Download or read book Essays on Capital Structure and Firm Investment written by Yiming Xu and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this thesis, I study the interactions between firms' capital structure and real decisions. First, I investigate how a firm's financial leverage will impact its investment contingent on whether future growth opportunities are anticipated. Second, I test the under and over investment hypothesis related to debt financing contingent on whether the firm is likely to under or over invest. Last, I investigate how a firm's production technology can impact its production and capital structure decisions. In Chapter 1, I investigate the impact of anticipations of future growth opportunities on leverage-investment interactions. I show that when growth opportunities are unanticipated, the negative impact of leverage on investment is up to two times larger than when they are anticipated. The presence of institutional stockholdings significantly reduces the under investment problem. An instrumental variable analysis reveals that the leverage-investment relationship is weak when the problem of endogeneity is controlled. The results provide strong evidence that Canadian firms take ex ante leverage adjustments to mitigate the debt overhang problem. Chapter 2 studies the extent to which leverage-investment interactions depend on the level of initial investment as well future investment opportunities in US firms. I find a strong negative relationship between leverage and investment for firms with low levels of (initial) investment and high investment opportunities. I also find a positive relationship between leverage and investment for firms with high levels of (initial) investment and low growth opportunities. I distinguish between Tobin's Average Q and Marginal Q as proxies for firms' investment opportunities and propose a novel method to estimate Marginal Q. Chapter 3 is a joint work with Varouj Aivazian. In this chapter, we investigate the interactions between the flexibility of a firm's production and its financial structure. This chapter shows that production flexibility is an important factor explaining the cross sectional variations in financial leverage among U.S. firms. Alternative empirical measures of production flexibility are all shown to be positively associated with financial leverage. This chapter also develops a novel measure of inter-temporal production flexibility and identifies important linkages between production and financing decisions.

Download or read book Essays on Capital Structure and Trade Financing written by Klaus Hammes and published by Department of Economics School of Economics and Commercial Law Go. This book was released on 2003 with total page 188 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 Essays in Institutional Investment and Corporate Capital Structure written by Tian Tang and published by . This book was released on 2008 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Corporate Risk and Capital Structure written by Babak Lotfaliei and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "This dissertation consists of two essays and five chapters. The first essay in chapter two addresses the zero-leverage puzzle, the observation that many firms do not issue debt and thus seem to forego sizable debt benefits. Based on the trade-off theory, a firm financed with debt saves on taxes, while it faces the debt costs associated with financial distress. Firms issue debt and net a positive gain by trading off costs and benefits. However, zero-levered firms seemingly ignore significant tax advantages associated with debt financing. I propose that this behavior is due to the value in waiting to issue debt and postponing debt costs. By considering the real option of issuing debt, small and risky firms have incentives to postpone debt issuance, even when standard trade-off theory predicts that these firms should have leverage. Thus, the value of debt-free firms should include an option component whose value is derived from future debt issuance benefits. I present a simple model for a firm's optimal issuance with optimal leverage and default, and find the factors that increase the propensity to remain zero-levered: high volatility, high debt costs, low tax levels, low payout rate, and small size. I verify the factors empirically on a sample of zero-leverage (ZL) firms by estimating a survival and a choice model and an out-of-sample test on levered firms.The second essay in chapter three provides an explanation for the underleverage puzzle by relating it to volatility risk premia. As a stylized fact, many firms have lower leverage compared to what the trade-off theory predicts, in particular based on their low asset volatility. In addition, the underleverage is the highest for Investment-Grade (IG) firms. Without volatility risk, the essay empirically documents that underleverage across firms increases with volatility risk premium at the asset level. The result is the motive to present two models with stochastic asset volatility that feature optimal capital structure. With priced asset volatility risk, the models in standard trade-off settings show that a higher premium implies lower leverage; the assets' Variance Risk Premia (VRP) reduce tax benefits and increase debt costs. Empirically, the models' calibration leaves no significant underleverage patterns in the cross-section of the firms. Thus, seemingly underleveraged firms have high asset volatility risk premia relative to their low physical asset volatility, which explains their apparent underleverage. In particular, the largest proportion of the volatility is systematic for IG firms; and, consequently, VRP are the highest. This in turn leads to a lower implied leverage, close to the IG firms' empirical leverage.Chapter four reviews the literature related to the earlier chapters. Chapter five concludes with the main findings and provides venues for the future research." --

