Determinants Of Capital Structure Essay

2427 words - 10 pages

4.1 DESCRIPTIVE STATISTICS
Mean leverage measured by debt to capital ratio was 0.45, while the median was 0.39. The highest leverage was 7.37. Mean leverage was highest in 2012. The mean leverage for cement industry was 0.46 while median was 0.47. Highest leverage was 3.5. The mean leverage for personal products was 0.39, while median leverage was 0.09. Highest leverage was 7.37. Leverage measured by debt to capital declined throughout the period of study.
Table 1: descriptive statistics of leverage (debt to capital)
Measure Total Cement Personal products
Mean 0.45 0.46 0.39
Median 0.39 0.47 0.09
Minimum -2.59 -2.59 0
Maximum 7.37 3.50 7.37
Count 368 272 96

Figure 2: Yearly mean of debt to capital ratio

Mean leverage as measured by non equity liabilities to total debt was 0.64 while median was 0.57. Highest leverage was 5.8. Mean leverage was highest at 0.748 in 2005 and lowest in 2008 at 0.508. Mean leverage for cement industry and personal products was 0.64 and 0.63 respectively. The median leverage was 0.59 and 0.44 for cement and personal products industry respectively.
Table 2: Descriptive statistics of leverage (non equity liabilities to total assets)
Total Cement Personal products
Mean 0.64 0.64 0.63
Median 0.57 0.59 0.44
Minimum 0 0 0.16
Maximum 5.78 3.35 5.8
Count 368 272 96

Figure 3: Yearly mean of total non equity liabilities to total assets ratio

Mean leverage as measured by debt to total asset was 0.34 while median was 0.28. Mean leverage for cement and personal product industry was 0.38 and 0.28 respectively. The median for cement industry was 0.37 and for personal products was 0.06.
Table 3: Descriptive statistics of leverage (debt to total assets)
Total Cement Personal products
Mean 0.357 0.357 0.278
Median 0.356 0.356 0.06
Minimum 0 0 0
Maximum 1.757 1.757 5.548
Count 272 272 96

Figure 4: Yearly means of debt to total asset ratio

Mean leverage for cement industry as measured by debt to net assets was 0.44 while median was 0.38. Mean leverage for cement industry and personal product industry was 0.45and 0.39 respectively. The maximum leverage for cement industry was 3.5 while for personal product was 7.33.
Table 4: Descriptive statistics of leverage (debt to net assets)
Column1 Total Cement Personal products
Mean 0.44 0.46 0.39
Median 0.38 0.47 0.09
Minimum -2.59 -2.59 0
Maximum 7.33 3.50 7.33
Count 368 272 96

Figure 5: Yearly mean of debt to net assets ratio

It can be clearly observed from above discussion that cement industry was more levered than personal product industry. This is mainly because of higher tangibility and lower profitability of cement industry. The tangibility of cement industry was 0.43 while of personal product industry was 0.29.
The pre crisis leverage was higher than post crisis leverage. Pre crisis leverage measured by debt to net asset ratio was 0.596. This declined to 0.462 post crisis. Similarly leveraged measured by other indicators also declined. Leverage measured by total...

Find Another Essay On Determinants of capital structure

Working capital structure of Web Solution inc.: Financial analysis, Business Model, Market analysis of Pakistan

3180 words - 13 pages Course TitleWorking Capital ManagementSubmitted ToYousuf Ibnul HasanSubmitted ByGEETA KHIANI REG # 2723Date of submission19th Apr 2007AcknowledgementWe would like to thank the instructor, Yousuf Ibnul Hasan for motivating and providing us all the relevant data and necessary guidance to make the completion of this Feasibility report possible.The group also wishes to thank all those people who directly or indirectly helped in making the completion

Foreign Direct Investment Essay

1764 words - 7 pages Introduction: Foreign Direct Investment, or FDI, is a type of investment that involves the injection of foreign funds into an enterprise that operates in a different country of origin from the investor” (economy watch). The determinants of foreign direct investment may be the socio-economic, financial and the cultural factors which usually have positive and negative effect on the foreign direct investment. The risk is attached to the

Porter's Diamond

638 words - 3 pages determinants of national advantage are 1) factor conditions, 2) demand conditions, 3) related and supporting industries and 4) firm strategy, structure and rivalry. Figure 1: Porter’s Diamond (Adapted from Porter, 1990) Factor conditions refers to factors of production; the inputs that are necessary to compete in any industry, these include labor, land, natural resources, capital and infrastructure (Porter, 1998). One nation’s endowment of factors

Financial Capital Structure

1569 words - 6 pages capital structure where there are differences in theories, aspects and policies. References/Bibliography :- Bancel, M. and Mittoo, U. (2004) Cross-country determinants of capital structure choice: A survey of European firms, Financial Management, Vol.33, pp. 103–132. Bolton, P. and Scharfstein, D., (1990) A theory of predation based on agency problems in financial contracting. American Economic Review, Vol.80, pp. 93–106. Booth, L

Sources of Capital to Small And Medium Size Enterprise in developing countries

2583 words - 10 pages researchers that while private firms use more of retained earnings and borrowings from bank institutions, public firms make more use of equity financing. On the other hand, large corporations primarily use retained earnings and corporate bonds for financing business activities. However, according to theories of capital structure, direct transaction costs and indirect bankruptcy costs appear to influence a firm's choice of 1.4. Determinants of

