Causes and Effects of Financial Structure
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Published:
Sep 24, 2018
Keywords:
financial structure firm value structural equation
Main Article Content
Abstract
Studies on financial structure have been available for years, but the research results about its causes and effects are not definitive. Most studies analyzed either its causes or its effects and used a single indicator as a proxy for the financial structure. This study aims to explore how the firm characteristics affect the financial structure and how the financial structure affects the firm value. The financial structure is measured from the total debt ratio, long-term debt ratio, short-term debt ratio, and debt to equity ratio by using the confirmatory factor analysis technique. The firm value is measured from market value of total assets and free cash flow. The causal relationships are analyzed with the structural equation modelling technique. The financial data for four accounting periods from 2011 to 2014 of 315 firms listed on the Stock Exchange of Thailand are analyzed. This study finds tangibility positively affects the financial structure, but liquidity negatively affects the financial structure. Moreover, the financial structure has the positive effect on the firm value measured from market value of total assets. These findings will fill the gap of knowledge of the mediating role of financial structure of the listed firms in the Stock Exchange of Thailand.
Article Details
How to Cite
Maneerattanarungrot, C., & Donkwa, K. (2018). Causes and Effects of Financial Structure. WMS Journal of Management, 7(3), 1–14. Retrieved from https://so06.tci-thaijo.org/index.php/wms/article/view/147014
Section
Research Articles-Academic Articles
References
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Dang, V. A., Kim, M., & Shin, Y. (2014). Asymmetric adjustment toward optimal capital structure: Evidence from a crisis. International Review of Financial Analysis, 33, 226-242.
Danis, A., Rettl, D. A., & Whited, T. M. (2014). Refinancing, profitability, and capital structure. Journal of Financial Economics, 114(3), 424-443.
Ebrahim, M. S., Girma, S., Shah, M. E., & Williams, J. (2014). Dynamic capital structure and political patronage: The case of Malaysia. International Review of Financial Analysis, 31, 117-128.
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Gottardo, P., & Maria Moisello, A. (2014). The capital structure choices of family firms. Managerial Finance, 40(3), 254-275.
Gunn, T., & Shackman, J. (2014). A comparative analysis of the implications of the Islamic religion on corporate capital structures of firms in emerging market countries. International Journal of Islamic and Middle Eastern Finance and Management, 7(3), 277-287.
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Handoo, A., & Sharma, K. (2014). A study on determinants of capital structure in India. IIMB Management review, 26(3), 170-182.
Hasan, M. B., Ahsan, A. F. M. M., Rahaman, M. A., & Alam, M. N. (2014). Influence of capital structure on firm performance: Evidence from Bangladesh. International Journal of Business and Management, 9(5), 184-194.
Hewa Wellalage, N., & Locke, S. (2015). Impact of ownership structure on capital structure of New Zealand unlisted firms. Journal of Small Business and Enterprise Development, 22(1), 127-142.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Kaviani, M., Faezinia, V., & Saghafi, V. (2013). Valuation of Firm through CVFCFF and CVFCFE as New Models Based on Free Cash Flow. International Journal of Economy, Management and Social Sciences, 2(6), 329-333.
Kraus, A., & Litzenberger, R. H. (1973). A State-preference model of optimal financial leverage. The Journal of finance, 28(4), 911-922.
Lemma, T. T., & Negash, M. (2014). Determinants of the adjustment speed of capital structure. Journal of Applied Accounting Research, 15(1), 64-99.
Liang, J., Fang Li, L., & Song, H.-S. (2014). An explanation of capital structure of China's listed property firms. Property Management, 32(1), 4-15.
Mateev, M., Poutziouris, P., & Ivanov, K. (2013). On the determinants of SME capital structure in central and eastern Europe: A dynamic panel analysis. Research in International Business and Finance, 27(1), 28-51.
Myers, S. C. (1984). The capital structure puzzle. The Journal of finance, 39(3), 574-592.
Oino, I., & Ukaegbu, B. (2015). The impact of profitability on capital structure and speed of adjustment: An empirical examination of selected firms in Nigerian Stock Exchange. Research in International Business and Finance, 35, 111-121.
Olokoyo, F. O. (2013). Capital structure and corporate performance of Nigerian quoted firms: A panel data approach. African Development Review, 25(3), 358-369.
