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.

Financing Decisions and Performance of Italian SMEs in the Hotel Industry

2018 ◽  
Vol 60 (4) ◽  
pp. 335-354 ◽  
Author(s):  
Marco Botta
Keyword(s):  
Capital Structure ◽  
Financial Performance ◽  
Optimal Level ◽  
Pecking Order ◽  
Optimal Capital Structure ◽  
Financing Decisions ◽  
Medium Enterprise ◽  
Optimal Capital ◽  
And Performance ◽  
The Relationship

This study investigates the existence of an optimal capital structure for small and medium enterprise (SME) hotels through the analysis of the relationship between financing decisions and financial performance in a large sample of Italian hotel SMEs. The results show that hotel SMEs face an optimal capital structure that allows them to maximize returns to investors, while instead having both too little and too much debt reduces their financial performance. This notwithstanding, we show that hotel SMEs are not particularly concerned with optimizing their capital structure, and their funding behavior is deeply connected with the availability of internally available funds, a typical pecking order behavior, and they result extremely slow in converging toward their optimal level of leverage so that they could improve their performance by adopting a more sophisticated financial strategy.

scholarly journals Customer Satisfaction, Efficiency, and Capital Structure as Determinants of Performance Transportation Companies in Indonesia

2017 ◽  
Vol 8 (1) ◽  
pp. 123-133
Author(s):  
◽  
Abdullah Sanusi ◽  
Hendragunawan S. Thayf ◽  
Nur Alamzah
Keyword(s):  
Customer Satisfaction ◽  
Capital Structure ◽  
Capital Market ◽  
High Performance ◽  
Secondary Data ◽  
Sales Growth ◽  
Optimal Capital Structure ◽  
Optimal Capital ◽  
And Performance ◽  
The Relationship

Abstract This study aimed to describe the influence of customer satisfaction, efficiency and optimal capital structure to the increase of the performance of transportation companies in Indonesia. The study was designed in the relationship between variables. The data used is secondary data obtained from the Indonesian Capital Market Directory (ICMD) and the website of 22 companies that were used as samples for 3 years. Data were analyzed using descriptive and inferential statistics analysis to test the hypothesis. The result showed that the efficiency affected customer satisfaction and was reflected in the sales growth of the company. However, it did not have an impact on the level of capital structure as reflected in DER and the performance which reflected in ROA. We also found that there was an indirect effect on the efficiency of the capital structure and performance through customer satisfaction. We also found that there is a significant indirect influence on the efficiency and the performance through customer satisfaction and capital structure. Customer satisfaction capital affects the structure. When customer satisfaction is high, which is reflected in higher sales growth aspect, it will have an impact on the high capital structure, which is reflected in DER. The result shows that customer satisfaction has an effect on the performance. When customer satisfaction is high, which is reflected in higher sales growth aspect, it will have an impact on the high performance, which is reflected in aspects of ROA. The result also indicates that capital structure affects the performance. When a capital structure is high, which is reflected by the high DER aspects, it will impact on the high performance, which is reflected on aspects of ROA.

Optimal capital structure in agricultural cooperatives and implications for equity retirement

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jeffrey Royer ◽  
Gregory McKee
Keyword(s):  
Interest Rate ◽  
Capital Structure ◽  
Financial Statements ◽  
Rate Of Return ◽  
Content Type ◽  
Optimal Capital Structure ◽  
Return On Capital ◽  
Optimal Capital ◽  
The Interest Rate ◽  
The Relationship

PurposeThis paper presents a model for determining the optimal capital structure for cooperatives and explores the relationship between financial leverage and the ability of cooperatives to retire member equity.Design/methodology/approachA model is developed to determine the optimal capital structure and explore the relationship between capital structure and the rate at which a cooperative can retire member equity. Using data from cooperative financial statements, ordinary least-squares regressions are conducted to test two hypotheses on capital structure and equity retirement.FindingsThe model shows that the optimal capital structure is determined by the ratio of the rate of return on capital employed to the interest rate on borrowed capital and the required level of interest coverage. The regressions suggest that cooperatives choose their capital structure largely according to the rate of return on capital employed and the interest rate in a manner consistent with maximizing the rate of return on equity and that the rate at which cooperatives can retire member equity is directly related to leverage.Research limitations/implicationsThe model does not consider unallocated earnings. Analysis of the relationship between leverage and equity retirement yields results contrary to the assumptions of earlier studies.Practical implicationsCooperatives can use the model because the necessary parameters are easily understood and readily available from financial statements, lenders and industry sources.Originality/valueThe model is developed specifically for determining the capital structure of cooperatives and differs substantially from the corporate model. A theoretical basis is provided for the relationship between leverage and equity retirement.

