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Determinants of capital structure in the UK


retail industry: A comparison of multiple
regression and generalized regression neural
network
ARTICLE in INTELLIGENT SYSTEMS IN ACCOUNTING FINANCE & MANAGEMENT JULY 2012
DOI: 10.1002/isaf.1330

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INTELLIGENT SYSTEMS IN ACCOUNTING, FINANCE AND MANAGEMENT


Intell. Sys. Acc. Fin. Mgmt. 19, 151169 (2012)
Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/isaf.1330

DETERMINANTS OF CAPITAL STRUCTURE IN THE UK RETAIL


INDUSTRY: A COMPARISON OF MULTIPLE REGRESSION AND
GENERALIZED REGRESSION NEURAL NETWORK
HUSSEIN A. ABDOUa*, ANDZELIKA KUZMICb, JOHN POINTONb AND ROGER J. LISTERa
a

University of Salford, Salford Business School, Salford, Greater Manchester, UK


b

University of Plymouth, School of Management, Plymouth, Devon, UK

SUMMARY
Firms need to rely on different nancing sources, but the question is how capital structure is determined for a
particular industry. Our aim is to undertake an investigation into the factors which determine capital structure in
the UK retail industry. Our initial sample consists of 163 (nal sample: 100) UK retail companies, using data from
2000 in order to analyse capital structure from 2002 to 2006. Nonlinear models tend to be unduly neglected in
capital structure research, and so we apply generalized regression neural networks (GRNNs), which are compared
with conventional multiple regressions. We utilize a hold-out sample for the multiple regressions to make them
comparable with the GRNNs. Stability of the data is also conrmed. Our main ndings are: net protability and
the depreciation-to-sales ratio are key determinants of capital structure based on GRNNs, while two more
variables are added in the multiple regressions, namely size and quick ratio; there is strong support for the
pecking-order theory; both root-mean-square errors and mean absolute errors are much lower for the GRNNs than
those for the multiple regressions for overall, training and testing datasets. The potential benet of this research to
nancial managers and investors in the UK retail sector is the identication of the overriding role of net protability
in reducing the nancial risk from high levels of gearing. Copyright 2012 John Wiley & Sons, Ltd.
Keywords: capital structure; retail; generalized regression neural networks; multiple regression; pecking order

1.

INTRODUCTION

Relatively few studies, to which a notable exception is Hutchinson and Hunter (1995), investigate the
capital structure of UK retail companies despite the important role of this sector in the UK economy.
The retail sector is an advantageous basis for our study: assets, liabilities and income tend to be more
visible and to present relatively fewer valuation problems than complex manufacturing and some
service industries do. There is also more comparability across companies. These factors further
enhance retails attractiveness as a test bed for capital structure. For non-nancial companies, in
general, a number of factors would seem to play a potentially important role in determining capital
structure. These include growth opportunities, rm size, protability, asset structure, business risk,
non-debt tax shields and liquidity. Myers and Majlufs (1984) pecking-order theory indicates a
preference for internal retained prots, followed by debt nance and, nally, new equity.
In this paper we investigate the determinants of capital structure in the UK retail industry. Key factors
for investigation, which we discuss below in our literature review, are: asset growth, asset structure, tax
shields, growth opportunities, operating protability, liquidity, business risk, sales growth, size and
total protability. In attaining our objectives we investigate different results obtained from applying
* Correspondence to: Hussein A. Abdou, University of Salford, Salford Business School, Reader in Finance & Banking, The
Crescent, Salford, Greater Manchester, M5 4WT, UK. Email: h.abdou@salford.ac.uk

Copyright 2012 John Wiley & Sons, Ltd.

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H. A. ABDOU ET AL.

generalized regression neural networks (GRNNs) compared with the more traditional multiple regression modelling techniques. The two approaches are mutually informative and promise to shed light on
which factors are the key determinants of the capital structure decision in this sector. Our investigation
bridges one of the most contentious aspects of nance theory and one of the crucial decision points in
nancial management. The theory has been discussed for decades since Modigliani and Miller (1958,
1963) initiated the debate on capital structure independence, and nancial constraints weigh more than
ever on management as they attempt to dene and handle their nancing. In any industry, nancial
decision-makers need to take cognizance of the determinants of capital structure in their industry
fellows, since these may alert them to the most relevant, pressing and opportune constraints. Our
contribution promises, accordingly, to be both conceptual and practical and will be substantially
reinforced by our choice of methodology. To the best of our knowledge, neural networks, in particular
the GRNNs, have not been used to investigate the determinants of capital structure in the UK retail
industry. It is expected that the modelling procedures using neural networks will be superior to the
traditional multiple regressions, since they accommodate nonlinearities (e.g. Pao, 2008). The rest of
this paper is organized as follows: Section 2 reviews relevant literature and develops the formal research
hypotheses; Section 3 is concerned with data sources and methodology; Section 4 reports and analyses
results. We conclude and make recommendations in Section 5.
2.

