Download or read book Capital Structure Cash Holdings and Firm Value written by João Caldeira and published by . This book was released on 2014 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study analyzed the relationship between capital structure, cash holdings and firm value for a sample of publicly traded Brazilian firms, using panel data regressions, employing the fixed-effects estimator. Initially, regressions between capital structure (debt to total capital) and cash holdings (cash to assets), as well as between cash holdings and short and long term debt, were estimated. Next, a model between firm value, capital structure and cash holding was employed. The results of this study suggest that debt, both short and long termed, is negatively related to cash holdings, and that the level of cash holdings is also associated to a lower leverage. The study also presented indirect evidence that financially constrained firms hold more cash. With respect to the impact of the capital structure and cash holdings in the firm value, both short and long-term debt had negative marginal effects on the market value of equity, as well as the financial constraint, suggesting a risk-averse behavior of investors with respect to debt. Cash holdings, instead, is valued as positive by investors, but up to an optimum threshold level. Further from that point, the market capitalization is discounted with respect to cash holdings (inverted U-curve), in synergy with static trade-off theory of cash holdings.

Download or read book Credit Lines Cash Holdings and Capital Structure written by G. Brandon Lockhart and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: ABSTRACT: How important are transactions costs for firm financial policies? Transactions costs play an important role in theoretical and empirical explanations of firm cash holdings and capital structure, but the extent of their economic importance is unknown. I use unique data on corporate credit lines to investigate the importance of transactions costs in the firm's leverage rebalancing and cash holding decisions. Credit lines are important for this research because they provide access to debt and liquidity with minimal ex post fixed transactions costs. I extend the capital structure literature's partial adjustment model by estimating cross-sectional adjustment speeds to target leverage based on current leverage relative to target, firm demand for liquidity, and access to a credit line. I show that the access to liquidity provided by a credit line provides economic benefit to shareholders. Specifically, I find that shareholders of financially-unconstrained firms value credit line availability and cash holdings similarly. Financially-constrained firms can increase firm value by increasing cash holdings and credit line debt by the same amount. The results provide strong evidence that transactions costs shape firm financial policy.

Download or read book The Debt equity Choice written by Ronald W. Masulis and published by . This book was released on 1988 with total page 168 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book International Corporate Governance written by Kose John and published by Emerald Group Publishing. This book was released on 2011-03-31 with total page 210 pages. Available in PDF, EPUB and Kindle. Book excerpt: Presents research on corporate governance from a number of countries across the world, including the United States, Spain, Malaysia, Israel and others. This title examines many important corporate governance mechanisms, such as board characteristics, ownership structure, legal protection of shareholders, and annual general meetings.

Download or read book Three Essays in Corporate Finance written by Yangyang Chen and published by . This book was released on 2010 with total page 143 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Does capital structure influence firms value written by Ulrike Messbacher and published by GRIN Verlag. This book was released on 2005-12-20 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essay from the year 2004 in the subject Business economics - Investment and Finance, grade: 1, University of Applied Sciences Kempten (University of Ulster), language: English, abstract: In accordance with the Signalling model by Ross (1977) an increase in gearing represents, in term of a company’s prospective cash flows, a positive signal to external investors. Because, due to the higher risk of financial distress, companies with less optimistic market prospective tend to avoid additional financial obligations. This implies that an increasing indebtedness means a higher quality of business and therefore better valuation. This leads, in turn, to the assumption that the corporate management can influence a firm’s value by changing its capital structure. If capital structure can affect value, how can firms identify an optimal capital structure and what will it look like? It is that mix of debt and equity that maximises the value of a firm and, at the same time, minimise overall cost of capital. In their seminal article, published in 1958 and 1963, Modigliani and Miller argue that under certain assumptions the value of a firm i s independent of its capital structure, but with tax-deductible interest payments, they are positively related. Moreover, there are other approaches with partly contradictory perceptions. For instance, Myers (1998, cited in Fairchild 2003, p.6) argues that there is no universal optimal mix of debt and equity; in fact it depends on firms or industries, and therefore should be considered on a case-by-case basis. Other researchers have added market imperfections, such as bankruptcy costs, agency costs, and gains from leverage- induced tax shields to the analysis and have maintained that an optimal capital structure may exist (Hatfieldet al.1994, p.1). First, this paper shows the basic determinants of a firm’s value in association with the impact of financial leverage on payoffs to stockholders. Secondly, it considers some arguments of capital structure theories, particularly the Modigliani and Miller theorem and the Traditional approach and contrasts them. Finally, the underlying factors of the model assumptions are examined and shown that they are important in the choice of a firm’s debt-equity ratio.

