Evidence for Financial Hierarchy Theory in Capital Structure Decisions: Data from BIST Companies

Starting with the seminal work of Modigliani and Miller in 1958, various capital structure theories have been set forth by corporate finance researchers, such as the trade-off and financial hierarchy theories. The present research uses data from the survey questionnaire conducted with 158 Turkish construction companies to explain the financial decisions of contractors in terms of capital structure theories. Results reveal that firm age, size and asset values appear to be positively correlated to debt-equity ratio and the volatility of earnings and cash-flows are important determinants of leverage, confirming the trade-off theory. On the other hand, the construction sector clearly follows a financial order consistent with the financial hierarchy theory, but other propositions of the theory are not supported. Overall, it is concluded that capital structure decisions of construction firms cannot fully be explained by the existing models. Rather, firms appear to exploit “windows of opportunities” emerging from changes in macro-economic indicators, such as interest rates, GDP and resulting market conditions.

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Crisis Effects on the Capital Structure Determinants for Manufacturing Companies

Technology and Financial Crisis - Advances in Finance, Accounting, and Economics ◽

10.4018/978-1-4666-3006-2.ch019 ◽

2013 ◽

pp. 225-240

Author(s):

Osman Sahin

Keyword(s):

Data Analysis ◽

Capital Structure ◽

Stock Exchange ◽

Panel Data Analysis ◽

Hierarchy Theory ◽

Manufacturing Companies ◽

Crisis Period ◽

Istanbul Stock Exchange ◽

The Capital Structure

The purpose of the study is to investigate crisis effects on the capital structure determinants for manufacturing companies listed on the Istanbul Stock Exchange Market (ISE) in Turkey for the period 2005-2010. This period is divided into two parts: The period of 2005-2007 is used as pre-crisis period, and the period of 2008-2010 is used as a crisis period. The periods are compared to understand crisis effect on the capital structure determinants. The panel data analysis is used for this study. Short term, long term, and total debt ratios are used as a proxy for the analysis. The sample consists of 138 manufacturing companies in Turkey over the period of 2005-2010. As a result, manufacturing companies’ capital structure is usually determined in accordance with the financial hierarchy theory. During financial crisis, the effects of capital structure determinants deviate from expectations.

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Bank Characteristics Effect on Capital Structure: Evidence from PMG and CS-ARDL

Journal of Risk and Financial Management ◽

10.3390/jrfm13120310 ◽

2020 ◽

Vol 13 (12) ◽

pp. 310

Author(s):

Ahmet Erülgen ◽

Husam Rjoub ◽

Ahmet Adalıer

Keyword(s):

Capital Structure ◽

Causal Relationship ◽

Panel Data Analysis ◽

Hierarchy Theory ◽

Percentage Increase ◽

Deposit Rate ◽

Distributed Lag ◽

Long Run ◽

Short Run ◽

The Impact

The main aim of this paper was to investigate the impact of bank characteristics on capital structure empirically. The study employed a panel data analysis, Pooled Mean Group (PMG) and Cross-Sectionally Augmented Autoregressive Distributed Lag (CS-ARDL) estimators were utilized, for the period spans between the years 2008 and 2018. Both the borrowing (leverage) ratio and equity ratio used in the analysis cover short-term deposits and long-term deposits as a fundamental determinant variable on the capital structure. The main findings confirm that the deposit ratio has a positive relationship with the size of the bank. In other words, big banks use more foreign sources than small banks to use the tax shield advantage. At the same time, a percentage increase in bank size and liquidity ratio enhance the bank deposit rate by 0.0068% and 0.479%, respectively, in the long-run, while a percentage change in interest income coverage will reduce the bank deposit rate by 0.004% in the long-run. Meanwhile, the significant causal relationship of growth rate with the bank deposit rate could not be established. In addition, the short-run coefficients of the variables reveal that size, interest coverage, and liquidity have a positive and significant causal relationship with bank deposit rate in the short-run. The findings of the study are in line with the results of capital structure theories, especially the hierarchy theory and balancing theory.

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Contributing Factors of Capital Structure: A Case of Non-Financial Companies Listed at KSE 100

Review of Economics and Development Studies ◽

10.26710/reads.v4i2.383 ◽

2018 ◽

Vol 4 (2) ◽

pp. 127-133

Author(s):

Lala Rukh ◽

Sangeen Khan ◽

Hazrat Bilal

Keyword(s):

Capital Structure ◽

Positive Relationship ◽

Stock Exchange ◽

Negative Relationship ◽

Hierarchy Theory ◽

Contributing Factors ◽

Leverage Ratio ◽

Time Period ◽

Relationship Of ◽

The Capital Structure

The current study has taken the firms listed on KSE (Karachi Stock Exchange) now called Pakistan stock exchange. The data for the said purpose is collected for five years of time period from 2005 to 2010. The results obtained demonstrate that all the selected variables under study shows a highly significant impact on the determinants of capital structure except the tangibility of the asset. The insignificant relationship of tangibility with the capital structure supports the financing hierarchy theory. While the Growth, Size and profitability shows a significant and negative relationship with leverage. The negative relationship of growth shows that higher the growth of the firms lower will be the leverage maintained by the firm. Similarly, firms with smaller size show that such firms prefer high leverage as compared to firms of larger size. The results reveal that higher the profitability of the firm lower will be the leverage ratio. While the positive relationship of the volatility of the earnings states that firms with higher risks has high leverage ratio. Overall a detailed description and impact of the different variables on leverage is provided in the current study.

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Analysis of Factors Affecting Capital Structure in Food and Beverage Manufacturing Company

International Journal on Advanced Science Education and Religion ◽

10.33648/ijoaser.v1i2.7 ◽

2018 ◽

Vol 1 (2) ◽

pp. 1-14

Author(s):

Nur Hajja Aini ◽

St Habibah

Keyword(s):

Capital Structure ◽

Firm Size ◽

Significant Influence ◽

Fixed Effects ◽

Random Effect Model ◽

Manufacturing Companies ◽

Business Risk ◽

Growth Opportunities ◽

Food And Beverage ◽

The Capital Structure

The purpose of this research to analyze the influence of firm size, liquidity, growth opportunities, tangibility asset, and business risk to the capital structure of listed food and beverage manufacturing companies in Indonesia and Vietnam Stock Exchange from 2010 to 2016. The result shows that the fixed effects model should be appropriate for this study as compared to the random effect model. Capital structure significantly differences between the two countries. Firm size has a positive but insignificant influence on the capital structure in Indonesia, whereas it has a positive and a significant influence on the capital structure in Vietnam. Liquidity has a negative and significant influence on the capital structure both in Indonesia and Vietnam. Growth opportunities have a negative but insignificant influence on the capital structure both in Indonesia and Vietnam. Asset tangibility has a positive but insignificant influence on the capital structure in Indonesia, but it has the negative but insignificant influence on the capital structure in Vietnam. Ultimately, the business risk has a negative and significant influence on the capital structure in Indonesia but has a positive and insignificant influence on the capital structure in Vietnam.

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