scholarly journals Sustainability of Both Pecking Order and Trade-Off Theories in Chinese Manufacturing Firms

2020 ◽  
Vol 12 (9) ◽  
pp. 3883 ◽  
Author(s):  
Huu Manh Nguyen ◽  
Thi Huong Giang Vuong ◽  
Thi Huong Nguyen ◽  
Yang-Che Wu ◽  
Wing-Keung Wong
Keyword(s):  
Capital Structure ◽  
Firm Size ◽  
Positive Relationship ◽  
Negative Relationship ◽  
Manufacturing Firms ◽  
Model Tests ◽  
Pecking Order ◽  
Trade Off ◽  
Dividend Payout ◽  
The Impact

Our study investigates Chinese manufacturing firms listed on both the Shanghai and the Shenzhen Stock Exchanges. These firms follow the pecking order or trade-off theories in their capital structure choices. Using panel data from the Taiwan Economic Journal and quantile regression, we construct three models to compare the two theories. Our first model tests the impact of profitability, tangible asset, firm size, and investment opportunities on leverage; our second model adds the dividend payout ratio to test the robustness of the first model; and our third model tests how leverage, profitability, firm size, and dividend variables affect a firm’s investments. From the results of all the models used in our study, we find a negative relationship between leverage and both profitability and the dividend payout ratio and a positive relationship between leverage and growth in a firm’s investments. We also find a negative relationship between dividends, firm size, and growth in a firm’s investments and a positive relationship between investment capital and profitability. The overall results indicate that the capital structure decisions of Chinese manufacturing firms are best explained by the pecking order theory.

Panel Data Analysis of Determinants of Leverage in the Automobile Industry in India

GIS Business ◽  
2018 ◽  
Vol 13 (2) ◽  
pp. 29-47
Author(s):  
Vibha Tripathi
Keyword(s):  
Panel Data ◽  
Capital Structure ◽  
Automobile Industry ◽  
Panel Data Analysis ◽  
Negative Relationship ◽  
Order Theory ◽  
Ordinary Least Squares ◽  
Pecking Order ◽  
Trade Off ◽  
Coverage Ratio

The study tries to investigate the key determinants of capital structure of leading automobile companies and the Automobile Industry in India. The study also tracks the theory implications, i.e. trade off vs. pecking order in these firms and the industry in general. An attempt is to see, if individually each sample company and the whole industry are influenced by the same determinants of capital structure. Pooled ordinary least squares and panel data econometric techniques such as fixed effect models are used to investigate the most significant determinants that affect the capital structure choice of 10 leading companies categorized as BSE Auto Top 100 and the Automobile Industry as a whole for a period of 14 years from 2000–2001 to 2013–2014. The study reveals some interesting facts and results. Multiple regression analysis reveals that while profitability and size are significant determinants in most of the leading companies; NDTS, Growth, and Debt service coverage ratio are not significant for these companies. While the Panel data results of the Automobile Industry as a whole reveals that profitability is the only significant determinant having negative relationship with debt equity ratio; and the other variables are insignificant. Also individual companies coefficient results shows implications of mix of pecking order and trade off theories while the panel data results of the whole Industry strongly supports the Pecking order theory.

scholarly journals Mergers, Acquisitions and Financial Performance: A Study of Selected Financial Institutions

2019 ◽  
Vol 9 (1) ◽  
pp. 36-44
Author(s):  
Tarila Boloupremo ◽  
Samson Ogege
Keyword(s):  
Mergers And Acquisitions ◽  
Capital Structure ◽  
Financial Performance ◽  
Financial Institutions ◽  
Significant Relationship ◽  
Positive Relationship ◽  
Cost Control ◽  
Control Variable ◽  
Negative Relationship ◽  
The Impact

