Leverage And Debt Maturity
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Leverage And Debt Maturity
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Author : Eilnaz Kashefi Pour
language : en
Publisher:
Release Date : 2012
Leverage And Debt Maturity written by Eilnaz Kashefi Pour and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with categories.
This thesis aims to add empirical evidence to the corporate finance literature by looking at the financing decisions with a specific application to small companies in the context of the UK relatively highly regulated Main market, versus the lightly regulated Alternative Investment Market (AIM). I do this by gathering data on all quoted dead and alive companies in both markets from 1995 to 2008. I then split my sample firms in each market into different size groups and test my hypothesis within and across each group and each market. The thesis consists of six chapters. After an introductory chapter, I review the existing literature on capital structure and debt maturity controversies with an emphasis on recent empirical work. The next three chapters consist of three research papers. The first paper looks at the capital structure decisions of companies quoted in AIM and Main market across different size groups. In the second research paper, the maturity structure of debt is investigated in both markets. The third research paper tests the determinants of the delisting decision, particularly the effect of leverage using a sample of AIM companies. In the last chapter, I provide a summary of the main conclusions of the study and highlight some promising ideas for future research. The first empirical chapter analyses the drivers of leverage across firms' sizes and market of quotation. I find that companies that are listed on the Main market have higher leverage than those listed on AIM. My results show that AIM companies are subject to higher business risk and tend to have lower profitability and tangible assets. In addition, in both markets, small companies are different from large firms in their level of leverage, tangibility of assets, and profitability, suggesting that the drivers of the financing choice are size dependent. Interestingly, the impact of taxation is limited to only large companies in both markets. Similarly, the impact of the agency conflict is also limited to large companies, as for small firms I find a positive relationship between leverage and growth opportunities, in contrast to the predictions of the agency theory. These results suggest that size rather than market of quotation is more likely to explain firms' leverage. However, I find that the market of quotation affects their speed of adjustment toward target leverage ratios. Using the dynamic model of capital structure, I find that in the Main market, small companies adjust more rapidly than large firms, suggesting that they rely more on bank debt and thus result in lower costs of adjustment. In contrast, large firms on the AIM adjust more rapidly than small companies, suggesting that small AIM companies are subject to the highest costs of adjustment as they have the highest business risk and the lowest profitability. The second empirical paper investigates the determinants of the structure of debt maturity across firms' size groups in both markets. I find that firms quoted in the Main market use longer maturity of debt in contrast to their AIM counterparts. However, the structure of debt maturity is different between small and large companies, as small companies use shorter debt maturity. Moreover, I find that the determinants of debt maturity are relatively different across the two sets of markets, suggesting that the market of quotation, are likely to affect the structure of debt maturity. Particularly, the effect of leverage is mixed in those markets. In the Main market, companies with higher leverage use more long-term debt in contrast to those quoted in the AIM. In line with my results in the previous chapter, I find that the speed of adjustment depends on the market of quotation. Using a dynamic framework, I find that companies have a target debt maturity, but, while in the AIM large companies adjust more rapidly than small companies, I find the opposite in the Main market. I also contribute to the literature by assessing the impact of firm's life cycle on its choice of debt maturity. I use a sample of newly listed firms and assess the evolution of the maturity structure of their debt four years after their IPO. I find strong differences across the two markets. In the Main market, my empirical evidence shows that in contrast with small companies, large companies change the structure of their debt maturity significantly as they are more likely to use longer maturity of debt in the post-IPO period. While in the AIM, the structure of debt maturity is not affected by size as neither large companies nor small companies change their debt maturity significantly. In the last empirical chapter, I study the impact of leverage on the delisting decision. I address the following questions: Do firms delist from the stock market because they are unable to raise equity capital and redress their balance sheet? Previous studies state that raising equity capital is one of the main benefits of stock market quotation. I expect firms that are not likely to take advantage of this benefit to have higher listing costs and more likely to delist. I use leverage as a proxy variable and a sample of voluntary delisting from AIM. I find that delisted companies have higher leverage as they did not raise equity capital over their public life. My results suggest that companies with higher leverage are more likely to delist voluntarily. These results hold even after controlling for agency conflicts, liquidity, and asymmetric