Showing papers on "Leverage (finance) published in 2021"
TL;DR: In this article, the effect of COVID-19 on U.S. restaurant firms' stock returns varies according to the firms' pre-pandemic characteristics by employing three firm-level dimensions (financial conditions, corporate strategies, and ownership structure).
162 citations
TL;DR: In this paper, the authors leverage content analysis, fixed-effects and pooled regression models to examine the effect of engaging in CSR on tech companies' corporate financial performance in the U.S. and find that companies that spend more on CSR experience a corresponding increase in revenue and profitability.
100 citations
TL;DR: In this article, the authors evaluated the effect of COVID-19 on corporate governance attributes and firm performance association using a sample of 188 non-financial firms from the Malaysian market for the years 2019-2020.
Abstract: The purpose of this study is to evaluate the effect of COVID-19 on corporate governance attributes and firm performance association This research used a sample of 188 non-financial firms from the Malaysian market for the years 2019-2020 We found that the COVID-19 has affected all firm characteristics including firm performance, governance structure, dividend, liquidity, and leverage level, yet, the difference between prior and post COVID-19 pandemic is not significant Also, the investigation revealed that board size exerts a significant positive impact on firm performance After splitting the sample based on year, however, we found that board size does not matter in the uncertain time of the current crisis, while board diversity appeared to be significantly enhancing firm performance in the crisis time compared to the prior year where it has an inverse association with firm performance in both indicators Board meetings and audit committee meetings seemed to have a significant negative influence on firm performance pre and post-COVID-19 This study contributes to the limited literature by providing the first empirical evidence on the impact of Coronavirus on the firm performance and corporate governance association © Copyright: The Author(s) This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (https://creativecommons org/licenses/by-nc/4 0/) which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited
82 citations
TL;DR: In this article, the authors examined the impact of corporate social responsibility (CSR) on the financial performance, financial inclusion, and financial stability of the banking sector, focusing on annual data for 20 Pakistani commercial banks for the period 2008-2017.
65 citations
TL;DR: This paper investigates the stock market performance from the second half of February through the latter portion of March 2020 for U.S. travel-related firms (airlines, restaurants, and hotels) in response to the COVID-19 pandemic to find that larger firms with greater cash reserves and higher market-to-book ratios experienced less negative returns, while companies with greater leverage were penalized more.
54 citations
TL;DR: Li et al. as discussed by the authors examined the effect of ownership concentration on engagement in corporate environmental responsibility (CER) in time and spatial dimensions, and found that ownership concentration has a significantly negative effect on CER.
40 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 paper, the authors construct a new systemic risk measure that quantifies vulnerability to fire-sale spillovers using detailed regulatory balance sheet data for U.S. commercial banks and repo market data for broker-dealers.
Abstract: We construct a new systemic risk measure that quantifies vulnerability to fire-sale spillovers using detailed regulatory balance sheet data for U.S. commercial banks and repo market data for broker-dealers. Even for moderate shocks in normal times, fire-sale externalities can be substantial. For commercial banks, a 1 percent exogenous shock to assets in 2013-Q1 produces fire sale externalities equal to 21 percent of system capital. For broker-dealers, a 1 percent shock to assets in August 2013 generates spillover losses equivalent to almost 60 percent of system capital. Externalities during the last financial crisis are between two and three times larger. Our systemic risk measure reaches a peak in the fall of 2007 but shows a notable increase starting in 2004, ahead of many other systemic risk indicators. Although the largest banks and broker-dealers produce – and are victims of – most of the externalities, leverage and linkages of financial institutions also play important roles.
36 citations
02 Nov 2021
TL;DR: In this article, the authors study the breadth of the borrowing and lending markets of the Ethereum DeFi ecosystem and propose an optimal strategy that allows liquidators to increase their liquidation profit, which may aggravate the loss of borrowers.
