Open AccessJournal Article
Testing the Pecking Order and Signalling Theories for Financial Institutions in Ghana
TLDR
In this paper, the authors tested the theoretical basis of capital structure in Ghana and Africa at large and found that the pecking order and signalling theories are significantly applied by financial institutions in Ghana.Abstract:
Studies on the nature of capital structure of firms worldwide have focused on its impact on financial performance and its determinants, only few studies have tried to empirically test the theoretical basis of capital structure most especially in Ghana and Africa at large. From this backdrop, this study tested the pecking order theory which is of the view that there is a financing order and the signalling theory which suggests that a financial institution’s financing strategy sends diverse signals to potential lenders about the financial dependence. The results indicate that the pecking order and signalling theories are significantly been applied by the financial institutions in Ghana. This conclusion is arrived at after the panel data methodology was employed in the model estimation. The study therefore suggest that in as much as possible financial institutions should conform to the pecking order theory, they should implement policies which would increase their cash flow as it signals to investors that the firms are financially dependent. Keywords: Financial institution, Pecking Order Theory, Signalling Theory, Panel JEL: G3, M00, M1read more
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References
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The Capital Structure Puzzle
TL;DR: The Capital Structure Puzzle as discussed by the authors is a well-known problem in finance, and it has been studied extensively in the literature, e.g., The Journal of Finance, Vol. 39, No. 3, 1983 (Jul., 1984), pp. 575-592.
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The determination of financial structure: the incentive-signalling approach
TL;DR: In this paper, the authors show that if managers possess inside information about the activities of firms, then the choice of a managerial incentive schedule and of a financial structure signals information to the market, and in competitive equilibrium the inferences drawn from the signals will be validated.
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The Capital Structure Puzzle: The Evidence Revisited
TL;DR: In this article, the authors argue that taxes, bankruptcy costs, and information costs all appear to play an important role in corporate financing decisions, and the key to reconciling the different theories lies in achieving a better understanding of the relation between corporate financing stocks (the levels of debt and equity in relation to the target) and flows.
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Financial Signalling by Committing to Cash Outflows
S. Abraham Ravid,Oded Sarig +1 more
TL;DR: In this article, the authors analyze a model in which firms signal their quality by using financial policies to commit to cash outflows and find sufficient conditions for the informational equilibrium to entail con-commitant use of both dividends and leverage in the cost-minimizing combination of the commitment signal.