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The Theory of Capital Structure

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Abstract

This paper surveys capital structure theories based on agency costs, asymmetric information, product/input market interactions, and corporate control considerations (but excluding tax-based theories). For each type of model, a brief overview of the papers surveyed and their relation to each other is provided. The central papers are described in some detail, and their results are summarized and followed by a discussion of related extensions. Each section concludes with a summary of the main implications of the models surveyed in the section. Finally, these results are collected and compared to the available evidence. Suggestions for future research are provided. Copyright 1991 by American Finance Association.

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... Consequently, firms prefer internal financing to external financing and risky debt to equity. An in-depth review of the two theories can be found in Harris and Raviv (1991) and Baker and Martin (2011). ...
... The current empirical literature has identified several firm characteristics that correlate with firm leverage. For example, most empirical analyses find a negative relationship between income variability and leverage (Harris and Raviv 1991;Kim et al. 2006;Frank and Goyal 2009), a negative correlation between a firm's growth opportunity and leverage (Titman and Wessels 1988;Rajan and Zingales 1995;Heshmati 2002), a positive correlation between firm size and its leverage (Jensen and Meckling 1976;Titman and Wessels 1988;Rajan and Zingales 1995;Santosa 2020), a negative correlation between profitability and leverage (Myers and Majluf 1984;Rajan and Zingales 1995), a negative correlation between R&D and leverage (Singh and Faircloth 2005;Aghion et al. 2004;Chang and Song 2014), and a positive correlation between firm leverage and industry median leverage (Frank and Goyal 2009). (Ibhagui and Olokoyo 2018) show that leverage correlates negatively with the performance of small firms; however, as firms grow to a certain size, the negative correlation between leverage and performance disappears. ...
... More profitable firms probably exhibit less leveraged than less profitable firms because they hold more internal funds and depend less on external financing. Harris and Raviv (1991), Shyam-Sunder and Myers (1999), Frank and Goyal (2009), and Rajan and Zingales (1995), among others, provide significant evidence of the inverse relationship between profitability and leverage. Myers and Majluf (1984) argue that this inverse relationship offers the most compelling evidence against the trade-off theory. ...
Article
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Agency problems and informational asymmetries are widespread concerns in the information and communication technology (ICT) sector. Do they affect capital structure decisions? Do they make capital structure adjustments more costly? Do they function as debt control mechanisms? We address these questions using a dynamic adjustment model of capital structure for a panel of 85 ICT firms over the years 1990 to 2013, augmented by measures of agency costs and informational asymmetries, and expand on this literature to include two additional determinants: R&D activity as a direct measure of asymmetric information and asset turnover as an inverse measure of firm agency costs. We find that both agency costs and informational asymmetries play a significant role in managerial capital structure decisions, causing ICT firms to maintain a low level of debt. We also find that ICT firms adjust their capital structure more slowly than the average firms, as reported in the extant literature, and the speed of adjustment increases with firm size, growth opportunities, and distance from the target capital structure and decreases with default risk and agency costs. We estimate the model using several newly developed econometric methods, but the findings do not show any significant difference, a strong indication of the model's reliability. We reinforce the validity of our results by conducting robustness checks by splitting the sample into three subsamples.
... Companies with high D/E ratios are overperforming. However, Harris and Raviv (1991) found that average returns are negatively associated with the D/E ratio. In line with Bhandari's (1988) conclusions, Barbee et al. (1996) and Mukherji et al. (1997) found that stocks with a higher leverage have higher returns in the American and the Korean stock markets, respectively. ...
... In line with Bhandari's (1988) conclusions, Barbee et al. (1996) and Mukherji et al. (1997) found that stocks with a higher leverage have higher returns in the American and the Korean stock markets, respectively. Nevertheless, Penman et al. (2007) and George and Hwang (2010) agree with Harris and Raviv's (1991) conclusions about the American market. Furthermore, George and Hwang (2010) rejected the hypothesis that this negative relation is due to mispricing (Penman et al., 2007). ...
... Similarly, the coefficient of the debt variable shows an unexpected negative sign, which contradicts the D/E effect, as Bhandari (1988) presented. Our results are in harmony with Harris and Raviv's (1991) and Penman et al.'s (2007) conclusions. However, in our case, the value of the coefficient is still statistically insignificant. ...
Article
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Fundamental anomalies are explored, for the first time, in the Moroccan stock market. The sample includes non-financial companies from July 2001 to June 2020. We carry out, initially, sorts of returns on anomaly indicators, then, we follow through a regression analysis using a fixed-effect model and the system generalized method of moments methodology. The findings emphasize a significantly positive relationship between returns and the book-to-market ratio and a significantly negative relationship between returns and each of the price-to-earnings and the price-to-cash flow ratios. Regarding the size and the leverage effects, the findings highlight their absence. Finally, we cannot ascertain the existence of a positive or negative price-to-sales effect considering the contradictory results of the tests.
... Over time, there have been numerous empirical studies conducted on the optimal financing mix and capital structure of companies (Tailab 2014;Harris and Raviv 1991). Tailab (2014) stated that capital structure has always been a difficult subject to study since the research conducted by Modigliani and Miller. ...
... DeAngelo and Masulis (1980) introduced other non-debt tax-deductible expenses, such as "depreciation and provisions," which diminish the benefits of tax-deductible interest expenses on the company's value, making debt less appealing for firms. Harris and Raviv (1991) argue that bankruptcy laws and creditor rights specific to each country are embedded in debt contracts, serving to discipline managers and restrict corporate debt levels. Ardalan (2018) has established the presence of an optimal capital structure for businesses. ...
Chapter
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This chapter aims to study several theories of capital structure in finance literature to help illuminate how companies make decisions about their capital structure. Starting with the Modigliani and Miller (1958) capital structure irrelevance theory, the review scrutinizes various theories such as trade-off theory, pecking order theory and market timing theory. These theories explain how companies balance the benefits and costs of debt and equity financing, as well as how they prioritize financing options based on information asymmetry. Nevertheless, there is still a lack of complete explanation for why some companies choose debt whereas others prefer equity under different conditions. The market timing theory introduced by Baker and Wurgler (2002) suggests that companies' capital structure decisions are affected by their past attempts to time the equity market. The predictions of these theories sometimes conflict with each other, leaving Myers (1984)question of “How companies choose their capital structure?” still unanswered after 32 years.
... High capital intensity forces telecommunication enterprises to seek for external financing, often in the form of long-term bank credits or bond issue. The research show that telecommunication businesses have a tendency to finance with debt, which influences their debt level (Harris and Raviv, 1991). The increased debt can result in higher financial cost but also brings tax profits by deducting the interests from the tax. ...
