Testing Trade-Off and Pecking Order Predictions about Dividends and Debt

Determinants of capital structure and firm financial performance—A PLS-SEM approach: Evidence from Malaysia and Indonesia

https://dspace.stir.ac.uk/bitstream/1893/25777/1/EPOH_dm.pdf

Pecking order and market timing theory in emerging markets: The case of Egyptian firms

We examine whether the behavior of institutional investors representatives on boards leads to observable differences in corporate finance. We find that directors representing pressure-sensitive investors (i.e., banks and insurance companies) prefer lower financial leverage whereas pressure-resistant directors (i.e., mutual funds and pension funds) show no particular preference. When analyzed separately, directors appointed by banks and insurance firms have different attitudes. Bank representatives on boards increase both the financial leverage and the banking debt. This result suggests that some types of institutional directors provide financial resources to the firms on whose board they sit, supporting the view that boards manage the uncertainty associated with strategic decision making and provide firms with preferential access to resources and financial expertise. This research has interesting academic and policy implications for the debate over the proper degree of institutional involvement in corporate governance. Different institutional investors have different agendas and incentives for corporate governance, and, therefore, both researchers and policy makers should no longer consider institutional investors as a whole. In addition, our paper calls for new research on the causes and implications of institutional investor involvement in the corporate governance of nonfinancial firms. This new research could require new insights on the dynamics within the boards and on the interplay among the knowledge, incentives and attitudes of quite different directors.

Institutional investors on boards: Does their behavior influence corporate finance?

The purpose of this paper is to examine the determinants of capital structure using a dataset of firms in Malaysia.,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.,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.,The results of this study necessitate formulation of various policy measures that can counter the effects of debt on firms.,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.

Determinants of capital structure: evidence from Malaysian firms

In this paper, we analyze how country-specific differences influence capital structure indirectly through firm-specific variables. We apply a system Generalized Method of Moments technique to a panel data sample of companies from five countries (France, Germany, Italy, Spain and the United Kingdom) during the period 1998–2008. As the different financial systems of European economies (bank-oriented or market-oriented) may influence capital structure differently through firm-specific variables, we first examine the determinants of capital structure for each country separately and we then analyze whether the observed differences between the United Kingdom and the continental European countries are relevant. The results show that there are substantial differences in the capital structure choices of firms across five major European countries. These differences are motivated by the type of financial systems of the countries (bank-oriented and market-oriented) and influence the capital structure indirectly through the firm-specific variables. Overall, our results support the relevance of the differences in the capital structure choices of firms across five major European countries, and in particular, the singularity of the United Kingdom (a market-oriented economy) as opposed to continental European countries (bank-oriented economies).

Determinants of Capital Structure: United Kingdom Versus Continental European Countries†

The study applies a GMM technique to a panel data sample of 2,093 private Spanish companies, 1,434 of which are family firms to investigate whether or not the capital structure of family business differs from that of non-family firms. The results show that family firms are more indebted than non-family firms. Moreover, the factors that have an influence on capital structure have different impacts on family firms and non-family firms. Furthermore, our findings also reveal that the financial structure (leverage ratio) of family firms changes with the size of the business and the firm’s life cycle, and that the variables that explain the financial behaviour of the family firms have different levels of importance, depending on the size of the business and the firm’s life cycle. © 2017, Faculty of Social Sciences. All rights reserved.

Determinants of capital structure: Family businesses versus non-family firms

This study suggests the preponderance of the pecking order theory over the trade-off theory when there are greater problems of information asymmetry, which is more usual in small-sized firms The results show that debt level has an inverse relationship with non-debt tax shield and direct relationship with investment in fixed assets, supporting the trade-off theory However, the positive coefficient of growth opportunities and negative coefficient of debt cost, age and cash flows is consistent with the prediction of the pecking order theory Results taken from a sample of small Spanish companies in the footwear sector during the period 1998–2006, revealed that in absence of asymmetric information, firms with positive cash flows will prefer debt because (a) they want to maintain their optimal capital structure; (b) they have greater needs to shield this cash flow from corporate tax and (c) they are concerned about the problem of over-investments, which means that they issue debt in order to discipline the firm’s managers The relationship between growth opportunities and debt level was positive This is not surprising due to the need to finance these investment opportunities with debt, because rapidly growing firms are likely to have insufficient earnings to finance internally all of their growth Furthermore, the low debt level of companies in the Spanish footwear sector also helps to explain this relationship due to the importance of R&D investments for this industry, which lenders value as strategic investments Finally, small businesses face high transaction costs derived from typical agency problems and financial restriction on capital markets Such high transaction costs justify the gap between the target and the current debt level and are responsible for the slow approach of their debt level to the target ratio

https://link.springer.com/content/pdf/10.1007%2Fs13209-012-0085-8.pdf

Capital structure of small companies in the Spanish footwear sector: relevant factors

This study contributes to a broader knowledge of initial public offerings (IPOs) underpricing in second and main markets. We analyse the particular case of the London Stock Exchange. In the second market, we distinguish between those companies that do not meet the main market listing requirements and those companies that, even though they meet the main market listing requirements, decide to float on the second market. The results show that there is less underpricing for firms that float on the main market than for companies listed on the second market regardless of whether those companies meet the main market listing requirements. Moreover, behind the underpricing, we find several variables related to firm and/or offering characteristics and market information and observe different behaviours in the explanatory variables for underpricing depending on the group to which the company belongs.

IPO underpricing in the second and main markets: The case of the London Stock Exchange

This study contributes to broadening knowledge concerning the underpricing of initial public offerings (IPOs) in second markets. In particular, we analyse the price formation process of IPOs on the first trading day for a sample of 567 IPOs placed in the London’s Alternative Investment Market. Our findings, after stating that underpricing is significantly positive, show that price variation, observed through the underpricing variable, is related to several offer-specific characteristics, such as subscription proportion, offering price and share adjustment. Underpricing is also related to several control variables (offering size, previous IPO number and previous market return).

Miguel A. Acedo-Ramírez

Papers

Determinants of Capital Structure: United Kingdom Versus Continental European Countries†

Determinants of capital structure: Family businesses versus non-family firms

Capital structure of small companies in the Spanish footwear sector: relevant factors

IPO underpricing in the second and main markets: The case of the London Stock Exchange

IPO characteristics and underprincing in the Alternative Investment Market