Trade-off theory of capital structure: evidence from estimations of non-parametric and semi-parametric panel fixed effect models

With corporate cash holdings on the rise, stakeholders need to know, among other things, what informs the companies’ cash holding policies and whether there are any benefits to be derived from piling up these cash reserves. Studies conducted in developed countries have identified the following as determinants of corporate cash holdings: firm size, growth opportunities, liquid asset substitutes, capital expenditure, leverage, dividend payments, cash flows and cash flow volatility. Few studies have focused on what drives firms’ cash holdings behavior in emerging economies. This study, the first of its kind, investigated the determinants of corporate cash holdings in the South African retail industry. The paper used panel data analysis to test the relationships between cash holdings level and the identified determinant factors. The authors found evidence that liquid asset substitutes, capital expenditure, dividend payments and cash flow volatility significantly influence the cash holdings levels of retail firms listed on the Johannesburg Stock Exchange.

Using debt to finance investments is a common feature in the balance sheets of state-owned entities (SOEs). The greater the degree of financial leverage, the higher the proportion of debt resulting in greater interest payments that negatively affect the earnings attributable to shareholders. This paper considers the determinants of debt financing in light of the debt crisis that the South African economy faces and, more so, the public sector and its validity under capital structure theories. The data set was analyzed for the financial period from 1995 to 2020 of thirty-three commercial SOEs in South Africa. Multiple regression models were tested using the Generalized Method of Moments estimator. The results highlighted that significant variables affecting state-owned entities’ debt levels are profitability, age, growth opportunities, liquidity, probability of bankruptcy, and non-debt tax shield. The policy recommendations are that the government prioritizes reducing debt levels for South Africa to develop and achieve sustainable development. The changes in firm-specific factors that affect the optimal capital structure and the entity’s value must be considered.

This study investigates the impact of firm-specific components of cash holdings on the cash reserves of energy firms. Decisions related to cash management are significant and treated as confident made by financial managers to increase the value of a firm. Therefore, financial managers are obligated to hold an optimum level of cash to enhance the firm value. The study depends on secondary data from seven energy firms listed on the Saudi Arabian Stock Exchange over the period between 2014 and 2023. The study considers cash holdings as a dependent variable, leverage, networking capital, and profitability as explanatory variables, and firm size as a control variable. The study employed a linear regression model and a generalized linear regression (GLM) model with Gaussian and Gamma distributions to analyze the data. The results show that Saudi Arabian energy firms reserve approximately 7% of cash, while external financing is 51%. The pooled regression results show that the association between leverage and firms’ cash reserves was negative (–0.064) and significant at less than a 1% significance level. Further, the networking capital and profitability were positively related (0.063 and 0.113) and significant at 5% and 1% significance levels. Moreover, the firm size was positive but insignificant. The generalized linear regression model results with Gaussian and Gamma distributions were similar to the simple linear regression with minor variation.

Acknowledgment
This current project under research project number PSAU/2023/02/25767 was funded by Prince Sattam Bin Abdulaziz University.