... Numerous authors point to the importance of capital timeliness adjustment, which means that long-term assets should be financed with the appropriate maturity date capital (Harris and Raviv, 1991). In case of improper adjustment there is a risk of refinancingsituation, where the enterprise is forced to find new sources of financing before it turns back the means used for financing the long-term assets. ...
... For instance, Li et al. (2020) examine the relative role of IC and financial resources on SME performance and suggest that SMEs should emphasize both IC and financial resources to achieve high financial performance. However, owing to the intangible nature of IC, previous studies show a negative association between IC and debt financing (Harris and Raviv, 1991;Frank and Goyal, 2009), arguing that IC components are considered financially constrained assets because of their unique characteristics and uncertain investment returns. These factors prevent the efficient use of intangible assets; repossessing intangible assets is difficult in bankruptcy because of the lack of appropriate identification, valuation and separation. ...
... Firm size (FS) is measured as the natural log of total assets. Firm tangibility (FT) is the ratio of fixed assets to total assets (Harris and Raviv, 1991). Firm growth (FG) is measured as the annual percentage change in sales (D'Amato, 2021). ...
Article
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Purpose This study aims to analyze the moderating role of debt financing in the relationship between intellectual capital (IC) and small and medium enterprise (SME) performance in high-tech and low-tech industries. Design/methodology/approach This longitudinal study uses a balanced panel sample of 7,293 (3,563 high-tech and 3,730 low-tech) SMEs in Southwestern European countries from 2013 to 2020. The data are analyzed using a fixed-effect model as baseline estimation, and a generalized method of moments estimation is used for robustness checks. Findings The results show strong positive effects of human capital (HC) and structural capital (SC) and a weak effect of capital employed (CE), on the performance of high-tech SMEs. Debt financing is negatively and significantly associated with SME performance, and the moderating effect of debt financing is more significant in low-tech industries. Specifically, debt financing accentuates (attenuates) the positive effect of HC (SC and CE) on the performance of low-tech SMEs. Practical implications This study offers a valuable framework for managers and policymakers when considering the role of debt financing in the IC components – SME performance relationship in distinctive industrial environments. Originality/value This study provides new insights into the close and complex relationships between IC components, debt financing and SME performance.
... Thus, these instruments are orthogonal to aggregate factors (including the effects of the global financial crisis) and identify exogenous variation in corporate debt. The core identification assumptions in my empirical strategy are that idiosyncratic shocks to large firms are correlated with aggregate corporate debt (relevance) and that these shocks affect sovereign spreads only through their impact on corporate debt, after controlling for country-specific GDP growth, sovereign indebtedness, banking sector leverage, and time-varying factors common to all countries (exclusion). 1 The relevance condition is based on the following empirical facts: (i) top 50 large firms in European countries drove the variation in aggregate corporate leverage during the period 2002-2012, which is a novel finding in this paper, (ii) shocks to profitability and firm leverage are negatively correlated, which is a robust stylized fact in the corporate finance literature (See Rajan and Zingales (1995), Harris and Raviv (1991), Titman and Wessels (1988) among many others) 2 . The exclusion con-1 In the regression, the direct impacts of idiosyncratic shocks to sovereign spreads through the income channel is absorbed by including the country-specific GDP growth. 2 This empirical pattern does not contradict the findings in the international finance literature. ...
... This will imply exogeneity of the instrument. I expect idiosyncratic firm-level productivity shocks to firms will be negatively correlated with their leverage following the previous finance literature ( Rajan and Zingales (1995), Harris and Raviv (1991), Titman and Wessels (1988) and others). This literature has established that profitability is negatively associated with leverage, since lower cash on hand implies more need to finance operating costs externally. ...
Article
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This study shows that corporate debt accumulation during credit booms can explain increases in sovereign risk during stress periods. Using detailed firm-level database across six Eurozone countries, I construct granular instruments for aggregate corporate leverage. Instrumental variable regressions indicate that rising corporate leverage causally increases sovereign spreads in Eurozone countries during the debt crisis period of 2010-2012. This result provides the first empirical evidence on the causal link between corporate debt and sovereign debt crises. Additionally, firm-level evidence suggests that highly leveraged firms are likely to pay fewer taxes to the government, contributing to the rise in sovereign risk. (JEL F34, F41, G32, L11)
... Recaudar fondos a través de la oferta pública inicial se considera un motivo principal para las empresas según muchos autores, incluidos Pagano, Panetta y Zingales [1], Jain y Tabak [2], Poulsen y Stegemoller [3], Jacquillat [4], Rajan [5], y Harris y Raviv [6]; en la medida en que esta alternativa de salida a bolsa está dando a las empresas la ventaja de conseguir financiación inmediata, aumentando posteriormente el capital de la empresa mediante "Ofertas de Acciones Experimentadas" [2] y utilizándolo para financiar cada proyecto que lleve al crecimiento [3], sin olvidar mencionar la ventaja de tener un poder de negociación con las organizaciones de crédito y los bancos; al diversificar sus fuentes de fondeo la empresa puede obtener capital a un costo favorable ya que el financiamiento bancario es muy expansivo ( [4], [1], [5]). En este sentido, las empresas con los altos índices de endeudamiento tienen más probabilidades de salir a bolsa debido al papel disciplinario de la deuda que garantiza, desde la perspectiva de los inversores bursátiles, la buena gestión de la empresa que, en este caso, parece estar mejor controlada por los prestamistas [6]. ...
... Recaudar fondos a través de la oferta pública inicial se considera un motivo principal para las empresas según muchos autores, incluidos Pagano, Panetta y Zingales [1], Jain y Tabak [2], Poulsen y Stegemoller [3], Jacquillat [4], Rajan [5], y Harris y Raviv [6]; en la medida en que esta alternativa de salida a bolsa está dando a las empresas la ventaja de conseguir financiación inmediata, aumentando posteriormente el capital de la empresa mediante "Ofertas de Acciones Experimentadas" [2] y utilizándolo para financiar cada proyecto que lleve al crecimiento [3], sin olvidar mencionar la ventaja de tener un poder de negociación con las organizaciones de crédito y los bancos; al diversificar sus fuentes de fondeo la empresa puede obtener capital a un costo favorable ya que el financiamiento bancario es muy expansivo ( [4], [1], [5]). En este sentido, las empresas con los altos índices de endeudamiento tienen más probabilidades de salir a bolsa debido al papel disciplinario de la deuda que garantiza, desde la perspectiva de los inversores bursátiles, la buena gestión de la empresa que, en este caso, parece estar mejor controlada por los prestamistas [6]. Siguiendo el modelo de flujo de caja libre evocado por ( [7], [8]); la deuda es una buena manera de limitar el comportamiento oportunista de los gerentes al reducir el flujo de efectivo disponible para ellos, el "flujo de efectivo libre" que puede usarse para aumentar su propia utilidad en lugar de distribuirla entre los accionistas. ...
