Adjustment speed towards target capital structure and its determinants

Memon, Pervaiz Ahmed; Md-Rus, Rohani; Ghazali, Zahiruddin

doi:10.1080/1331677x.2020.1860792

Cited by 10 publications

(9 citation statements)

References 47 publications

(106 reference statements)

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“…This measure is essential as firms with superior earnings relative to their assets generally exhibit lower leverage, primarily due to the diminished need for external debt financing in light of substantial retained earnings. A recent paper by Memon et al (2021) examined the determinants of optimal capital structure in Pakistan; their findings highlight that profitability plays a role, along with other factors. We also investigate the relationship between depreciation expenses and debt issuance.…”

Section: Literature Reviewmentioning

confidence: 99%

Dynamic Capital Structure Adjustment: An Integrated Analysis of Firm-Specific and Macroeconomic Factors in Korean Firms

Choi,

Sauka,

Lee

2024

IJFS

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This research investigates the factors influencing the capital structure of 271 non-financial firms listed on the Korean Stock Exchange (KSE) over a broad period from 1995 to 2021, encompassing both stable and crisis conditions. Employing a dynamic panel data model and the generalized method of moments (GMM) estimation, we address the endogeneity issue introduced by the inclusion of lagged dependent variables. Our research integrates firm-specific internal factors with macroeconomic external variables to provide a comprehensive understanding of the influence of varying economic environments on capital structure. Our study suggests that in times of economic stability, the capital structure decisions of a firm are more influenced by internal factors such as profitability. However, in periods of economic downturns, it is the external macroeconomic market conditions that tend to have a greater impact on these decisions. It is also noteworthy that both book leverage (BL) and market leverage (ML) exhibit quicker adjustments during stable periods as opposed to periods of crisis. This indicates a higher agility of firms in adapting their capital structures in stable, normal conditions. Our findings contribute to the existing literature by offering a holistic view of capital structure determinants in Korean firms. They underscore the necessity of adaptable financial strategies that account for both internal dynamics and external economic conditions. This study fills a gap in current research, presenting new insights into the dynamics of capital structure in Korean firms and suggesting a multifaceted approach to understanding capital structure in diverse economic contexts.

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Section: Literature Reviewmentioning

confidence: 99%

Dynamic Capital Structure Adjustment: An Integrated Analysis of Firm-Specific and Macroeconomic Factors in Korean Firms

Choi,

Sauka,

Lee

2024

IJFS

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“…Therefore, it is inevitable that in the process of capital structure adjustment, the effect of non-state-owned shareholder's governance on the adjustment speed of capital structure will be impacted by such asymmetry. Memon et al [24] show that the downward adjustment is more sensitive and timelier than upward adjustment. Consequently, in the process of dynamic adjustment of capital structure, SOEs' senior executives are more likely to speed up the downward adjustment and reduce the degree of deviation due to the over-indebted enterprise's capital structure, since under the pressure of high debt by the supervision and restraint of non-state-owned shareholders.…”

Section: H1: the Higher The Degree Of Governance Of Non-state-owned S...mentioning

confidence: 99%

Governance of non-state-owned shareholders and corporate capital structure decision: A mechanism test from the opportunistic behavior of management

Wang¹,

Liao

et al. 2023

PLoS ONE

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It is an important measure in the reform of state-owned enterprises to improve the efficiency of capital operation by introducing non-state-owned shareholders. This paper explores the impact of non-state shareholder governance on capital structure decision-making by using the data of 2008–2021 A-share state-owned listed companies from the perspective of the speed and deviation of capital structure adjustment. The results reveal that only non-state shareholding has no significant impact on the capital structure adjustment of a company. However, the appointment of senior management by non-state shareholders can speed up the capital structure adjustment and lower the degree of capital structure deviation. Moreover, when the capital structure goes down, the appointment of non-state-owned shareholders plays a larger role in accelerating the capital structure adjustment, which makes the deviation from the actual capital structure and the target capital structure smaller. Further research shows that the above relationship between non-state shareholder governance and the optimization and adjustment of the capital structure only exists in local SOEs and competitive SOEs. In addition, the path test found that non-state shareholder governance affects the dynamic adjustment of capital structure by reducing opportunism behavior of management rather than by financing constraints.

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“…The importance of the scale of the organization that it considers to be one of the most important determinants of the capital structure. As a result, the larger the scale of the institution, the more diverse and less fluctuating annual earnings, which will reduce the financial liabilities associated with them, thereby improving their ability to withstand a high proportion of debt in oversized businesses with a smaller capital structure (Memon et al 2020). Thus, the TOT hypothesis sees a favorable relationship between the size of the company and the proportion of the leverage in the capital structure.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Hypothesis three: There is a significant relationship between floatation as element of capital structure with firm performance. As it can be seen in table (12), the correlation analysis between floatation as a skill of self-leadership as a tangible resource to measure its influence on firm performance in private hospitals in North America. The finding revealed that the value of Pearson correlation (r= .672 **, p<0.01), this indicated that there is positive and strong correlation between floatation as self-leadership skill and firm performance.…”

Section: Third Research Hypothesismentioning

confidence: 99%

“…This condition has led to a kind of multi-resolution analysis of the financing, a multiplicity of considerations affecting the organization and its directors, making it impossible to determine a single factor responsible for interpreting the financing decision, which makes it more difficult to understand. The position played by the heterogeneity of knowledge between managers and investors influences the decision on financing, as can be seen; this discrepancy in financial literature is behind the disparity in the decision on financing (Memon et al 2020).…”

Section: Introductionmentioning

confidence: 98%

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Capital Structure and Firm Profitability in Developing Countries

Charles¹

2022

OTS

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This research intended to investigate the influence of capital structure on private hospitals’ performance using a sample of 162 patients. The researchers used a quantitative approach to evaluate the impact of capital structure (Corporate governance, Ownership structure, and Constructive thought patterns) to measure the influence on sustained competitive advantage in private hospitals in North America. The research sample was chosen using a random sampling method and carried out in various locations in North America. A total of 175 questionnaires were issued, but only 162 participants completed them correctly. The results showed that the most effective relationship was between corporate governance as element of capital structure with firm performance, on the other hand the less effective relationship was between ownership as element of capital structure with firm performance. In addition, our results also suggest that the finance managers should use debts as last alternative in their capital structure. To the end, our study can be extended by incorporating more controlled variables, larger sample and longer period data in the regression models to get better results. Other measures and methodology can also be employed.

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Adjustment speed towards target capital structure and its determinants

Cited by 10 publications

References 47 publications

Dynamic Capital Structure Adjustment: An Integrated Analysis of Firm-Specific and Macroeconomic Factors in Korean Firms

Dynamic Capital Structure Adjustment: An Integrated Analysis of Firm-Specific and Macroeconomic Factors in Korean Firms

Governance of non-state-owned shareholders and corporate capital structure decision: A mechanism test from the opportunistic behavior of management

Capital Structure and Firm Profitability in Developing Countries

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