Finance and Financial Management Commons^™

Esg Performance, Debt Equity Choices, And Rapid Adjustments In Indonesia, Arum Pujiastuti, Rizki Dini Shandra Yunita, Fitria Yuni Astuti

Jurnal Akuntansi dan Keuangan Indonesia

Previous research has explored the relationship between sustainability performance and firm performance; however, there is a noticeable scarcity of studies addressing the intricate connection between sustainability performance and firm financing. This study aims to bridge this gap by investigating how sustainability performance impacts firm financing decisions and capital structure adjustment in the context of Indonesia. Leveraging Environmental, Social, and Governance (ESG) performance data specific to Indonesia, this research contributes novelty to financing choices and the speed at which firms adjust their leverage. Through a combination of fixed-effect modelling and dynamic panel Generalized Method of Moments (GMM), the study employs a …

Unions’ Impact On Firms’ Financial Decision Making: A Look At Right-To-Work Laws And Their Impact On Firms’ Leverage Decisions, Rachana Muvvala

CMC Senior Theses

I study the impact of unions on firms’ financial decision making by exploring their capital structure, specifically leverage. I test two opposing hypotheses to understand the relationship between unions and firms’ leverage: (1) the bargaining hypothesis which suggests that firms use higher leverage as a bargaining device with unions, and (2) the crowding-out hypothesis which suggests that firms have lower leverage because unions crowd out their debt capacity due to their perceived riskiness. Focusing on the 2007 to 2022 period, I examine right-to-work (RTW) laws, since they are exogenous shocks that decrease union power in five different states. Then, I …

Analyzing The Market Cap Responsiveness To Capital Discipline Policies For Us Oil And Gas Producers, Sampath Srungarum

Financial Analyst

In this paper, the effect of specific capital discipline policies, capital structure and capital expenditures, is measured. Financial data from 2014 to 2022 are used to measure the impact of capital discipline policies on market cap. Capital structure measured through the debt-to-equity ratio and capital expenditures were both regressed against market cap to determine correlation. The regressions were sorted according to correlation strength and then grouped based off certain firm characteristics: Market cap, Resource produced, Geographical diversity, and level of integration. The results show little to no relationship between the studied characteristics and the level of market responsiveness to the …

Fire Sales, The Lolr, And Bank Runs With Continuous Asset Liquidity, Ulrich Bindseil, Edoardo Lanari

Journal of Financial Crises

Banks’ asset fire sales and recourse to central bank credit are modeled with continuous asset liquidity, allowing us to derive the liability structure of a bank. Both asset sales liquidity and the central bank collateral framework are modeled as power functions within the unit interval. Funding stability is captured as a strategic bank run game in pure strategies between depositors. Fire sale liquidity and the central bank collateral framework determine jointly the ability of the banking system to deliver maturity transformation without endangering financial stability. The model also explains why banks tend to use the least liquid eligible collateral with …

Seasoned Equity Offerings And Corporate Financial Management, Michael J. Barclay, Fangjian Fu, Clifford W. Smith

Research Collection Lee Kong Chian School Of Business

We assume executives managing corporate financial policy consider the firm's current and target leverage, investment plans, anticipated cash flows, and consequences of alternative sequences of financing transactions, operating within efficient markets. Our analysis yields time-series and cross-sectional predictions for management of investment spending and leverage; use of maturity, priority, and convertibility covenants; and management of dividends, share repurchases, cash balances, and credit lines. Our evidence from 8608 SEOs covering 1970–2015 is consistent with implications of our theory, helps to resolve an array of issues in corporate finance, and offers a step toward a more unified analysis of rational corporate financial …

The Monitoring Effects Of Debt In The U.S. Restaurant Industry, Lan Jiang, Michael Dalbor

Journal of Hospitality Financial Management

The issuance of debt is a monitoring mechanism. Whether the debt is from a private lender or is in the form of publicly traded bonds, both types of lenders expecct a return on their money (Jensen, 1986). Thus, while finding ways to increase sales is important, the control of expenses is paramount to the success of the firm and to be able to borrow more funds in the future. Using data from 111 restaurant companies is an effective monitoring agent and if it helps firm performance. Results reveal a significant relationship between a restaurant firm's expense ratio and its short-term, …

