New Applicable Approach to Examine The Leverage–Value Relationship | ||||
| المجلة العربية للإدارة | ||||
| Article 17, Volume 35, Issue 2, December 2015, Page 387-400 PDF (795.2 K) | ||||
| Document Type: بحوث باللغة الإنجلیزیة | ||||
| DOI: 10.21608/aja.2015.18444 | ||||
 View on SCiNiTO | ||||
| Author | ||||
| Sahar M. R. Mahran | ||||
| Finance Department Faculty of Economics and Administration King Abdullaziz University., KSA Faculty of Commerce - Ain Shames Univ Egypt | ||||
| Abstract | ||||
| Many literatures studied the relationship between the leverage and the value of firms. Some studies found no relationship and other studies show that the relationship is positive, however, another studies show that the relationship is negative. Therefore, the leverage–value relationship seems to be an unresolved puzzle in the capital structure empirical literature. Therefore, this study seeks to examine the leverage–value relationship to interpret the significant and the direction of this relationship by using the effect of industry, size firm’s growth opportunities and adding operating efficiency as controlling factors. The importance of this study is to investigate the impact of unique status of the Saudi market companies that have not tax on its profits and illustrate whether the leverage-value relationship hold in the Saudi companies. Moreover, this study seeks to help managers make efficient financial decisions and realize the effect of their decisions on the firm value with considering the impact of industry and the internal level of firm performance such as their growth opportunities and their operating efficiency on the leverage–value relationship. The results show that leverage for both firm and industry (book or market) as well as the difference between firm leverage and the industry leverage have a significant negative effect on both the firm value and the difference between firm value and the industry value. These results are found in spite of the difference among firms in growth opportunities or in operating efficiency | ||||
| Keywords | ||||
| leverage–value relationship; industry leverage; growth opportunities; operating efficiency | ||||
| References | ||||
|
- Aggarwal Raj A. L.; Zhaob Xinlei. (2007). “The leverage–value relationship puzzle: An industry effects resolution”, Journal of Economics and Business, 59 286–297. - Aivazian Varouj A.; Ge Ying, Qiu Jiaping. (2005). “The impact of leverage on firm investment: Canadian evidence”, Journal of Corporate Finance, Volume 11, Issues 1–2, March, Pages 277-291. - Chen Long, Zhao Xinlei. (2006). “On the relation between the market-to-book ratio, growth opportunity and leverage ratio”, Finance Research Letters, Volume 3, 253-266. - Coricelli Fabrizio, Driffield Nigel, Pal Sarmistha, Roland Isabelle. (2012).”When does leverage hurt productivity growth? A firm-level analysis Original Research Article”, Journal of International Money and Finance, 31, 1674-1694. - Francis Bill, Hasan Iftekhar, Sharma Zenu. (2011). “Leverage and growth: Effect of stock options”, Journal of Economics and Business, 63, 558-581. - Gul Ferdinand A. (1999). “Growth opportunities, capital structure and dividend policies in Japan”, Journal of Corporate Finance, 5, 141-168. - Hovakimian, A. (2004). “The role of target leverages in security issues and repurchase”. Journal of Business, 77, 1041–1072. - Jensen, M. C. (1986). “Agency costs of free cash flow, corporate finance and takeovers”, American Economic Review, 76, 323–339. - Jo Hoje, Pinkerton John M., Sarin Atulya. (1994). “Financing decisions and the investment opportunity set: Some evidence from Japan”, Pacific-Basin Finance Journal, 2, 227-242. - Journal of Economic Dynamics and Control, 34, 1003-1013. - Kovenock, D. and Phillips, G. M. (1997). “Capital structure and product market behavior”, Review of Financial Studies, 10, 767–803. - Lang Larry, Ofek Eli, Stulz RenéM. (1996). “Leverage, investment, and firm growth”, Journal of Financial Economics, Vol. 40, 3-29 - Lewis Craig M.; Rogalski Richard J. and Seward James K. (2003). “Industry conditions, growth opportunities and market reactions to convertible debt financing decisions”, Journal of Banking & Finance, 27, 153-181. - McConnell, J. and Servaes, H. (1995). “Equity ownership and the two faces of debt”, Journal of Financial Economics, 39, 131–157. - Miao, J. (2005). “Optimal capital structure and industry dynamics”, Journal of Finance, 60, 2621–2659. - Modigliani, F. and Miller, M. H. (1958). “The cost of capital, corporation finance and the theory of investment”, American Economic Review, 48, 261–297. - Modigliani, F. and Miller, M. H. (1963). “Corporate income taxes and the cost of capital: A correction”, American Economic Review, 53, 433–443. - Myers, S. C. (1977). “Determinants of corporate borrowing”, Journal of Financial Economics, 5, 147–175. - Serrasqueiro Zélia, Nunes Paulo Maçãs. (2010). “Non-linear relationships between growth opportunities and debt: Evidence from quoted Portuguese companies”, Journal of Business Research, 63, 870-878. - Strebulaev Ilya A., Yang Baozhong. (2013). “The mystery of zero-leverage firms”, Journal of Financial Economics, In Press, Corrected Proof, Available online. - Stulz, R. (1990). “Managerial discretion and optimal financing policies”, Journal of Financial Economics, 26, 3–27. - Wijewardana Zhao Bei, W.P. (2012). “Financial leverage, firm growth and financial strength in the listed companies in Sri Lanka Original Research Article Procedia”, Social and Behavioral Sciences, Vol. 40, PP. 709-715. - Wiwattanakantang Yupana. (1999). “An empirical study on the determinants of the capital structure of Thai firms”, Pacific-Basin Finance Journal, 7, 371-403. | ||||
|
Statistics Article View: 185 PDF Download: 248 |
||||
