Showing papers on "Capital structure published in 2021"
TL;DR: In this paper, the authors empirically examined the relationship between firm performance and capital structure and found that the benefits of the tax shield and the lower costs of issuing debt compared to equity can explain the positive relationship between the two.
Abstract: This paper is an attempt to empirically examine the relationship between firm performance and capital structure. The study sample consists of the non-financial firms listed in Germany during the period 1993–2016. The European stock market transition to IFRS in 2005 is also considered as a shifting point that might have influenced the extent of the relationship. We observed that more than 60% of the total assets of German non-financial firms are financed through debt, i.e. they are highly levered compare to similar countries. The results confirm a positive relationship between firm performance and capital structure. We also found that IFRS adoption has led to increased firm performance of our sample, whereas it weakened the relationship between capital structure and firm performance. One plausible explanation for the positive association between capital structure and firm performance is the benefits of the tax shield and the lower costs of issuing debt compared to equity.
57 citations
TL;DR: In this article, the authors characterize equilibrium leverage dynamics in a trade-off model in which the firm can continuously adjust leverage and cannot commit to a policy ex ante, and show that shareholders are indifferent toward the debt maturity structure even though their choice significantly affects credit spreads, leverage levels, the speed of adjustment, future investment, and growth.
Abstract: We characterize equilibrium leverage dynamics in a trade‐off model in which the firm can continuously adjust leverage and cannot commit to a policy ex ante. While the leverage ratchet effect leads shareholders to issue debt gradually over time, asset growth and debt maturity cause leverage to mean‐revert slowly toward a target. Investors anticipate future debt issuance and raise credit spreads, fully offsetting the tax benefits of new debt. Shareholders are therefore indifferent toward the debt maturity structure, even though their choice significantly affects credit spreads, leverage levels, the speed of adjustment, future investment, and growth.
53 citations
TL;DR: In this paper, the inherent relationship between supply-side structural reform (SSSR) and dynamic capital structure adjustment in Chinese-listed firms was investigated, and the results showed that SSSR's introduction has significantly improved the adjustment speed toward the optimal debt ratio, especially for firms with high indebtedness and low investment performance.
Abstract: The literature extensively discusses the increasing commitment toward comprehensive structural reform of China's economy as it targets to achieve high quality and sustainable economic growth. This research investigates the inherent relationship between supply-side structural reform (SSSR) and dynamic capital structure adjustment in Chinese-listed firms. Our results show that SSSR's introduction has significantly improved the adjustment speed toward the optimal debt ratio, especially for firms with high indebtedness and low investment performance. Importantly, China's bond market plays a crucial role through SSSR for firms' debt ratio to adjust toward their optimal level. However, there is no such evidence among state-owned enterprises (SOEs), suggesting that the structural reform concerning corporate capital structure for SOEs is more challenging and longstanding when compared with non-SOEs.
50 citations
TL;DR: In this paper, the authors examine the moderating effect of corporate governance on the relationship between capital structure and firm performance, using secondary data in the form of tax returns and financial statements.
Abstract: The purpose of this study is to examine the moderating effect of corporate governance on the relationship between capital structure and firm performance. This study uses secondary data in the form ...
47 citations
TL;DR: In this article, the authors applied the set of 13 indebtedness indicators to a sample of 779 Slovak and Czech enterprises from the construction sector to determine key microeconomic determinants that may influence the level of indebtedness.
Abstract: Research background: Indebtedness indicators are used to monitor the structure of corporate financial resources. The company's share of its own and foreign resources affects the financial stability of the company. A high share of own re-sources makes the company stable, and independent. With a low share, on the contrary, the company is unstable, market fluctuations and credit uncertainty can have serious consequences. However, foreign capital is cheaper, and too high indebtedness ratios can jeopardize the existence of enterprises.
Purpose of the article: In general, the economic recession worsens the capital structure of enterprises, especially their debt management. Thus, the paper aims to apply the set of 13 indebtedness ratios to a sample of 779 Slovak and Czech enterprises from the construction sector to determine key microeconomic determinants that may influence the level of indebtedness.
Methods: A non-parametric one-way analysis of variance ? the Kruskal-Wallis test ? was used to determine whether the set of indebtedness ratios is the same across countries, districts, and sizes. For analyzing the specific sample pair of stochastic dominance, the pairwise comparison was realized using the Dunn'stest with Bonferonni correction. The Mann-Whitney test was used to compare the differences in the set of indebtedness ratios between two independent groups of enterprises, based on their legal form and country.