Download or read book The Rise in Corporate Saving and Cash Holding in Advanced Economies Aggregate and Firm Level Trends written by Mai Chi Dao and published by International Monetary Fund. This book was released on 2018-12-07 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using cross-country national accounts and firm-level data, we document a broad-based trend in rising gross saving and net lending of non-financial corporates across major industrialized countries over the last two decades, though most pronounced in countries with persistent current account surpluses. We find that this trend holds consistently across major industries, and is concentrated among large firms, driven by rising profitability, lower financing costs, and reduced tax rates. At the same time, higher gross corporate saving have not supported a commensurate increase in fixed capital investment, but instead led to a build-up of liquid financial assets (cash). The determinants of corporate cash holding and saving are also broad-based across countries, with the growth in assets of large firms, R&D intensity, and lower effective tax rates accounting for most of the increase over the last 15 years.

Download or read book Capital Structure and Corporate Governance written by Lorenzo Sasso and published by Kluwer Law International B.V.. This book was released on 2013-08-01 with total page 248 pages. Available in PDF, EPUB and Kindle. Book excerpt: Despite a clear distinction in law between equity and debt, the results of such a categorization can be misleading. The growth of financial innovation in recent decades necessitates the allocation of control and cash-flow rights in a way that diverges from the classic understanding. Some of the financial instruments issued by companies, so-called hybrid instruments, fall into a grey area between debt and equity, forcing regulators to look beyond the legal form of an instrument to its practical substance. This innovative study, by emphasizing the agency relations and the property law claims embedded in the use of such unconventional instruments, analyses and discusses the governance regulation of hybrids in a way that is primarily functional, departing from more common approaches that focus on tax advantages and internal corporate control. The author assesses the role of hybrid instruments in the modern company, unveiling the costs and benefits of issuing these securities, recognizing and categorizing the different problem fields in which hybrids play an important role, and identifying legal and contracting solutions to governance and finance problems. The full-scale analysis compares the U.K. law dealing with hybrid instruments with the corresponding law of the most relevant U.S. jurisdictions in relation to company law. The following issues, among many others, are raised: decisions under uncertainty when the risks of opportunism of the parties is very high; contract incompleteness and ex post conflicts; protection of convertible bondholders in mergers and acquisitions and in assets disposal; use of convertible bonds to reorganise and restructure a firm; timing of the conversion and the issuer’s call option; majority-minority conflict in venture capital financing; duty of loyalty; fiduciary duties to preference shareholders; and financial contract design for controlling the board’s power in exit events. Throughout, the analysis includes discussion, comparison, and evaluation of statutory provisions, existing legal standards, and strategies for protection. It is unlikely that a more thorough or informative account exists of the complex regulatory problems created by hybrid financial instruments and of the different ways in which regulatory regimes have responded to the problems they raise. Because business parties in these jurisdictions have a lot of scope and a strong incentive to contract for their rights, this book will also be of uncommon practical value to corporate counsel and financial regulators as well as to interested academics.

Download or read book The COVID 19 Impact on Corporate Leverage and Financial Fragility written by Sharjil M. Haque and published by International Monetary Fund. This book was released on 2021-11-05 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Investor Protection and Corporate Governance written by Alberto Chong and published by World Bank Publications. This book was released on 2007-06-26 with total page 584 pages. Available in PDF, EPUB and Kindle. Book excerpt: 'Investor Protection and Corporate Governance' analyzes the impact of corporate governance on firm performance and valuation. Using unique datasets gathered at the firm-level the first such data in the region and results from a homogeneous corporate governance questionnaire, the book examines corporate governance characteristics, ownership structures, dividend policies, and performance measures. The book's analysis reveals the very high levels of ownership and voting rights concentrations and monolithic governance structures in the largest samples of Latin American companies up to now, and new data emphasize the importance of specific characteristics of the investor protection regimes in several Latin American countries. By and large, those firms with better governance measures across several dimensions are granted higher valuations and thus lower cost of capital. This title will be useful to researchers, policy makers, government officials, and other professionals involved in corporate governance, economic policy, and business finance, law, and management.