Examining Liquidity, Growth Strategy, Capital Structure, And Earnings Growth, Steven R. Posey

Walden Dissertations and Doctoral Studies

Many businesses experience financial deterioration after a growth period. Business leaders of firms with market capitalization value between $50 million and $300 million, known as microcap companies, might have an incomplete understanding of growth drivers. Grounded in the firm growth theory, the purpose of this quantitative, correlational study was to examine the relationship between liquidity, growth strategy, capital structure, and earnings growth. The population consisted of the more than 1,400 constituent firms from the 2019 Russell Microcap Index. Archival data from the Securities and Exchange Commission EDGAR database were collected, organized, and analyzed for 119 randomly selected firms. Multiple regression …

Essays On Networks And Corporate Finance, Tatiana Salikhova

Graduate Theses and Dissertations

In my dissertation I explore how personal networks affect firms’ financial decisions. In the first essay, I study how social connections among divisional managers affect the capital allocation to divisions in diversified conglomerates. In contrast to the previous studies, I focus on the horizontal connections or connections formed among managers of the same level of corporate hierarchy. I show that connections among divisional managers lead to higher sensitivity of segment capital spending to segment’s growth opportunities, higher firm-level allocation efficiency and higher firm value. Additionally, firms tend to strategically assign better-connected managers to these segments, and connections help to reduce …

Incorporating Active Adjustment Into A Financing Based Model Of Capital Structure, Neal Maroney, Wei Wang, M. Kabir Hassan

Business Faculty Publications

The conventional partial adjustment model, which focuses on leverage evolution, has difficulty identifying deliberate capital structure adjustments as it confounds financing decisions with the mechanical autocorrelation of leverage. We propose and estimate a financing-based partial adjustment model that separates the effects of financing decisions on leverage evolution from mechanical evolution. The speed of adjustment (SOA) is firm specific and stochastic, and active targeting of capital structure has a multiplier effect that depends on the size of financial deficit. Overall, we find expected SOA from active rebalancing
(30%) more than doubles what is expected from mechanical mean reversion alone (13%).

Market Imperfections, Macroeconomic Conditions, And Capital Structure Dynamics: A Cross-Country Study, Moonsoo Kang, Wei Wang, Ying Xiao

Business Faculty Publications

This paper investigates how “systematic” adjustment costs proxied by market imperfections and macroeconomic conditions affect capital structure dynamics in a cross-country setting. We document substantial variations in firms’ capital structure adjustments across countries and, particularly, over time. Consistent with adjustment costs impeding firms from rebalancing their capital structures, worse market imperfections are associated with slower speeds of adjustment (SOA) and larger leverage deviations. Intertemporally, capital structure adjustment is procyclical, with SOA increasing by 0.9 percentage point for a one-percentage-point increase in GDP growth rate. The procyclicality is attributable to good macroeconomic conditions mitigating market imperfections through channels of 1) facilitating …

Ceo’S Inside Debt And Dynamics Of Capital Structure, Eric Brisker, Wei Wang

Business Faculty Publications

Debt-type compensation (inside debt) exacerbates the divergence in risk preferences between the chief executive officer (CEO) and shareholders and, in turn, affects capital structure decisions. An excessively risk-averse CEO tends to use less debt than the shareholders desire, reduce debt
quickly when the firm is overlevered, but is reluctant to increase debt when the firm is underlevered. We find that higher CEO’s inside debt ratio (i.e., inside debt as a percentage of total incentive compensation) is associated with lower firm leverage and faster (slower) leverage adjustments toward the shareholders’ desired level for overlevered (underlevered) firms. The CEO’s inside debt ratio …

Essays On Capital Structure And Public Debt Markets, Viktoriya Staneva

Dissertations, Theses, and Capstone Projects

This dissertation consists of three chapters that examine capital structure determinants as well as the evolution of credit rating standards in the market for public debt.