Findings & value added: The level of total indebtedness ratio and the self-financing ratio depends on the region as well as on the size of the enterprise and the legal form. In the case of credit indebtedness and debt-to-cash-flow indebted-ness, their dependence on the size of the enterprise and the legal form is obvious. The importance of the region and the legal form of enterprises, vice versa, affect the level of the financial independence ratio. These outputs are relevant for au-thorities, policy makers, or financial institutions to identify financial constraints that construction enterprises face and, as a result, make a long-term contribution to theory in this field.
44 citations
TL;DR: In this article, the authors examined whether the gender diversity of the board affects firms' capital structure (leverage, cost of debt, and debt maturity) and likelihood of bankruptcy and found that having a small and independent board with a high ratio of women directors reduces the likelihood of financial distress.
39 citations
TL;DR: In this article, the authors identify the costs of capital in a group of companies from the energy sector by including an investor and market risk approach, and evaluate the company's Weighted Average Cost of Capital (WACC) cost intra-industry analysis related to sector characteristics such as total assets, revenues, market capitalization, and companies' age.
Abstract: This paper aims to identify the costs of capital in a group of companies from the energy sector by including an investor and market risk approach. The study also concerns the company’s Weighted Average Cost of Capital (WACC) cost intra-industry analysis related to sector characteristics such as total assets, revenues, market capitalization, and companies’ age. In order to assess the intergroup relationships, basic correlation relationships were compared and a nonparametric test of variance was performed. The period under study covered the years 2015–2019. The conducted research evaluates groups of companies that dedicated their activity to a particular energy intra-industry division under numerous regulations in Europe. The study contributes to assessing the level of risk among energy listed companies in European capital markets based on capital structure valuation. The study results underline the role of the cost of equity financing, which was twice as high as the cost of debt. The highest WACC was related to the Beta indicator that also expressed the political and regulatory risk over the investigated period. Across debt cost analysis, the role of effective tax rate decreased the level of WACC. The highest level of WACC was noticed among uranium and integrated oil and gas companies. The study contributes to information asymmetry theory related to the cost of capital assumptions.
38 citations
TL;DR: In this article, the joint effect of capital structure and corporate social responsibility (CSR) activities on firm risk during COVID-19 was examined, and the effect was more prevalent among firms with poor CSR performance.
Abstract: COVID-19 has severely constricted the global economic activities. This paper examines the joint effect of capital structure and corporate social responsibility (CSR) activities on firm risk during COVID-19. We find that firms having excessive debt beyond the optimal level experienced high firm risk during the pandemic and the effect is more prevalent among firms with poor CSR performance. In contrast, firms with a debt level below the optimum are self-protected regardless of their CSR practices. Our study provides businesses with insights of post-pandemic directions on capital structure and CSR policies to build up sustainability and resilience in a volatile market.
35 citations
TL;DR: This paper investigated the relationship between economic policy uncertainty and corporate leverage and found that companies tend to lower their leverage ratios when policy uncertainty increases (Pan et al., 2019; Zhang et al, 2015) by using firm-level quarterly data of 163 Brazilian firms from march 2010 to march 2019.
31 citations
TL;DR: In this article, the authors explored the correlation between firm risk and capital structure using datasets from the sugar and cement sectors of Pakistan as a developing economy, and found that credit risk and liquidity risk are significantly correlated with leverage.
Abstract: The role of risk assessment and capital structure is vital for the sustainable growth of firms and increasing the shareholders’ wealth. This research explores the correlation between firm risk and capital structure using datasets from the sugar and cement sectors of Pakistan as a developing economy. This study is unique as it involved two firms of different nature (sugar firms operate seasonally while cement firms operate yearly) to view the real picture on the impact of risk and structure assessment on firms’ credibility and shareholders’ wealth. For this purpose, 15-year data (2000–2014) containing the financial statements of the target sectors were collected and the ANOVA analysis was applied with credit risk, liquidity risk, systematic risk, and firm size were used as the regressor variables, firm growth and dividend payout ratio as the control variables, and leverage as the regression variable. The findings showed that credit risk and liquidity risk are significantly correlated with leverage. This suggests that decision-makers pertaining to firms’ risk and efficiency must focus more on risk to pursue a stronger and sustainable increase in shareholder wealth.
29 citations
TL;DR: In this article, the authors examined the impact of board characteristics on the speed of adjustment and the capital structure dynamics of firms in bank-based economies using 3927 firm-year observations over a 10-year period.
Abstract: We examine the impact of board characteristics on the speed of adjustment and the capital structure dynamics of firms in bank-based economies. Using 3927 firm-year observations over a 10-year (2009–2019), we find that board characteristic influences firms' speed of adjustment in a bank-based (stakeholder-oriented) system. We also find some evidence that board characteristics have varying impacts on the capital structure of Japanese, French and German firms. We conclude that firms' capital structure reflects the corporate governance environment they operate. Our results are robust to accounting for endogeneity and alternative leverage measure.