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 Levered-Beta and Cost of Capital Sensitivities: An Experimental Investigation in Capital Structure

2021 ◽  
Vol 14 (4) ◽  
pp. 152
Author(s):  
Kudret Topyan
Keyword(s):  
Capital Structure ◽  
Cost Of Capital ◽  
Weighted Average ◽  
Debt Ratio ◽  
Bond Ratings ◽  
Optimal Capital Structure ◽  
Rating Method ◽  
Optimal Capital ◽  
The Cost ◽  
The Impact

Using US firms with over $5b market cap, this paper tests the impact of levered beta on the firm’s market value and optimal capital structure. Using the synthetic rating method in a recursive model, the paper shows the current and optimal weighted average cost of capital sensitivities as the firm’s market risk measured by beta changes. The paper shows that the change in the value of beta due to alternative leverage levels or other risk factors will alter the cost of capital insignificantly and has no impact on the optimal capital structure due to those firms’ extra-strong bond ratings. As a side-benefit of the synthetic rating method, one may also observe the market-level variables’ impacts on the cost of capital computations and the optimal debt ratio. The paper uses Disney Corporation to show how the synthetic rating methodology helps to disclose the sensitivities of hypothetical alternative leverages.

scholarly journals Profitability and Development of Indian firms based on Financial Dynamics

2020 ◽  
Vol 8 (6) ◽  
pp. 4204-4209
Keyword(s):  
Capital Structure ◽  
Growth And Development ◽  
Cost Of Capital ◽  
Service Development ◽  
Debt Ratio ◽  
Optimal Capital Structure ◽  
Financial Factors ◽  
Fundamental Reason ◽  
Optimal Capital ◽  
The Capital Structure

The Judicial blend of debt and equity at which cost of capital is least and estimation of the firm is most maximum is named as optimal capital structure of a firm. The capital structure decision can impact the estimation of the firm through the profit accessible to the investors which amplify the investors' wealth, notwithstanding this capital structure can influence the estimation of the organization by improving its expected income. Hence, the debt ratio changes when there is an irregularity between inside assets and genuine speculation openings and there is data asymmetry in the market. The significance of a proper capital structure is, along these lines, self-evident. Primary variables affecting Capital Structure have been examined right now distinguish the degree of their capital structure impact. The fundamental reason for existing is to look at the effect of "ten financial factors" in particular: profitability, size, risk in the business, asset structure, debt service, development, office cost, bankruptcy ratio, charge shield in tax and uniqueness on the capital structure of chosen organizations, which is spoken to by LEV D/E. Ten unique divisions from Indian corporate have been picked, to break down the significant determinants of capital structure. The information has been drawn from the official sites of the organizations for a time of 2008 to 2018; the information has been gathered for 400 recorded organizations from ten chose segments with the end goal of investigation. Multiple regressions have been applied to discover the noteworthy determinates. Profitability, Growth and Development of the firm, size have pivotal and positive relationship with leverage.

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 Financial leverage and performance of SMEs in Vietnam: Evidence from the post-crisis period

2021 ◽  
Vol 10 (3) ◽  
pp. 229-239
Author(s):  
Tung Duy Bui ◽  
Huan Huu Nguyen ◽  
Vu Minh Ngo
Keyword(s):  
Firm Performance ◽  
Capital Structure ◽  
Financial Distress ◽  
Debt Financing ◽  
Policy Implications ◽  
Panel Data Models ◽  
Debt Ratio ◽  
Firm Profitability ◽  
And Performance

This study examines the link between capital structure and firm performance (measured by ROA and ROE), focusing on a large sample of SMEs in Vietnam during the postcrisis period (2008-2016). Empirical results from various panel data models confirm the nonlinear relationship between debt financing and firm profitability. This relationship takes the form of an inverted-U shape. Firm profitability only increases to a certain level of leverage. When the debt ratio becomes too high, firm performance starts to decrease. These results highlight the role of financial distress costs in debt financing for SMEs. Furthermore, the paper also confirms the heterogeneity between state-owned firms and private ones. Policy implications are also discussed.

scholarly journals THE ANALYSIS OF COMPANY'S CAPITAL AND EVALUATION OF FACTORS, WHICH INFLUENCE CREATION OF THE OPTIMAL CAPITAL STRUCTURE

2006 ◽  
Vol 7 (3) ◽  
pp. 147-153 ◽  
Author(s):  
Svetlana Saksonova
Keyword(s):  
Capital Structure ◽  
Process Analysis ◽  
Successful Operation ◽  
Internal Factors ◽  
Optimal Capital Structure ◽  
Optimal Capital ◽  
Main Factors ◽  
Two Stages ◽  
The Relationship ◽  
Over Time

In this article, the author will outline several stages of the process of determining optimal capital structure and will concentrate in particular on the first two stages of this process – analysis of company's borrowed capital and equity as well as the evaluation of the main factors, which influence capital structure. It is important to stress these preparatory stages, because successful operation of the company is built on properly understanding the relationship between risk and potential reward that is inherent in different alternatives of capital structure. These stages stress the importance of gathering reliable financial information about the company (enabling calculation of the ratios mentioned in the article) and performing risk analysis (relying in part on the external and internal factors described in the article) in order to decide on the optimal capital structure. The author cautions that rapid economics growth in Latvia will at least slow down over time. Managers need to take that into account, when planning capital structure and therefore avoid increasing their leverage to dangerous levels.

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