Apr 03, 2017 the purpose of this paper is to study the status of studies on capital structure determinants in the past 40 years. Even though there are several factors contribute to the institutional performance, determinants of the capital structure play an important role. The combination of debt and equity used to finance a companys projects is referred to as capital structure. Pdf determinants of capital structure and impact capital. Chapter iii concepts and theories of capital structure and profitability. Pdf capital structure determinants in transitional economies. This study aims to investigate whether the capital structure choice of malaysian electrical and electronic manufacturing companies that are listed in the bursa malaysia can be explained by factors that have been found by most studies as dominant determinants of capital structure company size, profitability, asset tangibility, liquidity and.
This study caters to the impact of firm capital structure and quality on firm market value by studying listed firms. Determinants of capital structure for listed construction. In addition to this, the two variables profitability and growth established negative relationship and the remaining four variables tangibility, size, age and taxshield showed positive relationship with capital structure. Read this article to learn about capital structure of a firm. Jan 20, 2015 capital structure and its determinants 1. Under the assumption of homogenous expectations and perfect capital markets, modigliani and miller conclude that in the presence of taxation an optimal capital structure may exist. Sep 07, 2006 second, although we concur with the conventional direct impact of countryspecific factors on the capital structure of firms, we show that there is an indirect impact because countryspecific factors also influence the roles of firmspecific determinants of leverage. Determinants of capital structure complexity pdf free download. A general free cash flow theory of capital structure. Here the data is described, measures of institute of economic studies, charles university, prague and idet, department of eco.
Also see schwartz and aronson 30, scott 31, and scott and martin 32 for evidence of industry effects in capital structure choice. Since several decades, capital structure has remained a puzzle. The capital structure of a firm is some mix of debt, internally generated equity, and new equity. During the depression period, the companys capital structure generally consists of debentures and loans. Proper capital structure leads the firm to achieve the better performance and ensures the sustainability in its operation. The objective of this paper is to identify the determinants of capital structure and discuss the key theories on capital structure. Capital structure refers to the way a firm chooses to finance its assets and investments through some combination of equity, debt, or internal funds. The theory of trade off was developed by kraus and litzenberger 1973 arguing that the companies choose their optimal capital structure by by evaluating the revenue and costs, debt. It is therefore essential to study the emerging economies as individual countries rather than see them collectively as a group.
Determinants of capital structure univerzita karlova. Capital structure determinants are except tax shields, profitability, size, assets tangibility, growth, signaling and cost of financial distress. Capital structure determinants muhammad minhas azeem msc applied chemistry department of applied chemistry and biotechnology gc university faisalabad, pakistan capital structure and its determinants 2. There is an extensive literature on the determinants of capital structure, but it is the first work done for the business sector in peru. Financial corporations and the dutyfree zone user corporations as well as those. Capital structure leverage level of the firm determined by several factors. The vast majority of previous empirical works analyses the capital structure of firms in economies with highly developed stock markets.
Conclusion this study tries to examine the capital structure determinants for listed nonfinancial turkish firms. The purpose of this study is to examine the relationship between human capital and capital structure. The objectives of this study are to identify the significant determinants of capital structure of the listed. First, it extends the range of theoretical determinants of capital structure by examining some recently developed theories that have not, as yet, been analyzed empirically. Determinants of capital structure have received much attention among the researchers. Determinants of capital structure mba knowledge base. Abstract decision on capital composition is a crucial decision for firms as it has major financial and profitability implications. Determinants of capital structure and testing of theories. Several researchers argue that the determinants of capital structure are significantly affected by factors such as the laws and regulations of the country, corporate and personal tax systems and corporate governance. This study seeks to identify the determinants of indian central psus capital structure. Capital market conditionin the lifetime of the company, the market price of the shares has got an important influence.
Major studies have related firm value with capital structure variables like debt. Pdf determinants of capital structure and human capital. In their study of capital structure in the g7 economies, rajan and zingales 1995 find gearing in the uk to be positively related to tangibility the. The main aims of this study are to determine the factors which affect capital structure of corporations operating in energy sector and to detect capital structure theories with which capital structure of energy sector companies would comply. Evidence from commercial banks in ethiopia submitted by me for the. In this study, we attempted to analyze the determinants of capital structure for indian firms using a panel framework and to investigate whether the capital structure models derived from western settings provide convincing explanations for capital structure decisions of the indian firms. Chen 2004 examined the determinants of capital structure of 88 chineselisted companies using firmlevel panel data for a period from 19952000. Determinants of social capital social capital research. The study of capital structure attempts to explain how listed firms utilise the mix of various forms of securities in order to finance investment. Capital structure, a reading prepared by pamela peterson drake 1. International journal of law and management determinants of capital structure. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. Results of the study reveal that although pecking order theory better describes the capital structure of turkish firms, some of the capital structure determinants are in accordance with tradeoff theory. The static tradeoff theory suggests that the optimal capital structure does exist.
Therefore it is necessary to identify that what are. This article examines the international determinants of capital structure using a large sample of firms from 37 countries. It is in the best interests of a company to find the optimal ratio of debt to equity to reduce their risk of insolvency. The determinants of the capital structure of listed on stock. The determinants of capital structure choice titman 1988. Furthermore identifying the determinants of capital structure also can help investors and managers of firm as it will provide better understanding of the firm capital structures strategy by considering companies characteristics in order. Following modigliani and miller 1958, most theories such as the pecking order theory, agency theory and trade off theory have sought to explain capital structure by introducing frictions omitted in. The m odern theory of capital structure starts with the modigliani and miller 1958 theorem stating that under a number of specific assumptions capital structure is irrelevant for both the cost of capital and the firm value, which imply that there is no optimal leverage ratio. Since hundreds of articles have been written about capital structure and its determinants since the 1958 paper by mm, one must be aware of the fact that different measures of capital structure. This study will further provide a logical explanation towards the factors affecting. Several influential studies have suggested that social capitals roots are buried in centuries of cultural evolution fukuyama 1995. Moreover, studies have been done on both listed and nonlisted firms.
An empirical study of french companies in the wine. Determinants of capital structure a study of manufacturing. A study on determinants of capital structure in india. It is the employment of an asset source of finance for which. This paper highlights the major gaps in the literature on determinants of capital structure and also aims to raise specific questions for future research. Determinants of capital structure and impact capital structure on firm value. To be more accurate, the term capital structure, or financial structure, or financial plan of a company refers to the composition of the longterm sources of. Read our full article on the sources of social capital the determinants are numerous and varied and there is both a lack of consensus and a lack of evidence to support the propositions. Agency costs of free cash flow, corporate finance, and takeovers.
While in period of boons and inflation, the companys capital should consist of share capital generally equity shares. Empirical evidence from kuwait ahmad mohammad obeid gharaibeh assistant professor, dept. In particular, this study investigates capital structure determinants of companies traded on abu dhabi stock exchange based on a panel data set over 2008 and 2009 comprising 33 companies from. Pdf determinants of capital structure and testing of theories. This study attempts to extend our knowledge of capital structure and its determinants in listed uk companies.
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