Analyzing Company’s Internal and External Factors Influencing the Financing Model through Structural Equation Modeling (SEM)

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Veisi Sajad; Vaez Seyed Ali; Anvari Ebrahim; Mazaheri Esmaeel

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Journal Paper

Paper Information

Journal: Journal of Asset Management and Financing Year:2024 | Volume:12 | Issue:4 Page(s): 87-120

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Information Journal Paper

Title

Analyzing Company’s Internal and External Factors Influencing the Financing Model through Structural Equation Modeling (SEM)

Author(s)

Veisi Sajad | Vaez Seyed Ali | Anvari Ebrahim | Mazaheri Esmaeel | Issue Writer Certificate

Keywords

Development of Financing Systems

Internal Financing

External Financing

Internal Factors

External Factors

Abstract

This study aimed to identify the most effective financing model by analyzing the internal and External Factors influencing companies. We compiled data from 159 companies spanning 2012 to 2021, encompassing 1,590 company-years, to test 14 hypotheses. These hypotheses were evaluated using Structural Equations Modeling (SEM) with SmartPLS4 software across 3 distinct models. The financing model was categorized into 3 components: Internal Financing, short-term External Financing, and long-term External Financing. The findings revealed that the following factors significantly impacted all three types of financing: 1) Board of Directors’ characteristics; 2) Audit characteristics; 3) Internal control characteristics; 4) Ownership structure; 5) Managerial characteristics; 6) Financial reporting quality; 7) Financial performance; 8) Market performance; 9) Investment efficiency; 10) Competitive strategies; 11) Corporate social responsibility; 12) Political communication; 13) Economic uncertainty; and 14) Firm characteristics. Notably, economic uncertainty was found to exert a negative and significant effect on financing across all three dimensions, while the other variables positively facilitated company financing. Furthermore, the analysis indicated that the selected structures had greater explanatory power for long-term financing compared to internal and short-term financing as evidenced by the determination coefficients of all three models.

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