The purpose of this paper is to investigate the factors affecting capital structure decisions of Istanbul Stock Exchange (ISE) lodging companies.

Design/methodology/approach

A model based on the trade‐off and pecking order theories is specified and implications of both theories are empirically tested. The model is estimated using a dynamic panel data approach for five ISE companies for the period of 1994‐2006.

Findings

The findings suggest that effective tax rates, tangibility of assets, and return on assets are related negatively to the debt ratio, while free cash flow, non‐debt tax shields, growth opportunities, net commercial credit position, and firm size do not appear to be related to the debt ratio. Although the findings partially support the pecking order theory, neither the trade‐off nor the pecking order theory exactly seem to explain the capital structure of Turkish lodging companies.

Research limitations/implications

The data used in this paper are limited to five companies traded in the ISE, since the data on other companies are not available. A more detailed analysis would use data for other companies in the industry.

Practical implications

The findings of the study clearly demonstrate the importance of capital structure decisions for financial sources.

Originality/value

Although the capital structure theory is extensively examined in the finance literature, there are fewer studies covering the tourism industry, particularly Turkey. The paper establishes the determinants of the capital structure of Turkish lodging companies. The research findings should help managers to make optimal capital structure decisions.

Details

International Journal of Contemporary Hospitality Management, vol. 21 no. 5
Type: Research Article
ISSN: 0959-6119

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Article

Carmen Cotei, Joseph Farhat and Benjamin A. Abugri

This paper aims to examine the link between financing patterns, information asymmetry and legal traditions in 37 countries during the 1990‐2004 period.

Abstract

Purpose

This paper aims to examine the link between financing patterns, information asymmetry and legal traditions in 37 countries during the 1990‐2004 period.

Design/methodology/approach

The analysis is based on three theories: the trade‐off theory, pecking order hypothesis and market timing hypothesis. The authors test the predictions of these theories/hypotheses using regression analysis. The econometric method used is panel data with firm and country fixed effects. The authors develop a modified pecking order model which controls for short‐ and long‐term debt level changes and simultaneously test the predictions of all theories.

Findings

Consistent with studies for US firms, the results show that firms across all countries adjust toward the target leverage, but with significantly different rate. The long‐term debt contribution in the rate of adjustment is 64 percent in common law countries and 51 percent in civil law countries. The ability of the model to explain changes in leverage ratios is higher in common law countries. The authors find support for market timing hypothesis but no support for pecking order of financing. These results support their conjecture that stronger investor protection, higher transparency and well‐developed financial markets in common law countries reduce the cost of recapitalization.

Research limitations/implications

The limitation of this study comes from lack of data availability to measure contract enforcement, transparency, and corporate governance variables. Future research can incorporate these variables to explain the differences in capital structure decisions across countries with different legal systems.

Practical implications

The findings show that firms' capital structure decisions are not only a function of their own characteristics but also the result of legal and financial market development in which they operate.

Originality/value

This is the first study that sheds light about rate of adjustment to optimal capital structure and pecking order of financing in 37 countries with different legal traditions and financial market developments. The authors are not aware of any other study that uses a modified pecking order model in an international context.

Details

Managerial Finance, vol. 37 no. 8
Type: Research Article
ISSN: 0307-4358

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Article

Abdulazeez Y.H. Saif-Alyousfi, Rohani Md-Rus, Kamarun Nisham Taufil-Mohd, Hasniza Mohd Taib and Hanita Kadir Shahar

The purpose of this paper is to examine the determinants of capital structure using a dataset of firms in Malaysia.

Abstract

Purpose

The purpose of this paper is to examine the determinants of capital structure using a dataset of firms in Malaysia.

Design/methodology/approach

This paper carries out a panel data analysis of 8,270 observations from 827 listed non-financial firms on the Malaysia stock market over the period 2008–2017. To estimate the model and analyse the data collected from the DataStream and World Bank databases, the authors use static panel estimation techniques as well as two-step difference and system dynamic GMM estimator.

Findings

The results show that profitability, growth opportunity, tax-shield, liquidity and cash flow volatility have a negative and significant impact on debt measures. However, the effects of collateral, non-debt tax and earnings volatility on measures of debt are positive and significant. In addition, firm size, firm age, inflation rate and interest rate are important determinants of the present value of debt. The results also show a significant inverse U-shaped relationship between the firm's age and its capital structure. In general, the results support the proposition advocated by the pecking order and trade-off theories.

