The results of the study shows that capital structure has negative effect. Pdf capital structure is one of the most important issues for firms in. European scientific journal march 2015 edition vol. Moreover, studies have been done on both listed and nonlisted firms.
Brian et al 20 studied the effect of capital structure on the performance of japanese firms. The capital structure of a firm as opined by dare and sola 2010 can take any of the following three alternatives. This study caters to the impact of firm capital structure and quality on firm market value by studying listed firms. Kajananthan r, nimalthasan p 20 capital structure and its impact on firm performance. Capital structure decision is the mix of debt and equity that a company uses to finance its business damodaran, 2001. Capital structure and firm performance in emerging market. Capital structure was proxied by debt equity ratio while performance focused on return on equity. Abstract capital structure decisions are among the most important and crucial decisions for any business because of their effect on the performance of firms. More specifically, we test the direct effect of leverage on firm performance, following the agency cost theory introduced by jensen and meckling 1976 and the freecashflow theory proposed by.
This investigation has beenperformed on a sample of 36 bangladeshi firms listed in dhaka stock exchange during the period 20072012. Impact of capital structure on financial performance of the. The impact of capital structure on financial performance of. The relationship between capital structure and profitability. Impact of firms performance on stock returns evidence. Though, studies have been conducted in capital structure and firm performance in the.
This study shall also address the endogeneity problem if it exists. However, modern theory of capital structure began with the modigliani and miller in 1958 which pave way for the development of other theories like the asymmetric information theory, agency cost theory among others joshi 2010. A study on sri lankan listed manufacturing companies. Capital structure, equity ownership and firm performance citeseerx. The impact of capital structure on financial performance in. We used panel data of 14 years from 20042017 to analyze the results. The impact of capital structure on corporate performance. European journal of economics, finance and administrative sciences. The effects of capital structure on firm performance in the. Previous research confirms the remarkable change in firms capital structure when the financial.
By analyzing capital structure and bank performance, there is the possibility of endogeneity problem between capital structure and bank performance. We collected data from 520 manufacturing firms from pakistan, india, sri lanka, and bangladesh. The impact of capital structure on firms performance in. Nov 06, 2009 the purpose of this paper is to empirically investigate the impact of capital structure choice on firm performance in egypt as one of emerging or transition economies. The traditional theory of capital structure was employed. The other analyzes the impact of firm capital structure on firm market value. Journal of emerging trends in economics and management sciences jetems 82. They analyzed the impact of some key macroeconomic variables such as gross domestic product and inflation on firm performance. We examined the impact of corporate diversification and financial structure on the firms financial performance. Pdf impact of capital structure on firm performance. Emeni show that capital structure affects the firm value.
The impact of capital structure on financial performance of commercial banks in ethiopia. Capital structure and firm performance in nigeria african journal. That is, regressions of firm performance on a measure of leverage may confound the effects of capital structure on performance with the effects of performance on capital structure. Institutional ownership, capital structure, and firm performance. The choice of a firms capital structure is a marketing problem. Abstract this paper mainly studies the influence of capital structure on firm s performance. The impact of capital structure on firm performance. Ii, issue 2,april 2011 171 capital structure and financial performance.
Later in 1963, modigliani and miller came up with another. It seems that the bigger the tangible assets are, the better they can show the firms capability to give a bigger loan to increase the firm value. Theory suggests that firms with tax benefits from the exercise of stock options should carry less debt since tax benefits are a nondebt tax shield. The impact of corporate diversification and financial. Article pdf available in international journal of economic. The study used dynamic panel model on panel data of 115 listed nonfinancial firms in nigeria. Institutional ownership, capital structure, and firm. Pdf impact of capital structure on firms financial. Loosely speaking, capital structure refers to the proportions of debt and equity that make up the liability owners equity side of firms balance sheet often refers to the use of debt in a firms capital structure as leverage. This study examined the impact of capital structure on firm performance of manufacturing sector smes in uk for the period of 19982008. Researchers have argued that if organizational theory is to be relevant to practitioners, emphasis should be placed on organizational effectiveness and its influencing factors 3640. On the other hand, lubatkin and chatterjee 1994 as well as many other studies have proved that there exists a relationship between capital structure and firm value.
Influence of capital structure on firm performance. Pdf the impact of capital structure on firm performance. To get an acceptable result, this study intends to make a comparison between two set. These are the bankruptcy provision, convexity of payoffs of levered equity, the effect of debt on managerial equity ownership, and the relative insensitivity of debt pay offs to firm performance. Relationship between capital structure and performance of non. The impact that capital structure and capital asset allocation have on financial services firm economic capital and risk adjusted performance is considered. An optimal capital structure is the best debtequity ratio of a firm, which minimizes the cost of financing and maximizes the value of the firm. There is an indirect effect of asset structure on firm value with capital structure as intervening variable. Nov 25, 20 the purpose of this paper is to investigate whether capital structure affects the performance of nonfinancial firms in pakistan. Empirical evidence from african countries olaniyan s. This study caters to the impact of firm capital structure and quality on. The purpose of this paper is to investigate whether capital structure affects the performance of nonfinancial firms in pakistan. It is the mix of debt and equity capital maintained by a firm.
