Does governmental activism affect firm leverage? Evidence from India

Using Bayesian approach, this research aims to analyze the impact of financial institutions development on corporate capital structure in 5 developing countries in ASEAN region from 2010 to 2019. We find that financial institutions development and profitability have a negative impact on firms ‘capital structure (including total debt, long-term debt and short-term debt), while inflation positively affects capital structure. National institutional quality and GDP per capita growth rate can have a bidirectional effect on capital structure. Firm size and asset properties have a positive impact on total debt and long-term debt, but negative impact on short-term debt. Meanwhile, TOBINQ has a positive impact on long-term debt, but bidirectional effect on total debt and short-term debt. Our research findings on the capital structure of firms in the five ASEAN developing countries supports both the trade-off theory and the pecking order theory.KeywordsCapital structureASEANFinancial institutions developmentJEL Classification CodeC12C13E44F15

PurposeThis paper investigates the impact of financial integration on the capital structure of the firms operating in mainland China, examining the firm-level and country-level integrating variables for 2,878 listed Chinese firms over the period of 1991–2016 in regard to the firms' capital structures. Finally, the study revisits the associations for the state-owned and multinational firms in the context of China.Design/methodology/approachA large sample of unbalanced data from firms were used to explore the relationship firm-level and country-level integrating variables has with firm leverage and maturity; this is accomplished using the fixed effect model. For robustness, a system-generalised method of moments was used.FindingsThe results indicate that internationalisation positively impacts the leverage and debt maturity of all listed Chinese firms and multinational firms and that state-owned firms are financed mainly by the state. For country-level integration, the authors find that credit and equity markets are negatively related to a firm's leverage. A negative relation with credit markets suggests that Chinese firms have much cheaper financing options than the benefits that arise from credit market integration. Moreover, the effect of equity market integration is more pronounced on Chinese firms' capital structure and debt maturity than credit market integration.Practical implicationsThe results provide valuable implications of financial integration for policymakers as well as capital structure decision-making for managers in China.Originality/valueFew studies have examined the impact of integration on firms' capital structures in developing countries. After controlling for unobserved heterogeneity and endogeneity, this study adds new multilevel integration evidence on the capital structure of Chinese firms.

This study aims, First, to obtain the empirical evidence about the capital structure of non-financial firms in Indonesia Stock Exchange. Second, to obtain the empirical evidence about the impact of capital structure on the value of non-financial firms in Indonesia Stock Exchange. Third, to obtain the empirical evidence about the impact of profitability, size of the firm, growth opportunity, the structure of assets, and the cost of bankruptcy to capital structure of non-financial firms in Indonesia Stock Exchange.
 To achieve these objectives, conducted research on companies listed on the Indonesia Stock Exchange. Research conducted on 163 companies with the observation period in 2011. All the required data obtained from the Indonesian Capital Market Directory. Furthermore, to explain the determinants of capital structure of the firm to used the t and F test with alpha 10 percent.
 Based on the results of the study, the conclusions as follows: First, the capital structure of the firm has a negative and significant effect on the value of the firm. Second, there is no optimal capital structure on a non-financial corporations. Third, the size of the firm, the structure of assets, and the cost of bankruptcy have positive and significant effect on the capital structure of the firm. Fourth, profitability and the growth opportunities of the firm does not significantly influence to the capital structure. Fifth, variations in the profitability, size of the firm, growth opportunities, the structure of assets, and the cost of bankruptcy are able to explain the variations of capital structure 10,2 percent. Sixth, the coefficient towards research results influence the profitability and bankruptcy costs the company is not in accordance with the trade-offs theory.

Capital structure effects of international expansion

Capital Structure, Cash Holdings and Firm Value: A Study of Brazilian Listed Firms

A negative relationship between stock market returns and inflationary trends has been widely documented for developed economies in Europe and North America. This study provides similar evidence for India. This relationship is investigated in light of Fama's explanation that centres around linkages between inflation and real activity, and between stock returns and real activity. Specifically, the study tests whether the negative stock return-inflation relationship is explained by a negative relationship between inflation and real economic activity, and a positive relationship between real activity and stock returns. The results from the heteroscedasticity and autocorrelation corrected models provide only partial support for Fama's hypothesis. The relationship between real activity and inflation does not account for the negative relationship between real stock returns and the unexpected component of inflation.

