Financial restructuring and target capital structure

Abstract

Purpose This paper aims to present an iterative algorithm that yields the amount of debt contracting/repayment or equity investment necessary to achieve the target capital structure. The model also helps to estimate the gains in shareholder value that result from financial restructuring process and lead to the optimal leverage ratio. Design/methodology/approach The paper maintains that certain benchmarks – i.e. industry average financial leverage and unlevered beta corrected for cash – make it possible to determine the parameters of the optimal capital structure for the company, so a failure to adjust to the target may result in value destruction. Findings The paper presents an iterative algorithm that yields the amount of debt contracting/repayment or equity investment necessary to achieve the target capital structure. Originality/value The proposed algorithm overcomes the methodological problems of existing approaches to the estimation of shareholder value gained through financial restructuring and implicitly solves the circularity problem in the calculation of the weighted average cost of capital.

The Ideal Debt Ratio of an Agricultural Enterprise

“…In this article, the relationship between ROE and the debt ratio of an average company operating in the agricultural sector was used to determine the moment of positive leverage function. Mielcarz et al [55] developed an iterative algorithm to determine the optimal company capital structure so that companies would be able to create value for investors and creditors. In relation to their findings, the algorithm eliminates the inaccuracy of the WACC calculation for the calculation of the EVA Entity indicator.…”

Relevankah Teori Struktur Modal Di Indonesia?

“…Kondisi ini terjadi karena adanya penambahan ang gota komisaris independen hanya sebagai pencapaian kepatutan tujuan. Implikasinya, tugas dewan komisaris independen belum maksimal, sementara pemegang saham tertinggi masih memiliki peranan penting di dalam setiap pertimbang an yang akan ditentukan terhadap struktur modal perusahaan (Mielcarz et al, 2018;Oino & Ukaegbu, 2015).…”

“…Valaskova et al (2019) menambahkan dengan teori agensi (agency theory) terkait struktur modal. Namun, selama ini permasalahan penelitian tentang teori struktur modal didekati secara terpisah dan memberikan hasil yang berbeda-beda (Acaravci, 2015;Al-Maghzom et al, 2016;Kyissima et al, 2019;Mielcarz et al, 2018;Nguyen et al, 2019;Rani et al 2019;Sharma, 2018).…”

“…Jensen & Meckling (1976) berargumentasi bahwa biaya keagenan mencakup biaya pengawasan, biaya bonding, dan biaya akibat turunnya kesejahteraan prinsipel, sedangkan Asad et al (2020) dan Brown et al (2019) menunjukkan satu cara untuk meminimalkan permasalahan keagenan dengan melakukan tata kelola perusahaan dengan baik (GCG). Penelitian dilakukan menguji relevansi teori struktur modal dengan konsep teori agensi, bahwa corporate governance berdampak terhadap struktur modal (Devos et al, 2017;Jaisinghani & Kanjilal, 2018;Mielcarz et al, 2018;Sherif, 2015;Susanti et al, 2017;Sakr & Bedeir, 2019;Shyu, 2013;Su, 2010).…”

The Determinants of Capital Structure: A Comparative Study between Sharia and Non-Sharia Manufacturing Companies in Indonesia Stock Exchange (IDX)

“…It also can be achieved by minimizing the Weighted Average Cost of Capital (WACC) (Damodaran, 2012). However, a number of empirical evidences show that the statement may not fully consider the complexity between the set of endogenous variables, which has been known to influence the capital structure decision (Paweł, Dmytro, & Ryszard, 2018). According to Agency theory, the management, as the agent of company's shareholders, tends to behave opportunistically.…”