A correlation study on the effects of bank debt on the capital structure of commercial/industrial firms listed in the PSE for the period of 1996-2000

Date of Publication

2001

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Commerce Major in Management of Financial Institutions

College

Ramon V. Del Rosario College of Business

Department/Unit

Financial Management

Abstract/Summary

This study aimed to analyze the effects of the presence of long-term bank debt on the optimal capital structure of commercial/industrial firms listed in the Philippine Stock Exchange using the model done by Mr. Shane Johnson-an assistant professor in the University of Cincinnati.

Previous capital structure models show that asymmetric information lowers a firm's optimal leverage significantly. Meanwhile, banking literatures affirm that bank screening and monitoring help minimize information asymmetries and other related problems. Combining the views of the two together implies that having bank debt helps a firm to achieve a higher optimal leverage.

There were 34 firms taken from three sectors of the commercial/industrial industries listed in the Philippine Stock Exchange. Data analysis employed was differences-in-means, median, and simple regression.

Results reveal that firms with long-term bank debt have greater leverage than those that do not. As seen through the mean averages, firms with long term bank debt have a greater profit ratio, and fixed asset turnover.

It can be concluded that the presence of long-term bank debt gives firms more leverage which can influence decisions in all areas of operation of the business.

There have been many studies about capital structure models where optimal debt level is determined by weighing various leverage-related costs against leverage-related benefits (Johnson, 1998). Currently, these studies were conducted in foreign countries involving foreign firms. It is for this reason that the group feels that local firms should be subjected to the same analysis in order to look for effective means of debt financing.

There were several important literatures reviewed by the group to support the group's hypothesis. The journals were focused on leverage, debts, and capital structure.

The researchers of this study aim to prove that bank debts and leverage are positively related based from a previously conducted study by the faculty of the University of Cincinnati. By doing so, the group took various data from the given sample population and test its profitability, and leverage among others.

The study covered a time span of 5-years (1996-2000) of which would include the years before, during, and after the Asian Economic Crisis.

Abstract Format

html

Language

English

Format

Print

Accession Number

TU10767

Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

28 numb. leaves

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