LITERATURE REVIEW AND FORMATION OF RESEARCH HYPOTHESES

Growth Opportunities: Agency theory states that rms with growth opportunities increase the potential conict of interest between shareholders and lenders; for example, see Harris and Raviv (1991) and
Cheng and Shiu (2007). Firms that have higher potential growth opportunities may be regarded as more
risky, in that there may be greater variations in their future value and thus they may face difculties in
raising debt capital as their future ability to service debt is more uncertain (Bevan and Danbolt, 2002).
Furthermore, exploitation of growth opportunities as an asset is more at the discretion of management
than xed tangible assets, raising a potential conict between the interests of management and shareholders which managers can exploit. Also, Chen (2004) nds that rms characterized by higher growth
opportunities tend to have lower values of tangible assets and, as a result, will borrow proportionately
less. Against Chen, especially at a time of uncertain property values, one must not be dogmatic in
favour of tangibility, since well-founded growth opportunities in a stable economy may be worth more
than restricted, immovable, highly specic assets elsewhere. Daskalakis and Psillaki (2005) suggest that
growth will push rms into seeking external nancing, as rms with high growth opportunities are
more likely to exhaust internal funds and will require additional capital to support expansion. For indeed, as Myers and Majluf (1984) have proposed in their pecking order, there should be a preference
for internal retained prots, followed by debt nance and then new equity. Titman and Wessels
(1988) found a negative association between a rms growth opportunities and leverage, whereas
according to the study by Drobetz and Wanzenried (2006) rms are concerned with future nancing
costs if investment projects fail. Therefore, rms with future growth opportunities are nanced by
short-term borrowing such as greater trade credit and short-term debt. On the other hand, Rajan and
Zingales (1995) and Frank and Goyal (2000) found growth opportunities positively related to the debt
ratio, and posited that the debt of a rm grows according to the shortfall between the cost of investment
projects and retained earnings available to nance such investment, resulting in a demand for external
nance. Another study by Bevan and Danbolt (2004) demonstrated that corporate growth opportunities
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have very little impact on the level of gearing and thus, paradoxically, rms in the UK tend to hold more
debt. For a retail rm it could be argued that sales growth, which reects changes in market share, is
important as well as asset growth. However, we recognize that the debate is open and we hope that
our ndings will contribute to its progress. We submit two research hypotheses:
H1a: asset growth is negatively related to gearing.
H1b: annual sales growth is negatively related to gearing.
Some research identies the market-to-book value of equity as a surrogate for growth opportunities,
because the book value, unlike the market value, does not anticipate future growth. For example,
Drobetz and Wanzenried (2006) used this measure to represent growth and found a negative relationship
with leverage for their sample of Swiss rms. A problem with this measure is that it may not only be
telling a story of growth. For example, a high market-to-book ratio may reect low book values resulting
from accountings historic cost convention, the depreciation method used or from management and
auditors prudence in the face of uncertain valuations. In retail, assets tend to be visible and susceptible
to defensible valuation. We hope, accordingly, that our choice of industry will leave us not unduly
vulnerable to such problems. We propose the following hypothesis for UK retail rms:
H1c: market-to-book value as a proxy for growth opportunities is negatively related to gearing.
Firm Size: According to trade-off theory, to the extent that they are more diversied, large rms have
a higher debt capacity and, thus, lower nancial distress costs than smaller rms do (Cheng and Shiu,
2007). Additionally, large rms are not only less risky, but are also likely to have lower asymmetric
information for creditors than small rms might have (Cheng and Shiu, 2007). Their shareholders
are likely to include sophisticated nancial institutions who will subject them to a degree of scrutiny;
this fact will, of itself, reassure the market. The point is even more likely to apply if a rm is large
enough to gure in major nancial indices, since a majority of large institutions perforce include the
index in their portfolios by way of adherence to the capital asset pricing model. Small rms may nd
it costly to mitigate information asymmetries with lenders, with such rms being offered less capital at
higher rates, consequently discouraging the use of outside nancing (Cassar, 2003). Empirical ndings
support a signicant positive relationship between debt and rm size (Bennett and Donnelly, 1993;
Gatchev et al., 2009). However, some researchers report a negative relationship between debt and rm
size, indicating that small companies, owing to their limited access to the equity market, tend to rely on
bank loans, and thus larger rms have substantially less debt than smaller ones do (Titman and Wessels,
1988; Hutchinson and Hunter, 1995; Rajan and Zingales, 1995; Ramalho and da Silva, 2009). While
recognizing the openness of the debate, we articulate the following research hypothesis based on
trade-off theory:
H2: size is positively related to gearing.
Protability: The pecking-order theory indicates that protable rms prefer to nance their projects
rstly using internal funds (such as retained earnings) rather than external nance, secondly using debt
next, and thirdly, owing to transaction costs associated with it, choosing equity as a last resort.
Protable rms are expected to generate more internal funds and use less external debt; thus, a rms
leverage is expected to decrease with increasing protability (e.g. Jandik and Makhija, 2001; Panno,
2003; Bancel and Mittoo, 2004). Hutchinson and Hunters (1995) ndings for the retail industry
support this position. The preference for less leverage may furthermore be related to a wish to leave
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property unencumbered to maximize put and call options implicit in opportunities to exibly expand
and contract as the merits of locations emerge. Muller (2004) suggested that some rms may refuse
to use external debt capital in order to minimize intrusion to their business affairs, and remain in control
of their company so that they welcome the opportunity which protability provides to reduce their
resort to debt.
A contrary view is the trade-off model, which states that more-protable rms will use more debt as
they have ability to access and take on debt, as well as require more debt to take advantage of corporate
tax shields (e.g. Cheng and Shiu, 2007) subject to any offsetting effect deriving from personal tax
(Miller, 1977). Panno (2003) pointed out that there might be a positive correlation between protability
and a rms leverage, in contrast to the pecking-order theory, when companies want to take advantage
of tax shields. For the retail sector, it might be useful to distinguish between total protability and the
operating prot margin, because of the intensity of competition that can arise over prot margins. We
test two hypotheses, both consistent with pecking-order arguments; namely:
H3a: protability is negatively associated with gearing.
H3b: operating prot margin is negatively associated with gearing.
Asset Structure: Agency theory indicates that rms that have more tangible assets tend to have
greater ability to issue debt and, thus, have lower agency costs associated with it (Scott, 1977), especially when these assets are nonspecic and easily tradable, as is to a large measure the case in the retail
industry. Also, according to Scott (1977), lenders require collateral to protect their interests, and rms
unable to provide it are likely to pay higher interest, or will be forced to issue equity instead of debt.
However, when the quality of assets is considerable (as in the retail case), it may be that a dynamic variable such as protability will kick in as the effective constraint on borrowing even while asset backing
has not yet been fully used. The relevance of asset structure can be seen as supporting a trade-off theory
(Deesomsak et al., 2004). Frank and Goyal (2003) argued that rms with intangible assets can expect to
get external nancing if these assets create value, such as patents or contractual rights, goodwill, copyrights and franchise rights, which can be pledged to support debt. However, these values can be lost
easily when a rm defaults. Thus, rms with intangible assets are expected to have less debt. Fattouh
et al. (2005) provided evidence that tangibility is positively correlated with debt. However, Bevan
and Danbolt (2000) found a positive relation only between long-term borrowing and asset structure
and a negative relation in the case of short-term debt. This may be because short-term indebtedness
reects corporate ability to meet ongoing commitments on borrowing. We submit the following
hypothesis:
H4: asset structure is positively related to gearing.
Business Risk: A higher volatility of earnings is common for an uncertain business environment, in
which observations of management actions tend to be limited and lenders tend to fear agency-related
expropriations by equity holders (Jandik and Makhija, 2001). However, the study by Antoniou et al.
(2006) provides evidence that leverage and earnings volatility are negatively correlated, implying that
due to an uncertain environment UK rms avoid entering into long-term commitments involving highly
volatile earnings. This is in line with the trade-off model, which predicts that rms with higher business
risk, determined by the variability and uncertainty of its sales and costs, will use less debt to nance
their projects as high business risk increases the cost of nancial distress (Panno, 2003; Deesomsak
et al., 2004; Cheng and Shiu, 2007). Risk-taking companies, in need of new nance, will tend to issue
equity rather than debt (Panno, 2003). Yet, Hutchinson and Hunter (1995) identied a positive
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relationship between leverage and business risk in the retail industry, contrary to much of the literature.
A relatively predictable stream of taxable prots even in risky times may contribute to the retail
phenomenon, as well as other unique characteristics based on corporate positioning associated with
exibility of debt policy in difcult circumstances to which Hutchinson and Hunter refer. While noting
that the debate concerning trade-off and pecking order remains inconclusive, we test the following
hypothesis:
H5: business risk is negatively related to gearing.
Non-debt Tax Shield: According to trade-off theory, a major motivation for rms to use debt instead of
equity is to save corporate tax. To the extent that interest payments on debt are benecially deductible as
an expense, they reduce the corporate tax bill. In countries with a high corporate tax rate which is not
offset by other taxes, rms are expected to use more deductible external nancing to raise capital than
otherwise (Cheng and Shiu, 2007). However, rms can use alternative non-debt tax shields, such as a
legacy of tax losses, international tax planning and, most widely, tax-depreciation (capital allowance)
deductions. The higher non-debt tax shield reduces the potential tax benet of debt and hence the absolute tax advantage of debt will not apply (Drobetz and Fix, 2005). In accordance with the trade-off theory, DeAngelo and Masulis (1980) argued that rms with high non-debt tax shields are less likely to
issue debt. Thus, Bennett and Donnelly (1993), Jandik and Makhija (2001) and Drobetz and Wanzenried
(2006) provided evidence that the non-debt tax shield is negatively related to leverage, but other ndings
(Drobetz and Fix, 2005) reveal that the non-debt tax shield is insignicant. It remains a matter of fact that
high current depreciation, as a proxy for high capital allowances for tax purposes, is likely to be
associated with a current tax loss and a reduced immediate benet from interest deductibility for tax
purposes. Accordingly, in our study we include depreciation/sales and submit the following hypothesis:
H6: the current depreciation-to-sales ratio is negatively related to gearing.
Liquidity: Both the quick ratio and the current ratio are serious candidates for measuring a rms ability
to meet its short-term obligations; thus, there should be a positive relationship between the rms liquidity
position and its debt ratio. Firms with high liquidity might support a relatively high debt ratio, due to a
greater ability to meet its nancial obligations when they fall due (Panno, 2003), although pecking-order
theory indicates that rms with a higher liquidity ratio will borrow less (Deesomsak et al., 2004). Panno
(2003) also reported that a rms liquidity has a positive effect on the rms borrowing decisions in the
UK, and is consistent with a theory of expectations. But, following the pecking-order theory, according
to which rms resort to debt when internal resources are insufcient, we submit the following hypothesis:
H7: liquidity is negatively related to gearing.
Capital Structure Analysis and Techniques: Pao (2008) made a comparison between neural networks
and multiple regression analyses in modelling the capital structures of high-tech and traditional corporations in Taiwan. We would suggest that the dual importance of that study is to include the possibilities of
nonlinear effects not captured by the multiple regressions, and to provide conrmatory evidence by
using two methods rather than one. Pao focused on comparing signs between those from the articial
neural network (ANN) sensitivities and those of the multiple regression coefcients, which is a valid
and useful approach. By contrast, in this paper we focus on an impact analysis of the extent to which each
variable contributes to capital structure. The reason for this is that the ANN sensitivities, although useful
for conrming the signs, do not inform us how important each variable is in the overall model. The sign
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may be the same as that in the multiple regression model, and the multiple regression may indicate that a
particular variable is very signicant. However, we suggest that when nonlinearities are accounted for,
the contribution of a variable that may have been signicant in the multiple regression may play only
a minor role in the ANN. Later in this paper, we demonstrate that this is indeed the case. Following
Pao (2008), who investigated the same topic, albeit not for the UK retail sector but for high-tech
companies in Taiwan, and who found that his nonlinear neural networks outperformed conventional
regressions and achieved better model-tting and predictions, we expect to nd that our neural networks
provide a superior quality of analysis than that of the conventional regressions. The following hypothesis
is therefore proposed:
H8: neural networks provide a better t and predictions than conventional regressions do in analysing
capital structure in the UK retail sector.
We have identied a research gap in the study of capital structure in the UK retail industry, for, to the
best of our knowledge, we have found that not only have there been a limited number of investigations,
but neural networks have been neglected in previous research.