Article
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Muchas empresas se sienten incitadas por la recompensa de la decisión de salir a bolsa. Siguiendo los objetivos que persiguen y los problemas que quieren solucionar con ello, pueden decidir si quieren cotizar en bolsa o no, también es una decisión relacionada con el grado de tolerancia de los propietarios de la empresa en cuanto a la información compartida con el público y la propiedad compartida. Por lo que está interconectado con tres elementos cruciales, a saber; información, rentabilidad, organización o estructura de capital. El objeto de este artículo es ofrecer una revisión de la literatura que destaca los factores explicativos de una decisión de salida a bolsa. En particular, a través de los fundamentos teóricos que subyacen a la decisión de cotizar en bolsa y su efecto sobre el control, la estructura de capital y otras características de las empresas. Este artículo brinda una visión más holística e integrada de la OPI como un evento corporativo y una decisión estratégica y gerencial, y la forma en que las empresas la juzgan al decidir o no salir a bolsa, además en la conclusión se ofrecen vías para futuras investigaciones.
... The definition of leverage used in most previous studies is the ratio of total liabilities to total assets (Rajan & Zingales, 1995). Leverage as a ratio of total liabilities to total assets may not be a reliable enough indicator of whether the firm faces the risk of default and also includes items such as accounts payable; it could well overstate the amount of leverage (Harris & Raviv, 1991). In emerging markets, many manufacturing and mining firms face the risk of default, and the debt component is very substantial in the capital structure mix. ...
... Thus, the usual definition of leverage as a total liability to total assets that previous studies used does not best describe the situation of manufacturing and mining firms in these countries, making the previous study less reliable. Therefore, the current study adopts a narrower and better definition of leverage for manufacturing and mining firms in Africa, shifting from the traditional definition of leverage as a total liability to total assets to a definition of leverage as total debt to total assets (Harris & Raviv, 1991). Thus, using total debt to total assets as capital structure, this study compared determinants of capital structure in emerging markets with emphasis on both firm-specific and macroeconomic factors. ...
Article
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Capital structure has attracted much attention in accounting research (Rajan & Zingales, 1995). However, factors driving capital structure keep changing (Öztekin & Flannery, 2012). Hence, this study focuses on macroeconomic and firm-specific factors that influence enterprises’ capital structure decisions in emerging markets. We conduct longitudinal research, analysing data from seven emerging market companies from 2010 to 2018. The study used either a fixed effect or random effect model for estimation, depending on the outcomes of the Hausman specification test. Firm-specific factors such as growth prospects, debt capital cost, and firm size have a substantial impact on capital structure. Macroeconomic factors such as foreign direct investment, inflation rate, and gross domestic product (GDP) growth significantly impact enterprises’ leverage. However, the impact of these characteristics varies across countries, exhibiting distinct patterns in the countries under study. Though, firm-specific and macroeconomic variables explain the capital structure, not all firm-specific and macroeconomic variables are relevant in all African countries. Understanding the elements that influence capital structure decisions can help firms optimise their financing decisions, while regulators can create effective financial regulations.
... Theories of capital structure can be classi®ed based on, mainly, four perspectives 2 . These are agency costs, asymmetric information, product/input market interactions, and corporate control considerations (Harris and Raviv, 1991). In addition to these four perspectives, two other sets of research have dierent considerations. ...
... Capital structure survey papers includeMiller (1988),Stiglitz (1988) Harris and Raviv (1991).Turki B. Alshimmiri ...
Article
يهدف هذا البحث إلى التعرف إلى العوامل المؤثرة في مستوى المديونية للشركات الكويتية الصناعية بوصفها شركات تعمل في ظل اقتصاد غير ضرائبي، مما يجعل هذه الدراسة مختلفة عن جميع الدراسات السابقة التي تعتمد الأثر الضريبي محدداً رئيساً لاستخدام الشركات للديون. وقد أكدت هذه الدراسة وجود علاقة بين أداء الشركة ومستوى المديونية، وذلك حسب تفسيرات نظرية الوكالة (جنسن ومكلنج 1976) فقط، وهي النظرية التي لاتعتمد على التفسير الضريبي لاستخدام الديون. كذلك كشفت هذه الدراسة أيضاً عن وجود علاقة مباشرة بين ملكية المستثمر المؤسسي وقرارات التمويل للشركات الصناعية الكويتية. بالإضافة إلى ذلك، فإن قرار التمويل أيضا له ارتباط وثيق بمستوى ربحية الشركة حجمها. ويجب التأكيد على أن صغر حجم العينة المستخدمة في الدراسة (بسبب عدم توافر المعلومات المطلوبة للتحليل) هو مؤشر دال على أن النتائج التي توصلت إليها ربما تعد مؤقتة ومرتبطة بزمن إجراء الدراسة.
... Financing decisions and the definition of companies' capital structure have been discussed in the literature since the mid-1960s, with the publication of Modigliani and Miller's work (1958). Following this seminal study, numerous others have delved into the subject, with notable works by Jensen and Meckling (1976); Myers (1977); Myers (1984); Myers and Majluf (1984), and several theories corroborate the topic, including the Pecking Order, Trade-Off, Market Timing, and Agency Theory (Harris & Raviv, 1991). Dang (2011) asserts that to meet an organization's financial needs, the capital structure balances between two sources of funding: equity and debt. ...
... Following this debate, various theorists sought to provide explanations for financing decisions. The focus of most studies was on explaining the factors that lead to the determination of the company's financing mix, according to the expected cash flow (Bandyopadhyay & Barua, 2016;Harris & Raviv, 1991;Myers & Majluf, 1984). The importance of this discussion for the finance field arises from the fact that there are no definitive answers to determining the best level of leverage or capital structure that provides the best return, both for the company and its shareholders (Junqueira et al., 2010). ...