Download or read book Essays on Capital Structure and Corporate Investment written by Alfonsina Iona and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Capital Structure and Investment written by Evan Dudley and published by . This book was released on 2008 with total page 306 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Two Essays on how Do Investors Perceive the Optimal Capital Structure and an Essay on Mutual Fund Volatility Decomposition and Manager Skill written by Nima Vafai and published by . This book was released on 2022 with total page 111 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation explores the rational investment hypothesis proposed by classical theories at the stock and portfolio (mutual fund) level. My first two essays focus on the risk associated with the composition of debt and equity at the firm level. The third essay studies the total risk at the portfolio level in the mutual fund setting.In the first essay, we examine the association between deviations from the optimal capital structure and firm-level stock returns by comparing different proxies for optimal capital structure from the literature and constructing improved industry-specific optimal capital structure measures. After comparing the performance of each measure, we use a partial adjustment model to study how firms reduce their gap from optimal leverage. In the second essay, we model firms' deviations from the optimal capital structure as a new risk factor in the cross-section of stock returns. Using Monte-Carlo simulations to conduct bootstrapped mean-variance spanning tests, we examine whether the existing Fama and French factors can explain this potential new risk factor. We also use Text Network Industry Classification (TNIC) to show whether the new risk factor is robust to alternative industry classification. In the third essay, we use a volatility decomposition to identify the underlying sources of differences in the performance of low and high-volatility mutual funds. We then examine whether the difference in performance is fund-specific and due to the manager's skill, or it is a broad characteristic of market volatility. Last, we show how the difference in the performance of low and high volatility mutual funds is related to the existence of a beta anomaly in the mutual fund industry. Furthermore, we examine the idiosyncratic volatility relation with beta and risk-adjusted return (alpha) at the fund level.

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 Corporate Control and Capital Structure written by Erik Berglöf and published by . This book was released on 1991 with total page 228 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays on the Effect of Regulations on Corporate Capital Structure Investment Performance written by Zoya Saher and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Capital Structure and Dividend Policy written by Mark Allen Taranto and published by . This book was released on 2001 with total page 238 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Corporate Finance and Financial Institutions written by Adam Kolasinski and published by . This book was released on 2006 with total page 123 pages. Available in PDF, EPUB and Kindle. Book excerpt: Chi: Subsidiary Debt, Capital Structure, and Internal Capital Markets I investigate external subsidiary debt financing and its implications for internal capital markets. I find that firms tend to finance business segments with subsidiary debt when those segments have better investment opportunities than the rest of the firm, and such debt tends to be parent-guaranteed. I also find that having such debt outstanding significantly reduces the effect of a segment's cash flow on the capital expenditures of other segments. These findings suggest that firms use subsidiary debt to protect their stronger segments from the underfunding or "poaching" problems modeled in theories of internal capital markets. In addition, I find that firms use subsidiary debt for reasons related to traditional capital structure concerns. Ch2: Is the Chinese Wall too High? I test whether new regulatory restrictions on cooperation between analysts and investment bankers adversely affect equity research coverage. Contrary to the hypothesis, I find that firms engaging in SEO's enjoy just as large an increase in analyst coverage in the post-regulatory period as they do in the pre-regulatory period.

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 Essays in Corporate Finance and International Asset Pricing written by Xiangdong Mao and published by . This book was released on 2000 with total page 260 pages. Available in PDF, EPUB and Kindle. Book excerpt:

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 Essays on Corporate Financing Behavior written by My Dieu CaoHuy and published by . This book was released on 1996 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt: