Dynamic analysis of the capital structure in technological firms based on their life cycle stages

Castro, Paula; Fernández, María Teresa Tascón; Tapia, Borja Amor

doi:10.1080/02102412.2015.1088202

Cited by 13 publications

(34 citation statements)

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“…The two hypotheses proffered above are supported by various studies of the capital structure of high-tech companies, where the coefficient value with the variable depends on the model specification [20] or the company's life cycle [22].…”

Section: Methodology Of the Studymentioning

confidence: 89%

“…This approach to the definition of the explanatory variable is maintained in all such studies, the varieties of debt just change (for instance, long-term and short-term). Turning to the studies already considered in the literature review, some authors use in the analysis the ratio of long-term debt to the book value of assets [22], while others use the total liabilities while maintaining the balance sheet approach to determining equity capital [13; 23]. Based on this, we will focus on using the ratio of total liabilities to the book value of the company's assets (Leverage) as a dependent variable.…”

Section: Methodology Of the Studymentioning

confidence: 99%

“…There are two main approaches to the calculation of this variable. First, it can be calculated as the natural logarithm of the total assets value [22], and second, as the natural logarithm of the amount of the sales proceeds [1]. In this article, the choice has been made in favor of the second method, since this variable shows more stable and significant results in the regression analysis (which is given below).…”

Section: Methodology Of the Studymentioning

confidence: 99%

“…This is notable, as in most cases public companies have great financial potential in terms of investing in the development and improvement of products, processes and technologies, and therefore play an important role in the process of generating innovations. This gap is filled with the work by P. Castro and M. Tascón [22], who study the capital structure of public European companies. The authors argue that the information asymmetry challenge, which is vividly manifested for small companies, also directly influences the position in the debt capital market of listed firms, despite their obviously greater openness and transparency for market participants.…”

Section: Literature Reviewmentioning

confidence: 99%

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Capital Structure of Innovative Companies in BRICS Countries

Agliardi

Krupin

2019

КФ

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This article aims to identify the main business and economic determinants of capital structure in a sample of innovativecompanies from BRICS countries.We achieve this by presenting a comparative analysis of 1,437 high-tech and 1,485 non-innovative companies in thepharmaceuticals, electronics, IT, and telecommunications sectors between 2008 and 2015. We conduct a regressionanalysis using a significant number of variables, such as profitability, size, proportion of tangible assets, and growthpotential. The highlighted parameters are then examined in order to identify the characteristic features displayed in thecapital structure of innovative firms.Our results indicate that the following company characteristics are relevant in determining capital structure: informationasymmetry costs (those which are associated with the unique activities of innovative companies), high growthpotential generated by the availability of network effects, a high innovative applicability, low marginal and transportcosts, and a high proportion of intangible assets. Moreover, we found that there is a distinct difference in the capitalstructure of companies as they vary in levels of innovation. An innovative company’s proportion of intangible assetshas a multidirectional effect on the debt amount. The potential for growth is also a significant factor which has apredominantly negative effect on the level of an innovative company’s financial leverage. Levels of borrowing are overalllower for innovative firms.Our major conclusion, drawing from the results above, is that innovative companies in BRICS countries use relativelylittle debt in the case of high growth potential. This indicates a general need to overcome the information asymmetrychallenge in order to increase the growth rates of individual companies.The scientific novelty of this analysis relates most strongly to the broadness of scope of our investigation, the focuson BRICS countries specifically, and the applicability of its conclusions in wider business and economic contexts. Thebreadth of data from a wide range of companies and sectors (both innovative and non-innovative), and the high numberof companies utilized in the study, lend our evaluation an undeniable credibility within its scope, especially where itupholds similar conclusions in related literature of narrower focus. As a corollary to this, it may be conceivably assertedthat these results are not merely applicable to individual companies, or even sectors of the economy, but due to theirwide field of origin, they can have economy-wide implications on business and financial strategies.

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Section: Methodology Of the Studymentioning

confidence: 89%

Section: Methodology Of the Studymentioning

confidence: 99%

Section: Methodology Of the Studymentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

See 2 more Smart Citations

Capital Structure of Innovative Companies in BRICS Countries

Agliardi

Krupin

2019

КФ

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“…Vast and diverse empirical research exists in this field, but only a few papers have recently addressed some aspects of the financial structure of ICT firms. Castro, et al (2015) analyze the effect of a firm's life-cycle stages on capital structure in tech versus non-tech firms using a sample of firms from Europe and provide evidence that tech firms use less debt than non-tech firms during all lifecycle stages. Hogan and Hutson (2005) using a sample of Irish software firms report evidence that internal funds provide the most important source of funding in new technology-based firms and that equity financing, rather than debt financing, provides the main source of external finance.…”

Section: Introductionmentioning

confidence: 99%

Determinants of Optimal Capital Structure and Speed of Adjustment: Evidence From the U.S. ICT Sector

Canarella

Miller

2019

SSRN Journal

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We employ a dynamic adjustment model (Flannery and Rangan, 2006) to investigate the determinants of capital structure and speed of adjustment (Drobetz and Wanzenried, 2006) in a panel of 85 U.S. ICT firms over the years 1990 to 2013. We estimate the capital structure using a wide range of factors commonly used in the empirical literature (growth and investment opportunities, profitability, firm size, default risk, and industry median capital structure). We expand on this literature to include two additional determinants: asset turnover, an inverse measure of firm agency costs (Morellec, et al., 2012;Ang, Cole, and Lin, 2000), and R&D activity (Aghion, et al., 2004). We find that the speed of adjustment increases with firm size, growth opportunities, and distance from the target capital structure, and decreases with default risk and agency costs. We also find that R&D expenditures and agency costs cause firms to maintain lower levels of debt. We employ four recently developed estimators in dynamic panel-data econometrics: the double-censored fractional estimator (Elsas and Florysiak, 2011), the bias-corrected least-squares dummy-variable estimator (Bruno, 2005), the iterative bootstrap-based bias correction for the fixed-effects estimator (Everaert and Pozzi, 2007), and the fixed-effects quasi-maximum-likelihood estimator (Kripfganz, 2016;Hsiao, et al., 2002). In addition, our panel-data regression results show that in the ICT sector, the leverage ratio exhibits high persistence. Moreover, it positively relates to growth and investment opportunities, firm size, capital investment, and industry median capital structure, and negatively relates to profitability and default risk. 1.conservative than that of non-ICT firms and that the equity dependence of ICT firms directly links to the ICT firms' R&D investments. Aghion, et al. (2004) using U.K. data determine that firms that report R&D more likely raise funds by issuing shares than firms that report no R&D. Moreover, this probability increases with R&D intensity. Firms that report R&D hold lower debt compared to those that do not, and debt tends to fall as R&D intensity rises. Bruinshoofd and de Haan (2005) analyze the financial behavior of a sample of North-American and Western-European firms during 1991-2002 and document that ICT firms are indeed what they are always said to be: relatively information intensive and risky firms. Do ICT firms make different financial choices than non-ICT firms? Are they "really different" (Bruinshoofd and de Haan, 2005)?Capital structure holds an important place in corporate finance studies for more than a half century, since the seminal work of Modigliani and Miller (1958). They argued, under several restrictive assumptions, that capital structure does not affect the value of the firm and the cost of capital. Theoretical developments on this issue place much emphasis on relaxing the assumptions originally made by Modigliani and Miller (1958), in particular accounting for bankruptcy costs (Titman, 1984), agency costs (Jensen and Meck...

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How does a firm's life cycle influence the relationship between carbon performance and financial debt?

2021

Self Cite

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In a progressively more stringent regulatory context concerning greenhouse gas emissions derived from a growing awareness of how economic activity affects our environment, this study analyzes how the firm's life cycle affects the relationship between carbon performance and financial debt. Using panel data on a sample of European listed firms during the 2005-2018 period, we find evidence suggesting that firms with better carbon performance have greater access to external financing during their growth stages and lesser access during maturity, although it has no effect during the shake-out stage. Furthermore, carbon performance has a strong positive effect during growth, maturity, and shake-out when firms need to finance additional tangible investments. We also find that the negative relationship between liquidity and debt is reversed during innovative stages for firms with better carbon performance. Our results are robust to the use of alternative measures of life cycle stages and to the consideration of industrial, legal, and cultural contexts.

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Dynamic analysis of the capital structure in technological firms based on their life cycle stages

Cited by 13 publications

References 53 publications

Capital Structure of Innovative Companies in BRICS Countries

Capital Structure of Innovative Companies in BRICS Countries

Determinants of Optimal Capital Structure and Speed of Adjustment: Evidence From the U.S. ICT Sector

How does a firm's life cycle influence the relationship between carbon performance and financial debt?

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