3.

DATA SOURCES AND METHODOLOGY

3.1. Dataset and Sampling Method


The dataset for the empirical research is derived from the Datastream database and we collected
accounting information of 163 UK retail companies between 2000 and 2006. Not all data of retail companies could be used in this study, due to missing values or the suspension of a rm. The nal sample is
100 companies exactly. Variables are dened in Table 1. Since some variables require more than 1 year

Table I. List of variables and their measurements


Variables

Code

Measurements

LEV

Total debt/total assets

[Total assets(t) total assets(t  1)]/total assets(t  1)


Fixed assets/total assets
Current depreciation/total sales
Share price/book value per share
Operating prot/total sales
(Cash, near-cash, marketable securities and debtors)/current liabilities
(Standard deviation of the annual earnings before interest and tax, based
on the current year and the preceding two years)/(mean annual earnings
before interest and tax over the 3 years)
[Sales(t)  sales(t  1)]/sales(t  1)
Natural log(sales)
Annual earnings before interest, tax and depreciation/total assets
Gross income/sales revenue
Current assets/current liabilities

Dependent variable
Y

Debt ratio (leverage)

Independent variables
X1
X2
X3
X4
X5
X6
X7

Growth in assets
Assets structure
Depreciation ratio
Market-to-book value
Operating prot margin
Quick ratio
Business risk

ASSG
ASST
DPN
MTBV
OPS
QR
RISK

X8
X9
X10
X11
X12

Sales growth
Size
Net Protability
Gross protabilitya
Current ratioa

SGR
SIZE
TPROF
GPROF
CR

Variables nally discarded in building the models.

