Untitled

Abstract

This paper examines the relationship between the levels of debt in the capital structure and performance for a sample of Indian firms. Existing theory posits a positive relationship; however, analysis of the data reveals the relationship for Indian firms to be significantly negative. The structure of capital markets in India, where both short-term and long-term lending institutions are government-owned, is hypothesized to account for the finding of this relationship, and it asserted that corporate governance mechanisms which work in the West will not work in the Indian context unless the supply of loan capital is privatized.

Does Corporate Capital Structure influence Corporate Financial Performance in Developing Economies? Evidence from East African Stock Markets

“…In Summary, the results shown on Tables (Table 10-15) indicate that capital structure, in general speaking has a negative and statistically significant influence on East African listed firm's financial performance at 5% significance level, which suggest that an increase in capital structure (STDR,LTDR and TDR) will result to a decrease in corporate financial performance (ROA and ROE).These results show that in average profitable listed firms in East African prefers to use internal source of financing in their capital structure as compared to external source of financing (like Debts-STDR,LTDR and TDR),the possible reasons for this situation is due several reasons such as Information asymmetry problems and financial markets in the East African region are still developing, hence it's difficult for profitable firms to access the external sources of financing (Like Corporate bonds), therefore decided to depend much on internal sources of financing (Like Bank borrowings) (Mwambuli,2015).Furthermore this results are supporting pecking order theory and our results are consistent with the findings of previous studies such as Kaumbuthu (2011), Karadeniz et al (2009), Zeitun & Tian (2007, Rao et al (2007), Huang & Sang (2006), Goddard et al (2005), Ngobo & Capiez (2004), Eriotis et al (2002), Fama & French (2002), Gleason et al (2000), Simerly & Li (2000), Majumdar & Chhibber (1999), Crnigol & Mramor (2009), Klapper & Tzioumis (2008), Dragota & Smenescu (2008), Song (2005), Chen (2004), Bauer (2004), Hall et al (2004), Deesomsak et al (2004), Cassar & Holmes (2003), Esperanca et al (2003), Nivorozhkin (2002), Shyam-Sunder & Myers (1999), Friend International Finance and Banking ISSN 2374-20892016, Vol. 3, No.…”

Debt Capital and Financial Performance: A Comparative Analysis of South African and Sri Lankan Listed Companies

“…Firms leverage affects their performance significantly and negatively, showing that higher financial leverage in GCC companies' capital structure decreased their performance. This is consistent with Twairesh, (2014),Chinaemerem and Anthony (2012), Gleason et al, (2000) Majumdar and Chhibber (1999).…”

“…The empirical findings of the current study support those of previous studies from other countries and different sectors, e.g. Majumdar and Chhibber (1999), Gleason et al (2000); Goddard et al (2005), Abor (2007), Sheikh and Wang (2011);Salim and Yadav (2012); Dawar (2014);and Yazdanfar and Öhman (2015). Notes: ** Significant at 5 percent level.…”

“…Theory has shown that size has a positive impact on the financial performance of the firm as the larger firms achieve and make good use of the economies of scale and that their greatness allows them to have better abilities to use technology in order to achieve larger market shares and better diversification of products, and thus profitability (Majumdar and Chhibber, 1999;Frank and Goyal, 2003;). On that note, size of the firm is expected to have a positive impact on the financial performance of the firm.…”

“…Hence it is said that they (older firms) achieve experience-based economies as a result of their experience which has proven to be an added advantage for them. Majumdar and Chhibber (1999) built on (supported) that notion and added that the learning and business experience of older firms will enable them to gain economic advantage, and to have access to more resources and reputation effects. This generates opportunities for better performance, and this assertion was backed by Cabral and Mata (2003).…”