Conference Paper
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This study examined the impact of financial and operational leverage on the investment behavior of Brazilian companies. 776 non-financial Brazilian companies listed on the Brasil Bolsa Balcão-B3 between 2010 and 2022 were analyzed. A multiple linear regression model with panel data and fixed effects was used. The dependent variable was net investment, while the independent variables were financial and operational leverage. The results indicate that both forms of leverage have a negative effect on company investments. Company growth and revenue positively influence investments, while company size and age are also determining factors. Companies with higher growth potential reduce investments when more leveraged, while others invest solely based on sales revenue. This study contributes to the literature by addressing gaps in the investment behavior of Brazilian companies, highlighting managers' conservative approach in scenarios of high financial and operational leverage. Abstract This study examined the impact of financial and operational leverage on the investment behavior of Brazilian companies. 776 non-financial Brazilian companies listed on the Brasil Bolsa Balcão-B3 between 2010 and 2022 were analyzed. A multiple linear regression model with panel data and fixed effects was used. The dependent variable was net investment, while the independent variables were financial and operational leverage. The results indicate that both forms of leverage have a negative effect on company investments. Company growth and revenue positively influence investments, while company size and age are also determining factors. Companies with higher growth potential reduce investments when more leveraged, while others invest solely based on sales revenue. This study contributes to the literature by addressing gaps in the investment behavior of Brazilian companies, highlighting managers' conservative approach in scenarios of high financial and operational leverage.
... Recently, the idea that firms engage in "market timing" has become quite popular. This is often referenced in the survey by Harris and Raviv [20] or the empirical study by Titman and Wessels [4]. According to Harris and Raviv [20,p. ...
Article
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In corporate finance, the capital structure of businesses is a crucial research topic that is still the focus of many academics and not only. However, unlisted businesses in emerging nations like Albania have received little attention, with the majority of studies concentrating on listed businesses in industrialized nations. This paper analyzes a number of the primary elements that are thought to consistently affect the capital structure, drawing from earlier research. Performance, asset tangibility, company liquidity, size, financial flexibility, tax benefits from non-debt expenses, growth opportunity, company age, and the one-period lagged debt ratio are the specific important elements that are examined in this study. Our research focuses on seventy five different sizes enterprises between 2019 and 2023. Multiple regression analysis is used to quantify capital structure. Fixed effect econometric technique is used to test the multiple variable linear regression model. Results shows that firms do not have an optimal capital structure, but we note that over the period 2019-2023 for small firms they have had an average of 47.18 percent total-debt, 1.35 percent long-term debt and 45.83 percent short-term debt respectively. Over the period 2019-2023 for medium firms they have had an average of 60.89 percent total-debt, 8.16 percent long-term debt and 52.73 percent short-term debt respectively. Finally for large firms they have had an average of 55.59 percent total-debt, 17.62 percent long-term debt and 37.97 percent short-term debt respectively. In the first regression model of total debt for small firms, coefficients of constant, ROE, non-debt tax shield, firm age and firm flexibility are statistically significant in determining total-debt ratio. In the second regression model of total debt for medium firms, there are not coefficient that are statistically significant and in the third International Journal of Economics, Commerce and Management, United Kingdom Licensed under Creative Common Page 149 regression model of total debt for large firms, coefficients of constant, tangibility of assets, ROE, non-debt tax shield, growth opportunity, firm size and firm flexibility are statistically significant in determining total-debt ratio. The findings confirm that the results are in line with the pecking order theory (POT) and the data indicate that enterprises do not have an ideal capital structure. Albania does not apply the trade-off principle, which contends that businesses should take on more debt in order to profit from the deduction of debt interest before taxes. These results add to the body of knowledge on the connection between capital structure and decision-making and offer suggestions for more lucrative financing options for these businesses, like utilizing long-term funding rather than just short-term.
... Conversely, low profitability makes debt visible as a burden, lowering the company's attractiveness ( (Ross, 1977)). Therefore, profitability is the key to balance debt management to support the growth of company value ( (Harris & Raviv, 1991)). ...
Article
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The purpose of this study is to examine the effects of Debt to Equity Ratio, Current Ratio, and Managerial Ownership on Firm Value with Return on Assets as a mediating variable. Using purposive sampling, 18 property and real estate companies listed on the Indonesia Stock Exchange during 2019-2023 were analyzed, resulting in 90 data points. This study employs a descriptive quantitative method to analyze the relationships among Debt to Equity Ratio, Current Ratio, Managerial Ownership, Return on Assets, and Firm Value. Data were collected from 18 property and real estate companies listed on the Indonesia Stock Exchange from 2019 to 2023, using a purposive sampling technique, resulting in 90 data points. Path analysis was utilized to determine the direct and indirect effects of the variables, supported by classical assumption tests to ensure the validity and reliability of the model. Hypothesis testing was conducted through t-tests and F-tests, complemented by determination coefficient analysis to evaluate the explanatory power of the variables. The results show that DER negatively affects ROA, KM positively affects FV, and ROA positively affects FV while mediating the effect of DER on FV. This study highlights the importance of managing debt effectively and incentivizing managerial ownership to enhance firm value. The findings of this study provide valuable insights for stakeholders in the property and real estate sector. By demonstrating the mediating role of Return on Assets in the relationship between Debt to Equity Ratio and Firm Value, the research emphasizes the critical need for effective financial management strategies. Additionally, the positive impact of Managerial Ownership on Firm Value highlights the importance of aligning management interests with shareholder goals. These insights can serve as a foundation for policymakers, investors, and company executives to implement practices that optimize financial performance and sustain long-term growth in a competitive market environment.
... The literature shows that firm size is pivotal in shaping the leverage decision (Harris & Raviv, 1991;Titman & Wessels, 1988). Large companies are more likely to demand debt because they exhibit reduced asymmetricinformation issues, resulting in lower transaction costs and better terms in debt contracts (Bigelli, et al, 2014;Booth et al., 2001;de Jong et al., 2008;Frank & Goyal, 2009). ...
... However, in emerging markets, the results vary. Harris and Raviv (1991) demonstrated that the optimal level of leverage might enhance firm value in certain market conditions, especially when debt is used for profitable long-term investments. ...
Article
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This study investigates the relationship between leverage and stock earnings in the Abu Dhabi stock market from 2006 to 2015, employing a time series computed tomography (CT) scan methodology. The dependent variable, earnings per share (EPS), is analyzed concerning various leverage ratios, including the Debt-to-Assets Ratio (DA), Debt-to-Property Ratio (DP), Long-Term Debt-to-Assets Ratio (LDA), and Long-Term Debt-to-Property Rights Ratio (LDP). Our findings reveal a positive effect of the DP ratio on leverage, while a negative impact is evident with the LDP ratio. Through a static analysis model, the study elucidates the short-run effects of leverage on earnings, characterized by the ratio of total debt to ownership using autoregression vectors. These insights enhance our understanding of the intricate relationship between leverage and stock earnings in the Abu Dhabi stock market.