A sample size of 422 listed indian manufacturing companies. Because interest payment on debt is tax deductible, the addition of debt in the capital structure will improve the profitability of. Pdf impact of oil price, exchange rate and capital. The extent literature is full of theories on capital structure since the seminal work of modigliani and miller 1958. The relationship between capital structure and profitability cannot be ignored because the improvement in the profitability is necessary for the longterm survivability of the firm. Capital structure has been a major issue in financial economics ever since modigliani and miller showed in 1958 that given.
Nigeria quoted firms global journal of social sciences vol. The impact of capital structure on firms performance in nigeria authors mr. This paper analyzes the relation between the capital structure of a firm and the tax benefits realized from the exercise of stock options. This paper investigates the effect of capital structure on firm performance.
Focusing on the role of institutional owners, this study poses two related questions. Third, the empirical evidence is largely consistent. Corporate governance, capital structure and firm performance. The effects of capital structure on firm performance in. Meanwhile, modern studies on firms capital structure and performance begin with modigliani and millers 1958 proposition, which states that in a world of perfect capital market and no taxes, a firms capital structure, will not influence its cost of capital. Pdf capital structure and firm performance semantic scholar. Dada and abbas, 2016 examined the effect of capital structure on.
The authors hypothesize that there is a negative relationship between capital structure and firm performance. An empirical analysis of malaysian companies, international journal of. This paper studies the impact of capital structure or financial leverage on firm financial performance. Studies into capital structureand performance have ignored. We applied a twostep dynamic panel approach to analyze the hypotheses. Capital structure and its impact on firm performance. An attempt was made to analyze the impact of capital structure on firm performance of 63 companies listed on karachi stock exchange. Capital structure and firm performance federal reserve. Page 41 the objective of the current paper is to examine the effect which capital structure has on corporate performance in jordan. Kaumbuthu 2011 carried out a study to determine the relationship between capital structure and return on equity for industrial and allied sectors in the nairobi securities exchange during the period 2004 to 2008.
The theory provides insight into a firms capital structure decision in a capital. The purpose of this paper was to investigate the impact of capital. The purpose of this paper is to empirically investigate the impact of capital structure choice on firm performance in egypt as one of emerging or transition economies. The impact of capital structure on firms performance in nigeria. However, these studies lack to provide a clear link between leverage and firm performance. To examine the association, the authors run a pearson correlation and multiple regression analysis. The effect of capital structure on firm performance. The results of the study indicated that debt financing have negative but also significant impact on firm performance in pakistan. This study aimed at determining the impact of oil prices, exchange rate and capital structure on the performance of nse listed firms.
Relationship between capital structure and performance of. Though, studies have been conducted in capital structure and firm performance in. Pdf this study examines the effect of capital structure on firm performance in a. Because interest payment on debt is tax deductible, the addition of debt in the capital structure will improve the profitability of the firm. Eurasian journal of business and management, 34, 2015, 22. In accepting the assertion that there is no universal theory of capital structure and no.
The theory of capital structure wiley online library. International journal of academic research in economics and management sciences sep 2014, vol. The result showed that firms with higher returns compared to the cost of debt leverage, managed to improve their performance by issuing bonds and entering new markets. Panel data analysis was applied to estimate the relationship between capital structure and firm performance. A stochastic modelling approach is used in conjunction with banking and insurance examples. Abstract this paper mainly studies the influence of capital structure on firms performance. Capital structure denotes means a firm funds its operations using some blend of equity plus debt. Capital structure, financial performance, agency cost 1. Annual data include oil prices, exchange rates, debtequity ratio and firm performance are modeled into a linear. To investigate empirically the impact of capital structure on firm performance, abeywardhana, 2015 conduct a study examined the impact of capital structure on firm performance of manufacturing. The impact of capital structure on the financial performance of the firm is the key purpose of this study by using a sample of 60 firms in the textile industry in pakistan for the period of 20102014. This paper examines the impact of capital structure on firm performance in nigeria as well as test the possibility of nonmonotonic relationship between capital structure and firm performance based on the prediction of the agency cost theory of capital structure when firm use debt financing excessively. Second, we investigate if firm efficiency has an effect on capital structure and whether this.
Evidence from iranian companies, international research journal of finance and economics, 70. If firm performance affects the choice of capital structure, then failure to take this reverse causality into account may result in simultaneousequations bias. The present study extends the literature on the impact of capital structure on the firms performance and shareholder wealth in the indian cement industry and managers of the cement companies can improve their decision making skills by identifying the optimum capital structure. More specifically, we test the direct effect of leverage on firm performance, following the agency cost theory introduced by jensen and meckling 1976 and the freecashflow theory proposed by jensen 1986. Impact of capital structure on firms financial performance. The effects of capital structure on firm performance in the taiwan 50 and taiwan midcap 100. The impact of capital structure on financial performance. However, ebaid 2009 finds a weaktonoeffect of capital structure on firm performance for egypt. Impact of capital structure on financial performance of. The influence of capital structure on financial performance. A metaanalysis of the financial performance of family firms. Merit research journal of business and management vol.
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