Practical implications

The results of this study necessitate formulation of various policy measures that can counter the effects of debt on firms.

Originality/value

The present study is among the earliest to use both the book and market value measures of capital structure. It also uses three proxies for each: total debt, long-term debt and short-term debt. It incorporates earning volatility and cash flow volatility as new independent variables in the model. These variables have not previously been used together with both book and market value measures of capital structure. The study also examines the non-monotonic relationship between firm's age and capital structure using a quadratic regression method. It applies both static panel techniques and dynamic GMM estimation techniques to analyse the data.

Details

Asia-Pacific Journal of Business Administration, vol. 12 no. 3/4
Type: Research Article
ISSN: 1757-4323

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Book part

Kaouther Toumi, Waël Louhichi and Jean-Laurent Viviani

Purpose – The aim of this chapter is to analyse consequences of the consideration of ethical principles in the financial decisions process of banks. More specifically, we…

Abstract

Purpose – The aim of this chapter is to analyse consequences of the consideration of ethical principles in the financial decisions process of banks. More specifically, we study how the consideration of shariah principles could affect the capital structure of Islamic banks (IBs).

Design/methodology/approach – First, we apply the classical concepts and theories of capital structure (trade-off theory, pecking order theory, agency theory) in the specific context of IBs. Then, through a literature review, we propose some expected determinants of the capital structure of IBs.

Findings – Our theoretical analysis reveals that the trade-off theory is more suitable for IBs. Moreover, in Islamic institutions, information asymmetry and agency conflicts should be less important than in their conventional counterparts. However, our analysis does not allow us to conclude on the optimal combination of equity and non-equity financing.

Research limitations – In this study, we have not constructed a new capital structure theory specific to IBs but we apply the classical concepts and theories (information asymmetry, agency theory, trade-off theory, pecking order theory) to the Islamic context.

Originality/value – The study contributes to both the capital structure and the Islamic finance literature. There are few studies comparing IBs to conventional banks’ capital structure. Our chapter is the first, to our knowledge, which propose to theoretically explain the observed difference between these two categories of banks.

Details

Recent Developments in Alternative Finance: Empirical Assessments and Economic Implications
Type: Book
ISBN: 978-1-78190-399-5

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Article

Nadeem Ahmed Sheikh and Zongjun Wang

The aim of this empirical study is to explore the factors that affect the capital structure of manufacturing firms and to investigate whether the capital structure models…

Abstract

Purpose

The aim of this empirical study is to explore the factors that affect the capital structure of manufacturing firms and to investigate whether the capital structure models derived from Western settings provide convincing explanations for capital structure decisions of the Pakistani firms.

Design/methodology/approach

Different conditional theories of capital structure are reviewed (the trade‐off theory, pecking order theory, agency theory, and theory of free cash flow) in order to formulate testable propositions concerning the determinants of capital structure of the manufacturing firms. The investigation is performed using panel data procedures for a sample of 160 firms listed on the Karachi Stock Exchange during 2003‐2007.

Findings

The results suggest that profitability, liquidity, earnings volatility, and tangibility (asset structure) are related negatively to the debt ratio, whereas firm size is positively linked to the debt ratio. Non‐debt tax shields and growth opportunities do not appear to be significantly related to the debt ratio. The findings of this study are consistent with the predictions of the trade‐off theory, pecking order theory, and agency theory which shows that capital structure models derived from Western settings does provide some help in understanding the financing behavior of firms in Pakistan.

Practical implications

This study has laid some groundwork to explore the determinants of capital structure of Pakistani firms upon which a more detailed evaluation could be based. Furthermore, empirical findings should help corporate managers to make optimal capital structure decisions.

Originality/value

To the authors' knowledge, this is the first study that explores the determinants of capital structure of manufacturing firms in Pakistan by employing the most recent data. Moreover, this study somehow goes to confirm that same factors affect the capital structure decisions of firms in developing countries as identified for firms in developed economies.