... This they referred to as capital structure irrelevance theory. Modigliani and Miller (1963) after evaluating the presence of market frictions and imperfections such as financial distress, taxes, agency problems and asymmetric information, declared that the choice of capital structure is relevant on firms' value (Harris & Raviv, 1991;Myers, 2001;. Modigliani and Miller (1963) demonstrate that in a frictionless world, financial leverage is unrelated to firm value. ...
Article
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The study tested the Miller and Modigliani relevance and irrelevance theories of capital structure among quoted manufacturing companies in Kenya using a sample of eleven (11) listed manufacturing firms in the Nairobi Stock Exchange in the period 2006 to 2019. The findings invalidated the capital structure irrelevance theory of Modigliani and Miller (1958) among listed manufacturing firms in Kenya. On the other hand, the study finding validated the capital structure theory of Modigliani and Miller (1963). It suggests that capital structure is relevant among the listed firms in Kenya. The study recommends that researches be conducted to test the theories on the market value of small and older firms in sectors of Nigeria economy and in other Sub-Saharan African countries. The study contributed to knowledge in that it is the first to validate the Modigliani and Miller irrelevance and relevance theories of capital structure among quoted firms in Kenya using advance dynamic panel estimation in the form of two step system general methods of moment.
... The complicated relationships within this dynamic mix include a company's financial health, marketing strategy, risk tolerance level, and expected returns from good management. These components are crucial to the function and future development of the firm (Harris & Raviv, 1991). Moreover, it should be stated that the best-selected capital structure enables the creation of a firm from the financial and organizational point of view which will lead to success, high competitiveness, and efficiency in all functions. ...
Article
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This research investigates the complex interrelationship between strategic capital structure choices and their impact on the firm's value. This study looks at 29 leading manufacturing firms, both in engineering and textile industries listed with the Dhaka Stock Exchange, from 2010 through 2023. The analysis performs nonlinear threshold effects related to capital structure, with the selection of Tobin’s Q as the representative indicator of firm value, while the D/E ratio serves as the main explanatory variable. The study employs a panel threshold regression model, which identifies a critical D/E ratio of 1.51, above which the leverage effects on firm value become significantly negative. Descriptive statistics and correlation analysis reveal that there are reliable financial trends among companies, where profitability and growth are directly linked to market valuation. The outcomes demonstrate the importance of keeping leverage at a moderate level to enhance business value and prevent the adverse effects of too much debt. This study improves awareness of capital structure in emerging markets, enabling policymakers and business managers to make more informed decisions and contribute to advancing financial practices.
... The Trade-Off Theory supports this, balancing debt benefits with risks like bankruptcy (Myers, 1984). Excessive debt increases risk, lowering efficiency (Harris & Raviv, 1991). Authorities should assist SMEs with financing options and training to manage capital effectively, promoting sustainable ROA growth. ...
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Purpose: This study examines the role of Intellectual Capital (IC), including Human Capital (HC), Structural Capital (SC), and Relationship Capital (RC), as moderating variables in the relationship between business efficiency and financial performance, measured by Return on Assets (ROA) and Return on Sales (ROS) in Creative Economy-based Micro, Small, and Medium Enterprises (MSMEs) in Palembang City. Method: Using financial data from MSMEs between 2020 and 2023, this study employs a quantitative approach and a survey method. The study population consisted of 1,233 MSMEs across 15 creative economy subcategories, guided by the Department of Industry and Trade of Palembang City. A total of 400 respondents were selected using Slovin's formula and purposive sampling. Data were collected through direct interviews and questionnaires and analyzed using the Panel Least Squares Method. Results: The findings reveal that Business efficiency significantly influences ROA but not ROS. Human capital enhances the impact of business efficiency on both ROA and ROS, whereas customer capital does not strengthen this relationship. Structural capital boosts the effect of business efficiency on ROA but not on ROS. Limitations: This study is confined to Palembang City and the creative economy MSME sector, necessitating cautious generalization to other regions or sectors. Future research should explore additional moderating variables beyond IC. Contribution: This study contributes to the understanding of IC's role in enhancing business efficiency and its subsequent impact on the financial performance of creative economy-based MSMEs. Novelty: This research highlights the critical importance of managing human capital and structural capital to improve financial outcomes, providing new insights into the factors influencing the performance of creative-economy MSMEs.
... In a study from the 1980s, the pioneering authors of UET, Hambrick and Mason (1984), emphasized that debt decisions can be influenced by the personal characteristics and specific skills of CEOs. According to Harris and Raviv (1991), raising funds through debt financing is partially driven by CEOs' concerns about their reputation. They noted that CEOs tend to prefer projects that enhance their personal success over those that align with shareholder preferences, potentially leading to higher debt levels. ...
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This study aimed to analyze the relationship between the personal and professional characteristics of CEOs and the corporate debt of publicly traded companies listed on the Brazilian Stock Exchange (Brasil, Bolsa, Balcão). The research was grounded in the Upper Echelons Theory and employed a multiple regression empirical model. A total of 444 companies were analyzed over the period from 2010 to 2021. The personal and professional characteristics investigated included age, gender, professional experience, education level, and tenure. To assess corporate debt, six debt metrics were used: short-term debt, long-term debt, total debt-to-total assets, total debt-to-equity, interest-bearing liabilities-to-total assets, and total interest-bearing liabilities. The findings indicate that gender and tenure positively influence corporate debt, confirming hypotheses 2 and 5 of this study. These findings are valuable for organizations, as these characteristics can be carefully observed and considered when hiring CEOs with profiles aligned to organizational parameters. From a stakeholder perspective, the results may inform investment or engagement decisions with a given organization, as CEO profiles could help infer whether their goals align with those of the stakeholders.
... A szakirodalomban számos kutatás foglalkozik a tárgyi eszközök és a működési hatékonyság közötti kapcsolat vizsgálatával, de az eredmények nem egyértelműek. Míg egyes tanulmányok szerint a magas tárgyieszköz-állomány hozzájárulhat a működési hatékonysághoz, addig mások szerint a hatékonyság inkább a menedzsment képességein és a termelési folyamatok optimalizálásán múlik (Titman-Wessels 1988, Harris-Raviv 1991. -H6: A cégek működésének hatékonyságát, eszközarányos forgalomértékét (TATO) pontosabban tudjuk magyarázni a jövedelmezőséggel (likviditás I. fokozata) és hitelképességgel (adósságráta), mint a vállalatmérettel (a nettó árbevétel alapján) és a tárgyieszköz-állománnyal együttesen. ...
