Credit supply and capital structure adjustments

Rahman, Shofiqur

doi:10.1111/fima.12293

Cited by 10 publications

(7 citation statements)

References 141 publications

(292 reference statements)

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“…Consequently, access to credit is limited. The results are consistent with Rahman (2019). Macroeconomic risk has an insignificant relationship with debts for all countries.…”

Section: Results Analysis and Discussionsupporting

confidence: 86%

Impact of idiosyncratic and macroeconomic risks on capital structure: evidence from SADC countries

Amelot

Agathee

2021

AJEMS

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PurposeThe purpose of this study is to investigate the impact of idiosyncratic and macroeconomic risks on capital structure on SADC countries.Design/methodology/approachEmploying data from the African Financials database, the analysis is conducted over a ten year period spanning from 2009 to 2018 for 309 companies. Unit Root Fisher Chi-Square test and Granger Causality test were employed to test for unidirectional and bidirectional relationships cross-sectionally. To resolve endogeneity issues, System GMM was used as main topology for panel regression analysis.FindingsThe study confirmed that companies become risk averse when there is an increase in idiosyncratic and macroeconomic risk and therefore take less leverage. According to the perking order theory, a higher variability in earnings shows that the bankruptcy probability amplifies. Hence, institutions with high income employ more internal finance during periods of high idiosyncratic and macroeconomic uncertainty thereby lowering leverage. A positive significant and statistically relationship is also confirmed between idiosyncratic risk and leverage in Botswana, South Africa and Tanzania. Companies with higher leverage make riskier investment in line with the trade-off theory. In short, executives from the SADC region consider more importance to fluctuations in risk while accelerating or diminishing leverage in their capital structure.Originality/valueThe study is among one of the pioneering work underpinning the idiosyncratic risk and macroeconomic risk on capital structure and relying on a large number of companies across the SADC region. In this respect, it adds contribution to the existing literature on risks and capital structure to the socio-economic goals of the SADC region.

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“…Consequently, access to credit is limited. The results are consistent with Rahman (2019). Macroeconomic risk has an insignificant relationship with debts for all countries.…”

Section: Results Analysis and Discussionsupporting

confidence: 86%

Impact of idiosyncratic and macroeconomic risks on capital structure: evidence from SADC countries

Amelot

Agathee

2021

AJEMS

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“…(2015). In a study of deregulation in the U.S. financial sector, Rahman (2020) found that firms that were dependent on banks rather than public markets for finance exhibited faster speeds in capital structure adjustment in less regulated environments. In a study of the speed of capital structure adjustment amongst Indian firms, Ghose and Kabra (2020) found that more profitable firms adjusted towards their capital structure faster than less profitable firms.…”

Section: Literature Reviewmentioning

confidence: 99%

Drivers of farm business capital structure and its speed of adjustment: evidence from Western Australia’s Wheatbelt

West¹,

Mugera²,

Kingwell³

2021

Aus J Agri & Res Econ

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The viability and profitability of a farm business can be influenced by how it chooses to fund its operations and capital investments either using debt or internal funds. This study examines the determinants and speed of adjustment of the capital structure of broadacre farm businesses in Western Australia's Wheatbelt. Results show that prior period cash flow and equity, farm size and farm location are significant determinants of observed capital structures. Farm businesses are found to quickly adjust their capital structure to desired target levels, suggesting that adjustment costs are not high. The findings support the view that there is a pecking order in the choice of how farm businesses fund working capital and capital investments.

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“…In China, adjustment speed is higher where there is higher bank competition (Jiang et al, 2017). In the USA, banking deregulation positively impacts leverage adjustment speeds of nonfinancial firms (Rahman, 2020). Abbas et al (2020) find that firm size and asset structure have positively impacted the speed of adjustment in nonfinancial firms.…”

Section: Literature Reviewmentioning

confidence: 99%

Bank Capital Structure Dynamics and Covid-19: Evidence from South Asia

Mohammad

Khan

2021

iRASD J. Eco.

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The severity in terms of economic activity of the Covid-19 crisis was higher than the global financial crisis. Covid-19 has not only challenged the economic activity across the world but has put to test how the bank operates under the global crises. The objective of this paper is to identify the impact of the Covid-19 crisis on the South Asian banking sector. We investigate if South Asian banks have target leverage and how the Covid-19 crisis impacted their capital structure dynamics. To fulfill the objective, past data on all banks of South Asian countries listed in the Thomson Reuter Refinitiv were considered. The sample ended up including quarterly data of banks from India, Pakistan, Bangladesh, Sri Lanka, Bhutan Nepal and Afghanistan. Engle-Granger's two-step procedure for error correction and two-step GMM estimation was employed to measure the speed of adjustment and the impact of Covid-19 on bank capital. The study found that the capital structure determinants favor the static trade-off theory for South Asian banks. It is also observed that South Asian banks’ capital was negatively impacted by Covid-19. The analysis supports the view of leverage convergence for the capital structure. This study improves our understanding of the capital structure dynamics of banks in response to exogenous shocks in South Asia.

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Credit supply and capital structure adjustments

Cited by 10 publications

References 141 publications

Impact of idiosyncratic and macroeconomic risks on capital structure: evidence from SADC countries

Impact of idiosyncratic and macroeconomic risks on capital structure: evidence from SADC countries

Drivers of farm business capital structure and its speed of adjustment: evidence from Western Australia’s Wheatbelt

Bank Capital Structure Dynamics and Covid-19: Evidence from South Asia

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