Download or read book Capital Structure and Firm Performance written by Arvin Ghosh and published by Routledge. This book was released on 2017-07-05 with total page 140 pages. Available in PDF, EPUB and Kindle. Book excerpt: Capital structure theory is one of the most dynamic areas of finance and forms the basis for modern thinking on the capital structure of firms. Much controversy has resulted from comparisons of the theory of capital structure originally developed by Franco Modigliani and Merton Miller to real-world situations. Two competing theories have emerged over the years, the optimal capital structure theory and the pecking order theory.Arvin Ghosh begins with an overview of the controversies regarding capital structure theories, and then statistically tests both the optimal capital structure and pecking order theories. Using the binomial approach he analyzes the determinants of capital structure while discussing the role of market power in determining capital structure decisions. Ghosh probes the questions of new stock offerings and stockholders' returns, and analyzes capital structure and executive compensation. He then looks into debt financing ownership structure, and the controversal relationship between capital structure and firm profitability. Finally, he discusses the latest developments in the field of capital structure.A concise overview of a major issue in business economics and finance, this volume provides a fuller understanding of capital structure influence on the financial performance of firms, and will certainly stimulate further debate. While hundreds of scholarly articles have been written on the subject this is the first book to test competing theories against measurements of firms' performance and their underlying capital structure.

Download or read book Capital Structure written by Ahmed Riahi-Belkaoui and published by Praeger. This book was released on 1999-02-28 with total page 238 pages. Available in PDF, EPUB and Kindle. Book excerpt: This text uses theoretical and contingency approaches to examine the question of whether capital structure can be determined. Using a bond rating model it looks at the evaluation of capital structure, the resolution of issues pertaining to equity and liabilities, and their contribution to reports

Download or read book China s Financial System written by Franklin Allen and published by . This book was released on 2015-11-18 with total page 140 pages. Available in PDF, EPUB and Kindle. Book excerpt: Provides a review of China's financial system and compares it to other financial systems. It reviews what has worked and what has not within the markets and intermediaries in China, the effects of the recent development of China's financial system on the economy, and a non-standard financial sector operating beyond the markets and banking sectors.

Download or read book formal versus informal finance evidence from china written by Vojislav Maksimovic and published by World Bank Publications. This book was released on 2008 with total page 77 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: China is often mentioned as a counterexample to the findings in the finance and growth literature since, despite the weaknesses in its banking system, it is one of the fastest growing economies in the world. The fast growth of Chinese private sector firms is taken as evidence that it is alternative financing and governance mechanisms that support China's growth. This paper takes a closer look at firm financing patterns and growth using a database of 2,400 Chinese firms. The authors find that a relatively small percentage of firms in the sample utilize formal bank finance with a much greater reliance on informal sources. However, the results suggest that despite its weaknesses, financing from the formal financial system is associated with faster firm growth, whereas fund raising from alternative channels is not. Using a selection model, the authors find no evidence that these results arise because of the selection of firms that have access to the formal financial system. Although firms report bank corruption, there is no evidence that it significantly affects the allocation of credit or the performance of firms that receive the credit. The findings suggest that the role of reputation and relationship based financing and governance mechanisms in financing the fastest growing firms in China is likely to be overestimated.

Download or read book The Influence of Investment Volatility on Capital Structure and Cash Holdings written by Mona Yaghoubi and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "This paper studies the relationship between investment volatility, capital structure, and cash levels. Our evidence suggests: i) firms with relatively high capital expenditure volatility hold relatively high levels of both debt and cash, while firms with relatively high acquisition volatility hold relatively high levels of debt and lower levels of cash. Firms with relatively high research and development volatility hold relatively high levels of debt and are not important to determine cash levels, ii) firms fund large capital expenditures, acquisitions and research and development by increasing debt or decreasing cash, iii) immediately after funding large investments firms reduce debt levels and increase cash holdings. Overall, our results are consistent with parts, but not all, of the DeAngelo, DeAngelo and Whited (2011) model. In particular, firm investment volatility is persistent and leads to high debt levels over long periods of time. Keywords: Capital structure, cash holding and investment volatility"--Page [ii].