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of data (e.g. risk is measured by standard deviation over 3 years), the timeframe becomes 2002 to 2006.
We use a 500 rm-year observation panel dataset, covering each variable, which benets from
standardization of sampling; that is, we used the same sample of companies for each year of analysis.
Initially, we examined the quality of the raw data in order to establish whether there were signicant
differences between years. But, to test models for predictive ability, we also use the data from 2002
to 2005 as a training sample and test the respective models using the 2006 data as a testing sample.
Additionally, if the values of the key variables are independent of time, we can also use random
samples, taken from the whole time period, either to build or to test the models. Thus, we classify
the whole dataset into three samples, comprising: sample1 (67% of the data for training and 33% for
testing); sample2 (80% for training and 20% for testing); and sample3 (90% for training and 10% for
testing). Then, we run the GRNN models many times using different random selections from each of
the three sample sizes. These selections are to be randomly selected by the software. If there are signicant differences between years, then the plan is not to classify the whole dataset into three samples. But
if there are signicant differences between the values of the variables in different years, even a random
selection procedure could give misleading results, in which case the latter sampling procedure will be
ignored. Fortunately, we later show that the variable-values are time independent.
3.2. Analytic Techniques
First, we planned to apply a multiple regression model, using SPSS 17 and STATGRAPHICS 5, to
test our hypotheses pertaining to the dependent variable, namely the debt ratio (LEV), as a linear
combination of independent variables and white-noise error term eit for each rm i at time t, as
detailed in Table 1:
LEVit a0 b1 ASSGit b2 ASSTit b3 DPNit b4 MTBVit b5 OPSit
b6 QRit b7 RISKit b8 SGRit b9 SIZEit b10 TPROFit eit
As a rst stage we produce a correlation matrix of independent variables which results in the
elimination of two variables due to multicollinearity, namely gross protability (which is highly
correlated with OPS) and the current ratio (which is highly correlated with QR). The remaining
variables have low collinearity (<0.30). It should be noted that we will run our models using the two
eliminated variables instead to test whether they can provide better results.
Secondly, we use GRNNs, as the most accurate neural networks within available software as
provided by Palisade Corporation (Palisade Corporation, 2011). GRNNs are designed to have four
layers, namely an input layer, a hidden layer (for which distances between points are kernel based,
and normally utilize a Gaussian function), a summation layer (which contains two neurons) and a
decision layer, as shown in Figure 1. Because they are strongly insensitive to outliers they lend themselves to analysis of nancial data, as indeed is demonstrated by a large body of literature (e.g. Leung
et al., 2000; Enke and Thawornwong, 2005; Pao, 2008). Just as probabilistic neural networks are used
for categorizing nominal data, GRNNs are employed to regress a continuous dependent variable(s). It
should be emphasized that we choose GRNNs over other neural networks because of the nature of our
independent variable as a continuous variable. Also, as part of the net analysis, it better measures the
impact of the variables on the neural network prediction model(s) than most other types of neural
networks, such as multilayer perceptron neural networks. The purpose of a variable impact analysis
is to measure the sensitivity of net predictions to change in independent variable(s) and is done
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Inputs

Pattern layer (one


neuron per training
case)

Summation layer (numerator &


denominator nodes)

Output

X1

X2
Y

Xn

Figure 1. GRNN for a number of independent numeric variables is structured above. The Pattern Layer contains
one node for each training case. Each neuron in the pattern Layer computes its distance from the presented case.
The values passed to the Numerator and Denominator nodes are functions of the distance and the dependent value.
The nodes in the Summation Layer sum its inputs, while the Output node divides them to generate the prediction.
The distance function in the Pattern Layer neurons uses smoothing factors and every input has its own smoothing
factor value. With a single input, the greater the value of smoothing factor, the more signicant distant training
cases become for the predicted value. Training GRNN consists of optimizing factors to minimize the error on
the training set, and the Conjugate Gradient Descent optimization method is used to accomplish that. The error
used in this net is the Mean Square Error.

automatically by the software. This analysis is only done on the training dataset, and every independent
variable is assigned a relative variable impact value; these are percentage values and add to 100%.1
This style of memory-based network was designed by Specht (1991) for regression analysis, but
is especially well designed to deal with problems which contain nonlinearities. He showed that his
algorithm has smooth links between actual values. Tomandl and Schober (2001), extending the work
by Specht, demonstrated that their algorithms are robust to changing the values of the parameters,
and that the vectors may take on different values. They also discussed the qualities of the gradients
of the regression surfaces.
Financial applications have included an investigation into forecasting foreign exchange by which
Leung et al. (2000) who, after contrasting random walk behaviour with multilayered feed-forward
networks, came to advocate neural networks in terms of predictive ability. We run a GRNN for the
determinants of leverage, for training and testing samples, the former for the years 20022005 and
the latter for 2006. Specically, we conduct a variable impact analysis to assess the relative importance
of each determinant (ASSGit, ASSTit, DPNit, MTBVit, OPSit, QRit, RISKit, SGRit, SIZEit and TPROFit).
We report on predictive ability and error rates, namely, Root-Mean-Square Errors (RMSEs) and Mean
Absolute Errors (MAEs), as measures of models accuracies.

It should be noted that the results of the impact analysis are relative to a given net, and a subsequent session with a different type
of net is able to discover how the variable(s) can make a signicant contribution to accurate predictions. For example, in a smaller
dataset with a large number of variables, the differences in the relative impact of the variable between trained nets may be more
pronounced, and vice versa.
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159