TL;DR: In this paper, the authors examined the relationship between corporate governance and speed of adjustment (SOA) of capital structure for listed firms in Vietnam from 2000 to 2016, and found that board size, board independence, gender diversity, and managerial ownership significantly increase SOA, but CEO duality significantly decreases it.
TL;DR: In this article, the impacts of firms' performance on corporate social responsibility practices using the mediating roles of corporate governance evidence from Ethiopia's corporate business were studied using a sample of TIRET corporate companies, in the Amhara region, Ethiopia.
Abstract: In today’s globalized economy, the corporate company faces ever-increasing competitive and social pressures. This paper aims to identify the impacts of firms’ performance on corporate social responsibility practices using the mediating roles of corporate governance evidence from Ethiopia’s corporate business. The impacts of firms’ performance on CSR and corporate governance as a mediator variable were studied using a sample of TIRET corporate companies, in the Amhara region, Ethiopia. The structural equation model and multiple regression analysis were estimated and tested using 21 corporate companies. The derived model reveals how corporate governance mediates the favorable relationship between CSR and firm performance. The result indicates that a firm’s performance is the most significant influencing factor on CSR among the impacts examined in this study. Corporate governance has a positive role in serving as a legitimacy source for CSR practice. This study discusses the significance of results-based resource theory and presents the conclusion and implications. To solve the gaps in firm performance, return on asset, debts on capital structure, and governance, the corporate firms should identify unproductive enterprises and outsource non-core values. To overcome the existed inefficiency difficulties, this study proposed that corporate enterprises should be restructured, rebranded, reconsider their business models, and acquire technology-based firms. This paper contributes to CSR literature in the context of emerging economies. Firms, policymakers, and practitioners may take steps to improve CSR practice. In general, we conclude that in Ethiopia, including in the Amhara region, socially responsible corporate enterprises are more likely to be successful, and vice versa.
TL;DR: In this paper, the authors studied how oil price uncertainty affects corporate leverage, using the financial statement data of Chinese listed companies from 2007 to 2019, and showed that the relationship between oil price uncertainties and corporate leverage is nonlinear and displays a U shape.
TL;DR: In this paper, the authors explored empirically how economic policy uncertainty and firm characteristics jointly affect the capital structure decisions of US firms and found that the marginal effects of a firm's characteristics on debt ratios are not constant but change with EPU even in their signs.
TL;DR: This article showed that small innovators (i.e., small firms with recent patent grants) earn higher long-term returns and that the higher returns are driven by risk, not underreaction to announcements of patent grants.
Abstract: We show that small innovators (i.e., small firms with recent patent grants) earn higher long-term returns. The higher returns are driven by risk, not underreaction to announcements of patent grants. Our results are consistent with small innovators being risky due to their reliance on external parties for commercializing their patents. That is, being small and innovative interacts with financial constraints to explain the higher returns. These interactions are more important in the presence of greater information asymmetry. The higher cost of equity among small innovators has implications for their investment, growth, and capital structure decisions.
TL;DR: In this article, the authors examined the influence of oportunistic behaviour of management, financial distress, and capital structure to the market response of manufacturing companies which are listed in Indonesia Stock Exchange in 2014-2018 periods.
Abstract: Purpose : The study is aimed to examine the motive behind income smoothing includes oportunistic behaviour of management, financial distress, and capital structure to the market response of manufacturing companies which are listed in Indonesia Stock Exchange in 2014-2018 periods. Methodology : The sample collection technique has been done by using purposive sampling method, and based on the predetermined criteria, the total data observations are 591. The data analysis technique has been done by using path analysis with 24rd AMOS tool. Findings : Based on the result of hypothesis test, it can be concluded that financial distress has a positive effect to the income smoothing, oportunistic behaviour of management has a negative effect to the income smoothing, capital structure has no significant effect to income smoothing, oportunistic behaviour of management has a positive effect to the market response, financial distress , capital structure and income smoothing has no significant effect to the market response income smoothing cannot be intervening variable between the influence of oportunistic behaviour of management, financial distress , and capital structure to the market response Novelty : The difference between this study with another research is: 1) this study focused on the influence of oportunistic behaviour of management, financial distress, and capital structure to the one of the earnings management that most frequently used, that is income smoothing; 2 ) this research also will examine the implication of each variable to the market response.