The aim of the study is to examine the impact of mergers and acquisition on financial performance in the Nigerian financial system. The study examined selected financial institutions in the banking sector. Specifically, some financial indicators such as asset profile, credit risk, capital structure, liquidity, size and cost control ratios, were extracted from the audited financial reports of the selected banks for the period 2000-2010 to compare the performance of the selected financial institutions in the ex-ante period and compare these performance with the ex post period of their mergers and acquisitions. Longitudinal and time series analyses were employed to observe the performance of the selected banks. Results from the analysis suggest that credit risks showed a better post merger performance, but were statistically insignificant and negatively related with the performance of the selected financial institution pre-merger. Asset profile was found to be significant and positively related with post-merger in relation to the performance of the selected financial institutions, but it was insignificant and negatively related to the financial performance of the selected firms pre-merger. Capital structure of the selected firms was found to be significant and positively related to the performance of the firms’ pre-merger, but insignificant and negatively related to the performance of the firms post-merger. Liquidity of the firms indicated a significant and positive relationship with the performance of the banks pre-merger. However, post merger result indicates that, there was no significant and positive relationship between the liquidity of the firms and financial performance post-merger. The size of the selected banks indicated a significant relationship with their performance in both the pre-merger and post-merger periods. The cost control variable indicated a statistically significant and negative relationship with the performance of the banks post-merger period, but showed no significant relationship with performance of the banks in the pre-merger period. Finally, the results indicate that mergers and acquisitions can have significant impact on the performance of the selected financial institutions in Nigeria.

The effects of the global financial crisis on the capital structure of EPRA/NAREIT Europe index companies

2015 ◽  
Vol 8 (1) ◽  
pp. 3-23 ◽  
Author(s):  
Giacomo Morri ◽  
Andrea Artegiani
Keyword(s):  
Financial Crisis ◽  
Real Estate ◽  
Capital Structure ◽  
Global Financial Crisis ◽  
Pecking Order ◽  
Trade Off ◽  
Content Type ◽  
The Global Financial Crisis ◽  
The Impact ◽  
The Capital Structure

Purpose – The purpose of this paper is to test whether the financial crisis has affected the capital structure of real estate companies in Europe and whether these impacts can be studied utilizing the variables traditionally used by the trade-off and pecking-order theories to explain the capital structure of companies. Design/methodology/approach – The study uses a fixed-effect panel regression analysis and a sample composed of companies included in the EPRA/NAREIT Europe Index. The effect of the financial crisis has been accounted for within the model by means of a dummy variable. Findings – The global financial crisis did have an impact on the capital structure of companies and the main variables traditionally used by the trade-off and pecking order theories proved to be suitable in explaining the capital structure of real estate companies. Real estate investment trusts are, on average, more leveraged than traditional real estate companies due to their special regulatory status. Research limitations/implications – The study is limited to the European market and UK companies in particular account for a large part of the sample. In addition, major regulatory differences between the various European countries are not taken into account in the model. Originality/value – Similar studies have been performed for the US and Australian market. However, the impact of the global financial crisis has not been traditionally considered in these studies.

scholarly journals Explanatory Factors of the Capital Structure

2020 ◽  
Vol 4 (6) ◽  
pp. 519-529
Author(s):  
Marta Silva ◽  
Luís Pereira Gomes ◽  
Isabel Cristina Lopes
Keyword(s):  
Panel Data ◽  
Capital Structure ◽  
Statistical Tests ◽  
Negative Relationship ◽  
Order Theory ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Trade Off ◽  
Explanatory Factors ◽  
The Capital Structure

This paper presents an empirical study of the capital structure of Portuguese companies where the main objective is to find key explanatory factors for indebtedness decisions. The relations between indebtedness and its determinants are tested in the light of the Trade-Off Theory and the Pecking-Order Theory. The motivation of this work was to contribute to the scientific research on the influential determinants of the capital structure and to deepen the knowledge of the Portuguese market. The quantitative methodology is used, through an econometric model for panel data using accounting information of 55 Portuguese companies between 2014 and 2016. Statistical tests such as the F test, the Lagrange Multiplier Breusch-Pagan test and the Hausman test were used to identify the most appropriate method of estimation, which resulted in a panel data model with random effects for individuals. The findings of this study suggest that indebtedness have a positive relation with tangibility and the size of the company, which supports the Trade-Off Theory. However, the positive relationship with the non-debt tax benefits suggests the importance of taxes, contrary to Trade-Off Theory. The negative relationship with cash flows, coupled with the positive relationships between size and growth opportunities, suggest the use of funding only when internal funds become insufficient, supporting the Pecking-Order Theory. The general results support that both theories partially explain the financing decisions of Portuguese companies. Doi: 10.28991/esj-2020-01249 Full Text: PDF

scholarly journals The Influence of Firm Specific Determinants on Financial Performance in the Power Industry

2017 ◽  
Vol 9 (5(J)) ◽  
pp. 18-28
Author(s):  
Mafumbate J ◽  
Ndlovu U ◽  
Mafuka A ◽  
Gavhure P
Keyword(s):  
Capital Structure ◽  
Financial Performance ◽  
Firm Size ◽  
Poor Performance ◽  
Target Population ◽  
Order Theory ◽  
Power Industry ◽  
Trade Off ◽  
The Impact ◽  
Retained Earnings