... The sector of activity is an important indicator of the capital structure and the debt decision of a company. Indeed, the sector to which the company belongs influences the decision to resort to debt because each sector corresponds to a specific risk linked to its activity (Harris and Raviv, 1991;Margaritis & Psillaki, 2010). ...
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One of the main difficulties encountered by Moroccan small and medium-sized enterprises (SMEs) is limited access to financing, particularly due to insufficient guarantees, low financial transparency and a lack of knowledge of available financial products. In this context, the purpose of this article is to analyze the impact of the determinants of the financial structure of Moroccan SMEs in the medium and long term measured by several indicators. Thus, our econometric study is carried out on a sample of 520 unlisted Moroccan SMEs, using a cylinder panel model during the period 2013 to 2017. This econometric modelization shows that the size of SMEs has a positive and significant effect on the debt ratio in the medium and long term. Concerning guarantees, the regression results show that this determinant exerts a very significant influence on the debt ratio and constitutes a signal to lenders. This study revealed that the Trade Off Theory (TOT) has a greater explanatory power on the choice of medium and long-term financing of Moroccan SMEs than the Pecking Order Theory (POT). Finally, this research provides results that are likely to guide SME managers in the effective management of their company's financing.
... This is all the more true since these companies enjoy such a large negotiating power in relation to the donors, which facilitates their external financing (Diamond, 1989). On the other hand, according to hierarchical financing theory, large enterprises are characterized by a weakness in informational asymmetry compared to small firms (Harris & Raviv, 1991;Opler et al., 1999;and Drobetz et al., 2010), making it easier for them to access external funding when needed. On the other hand, small firms will be obliged to build liquid deposits for precaution motive or to finance future investments. ...
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The purpose of this article is to check whether socially responsible activities influence the cash holding policy in European companies. Using a sample of 1,352 European companies during 2006-2015, we find that companies with good social performance hold less cash than companies with lower social performance. We also found that in European countries that guarantee good investor protection, CRS companies accumulate less cash. Taking into account the legal origin of the countries, we have noticed that socially successful companies operating in common law are less likely to hold high cash levels. These resuslts suggest that in the presence of good environment that ensures good investor protection, the negative effect of CSR activities on the level of cash holding is accentuated.
... Компании, которые имеют преимущественно материальные активы могут использовать свое имущество в качестве залогового обеспечения, то есть, получить более легкий доступ к капита-лу. Российские компании, выходя на рынок капитала, предоставляют полную информацию о своих материальных активах потенциальному инвестору, нивелируя информационную асимметрию [14], тем самым, снижая риски, связанные с привлечением финансирования. ...
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Автор рассматривает особенности влияние ключевых факторов (финансовой гибкости, ликвидности и управленческой политики) на долговую стратегию финансирования российских публичных компаний. Особая роль отводится вкладу органа управления в определении долговой политики. В отличие от предыдущих исследований фокус исследования смещен в сторону совместного влияния ключевых факторов, направленных на корректировку структуры капитала в условиях непоследовательной экономической политики. Показатель управленческой политики позволяет оценить предупредительный мотив способность компании переключиться на внутренние источники финансирования (сохраняя денежные ресурсы для финансирования инвестиционных проектов). Исследуется влияние гипотезы предупредительного мотива, выдвинутой Д. Кейнсом. Публичные российские компании реализуют долговую политику, направленную на использовании внутренних ресурсов для финансирования инвестиционных проектов, с учетом их приоритетности. Менеджмент компаний следует логике предупредительного мотива сберегая денежные средства и направляя их на финансирование приоритетных инвестиционных проектов. The author considers features influence of key factors (financial flexibility, liquidity and the management policy) on debt strategy of financing of the Russian public companies. The special role is taken away to the controls contribution to determination of a debt policy. Unlike the previous researches research focus is displaced towards joint influence of key factors on adjustment of capital structure in the conditions of inconsistent economic policy. The indicator of work of company management allows to estimate precautionary motive the capability of the company to be switched to internal sources of financing (savings of money resources for financing of investment projects). The Author researches hypothesis of precautionary motive pushed by J. Keynes. The public Russian companies implement the debt policy directed on use of internal resources for financing of investment projects, taking into account them prioritization. Management of the companies follows logic of precautionary motive saving up money resources and directing them on financing of priority investment projects.
... Firms with a high debt ratio may face a higher risk of bankruptcy, resulting in financial difficulties that negatively impact profitability and growth (Goretti & Souto, 2013, p. 4). Studies by Daskalakis & Psillaki (2008), De Luca (2014) There are also studies that did not find a clear relationship between financial leverage of firms and their performance, such as Harris & Raviv (1991) and Ebaid (2009). ...
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Contemporary trends and the challenging environment in which domestic companies operate require constant supervision and monitoring. The consequences of the coronavirus and geopolitical changes have fundamentally changed the economic world. What will a new economic tomorrow look like? Business predictions serve to answer that question. The paper analyzes the change in business and financial forecasting as a function of making strategic decisions. Also, the goal of the paper is to point out the importance of strategic management and strategic thinking, especially in crisis situations. In our work, we will try to promote the concept and role of business and financial forecasts in the function of making strategic decisions. The research focus is directed towards the production companies of the Republic of Srpska. The research model is based on business and financial forecasts, in the period five years ago, and a comparison of the results of business forecasts with the results of the company's operations today. Until now, a large number of models have been developed for predicting the business performance of companies, the vast majority of which are based exclusively on economic criteria. The methodological concept of the research is based precisely on the platform of the influence of business predictions on making strategic decisions in the company.
... It is worth noting that companies should regularly review the evaluation of their capital structure to ensure its (Al-Shemili, 2017). Harris and Raviv (1991) defined capital structure as the sources of funds for financing financial growth and operations, while Akomeah et al. (2018) defined it as the ratio of debt to assets, distinguishing between shortterm and long-term debt ratios, and the overall ratio. Capital structure is the proportion of debt value to its capital, reflected in the company's financial statements at the end of the year. ...
