Role of Country-specific Factors on Capital Structure Decision—Evidence from Sri Lankan Listed Firms

Buvanendra, S.; Sridharan, P.; Thiyagarajan, S.

doi:10.1177/0972150916630454

Cited by 7 publications

(6 citation statements)

References 48 publications

(57 reference statements)

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“…It has important theoretical as well as practical implications for business activities and academia. Furthermore, most studies focus on well-developed financial markets and very little is known about corporate FF in less developed financial markets and emerging markets (Buvanendra et al , 2016). The present study contributes to filling this gap in the literature and provides a more practical and functional framework to assess the FF of firms located in emerging economies.…”

Section: Discussionmentioning

confidence: 99%

“…For example, Bastos et al (2009) found no significant impact of inflation on leverage. Buvanendra et al (2016) investigated the impact of country-specific factors, such as rate of inflation, size of capital market, corporate tax rate, civil unrest, gross domestic product (GDP) growth and prime lending rate, on capital structure choices among Sri Lankan firms listed in the Colombo Stock Exchange. They state that no selected country-specific variables have any direct influence on the capital structure decision of firms.…”

Section: Review Of Literaturementioning

confidence: 99%

“…In the literature of corporate finance, it is well accepted that firms’ endogenous and external country-level factors determine corporate financing decisions (Rajan and Zingales, 1995; Buvanendra et al , 2016). Multinational firms have better access to external finance than domestic firms, due to their international access to funds, hence local macroeconomic and institutional factors have less impact on multinational firms (Jang, 2017).…”

Section: Introductionmentioning

confidence: 99%

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The role of macroeconomic and institutional factors in creating corporate financial flexibility

Mahmood

Rashid

Rizwan

et al. 2019

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Purpose The purpose of this paper is to investigate the role of macroeconomic factors and the institutional environment on corporate financial flexibility (FF). Most studies focus on well-developed financial markets and very little is known about corporate FF in less developed financial markets and emerging markets (Buvanendra et al., 2016). The present study contributes to filling this gap in the literature and provides a more practical and functional framework to assess the FF of firms located in emerging economies. Design/methodology/approach The study used annual data for the period from 1991 to 2018. To examine the relationship between macroeconomic indicators, institutional environment and corporate FF, hypotheses were tested using an unbalanced panel logistic regression model. Findings The paper provides empirical insights into the relationships between macroeconomic factors, institutional environment and corporate FF. The results suggest a substantial change in FF across firms. Inflation, institutional quality and banking sector development negatively affect FF, while equity market development has a significant positive impact. Gross domestic product growth was found to be an insignificant predictor of FF. Practical implications This study has practical implications for corporate finance managers, regulators and investors, who must consider the significant factors of this study when making economic decisions. Finance managers can thus make appropriate decisions regarding capital structure and FF. Regulators of the banking sector can take appropriate measures to enhance competition and increase the development of the banking sector. Further, regulators of the equity market can enhance the development of the market to enhance the supply of capital. Originality/value This study adds to the literature showing that not only firm-specific factors affect corporate FF, but country-specific macroeconomic and institutional factors also have a significant effect. It also adds to the literature in the area of corporate FF; this field is in its initial stage, even in developed countries, while, in developing countries, little work has been done.

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Section: Discussionmentioning

confidence: 99%

Section: Review Of Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The role of macroeconomic and institutional factors in creating corporate financial flexibility

Mahmood

Rashid

Rizwan

et al. 2019

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“…Companies can use funding sources that come from capital or debt, to realize this increase in their businesses. This means that there is a tendency for an increase in the companies' debt, due to an increase in the economy (Gajurel, 2011;Buvanendra, Sridharan and Thiyagarajan, 2016;Rodrigues et al, 2017;Bokpin, 2009;Mahmud, 2003). Therefore, capital structure is one of the important policies for management in the corporate financial management (Nguyen, Bui, & Pham, 2019;Nguyen & Nguyen, 2020).…”

Section: Introductionmentioning

confidence: 99%

Determinants of Debt Policy for Public Companies in Indonesia

Mukhibad¹,

Subowo²,

Maharin³

et al. 2020

JAFEB

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This research seeks to determine the influence of investment opportunity set (IOS); profitability (Return on Assets -ROA), liquidity, business risk and firm size on debt policy. We used 42 manufacturing companies registered on the Indonesian Stock Exchange (Bursa Efek Indonesia) as object research. We used purposive sampling method to determined samples, consider the period observation from 2012 to 2016, and produce 168 units analysis. Data analysis uses the multiple regressions with the SPSS tools. The results of the study found that companies' debt policies in Indonesia are negatively affected by the liquidity. Investment opportunity set (IOS) has negative effect on debt policy. Meanwhile, ROA, Return on Invested Capital (ROIC), and firm size of a company has no impact on debt policy. These findings indicate that Indonesian manufacture companies do not see the high investment opportunity set and profitability as a policy basis for increasing debt. Moreover, the high profitability also does not cause companies to increase their debt ratio. Our study indicates that Indonesian manufacture companies use internal funds to fund their investment. This finding is a concern for creditors, as they can now see the ability of the companies, and especially their performance, in determining their credit policies.

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“…While some studies reveal a positive relationship between macroeconomic factors and CFF of firms, others suggest a negative relationship (Khémiri and Noubbigh, 2018). Conversely, certain studies have also identified an insignificant effect of macroeconomic variables on CFF of firms (Buvanendra et al , 2016).…”

Section: Literature Reviewmentioning

confidence: 99%

Do selected board governance mechanisms strengthen the link between institutional and macroeconomic variables and the financial flexibility of corporations? Empirical evidence from an emerging economy

Wijerathna,

Anuradha,

Ajward

2024

JABS

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Purpose This study aims to explore the relationship between institutional and macroeconomic factors and corporate financial flexibility while also investigating the moderating impact of selected board governance mechanisms on this relationship. Design/methodology/approach The sample of the study comprises 174 firms listed on the Colombo Stock Exchange for a period of eight years, from 2014 to 2021. Data were collected from secondary sources, and both descriptive and inferential statistical techniques were used for analyses. Findings Corporate financial flexibility is notably affected by profitability as an institutional factor and by gross domestic product growth rate and banking sector development as macroeconomic factors. Furthermore, the relationship between a company’s profitability and corporate financial flexibility is found to be moderated by selected board governance mechanisms. However, these governance mechanisms do not influence the relationship between corporate financial flexibility and other institutional factors (i.e. other than profitability) and macroeconomic factors considered in this study. Originality/value This study adds a fresh perspective to the existing body of knowledge in the field of corporate finance by emphasizing the interaction effect of board governance mechanisms on the association between macroeconomic and institutional variables and financial flexibility of firms. The findings are expected to be useful for business decision-makers in managing their corporate financial flexibility effectively and maximizing the use of their financial resources.

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Role of Country-specific Factors on Capital Structure Decision—Evidence from Sri Lankan Listed Firms

Cited by 7 publications

References 48 publications

The role of macroeconomic and institutional factors in creating corporate financial flexibility

The role of macroeconomic and institutional factors in creating corporate financial flexibility

Determinants of Debt Policy for Public Companies in Indonesia

Do selected board governance mechanisms strengthen the link between institutional and macroeconomic variables and the financial flexibility of corporations? Empirical evidence from an emerging economy

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