By Supa Tongkong
The purposes of this study are 1) to determine the four influential factors, namely, industry variable, firm-specific variables, stock market circumstance, macroeconomic conditions, and how these factors influence capital structure decisions, 2) to establish optimal capital structure decision models, and 3) to explore how firms adjust their current capital structure towards the target levels. This study uses balanced dynamic panel data covering nine consecutive years during 2002 to 2010 which contains 128 companies listed in the Stock Exchange of Thailand rooted in industrials, property and construction, and services industries. The analysis employs multiple linear regression models including FGLS regression, Fixed-effects (within) regression, and Random-effects GLS regression in examining factors influencing capital structure decision and estimating optimal capital structure decision models, and dynamic panel regression model comprising Fixed-effects (within) regression, Random-effects GLS regression, one-step and two-step Arellano and Bond GMM estimators in determining the speed of adjustment towards target capital structure.
The study indicates the following results. The average values of total book leverage and long-term book leverage are 40% and 13% respectively. The finding reveals that firms have optimal capital structure decision model. Industry leverage, firm size, growth opportunity, and asset tangibility have positive effect to leverage, where profitability, liquidity, and dividend payout are negatively related to leverage level. Both trade off and pecking order theories remain the explanation on optimal capital structure decision. Further, the findings indicate that firms partially adjust capital structure towards their target leverage over time and the speeds of adjustment vary across industries. Listed companies in SET adjust towards target total book leverage at the annual rate of 34% that suggest the half-life of 1.7 years, and move towards long-term book leverage at the speed of 69% which take 0.6 year to close their long-term book leverage back one-half the distance to the target leverage. The finding indicates that listed companies in SET pursue target capital structures during 2002 – 2010. The results of this study strongly support the dynamic trade-off theory.
Download : Key factors influencing capital structure decision and capital structure dynamics evidence from listed companies in setc