Details

Managerial Finance, vol. 37 no. 2
Type: Research Article
ISSN: 0307-4358

Keywords

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Article

James H. Thompson and Bart H. Ward

Discusses alternative strategies which may be employed when differences arise between achieved audit‐sampling results and planned results, which means that risk levels…

Abstract

Discusses alternative strategies which may be employed when differences arise between achieved audit‐sampling results and planned results, which means that risk levels used in ex post decision making may be different from planned levels. Contrasts a conventional strategy — which is to fix the risk of incorrect acceptance at a planned level and to ignore the risk of incorrect rejection or to accept the minimum available level of that risk which is consistent, after the fact, with the planned level of risk of incorrect acceptance — with a theoretically appealing strategy which balances both risk levels in proportion to their perceived disutility. Reports on the results of an experiment involving these two strategies, in which all subjects were auditors with statistical audit experience. Suggests that the most important statistically significant finding is that, in certain circumstances, these auditors are more willing to base audit decisions on statistical evidence after the alternative strategy is explained and available for their use.

Details

Managerial Auditing Journal, vol. 8 no. 4
Type: Research Article
ISSN: 0268-6902

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Article

Gerardo Gómez, Ana Mena Rivas and Edmundo R. Lizarzaburu Bolaños

The purpose of this paper is to determine the factors that influence in the capital structure of non‐financial companies listed in the Stock Exchange of Lima.

Abstract

Purpose

The purpose of this paper is to determine the factors that influence in the capital structure of non‐financial companies listed in the Stock Exchange of Lima.

Design/methodology/approach

To achieve this goal, the authors used the panel data model with random effects. The study of the capital structure has focussed on the Trade‐off Theory which states that firms finance their investments for tax benefits, while the Pecking Order Theory states that companies have an order of priority on obtaining funding.

Findings

The results obtained confirm that profitability, size, collateral value of assets (CVA) and non‐debt tax shields (NDTS) are the factors that determine the level of long‐term debt of these Peruvian companies.

Practical implications

The results obtained confirm that profitability, size, CVA and NDTS are the factors that determine the level of long‐term debt of these Peruvian companies.

Originality/value

This paper is a first contribution on the determinants of the level of indebtedness of the companies in Peru. There is an extensive literature on the determinants of capital structure, but it is the first work done for the business sector in Peru.

Propósito

El objetivo de este trabajo es determinar los factores que influyen en la estructura de capital de las empresas no financieras peruanas que listan valores en la Bolsa de Valores de Lima.

Diseño/Metodología/Enfoque

Para lograr este objetivo se ha utilizado el modelo de datos de panel con efectos aleatorios. El estudio de la estructura de capital de las empresas se ha enfocado en la teoría del trade‐off que manifiesta que las empresas financian sus inversiones para obtener ventajas fiscales, mientras que la teoría del pecking order manifiesta que las empresas tienen un orden de prioridad al momento de obtener financiamiento.

Resultados

Los resultados obtenidos confirman que la rentabilidad, el tamaño, el valor colateral de los activos y la protección fiscal diferente a la deuda son los factores que determinan el nivel de endeudamiento a largo plazo de las empresas peruanas.

Originalidad

Este trabajo constituye una primera aportación sobre los determinantes del nivel de endeudamiento de las empresas en el Perú. Existe una extensa literatura sobre los factores determinantes de la estructura de capital, pero es el primer trabajo que se realiza para el sector empresarial peruano.

Details

Academia Revista Latinoamericana de Administración, vol. 27 no. 3
Type: Research Article
ISSN: 1012-8255

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Article

J.H.vH. de Wet

Determining an optimal capital structure for a company is a multi‐facetted problem that has challenged and fascinated academics and practitioners for a long time. This…

Abstract

Determining an optimal capital structure for a company is a multi‐facetted problem that has challenged and fascinated academics and practitioners for a long time. This study investigates capital structures used in different countries and industries and explores the different theories on capital structure that have been put forward to date. A trade‐off model, incorporating taxes and financial distress costs, is applied to determine the optimal capital structure for three companies listed on the JSE South Africa. One of the conclusions drawn from the results of this analysis is that great care needs to be taken in ensuring the reasonableness of the input data and the valuation model. Secondly, significant amounts of value can be unlocked in moving closer to the optimum level of gearing. Lastly, even when one is using a model such as the one illustrated, it may be preferable to try to operate within an acceptable interval rather than to try to attain the absolute optimum capital structure.

Details

Meditari Accountancy Research, vol. 14 no. 2
Type: Research Article
ISSN: 1022-2529

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