Chapter 1 This chapter shows that firm fixed effects in panel leverage regressions act as a noisy proxy for managerial effects that drive persistence in leverage. Firms that do not change their CEO for prolonged periods of time are more likely to keep debt ratios within a narrow bandwidth and to display persistent differences in their time-series averages for up to 20 years. A CEO turnover is associated with considerable modifications to the financing …

Essays In Corporate Responsibility And Finance, Mert Demir

Dissertations, Theses, and Capstone Projects

This dissertation consists of three chapters:

Chapter 1: The Effects of Corporate Social Performance and Social Norms on Market Valuation of Nonfinancial Disclosures Using a novel measure of the quality of corporate social responsibility (CSR) disclosures by global companies, this paper analyzes how CSR report quality affects firm value when mediating roles of social pressure and CSR performance are considered. I find that firms operating in socially controversial industries enjoy higher valuations when they issue high-quality CSR reports. I also find that for firms with poor CSR performance, higher-quality CSR disclosure is associated with a decline in firm value, while …

Impact Of Corporate Governance On Capital Structure Of Pakistan, Irfan Haider Shakri

ECU Posters

Corporate Governance-CG is a mechanism that protects the interest of all stakeholders specially shareholders in a modern economic and corporate world that is responsible for economic growth of an economy. Capital structure is one of the weightiest decision that effects the performance of the firm. This study empirically finds how corporate governance practices impact the capital structure of the firm.

Capital Structure And Political Risk In Asia-Pacific Real Estate Markets, George D. Cashman, David M. Harrison, Michael J. Seiler

Finance Faculty Research and Publications

This study investigates the determinants of capital structure decisions by real estate firms, with a specific focus on the impact of political risk on leverage. Using a sample of Asia-Pacific REITs and listed property trusts, we find those firms with properties located in countries characterized by relatively high degrees of political risk, such as political instability, and/or greater uncertainty in the ability to repatriate and monetize profits from international investment activities, employ less debt than their counterparts operating in more politically stable environments. This core finding remains robust to alternative sample selection criteria including the division of the sample into …

The Interrelationships Between Reit Capital Structure And Investment, Jamie Alcock, Eva Steiner

Eva Steiner

Unexpected Inflation, Capital Structure And Real Risk-Adjusted Firm Performance, Jamie Alcock, Eva Steiner

Eva Steiner

Rational Financial Management: Evidence From Seasoned Equity Offerings, Michael Barclay, Fangjian Fu, Clifford Smith

Research Collection Lee Kong Chian School Of Business

Current theories of capital structure have difficulty explaining the aspects of financing behavior we document. In contrast to the tradeoff theory, seasoned equity offers frequently move firms away from their target leverage ratios. At odds with the pecking-order theory, SEO firms typically are financially healthy companies with low leverage, unused debt capacity and substantial cash balances. Inconsistent with the market-timing theory, SEOs appear to be driven by capital requirements associated with large investment projects rather than by market-timing considerations. Moreover, firms issue debt following SEOs, not only to finance investment, but to increase leverage toward its target level. Each of …

The Determinants Of Capital Structure: Evidence From Thai Banks, David E. Allen, Napaporn Nilapornkul, Robert Powell

Research outputs 2013

The aim of this study is to examine the determinants of the capital structure of Thai banks. The data spans a ten year period from 1999 – 2008. The differentiation point of this study is that, whereas most studies on capital structure focus predominantly on internal bank variables, this study, in addition to internal variables includes market-based risk variables. A range of market-based default and value at risk variables were considered which were then narrowed down to improve the model. Fixed effects panel data analysis is employed, with both market and book leverage used as dependent variables. The Thai bank …

Do U.S. Firms Fly Higher When Bypassing The U.S. Capital Markets? An Investigation Of The Short- And Long-Run Performance Of Foreign Ipos?, Robert N. Killins

Theses and Dissertations - UTB/UTPA

This dissertation studies the performance of U.S. firms that partake in a foreign IPO – bypassing their domestic exchanges and raising their equity in a foreign market. Chapter one provides an introduction and brief review of the main research questions and results. Chapter 2 provides a detailed literature review on initial public offerings-IPOs. This includes relevant studies on the long- and short-run performance of IPOs, theories for IPO underpricing and an international component of the IPO literature. Additional cross-listing literature is also reviewed to provide a more complete and balanced understanding of the international market for equity. Chapter 3 develops …

Firm Location And Corporate Debt, Matteo Arena, Michael Dewally

Finance Faculty Research and Publications

This study examines the influence of a firm’s geographical location on corporate debt and provides evidence that the higher cost of collecting information on firms distant from urban areas has significant implications on a wide array of corporate debt characteristics. We find that rural firms face higher debt yield spreads and attract smaller and less prestigious bank syndicates than urban firms. Rural firms attempt to reduce their informational disadvantage by relying more on relationship banking. Our results on the effect of location on corporate debt are robust to the inclusion of an extensive set of firm and issue characteristics.