A number of recent studies explore how political factors influence real economic activity. With electoral models, economic performance peaks near the election, as in the retrospective model of Nordhaus [30]. Electoral cycles also emerge (at least in fiscal policy) in the rational-expectations model of Rogoff and Sibert [34] and Rogoff [33]. With partisan models, economic activity differs systematically by party, as in both the ideological model of Hibbs [26] and the rationalexpectations model of Alesina [1]. Economic activity surges after election of Democratic presidents and recedes after election of Republican presidents. Although recent tests of the electoral approach are supportive [21; 22; 24; 25], the partisan approach enjoys the more compelling support [2; 3; 9; 10; 23; 26; 27]. The electoral and partisan views are not mutually exclusive, as the possibility of conflict between ideology and the desire to be reelected as the election approaches is well recognized. Indeed, our evidence here is consistent with a combined electoralpartisan model.' The macroeconomic literature at large, however, has been slow to absorb accumulating evidence that the party affiliation of the incumbent president, together with the timing of the electoral period, are linked to real economic activity. In this study, we gauge the significance of these links for the United States and relate them to two important strands of the macroeconomic literature. One strand, the time-series literature, investigates the statistical properties of measures of real economic activity, finding that these measures often exhibit nonconstant means and heteroscedastic variances. In autoregressive, integrated, moving-average (ARIMA) models, the conditional mean is a function of past innovations, while the conditional variance is constant. Applications of ARIMA and related models, beginning with Nelson and Plosser [29], suggest that real economic activity for the United States exhibits near random-walk behavior. In autoregressive, conditional heteroscedastic (ARCH) models, the conditional variance is a function of past (squared) innovations, while the conditional mean is constant. Applications of ARCH and related models, beginning with Engle [17], suggest that real activity exhibits heteroscedastic variances.

Stock Returns, Inflation and Macroeconomy: The Long- and Short-Run Dynamics

structure theory is one of the most important areas of finance and forms the basis for modern thinking on the capital structure of firms. Much controversy has resulted from comparisons of the theory of capital structure originally developed by Franco Modigliani and Merton Miller to real-world situations. Two competing theories have emerged over the years, the optimal capital structure theory and the pecking order theory. While hundreds of scholarly articles have been written on the subject of capital structure, this is the first book to test competing theories against measurements of firms' performance and their underlying capital structure. Ghosh begins with an overview of the controversies regarding capital structure theories, then statistically tests both the optimal capital structure and pecking order theories. Using the binomial approach to test the theories, he analyzes the determinants of capital structure, while discussing the role of market power in determining capital structure decisions. Ghosh probes the questions of new stock offerings and stockholders' returns, and analyzes capital structure and executive compensation. He then looks into debt financing and ownership structure, and the relationship between capital structure and firm profitability - a hotbed of controversy in the capital structure realm. Finally, he discusses the latest developments in the field of capital structure. Capital Structure and Firm Performance is a concise overview of a major issue in business economics and finance, provides a fuller understanding of its influence on the financial performance of firms, and will certainly stimulate further debate on this important topic.

This paper investigates the impact of uncertainty on corporate capital structure. Using a sample consists of manufacturing firms listed in the Vietnamese Stock Market during the period from 2010 to 2019, we find that an increase in uncertainty can lead to a reduction in the corporate use of debt. This result is robust when we use a lag model or a System General Method of Moments to deal with the endogeneity problems. Moreover, our result shows that firms decrease their leverage when facing a high level of uncertainty because the increase in leverage during the heightened uncertainty periods may reduce firms’ investment. Given that firms in emerging countries in general and in Vietnam in particular rely significantly on debt financing, the results of our paper suggest that policy makers should have solutions to mitigate the adverse impact of uncertainty on firm leverage.

The paper aims to investigate the factors affecting firm capital structure in the context of Vietnam. The research sample includes 290 non-financial listed companies on Vietnamese stock market. This study applied Generalized Method of Moments (GMM) to explain the research results. The paper investigates six factors influencing on firm capital structure including return on assets (ROA), return on equity (ROE), firm size, tangible assets, risks, and growth. The empirical results show that return on assets, tangible assets, risks, and growth have a statistically significant positive effect on the firm capital structure while return on equity has a statistically significant negative effect on the firm capital structure. In addition, when dividing companies into sectors, the study realized that determinants of capital structure in some sectors are consistent with results for entire sample. Finally, firm size has the same impact on capital structure in oil & gas companies and material companies whereas it is not statistically significant for other companies. These evidences provide a new insight to managers on how to determine the reasonable capital structure.

Oil price shocks, stock market, economic activity and employment in Greece

PurposeThis study investigates the capital structure determinants of the Middle East tourism sector by examining intellectual capital (IC) efficiency and institutional governance along with firm-specific and macroeconomic variables. This research also identifies the determinants of capital structure for tourism companies in the Gulf Cooperation Council (GCC) and non-GCC countries.Design/methodology/approachData were collected from 45 listed tourism companies of nine Middle Eastern countries over five years from 2014 to 2018. The data were analysed using ordinary least squares (OLS) regression and checked for robustness using the generalised methods of moment (GMM) estimation.FindingsOverall, the results indicate that tourism companies rely more on short-term debt (STD) than long-term debt (LTD), thus decreasing liquidity and increasing financial risk. Furthermore, tourism companies in non-GCC countries have higher IC efficiency compared to those in GCC countries. The aggregate institutional index is much higher for GCC countries compared to non-GCC countries. The OLS estimations suggest IC efficiency and institutional governance index provide inconclusive evidence as a determinant of capital structure proxy. High capital employed efficiency (CEE) is associated with more leverage for tourism firms. Theoretically, the results support pecking order and trade-off theories due to the relationships between firm-specific indicators and debt.Originality/valueThis study closes the gap in the capital structure debate by providing valuable insights into IC efficiency and institutional governance. These two factors serve as capital structure determinants in the Middle East and the GCC and non-GCC regions.

Determinants of capital structure of Chinese-listed companies

Emergency cutbacks at BASF, Dow, Cabot, Lanxess & Merck