scholarly journals The Commitment Role of Equity Financing

2018 ◽  
Vol 17 (4) ◽  
pp. 1232-1260 ◽  
Author(s):  
Matthias Fahn ◽  
Valeria Merlo ◽  
Georg Wamser
Keyword(s):  
Capital Structure ◽  
Debt Financing ◽  
Negative Consequences ◽  
Equity Financing ◽  
Bankruptcy Risk ◽  
Optimal Capital Structure ◽  
Tax Shields ◽  
Optimal Capital ◽  
Financing Behavior

Abstract Existing theories of a firm’s optimal capital structure seem to fail in explaining why many healthy and profitable firms rely heavily on equity financing, even though benefits associated with debt (like tax shields) appear to be high and the bankruptcy risk low. This holds in particular for firms that show a strong commitment toward their workforce and are popular among employees. We demonstrate that such financing behavior may be driven by implicit arrangements made between a firm and its managers/employees. Equity financing generally strengthens a firm’s credibility to honor implicit promises. Debt, however, has an adverse effect on the enforceability of these arrangements because too much debt increases the firm’s reneging temptation, as some of the negative consequences of breaking implicit promises can be shifted to creditors. Our analysis provides an explanation for why some firms only use little debt financing. Predictions made by our theory are in line with a number of empirical results, which seem to stay in contrast to existing theories on capital structure.

scholarly journals Optimal Capital Structure for BOOT/BOT Model Hydropower Projects in Nepal

2019 ◽  
Vol 5 ◽  
pp. 117-122
Author(s):  
Anup Gautam ◽  
Santosh Kumar Shrestha
Keyword(s):  
Standard Deviation ◽  
Capital Structure ◽  
Financial Analysis ◽  
Equity Financing ◽  
Optimal Capital Structure ◽  
Secondary Sources ◽  
Hydropower Potential ◽  
Optimal Capital ◽  
Average Plant ◽  
The Cost

Nepal has a huge hydropower potential which is yet to be developed. Hydropower are capital intensive infrastructure where financing from single source is not practical, so a financial mix is essential, i.e. debt and equity financing. Projects have been practicing different financial structures. Therefore a proper capital structure is necessary for maximizing return from the hydropower project. The main objective of this research is to determine the parameters that influence hydropower financing, collect data on parameters, analyze them and determine the optimal capital structure for hydroelectric projects in Nepal. The data of operating hydropower projects are collected from secondary sources mainly Department of Electricity Development, Nepal Electricity Authority and other published internet sources. The data is processed and financial analysis is performed for numerous cases using an excel sheet powered by visual basic application. The key parameters affecting hydropower financing are total project cost, annual generation (Dry and wet energy), interest on loan and interest on equity while other parameters are not frequently variable. The feasibility of the project is found to be greatly influenced by the cost of development and generation revenue. The optimal capital structure of hydropower projects is dependent on the key parameters. The cost of hydropower development in Nepal is found to be diverse with an average per megawatt cost of NRs. 219.2 million and standard deviation of NRs. 65.9 million. Energy generation varies from time to time and plant to plant with an average plant factor of 0.53 (Standard Deviation 0.20) out of which 33.16% is dry energy. The cost of loan varies from 8% to 12% and the cost of equity ranges 12% to 16%. The optimal capital structure for BOOT model hydropower projects in Nepal falls in the range of 11% to 34% with an expected value of 20.79%.

scholarly journals Análisis empírico en México de estructuras de capital y su relación con las inversiones significativas (Empirical analysis of capital structures in Mexico and its relation with major investing decisions)

2018 ◽  
Vol 14 (28) ◽  
Author(s):  
Miguel Calzada Mezura
Keyword(s):  
Capital Structure ◽  
Corporate Finance ◽  
Equity Financing ◽  
Pecking Order ◽  
Optimal Capital Structure ◽  
Financing Decisions ◽  
Funding Sources ◽  
External Sources ◽  
Study Support ◽  
Optimal Capital