Firm Location And Corporate Debt, Matteo P. Arena, Michaël Dewally

Matteo P. Arena

This study examines the influence of a firm’s geographical location on corporate debt and provides evidence that the higher cost of collecting information on firms distant from urban areas has significant implications on a wide array of corporate debt characteristics. We find that rural firms face higher debt yield spreads and attract smaller and less prestigious bank syndicates than urban firms. Rural firms attempt to reduce their informational disadvantage by relying more on relationship banking. Our results on the effect of location on corporate debt are robust to the inclusion of an extensive set of firm and issue characteristics.

The Effect Of Taxes On Multinational Debt Location, Matteo Arena, Andrew H. Roper

Finance Faculty Research and Publications

We provide new evidence that differences in international tax rates and tax regimes affect multinational firms' debt location decisions. Our sample contains 8287 debt issues from 2437 firms headquartered in 23 different countries with debt-issuing subsidiaries in 59 countries. We analyze firms' marginal decisions of where to issue debt to investigate the influence of a comprehensive set of tax-related effects, including differences in personal and corporate tax rates, tax credit and exemption systems, and bi-lateral cross-country withholding taxes on interest and dividend payments. Our results show that differences in personal and corporate tax rates, the presence of dividend imputation or …

External Financing: Market Timing Or Managerial Optimism, Beth Collins Hegab

Doctoral Dissertations

Management of capital structure is an important part of maximizing the firm value. Financial research has proposed many theories that explain aspects of firm behavior when a firm makes financial decisions that change the firm's capital structure. However, none of the theories fully explain why firms with similar fundamental characteristics make different financing choices.

This study focuses on what motivates managers when they are making external financing decisions. It investigated whether the motivation for the decisions about capital structure are driven by market timing or managerial overoptimism. This is done by focusing on equity and debt issues and whether these …

Illiquidity, Stock Return And Corporate Capital Structure: Evidence From Seasoned Equity Offering, Zhao Yu

Dissertations and Theses Collection (Open Access)

The post-issue underperformance of seasoned equity offering (SEO) is generally explained by asymmetric information and deteriorating operating performance. We complement these traditional explanations with a new parameter, the liquidity, which results from the change of capital structure due to equity offering. The new issuing of equity lowers the debt to asset ratio, lowers the information asymmetry, thus increasing stock liquidity, which is in accordance with the hypotheses presented by Kyle(1985)'s model; Evidence that stocks become more liquid after SEO, thus lower the expected return, resulting to underperformance, combined with the high stock illiquidity before SEO, which coincides the high return, …

Valuation And Classification Of Company Issued Cash And Share-Puts, William D. Terando, Wayne Shaw, David Smith

Scholarship and Professional Work - Business

This paper examines whether investors’ valuations of cash and share-put warrants are influenced by their potential differential effect on firm solvency. It is motivated by the enactment of SFAS 150, which requires that all contingent put warrant obligations be classified as balance sheet liabilities regardless of put type. Consistent with the critics of SFAS150, we show that market participants differentially value cash and share-puts based on their solvency characteristics beyond the firm’s recorded assets and liabilities. Our results add to existing capital structure literature by suggesting that complex financial instruments (such as cash and share-puts) be reported separately from each …

Capital Structure Dynamics And Stock Returns, Jie Cai, Zhe Zhang

Research Collection Lee Kong Chian School Of Business

Many finance theories predict that the capital structure affects firm value, which implies that the changes in leverage have an impact on stock returns. Most of the existing literature however has been focusing on the determinants of the capital structure. Using a sample of U.S. public firms during 1975-2002, we document a significantly negative effect of leverage changes on next-quarter stock returns. This effect remains significant after controlling for other firm characteristics such as ROE, book-to-market, firm size, and past returns. We propose and test several hypotheses to explain the observed effect. We find that the negative effect is stronger …