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Investigation of Target Capital Structure for Electronic Listed Firms in Taiwan

Author

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  • Chien-Chung Nieh
  • Hwey-Yun Yau
  • Wen-Chien Liu

Abstract

This paper investigates the existence of an optimal debt ratio for the electronic listed firms in Taiwan, using balanced panel data for a sample of 143 selected electronics companies listed in the Taiwan Stock Exchange (TSE) from the first quarter of 1999 to the third quarter of 2004. The result shows that there is a single threshold effect of debt ratio on firm value when return on equity (ROE) is used to proxy firm value. Furthermore, based on our combined findings of ROE and earnings per share (EPS) triple threshold estimations, we find that the appropriate debt ratio range for the electronic listed firms in Taiwan should not be over 51.57 percent or below 12.37 percent. To ensure and enhance the firm's value, the optimal range of debt ratio should be within 12.37 percent and 28.70 percent. The implications of the findings for financial managers and shareholders' welfare are discussed.

Suggested Citation

  • Chien-Chung Nieh & Hwey-Yun Yau & Wen-Chien Liu, 2008. "Investigation of Target Capital Structure for Electronic Listed Firms in Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 44(4), pages 75-87, July.
  • Handle: RePEc:mes:emfitr:v:44:y:2008:i:4:p:75-87
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Yung-Chin Chiu & Ching-Wen Liang & Yanzhi Wang, 2012. "Corporate Financing Decisions on Research and Development Increases," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 88-109, January.
    2. Ching-Chieh Tsai & Chi-Cheng Wu & Ruey-Dang Chang, 2012. "Effects of Overvalued Equity and Managerial Incentives on Corporate Policy," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 74-87, January.
    3. Sakshi Khanna & Amit Srivastava & Yajulu Medury, 2016. "A study of capital structure dynamics on the value of Indian firms using panel threshold regression model," International Journal of Management Practice, Inderscience Enterprises Ltd, vol. 9(1), pages 40-55.
    4. Hsien-Hung H. Yeh & Eduardo Roca, 2012. "Macroeconomic Conditions and Capital Structure over the Business Cycle: Further Evidence in the Context of Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(S3), pages 141-156, September.
    5. Abd Halim Ahmad & Nur Adiana Hiau Abdullah, 2013. "Investigation of optimal capital structure in Malaysia: a panel threshold estimation," Studies in Economics and Finance, Emerald Group Publishing, vol. 30(2), pages 108-117, May.
    6. Yung-Chin Chiu & Ching-Wen Liang & Yanzhi Wang, 2012. "Corporate Financing Decisions on Research and Development Increases," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 88-109, January.
    7. Fengyi Lin & Liming Guan & Wenchang Fang, 2011. "Heaping in Reported Earnings: Evidence from Monthly Financial Reports of Taiwanese Firms," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(2), pages 62-73, March.
    8. Fengyi Lin & Liming Guan & Wenchang Fang, 2011. "Heaping in Reported Earnings: Evidence from Monthly Financial Reports of Taiwanese Firms," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(2), pages 62-73, March.
    9. Hsien-Hung H. Yeh & Eduardo Roca, 2012. "Macroeconomic Conditions and Capital Structure over the Business Cycle: Further Evidence in the Context of Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(S3), pages 141-156, September.
    10. Ching-Chieh Tsai & Chi-Cheng Wu & Ruey-Dang Chang, 2012. "Effects of Overvalued Equity and Managerial Incentives on Corporate Policy," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 74-87, January.

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