This study concentrates on the impact of firm specific determinants on financial performance in the power industry. The firm specific determinants used in this study as independent variables were capital structure, firm size and liquidity whilst ROA, ROI and profitability were used as proxies of financial performance. Modigliani and Miller (1958) argue that capital structure has no impact on financial performance whilst the Trade-off theory suggests that the ideal capital structure that helps firm remain financially healthy is the trade-off between cost of leverage and the advantages of debt. Beyond that trade-off point, a firm will start making losses. The target population included 60 employees from all the 5 subsidiaries of the Holding company and researchers used 40 respondents as sample size to enhance reliability. A relationship was established between firm specific determinants and financial performance as measured by ROA, ROI and profitability. The results showed a negative but significant relationship between capital structure and financial performance and they support the pecking order theory which suggests that capital structure is a significant determinant of financial performance. Firm size and financial performance were also negatively related. However, a significant positive relationship was established between liquidity and financial performance. From the findings the researchers concluded that firm specific factors have a significant impact on financial performance. Researchers therefore recommend that ZESA holdings should use its internal funds such as retained earnings and more equity than debt when financing its activities so as to reduce leverage costs which lead to poor performance. 

scholarly journals Determinants of Dividend Policy in India – Special Reference to Nifty 50 Companies

2021 ◽  
Vol 9 (2) ◽  
pp. 37-42
Author(s):  
Kashish Katakwar ◽  
Satyan Tenguriya ◽  
Prashant Chhajer ◽  
Vishal Mehta ◽  
Vandana Gandhi
Keyword(s):  
Regression Analysis ◽  
Positive Relationship ◽  
Dividend Policy ◽  
Positive Impact ◽  
Negative Relationship ◽  
Dividend Payout ◽  
Return On Equity ◽  
Tax Rate ◽  
Equity Risk ◽  
The Impact

Dividend policy is the firm’s policy considered to structure the dividend payout of the shareholder of the company. Various factors are responsible for determining the dividend payout of the firm. In this research paper, we are exploring the determinants of the dividend policy of NSE, Nifty 50. This paper studies the impact of six basic variables on the dividend payout of NSE, Nifty 50 Index companies for the financial year 2015-16 to 2019-2020. These factors include liquidity, leverage, firm size, return on equity, risk and tax rate. Multiple regression analysis was used to study the impact of selected variables on the dividend policy of the companies under study. The results reveal that return on equity has a significant positive impact on dividend payout, whereas risk and tax rate have a significant negative impact.In contrast, there is a positive relationship and zero significance was found between liquidity and dividend payout and leverage and dividend payout. A negative relationship and no significance was found between the size of the firm and dividend payout. This means that liquidity, leverage and size of the firm failed to have any significant impact on the dividend payout of the companies under study. 

Target Capital Structure of Insurance Companies

2016 ◽  
Vol 5 (3) ◽  
pp. 47-53
Author(s):  
Полякова ◽  
M. Polyakova ◽  
Поляков ◽  
K. Polyakov
Keyword(s):  
Capital Structure ◽  
Insurance Market ◽  
Insurance Companies ◽  
Insurance Markets ◽  
Empirical Testing ◽  
Pecking Order ◽  
Return On Assets ◽  
Trade Off ◽  
The Impact ◽  
The Capital Structure

This article is devoted to the analysis of the existence of target capital structure of insurance companies and empirical testing of wide known capital structure theories for Russian insurance companies. Trade-off and “pecking order” theories were considered and the model that reflects the impact on the capital structure indicators various characteristics of firms was built. Traditional for insurance markets coefficients — net premium/capital ratio and liabilities/active ratio — were considered as capital structure indicators. It was shown that tradeoff theory is more adequate for Russian insurance market. The existence of target capital structure was discovered. Such indicators as firm size, the share of premiums transferred to reinsurance, return on assets, returned on capital have significant impact on the capital structure. The opportunity to grow, which was estimated as growth in premiums, and the breadth of the range didn’t has significant impact.

scholarly journals The Effects of Market Competition, Capital Structure, and CEO Duality on Firm Performance: A Mediation Analysis by Incorporating the GMM Model Technique

