Banking Sector Development and Corporate Leverage: Empirical Evidence from South African Firms

Etudaiye-Muhtar, Oyebola Fatima; Ahmad, Rodina

doi:10.5539/ijef.v6n8p278

Cited by 5 publications

(5 citation statements)

References 49 publications

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“…The concept of adjustment speed is embedded within the dynamic trade-off theory. Imperfections in the market cause firms to temporarily move away from their desired financing mix (Etudaiye-Muhtar & Ahmad, 2015; Ghose, 2017; Supra et al, 2016). Firms move back to their desired level at different speeds due to adjustment costs.…”

Section: Literature Reviewmentioning

confidence: 99%

“…In the case of Australia, tangibility and size are not significant. Using a sample of nine African countries, Etudaiye-Muhtar and Ahmad (2015) show that adjustment costs are lower compared to firms in developed markets as firms employ private debt from commercial banks and not from the bond markets. Their findings suggest that firms take less time to close the gap between targeted and actual capital structure.…”

Section: Literature Reviewmentioning

confidence: 99%

See 1 more Smart Citation

Optimal Capital Structure and Speed of Adjustment under Hyperinflation and Dollarization

Mbulawa

Okurut

Ntsosa

et al. 2020

Global Journal of Emerging Market Economies

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Economic challenges in Zimbabwe have resulted in firms being pushed out of their optimal leverage. Firms are faced with the need to move back to the optimal level of financing to improve their value. They tend to adjust quickly to the optimal level whenever failing to do so is costlier. This study employs a dynamic capital structure model to examine the determinants of optimal leverage and the speed of adjustment under a hyperinflation and dollarization period (2000–2016). The study shows that firms have an optimal leverage and there are costs of adjusting to this level of capital. Findings are consistent with theoretical predictions of the static trade-off theory (STT) and agency theory. The adjustment factors for all the models were found to be at least 0.475 and are higher under hyperinflation than under dollarization. Both firm and macroeconomic factors explain the optimal capital structure while the former also explains the speed of adjustment. Policies focusing on improving access to and reducing costs for finance will assist firms to maximize value as they adjust to the desired financing mix. The policies adopted may vary in response to the economic environment.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Optimal Capital Structure and Speed of Adjustment under Hyperinflation and Dollarization

Mbulawa

Okurut

Ntsosa

et al. 2020

Global Journal of Emerging Market Economies

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“…Though similar in the stand, these two theories differ largely in their application. The prominence of these words in the network indicates the researchers' inclination towards proving this theory with the existence of target leverage (Vo et al , 2021) and adjustment costs (Etudaiye-Muhtar and Ahmad, 2015).…”

Section: Resultsmentioning

confidence: 99%

What we know and what we should know about speed of capital structure adjustment: a retrospective using bibliometric and system thinking approach

Hegde

Venkateshwarlu

Panda

et al. 2022

QRFM

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Purpose This paper aims to conduct bibliometric analysis on the studies dealing with capital structure’s speed of adjustment (SoA) and identify the prominent themes while suggesting future research directions in the area. The existing reviews broadly focus on the capital structure, which provides the scope for conducting a review on this sub-aspect of capital structure. Design/methodology/approach This study uses a three-stage process to conduct this review: identification of academic journals, selection and analysis of target papers. This study uses a combination of bibliometric tools and a system thinking approach to assess the current status of publications and emerging themes within the literature. Findings This study has found a progressive evolution of SoA in capital structure research from 1984 to 2021. Studies largely focus on implementing the dynamic models to analyse the impact of adjustment costs, dynamic economic conditions, corporate governance practices and other variables on the firms’ adjustment speed and financial decisions. The network analysis of citations, keywords and clusters gives further knowledge on the intellectual structure of the data. Research limitations/implications This study is highly dependent on the papers available within the SCOPUS database. Studies not included herein are not part of this analysis, which may or may not bear an effect on the study’s findings. Originality/value To the best of the authors’ knowledge, the application of systems engineering concept of “system thinking approach” to identify literature gap and suggest directions for forthcoming research is the first of its kind, thus adding a novel and multidisciplinary aspect to this study.

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“…Most of the developing countries are well-known for introducing laws and regulatory reforms to develop the banking sector to enable bank to have better risk management practice that may help them to operate with adequate capitalization ratio. These reforms including interest rate deregulation, privatization of stateowned banks among other reforms (Murinde, 2012;Etudaiye-Muhtar & Ahmad, 2015). Tanzania as one of those developing countries it implemented several banking sector reforms since 1964 after independence.…”

Section: Background Of the Studymentioning

confidence: 99%

Banking Sector Development and Bank Risk-Taking Behaviour: Evidence from Commercial and Non-commercial Banks in Tanzania

Fadhil,

Macha,

Yusuf

2024

IJSSRR

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This study investigates the effect of banking sector development measured by domestic credit provided by banks to private sector as percentage of GDP on risk-taking behaviour of the banks in Tanzania, measured in terms of bank capitalization ratio. The relationship was observed using annual country-level and bank-level data from commercial and non-commercial banks operating in Tanzania from 2012 to 2021. A system GMM estimation technique was employed in the investigation. Our results found that the effects of banking sector development on bank risk measured in terms of bank capitalization ratio is homogeneous across commercial and non-commercial banks. This means the development in banking sector measured as credit to the private sector by banks percentage of GDP in Tanzania has significant positive effect on bank capitalization ratio. Hence, reduce bank risk of default. Nonetheless, the findings reveal further that the profitability of bank and bank size factors are significant positive and negative respectively in relation to bank capitalization ratio. The results are further robust to bank ownership status dummy variable (DOSF) and for country of originality of the banks (DCOF) used to investigate whether there will be significant change in the result or not. The results of the robustness test indicate that banking sector development has insignificant effects on capitalization ratio when banks categorized as domestic and foreign banks as well as when banks categorized as private and state-owned banks.

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Banking Sector Development and Corporate Leverage: Empirical Evidence from South African Firms

Cited by 5 publications

References 49 publications

Optimal Capital Structure and Speed of Adjustment under Hyperinflation and Dollarization

Optimal Capital Structure and Speed of Adjustment under Hyperinflation and Dollarization

What we know and what we should know about speed of capital structure adjustment: a retrospective using bibliometric and system thinking approach

Banking Sector Development and Bank Risk-Taking Behaviour: Evidence from Commercial and Non-commercial Banks in Tanzania

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