Determinants of Capital Structure: An Empirical Analysis of Listed Companies in Thailand Stock Exchange Set 100 Index

Abstract

The main purpose of this study is to investigate some financial indicators that affect the debt ratio in Thailand's capital market. Two competing theories that explicate the capital structure are old-fashioned pecking order and static trade-off model. From existing literature reviews, we select seven traditional factors: profitability, asset structure, size, liquidity, non-debt tax shields, dividend policy and growth as explanatory variables. While long-term debt and total debt are used as proxies for dependent variables. This study uses secondary data collected from annual financial statements of companies in SET 100 index exclude financial business sector. All firms rank highest market capitalization and top trading liquidity in Thailand Stock Exchange for a period of 10 years during 2009-2018. After examine the data, only 760 samples are qualified under criteria. Two panel multiple regression models are implemented for statistic testing at the significant level 0.05. The results for model 1 (Long term debt) show positive and statistical significant effect of asset structure, size, liquidity and growth. While other three factors comprising profitability, non-debt tax shield and dividend policy indicate negative statistical relationships. The results for model 2 (Total debt) show positive and statistical significant effect of asset structure and growth. Whereas, two factors including profitability and liquidity display negative statistical correlation. The results of the two models are consistent with the Pecking Order theory for profitability and growth. High growth firms have higher need for funds then expect to borrow more. While asset structure is consistent with trade-off theory which hold that there should be a positive relationship between fixed assets and debt since fixed assets can serve as collateral. The explanatory variables which have the highest impact on capital structure choices for long term debt and total debt are non-debt tax shield and profitability respectively. Other independent variables such as product uniqueness, risk and macroeconomic indicators are subject to future research.

Impacts of Firm Characteristics on Mining Companies Capital Structure

“…This result is consistent with Farrukh and Asad (2017), Rao et al (2017), Sanyaolu et al (2018), Deitiana and Komalasari (2017), Naseem et al (2017). However, it contradicts with the research conducted by Khan et al (2018), Imtiaz et al (2016), Hussain et al (2020), Pongsupatt and Pongsupatt (2019), which stated that firm size has an impact on Capital Structure.…”

“…Some According to Kumar (2017) profitability is mostly defined as the earnings before interest and tax that is scaled by total assets. Findings from Thuraisingam and Kangetharan (2020) research found that profitability is negatively associated with capital structure, which other studies also yielded the results from Farrukh and Asad (2017), Pongsupatt and Pongsupatt (2019), Dalci et al (2019). As profitability increases, this leads to the firm having more internal funds that is used as a source of internal financing.…”

“…According Gitman and Zutter (2015) profitability means how a firm generates profit and cost through using their fixed assets. Pongsupatt and Pongsupatt (2019) The Firm size the measure of value by taking into account the value of the equity, the selling value, and assets. Firm size according to Jaworski and Czerwonka (2017) is calculated using the total assets of the firm, in which the formula is as follows:…”

“…Nindiani & Arilyn (2019) stated that liquidity can be measured by looking at the current ratio, which can be calculated as follows: Non-Debt Tax Shield is the tax savings that a company gets from deductions of fixed asset like amortization and depreciation. Pongsupatt and Pongsupatt (2019) calculated non-debt tax shield using the formula as follows:…”

“…It is imperative to keep exploring the different factors influencing the capital structure decision of a firm with new variables and distinct time periods for a unique set of industries or sectors. Among them are researches conducted by Thuraisingam and Kengatharan (2019), Pongsupatt & Pongsupatt (2019), Farrukh and Asad (2017), Czerwonka andJaworski (2017), Hussein et al (2017), Nguyen and Tran (2020), Moradi & Paulet (2018), Burki (2017), Farrukh and Asad (2017), Sanyaolu et al (2018), Jaworski and Czerwonka (2017), Rao et al (2017), andJahfer andMadurasinghe (2019). This research is a replication of the research conducted by Shah and Khan (2017) titled "Factors Determining Capital Structure of Pakistani Non-Financial Firms"…”