Abstract: Financial speculators often seek to increase their potential gains with leverage. Debt is a popular form of leverage, and with over 39.88B USD of total value locked (TVL), the Decentralized Finance (DeFi) lending markets are thriving. Debts, however, entail the risks of liquidation, the process of selling the debt collateral at a discount to liquidators. Nevertheless, few quantitative insights are known about the existing liquidation mechanisms. In this paper, to the best of our knowledge, we are the first to study the breadth of the borrowing and lending markets of the Ethereum DeFi ecosystem. We focus on Aave, Compound, MakerDAO, and dYdX, which collectively represent over 85% of the lending market on Ethereum. Given extensive liquidation data measurements and insights, we systematize the prevalent liquidation mechanisms and are the first to provide a methodology to compare them objectively. We find that the existing liquidation designs well incentivize liquidators but sell excessive amounts of discounted collateral at the borrowers' expenses. We measure various risks that liquidation participants are exposed to and quantify the instabilities of existing lending protocols. Moreover, we propose an optimal strategy that allows liquidators to increase their liquidation profit, which may aggravate the loss of borrowers.
33 citations
TL;DR: In this article, the authors study the breadth of the borrowing and lending markets of the Ethereum DeFi ecosystem and propose an optimal strategy that allows liquidators to increase their liquidation profit, which may aggravate the loss of borrowers.
Abstract: Financial speculators often seek to increase their potential gains with leverage. Debt is a popular form of leverage, and with over 39.88B USD of total value locked (TVL), the Decentralized Finance (DeFi) lending markets are thriving. Debts, however, entail the risks of liquidation, the process of selling the debt collateral at a discount to liquidators. Nevertheless, few quantitative insights are known about the existing liquidation mechanisms.
In this paper, to the best of our knowledge, we are the first to study the breadth of the borrowing and lending markets of the Ethereum DeFi ecosystem. We focus on Aave, Compound, MakerDAO, and dYdX, which collectively represent over 85% of the lending market on Ethereum. Given extensive liquidation data measurements and insights, we systematize the prevalent liquidation mechanisms and are the first to provide a methodology to compare them objectively. We find that the existing liquidation designs well incentivize liquidators but sell excessive amounts of discounted collateral at the borrowers' expenses. We measure various risks that liquidation participants are exposed to and quantify the instabilities of existing lending protocols. Moreover, we propose an optimal strategy that allows liquidators to increase their liquidation profit, which may aggravate the loss of borrowers.
33 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.
TL;DR: In this article, the authors investigated the likelihood of corporate insolvency and the potential implications of debt overhang of non-financial corporations induced by economic shock associated with the outbreak of COVID-19.
Abstract: This paper investigates the likelihood of corporate insolvency and the potential implications of debt overhang of non-financial corporations induced by economic shock associated with the outbreak of COVID-19. Based on simple accounting models, it evaluates the extent to which firms deplete their equity buffers and increase their leverage ratios in the course of the COVID-19 crisis. Next, relying on regression analysis and looking at the historical relationship between firms’ leverage and investment, it examines the potential impact of higher debt levels on investment during the recovery. Against this background, the discussion outlines a number of policy options to flatten the curve of crisis-related insolvencies, which could potentially affect otherwise viable firms, and to lessen the risk of debt-overhang, which could slow down the speed of recovery.
TL;DR: This article examined the daily abnormal stock price returns of a sample of 154 publicly-traded hospitality firms from 23 different countries representing over $400 billion in combined market capitalization around the time that COVID-19 was first viewed by stock market participants as a major threat.
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.
TL;DR: In this article, the authors investigated the effect of geopolitical uncertainty on the market leverage ratio, debt maturity, and choice of debt source, and found that firms tend to shorten their debt maturity structure and substitute bank debt for public debt.
TL;DR: The authors investigated the impact of economic policy uncertainty (EPU exposure on the earnings management behavior of Chinese firms and found a significantly positive relation between EPU exposure and firms' earnings management.