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Research Aims: This exmine the impact of capital structure on the application of corporate governance in Jordanian industrial companiese,by using the ratios of the capital structure on the size, independence of the board of directors,and independence, size of the audit committee. Design/Methodology/Approach: The population of the study consisted of 53 Jordanian Industrial Companies (JICs) registered in the Jordanian Securities Depository Center (JSDC), while the sample included 35 JICs that met the selection criteria. Data were collected from the JSDC’s website for the fiscal years 2017–2022. Whereas the hypotheses underwent multiple regression supported by SPSS. Research Findings: The study reached a set of findings, the most important of which was: There is an impact of capital structure on the application of corporate governance in Jordanian industrial companiese. Based on these findings, the study recommended several recomendations, the most important is increasing the level of commitment of Jordanian industrial companies to the terms and rules of corporate governance and disclosing this in their annual reports, as this will enhance their value and reputation in the market and thus increase their ability to attract investments and achieve high returns and sustainability in the long term. Theoretical Contribution/Originality: the study adds new evidence to the literature regarding the impact of capital structure on the application of corporate governance. Research Limitation/Implications: The lack of data for some companies during our study period. also the researchers used some ratios to measure the study variables because it is not possible to use all ratios in this study.
... Jensen and Meckling (1976) gave a new direction to research on capital structure by arguing managers prioritize their wealth expansion over firm value. Harris and Raviv (1991) further researched the theory. Overall, agency theory discusses the relationship of conflict between owner and management. ...
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The study examines the association between promoter ownership and leverage of Fast Moving Consumer Goods (FMCG) companies listed at BSE in the ‘A’ category. The FMCG Industry is a vital sector for the Indian economy. Leverage decision is a critical financial decision. In the year, 2020 the revenue of the FMCG market was USD 110 billion. The study tries to investigate the impact of promoter shareholding on the leverage decision of Indian FMCG companies. The study is conducted on a sample of 46 companies and the study period ranges from 2017-2022 for 5 years. The study conducted A panel data model is opted for data analysis. The study also conducted a diagnostic test to further check the reliability of the data. The study indicated a significant positive association between ownership structure and leverage. Due to the existence of agency problems, the leverage decisions deviate from neoclassical models. The study’s finding adds to the extant literature on promoter ownership. The positive relationship indicated the existence of an agency problem. Firm executives should try to reduce Agency problems to enhance firm performance.
... In line with Jensen and Meckling (1976) and Myers (1977), bankruptcy costs reduce firm value, while debt increases it due to the benefit of interest taxation (Modigliani & Miller, 1963). According to a study by Harris and Raviv (1991), large organizations with a high proportion of tangible assets have better access to credit than small financial institutions that have a higher proportion of intangible assets. In addition, borrowing appears to be more associated with ordinary financial organizations than with successful firms that offer significant investment potential. ...
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The aim of the study is to investigate the relationship between the internal financial and capital structure of an organization in the travel and tourism sector. The study shows how financial constraints on tourism companies affect their ability to finance themselves. The study also shows a relationship between tax shielding and financial leverage. This study analyzes panel data collected over a 21 year period, from 1998 to 2019, from over 100 publicly traded tourism companies in three Asian countries. A panel data methodology and the generalized method of moments estimation (GMM) were used in this empirical study. To support our hypothesis, using a generic method to evaluate parameter estimation will be our most effective method to improve the literature. Overall, the results show that financially stressed tourism firms use their option of debt-free tax avoidance to increase leverage. There is also a positive correlation between tax haven and leverage for firms with limited resources. The correlations between financial leverage and corporate debt supported by the results theoretically support the pecking order. By providing useful insights into the tax shielding of non-debt, which is significantly correlated with leverage for firms operating in tourism, this study closes the gap in firms’ capital structure decisions regarding access to finance. JEL Classification: G0, G01, L25
... Economists have focused on and solved the nature of the cost of capital problem by considering physical assets such as bonds, which are considered to bring profits and a cash flow to the owner. Later (15) proposed models related to capital structure with input products as the most promising. Studies have clarified theories related to capital structure in different research contexts. ...
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Insurance companies have an important function of absorbing and storing economic risks. Therefore, companies need to have optimal, safe, and stable capital sources to be able to finance, diversify, and transfer risks. Previous studies have only focused on market share, customers, competitive strategies, and insurance premiums without paying attention to the capital sources of insurance companies. This is more necessary when Vietnamese insurance companies have a non-optimal capital structure, leading to low profitability. The study aims to fill the above gap by analyzing the impact of capital structure on the profitability of insurance companies through the research sample of the Data Set of 40 insurance companies (listed on HNX, HOSE, UPCOM), corresponding to 297 observations in the period from 2013 - 2023. By using GMM estimation, the author has identified three independent variables explaining (and two control variables) the variation of the dependent variable profitability (ROE), including (i) General debt ratio (GDR), (ii) Debt ratio (DR), (iii) Long-term debt ratio (LDR). Based on the research results, the authors discuss and assess the important role of capital structure in insurance companies and provide financial solution recommendations to improve their profitability.
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The purpose of the study is to empirically evaluate how the listing of small and medium enterprises (SMEs) affects their financial performance. Additionally, it also determines and compares the finding in pre and post listed period considering 2013–2014 to 2016–2017 as pre listed period and 2018–2019 to 2021–2022 as post listed period. 130 SMEs listed on the BSE SME and NSE EMERGE platforms in the year 2017–2018 are considered as sample. The study uses the Generalized Method of Moments (GMM) for regression model. Results concludes that the listed firms are moving towards the use of more equity funds, but the proportion of increasing equity is not that much high as compared to the proportion of falling debt equity ratio. Listing of SMEs also reduces the profitability of these firms. The way that SMEs are financed can be of great interest to a variety of parties, including lenders and the government. Finally, this study finds evidence of an inverted U-shaped relationship between financial structure and financial performance of listed SMEs.
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This chapter explores the strategic use of debt financing in maturing startups as they transition from debt-free operations to leveraging growth through debt. It examines the conditions under which startups can safely incorporate debt, such as generating positive cash flows, building collateral, and mitigating information asymmetries. Grounded in Modigliani and Miller’s proposition II, the analysis demonstrates how leveraging can enhance Return on Equity (ROE) while also increasing risk. A practical case study illustrates these concepts, highlighting the balance needed between debt and profitability. The chapter provides a comprehensive framework for startups to manage debt strategically, offering insights that contribute to the broader discourse on startup financing and risk management.
Chapter
In this study, artificial intelligence and machine learning techniques are used to comparatively analyze financial indicators affecting capital structures in the energy, information technology and machinery sectors. The unique financial structure of each sector leads to differences in capital structure management strategies. Lasso regression, ElasticNet and LightGBM machine learning algorithms were applied to determine the importance of the characteristics for each sector. The analysis reveals that LightGBM has the highest predictive performance when highlighting sector-specific variation in key metrics such as current ratio, asset growth rate and EBITDA margin. The findings underline the importance of AI-based models in financial analysis, which support strategic decision-making by revealing industry-specific priorities and contribute to more effective capital structure management and risk mitigation strategies.
