The Pecking Order, Trade-Off, Signaling, and Market-Timing Theories of Capital Structure: A Review

Miglo, Anton

doi:10.2139/ssrn.1629304

Cited by 15 publications

(14 citation statements)

References 104 publications

(78 reference statements)

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“…Various theories have been developed over these years, offering determinants of leverage and decision making of firms on their capital structure, though the empirical analyses of these theories have sometimes offered conflicting results. Some of these theories included pecking order theory, trade-off theory, signalling theory, managerial timing theory etc (Miglo, 2010). In some other theories, the concept of "dynamic capital structure" was introduced which endeavoured to overcome the limitation of static or one-period capital structure models (Sorokina, 2014).…”

Section: The Evolution Of Capital Structure Theories Of Firms and Banksmentioning

confidence: 99%

Determinants of capital structure decisions among publicly listed Islamic banks

Khokher¹,

Alhabshi²

2019

10.5267/j.msl

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This research aims to examine bank specific, market and regulatory determinants of leverage and capital structure based on a panel data of publicly listed Islamic banks in 12 countries over the period 2008-2017. Apart from testing standard corporate finance parameters using both OLS and M-Estimators, this study adds several idiosyncratic and regulatory environment related determinants of leverage unique to Islamic banks. The significance of potential determinants is tested for market and book leverage as well as newly introduced 'Islamic banking leverage'. Overall, the results show that Islamic banks with higher growth opportunities, tangibility, low profitability and low risk are likely to have a high leverage. Similarly, the findings suggest important role played by debt market conditions, share of investment accounts and regulatory environment in such decisions, providing an evidence of the significance of trade-off and pecking order theory in capital structure in Islamic banks. The results are more robust for market and Islamic banking leverage, rather than book leverage. The findings offer insights to regulators, standard setters and especially Islamic banks regarding parameters to strengthen their capital, enhance resilience and thus contribute to the stability of relevant financial. This paper is among the few extant studies that focus on listed Islamic banks and tests determinants based on stock market data.

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Section: The Evolution Of Capital Structure Theories Of Firms and Banksmentioning

confidence: 99%

Determinants of capital structure decisions among publicly listed Islamic banks

Khokher¹,

Alhabshi²

2019

10.5267/j.msl

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“…According to Ahmadinia et al (2012) pecking theory is the consequence of asymmetric information; it does not take an optimal capital structure as a starting point. Information asymmetries exist in almost every facet of corporate finance and they significantly complicate the managers' ability to maximize firm values (Miglo, 2010).…”

Section: Literature Reviewmentioning

confidence: 99%

Capital structure and profitability. A case of JSE Listed Companies

Mashavave¹,

Tsaurai

2015

RGC

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The research aims to find out the relationship between capital structure and profitability focusing on firms listed on the Johannesburg stock exchange in South Africa. Past research on this topic excluded the Johannesburg Stock Exchange listed firms. The research results will be useful to the business people in South Africa because it will be more in line with the South African economic status and thus relevant. From the graphs and tables of the companies analyzed, it appears there is no relationship between the capital structure and profitability. The fluctuations in the debt/equity ratio and profitability ratio are so severe to such an extent that no meaningful conclusion regarding the relationship between capital structure and profitability can be made. The outcomes are haphazard there is no uniformity and consistence on the outcomes. Other hindrances to the relationship between capital structure and profitability were also discovered and these were attributed to the environmental factors of the company such as economic, political, and social and all other external forces that companies under study were exposed to.

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“…In the 1980-s and 1990-s, several researches on capital structure were conducted with reference to the STT and POT theory. In Miglo (2010), two study groups were noted, one that is pro and the other is against the POT theory. The group that was pro POT included Myers (1984), Baskin (1989), Allen (1993 and Adedeji (1998), meanwhile the contra group included Shyam-Sunders and Myers (1999) and Frank and Goyale (2003).…”

Section: Static Trade-off and Pecking Order Theoriesmentioning

confidence: 99%

“…(2002) and Hovakimian (2005). The pro and contra on the Market Timing Theory, according to behavioralists such as Kant (2003) and Miglo (2010), is due to the internal condition of the firm and external factors (capital market situation). Those that are in favor of MTT maintain that the capital market creates an investor sentiment whereas the internal condition of the company affects the management's action in making financial decisions.…”

mentioning

confidence: 99%

“…Both quantitative-minded STT theories emphasize more on the optimal leverage to secure the firm from any financial distress while the POT focuses on optimum priority in capital issuing. On the other hand, the psychological factor in capital structure decisions maintained by behavioralists such as Kant (2003) and Miglo (2010) is quite interesting to be considered. In the study by Graham and Harvey (2001), a psychological approach on capital structure was applied in a survey on CFOs in USA.…”

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confidence: 99%

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An Empirical Study on Market Timing Theory of Capital Structure

Setyawan¹

2011

IRJBS

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The theory of capital structure has advanced remarkably. This development began as many firms had options to consider various external factors determining the composition of debt and equity. Not only the asymmetric information or the conflict among bondholders and shareholders initiated the Pecking Order Theory and the Static Trade-off Theory respectively but also the overvalued or undervalued of stock price had to be taken as a determinant factor for identifying the ideal debt-equity mix. The author maintains these factors as they were pioneers to this theory on Market Timing Theory (MTT) introduced by Baker and Wurgler (2002). The essence of this theory is described when stock prices are overvalued, firms will finance projects through debts, otherwise the firms will be undervalued and be relied on equity financing. Using the methodology introduced by Baker and Wurgler (2002), the author selected only samples of IPOs of firms during [2008][2009] to limit the scope of this study. The main objective of this study is to test the hypothèses of Market Timing Theory formulated by Dahlan (2004) and by Kusumawati and Danny (2006) which have been proven by the GLS model, and the OLS model-like as in Baker and Wurgler (2002), Susilawati (2008) and Saad (2010. This study concludes that the market-to-book ratio has a negative effect on the market leverage. The implication is that when firms achieve certain level of earnings growth, the stock price will be overvalued, so it would be the right timing for firms to proceed equity financing. Under the robustness test with GLS Random Effect, the hypothèses of MTT is supported.

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The Pecking Order, Trade-Off, Signaling, and Market-Timing Theories of Capital Structure: A Review

Cited by 15 publications

References 104 publications

Determinants of capital structure decisions among publicly listed Islamic banks

Determinants of capital structure decisions among publicly listed Islamic banks

Capital structure and profitability. A case of JSE Listed Companies

An Empirical Study on Market Timing Theory of Capital Structure

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