CAPITAL STRUCTURE DETERMINANT

Capital Structure Determinant Evidence from IRAN and UK



Capital Structure Determinant Evidence from IRAN and UK

Data Analysis

This part of the study that is capital structure determinant evidence from IRAN and UK is related to data analysis which has been gathered from United Kingdom and Iran in relation to capital structure of the firms. In given beLow, the data of the study has been analyzed;

The definitions and summary statistics for the variables under consideration are provided in Table 1 and Table 2, respectively.

Table 1. Variable definitions.

Variables

Definitions

Leverage

Total debt to the market value of equity plus the book value of debt

(Asset) Tangibility

Fixed assets to total assets

Growth opportunities

The market value of equity plus the book value of debt to total assets

Profitability

Earnings Before Interest and Depreciation (EBITD) to total assets

Non-debt tax shields

Depreciation to total assets

Size

Log of total assets in 1995 prices

Investment

Capital expenditures less depreciation divided by fixed assets

Deviation

Actual leverage less (estimated) target leverage

Net debt issued

Net debt issued to the firm's market value

Net equity issued

Net equity issued to the firm's market value

Financing imbalance

Minus Cash flow after tax plus Net investment (incl. Capital Expenditures, Acquisitions and Disposals) plus Dividends plus Net change in cash including changes in working capital, all divided by the firm's market value

Table 2. Descriptive statistics. To minimize the effects of extreme outliers, we follow the literature and winsorize each variable at the 1st and 99th percentiles. See Table 2 for variable definitions.

Variables

Mean

Stdev.

Min

Med.

Max

Skew.

Kurt.

Leverage

0.200

0.199

0.000

0.146

0.990

1.104

3.750

Asset tangibility

0.310

0.243

0.000

0.256

0.997

0.846

2.903

Non-debt tax shields

0.039

0.031

0.000

0.033

0.204

1.947

8.816

Profitability

0.014

0.266

- 1.495

0.079

0.446

- 3.213

16.255

Growth

2.043

2.216

0.188

1.363

20.000

4.556

30.326

Size

11.189

2.105

1.609

11.012

18.961

0.343

3.167

Investment

0.043

0.665

- 3.710

0.022

3.840

0.125

23.768

Financing imbalance

0.024

0.143

- 0.690

0.001

0.645

0.296

10.049

Net debt issued

- 0.005

0.097

- 0.540

- 0.001

0.358

- 1.167

11.891

Net equity issued

0.054

0.169

- 0.175

0.001

1.133

3.926

20.030

Regression results for the partial adjustment model

Table 3 reports the regression results for the symmetric, non-Threshold partial adjustment model ofleverage.

Panel A reports the short-run dynamics, including the short-run coefficients, the Speed of adjustment, and standard diagnostic Tests (i.e., the AR(2) and Sargan Tests) while Panel B contains the long-run coefficients on the determinants of target leverage.

Table 3. Regression results for the partial adjustment model of leverage.

Independent

Expected

Partial adjustment model

variables

sign

AH-IV

GMM

Panel A. Short-run dynamics

Leverage (t - 1)

+

0.470

0.403

(0.068)

(0.074)

Tangibility (t)

0.241

0.231

(0.049)

(0.050)

Non-debt tax shields (t)

- 0.649

- 0.549

(0.225)

(0.225)

Profitability (t)

- 0.124

- 0.115

(0.017)

(0.017)

Growth opportunities (t)

- 0.009

- 0.008

(0.002)

(0.002)

Size (t)

0.050

0.051

(0.009)

(0.009)

Speed of adjustment

0.530

0.597

Number of observations

3,673

3,673

Time dummies

Yes

Yes

AR(2) Test

- 1.48[0.14]

- 1.51[0.13]

Sargan test

23.82[0.25]

Panel B. Long-run coefficients

Tangibility (t)

+

0.455

0.387

(0.116)

(0.099)

Non-debt tax shields (t)

-/+

- 1.224

- 0.920

(0.506)

(0.433)

Profitability (t)

+/-

- 0.234

- 0.193

(0.046)

(0.038)

Growth opportunities (t)

-

- 0.017

- 0.014

(0.004)

(0.004)

Size (t)

+

0.095

0.086

(0.021)

(0.018)

We employ two consistent estimators, AH-IV and GMM and report their regression results in the respective columns in the table. Overall, the AH-IV and GMM regression results are reasonable as the AR(2) and Sargan tests of no second-order serial correlation and valid instruments cannot be rejected at conventional significance levels, and the estimated (long-run) coefficients are statistically significant with the expected signs. The speed of adjustment is estimated at 53% and 59%, respectively by AH-IV and GMM. These results suggest that UK firms can close more than a half of their deviation from target leverage within a year. Using the concept of half-life, this suggests that UK firms only need between 0.91 and 0.76 years to halve their deviation from target leverage. These speeds are consistent with the previously reported UK results but faster than the speeds estimated for US firms.

Running the OLS regression

Dependent Variable: IRAN and UK

Method: Least Squares

Sample: 1977-2011

Included observations: 35

Variable

Coefficient

Std. Error

t-Statistic

Prob.  

C

859911.4

579561.3

1.483728

0.0477

TANG

8432.361

18823.38

4.447973

0.0072

PROFIT

12.58203

11.48932

11.095107

0.0000

SIZE

352.5131

9.15456

7.95123

0.0028

Education Immigrant

R-squared

0.646674

Mean dependent var

316179.8

Adjusted R-squared

-0.013121

S.D. dependent var

179233.1

S.E. of regression

180405.1

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