information. I also investigate how the market reacts to the delisting announcement. I find that on the announcement date, stock prices decrease significantly. However, this reaction is not consistent with previous studies that report positive excess returns for companies that go private through different forms of buyouts. The voluntary delisting does not deliver good news to the market and hence voluntary delisting leads to a decrease in stock prices. I also find that firms that increased their leverage in the year prior to the delisting decision generate significantly lower excess returns than other firms. I compare my results to firms that delisted from the AIM but moved to the Main market. I find that that these firms generate statistically higher and positive returns than the remaining firms that delisted voluntarily. My results highlight the negative impact of leverage and a lack of equity financing on firms' market valuation. My results contribute to the literature and to policy making in several ways. First, I test various controversial and new hypotheses by focussing on differences in institutional settings between the AIM and the Main market. The former is less regulated and it is more likely to attract younger, high growth, and riskier companies. These differences allow me to test various hypotheses developed in previous literature relating to the financing choices of firms. In addition, I provide a deeper analysis of the impact of size on the firms' financing choices. I focus on the differences in leverages across the two, markets, changes in maturity from the IPQ dates, and the drivers of the decision and timing from the IPQ date of companies in the UK. Unlike previous studies, I show that the theoretical determinants of leverage, such as taxation and agency costs, across firms' size groups are not homogeneous, independently of the market quotation. However, I find significant differences across the two markets in terms of dynamic changes in leverage. In addition, my results highlight the impact of leverage on the decision to delist, and imply that policy makers need to facilitate the financing of companies when they list on the market, so that the benefits of listings outweigh the costs, and firms will not rush to voluntary delisting.
Leverage Debt Maturity And Firm Investment
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Author : Viet Anh Dang
language : en
Publisher:
Release Date : 2010
Leverage Debt Maturity And Firm Investment written by Viet Anh Dang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.
In this paper, we examine the potential interactions of corporate financing and investment decisions in the presence of incentive problems. We develop a system-based approach to investigate the effects of growth opportunities on leverage and debt maturity as well as the effects of these financing decisions on firm investment. Using a panel of UK firms between 1996 and 2003, we find that high-growth firms control underinvestment incentives by reducing leverage but not by shortening debt maturity. There is a positive relation between leverage and debt maturity as predicted by the liquidity risk hypothesis. Leverage has a negative effect on firm investment levels, which is consistent with the overinvestment hypothesis regarding the disciplining role of leverage for firms with limited growth opportunities.
Debt Maturity And The Dynamics Of Leverage
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Author : Thomas Dangl
language : en
Publisher:
Release Date : 2020
Debt Maturity And The Dynamics Of Leverage written by Thomas Dangl and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020 with categories.
This paper shows that short debt maturities commit equityholders to leverage reductions when refinancing expiring debt in low-profitability states. However, shorter maturities lead to higher transactions costs since larger amounts of expiring debt need to be refinanced. We show that this tradeoff between higher expected transactions costs against the commitment to reduce leverage in low-profitability states, motivates an optimal maturity structure of corporate debt. Since firms with high costs of financial distress and risky cash flows benefit most from committing to leverage reductions, they have a stronger motive to issue short-term debt. Empirical evidence supports the model predictions.
The Covid 19 Impact On Corporate Leverage And Financial Fragility
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Author : Sharjil M. Haque
language : en
Publisher: International Monetary Fund
Release Date : 2021-11-05
The Covid 19 Impact On Corporate Leverage And Financial Fragility written by Sharjil M. Haque and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-11-05 with Business & Economics categories.
We study the impact of the COVID-19 recession on capital structure of publicly listed U.S. firms. Our estimates suggest leverage (Net Debt/Asset) decreased by 5.3 percentage points from the pre-shock mean of 19.6 percent, while debt maturity increased moderately. This de-leveraging effect is stronger for firms exposed to significant rollover risk, while firms whose businesses were most vulnerable to social distancing did not reduce leverage. We rationalize our evidence through a structural model of firm value that shows lower expected growth rate and higher volatility of cash flows following COVID-19 reduced optimal levels of corporate leverage. Model-implied optimal leverage indicates firms which did not de-lever became over-leveraged. We find default probability deteriorates most in large, over-leveraged firms and those that were stressed pre-COVID. Additional stress tests predict value of these firms will be less than one standard deviation away from default if cash flows decline by 20 percent.