RESULTS AND ANALYSIS

In Table 2 we set out a comparative statistical evaluation of the dependent variable, leverage (LEV), and
the independent variables. We carried out analysis of variance (ANOVA) tests to determine if the means
differ for different years. This is only the case for asset growth. We performed Fishers least signicant
difference tests and Tamhane tests; the former assume equality of variances, but not the latter. Indeed,
the tests designed by Cochran, Bartlett and Levene show some very signicant differences between
the standard deviations in different years. Nevertheless, the Tamhane test reveals that the differences
between years are not very signicant (except for some moderate signicance for asset growth for pairs
of years linked to 2002). The KruskallWallis tests do not disclose very signicant differences between
the medians over the different years. At that point we concluded that we had a good dataset.
We then proceeded with a conventional multiple regression analysis in order to examine the key factors that might determine the leverage in the UK retail sector, as set out in Table 3. We tested the regression residual for autocorrelation using the LjungBox (Q) standardized residuals (for 36 lags) and the
BreuschGodfrey Lagrange multiplier (LM) test (seven lags). The tests indicate that autocorrelation is
not present in the residuals. Furthermore, we checked for the presence of heteroskedasticity using the
squared (Q2) standardized residuals (36 lags) and the ARCH test, which is an LM test for ARCH (seven
lags) in the residuals. Again the results show that there is no ARCH effect in the residuals. Furthermore,
the augmented DickeyFuller tests demonstrate that for each variable the null hypothesis of a unit root
is rejected in favour of stationarity. These diagnostics are set out in Appendix A.
The conventional regression reveals a very signicant quick ratio2 QR (), SIZE (+) and net
protability TPROF (). These results are consistent with three of our hypotheses: H7 (liquidity),
H2 (Size) and H3a (overall protability). Thus, liquidity in the UK retail sector is negatively related
to gearing, supporting the pecking-order theory according to which rms resort to debt when internal
resources are insufcient. This is signicant at the 95% level of condence in the full regression and
at the 90% level of condence in the stepwise regression.
Size of retail rms is signicantly positively related to gearing, which conrms the trade-off theory,
at the 99% level of condence in both the full and stepwise regressions. This reverses the earlier
ndings by Hutchinson and Hunter (1995) to the effect that smaller retail rms used more debt than
the larger rms did and supports the side of our earlier discussion of size to the effect that large rms
are less risky, suffer less from information asymmetry and benet from the reassuring presence of
institutional investors.
Overall protability, as measured by TPROF, is signicantly negatively associated with gearing at the
99% level of condence. This is consistent with the work of Hutchinson and Hunter (1995), who found
that retail rms use retained prots rather than debt to fund capital investment. Our nding reects the
pecking-order theory and our earlier discussion of the theorys implications for the relationship between
protability and leverage. Consonant with that theory, management regard protability as a generator
of the retained earnings which they prefer to use as a source of nance. Compared with debt, retained
earnings can be used with less external interference, lower transaction costs and less encroachment on
freedom to expand and contract the asset base. Far from dening the limit of borrowing, protability
generates a fund which increases the room for manoeuvre available to both company and management.
Leverage is demoted in exact accordance with pecking-order theory.

We found that the quick ratio and the current ratio are highly correlated, but we took the precaution of using current ratio instead
and found that it is not signicant. Also, overall model R2 was lower.
Copyright 2012 John Wiley & Sons, Ltd.

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DOI: 10.1002/isaf

Copyright 2012 John Wiley & Sons, Ltd.


0.620

0.030
0.095
0.080
0.023
0.066
0.051
0.006
0.015
0.072
0.057

0.586***
1.685***
0.618

7.663

0.515
0.062
0.170*
0.127*
0.453
0.346
0.388
0.108
0.065
0.042

0.921***
5.238***
2.794**

DPN

1.207

0.581***
1.954***
1.109

3.144

3.435

0.004 0.004
0.036 0.016
0.031 0.011
0.035 0.018
0.032 0.011
0.027 0.015
0.031 0.023
0.005 0.026
0.001 0.034
0.004 0.008

0.221
1.004
0.552

0.004 0.004
0.036 0.016
0.031 0.011
0.035 0.018
0.032 0.011
0.027 0.015
0.031 0.023
0.005 0.026
0.001 0.034**
0.004 0.008

0.644

479
479
0.470 0.063
0.212 0.120

ASST

6.443

1.794
0.835
5.131
1.180
0.959
3.337
0.614
4.296
0.345
3.951

0.374***
1.878***
2.727**

1.794
0.835
5.131
1.180
0.959
3.337
0.614
4.296
0.345
3.951

1.161

444
1.778
17.45

MTBV

1.264

0.812
0.860
0.998
1.033
0.048
0.186
0.221
0.138
0.173
0.035

0.937***
8.768***
1.514

0.812
0.860
0.998**
1.033***
0.048
0.186
0.221
0.138
0.173
0.035

1.532

478
0.268
3.237

OPS

0.468
9.598
0.785
0.205
9.131
0.317
0.263
8.814
9.394
0.580

1.200

434
1.323
35.22

RISK

0.115
0.072
0.696
0.010
0.043
0.581
0.105
0.624
0.062
0.686

1.210

460
0.260
2.626

SGR

1.075

0.169
0.122
0.128
1.141
0.047
0.041
1.310
0.007
1.262
1.069

1.753

0.468
9.598
0.785
0.205
9.131
0.317
0.263
8.814
9.394
0.580

3.799

0.115
0.072
0.696
0.010
0.043
0.581
0.105
0.624
0.062
0.686

0.948*** 0.986*** 0.974***


7.930*** 30.36*** 14.05***
1.118
0.957
0.998

0.169
0.122
0.128
1.141
0.047
0.041
1.310
0.007
1.262
1.069

1.080

476
1.087
5.309

QR

TPROF

1.225

0.115
0.176
0.383
0.402
0.061
0.268
0.287
0.207
0.226
0.020

0.226
1.003
0.312

0.115
0.176
0.383
0.402
0.061
0.268
0.287
0.207
0.226
0.020

0.426

3.802

0.083
0.115
0.021
0.105
0.033
0.103
0.022
0.136
0.010
0.126

0.826***
2.890***
0.826

0.083
0.115
0.021
0.105
0.033
0.103
0.022
0.136
0.010
0.126

0.746

478
478
11.85
0.042
2.570 0.710

SIZE

*, **and ***denote statistically signicant differences at the 10%, 5% and 1% level respectively.
The Tamhane Test, which assumes unequal variances, gave different mean-difference results, whilst, Fishers least signicant difference test assumes equal variances.
The sample consists of a 500 rm-year observation panel data-set from the UK retail industry. The data are derived from the Datastream database for the years 2002 to 2006.
LEV = Debt ratio (Leverage), ASSG = Growth in Assets, ASST = Assets Structure, DPN = Depreciation Rate, MTBV = Market-to-Book Value, OPS = Operating Prot Margin,
QR = Quick Ratio, RISK = Business Risk, SGR = Sales Growth, SIZE = Size; TPROF = Net Protability.

KruskalWallis median test statistic

Tamhane testa
2002  2003
2002  2004
2002  2005
2002  2006
2003  2004
2003  2005
2003  2006
2004  2005
2004  2006
2005  2006

Cochrans C test
Bartletts test
Levenes test

0.515**
0.062
0.170
0.127
0.453**
0.346**
0.388**
0.108
0.065
0.0424

Fishers least signicant difference test


2002  2003
0.030
2002  2004
0.095
2002  2005
0.080
2002  2006
0.023
2003  2004
0.066
2003  2005
0.051
2003  2006
0.006
2004  2005
0.015
2004  2006
0.072
2005  2006
0.057

461
0.191
1.196
2.486**

479
0.245
0.533

ASSG

0.541

ANOVA F-ratio

Count
Mean
Standard dev

LEV

Table II. A comparative statistical evaluation of selected variables

160
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161

DETERMINANTS OF CAPITAL STRUCTURE IN UK RETAIL INDUSTRY

Table III. Model1 (overall sample)


Model analysis

R1

Step. R1

GRNN1

Coeff.