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This research is motivated by lack of empirical research on small and medium enterprises (SMEs) in Sri Lanka presumably due to lack of data. Principal aim of this research is to examine how firm characteristics affect SME capital structure in Sri Lanka covering the period just before the advent of global financial crisis (GFC). An empirical analysis has been carried out using non-financial Sri Lankan SME data for the period 1999 to 2008 (just before the full impact of the GFC is felt) modelling the leverage ratio as a function of firm specific attributes hypothesized by two capital structure theories: static trade-off theory and pecking order theory. Results generated in this study are broadly in line with the two theories. Findings of this research will be of benefit to Sri Lankan SME policymakers, enterprise regulators and SME industry organisations.
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Kurumsal finans teorilerinin gelişimiyle birlikte sermaye yapısı ile ilgili literatürde birçok çalışma yapılmıştır. Firmaların varlık ediniminde, nasıl bir sermaye yapısına sahip olması gerektiği ve finansman çeşitliliğinin nasıl olması gerektiği finansal kararların en başında gelen konulardan olmuştur. Sermaye piyasasının gelişmişliğinin bir göstergesi olan borsa büyüklüğü, bir ülkedeki dolaşımdaki pay senetlerinin toplam değerini ifade eder. Bu çalışmanın amacı, finansman ihtiyacının yüksek olduğu gelişmekte olan ülkelerin borsa büyüklüğünün firmaların sermaye yapısı üzerine etkisini araştırmaktır. Araştırmada panel veri regresyon yöntemi kullanılmıştır. Veri seti, 1996-2019 yılları arasında, 10218 firmadan elde edilen 96946 gözlem sayısından oluşmaktadır. Elde edilen bulgulara göre borsa büyüklüğünün, toplam borç oranı ve uzun vadeli borç oranı üzerine negatif ve anlamlı etkisi, kısa vadeli borç oranı üzerine ise pozitif anlamlı etkisi tespit edilmiştir. Ayrıca firmaların kârlılık, maddilik, nakit, PD/DD, büyüklük, Ar-Ge harcamaları ve firma riski değişkenleri kontrol değişkeni olarak modelde kullanılmıştır. Gelişmekte olan ülkelerde sermaye piyasasının gelişimi, pay piyasasının büyümesine katkı sağlamaktadır. Bu bağlamda, borsa büyüklüğü, firmaların öz kaynak kullanımını destekleyen önemli bir faktör olarak öne çıkmaktadır. Bu nedenle, borsa büyüklüğü ile firmaların sermaye yapısı arasında uzun vadede negatif bir ilişki olduğu gözlemlenmiştir. Bu çalışma, elde edilen bulgular doğrultusunda literatüre özgün ve kapsamlı bir katkı sunmaktadır.
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The effect of operating flexibility on leverage ratio is not clear, with papers pointing to both positive and negative relationships. Using production switching cost as a measure of operating flexibility, we show that it has two opposing effects: it increases firm value (positive) and increases cost of debt (negative), thus the overall effect is ambiguous. In general, however, the overall effect is negative and small in magnitude. It is stronger when profit margin, growth rate, tax rate, and bankruptcy cost are small, and when volatility is large. Our results help reconcile conflicting predictions in the theoretical literature with empirical findings.
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O objetivo deste estudo foi analisar a relação entre as características pessoais e profissionais dos CEOs e o endividamento das empresas de capital aberto listadas na Brasil, Bolsa e Balcão. Para isso, adotou-se como suporte teórico a Teoria dos Escalões Superiores, e utilizou-se um modelo empírico de regressão múltipla. Foram analisadas 444 empresas no período de 2010 a 2021 e as características pessoais e profissionais investigadas foram: idade, gênero, experiência profissional, nível de escolaridade e tempo de mandato. Para analisar o endividamento das empresas foram utilizadas 6 métricas de endividamento, sendo: endividamento de curto prazo, endividamento de longo prazo, endividamento total em relação ao ativo total, endividamento total em relação ao patrimônio líquido, passivo oneroso em relação ao ativo total e passivo oneroso. As evidências da pesquisa apontam que o gênero e o tempo de mandato influenciam positivamente o endividamento das empresas, confirmando as hipóteses 2 e 5 desta pesquisa. Tais evidências contribuem com as próprias empresas, pois as características podem ser cautelosamente notadas e levadas em consideração na contratação de CEOs que portem o perfil apropriado aos parâmetros da organização. Sob a ótica dos stakeholders, os resultados podem contribuir para a decisão de investir ou se relacionar com determinada organização, pois através dos perfis dos CEOs poderão inferir se seus objetivos estão alinhados
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Bu çalışma, Türkiye’deki savunma sanayi şirketlerinin sermaye yapısını etkileyen faktörleri analiz ederek sektöre yönelik finansal stratejiler geliştirilmesine rehberlik etmeyi amaçlamaktadır. Borsa İstanbul (BIST)’da işlem gören savunma sanayi şirketleri Aselsan, Otokar ve Katmerciler için Haziran 2011 - Eylül 2023 dönemine ait çeyreklik veri seti ile panel veri analizi uygulanmıştır. Analiz kapsamında sermaye yapısına etki eden bağımsız değişkenler için hisse senedi getirisi, aktif devir hızı, likit oran, faaliyet kâr marjı, nakit döngüsü, aktif kârlılık ve borç dışı vergi kalkanı ele alınmıştır. Çalışma bulguları, sermaye yapısı ile aktif devir hızı arasında negatif yönlü bir ilişkinin varlığını; likit oran, borç dışı vergi kalkanı ve faaliyet kâr marjı ile pozitif bir ilişkinin varlığını ortaya koymuştur. Hisse senedi getirisi, nakit döngüsü ve aktif kârlılığın sermaye yapısı üzerine etkisinin anlamlı olmadığı belirlenmiştir. Çalışma, savunma sanayi şirketlerinin sermaye yapısı kararlarında likidite yönetimi, operasyonel verimlilik ve vergi avantajlarına odaklanmaları gerektiğini vurgulamakta, ayrıca daha kapsamlı analizler için devlet politikaları, savunma harcamaları, uluslararası iş birlikleri ve makroekonomik faktörlerin de dikkate alınmasını önermektedir.
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