The Dutch level of annual sales lower

The study of Antoniou etal. (2002) showed a negative relationship between leverage (leverageaccounting and market leverage) and profitability in all countries (UK, Franceand Germany) in accordance with the theory of the order of selection andcorrelation analysis.  Daskalakis and Psillaki (2006) noticed negativerelationship between profitability and leverage means that companies canfinance themselves by following the model of the theory of the order ofselection.

 The study of  Degryse etal. (2009), was place on smalland medium enterprises (SME), the Dutch level of annual sales lower than Euro20 million.In the period 2002-2005 was conducted the search and with a sampleof 103 217 annual observations of firms. They concluded that theprofitability measured by ROA Union (EBITDA ratio’s to total assets) isnegatively correlated with the total debt ratio (the ratio of total debt tototal assets). So, as defined in the order of selection theory if a firmhas high levels of earnings, then debt levels will be low, suggesting thatmanagers of SMEs for financing through internal funds. Analysis made by Frankand Goyal (2003) during the period 1971 to 1993, American listed companies andbelow is the regression used for small firms and large:They took intoconsideration five alternative definitions of financial leverage, total debt tototal assets (TDA = D / TA), long-term debt to total assets (LDA = DL / TA),total debt to market value of the assets TDM = D / MA), long-term debt tomarket value of the assets (LDM = DL / MA), and the interest coverage ratio(ICR = INT / OIBD).In regression of them: B= total debt, P (embodiment of assets) = fixed assets to total assets, RTL(report market-book) = market value of the assets (book value of assets plusthe difference between the market value of equity and the book value of equitydivided by the book value of assets, LSH (ln sales) = natural logarithm ofsales, F (profit) = operating income to the carrying amount of the assets. Theresults of their study showed that small firms not follow the theory of theorder of selection, while larger firms are.

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“In contrast to what is oftensuggested, while external financing is widely used for investments domesticfinancing is not sufficient to cover the investment costs. At the same time financingby debt does not prevail over financing through equity “(Frank and Goyal,2003, p. 20). They pointed out that profitability is positively associated withTDA-in and LDA-in, but were negatively associated with TDM -in andLDM-in. It is worth mentioning that in this variable also has a strongpositive connection with TDA-in than the LDA-in connection and a much strongernegative than the LDM-to-TDM at.Other studies show apositive relationship between profitability of firms and financial leverage(Gosh et al.

, 2000; Xu, 2012).Results of the study ofXu (2012) proved positive relationship between profitability accounting andleverage. He used a number of US listed firms during period 1989-2004(3938 manufacturing company’s Compustat with a total of 29 856 annualobservations), thus he found that profitability (measured by operating incometo total assets in the previous year), and levers carrying positively correlated with each other. Theresults also suggest the existence of a positive relationship between marketleverage and the benefits expected.3.2 Macroeconomic Factors”Identifying thefactors that influence the choice of capital structure of companies, it haslong been debated”. (Mahmood et al., 2009, p.

10). “But analysison the relationship between macroeconomic factors, as a critical factorexternal corporate financial policy, has not been studied as far as analyzingthe impact of firm-specific characteristics” (Abzari et al. 2012, p.

133). Macroeconomic factors such as GDP growth rates and inflation havebeen proven to have a significant impact on the banking debt. The study ofSaeed and Scheuermann (2008) confirmed that firms use more bank debt thecountry has the highest rate of GDP growth and low inflation rate.Moreover two theories ofcapital structure, trade-off theory and the theory of the order of selection,have argued that the country’s institutional factors should be taken intoconsideration to determine the firm’s financial leverage (Joeveer, 2006).


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