Coeff.

Variables impact analysis

Constant
ASSG
ASST
DPN
MTBV
OPS
QR
RISK
SGR
SIZE
TPROF

0.0552
0.0073
0.0208
1.7119***
0.0003
0.0799***
0.0051**
0.0003
0.0058
0.0182***
0.6219***

0.1278*

1.6017***

0.0155***
0.0041*

0.0255***
0.5634***

2.1846
1.2325
24.1530
1.5099
4.9051
1.7875
1.5817
1.4041
0.7072
60.5343
100.00

Further analytical results (diagnostic criteria)


F-ratio
R2
R2 adj.
Good prediction (%)
Std. dev. of abs. errors
RMSE
MAE

167.95***
80.53
80.05

0.2390
0.1569

247.54***
72.56
72.27

0.2758
0.1771

36.69
0.1199
0.1571
0.1015

*, **and ***denote statistically signicant differences at the 10%, 5% and 1% level respectively.
The sample consists of a 500 rm-year observation panel dataset from the UK retail industry. The data are derived from the Datastream database for the years 20022006. ASSG: Growth in Assets; ASST: Assets Structure; DPN: Depreciation Rate; MTBV:
Market-to-Book Value; OPS: Operating Prot Margin; QR: Quick Ratio; RISK: Business Risk; SGR: Sales Growth; SIZE: Size;
TPROF: Net Protability; RMSE: Root-Mean-Square Error; MAE: Mean Absolute Error.

On the other hand, depreciation ratio DPN (+) and operating prot margin3 OPS (+) are signicantly
positive at the 99% level of condence. It is initially surprising and out of tune with some earlier work
(e.g. Bennett and Donnelly, 1993; Jandik and Makhija, 2001; Drobetz and Wanzenried, 2006) that the
depreciation ratio should coincide with greater gearing. However, it remains the case that other empirical results, for example by Drobetz and Fix (2005), nd that non-debt tax shields do not have any effect
on the level of leverage of a rm. Our nding is consistent with the fact that the retail industrys assets
are notably acceptable as security for debt to the extent that they tend to be nonspecic. This
encourages borrowing, since the terms will be relatively favourable. Furthermore, the industry is less
vulnerable to operational gearing than manufacturers, and this enhances borrowing capacity.
Perhaps the leverage policies in the UK retail sector are affected by the fact that for tax purposes their
buildings do not qualify as industrial buildings and lose tax allowances as a result. They can claim
capital allowances on their eets of vehicles and on their equipment to the extent that these are purchased rather than leased. Despite theoretical developments in nance over several decades being
devoted to tax considerations, work on tax shield theory is inconclusive and our ndings suggest that
leverage in the retail industry does not appear to be tax driven. The tax cart does not drive the capital
structure horse. But since newer assets attract higher depreciation, the results are nevertheless
consistent with the view that more recent asset acquisitions have been funded by debt.
3

We found that operating prot margin and gross protability are highly correlated, but we took the precaution of using gross
protability instead and found that it is not signicant. Also, overall model R2 was lower.
Copyright 2012 John Wiley & Sons, Ltd.

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H. A. ABDOU ET AL.

The results for operating prot margin and net protability give conicting evidence on the pecking
order, in that hypothesis H3b (operating prot margin) is rejected because of the incorrect sign, whilst
hypothesis H3a (overall protability) is not rejected. We submit that the support lent to pecking order by
our nding for protability is more reliable than our conicting nding for operating prot margin,
since not only does the former have more economic signicance in terms of value creation, but it is also
the more reliable generator of accumulating retained earnings.
Some other of the hypotheses are rejected: H1a (asset growth, which is not signicant), H1b (annual sales
growth, which is not signicant), H1c (market-to-book value, which is not signicant), H4 (asset structure,
which is not signicant) and H5 (business risk, which is not signicant, unlike that of the earlier work by
Hutchinson and Hunter (1995) on the UK retail sector, who, on appearing to generate a positive relationship, acquiesced in the idiosyncrasy of their nding). Market-to-book value (MTBV), as a surrogate for
growth opportunities, is negatively related to leverage, although not sufciently signicant. The sign is
consistent with agency theory and is congruent with Titman and Wessels (1988) and Jandik and Makhija
(2001). Nevertheless, others nd the contrary (e.g. Bevan and Danbolt, 2000; Drobetz and Wanzenried,
2006), and indeed others detect no relationship (e.g. Bevan and Danbolt, 2004).
The GRNNs4 approach does not require stationarity tests, which makes it an attractive methodology
compared with normal regression. In Table 3 we set out our results from the GRNN which allows for
nonlinearities. The principal importance of using a neural network is the variable impact analysis, for it
reveals that TPROF and DPN are very important and in that order, representing 60.5% and 24.2% respectively of the total impact on leverage. Hence, the GRNN methodology lends very strong support
for H3a (overall protability), and conrms the role of a pecking order in the retail sector. Furthermore,
the positive OPS coefcient in the conventional regression was a problem for a pecking order, but the
low variable impact of OPS of less than 5% in the GRNN can reduce our concern about the earlier
seemingly troublesome result for this variable. Thus, the use of the GRNN has resolved a conict in
the interpretation of the results. Such resolution is of direct practical importance to a nancial decision-maker for whom misplaced emphasis on relatively unimportant capital structure criteria could lead
to costly nancing decisions which might directly impinge on corporate stability.
In Table 4, we set out the results of using the data for 20022005 to build the models (training data)
and the 2006 data to test them. The conclusions are the same as for the whole sample, except that the
quick ratio is weakly signicant (at the 90% level of condence) in the full regression and does not
appear in the stepwise regression. Table 5 addresses diagnostics. The RMSE and MAE of the training
and testing samples of the stepwise regression (Model R2) are similar to each other (suggesting stability
between the training and testing periods), and similar to the RMSE of the stepwise regression for
the whole sample period (Model R1). However, it can be observed that the RMSEs and MAEs for
the GRNNs are much smaller than those for the conventional multiple regressions. It follows that
hypothesis H8 is supported; namely, that neural networks provide a better t and predictions than
conventional regressions in analysing capital structure in the UK retail sector.
Having established that there appears to be some prima facie evidence of stability within the timeframe, we then use random samples to run the GRNNs, taken from the whole time period, either to build
or to test the models, as shown in Appendix B. Whereas we used the same observations for Model1 and
Model2 for training and testing samples under both conventional regression models and GRNNs, in
Appendix B we set out the samples that had been randomly selected by the software across different
years for training and testing purposes.
4

The maximum default running time in GRNN is 2 h. However, in building our models, the running time was less than a minute
with a total number of trials of 96 and 64 for overall samples and training samples respectively.
Copyright 2012 John Wiley & Sons, Ltd.