Download or read book Essays on Corporate Capital Structure written by Boris Albul and published by . This book was released on 2012 with total page 274 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies capital structure decisions of levered and unlevered firms using the modeling framework of Leland (1994). The first chapter, Cash Holdings and Financial Constraints, focuses on optimal management of cash holdings by equity holders of a levered, financially constrained firm. I add financial constraints as a market friction to the traditional model. A financially constrained firm is not able to issue new equity to subsidize net operating losses and is subject to premature, costly default on its straight debt. The more constrained the firm is the less equity it is able to issue and the more likely it is to default. Equity holders mitigate the effects of financial constraints by managing a costly cash account, based on retained net operating profits. In the theoretical section, I show that firms that are more financially constrained optimally hold more cash but remain more likely to default compared to their less constrained counterparts. Hence, firms with higher cash holdings are riskier, and claims on their assets should trade at a premium. In the empirical section, I find evidence of this observation in straight debt and common equity markets. Firms with higher cash holdings are observed with higher yields on debt and higher returns on equity, In the second chapter, Contingent Capital Bonds (CCBs) and Capital Structure Decisions, a joint work with Dwight Jaffee and Alexei Tchistyi, we provide a formal model of CCBs, a new instrument offering potential value as a component of corporate capital structures for all types of firms, as well as being considered for the reform of prudential bank regulation following the financial crisis of 2007-2008. CCBs are debt instruments that automatically convert to equity if and when the issuing firm reaches a specified level of financial distress. We develop closed form solutions for CCB value under three assumptions. First, the firm is allowed a tax deduction on its CCB interest payments as long as the security remains outstanding as a bond. Second, we assume that adding CCBs to a firm's capital structure has no impact on the level of the firm's asset holdings. Third, we require that the CCB conversion to equity occurs at a time prior to any possible default by the firm on its straight debt. The key contribution of our work is that we provide a formal financial model in which the effects of alternative CCB contract provisions can be analytically evaluated. We show that a firm will always gain from including CCB in its capital structure as a result of the tax shield benefit. A firm creating a de novo capital structure, assuming it faces the regulatory constraint that the CCB can only replace a part of what would have been the optimal amount of straight debt, will always issue at least a small amount of CCB. The reduction in expected bankruptcy costs ensures a net gain, even if the tax shield benefits are reduced. We show that a firm will never add CCB to an existing capital structure, assuming that it faces the regulatory constraint that the CCB can only be introduced as part of a swap for a part of the outstanding straight debt. While the swap may increase the firm's value - the value of reduced bankruptcy costs may exceed any loss of tax shield benefits - the gain accrues only to the holders of the existing straight debt. As in a classic debt overhang problem, equity holders will not act to enhance the overall firm value. We show that for a Too-Big-To-Fail firm, for which the straight debt is risk free because the bond holders correctly assume they will protected from any potential insolvency, under a regulatory limitation on the amount of debt such a firm may issue, a CCB for straight debt swap reduces the value of the government subsidy by reducing the expected cost of bondholder bailouts. While this has a taxpayer benefit, the equity holders of such a firm would not voluntarily participate in such a swap. We demonstrate that CCBs create an incentive for market manipulation. CCB holders may have an incentive to manipulate the stock price to a lower value if the amount of equity they receive at conversion is sufficiently high. Equity holders may have an incentive to manipulate the stock price down if the amount of equity they give up at conversion is sufficiently low. We summarize, that the regulatory benefits of CCB issuance with respect to bank safety will generally depend on the CCB contract and issuance terms. Perhaps most importantly, the regulatory benefits vanish if banks simply substitute CCBs for capital, leaving the amount of straight debt unchanged. It is thus essential to require CCB issuance to substitute for straight debt (and not for equity).

Download or read book Capital Structure and Corporate Financing Decisions written by H. Kent Baker and published by John Wiley & Sons. This book was released on 2011-05-03 with total page 516 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive guide to making better capital structure and corporate financing decisions in today's dynamic business environment Given the dramatic changes that have recently occurred in the economy, the topic of capital structure and corporate financing decisions is critically important. The fact is that firms need to constantly revisit their portfolio of debt, equity, and hybrid securities to finance assets, operations, and future growth. Capital Structure and Corporate Financing Decisions provides an in-depth examination of critical capital structure topics, including discussions of basic capital structure components, key theories and practices, and practical application in an increasingly complex corporate world. Throughout, the book emphasizes how a sound capital structure simultaneously minimizes the firm's cost of capital and maximizes the value to shareholders. Offers a strategic focus that allows you to understand how financing decisions relates to a firm's overall corporate policy Consists of contributed chapters from both academics and experienced professionals, offering a variety of perspectives and a rich interplay of ideas Contains information from survey research describing actual financial practices of firms This valuable resource takes a practical approach to capital structure by discussing why various theories make sense and how firms use them to solve problems and create wealth. In the wake of the recent financial crisis, the insights found here are essential to excelling in today's volatile business environment.