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 Essays on Corporate Capital Structure and Cash Holdings written by Cuong Manh Nguyen and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this thesis, I examine several important aspects of firms' financing processes in the G-5 countries consisting of France, Germany, Japan, the UK, and the US.First, I investigate the asymmetry in firms' partial adjustments toward their target leverage, conditional on deviations from target leverage and financing gaps. Using the system Generalized Method of Moments, I show that the asymmetry in firms' leverage adjustments are driven by differences in these factors. Firms adjust toward their target leverage faster when being over-levered and/or facing a financing deficit, a behavior in strong support of the dynamic trade-off theory of corporate leverage. Second, I examine whether firms' choices of securities enable them to close out deviations from target leverage through asymmetric, logistic models that take into account both total costs of leverage adjustments (as proposed by the trade-off theory) and costs of adverse selection (as proposed by the pecking-order theory). The results suggest that even when firms' choices of securities reflect their target adjustments as they allow them to move closer toward their target leverage, costs of adverse selection may still have some influence on these choices. Finally, I develop asymmetric, partial adjustment models to examine firms' cash holdings adjustments. Consistent with the optimal cash holdings view, I find that firms have optimal levels of cash holdings and attempt to adjust toward these over time. Further, there is asymmetry in both their speeds and mechanisms of adjustments. Firms with above-target cash holdings adjust toward their targets faster than those with below-target cash holdings as their mechanisms of adjustments may involve relatively lower costs. They adjust mainly via changes in cash flows from financing and cash flows from investing while their counterparts adjust mainly via changes in cash flows from operating. I also document some evidence on the asymmetric impact of the magnitude of deviations from target cash holdings and factors which proxy for the levels of financial constraints on firms' cash holdings adjustments and find that the impact of these proxies tends to be weaker than that of deviations from target cash holdings.

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 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 Financing Decisions written by H. Kent Baker and published by John Wiley & Sons. This book was released on 2011-03-31 with total page 504 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.

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 Systemic Banking Crises written by Luc Laeven and published by International Monetary Fund. This book was released on 2008-09 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide new firm-level evidence on the effects of capital account liberalization. Based on corporate foreign-currency credit ratings data and a novel capital account restrictions index, we find that capital controls can substantially limit access to, and raise the cost of, foreign currency debt, especially for firms without foreign currency revenues. As an identification strategy, we exploit, via a difference-in-difference approach, within-country variation in firms' access to foreign currency, measured by whether or not a firm belongs to the nontradables sector. Nontradables firms benefit substantially more from capital account liberalization than others, a finding that is robust to a broad range of alternative specifications.

Download or read book A Theory of Liquidity Investment and Credit Risk for Financially Constrained Firms written by Aaditya Iyer and published by . This book was released on 2016 with total page 85 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper builds a dynamic capital structure model of the firm with costly external financing and long term debt, and studies the joint interactions between a firm's corporate cash policy, investment policy and strategic default risk. Investment takes the form of a real option and is both costly and irreversible. Firms hold cash both as a precaution against default and costly equity issuance, as well as to fund investment. The resulting setup is tractable, delivers the prices of equity and debt in closed form, and yields a number of rich insights: (i) Optimal cash and investment policies take the form of threshold rules that are a function of firm capital stock, default risk and earnings fundamentals. (ii) A rise in strategic default risk mitigates both the incentive to hold cash and the incentive to invest. This can explain why cash holdings rose more for less levered firms while investment fell for smaller, more levered firms during the crisis. (iii) The relationship between cash and capital when investing is affected by credit risk, with the cash needed to invest falling with capital for firms close to default, and rising with capital otherwise. (iv) An increase in volatility of the real option results in increased cash holdings, lower dividends and lower equity value prior to investment - contrary to the standard growth - option literature. (v) Firms with high market-to-book ratio hold less cash than other firms when far from default, but this relationship reverses as default risk rises. (vi) Optimal cash holdings as a function of capital is U-shaped and increases close to default and when the firm invests. (vii) When external financing becomes more costly, it lowers the optimal leverage choice of firms, which is consistent with the "debt conservatism puzzle". Finally, the paper verifies that the predictions of the model are supported in the data.

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 Three Essays on Capital Structure and Corporate Cash Holdings written by Brian John Clark and published by . This book was released on 2010 with total page 380 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Capital Structure Decisions Along the Supply Chain written by Qianqian Huang and published by . This book was released on 2019 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the propagation of import competition shock along the supply chain which leads firms to alter their capital structure. We find that a large reduction in import tariffs in a customer industry induces suppliers to choose more conservative financial policies via transmission of contraction and distress risk. We show that firms lower their leverage more when they are involved in higher relationship-specific investments with their customers and when they are more concerned about distress, and that firms adjust their leverage, mainly by issuing more equity. Firms also increase their cash holdings and limit their trade credit provision.

Download or read book Payout Policy written by and published by . This book was released on 2007 with total page 83 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dividend policy continues to be among the premier unsolved puzzles in finance. A number of theories have been advanced to explain dividend policy. This e-book briefly reviews the principal theories of payout policy and dividend policy and summarizes the empirical evidence on these theories. Empirical evidence is equivocal and the search for new explanation for dividends continues.

Download or read book Cash Holdings and Debt Structure written by Paolo Colla and published by . This book was released on 2019 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We empirically examine how corporate cash holdings relate to debt structure, that is, the fraction of bond financing. We find that the relation between cash holdings and bond financing is U-shaped in the cross-section of firms. That is, firms that do not use bond financing or those that are entirely bond financed exhibit the highest cash holdings. The differential in cash holdings due to heterogeneity in bond financing is substantial and amounts up to 20% of assets. Moreover, the intensity of bond financing is also non-linearly related to market-to-book assets, firm size and leverage. We present a model of financial constraints to rationalize these patterns.

Download or read book A Note on Capital IQ s Credit Line Data written by Ani Manakyan Mathers and published by . This book was released on 2016 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical work in finance is increasingly using Capital IQ's detailed data on capital structure. We compare the Capital IQ credit line data to hand-collected data for a random sample of firms. Missing values in Capital IQ are prevalent, so the data set underreports the importance of corporate credit lines. When data is reported, Capital IQ often differs from hand-collected credit line activity. We suggest methods for correcting the errors in the Capital IQ data, note which portions of the data are most reliable, and quantify the effects of Capital IQ's underreporting by examining the tradeoff between cash and lines of credit.

Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Honor of Peter C B Phillips written by Thomas B. Fomby and published by Emerald Group Publishing. This book was released on 2014-11-21 with total page 772 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume honors Professor Peter C.B. Phillips' many contributions to the field of econometrics. The topics include non-stationary time series, panel models, financial econometrics, predictive tests, IV estimation and inference, difference-in-difference regressions, stochastic dominance techniques, and information matrix testing.

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).