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DETERMINANTS OF CAPITAL STRUCTURE IN UK RETAIL INDUSTRY

The mean good prediction rate from Sample1 (67%/33% for training/testing) is not signicantly different from that of Sample2 (80%/20% for training/testing) based on Fishers least signicant difference
tests. Neither are the means of Sample1 and Sample3 (90%/10% for training/testing) signicantly different from each other, as shown in Appendix C. However, the means from Sample2 and Sample3 at

Table IV. Model2 (training 20022005/testing 2006, samples)


Step. R2

R2
Training
Model analysis

Coeff.

Constant
ASSG
ASST
DPN
MTBV
OPS
QR
RISK
SGR
SIZE
TPROF

0.0256
0.0130
0.0545
1.7006***
0.0004
0.0690***
0.0306*
0.0002
0.0059
0.0196***
0.6242***

Further analytical results (diagnostic criteria)


F-ratio
178.30
R2
85.03
2
R Adj.
84.55
Good prediction %

Std. dev. of abs. errors

RMSE
0.2326
MAE
0.1568

Testing

Training

GRNN2
Testing

Training

Coeff.

0.3998
0.1961

0.1751**

1.6206***

0.0150***

0.0287***
0.5725***

300.26
76.30
76.05

0.2814
0.1829

Testing

Variables impact analysis

1.8891
0.8110
24.7080
1.4202
6.2025
2.3708
1.5693
1.5713
0.7284
58.7295
100.00

0.2959
0.1741

35.08
0.0998
0.1355
0.0917

29.35
0.1637
0.2054
0.1240

*, **, and ***denote statistically signicant differences at the 10%, 5% and 1% level respectively.
The sample consists of a 500 rm-year observation panel dataset from the UK retail industry. The data are derived from the
Datastream database for the years 20022006. ASSG = Growth in Assets, ASST = Assets Structure, DPN = Depreciation Rate,
MTBV = Market to Book Value, OPS = Operating Prot Margin, QR = Quick Ratio, RISK = Business Risk, SGR = Sales Growth,
SIZE = Size, TPROF = Net Protability, RMSE = Root Mean Square Error, and MAE = Mean Absolute Error.

Table V. Comparing the efciencies of different models


Diagnostic criteria

Model1

Model2

Overall sample

RMSE
MAE

Training

Testing

R1

Step. R1

GRNN1

R2

Step. R2

GRNN2

R2

Step. R2

GRNN2

0.2390
0.1569

0.2758
0.1771

0.1571
0.1015

0.2326
0.1568

0.2814
0.1829

0.1355
0.0917

0.3998
0.1961

0.2959
0.1741

0.2054
0.1240

The sample consists of a 500 rm-year observation panel dataset from the UK retail industry. The data are derived from the
Datastream database for the years 20022006. R1: regression model for overall sample; R2: regression model for the training
sample covering from 2002 to 2005 and for the testing sample covering 2006; RMSE = Root Mean Square Error, and MAE = Mean
Absolute Error.
Copyright 2012 John Wiley & Sons, Ltd.

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164

H. A. ABDOU ET AL.

the training stage are signicantly different from each other at the 95% level of condence. Nevertheless, the variances are similar at the training stage as per the Cochrane, Bartlett and Levene tests.
On testing, the sample means in each respective pair are not different from each other at the
prescribed levels of condence, although there are still some weak differences in medians as per the
KruskallWallis tests. However, overall, and for the purposes of this analysis, the results for the analysis
of the means of the good prediction rates suggest that different randomly selected models can display a
reasonable degree of stability within this dataset, although some of the randomly selected models had
much better prediction rates than the predetermined 20022005 training sample used earlier.
5.

CONCLUSION

Our objectives in this paper have led us to investigate the key factors which determine capital structure
in the UK retail industry. Within this investigation we apply GRNNs to add insights which are
unavailable with conventional multiple regressions. The multiple regression analyses full an important
role in identifying the signs and signicances of the respective variables. But addition of the variable
impact analysis of the neural networks enables us to account for nonlinearities. The training and testing
samples reveal that later results are consistent with those of earlier years. We make a statistical
evaluation of different neural networks samples. Although some randomly selected models could
improve the prediction rates, overall there is reasonable stability in the data.
Our main result is that the pecking-order theory holds for the UK retail sectors capital structure.
Indeed, the GRNN indicates that net protability (TPROF) accounts for 60.5% overall and 58.7% for
the training sample. Both the full regressions and the stepwise regressions had led us to understand that
the protability-related variables gave conicting recommendations. The total protability supported a
nancial pecking-order hypothesis, yet the operating prot margin suggested the opposite. How could
we resolve this dilemma? Fortunately, the GRNN analyses demonstrate their strength by clarifying this
seeming contradiction. The variable impact analyses of the GRNNs conrm a major role for total
protability (TPROF) in the capital structure levels adopted by UK retail rms, vis--vis a very minor
role for the operating-prot-to-sales variable (OPS). So, pecking order is strongly supported, regardless
of very signicant probability values for competing independent variables in the multiple regressions.
This illustrates the superiority of GRNN over traditional linear techniques in modelling complex
functions. GRNN has served the practical purpose of focusing a decision-makers attention where it
is most productive and away from less relevant and potentially misleading foci.
Other important indications are rst that the capital structure in the UK retail industry is not tax
driven. Second, the GRNNs reveal that two variables, namely TPROF and depreciation ratio (DPN),
are much more important than the others, whilst the multiple regressions identify ve very important
capital structure determinants: TPROF, DPN, SIZE, and OPS at the 99% condence level and QR at
the 95% condence level. Firm size in particular, which is very signicant in the multiple regression
analysis, contributes less than 1% of the total variable impact. Third, the GRNNs provide more efcient
models in terms of lower error rates. Future research could usefully pursue our topic into the unusual
period of the nancial crisis and from retail into other industries and across countries.
ACKNOWLEDGEMENTS

We thank the anonymous referees and the editor for helpful comments and suggestions. Any remaining
errors are ours.
Copyright 2012 John Wiley & Sons, Ltd.