TL;DR: This article found that capital expenditures allocated to FDI projects are significantly lower for highly leveraged firms, in particular for firms with low growth opportunities, and that firms also commit lower capital amounts to investments located in countries characterized by higher political risk.
TL;DR: In this article, the authors investigated changes in the speed of adjustment toward target leverage ratio under the impact of COVID-19 economic crisis using an international sample of publicly listed firms.
TL;DR: In this paper, the authors identify and explore factors affecting the productivity of companies in the Czech Republic with a focus on the role of firm size, firm age, indebtedness and long-term negative equity, efficiency of assets usage, liquidity, legal form, location and sector affiliation.
Abstract: The objective of the study is to identify and explore factors affecting the productivity of companies in the Czech Republic with a focus on the role of firm size, firm age, indebtedness and long-term negative equity, efficiency of assets usage, liquidity, legal form, location and sector affiliation.,The study utilizes a large unbalanced panel dataset of 91,257 firms (548,998 observations in total) covering the period 2000–2019. The dependent variable, i.e. total factor productivity (TFP), reflecting the overall firm productivity, was estimated by ordinary least squares (OLS) regression. The main findings were obtained through the estimation of two econometric models explaining the effects of factors on firm-level TFP. First, the OLS regressions together with Nomenclature of Territorial Units for Statistics (NUTS) 3 regions, year dummies and robust standard errors were estimated. Second, as a robustness check, the very same model was estimated with the random effects (RE) generalized least squares (GLS) method.,The analysis has shown a statistically significant U-shaped relationship (with the turning point of 38, resp. 36 years) between firm age and the overall TFP among the Czech enterprises. The authors provide two key findings in terms of a firm size-productivity relationship. Firms with fewer employees, often officially registered as self-employed individuals/freelancers, report higher levels of productivity. Nevertheless, when it comes to firm property (assets), the authors find a positive relationship between firm size and TFP. A high proportion of debts in the capital structure of analysed companies, or even negative equity, has been negatively associated with TFP levels.,More research is needed in the deeper exploration of sectoral and regional determinants of firm TFP, as both regional and sectoral heterogeneity were observed in the study. The authors propose the employment of a multi-level modelling approach, including a range of continuous variables and investigation of their role in shaping firm-level productivity.,Concerning the results, managers should be mindful of optimal capital structure principles due to the negative impact of a high level of debts on the productivity level. High indebtedness means high-interest payments drawing earnings off, which may be, especially in the long term, a hindrance to investments. The entrepreneurship and small- and medium-sized enterprise policies may be targeted at the soft policy actions, including advisory services and counselling on business development or risk and on the provision of financial capital allowing firms to strive for growth-oriented projects.,To the best of the authors' knowledge, this is the first attempt to provide insight into the firm-level productivity determinants, based on the large dataset covering enterprises across the whole economy over the long term, representing the structure of the country's entrepreneurial activity.
TL;DR: In this paper, the authors evaluate bankruptcy policy change similar to one recommended by the American Bankruptcy Institute that amounts to a fresh start for bankrupt firms and find that changes to the law can have sizable consequences for borrowing costs and capital structure which via selection affects productivity, as well as long run welfare.
Abstract: In this article, we ask how bankruptcy law affects the financial decisions of corporations and its implications for firm dynamics. According to current U.S. law, firms have two bankruptcy options: Chapter 7 liquidation and Chapter 11 reorganization. Using Compustat data, we first document capital structure and investment decisions of non-bankrupt, Chapter 11, and Chapter 7 firms. Using those data moments, we then estimate parameters of a general equilibrium firm dynamics model with endogenous entry and exit to include both bankruptcy options. Finally, we evaluate a bankruptcy policy change similar to one recommended by the American Bankruptcy Institute that amounts to a “fresh start” for bankrupt firms. We find that changes to the law can have sizable consequences for borrowing costs and capital structure which via selection affects productivity, as well as long run welfare.
TL;DR: In this paper, a production-based framework of misallocation measurement is extended to the liabilities side of the balance sheet and using manufacturing firm data from the United States and China, the authors find significant misallocations of debt and equity in China but not the U.S. They estimate real losses arising from the cross-sectional misallocated of financial liabilities.
Abstract: We estimate real losses arising from the cross‐sectional misallocation of financial liabilities. Extending a production‐based framework of misallocation measurement to the liabilities side of the balance sheet and using manufacturing firm data from the United States and China, we find significant misallocation of debt and equity in China but not the United States. Reallocating liabilities of firms in China to mimic U.S. efficiency would produce gains of 51% to 69% in real value‐added, with only 17% to 21% stemming from inefficient debt‐equity combinations. For Chinese firms that are large or in developed cities, we estimate lower distortionary financing costs.
