Topic
Leverage (finance)
About: Leverage (finance) is a research topic. Over the lifetime, 11860 publications have been published within this topic receiving 321286 citations. The topic is also known as: gearing.
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TL;DR: In this article, the authors hypothesize that private company financial reporting nevertheless is of lower quality due to different market demand, regulation notwithstanding, and a large UK sample supports this hypothesis, using Basu's (1997) measure of timely loss recognition and a new accruals-based method.
2,183 citations
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TL;DR: This paper studied the behavior of money, credit, and macroeconomic indicators over the long run based on a newly constructed historical dataset for 12 developed countries over the years 1870-2008, utilizing the data to study rare events associated with financial crisis episodes.
Abstract: The crisis of 2008-09 has focused attention on money and credit fluctuations, financial crises, and policy responses. In this paper we study the behavior of money, credit, and macroeconomic indicators over the long run based on a newly constructed historical dataset for 12 developed countries over the years 1870-2008, utilizing the data to study rare events associated with financial crisis episodes. We present new evidence that leverage in the financial sector has increased strongly in the second half of the twentieth century as shown by a decoupling of money and credit aggregates, and we also find a decline in safe assets on banks' balance sheets. We also show for the first time how monetary policy responses to financial crises have been more aggressive post-1945, but how despite these policies the output costs of crises have remained large. Importantly, we can also show that credit growth is a powerful predictor of financial crises, suggesting that such crises are
2,021 citations
TL;DR: In a financial system in which balance sheets are continuously marked to market, asset price changes appear immediately as changes in net worth, eliciting responses from financial intermediaries who adjust the size of their balance sheets as mentioned in this paper.
Abstract: In a financial system in which balance sheets are continuously marked to market, asset price changes appear immediately as changes in net worth, eliciting responses from financial intermediaries who adjust the size of their balance sheets. We document evidence that marked-to-market leverage is strongly procyclical. Such behavior has aggregate consequences. Changes in dealer repos—the primary margin of adjustment for the aggregate balance sheets of intermediaries—forecast changes in financial market risk as measured by the innovations in the Chicago Board Options Exchange Volatility Index (VIX). Aggregate liquidity can be seen as the rate of change of the aggregate balance sheet of the financial intermediaries.
1,950 citations
TL;DR: In this paper, the authors test the pecking order theory of corporate leverage on a broad cross-section of publicly traded American firms for 1971 to 1998 and find that net equity issues track the financing deficit more closely than do net debt issues.
1,783 citations
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TL;DR: The authors empirically analyzes the determinants of an initial public offering (IPO) and the consequences of this decision on a company's investment and financial policy, finding that IPOs are followed by an abnormal reduction in profitability, the new equity capital raised upon listing is not used to finance subsequent investment and growth, but to reduce leverage.
Abstract: This paper empirically analyzes the determinants of an initial public offering (IPO) and the consequences of this decision on a company's investment and financial policy. We compare both the ex ante and the ex post characteristics of IPOs with those of a large sample of privately held companies of similar size. We find that (i) the likelihood of an IPO is positively related to the market-to-book ratio prevailing in the relevant industrial sector and to a company's size, (ii) IPOs are followed by an abnormal reduction in profitability, (iii) the new equity capital raised upon listing is not used to finance subsequent investment and growth, but to reduce leverage, (iv) going public reduces the cost of bank credit; (v) it is often associated by equity sales by controlling shareholders, and is followed by a higher turnover of control than for other companies.
1,632 citations