Pan, L.-H., Lin, C.-T., Lee, S.-C., & Ho, K.-C. (2015). Information ratings and capital structure. Journal of Corporate Finance, 31, 17-32.
Park, K., & Jang, S. (2013). Capital structure, free cash flow, diversification and firm performance: A holistic analysis. International Journal of Hospitality Management, 33, 51-63.
Pornsit, J., Pandej, C., & Yixin, L. (2012). Capital structure, CEO dominance, and corporate performance. Journal of financial services research : JFSR, 42(3), 139-158.
Rodrigues Loncan, T., & Frois Caldeira, J. (2014). Capital structure, cash holdings and firm value: A study of Brazilian listed firms. Revista Contabilidade & Finanças-USP, 25(64).
Ross., S., Westerfield., R., & Jaffe., J. (2010). Corporate finance. New York: McGraw-Hill.
Ruan, W., Tian, G., & Ma, S. (2011). Managerial ownership, capital structure and firm value: Evidence from China’s civilian-run firms. Australasian Accounting, Business and Finance Journal, 5(3), 73-92.
The Stock Exchange of Thailand. (2015). Listing Information. Retrieved from http://www.set.or.th/th/company/companylist.html
Tudose, M. B. (2012). Corporate finance theories. chanllenges and trajectories. Management & Marketing, 7(2), 277-294.
Ukaegbu, B., & Oino, I. (2014). The determinants of capital structure. African Journal of Economic and Management Studies, 5(3), 341-368.
Wolf, E. J., Harrington, K. M., Clark, S. L., & Miller, M. W. (2013). Sample size requirements for structural equation models: An evaluation of power, bias, and solution propriety. Educational and psychological measurement, 76(6), 913-934.
Yang, C.-C., Lee, C.-f., Gu, Y.-X., & Lee, Y.-W. (2010). Co-determination of capital structure and stock returns—A LISREL approach: An empirical test of Taiwan stock markets. The Quarterly Review of Economics and Finance, 50(2), 222-233.
Yusuf, A. N., Al-Attar, A. M., & Al-Shattarat, H. K. (2015). Empirical evidence on capital structure determinants in Jordan. International Journal of Business and Management, 10(5), 134-152.
Alipour, M., Mohammadi, M. F. S., & Derakhshan, H. (2015). Determinants of capital structure: An empirical study of firms in Iran. International Journal of Law and Management, 57(1), 53-83.
Altan, M., & Arkan, F. (2011). Relationship between firm value and financial structure: A study on firms in ISE industrial index. Journal of Business & Economics Research, 9(9), 61-65.
Arosa, C. M. V., Richie, N., & Schuhmann, P. W. (2014). The impact of culture on market timing in capital structure choices. Research in International Business and Finance, 31, 178-192.
Aulová, R., & Hlavsa, T. (2013). Capital structure of agricultural businesses and its determinants. AGRIS on-line Papers in Economics and Informatics, 5(2).
Chowdhury, A., & Chowdhury, S. P. (2010). Impact of capital structure on firm’s value: Evidence from Bangladesh. Business and Economic Horizons, 3(3), 111-122.
Dang, V. A., Kim, M., & Shin, Y. (2014). Asymmetric adjustment toward optimal capital structure: Evidence from a crisis. International Review of Financial Analysis, 33, 226-242.
Danis, A., Rettl, D. A., & Whited, T. M. (2014). Refinancing, profitability, and capital structure. Journal of Financial Economics, 114(3), 424-443.
Ebrahim, M. S., Girma, S., Shah, M. E., & Williams, J. (2014). Dynamic capital structure and political patronage: The case of Malaysia. International Review of Financial Analysis, 31, 117-128.
Fauver, L., & McDonald, M. B. (2015). Culture, agency costs, and governance: International evidence on capital structure. Pacific-Basin Finance Journal, 34, 1-23.
Gottardo, P., & Maria Moisello, A. (2014). The capital structure choices of family firms. Managerial Finance, 40(3), 254-275.
Gunn, T., & Shackman, J. (2014). A comparative analysis of the implications of the Islamic religion on corporate capital structures of firms in emerging market countries. International Journal of Islamic and Middle Eastern Finance and Management, 7(3), 277-287.
Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2010). Multivariate data analysis. New Jersey: Pearson.
Handoo, A., & Sharma, K. (2014). A study on determinants of capital structure in India. IIMB Management review, 26(3), 170-182.
Hasan, M. B., Ahsan, A. F. M. M., Rahaman, M. A., & Alam, M. N. (2014). Influence of capital structure on firm performance: Evidence from Bangladesh. International Journal of Business and Management, 9(5), 184-194.
Hewa Wellalage, N., & Locke, S. (2015). Impact of ownership structure on capital structure of New Zealand unlisted firms. Journal of Small Business and Enterprise Development, 22(1), 127-142.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Kaviani, M., Faezinia, V., & Saghafi, V. (2013). Valuation of Firm through CVFCFF and CVFCFE as New Models Based on Free Cash Flow. International Journal of Economy, Management and Social Sciences, 2(6), 329-333.
Kraus, A., & Litzenberger, R. H. (1973). A State-preference model of optimal financial leverage. The Journal of finance, 28(4), 911-922.
Lemma, T. T., & Negash, M. (2014). Determinants of the adjustment speed of capital structure. Journal of Applied Accounting Research, 15(1), 64-99.
Liang, J., Fang Li, L., & Song, H.-S. (2014). An explanation of capital structure of China's listed property firms. Property Management, 32(1), 4-15.
Mateev, M., Poutziouris, P., & Ivanov, K. (2013). On the determinants of SME capital structure in central and eastern Europe: A dynamic panel analysis. Research in International Business and Finance, 27(1), 28-51.
Myers, S. C. (1984). The capital structure puzzle. The Journal of finance, 39(3), 574-592.
Oino, I., & Ukaegbu, B. (2015). The impact of profitability on capital structure and speed of adjustment: An empirical examination of selected firms in Nigerian Stock Exchange. Research in International Business and Finance, 35, 111-121.
Olokoyo, F. O. (2013). Capital structure and corporate performance of Nigerian quoted firms: A panel data approach. African Development Review, 25(3), 358-369.
Pan, L.-H., Lin, C.-T., Lee, S.-C., & Ho, K.-C. (2015). Information ratings and capital structure. Journal of Corporate Finance, 31, 17-32.
Park, K., & Jang, S. (2013). Capital structure, free cash flow, diversification and firm performance: A holistic analysis. International Journal of Hospitality Management, 33, 51-63.
Pornsit, J., Pandej, C., & Yixin, L. (2012). Capital structure, CEO dominance, and corporate performance. Journal of financial services research : JFSR, 42(3), 139-158.
Rodrigues Loncan, T., & Frois Caldeira, J. (2014). Capital structure, cash holdings and firm value: A study of Brazilian listed firms. Revista Contabilidade & Finanças-USP, 25(64).
Ross., S., Westerfield., R., & Jaffe., J. (2010). Corporate finance. New York: McGraw-Hill.
Ruan, W., Tian, G., & Ma, S. (2011). Managerial ownership, capital structure and firm value: Evidence from China’s civilian-run firms. Australasian Accounting, Business and Finance Journal, 5(3), 73-92.
The Stock Exchange of Thailand. (2015). Listing Information. Retrieved from http://www.set.or.th/th/company/companylist.html
Tudose, M. B. (2012). Corporate finance theories. chanllenges and trajectories. Management & Marketing, 7(2), 277-294.
Ukaegbu, B., & Oino, I. (2014). The determinants of capital structure. African Journal of Economic and Management Studies, 5(3), 341-368.
Wolf, E. J., Harrington, K. M., Clark, S. L., & Miller, M. W. (2013). Sample size requirements for structural equation models: An evaluation of power, bias, and solution propriety. Educational and psychological measurement, 76(6), 913-934.
Yang, C.-C., Lee, C.-f., Gu, Y.-X., & Lee, Y.-W. (2010). Co-determination of capital structure and stock returns—A LISREL approach: An empirical test of Taiwan stock markets. The Quarterly Review of Economics and Finance, 50(2), 222-233.
Yusuf, A. N., Al-Attar, A. M., & Al-Shattarat, H. K. (2015). Empirical evidence on capital structure determinants in Jordan. International Journal of Business and Management, 10(5), 134-152.