Intell. Sys. Acc. Fin. Mgmt. 19: 151169 (2012)


DOI: 10.1002/isaf

Copyright 2012 John Wiley & Sons, Ltd.


Q(21)
0.0090
0.5100

Q(7)
0.0400
0.2980
0.0640
0.7930

Q2(7)

ADF statistic
21.2622
18.2427
15.3030
21.9761
20.6169
75.2919
20.9294
19.3444
20.5994
12.4298
20.8184

0.011
0.9270

Q2(21)
0.8288
0.5638

BGLM

1174.90
0.0000

JB

P-value
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0047
0.0000
0.0000
0.0000

0.00096
0.97520

ARCH

Notation: Q = Ljung-Box standardised residuals for given lags; BGLM = Breusch-Godfrey Lagrange Multiplier test for 7 lags; JB = Jarque - Bera normality test; ARCH =
Lagrange multiplier test for ARCH for 7 lags in the residuals; and ADF = augmented Dickey-Fuller test.

Variable
LEV
ASSG
ASST
DPN
MTBV
OPS
QR
RISK
SGR
SIZE
TPROF

(b) Stationarity tests

Statistic:
P-value:

Test:

(a) Equation (dependent: LEV; skewness: 1.1561; kurtosios: 10.8914)

APPENDIX A: DIAGNOSTIC TESTS

DETERMINANTS OF CAPITAL STRUCTURE IN UK RETAIL INDUSTRY

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46.950
0.0924
0.1181
0.0735

53.050
0.0782
0.0993
0.0613

43.730
0.0694
0.1030
0.0762

26.190
0.1344
0.1885
0.1322

50.000
0.1297
0.1648
0.1016

37.600
0.1043
0.1346
0.0852

44.580
0.9597
0.9838
0.2164

44.580
1.0930
1.1300
0.2841

98.200
0.0002
0.0002
0.0000

26.810
0.1036
0.1532
0.1129

26.810
0.1466
0.1969
0.1315

98.500
0.0001
0.0001
0.0000

M3

M2

35.200
0.1185
0.1554
0.1005

85.030
0.0121
0.0134
0.0056

40.860
0.1201
0.1526
0.0941

35.710
0.1452
0.1867
0.1173

42.170
0.1455
0.1756
0.0983

23.910
0.1342
0.1907
0.1355

M4

68.530
0.0344
0.0427
0.0253

73.650
0.0287
0.0351
0.0202

72.760
0.0290
0.0359
0.0210

59.520
1.3290
1.3630
0.3057

40.960
0.9537
0.9736
0.1957

34.780
0.7503
0.7717
0.1803

M5

36.000
0.1241
0.1617
0.1037

67.070
0.0355
0.0450
0.0277

68.100
0.0369
0.0457
0.0270

23.810
0.1076
0.1667
0.1273

48.190
0.9530
0.9738
0.2003

34.780
0.7553
0.7789
0.1904

M6

88.270
0.0000
0.0000
0.0000

87.720
0.0069
0.0079
0.0039

55.170
0.0692
0.0908
0.0588

35.710
0.1641
0.2057
0.1240

46.990
0.1157
0.1381
0.0753

31.150
0.1473
0.1889
0.1182

M7

60.270
0.0504
0.0660
0.0426

99.100
0.0000
0.0000
0.0000

69.530
0.0373
0.0475
0.0293

42.860
0.1154
0.1474
0.0917

44.580
0.1432
0.1784
0.1063

33.330
0.4456
0.4714
0.1537

M8

34.670
0.1189
0.1573
0.1030

52.100
0.0761
0.0951
0.0571

100.00
0.0000
0.0000
0.0000

26.190
0.1636
0.2229
0.1514

37.350
0.1620
0.1996
0.1167

39.130
0.1305
0.1700
0.1089

M9

34.930
0.1067
0.1455
0.0989

35.630
0.1263
0.1630
0.1031

36.910
0.0960
0.1326
0.0915

14.290
0.9990
1.0490
0.3191

33.730
0.0765
0.1326
0.1083

23.190
0.1828
0.2301
0.1398

M10

Notation: M1, M2. . .M10 are different samples that had been randomly selected by the software across different years for training and testing purposes. RMSE = Root Mean
Square Error, and MAE = Mean Absolute Error. Sample1 (67%/33% for training/testing); Sample2 (80%/20% for training/testing); and Sample3 (90%/10% for training/testing).

M1
Testing samples
Sample1
Good pre.
42.750
St. dev.
0.7440
RMSE
0.7618
MAE
0.1638
Sample2
Good pre.
24.100
St. dev.
0.1600
RMSE
0.2058
MAE
0.1295
Sample3
Good pre.
50.000
St. dev.
0.1240
RMSE
0.1507
MAE
0.0857
Training samples
Sample1
Good pre.
76.700
St. dev.
0.0180
RMSE
0.0204
MAE
0.0095
Sample2
Good pre.
35.330
St. dev.
0.1121
RMSE
0.1527
MAE
0.1037
Sample3
Good pre.
63.730
St. dev.
0.0446
RMSE
0.0573
MAE
0.0360

APPENDIX B: ANALYSIS OF DIFFERENT NEURAL NETWORKS SAMPLE SIZES

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Copyright 2012 John Wiley & Sons, Ltd.


5.1174*

0.4647
1.0363
0.5835

5.0139*

9.05625**
4.76192
4.29433

0.6774***
1.2866**
3.4227**

9.05625
4.76192
4.29433

2.082

30
36.27
10.29

Testing (good prediction rates) (%)

*, ** and *** denote statistically signicant difference at 10%, 5% and 1% level respectively.
The Tamhane test, which assumes unequal variances, gave different results, whilst Fishers least signicant difference test assumes equal variances.

KruskalWallis median test statistic

Tamhane testa
Sample1  Sample2
Sample1  Sample3
Sample2  Sample3

Cochrans C test
Bartletts test
Levenes test

11.2264
11.7138
22.9402**

2.940*

ANOVA F-ratio

Fishers least signicant difference test


Sample1  Sample2
Sample1  Sample3
Sample2  Sample3

30
61.84
22.53

Count
Average (mean)
Standard deviation

Training (good prediction rates) (%)

Different neural network samples

APPENDIX C: COMPARATIVE STATISTICAL EVALUATION OF DIFFERENT NEURAL NETWORKS SAMPLES BASED ON GOOD PREDICTION RATES

DETERMINANTS OF CAPITAL STRUCTURE IN UK RETAIL INDUSTRY

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DOI: 10.1002/isaf