Abstract: We investigate the impact of economic policy uncertainty (EPU) exposure on the earnings management behaviour of Chinese firms. We find a significantly positive relation between EPU exposure and firms’ earnings management. In addition, the EPU exposure effect is more pronounced for firms with weaker external monitoring mechanisms. We also find that the financial leverage and growth rate of individual stocks have significant predictive ability for EPU exposure. When we examine the potential mechanisms linking EPU exposure to earnings management, we find that financial distress is the dominant mechanism for firms with high leverage, while it is cash flow volatility for the high‐growth firms.
TL;DR: This paper found that better access to debt markets shields firms from fluctuations in uncertainty and decreases firms' precautionary behavior, contributing to the deployment of cash and other internal resources to investment in intangible capital.
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 article, the authors examined the effect of working capital management on profitability of listed manufacturing firms in Ghana and employed a quantitative research approach within the causal research design using a balance panel of 20 manufacturing listed firms from 2015 to 2019.
Abstract: This study examines the effect of working capital management on profitability of listed manufacturing firms in Ghana.,The study employs a quantitative research approach within the causal research design using a balance panel of 20 manufacturing listed firms from 2015 to 2019.,The study reveals that inventory management, account receivables, account payables, cash conversion cycle, current asset, current ratio and firm size have positive effects on return on assets (ROA) and return on return on equity(ROE) whilst leverage affects them negatively.,The study only covers 20 manufacturing firms generally due to data unavailability. However, the outcome has useful information for manufacturing firms.,The study brings to light effective ways of improving the profitability of manufacturing firms through policies.,The findings are beneficial to manufacturing firms and countries for the purpose of improving performance of firms and welfare of the people through direct and indirect chain effects of increasing investments, remunerations and scales of production.,This study adds insights into the existing literature on working capital management namely methodology, effects of components on profitability of manufacturing firms and socioeconomic implications- evidence from Ghana.
TL;DR: In this paper, the authors clarified that digital inclusive finance positively determines the debt ratio of Chinese households through mechanism analysis and showed that digital inclusion positively affects household debt ratio in the country.
Abstract: In this article, digital inclusive finance positively determines the debt ratio of Chinese households. Through mechanism analysis, we clarify that digital inclusive finance affects household debt r...
TL;DR: In this paper, the determinants of effective tax rate (ETR) in emerging economies from a joint perspective, focusing on the BRICS (Brazil, Russia, India, China and South Africa) and MINT (Mexico, Indonesia, Nigeria and Turkey) countries were studied.
TL;DR: In this paper, the authors show that when monetary policy is expansionary, credit demand of SMEs with high leverage increases more, and that SMEs mostly use their enterprise's continuation value as collateral rather than fixed assets and real estate.
Abstract: Using administrative firm-bank-loan level data from the U.S., we document four new facts about the credit market. First, private firms’ (SMEs’) borrowing from banks comprises their entire balance sheet debt, compared to large publicly listed firms who can switch between bond markets and drawing from their credit lines. Second, SMEs borrow shorter maturity and pay higher interest rates relative to large listed firms. Third, SMEs mostly use their enterprise’s continuation value as collateral rather than fixed assets and real estate. Fourth, the relation between collateral and risk—where risk is measured by the loan spread—is positive for large listed firms but negative for SMEs. Based on these facts, we show that monetary policy transmission and risk-taking differ across SMEs and large listed firms. When monetary policy is expansionary, credit demand of SMEs with high leverage increases more. SMEs’ borrowing capacity expands more given their frequent use of earnings and operations-based collateral. We find no evidence of risk-taking by banks as they lend less to firms who defaulted before and likely to default in the future. Our results from the sample of all U.S. firms mimic those of SMEs and imply that the aggregate effects of monetary policy might depend on the size distribution of firms and the type of collateral used. Since SMEs cover 99 percent of all firms and over 50 percent of U.S. employment and output, our results also have important implications for aggregate boom-bust cycles.
