What Managers Think of Capital Structure Theory: A Survey

Pinegar, J. Michael; Wilbricht, Lisa

doi:10.2307/3665800

Cited by 184 publications

(119 citation statements)

References 24 publications

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“…Jensen and Meckling (1976) argue that, managers do not always pursue shareholders interest. To mitigate this problem, the leverage ratio should increase (Pinegar and Wilbricht, 1989). …”

Section: Agency Theory Of Capital Structurementioning

confidence: 99%

Determinants of Capital Structure of Banks: Evidence from Sub-Sahara Africa

Anarfo

2015

Asian Economic and Financial Review

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This study seeks to examine the determinants of capital structure of banks in Sub-Sahara Africa. Keywords: Capital structure, Return on asset, Total debt ratio, Long term debt ratio, Short term debt ratio, Asset tangibility. This study has employed the use of panel data techniques to analyze the determinants of capital structure of banks in sub-Sahara Africa The dependent variables used in the study were short-term debt ratio (STDR), long-term debt ratio (LTDR) and the total debt ratio (TDAR Contribution/ OriginalityMost empirical studies that examine the determinants of capital structure have been done for developed or specific country and there is little evidence in Sub-Sahara Africa. This study 625variables as determinants of capital structure of banks. This study is one of very few studies which have investigated the determinants of capital structure of banks in Sub-Sahara Africa. This study contributes by determining the significant variables that determines banks capital structure in Africa.

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“…Jensen and Meckling (1976) argue that, managers do not always pursue shareholders interest. To mitigate this problem, the leverage ratio should increase (Pinegar and Wilbricht, 1989). …”

Section: Agency Theory Of Capital Structurementioning

confidence: 99%

Determinants of Capital Structure of Banks: Evidence from Sub-Sahara Africa

Anarfo

2015

Asian Economic and Financial Review

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“…This paper focuses in particular on financial flexibility attained through a conservative leverage policy. Survey evidence suggests that it is financial flexibility that primarily drives chief finance officers' leverage choices (Pinegar and Wilbricht (1989); Graham and Harvey (2001); Bancel and Mittoo (2004);Brounen, De Jong, and Koedijk (2004)). Companies may implement a conservative leverage policy to maintain "substantial reserves of untapped borrowing power" (Modigliani and Miller (1963), p. 442), which allows them to access the capital market in the event of positive shocks to their investment opportunity set.…”

Section: Introductionmentioning

confidence: 99%

Financial Flexibility Across the Euro Area and the UK

2013

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AcknowledgementsWe would like to thank the participants of the internal seminar at the European Central Bank (ECB) and at the Eastern Finance Association Meeting 2013. We are also thankful to an anonymous referee for useful comments. This research was conducted while Marchica and Mura were visiting the ECB, whose hospitality and support are gratefully acknowledged. The views expressed in this paper only reflect those of the authors and should not be attributed to the ECB. Annalisa Ferrando (corresponding author)European Central Bank; e-mail: annalisa.ferrando@ecb.int Maria-Teresa Marchica University of ManchesterRoberto Mura University of Manchester 1 AbstractWe use a large database of more than 685,000 European firms to show that financial flexibility attained through conservative leverage policies is more important for private, small, medium-sized and young firms and for firms in countries with lower access to credit and weaker investor protection. Further, using the recent financial crisis as a natural experiment, we show that financial flexibility status allows companies to reduce the negative impact of liquidity shocks on their investment decisions. Our findings support the hypothesis that financial flexibility relates to companies' ability to undertake future investment, despite market frictions hampering possible profitable growth opportunities. JEL Classification: G31, G32, D92Keywords: low leverage, financial flexibility, investment, cross-country analysis 2 Non-technical summaryIn an environment where capital markets are imperfect and the cost of external financing increases, companies may implement a conservative leverage policy to maintain "substantial reserves of untapped borrowing power" as pointed out by Modigliani and Miller (1963). This may allow them to access the capital markets in the event of positive shocks to their investment opportunity set.The purpose of our study is twofold. First, we investigate how a conservative debt policy aimed at maintaining financial flexibility can enhance corporate investment ability. Second, we study the value of financial flexibility across a very heterogeneous sample of both publicly traded and privately held firms that vary substantially in size, age, and quality of institutional settings.Our analysis is based on a rich database of more than 685,000 firms from eight euro area countries and the UK. We first identify financially flexible firms (FF) as those that...

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“…Studies of Kester (1986) on a comparison of debt policies of US and Japanese manufacturing firms; Krasker (1986), Narayanan (1988), Tit man and Wessels (1988), Pinegar and Wilbricht (1989) (2011) all provide emp irical evidence supporting this theory. In accordance with these empirical find ings, Shyam-Sunder and Myers (1999) clearly evaluates the pecking order theory as an excellent first order descriptor of corporate finance behavior.…”

Section: The Pecking Order Theorymentioning

confidence: 94%

Capital Structure Choice and Firm Value: New Empirical Evidence from Asymmetric Causality Test

Demirgüneş¹

2017

IJFR

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This study aims to analyze the possible asymmetric causal relat ionship between capital structure and firm value by emp loying the asymmetric causality test of Hatemi-J (2012), on a time series data of Turkish manufacturing industry (consisting of Borsa Istanbul listed manufacturing firms) for the period of 1990.Q1-2015.Q4. Test results point out a unidirectional asymmetric causal relationship between capital structure and firm value, indicating that capital structure Granger-cause firm value when shocks are negative, but not when shocks are positive. More exp licit ly, a decrease in total debt ratio leads to a decrease in the market-to-book value rat io. Considering the effect of only negative shock, this empirical finding also supports partial evidence to the validity of trade-off theory which pred icts a positive relationship between debt level and firm value.

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What Managers Think of Capital Structure Theory: A Survey

Cited by 184 publications

References 24 publications

Determinants of Capital Structure of Banks: Evidence from Sub-Sahara Africa

Determinants of Capital Structure of Banks: Evidence from Sub-Sahara Africa

Financial Flexibility Across the Euro Area and the UK

Capital Structure Choice and Firm Value: New Empirical Evidence from Asymmetric Causality Test

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