The Impact of Liquidity and Investment Opportunities on Financial Structure: An Empirical Study of The Manufacturing Companies Listed in Palestine Stock Exchange.

Abstract

The Impact of Liquidity and Investment Opportunities on Financial Structure: An Empirical Study of The Manufacturing Companies Listed in Palestine Stock Exchange. This study aimed to investigate the impact of liquidity and investment opportunities on capital structure. The study was applied on manufacturing sector companies listed in Palestine Stock Exchange including (11) firms, from 2011 to 2015. In this research, the capital structure was used as the dependent variable and liquidity ratios (the ratio of cash flows to total assets, the ratio of cash flows to net income, the ratio of cash flows to equity, and the ratio of operating cash flow to total assets) and investment opportunities ratios (the ratio of market value of assets to book value of assets, the ratio of the market to book value of equity, and the earning / price (EP) ratio and the growth rate in fixed assets (GFA)) were considered to be the independent variables. The study used multiple regressions to analyze data and to test research hypothesis. The results of the first hypothesis test showed insignificant effect of liquidity on capital structure. In addition, manufacturing companies are suffering from a problem with cash flow, while the second hypothesis showed the existence of significant effect of investment opportunities on capital structure. This indicates that while the Palestinian manufacturing companies use lower amounts of debt to finance their investment opportunities; they prefer equity finance. The study recommends the companies to: use the cash flow as an indicator to assess the cash liquidity and to manage it efficiently. determine appropriate mix of debt and equity sources as the optimal use of this combination, which may lead to lowering the cost of capital in order to serve the financing of viable investment opportunities. raise the operational efficiency of assets in order to achieve high returns of profits and operational cash flows, which may contribute to maximizing their market value.