TL;DR: In this article, the authors investigated whether innovation intensity, in the traditional sense, namely R&D and intangibles, and better managerial practices in the modern form, contribute to the performance of Turkish firms.
TL;DR: In this paper, the authors studied the transmission mechanisms of the effect of a set of 12 macro-prudential policies on the risk-taking of banks using a large number of countries and a novel identification approach.
TL;DR: In this article, the authors leverage the co-existing higher education contexts to shape how community college students and postsecondary personnel approach transfer from community colleges to baccalaureate-granting institutions.
Abstract: Broad higher education contexts shape how community college students and postsecondary personnel approach transfer from community colleges to baccalaureate-granting institutions. We leverage the co...
TL;DR: In this article, the authors investigated the effect of co-etition on a focal firm's environmental performance and found that a co-opetitor firms' environmental performance has a spillover effect on the environmental performance of the focal firm.
Abstract: Focal firms are struggling to improve their environmental performance for several reasons, including a scarcity of internal and external environmental resources. This study suggests that coopetition provides a boost to a focal firm’s environmental performance. In particular, this research theorizes that a coopetitor firm’s environmental performance has a spillover effect on a focal firm’s environmental performance. This study also investigates the moderating role of a focal firm’s financial slack, financial leverage, and inventory leanness on this relationship. The empirical analysis indicates that coopetitor firms’ environmental performance significantly influences a focal firm’s environmental performance. This relationship is weaker for firms with higher financial slack, and stronger for firms that have lower financial leverage and higher leanness. Collectively, these findings provide important managerial and research implications regarding the consequences of coopetition on a focal firm’s environmental performance.
TL;DR: In this article, the authors investigate how companies can utilize Twitter social media-derived sentiment as a method of generating short-term corporate value from statements based on initiated blockchain development, and find that investors were subjected to a very sophisticated form of asymmetric information designed to propel sentiment and market euphoria, that translates into increased access to leverage on the part of speculative firms.
TL;DR: This article developed a structural model of mortgage demand and lender competition to study how leverage regulation affects the U.K. mortgage market, and showed that a 1 percentage point increase in risk-weighted capital requirements increases lenders' marginal cost of originating mortgages by about 26 basis points (11%) on average.
Abstract: I develop a structural model of mortgage demand and lender competition to study how leverage regulation affects the U.K. mortgage market. Using variation in risk‐weighted capital requirements across lenders and mortgages with different loan‐to‐values (LTVs), I show that a 1‐percentage‐point increase in risk‐weighted capital requirements increases lenders' marginal cost of originating mortgages by about 26 basis points (11%) on average. I use the estimated model to study proposed leverage regulations. Counterfactual analyses show that large lenders exploit a regulatory cost advantage, which increases concentration by about 20%, and suggest that banning high‐LTV mortgages may reduce large lenders' equity buffer.
TL;DR: In this article, the role of hidden savings in optimal contracts for delegated asset management is investigated, where the principal uses the agent's access to capital to manipulate his precautionary motive and reduce the cost of providing incentives.
Abstract: We study the role of hidden savings in optimal contracts for delegated asset management. The principal uses the agent's access to capital to manipulate his precautionary motive and reduce the cost of providing incentives. After bad outcomes, the agent's consumption is somewhat insured, and he is punished instead with less access to capital and lower growth. As a result, in addition to an equity constraint, the optimal contract requires a leverage constraint to be implemented. Hidden investment limits the principal's ability to provide incentives, but doesn't change the contract's qualitative features. We provide a sufficient analytical condition for the validity of the first-order approach: if the agent's precautionary motive falls after bad outcomes, the contract is globally incentive compatible. This condition holds in the optimal contract and in a broader class of contracts.
TL;DR: In this paper, a large sample of 7246 firms across 38 economies from 2000 to 2013 was employed to investigate the relationship between foreign institutional ownership and firms' speed of leverage adjustment.