Table 4 - uploaded by Evarist Stoja
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Despite much theoretical progress, Rajan and Zingales (1995) claim that 'very little is known about the empirical relevance of the different capital structure theories'. Indeed, the more recent developments such as Pecking Order Theory and Market Timing contradict the predictions of Trade-Off Theory. One of the aims of this paper is to test the rel...
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On the query of corporate capital structure dynamics, an inclusive theory that unifies the ‘modern’ capital structure theories is pending as yet. A comprehensive capital structure theory should consider the firms’ time-state-focus choices over time. Firms’ comprehensive capital structure choices, however, need some reconciliation of their different...
ABSRTACT This paper seeks to examine the impact of size on the capital structure choice of listed Nigeria firms in influencing their corporate financing strategy and performance analysis. The research work examines the applicability of western capital structure theories (static trade-off, agency cost and pecking order theories) on listed firms on t...
Purpose – This study investigates empirically two of the most influential theories of capital structure: the pecking order and the target capital structure theories in the UK market during the period 1999-2004. Design/ methodology/ approach-The study employs and extends the approaches used by Shyam-Sunder and Myers (1999), and Frank and Goyal (2003...
This paper discusses how well major capital structure theories incorporate firm-level and institutional factors into short-term firm financing decisions in a specific context, that of a transition economy. Using a new dataset of non-financial companies quoted on the Warsaw Stock Exchange between 2007-2015, we argue that neither the trade-off nor th...
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We employ an error correction model of leverage to test the trade-off and pecking order theories of capital structure for firms in the UK, France and Germany. The error correction framework extends the partial adjustment model by explicitly modelling changes in target leverage and past deviations from such target as determinants of firms’ dynamic l...
Citations
... The examination of individual firms is unusual, since most time-series studies adopt the S&P 500 index as the analysis benchmark. Thus, Shiller (1987, 1988), Lee (1995), Sung and Urrutia (1995), Timmermann (1995), and Crowder and Wohar (1998) estimate the present value relation on aggregate level over a significant length of time, in accordance to the concept stated by Stoja and Tucker (2004) that the power of unit root and cointegration tests is based on the length of time period rather than the number of observations. Meanwhile, it is recognized that the application of firm-level data allows for observation of patterns and relationships that may not be evidenced through stock market index analysis, since an index application may smooth noise or volatility from individual firms. ...
The Present Value Model (PVM) – in which current security prices depend upon the present value of future discounted dividends, where the discount rate is equivalent to the required rate of return – is one of the long-standing principles of Finance Theory. The objective of this work is to analyze the validity of the PVM between prices and dividends at the firm level from panel techniques applied to non-stationary and potentially cointegrated processes for the Brazilian stock market. Considering the Present Value Model with Constant and Time-Varying Expected Returns, the evidence that real (log) prices and real (log) dividends are non-stationary I(1) and (log) price-dividend ratio is I(0) cannot be rejected. Regarding FMOLS and DOLS estimators for panel cointegration models, stock prices are found to be overvalued under either constant or time-varying expected returns assumption.
... The examination of individual firms is unusual, since most time-series studies adopt the S&P 500 index as the analysis benchmark. Thus, Shiller (1987, 1988), Lee (1995), Sung and Urrutia (1995), Timmermann (1995), and Crowder and Wohar (1998) estimate the present value relation on aggregate level over a significant length of time, in accordance to the concept stated by Stoja and Tucker (2004) that the power of unit root and cointegration tests is based on the length of time period rather than the number of observations. Meanwhile, it is recognized that the application of firm-level data allows for observation of patterns and relationships that may not be evidenced through stock market index analysis, since an index application may smooth noise or volatility from individual firms. ...
The Present Value Model (PVM) – in which current security prices depend upon the present value of future discounted dividends, where the discount rate is equivalent to the required rate of return – is one of the long-standing principles of Finance Theory. This relationship has gathered attention from empirical literature due to the rapid price increase in stock markets throughout the decade of 1990 and its subsequent decline. The objective of this work is to analyze the validity of the PVM between prices and dividends at the firm level from panel techniques applied to nonstationary and potentially cointegrated processes for the Brazilian stock market. Results indicate that, in the Present Value Model with Constant Expected Returns, the hypothesis that real prices and real dividends have a unit root cannot be rejected. Respective panel cointegration tests indicate that real prices and real dividends are cointegrated, and hence attributing validity to the PVM under the hypothesis of constant expected returns. Regarding the Present Value Model with Time-Varying Expected Returns, the hypothesis that real log prices and real log dividends are nonstationary and that log price-dividend ratio is cannot be rejected as analyzed in theory for the validation of the underlying model. The respective panel cointegration tests yield evidence that the real log prices and real log dividends series are cointegrated, validating the PVM under the hypothesis of time-varying expected returns. Considering FMOLS and DOLS estimators for panel cointegration models, results indicate that stock prices are overvalued under either constant or time-varying expected returns.
Purpose
The aim of the paper is threefold: to provide an overview of gearing in the Australian real estate investment market; formally examine the relationship between property returns, risk and gearing; and provide some guidance in evaluating “optimal” gearing levels for real estate investment.
Design/methodology/approach
A mathematical modelling framework is presented for evaluating the relationship between investment returns, risk and gearing levels.
Findings
The study highlights that risk rises with rising gearing levels and that risk‐adjusted returns fall with rising gearing. Furthermore, it is shown that the gearing‐risk relationship is influenced not only by the cost of debt structure but also the interdependency between ungeared returns and interest rates.
Research limitations/implications
The study suggests that current gearing levels from Australian listed property trusts and unlisted wholesale property funds are relatively conservative. This implies that current gearing could be increased, in particular for wholesale funds, without taking on substantially more risk whilst enhancing returns.
Practical implications
The paper is of value to industry and academia as it offers an extended framework for evaluating the relationship between risk and gearing. In particular, the framework provides insight for gauging gearing levels when constructing real estate investment strategies.
Originality/value
Importantly, the paper shows that the interdependency between ungeared returns and interest rates significantly impacts the relationship between risk and gearing.