TL;DR: In this paper, the impact of corporate sustainability performance (CSP) on the speed at which firms adjust their leverage ratios to the target levels for a large sample of 31 countries from 2002 to 2018 was examined.
Abstract: We examine the impact of corporate sustainability performance (CSP) on the speed at which firms adjust their leverage ratios to the target levels for a large sample of 31 countries from 2002 to 2018. Using two proxies of CSP, we find that firms with superior CSP tend to adjust faster toward their target leverage ratios. In exploring the potential underlying economic mechanisms through which CSP affects leverage adjustments, we find that better CSP helps firms to ease information asymmetry, enhance stakeholder engagement, push up stock prices in the stock market, and improve competitive advantage in the product market. In the cross section, the positive association between CSP and leverage adjustment speed is less pronounced in countries with high-quality institutions. The results remain unchanged in robustness tests. Overall, this paper highlights the important role of CSP in shaping corporate capital structure dynamics and suggests implications for corporate strategic planning on the privately optimal levels of CSP activities.
TL;DR: This paper found that geographic deregulation significantly increases both bank target capital ratios and speeds of adjustment to these targets, and identified a significant regime shift towards more active capital management, suggesting that deregulation policies may complement prudential policies, potentially improving financial stability.
Abstract: Despite ample research demonstrating many consequences of bank geographic deregulation, the bank capital determinants literature has not directly tested the effects of this deregulation. This paper fills this important research gap. We find strong evidence that geographic deregulation significantly increases both bank target capital ratios and speeds of adjustment to these targets. We also identify a significant regime shift towards more active capital management. We test for causality in several ways, including a gravity-deregulation approach with time-varying bank-specific instruments. Findings are also robust to numerous additional checks. Our results suggest that deregulation policies may complement prudential policies, potentially improving financial stability.
TL;DR: In this article, the effects of Shariah compliance on the risk and resilience of non-financial firms have been studied using a dynamic panel system and a host of firm-specific attributes, and a global sample of 2,160 firms across six geographic regions.
TL;DR: In this paper, a longitudinal sample of 1,756 Swedish startups and their use of external finance was examined, and the authors provided theoretical reasoning concerning path dependence, and explored new ventures' capital structures.
Abstract: We explore new ventures’ capital structures, providing novel theoretical reasoning concerning path dependence. We examine a longitudinal sample of 1,756 Swedish startups and their use of external f...
TL;DR: In this article, the authors analyzed the literature on capital structure theories for the last 21 years to identify the existing gaps and themes for prospective researchers in this domain and highlighted the dominance of trade-off theory to elucidate the capital structure of firms, irrespective of the status of the economy.
Abstract: The present study aims to analyse the literature on capital structure theories for the last 21 years to identify the existing gaps and themes for prospective researchers in this domain.,A sample of 183 articles published from 1999 to 2019 in the Scopus database using “capital structure theory” and “leverage” as keywords was analysed on various basis. A citation analysis was also performed to recognize impactful authors and papers.,The findings revealed that though the capital structure research studies were highly focussed on developed economies, with time, research studies in developing markets are increasing. Further, the capital structure research studies were largely conducted by considering all the industries together, whereas the focus on a particular industrial sector was meagre. Almost all the studies were empirical, thus providing scope for primary research. Various forms of regression were popular econometric techniques used in this area of late. This review highlighted the dominance of trade-off theory to elucidate the capital structure of firms, irrespective of the status of the economy. The comprehensive review uncovered the existing gaps and identified major themes evolving in the capital structure domain.,Unlike a traditional review paper, this study classifies sample articles based on several parameters and depicts a graphical presentation of the findings to cover research gaps, avenues, evolving themes, key aspects, impactful authors and their papers, etc. in the capital structure domain. It provides ready-made information available for prospective research studies in this field.
TL;DR: In this article, the authors review the empirical literature on the real effects of corporate taxation and define real effects broadly as firms' investment responses, corporate risk taking, capital structure ch...
Abstract: In this study, I review the empirical literature on the real effects of corporate taxation. I define real effects broadly as firms' investment responses, corporate risk taking, capital structure ch...
TL;DR: In this article, the authors develop a normative theory of political influence on bank lending and capital structure, and show that when politics matters more in bank regulation, the banking sector is larger and more competitive with higher capital requirements.
TL;DR: Corporate social responsibility (CSR) has emerged as an area of the topical research because of perceived concerns of the associated stakeholders as discussed by the authors, and it has attracted a lot of attention.
Abstract: Corporate social responsibility (CSR) has emerged as an area of the topical research because of perceived concerns of the associated stakeholders. Departing from the previous studies which are most...