Determining the optimal capital structure: a practical contemporary approach

Wet, Johannes H.vH. de

doi:10.1108/10222529200600009

Cited by 30 publications

(15 citation statements)

References 4 publications

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“…Bhayani (2006) studied the impact of leverage on shareholder’s return in the Indian cement industry. De Wet (2006) studied the relationship between firm value and optimal gearing level. Fama and French (2002) found a positive relationship between leverage and profitability.…”

Section: Literature Reviewmentioning

confidence: 99%

Capital Structure and Firm Performance: Empirical Evidence from India

Chadha

Sharma

2015

Vision: The Journal of Business Perspective

118

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This paper studies the impact of capital structure or financial leverage on firm financial performance. A sample size of 422 listed Indian manufacturing companies on Bombay Stock Exchange (BSE) has been taken to analyze the relationship between leverage and firm performance. A period of 10 years from 2003–2004 to 2012–2013 and annual financial standalone data have been considered to analyze the leverage effect. Ratio analysis and panel data approach have been applied to perform the empirical study. Return on asset, return on equity and Tobin’s Q are used as the proxy for measuring the firm’s financial performance. It was found that financial leverage has no impact on the firm’s financial performance parameters of return on asset and Tobin’s Q. However, it is negative and significantly correlated with return on equity. Other independent variables like size, age, tangibility, sales growth, asset turnover and ownership structure are significant determinants of a firm’s financial performance in the Indian manufacturing sector. Thus, the findings of the study would enhance the literature on capital structure and is relevant for the Indian manufacturing industry in taking its capital structure decisions as it is based on the most recent data and covers the period of both pre- and post-recession of 2008–2009. There is an adverse effect of recession on the financial performance of the Indian manufacturing firms.

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Section: Literature Reviewmentioning

confidence: 99%

Capital Structure and Firm Performance: Empirical Evidence from India

Chadha

Sharma

2015

Vision: The Journal of Business Perspective

118

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“…In the previous literature, financial leverage has been selected as a component of risk and of capital structure [See 13, [14][15][16][17]. Furthermore, another body of research examined financial leverage as a significant indicator representing capital structure in the study of internal control mechanisms [18][19][20][21].…”

Section: Introductionmentioning

confidence: 99%

Board Features and Capital Structure in Emerging Markets

Alabdullah¹,

Laadjal²,

Ahmed³

et al. 2018

JOAMS

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The objective of this research is to investigate, in emerging markets Jordanian non-financial firms, the effect of two main measurements/indicators of board feature on a firm's growth/capital structure. The two main measurements are: the non-executive directors; and the board of directors' size. In addition, for this research the analysis was by using a cross-sectional study. The hypotheses were made by statistical analysis from collection data sample of 100 firms that was made available by nonfinancial sector in Jordan. Statistical Software programs were used by the current research; SPSS and EViews to analyze the data. Multiple regressions were utilized to test the hypotheses of the effect of the number non-executive directors appointed to a board of directors and the board size on the growth/ capital structure of firms taking in the consideration industry type as a control variable. The data of the present research used the annual reports to obtain th 1 e data that issued by ASE for the year 2014. To measure the dependent variable of the current research; growth/capital structure, the present research chose financial leverage. The results showed that increasing the number of non-executive directors in the board, in another meaning increasing size of the board, has a negative and significant effect on financial leverage. Therefore, greater financial leverage is a result of the existence of small board. Yet, a testing of independent boards (non-executive directors) showed that non-executive directors have insignificant effect on capital structure. Moreover, the type of industry, as a control variable, has no impact on capital structure of the non financial firms. The present research practically presents evidence to different interested parties in emerging markets, such as scholars, policy makers and academics especially in Jordan context. The current study contributes to the literature in the middle East because it is the first study in Jordan to investigate board composition in non-financial sector (industrial and service firms) particularly from the perspective of capital structure and Manuscript independent boards (non-executive directors). In that, using data from undeveloped country that has an inefficient financial market, this study provides an important view insight on the international debate on the effects of board composition on corporate decisions.

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“…De Wet (2006) has demonstrated that firms select target leverage ratios based on a trade-off between the benefits and costs of increased leverage This target leverage ratio is influenced by three factors: tax, financial distress costs and agency costs. Managers will therefore choose the combination of debt and equity that achieves a balance between the benefits of debt (tax advantage) and the various costs associated with debt (financial distress costs and agency costs) (De Wet, 2006). These three factors are discussed in more detail to demonstrate how they could affect the capital structure.…”

Section: Trade-off Theorymentioning

confidence: 99%

“…Therefore, when a firm includes too much debt in its financing mix, the financial distress costs will significantly increase. The impact of these increased financial distressed costs will increase the risk of bankruptcy, which will cause a decrease in the overall value of a firm (De Wet, 2006).…”

Section: Financial Distress Costsmentioning

confidence: 99%

Determinants of Capital Structure Decision : A Research Synthesis

Modugu¹,

Eragbhe²

2015

JPDS

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Capital structure decision poses a lot of challenges to firms. Determining an appropriate mix of equity and debt is one of the most strategic decisions public interest entities are confronted with. A wrong financing decision has the tendency of stalling the fortunes of any business. Therefore, if managers are to achieve the goal of wealth maximization, conscious steps must be taken in the right direction and at the right time to identify those factors that must be taken into cognizance in determining appropriate financing mix. It is upon this premise that this conceptual piece is designed to guide the top echelons of corporate managers in capital structure decisions. The paper explores a vast body of literature in articulating critical issues in capital structure decision.

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Determining the optimal capital structure: a practical contemporary approach

Cited by 30 publications

References 4 publications

Capital Structure and Firm Performance: Empirical Evidence from India

Capital Structure and Firm Performance: Empirical Evidence from India

Board Features and Capital Structure in Emerging Markets

Determinants of Capital Structure Decision : A Research Synthesis

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