Las Teorías del Pecking Order (Financiamiento Selectivo) y la Estructura Óptima deCapital, mencionan diferentes teoremas para las decisiones de financiamiento. El estudio busca comprender cómo las empresas en México consideran las diferentes fuentes de financiamiento para realizar inversiones significativas. La técnica de estudio de eventos es utilizada para analizar estas decisiones en empresas mexicanas. Las conclusiones del presente estudio apoyan la Teoría del Pecking Order, estableciendo que las inversiones significativas, en el corto plazo, se financian principalmente por fuentes externas y que el financiamiento de capital sólo se observa en las empresas que están limitadas financieramente. Esta postura conlleva a la búsqueda dediferentes contextos para la aplicación o rechazo de la Teoría de la Estructura Óptima de Capital.Palabras clave: estructura de capital, financiamiento, finanzas corporativas, inversiones. Abstract. This study focuses on the Theories of Pecking Order and the Optimal Capital Structure (Also known as Tradeoff Theory). In relation with the theories mentioned above, previous studies described different hypothesis on financing decisions. This study, seeks to understand how companies in Mexico consider the different funding sources to invest in significant investments.The Event Study consideration is used to understand such financing decisions. The findings of this study support the Theory of Pecking Order, showing that significant investments in the shortterm are funded mainly by external sources and equity financing decisions are observed among companies that are financial constrained. This position leads to the search for different contexts in order to test the Optimal Capital Theory.Keywords: capital structure, corporate finance, financing, investments.

scholarly journals DETERMINANTS OF CAPITAL STRUCTURING: AN EMPIRICAL STUDY OF GROWTH AND FINANCING BEHAVIOR OF FIRMS OF TEXTILE SECTOR IN PAKISTAN

2012 ◽  
Vol 8 (2) ◽  
Author(s):  
Imran Umer Chhapra ◽  
Keyword(s):  
Capital Structure ◽  
Sample Size ◽  
Financial Management ◽  
Negative Relationship ◽  
Positive Contribution ◽  
Optimal Capital Structure ◽  
Independent Variables ◽  
Optimal Capital ◽  
Financing Behavior ◽  
Textile Sector

Purpose- Purpose of this study is to investigate the determinants of optimal capital structuring that affect growth and financing behavior of textile sector firms in Pakistan keeping in view the important role capital structuring plays in any firm's financial management decisions and the positive contribution it makes to the creation of firms' value and profitability. Methodology/sample- Size of the firm (capital), profitability, fixed assets structure and taxes were used as control variables to investigate the determinants of optimal capital structuring of textiles companies. A sample size of 90 textile companies across the country were selected and their data for the 2005 - 2010 period was used. The determinants of optimal capital structure were examined using correlation and regression analyses. F-value was calculated to test the fitness of the overall model. Findings- Results of the study showed a negative relationship between dependent variable financial leverage and independent variables. The statistical analysis of spinning and composite unit also showed consistency of results with the overall textile sector but the outcome of weaving unit showed a significantly positive relationship between dependent and independent variables. Practical Implications- The findings enhance the knowledge base of determinants of optimal capital structure and are likely to help companies take effective decision related to capital structure needs. Furthermore, the study is likely to help the decision makers better adjust themselves towards adopting and considering proficient ways of managing capital structure of a firm.

scholarly journals PERANAN STRUKTUR MODAL TERHADAP PROFITABILITAS PADA PERUSAHAAN TEKSTIL YANG TERDAFTAR DI BEI

2017 ◽  
Vol 1 (1) ◽  
pp. 20-39
Author(s):  
Pratikto Aji Prabowo
Keyword(s):  
Capital Structure ◽  
Return On Equity ◽  
Optimal Capital Structure ◽  
Equity Ratio ◽  
Optimal Capital ◽  
Additional Reference ◽  
The Capital Structure

