Theories of Capital Structure: Evidence From an Emerging Market

Pandey, Indra; Chotigeat, T.

doi:10.1108/eb028777

Cited by 18 publications

(23 citation statements)

References 32 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…However, we do not give equal attention to the relationship between determinants and leverage. This is because many of our findings are consistent with earlier related work done on Malaysia like Booth et al (2001), Deesomsak et al (2004), Pandey and Chotigeat (2004), Dzolkarnaini (2006), De Jong et al (2008), Driffield andPal (2010) andMat Nor et al (2011), and little purpose would be served with long discussions that would largely repeat what is in the existing literature. Instead, we will focus on analyzing factors affecting speed of adjustment in Malaysia firms.…”

Section: Past Studies On Dynamic Capital Structuresupporting

confidence: 90%

Factors Affecting Speed of Adjustment to Target Leverage: Malaysia Evidence

Haron

Ibrahim

Nor

et al. 2013

Global Business Review

View full text Add to dashboard Cite

This study focuses on the dynamic aspect of capital structure which is a relatively new area in the finance literature. By employing panel data, 790 of non-financial listed firms in Malaysia are examined for the period 2000-2009. Conducted using the dynamic Partial Adjustment Model and estimated based on the Generalized Method of Moment, this study investigates the existence of target capital structure, speed of adjustment and factors affecting speed of adjustment. There are evidences of target capital structure and firms do adjust to be at their target from time to time with a considerably rapid speed of adjustment, in line with dynamic trade-off theory. Firms in Malaysia are found to be under-adjusted, being below the required adjustment to be at the target within a year. Study on factors affecting speed of adjustment is a new contribution to the literature as no work has been done regarding this issue in Malaysia. This study also analyzes firm-specific factors affecting speed of adjustment. There is strong evidence on the negative relationship between the speed of adjustment and distance from target leverage suggesting fast adjustment if not being far from target. Firm size and profitability significantly influence speed of adjustment for firms in Malaysia.

show abstract

Section: Past Studies On Dynamic Capital Structuresupporting

confidence: 90%

Factors Affecting Speed of Adjustment to Target Leverage: Malaysia Evidence

Haron

Ibrahim

Nor

et al. 2013

Global Business Review

View full text Add to dashboard Cite

show abstract

“…Likewise, Ozkan (2002) divulged that business risk exerts the negative effect on debt ratios. Moreover, business risk has a negative correlation with long-term debt ratios (Pandey & Chotigeat, 2004). De Jong, Kabir, and Nguyen (2008) confirm the negative relation between business risk and leverage in Malaysian-listed firms.…”

Section: Literature Reviewmentioning

confidence: 58%

“…Note. As a result of this, firms meet their financing needs through debt despite high stock return volatility (Pandey & Chotigeat, 2004). Dependent variable is different capital structure measures such as short-term, long-term, and total debt ratios that are scaled by total assets of the firm.…”

Section: Resultsmentioning

confidence: 99%

See 1 more Smart Citation

Stock return volatility and capital structure measures of nonfinancial firms in a dynamic panel model: Evidence from Pakistan

Ahmed

Hla

2018

Int. J Fin Econ

View full text Add to dashboard Cite

We investigate the impact of stock return volatility on different capital structure measures of nonfinancial firms in a dynamic panel model. Two‐step system generalized method of moment dynamic panel estimator is applied to nonfinancial sector's data from Pakistan Stock Exchange over the period 2001–2014. The results imply that stock return volatility has a significant negative impact on book leverage and long‐term market leverage ratios. However, stock return volatility causes the increase in total market leverage ratios. Moreover, book leverage and long‐term market leverage of firms decrease as a result of an increase in stock return volatility in different classification of firms. Conversely, stock return volatility has a significant positive impact on total market leverage ratios in those classifications of firms. Capital structure decisions are more sensitive to stock return volatility as default risk increases. Firms significantly go for the reduction in their debt financing due to high stock returns volatility and to avoid from possible consequences of default. The results are robust to alternative measures such as cash flow volatility and earnings volatility.

show abstract

“…Moreover, Pandey [18] argues that capital structure can affect the firm value. Therefore the purpose of the company should be directed at maximization of its value by examining its capital structure or financial leverage decision.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

The Effect of Asset Structure and Firm Size on Firm Value with Capital Structure as Intervening Variable

Setiadharma¹,

Machali²

2017

J Bus Fin Aff

View full text Add to dashboard Cite

Secondly, firm value is affected by firm size. According to Brealey and Myers, a big firm has wide-spread stock, but it will make the stock less controlled/dominated from a certain party. On the other hand, stocks owned by a small firm are only distributed in a small area. A big firm tends to take a risk in selling their stock to maintain the needs of sales growth. Total of assets owned by a firm indicates the firm size. The bigger the firm size, the easier it is to get internal or external source of funds, which will affect the firm value itself. Previous studies which investigate the effect of firm size on firm value shows different results. Mule et al. [5] show that corporate size has no statistically significant impact on firm market value. The study done by Berger and Patti shows that firm size affects positively on firm value [6].Thirdly, firm value is affected by capital structure. Funding plays an important role in a business. Setbacks are often caused by financial problems, which are caused by limited source of funds and rejection in applying a loan. Funding policy is an important matter that later will be used as indicator in determining the proportion between loan and equity. The first thing that has to be done by firm management is to increase firm value by carefully setting a capital structure. Before setting the capital structure, a firm has to understand fully the main components of capital structure. An optimum capital structure is the one which maximizes the stock price. Excessive loans may detain the firm development and make the share holder think twice before investing. A capital structure is a serious matter for a firm because the quality of capital structure may affect the firm's financial state and the firm value as well. Studies in testing the effect of capital structure on firm value have been done by Ogbulu and Emeni, Kausar et al. [7], Aggarwal and Padhan [8], Sumiati and Manihuruk [9], however, the results are inconsistent. Study done by Ogbulu and Emeni shows that long-term debt and equity as components of capital structure, LongKeywords: Asset structure; Firm size; Capital structure; Firm value IntroductionThe trending investments nowadays are in the form of land, building, and property. This results in the fast growing of property and real estate industry. Land's price which increases by 25% each year also contributes in the growing of the firm industry. The firm value in this sector increases significantly in the past 5 years, which make the capital gain has increased by 187% as well. This enhancement is also the result of the increase in investor (share holder) who invests their money in the capital market. Firm value is a measurement of the upcoming firm's management success and it is able to increase the credibility of the firm towards the shareholder. If the needs of shareholders are fulfilled, it will have a good impact on the firm value. Considering the purpose of increasing the firm value, the firm needs to be cautious in making decision and considers the impact to the stoc...

show abstract

Theories of Capital Structure: Evidence From an Emerging Market

Cited by 18 publications

References 32 publications

Factors Affecting Speed of Adjustment to Target Leverage: Malaysia Evidence

Factors Affecting Speed of Adjustment to Target Leverage: Malaysia Evidence

Stock return volatility and capital structure measures of nonfinancial firms in a dynamic panel model: Evidence from Pakistan

The Effect of Asset Structure and Firm Size on Firm Value with Capital Structure as Intervening Variable

Contact Info

Product

Resources

About