Debt Maturity And The Use Of Short Term Debt
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Author : Sophia Chen
language : en
Publisher: International Monetary Fund
Release Date : 2019-02-05
Debt Maturity And The Use Of Short Term Debt written by Sophia Chen and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-02-05 with Business & Economics categories.
The maturity structure of debt can have financial and real consequences. Short-term debt exposes borrowers to rollover risk (where the terms of financing are renegotiated to the detriment of the borrower) and is associated with financial crises. Moreover, debt maturity can have an impact on the ability of firms to undertake long-term productive investments and, as a result, affect economic activity. The aim of this paper is to examine the evolution and determinants of debt maturity and to characterize differences across countries.
Debt Maturity Leverage And Political Uncertainty
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Author : Wei-Fong Pan
language : en
Publisher:
Release Date : 2019
Debt Maturity Leverage And Political Uncertainty written by Wei-Fong Pan and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
This study investigates the effects of political uncertainty (PU) on corporate debt maturity and leverage using a novel measure of firm-specific PU. We find that PU is negatively associated with debt maturity and leverage. Furthermore, the negative effects of PU on debt maturity and leverage are more pronounced for firms with greater investment reversibility and a lower credit rating. PU affects debt maturity and leverage at least five quarters into the future. Both domestic PU and global PU have effects on debt maturity and leverage. Overall, our results suggest that PU deteriorates the external financing environment, leading to firms using more short-term debt and having lower leverage.
Debt Maturity And Lumpy Debt
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Author : Thomas Geelen
language : en
Publisher:
Release Date : 2017
Debt Maturity And Lumpy Debt written by Thomas Geelen and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
I develop a dynamic capital structure model in which shareholders determine a firm's leverage ratio, debt maturity, and default strategy. In my model, the firm's debt matures all at once. Therefore, after repaying the principal shareholders own all the firm's cash flows and can pick a new capital structure. The possibility to alter the capital structure at maturity gives shareholders the incentive to issue finite maturity debt and allows me to study firms' joint choice of leverage and debt maturity. I also extend my model by allowing for time-varying capital supply to study time-variation in firms' joint choice of leverage and debt maturity.
Debt Maturity And The Dynamics Of Leverage
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Author : Thomas Dangl
language : en
Publisher:
Release Date : 2016
Debt Maturity And The Dynamics Of Leverage written by Thomas Dangl and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
Leverage And Debt Maturity Of Chinese Listed Firms
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Author : Sunitha Vijayakumaran
language : en
Publisher:
Release Date : 2016
Leverage And Debt Maturity Of Chinese Listed Firms written by Sunitha Vijayakumaran and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
Leverage Debt Maturity And Corporate Performance
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Author : Ratnam Vijayakumaran
language : en
Publisher:
Release Date : 2019
Leverage Debt Maturity And Corporate Performance written by Ratnam Vijayakumaran and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
This paper aims to examine the relationship between leverage, debt maturity and firm performance, employing a large panel of Chinese non-financial listed firms. The corporate finance literature widely recognizes that the debt and maturity structure are important mechanisms for addressing the agency problems in modern corporations. We apply the system GMM estimator to control for endogeneity concerns in the study. We find a positive association between leverage and the proportion of long term debt, on one hand, and firm performance, on the other. Our results indicate that leverage and its maturity structure are important determinants of profitability of Chinese listed firms. Our research has significant policy implications in that it suggests that, since China's financial system is dominated by a large banking system, lenders (mainly banks) may extend more long term credit to more productive private sector, which helps to improve performance of these firms. Furthermore, the findings of this study imply that the Chinese government's efforts to improve the governance of its banking system have been successful in enhancing efficiency and prudence in bank's lending and monitoring behavior.