Abstrak. Peranan Struktur Modal terhadap Profitabilitas pada Perusahaan Tekstil yang Terdaftar di BEI. Struktur modal merupakan salah satu keputusan penting manajer keuangan dalam meningkatkan profitabilitas perusahaan. Profitabilitas yaitu tingkat kemampuan perusahaan dalam menghasilkan laba, yang secara teoritis disebut Return On Equity (ROE). Tujuan penelitian ini adalah untuk mengetahui penyebab perusahaan tekstil yang terdaftar di BEI memiliki laba yang rendah dengan angka profitabilitas yang buruk dan menganalisis struktur modal yang optimal agar profitabilitas perusahaan tekstil yang terdaftar di BEI bisa optimal. Jenis penelitian yang digunakan dalam penelitian ini adalah kuantitatif. Hasil penelitian menunjukkan perusahaan yang memiliki rasio struktur modal dengan hasil perbandingan negatif adalah struktur modal pada perusahaan yang mengalami kerugian. Sedangkan struktur modal dengan hasil perbandingan positif adalah struktur modal pada perusahaan yang mengalami laba. Penelitian ini diharapkan bisa memberikan tambahan pengetahuan bagi pembaca mengenai pengaruh Debt to Equity Ratio (DER) terhadap profitabilitas (ROE), serta sebagai tambahan referensi untuk penelitian selanjutnya. Kata Kunci : ekuitas, hutang, profitabilitas Abstract. The Role of Capital Structure on Profitability in Textile Companies Listed on BEI. Capital structure is one of the important decisions of financial managers in improving the profitability of the company. Profitability is the level of a company's ability to generate profits, theoretically called Return On Equity (ROE). The purpose of this study is to determine the causes of textile companies listed on the BEI have a low profit with a poor profitability and analyze the optimal capital structure for profitability of textile companies listed on the BEI can be optimal. The type of research used in this study is quantitative. The results showed that firms that have a ratio of capital structure with the result of negative comparison is the capital structure in companies that suffered losses. While the capital structure with the result of a positive comparison is the capital structure in companies that experience profit. This research is expected to provide additional knowledge for readers about the effect of Debt to Equity Ratio (DER) to profitability (ROE), as well as additional reference for further research. Keywords: Equity, Debt, Profitability

Freeport-McMoRan: Financing an Acquisition

2017 ◽  
pp. 1-19
Author(s):  
David P. Stowell ◽  
Peter Rossmann
Keyword(s):  
Capital Markets ◽  
Credit Ratings ◽  
Investment Banking ◽  
Equity Capital ◽  
Debt Financing ◽  
Investment Banks ◽  
Publicly Traded ◽  
Optimal Capital Structure ◽  
Optimal Capital

Freeport-McMoRan's acquisition of Phelps Dodge created the world's largest publicly traded copper company. JPMorgan and Merrill Lynch advised the acquirer and arranged $17.5 billion in debt financing and $1.5 billion in credit facilities. In addition, these two firms underwrote $5 billion in equity capital through simultaneous offerings of Freeport-McMoRan common shares and mandatory convertible preferred shares. These financings created an optimal capital structure for the company that resulted in stronger credit ratings. The activities of the equity capital markets and sales groups at the underwriting firms are explored and the structure and benefits of mandatory convertible preferred shares is explained.To understand the role of investment banks in advising a large corporation regarding an acquisition and related financings in the capital markets. As part of this, the activities of an investment banking firm's equity capital markets group and their underwriting risks are analyzed. Finally, the structure of a mandatory convertible security is reviewed in terms of benefits to both issuers and investors.

scholarly journals The Moderating Role of Debt Financing on the Relationship Between Leverage and Performance: An Empirical Analysis of the Textile Sector of Pakistan

2018 ◽  
Vol 2 (1) ◽  
pp. 01-15
Author(s):  
Ummara Fatima
Keyword(s):  
Capital Structure ◽  
Textile Industry ◽  
Debt Financing ◽  
Debt Ratio ◽  
Optimal Capital Structure ◽  
Effect Model ◽  
Optimal Capital ◽  
And Performance ◽  
The Relationship ◽  
Textile Sector

The study examines how debt financing affects the leverage and performance relationship of the textile sector of Pakistan. The study also strives to elaborate the determinants of debt financing. Data has been collected from the annual reports of the textile companies listed at Pakistan Stock Exchange (PSE) for the years 2010-2015. Panel data techniques including Pooled OLS, Fixed Effect model, Random Effect model, and Moderated Panel Regression model were used for estimating the relationship between debt ratio, leverage and company-specific variables such as profitability and size. The results depict that the listed textile companies of Pakistan financed more than half of its assets by external borrowing. There is high asset tangibility in the Pakistani textile industry. The tax shield, which is the alternative of depreciation, is limited for the textile firms of Pakistan (Qamar, Farooq, Afzal & Akhtar, 2016). The independent variables’ interaction term with debt ratio shows a positive relationship with ROA other than asset tangibility. The trade-off theory suggests to follow a targeted optimal capital structure which is more favorable for a firm. Pakistani textile industry should adopt the model of optimal capital structure for balancing the costs and benefits.

Sign in / Sign up

Export Citation Format

Share Document