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Testing capital structure models on Philippine listed firms

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  • Darwin Yu
  • Rodolfo Aquino

Abstract

This study examines the ability of the Trade-Off (TO) model and the Pecking Order (PO) model to explain the financing behaviour of Philippine listed firms from 1990 to 2001. Using panel data regression techniques, the firms' leverage ratios move towards their optimal level, holding up the TO model. The results, however, show better support for the PO model, as leverage and profitability are negatively related, while financing deficit mostly explains the annual change in total liabilities. Furthermore, in joint tests, only the fitted values from the PO model equation continue to have additional explanatory power over fitted values from the TO model. Firms issued more equity than debt from 1990 to 1996 when stock market prices were increasing rapidly, but this still fits the more complex version of the PO model.

Suggested Citation

  • Darwin Yu & Rodolfo Aquino, 2009. "Testing capital structure models on Philippine listed firms," Applied Economics, Taylor & Francis Journals, vol. 41(15), pages 1973-1990.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:15:p:1973-1990
    DOI: 10.1080/00036840601131805
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    References listed on IDEAS

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    1. Guanqun Tong & Christopher Green, 2005. "Pecking order or trade-off hypothesis? Evidence on the capital structure of Chinese companies," Applied Economics, Taylor & Francis Journals, vol. 37(19), pages 2179-2189.
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    Cited by:

    1. Nedal Al-Fayoumi & Bana Abuzayed, 2009. "Ownership structure and corporate financing," Applied Financial Economics, Taylor & Francis Journals, vol. 19(24), pages 1975-1986.
    2. Mar𨀠 Bel鮠Lozano, 2012. "Analysing the effect of excess cash accumulation on financial decisions," Applied Economics, Taylor & Francis Journals, vol. 44(21), pages 2687-2698, July.
    3. Mª Belén Lozano García, 2011. "Analyzing the Effect of Excess Cash Accumulation on Financial Decisions," Post-Print hal-00704672, HAL.
    4. Ahmed Sakr & Amina Bedeir, 2019. "Firm Level Determinants of Capital Structure: Evidence From Egypt," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(1), pages 68-85, January.
    5. Hoang Huy Nguyen & Chi Minh Ho & Duc Hong Vo, 2019. "An Empirical Test of Capital Structure Theories for the Vietnamese Listed Firms," JRFM, MDPI, vol. 12(3), pages 1-11, September.
    6. Víctor M. González & Francisco González, 2011. "Firm size and capital structure: Evidence using dynamic panel data," Post-Print hal-00730234, HAL.

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