2020 ◽  
Vol 12 (8) ◽  
pp. 3480 ◽  
Author(s):  
Riaqa Mubeen ◽  
Dongping Han ◽  
Jaffar Abbas ◽  
Iftikhar Hussain
Keyword(s):  
Firm Performance ◽  
Capital Structure ◽  
Positive Relationship ◽  
Market Competition ◽  
Generalized Method Of Moments ◽  
Negative Relationship ◽  
Ceo Duality ◽  
The Impact ◽  
The Relationship ◽  
Model Technique

This current study is one of the few investigations to conduct a focalized examination of the relationship between CEO duality and firm performance; however, this relationship seems to be imprecise due to the impact of the invention mechanism. This study explores the effect of CEO duality to achieve firm performance through the mediating effects of capital structure and market competition, which is an innovative model. The study incorporated the generalized method of moments (GMM) model to examine the proposed association of the CEO duality and firm performance, and the findings specified a negative relationship between CEO duality and firm performance. The results indicated that capital structure partially mediated the association between CEO duality and firm performance. The results also showed that market competition fully mediated this linkage between CEO duality and firm performance, which in turn specified a significant positive relationship with market competition, which mediated a positive relationship. By incorporating these mediators, the results determined that CEO duality reduces firm performance through the capital structure; however, it enhances firm performance by stimulating market competition.

scholarly journals Analisis Empiris Faktor Determinan Struktur Modal Perusahaan Infrastruktur Indonesia

2020 ◽  
Vol 10 (3) ◽  
pp. 147-158
Author(s):  
Alexandra Christivera ◽  
Desya Gunawan ◽  
Donna Jovita Fendi
Keyword(s):  
Capital Structure ◽  
Negative Relationship ◽  
Order Theory ◽  
Multiple Regression Model ◽  
Pecking Order ◽  
Pecking Order Theory ◽  
Firm Financial Performance ◽  
Asset Turnover ◽  
State Expenditure ◽  
The Impact

The Infrastructure Industry has become the focus of the state expenditure budget during the Joko Widodo-Jusuf Kalla presidency. This is due to the importance of infrastructure in assisting the sustainability of a country's development, but the fact is that government funds as a source of infrastructure funds are delayed when the company has acquired a new project resulting in the use of debt in infrastructure companies as a capital structure to run the new project. The study identifies examination on the impact of capital structure determinants on firm financial performance of Indonesia’s Infrastructure Companies listed over the period of 2014-2018. Determination of the number of samples in this study using non-probability sampling, specifically purposive sampling method. The study uses one capital structure measures (Leverage) as dependent variable and four performance measures (including company’s size, the tangibility of asset, liquidity, and asset turnover) as independent variables and proceed using multiple regression model. The result indicates that liquidity has a significantly negative relationship to leverage, meanwhile company’s size, the tangibility of asset, and asset turnover are not significantly related to the level of debt in infrastructure companies in Indonesia, however, it goes along with the way of thinking in the Pecking Order Theory.

scholarly journals The Influence of Firm Specific Determinants on Financial Performance in the Power Industry

2017 ◽  
Vol 9 (5) ◽  
pp. 18
Author(s):  
Mafumbate J ◽  
Ndlovu U ◽  
Mafuka A ◽  
Gavhure P
Keyword(s):  
Capital Structure ◽  
Financial Performance ◽  
Firm Size ◽  
Poor Performance ◽  
Target Population ◽  
Order Theory ◽  
Power Industry ◽  
Trade Off ◽  
The Impact ◽  
Retained Earnings

This study concentrates on the impact of firm specific determinants on financial performance in the power industry. The firm specific determinants used in this study as independent variables were capital structure, firm size and liquidity whilst ROA, ROI and profitability were used as proxies of financial performance. Modigliani and Miller (1958) argue that capital structure has no impact on financial performance whilst the Trade-off theory suggests that the ideal capital structure that helps firm remain financially healthy is the trade-off between cost of leverage and the advantages of debt. Beyond that trade-off point, a firm will start making losses. The target population included 60 employees from all the 5 subsidiaries of the Holding company and researchers used 40 respondents as sample size to enhance reliability. A relationship was established between firm specific determinants and financial performance as measured by ROA, ROI and profitability. The results showed a negative but significant relationship between capital structure and financial performance and they support the pecking order theory which suggests that capital structure is a significant determinant of financial performance. Firm size and financial performance were also negatively related. However, a significant positive relationship was established between liquidity and financial performance. From the findings the researchers concluded that firm specific factors have a significant impact on financial performance. Researchers therefore recommend that ZESA holdings should use its internal funds such as retained earnings and more equity than debt when financing its activities so as to reduce leverage costs which lead to poor performance. 

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