The Factors Affecting The Capital Structure

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02 Nov 2017

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Research entitled ((factors affecting the capital structure))

A requirement for the course .. Readings in Financial

Under the supervision of Dr. Islam Abdel Gawad

Submitted by the student:

Karam Radhi Mohammed kanaan

Company size:

The company's ratio of debt related to the size of the company, where that large companies tend to be more diverse in their access to funding and materials less vulnerable to bankruptcy. Thus This study suggests that large companies should be the structure of capital contains a high proportion of debt (leverage) as and enter external financing to the structure of the company's capital by issuing stocks and bonds, securities and long-term debt depends mainly on the size of the company. ( Humanities) vol.24 (8) 2010.

The study indicates that companies Alsgrh pay much more than large companies to issue shares and possibly business owners prefer to borrow for short periods (bank loans) and want a short-term funding to finance long-term due to lower fixed costs associated with this alternative. Study. 1999 wad

The reason behind the diversity of large companies that makes it able to withstand the high debt ratios, and small businesses facing bankruptcy costs more than large companies.

Many studies that there is a soft (positive) between size and capital structure and the positive relationship between the sizes fixed ratio Leverage Studies indicate that companies Alsgrh are more likely to use equity financing, while companies Kabrh based on religion. Finds leverage in the capital structure companies Kabrh more than businesses Alsgrh rely on debt to finance its assets, while small companies are more dependent on shares Vtjd Percentage of shares in its capital structure more than large companies.

             

Hypotheses: there Alaqa the direct correlation between the size of capital structure (leverage ratio)

Methodology: The size of the firm methodology by the logarithm of assets

Profitability:

Retained earnings come in the forefront in terms of the sources of funding of gravity, followed by a loan which has cost the agency but offset by tax savings, and finally comes funding by issuing new shares that may be involved in the cost of agency without the presence of the tax savings. Accordingly, it is expected that the moving structures characterized by a high rate of profitability - and have the opportunity to capture profits - to rely less on borrowed money and more on equity of retained earnings. Indian, 2003

High-profit companies have capital by the biggest profit in its composition and favors corporate profit (retained) and the second (debt) and the third from the issuance of shares, of course, each of the former depends largely on the size of the company.

And thus the amount of retained earnings one of the important factors in the formation of capital structure. (Fares Alseresi)

Hypotheses: Studies show that there is an inverse Alaqa between Profit and degree of leverage

Tangible assets (fixed):

Influenced by the capital structure of fixed assets, in terms of the size of these assets .... The company, which owns a large fixed assets can borrow at lower interest rates through the provision of these guarantees assets to Daneha, but companies that are and a few Mgodadtha it is not able to borrow in this way.

And therefore is expected to be the company's capital with large assets less than those with few assets. Because it is expected to borrow more than other companies because corporate borrowing costs high few assets because of the high interest rates on borrowing. Gulf economic magazine, issue 23))

 Hypotheses: There is a positive relationship between fixed assets and leverage.

The theory of the book to market:

The theory of the book to the market is a process of deduction of financial distress, it has been discounted shares of the company in financial distress (high pressure) at a high rate, the spectrum according to the potential risk, if lost reverse Malk any to be deducted low low price ....

And show an inverse relationship to be driven by companies with high market by instead of the companies that market values ​​are low and this was mainly due to (financial missed) ..

That the company's tendency to issue shares at a high price of its shares, the spectrum-to-earnings ratio, or market values.

If the proportion of agents to market a book about the lack of investment costs associated with high leverage and do not look to increase Is it internal or external.

The negative correlation of market-to-book with leverage seems to be driven mainly by large equity issuers. In the United States the magnitude of the coefficient on the market-to-book ratio is thrice as large in the quartile issuing the most (β = -0.30, t = -7.90) as in the quartile issuing the least (β = -0.09 , t = -1.86) and the difference is statistically significant. This result is not special to the United States. In Japan, United Kingdom, and Canada, market-to-book is more negatively correlated with leverage for firms issuing the most (βJapan = -0.74, t = -4.8, βUK = -0.18, t = -1.83, βCanada = -0.16 , t = -1.28) than for firms issuing the least (βJapan = -0.25, t = -1.48, βUK = -0.14, t = -1.61, βCanada = -0.12, t = -0.49), though the difference in

    coefficients is significant only in Japan.33 (RAGHURAM G. RAJAN)

hypotheses: Studies have shown that there is an inverse relationship between the theory of the book to the market and Leverage

 Non-debt tax shield:

Michelangelo studied to show the impact of taxes on companies. And debt-related taxes (tax shields) for the tax exemptions it includes tax exemptions rates on total investing in Alaousol and consumption on total assets

NDT = OI-I-T/.48

                                                                          T = .48 (OI-I-NDT)

Based on what has arrived DeAngelo researcher ...

The indicators are indicators to measure the tax cuts associated capitalism, Valtqat the non-volatile molecules tax debt is proposed shield DeAngelo ...

He says that this feature does not include the tax cuts that are not linked to capitalism? Expenses such as research and development expenses and DeAngelo reached in his research that it is difficult to measure this attribute. There is some empirical studies have explored the impact of taxes on corporate financing decisions in the major industrialized countries. DeAngelo study

Mason 1990 study concluded in his study that the change in the margin of the tax rate affects the funding decisions and resolutions of the company's capital structure ... When the margin of tax increases, the company went to finance and increase the amount of capital may review the reason for the high tax rates. Mason 1990 study

A study in 1998 Titman Dislz there is the effect of income when making investment decisions with funding decision which indicate that increases in taxes allowed on investment as a result of a change in the corporate tax code and is not necessarily associated with a low pressure at the level of individual companies, when allowed to invest to adjust as optimization.

He points out that the impact of this increase is consistent crucially on the tradeoff between ((substitution effect)) substitution made by DeAngelo, and the impact of income and are associated with an increase in investment optimization. Study Dislz 1998

                                        

Hypotheses: the proportional relationship between the sidelines of the tax and the company's capital structure

Sources and references

www.cnolinelibrary.wiley.com

Anajah univ.J.of res

(Humanities),vol.24(8),2010

Fares alsaresy study

De angelo study

Wald 1999

Journal of the Gulf economy No. (23) 2012

Shah and khan 2007

RGHURAMG.RAJAN,LUIGIZ ZINGALE

30 APR 2012

10- mason 1990 study

11- Dislz 1998

12-indian 2003



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