Leverage Debt Maturity And Firm Investment
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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.
The Effects Of Business Cycle And Debt Maturity On A Firm S Investment And Default Decisions
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Author : Haejun Jeon
language : en
Publisher:
Release Date : 2017
The Effects Of Business Cycle And Debt Maturity On A Firm S Investment And Default Decisions written by Haejun Jeon 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.
We propose a model that jointly determines the capital structure and investment decisions taking business cycle and debt maturity into account. Namely, the firm can switch the diffusion regime of asset value, which involves switching costs, and the state of the economy that generates cyclical cash flow switches via Markov chain. We endogenously determine the triggers of investment, disinvestment, and default, which depend on the state of the economy. The level of investment triggers can be unimodal or bimodal with respect to debt maturity depending on the volatility of growth opportunities, and the sensitivity also dffers depending on the reversibility of the investment. The optimal leverage ratio is countercyclical, and the gap between the leverage ratio in each state widens as the volatility of growth opportunity increases. In terms of the effects of persistence of the business cycle, the optimal leverage ratio tends to increase as recession shortens, which induces higher yield spreads for short-term debt; but long-term debt is more affected by increase of expected cash flow, and thus the yield spreads decrease.
The Maturity Structure Of Debt
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Author : Fabio Schiantarelli
language : en
Publisher: World Bank Publications
Release Date : 1997
The Maturity Structure Of Debt written by Fabio Schiantarelli and has been published by World Bank Publications this book supported file pdf, txt, epub, kindle and other format this book has been release on 1997 with Corporate debt categories.
The Maturity Structure Of Debt Determinants And Effects On Firms Performance Evidence From The United Kingdom And Italy
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Author : Fabio Schiantarelli
language : en
Publisher:
Release Date : 1999
The Maturity Structure Of Debt Determinants And Effects On Firms Performance Evidence From The United Kingdom And Italy written by Fabio Schiantarelli and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with categories.
January 1997 Firms tend to match assets with liabilities, and more profitable firms have more long-term debt. Long-term debt has a positive effect on firms' performance, but this is not true when a large fraction of that debt is subsidized. The authors empirically investigate the determinants and consequences of the maturity structure of debt, using data from a panel of UK and Italian firms. They find that in choosing a maturity structure for debt, firms tend to match assets and liabilities, as both conventional wisdom and some recent theoretical models suggest. They conclude that more profitable firms (as measured by the ratio of cash flow to capital) tend to have more long-term debt. This finding is consistent with the dominant role played by firms' fear of liquidation and loss of control associated with short-term debt. It may also reflect the willingness of financial markets to provide long-term finance only to quality firms. The data do not support the hypothesis that short-term debt, through better monitoring and control, boosts efficiency and growth -rather, the opposite can be concluded. In both countries, the data suggest a positive relationship between initial debt maturity and the firms' subsequent medium-term performance (i.e., profitability and growth in real sales). In both countries total factor productivity (TFP) depends positively on the length of debt maturity when the maturity variable is entered both contemporaneously and lagged. But in Italy the positive effect of the length of maturity on productivity is substantially reduced or even reversed when the proportion of subsidized credit increases. The authors document the relationship between firms' characteristics and their choice of shorter or long-term debt by estimating a maturity equation and interpreting the results in light of insights from theoretical literature, and by analyzing the effects of maturity on firms' later performance in terms of profitability, growth, and productivity; assess how TFP depends on the degree of leverage and the proportion of longer and shorter-term debt; and analyze the relationship between firms' debt maturity and investment. This paper--a product of the Finance and Private Sector Development Division, Policy Research Department--is part of a larger effort in the department to study the effects of financial structure on economic performance. The study was funded by the Bank's Research Support Budget under the research project Term Finance: Theory and Evidence (RPO 679-62).
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.
Financing And Debt Maturity Choices By Undiversified Owner Managers
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Author : Jinyi Fu
language : en
Publisher:
Release Date : 2006
Financing And Debt Maturity Choices By Undiversified Owner Managers written by Jinyi Fu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with Corporations categories.
We examine the financing choices of undiversified large shareholders or owner-managers in a continuous time structural model with rational expectations. The interplay between the objective of the undiversified, self-interested owner-manager who controls the firm and the valuation of the firms marketed claims by well-diversified outside investors, has a major impact on leverage and debt maturity choices as well as credit spreads. The effect of this interplay is particularly significant in a world where the representative investor (who determines asset prices in the economy) is risk-averse leading to nonzero market prices of systematic risk and risk premia of the firms investment opportunities. In a perfect information framework with no taxes or bankruptcy costs, we show that, the owner-manager could, depending on the projects characteristics, finance them exclusively with debt, exclusively with equity, or with a combination of equity and debt. Ceteris paribus, leverage increases with the expected growth rate of firm value under its investment opportunities, and decreases with its volatility. Debt maturity varies non-monotonically in a U-shaped manner with the expected growth rate, and decreases with the volatility. Our results reconcile empirical evidence on the variation of financing choices with firm characteristics that is not completely consistent with previous theories. The significant impact of the expected returns (therefore, risk premia) of firms investment opportunities on their leverage ratios, debt maturities, and credit spreads are important implications of our theory that cannot be obtained in these models or in models in which all agents are risk-neutral so that risk premia are zero. We empirically test the implications of our theory for the relationships among firms financing and debt maturity choices and the expected growth rate and volatility of their asset values. Controlling for all the significant determinants of firms financing and debt maturity choices identified by earlier studies, we show significant empirical support for our predictions.
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.
The Joint Determination Of Leverage And Maturity
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Author : Michael J. Barclay
language : en
Publisher:
Release Date : 2001
The Joint Determination Of Leverage And Maturity written by Michael J. Barclay and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2001 with categories.
We examine theories of leverage and debt maturity, focusing on the impact of a firm's investment opportunity set and regulatory environment in determining these policies. Using results on strategic complementarities, we identify sufficient conditions for the theory to have testable implications for reduced-form and structural-equation regression coefficients. Obtaining testable implications for structural-equation regression coefficients requires less from the theory but more from the data than the reduced-form specification since it requires an instrumental-variables approach. Thus, we highlight tradeoffs between theory and statistical methods. We provide tests using two decades of data for over 5,000 industrial firms.
Debt Maturity And Corporate Capital Structure
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Author : Don Hamson
language : en
Publisher:
Release Date : 1990
Debt Maturity And Corporate Capital Structure written by Don Hamson and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1990 with Capital 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.