DOES INNOVATION STRATEGY MATTER IN CAPITAL STRUCTURE DECISIONS? A STUDY IN INDONESIAN MANUFACTURING FIRMS

1695 words - 7 pages of Capital Structure Choice, Journal of Finance 43: 1-19. Vincente-Lorente, J.D (2001). Specificity and Opacity as Resource-Based Determinants of Capital Structure: Evidence for Spanish Manufacturing Firms, Strategic Management Journal 22 (2): 157-177. Warner, J.B. (1977). Bankruptcy Costs: Some Evidence. Journal of Finance 32: 337-348. Williamson, O. (1988). Corporate Finance and Corporate Governance, Journal of Finance 43: 567-591. Zajac, E.J; B.R. Golden; S.M. Shortell (1991). New Organizational Forms for Enhancing Innovation: The Case of Internal Corporate Joint Ventures, Management Science 37: 170-184.

The Cost of Capital is a critical element in business decisions

4025 words - 16 pages , D.W. (1967) 'The Theory of Investment Behaviour'. Committee for Economic Research.Keat, Paul, G. and Young, Phillip K.Y. (1996) 'Managerial Economics: Economic Tools for Today's Decision Makers' (2nd Edition, pp 570 - 592) Prentice Hall International Editions.Kjellman, A and Hansen, S (1995) 'Determinants of capital structure: theory versus practice'. Scandinavian Journal of Management (Volume 11 No2, pp 91 - 102).Marshall, G.P. and McCormick, B.J

The Cost of Capital is a Critical Element in Business Decisions

3689 words - 15 pages Editions.Kjellman, A and Hansen, S (1995) 'Determinants of capital structure: theory versus practice'. Scandinavian Journal of Management (Volume 11 No2, pp 91 - 102).Marshall, G.P. and McCormick, B.J. (1986) 'Economics of Managerial Decision-Making' (pp 11 - 319) Basil Blackwell Limited.Morone, Joseph and Paulson, Albert (1991) 'Cost of Capital: The Managerial Perspective', California Management Review (pp 9 - 32).Simerly, Roy.L and Mingfung, Li (2000

How Have Banks Managed Their Capital – A Ratio Decomposition Analysis

2727 words - 11 pages Heider, F. (2009) “The Determinants of Bank Capital Structure”, Working Paper, Forthcoming in the Review of Finance. _______ and Köhler, W. (2010) “Bank Owners or Bank Managers: Who is Keen on Risk? Evidence from the Financial Crisis”, Discussion Paper No. 10-013, Centre for European Economic Research, Mannheim. Laeven, L. and Levine, R. (2009) “Bank Governance, Regulation and Risk Taking”, Journal of Financial Economics, 93 (2), 259-275

Poter's diamond model

1437 words - 6 pages influences (see following graph) of national competitive advantage must be understood by managers in firms, otherwise industrial development bodies cannot operate effectively. Next let's discuss the theory in reference of Japanese Fax industry.The Determinants of National Advantage1. Factor ConditionsFactor conditions refer to the nation's position in factors of production, such as knowledge, capital, HR and infrastructure. These provide initial

The Diamond Model by Michael Porter

1452 words - 6 pages determinants of national advantage are 1) factor conditions, 2) demand conditions, 3) related and supporting industries and 4) firm strategy, structure and rivalry. FIGURE 1: Porter’s Diamond (Adapted from Porter, 1990) Factor conditions refers to factors of production; the inputs that are necessary to compete in any industry, these include labor, land, natural resources, capital and infrastructure (Porter, 1998). One nation’s

Similar Essays

Determinants Of Capital Structure Of Pharmaceutical Industry Of Pakistan

1383 words - 6 pages Consideration Our study is on determinants of capital structure of pharma sector in Pakistan. And study is based on secondary data. To get best results from the research we have collected the relevant data from most reliable sources like Karachi Stock Exchange (KSE) and the individual firm’s annual reports. This study is on faith basis or purely on the basis of facts and figures. There isn’t any objective to give benefits or to give wrong

Capital Structure Of A Firm Essay

875 words - 4 pages Introduction Capital structure is a term used to refer to the fraction of debt and equity that make up a firm’s total capital. The cost of debt is the amount above the borrowed amount that lenders demand from the firm in form of interest. There are benefits associated with each financing criteria. For instance, using debt to finance a project qualifies a firm for an interest tax shield. This means that, interest paid for debt is deducted

“Access To Capital Structure, And The Funding Of The Firm”

1446 words - 6 pages Introduction In this essay, I will give brief review notes for “Access to Capital Structure, and the Funding of the Firm” (Omer Brav 2009) which will be focused on the goal of this easy, how and why the theoretical hypotheses are tested and what are the findings. Some discussions about data, methodology used and theory defects will also be included in this essay for critical comment. Content Objective Since earlier capital structure

Critically Assess The Pecking Order Theory Of Capital Structure

1785 words - 7 pages There is no universal theory of the debt-equity choice, and no reason to expect one. In this essay I will critically assess the Pecking Order Theory of capital structure with reference and comparison of publicly listed companies. The pecking order theory says that the firm will borrow, rather than issuing equity, when internal cash flow is not sufficient to fund capital expenditures. This theory explains why firms prefer internal rather than