A literature review of the trade−off theory of capital structure

Purpose of the study: The purpose of this study is to investigate the effect of corporate Islamic bond issuance, internal and macroeconomic factors on firm's profitability. The internal factors involved potentially as determinants of profitability are leverage and firm size. Meanwhile, the macroeconomic factors are economic growth and the inflation rate. Methodology: The sample is taken from companies listed at Indonesia Stock Exchange (IDX) and selected from 24 companies. The sample is 21 companies whose data completely and issued the Islamic bond during the period 2012 until 2018. Moreover, the panel data regression was employed as an analytical tool to test the data. Main Findings: The results suggest that Islamic bond issuance and financial leverage have a negative influence on profitability, firm size has no significant influence on profitability, and economic growth and inflation rate have a positive influence on profitability. Applications of this study: A firm, as well as an investor, must consider the lower Islamic bond issuance and debt proportion. Besides, they should anticipate decreased economic growth and the inflation rate. Novelty/Originality of this study: This study observes evidence from Indonesia Stock Exchange (IDX) that develops the previous studies and adds references for further studies about Islamic bond issuance. Also, it combines Islamic fund source and firm-specific internal as well as macroeconomic factors (economic growth and inflation rate) macroeconomics factors insert what are the macroeconomic factor which affects the profitability of the business to give a clear picture of how the effect of all factors on profitability.

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“…The examination of panel data regression using the random effect model generates equation estimation as expressed in Eq. (8).…”

Section: Resultsmentioning

confidence: 99%

“…ROA it = 0.0349 -***0.0132 IBI it -***0.0049 DER it -0.0016 FSZ it + ***0.0173 EGR it + ***0.0044 INR it (8) The result of the random effect model, as presented in Table 1 and Eq. (8) suggests that IBI, DER, EGR, and INR significantly affect the ROA at the probability value of 0.0063; 0.0077; 0.0079; and 0.0067 respectively.…”

Section: Resultsmentioning

confidence: 99%

Investigating the Role of Issuing Corporate Islamic Bond and Selected Determinants on Firm's Profitability

Najmudin

Widiastuti

Taufiqurrahman

2020

HSSR

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“…Therefore, any combination of debt or equity is good. This theory suggests that the optimal capital structure is achieved when there is a trade-off between the marginal value of the benefits associated with debt and the costs associated with debt issuance (Cekrezi, 2013).…”

Section: Classical Theories Of Financing Decisionsmentioning

confidence: 99%

The Empirical Study of the Impact of Firm- and Country-level Factors on Debt Financing Decisions of ICT Firms

Alexeeva-Alexeev¹

2023

Sci. Ann. Econ. Bus.

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The capital structure has been extensively analysed in the empirical literature. Despite of the great contribution of the technological industry to the global economy, little research has been conducted regarding corporate finance of ICT firms. Moreover, the previous literature barely considers the effect of macroeconomic variables on financial decisions, focusing much more on internal determinants, such as cash flow, firm’s size or growth opportunities. The objective of this work is to reduce this gap by disentangling the reasons behind the financial decisions of technological firms. The sample included 1,510 public ICT firms from 23 countries over the period 2004 – 2019 (17,342 observations). The variables used in this study are obtained from S&P Capital IQ, World Development Indicators, Main Science and Technology Indicators from OECD, and FMI dataset. The two-step system generalized method of moments (GMM) was used as methodology. Consistent with the extant literature, more profitable and liquid ICT firms and those with an increased non-debt tax shields are less leveraged. However, the companies which present higher risk, measured as volatility of EBIT, increase their use of debt financing. Contrary to the findings of many other studies, the analysis of a firm’s size and tangible assets shows non-conclusive results. Regarding macroeconomic determinants, only economic growth and foreign direct investment inflows were found to generate a positive effect on financial decisions of ICT firms. The findings of this work can be used to design and develop policies, measures, and facilitate mechanisms for optimal management of the financing decisions of ICT firms.

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“…Trade-Off Theory. Menurut Brealey dan Myers (2003) yang dikutip dalam Cerkezi (2013) teori ini menyatakan bahwa perusahaan berusaha mencapai rasio utang target yang sesuai pada saat dimana manfaat marjinal sama dengan biaya marjinal utang. Manajer perusahaan menilai dan menganalisis berbagai biaya dan manfaat dari berbagai alternatif rencana utang.…”

Section: Kajian Teoriunclassified

Pengaruh Struktur Kepemilikan, Keputusan Keuangan Dan Risiko Bisnis Terhadap Kinerja Perusahaan

Ellen

Nuringsih

2020

JMK

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The purpose of this study was to determine the effect of managerial ownership, institutional ownership, investment decisions, funding decisions, and business risk on performance which is proxied by the return on assets of manufacturing companies on the Indonesia Stock Exchange period 2014-2018. The sampling method uses purposive sampling with 64 companies as sample so the total number of observations is 320 years. The results of the study found that managerial ownership and institutional ownership had insignificant positive effect while investment decision, funding decision, and business risk variables produced a significant influence on the company's fundamental performance. Tujuan penelitian ini untuk mengetahui pengaruh kepemilikan manajerial, kepemilikan institusional, keputusan investasi, keputusan pendanaan, dan risiko bisnis terhadap kinerja yang diproksi dengan return on assets perusahaan manufaktur di Bursa Efek Indonesia periode 2014-2018. Metode pengambilan sampel menggunakan purposive sampling dengan 64 perusahaan sebagai sampel sehingga jumlah keseluruhan observasi sebanyak 320 tahun-perusahaan. Hasil penelitian menemukan bahwa kepemilikan manajerial dan kepemilikan institusional berpengaruh positif secara tidak signifikan sedangkan variabel keputusan investasi, keputusan pendanaan, dan risiko bisnis menghasilkan pengaruh signifikan terhadap kinerja fundamental perusahaan.

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A literature review of the trade−off theory of capital structure

Abstract: Starting with Modigliani and Miller theory of 1958, capital

Cited by 9 publications

References 29 publications

Investigating the Role of Issuing Corporate Islamic Bond and Selected Determinants on Firm's Profitability

Investigating the Role of Issuing Corporate Islamic Bond and Selected Determinants on Firm's Profitability

The Empirical Study of the Impact of Firm- and Country-level Factors on Debt Financing Decisions of ICT Firms

Pengaruh Struktur Kepemilikan, Keputusan Keuangan Dan Risiko Bisnis Terhadap Kinerja Perusahaan

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