Capital structure and its impact on added market value within the framework of (PIE) theory
An analytical study of a sample of Iraqi industrial companies listed on the Iraqi Stock Exchange for the period (2010-2021)
A Thesis presented
To the Council of the College of Administration and Economics/University of Karbala
As a part of the requirements for obtaining the Master degree in Science of Business Administration
By
Noor Ail Hussein Fayyad
Supervised by
Prof. Dr Abdul Hussein Jassim Al-Asadi
Abstract: The aims of study is to test the capital structure within the framework of the (PIE) theory and its dimensions (retained earnings ratio, debt ratio, tangible assets, liquidity, company age, company size), and its impact on the market value added. The study depend on data and financial statements published in the Iraqi Stock Market for Iraqi industrial companies, totaling 21 companies, representing the study’s population. Ten companies were selected based on the availability of required data during the study period from 2010 to 2021, forming the study sample. The main problem of the study is the debate about the optimal method for forming the capital structure and the most successful approach in favoring between internal and external financing for Iraqi industrial companies, identifying suitable financing sources for the Iraqi financial, economic environment, and the impact on the market value added of these companies. The problem of the study is phlased in a set of questions through which the study hypotheses were formulated to achieve its goal.
The simple and multiple linear regression method was used to test the effect of the independent variable, capital structure within the framework of (PIE) theory, on the dependent variable (market value added) using the statistical program (SPSS V.28).
The study reached several conclusions, including that Iraqi industrial companies mostly rely on the philosophy of (PIE) theory in building the capital structure instead of resorting to debt as a secondary financing option after retained earnings.
The researcher found that seven companies from the sample suffer from negative economic value added, indicating the management’s inability to increase the company’s value sufficiently, thus shareholders’ wealth is not optimal, and the absence of a thoughtful decision regarding the debt-equity mix in the capital structure of the studied companies lacks the utilization of these determinants to achieve market value added.
Keywords: Capital Structure within the (PIE) Theory – Market Value Added.
