Global Journal of Management and Business Research, B: Economics and Commerce, Volume 22 Issue 4

and an attendant change from intra-group competition to inter-group rivalry. Teixeira Dias et al (2020) observed that rivalry and organizational size impacted competitive position, while dynamism, on the other hand, had minimal effects on competitive position. Chatain & Zemsky (2011) demonstrated that rivalry interrelates significantly with other competitive forces impacts on industry potential profitability. IV. F urther E xtensions to the P orter’s M odel of I ndustry A ttractiveness a) Optimal Capital Structure of the Industry Numerous studies have documented the existence of an optimal capital structure. In other words, a specific combination of debt and equity or a mix of capital structure that maximizes the value of the firm. Given certain conditions, Miller (1977) showed that a single optimal level of aggregate debt prevails for the entire corporate sector or industry. However, he also posited that debt and value are independent at the specific firm level. Modigliani and Miller (1958) investigated the importance of taxes for the irrelevance of equity versus debt in the capital structure of the firm and, together with Miller (1977) demonstrated that that under certain assumptions, the optimal capital structure can be complete debt finance because of the preferential treatment of debt in relation to equity in the tax laws. Nevertheless, issuing equity does not amount to leaving shareholders’ money on the table in the form of superfluous company income tax expenditures. Miller (1977) demonstrated that an organization could generate higher after-tax income by elevating the debt- to-equity ratio and utilize this supplementary income to accomplish a larger payout to bondholders and stockholders. Still, this financial transaction would not certainly result in an increment in the value of the organization. This is because as equity is replaced with debt, the percentage of firm payouts by way of interest on debt capital increase in relation to payouts by way of dividends and gains on equity capital (Miller, 1977). If taxes on interest payments are higher than that on dividends as usually is the case, the advantage of debt finance to the organization is eliminated. In the final analysis we would end up with an optimal capital structure at which point there is no incentive to further increase debt or equity and that which maximizes the value of the firm (Miller, 1977). Other empirical works provide additional evidence in support of the existence of an optimal capital structure. Flath & Knoeber (1980) provided empirical abutment to theoretical proclamations that taxes and costs of financial distress do suggest an optimal capital structure, at least for industries. Lew & Moles (2016) investigated indications of the reality of an optimal capital structure and found evidence for the incidence of orderly patterns in debt ratios and approaches that firms adopt to regulate their capital structures. They asserted that these observations constituted implicit evidence for the paradigm of optimal capital structure and suggested that firms should seek to establish the appropriate capital structure predicated on industry and republic factors. Although it is established that an optimal industry capital structure exists, whether firms actively seek to optimize their capital structure is another issue. Bowen, Daley & Huber (1982) demonstrated that companies exhibited a statistically substantial propensity to navigate towards their industry average over both five-year and ten-year periods of time. Myers (1984) contrasted two approaches to thinking about capital structure, including the static tradeoff framework and the pecking order framework. In the static tradeoff theory, the firm is perceived as setting a target debt-to- value ratio and steadily navigating towards it, in a manner closely related to the methods that a firm alters dividends to locomote to a targeted payout ratio. On the other hand, in the pecking order framework, the firm has a preference for internal over external financing, and debt over equity whenever it sells financial securities so that in the pecking order model, the firm does not possess any precisely-defined targeted debt-to-value ratio. Myers (1984) further argued that the pecking order theory accomplishes at the minimum as adequately as the static tradeoff theory in elucidating existing knowledge of financing preferences and their mean effects on the prices of financial securities. The extant capital structure that is observable among industries does vary from industry to industry (Bowen, Daley & Huber, 1982; O’Reilly Media Inc, 2022) and is determined by specific industry attributes. This may imply that either the optimal capital structure varies from industry to industry and/or that not all industries are able to attain the optimal capital structure. Industry characteristics can exert a bearing on a firm’s ability to navigate towards the optimal capital structure or a firm’s preferences for capital structure. Numerous researchers have argued that, industry-specific attributes along with firm-level elements, can impose a noteworthy bearing on the financial choices of firms (Harris and Raviv, 1991; MacKay and Phillips, 2005). Saxena & Bhattacharyya (2022) explicitly analyzed the influence of industry-level characteristics on capital structure decisions of firms and found that an increment in industry munificence motivates firms to reduce their reliance on external financing and additionally that firms in a comparatively concentrated industry that is associated with more excellent opportunities for growth elevate their dependence on debt financing. Maksimovic (1988) demonstrated that, under certain conditions, there exists an optimal capital structure, which is dependent on the degree of concentration of the industry, the prevailing discount rate or cost of capital for the industry, the elasticity of demand, and other associated factors that impact on market equilibrium for products generated in The Determinants of the Attractiveness of an Industry: An Extension of The Porter’s Five-Forces Framework 88 Global Journal of Management and Business Research Volume XXII Issue IV Version I Year 2022 ( ) B © 2022 Global Journals