Download or read book Levered Returns and Capital Structure Imbalances written by Filippo Ippolito and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We revisit the relation between equity returns and financial leverage through the lens of a dynamic trade-off model with costly capital structure rebalancing. The model predicts that expected equity returns depend on whether a firm's leverage is above or below its target leverage. We provide empirical evidence in support of the model predictions. Controlling for leverage, overlevered (underlevered) firms earn higher (lower) returns. A quantitative version of our model reproduces key facts about capital structure rebalancing and equity returns for U.S. corporations. Overall, our results indicate that financial flexibility crucially affects the link between leverage and equity returns.
Download or read book Levered Returns and Capital Structure Imbalances written by Filippo Ippolito and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Corporate Capital Structures in the United States written by Benjamin M. Friedman and published by University of Chicago Press. This book was released on 2009-05-15 with total page 404 pages. Available in PDF, EPUB and Kindle. Book excerpt: The research reported in this volume represents the second stage of a wide-ranging National Bureau of Economic Research effort to investigate "The Changing Role of Debt and Equity in Financing U.S. Capital Formation." The first group of studies sponsored under this project, which have been published individually and summarized in a 1982 volume bearing the same title (Friedman 1982), addressed several key issues relevant to corporate sector behavior along with such other aspects of the evolving financial underpinnings of U.S. capital formation as household saving incentives, international capital flows, and government debt management. In the project's second series of studies, presented at the National Bureau of Economic Research conference in January 1983 and published here for the first time along with commentaries from that conference, the central focus is the financial side of capital formation undertaken by the U.S. corporate business sector. At the same time, because corporations' securities must be held, a parallel focus is on the behavior of the markets that price these claims.
Download or read book Target leverage and capital structure adjustment speed across German industries written by Christian Weidinger and published by GRIN Verlag. This book was released on 2011-12-14 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2010 in the subject Economics - Finance, grade: 1.3, University of Regensburg, language: English, abstract: Since Modigliani/Miller’s famous theorem (1958) that capital structure is irrelevant for firm valuation, firms’ capital structure choice has been one of the most significant subjects in the modern finance theory. The subsequent theoretical literature has found evidence to negate the irrelevance theorem. Most empirical studies applied a static framework and are capable to explain differences in the optimal leverage ratios across firms, using observed leverage ratios as proxies for the optimal target leverage, but do not explain observed differences in firms’ leverage ratios itself. One broadly accepted reason for a firm’s deviation from their target leverage ratio is the existence of adjustment costs. In the presence of adjustment costs, firms may deviate from their target leverage and find it not cost effective to adjust their leverage ratio frequently or fully within one period, even if they recognize that their existing capital structure is not optimal. This shows the need for developing and using a dynamic approach in order to examine firms’ capital structure. The paper is organized as follows. Section 2 provides a brief overview of the three main theories of capital structure. Section 3 specifies the dynamic partial-adjustment model and describes the variables that may affect the target capital structure as well as the adjustment speed. Section 4 reports the empirical results and Section 5 concludes the paper
Download or read book Empirical Capital Structure written by Christopher Parsons and published by Now Publishers Inc. This book was released on 2009 with total page 107 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical Capital Structure reviews the empirical capital structure literature from both the cross-sectional determinants of capital structure as well as time-series changes.
Download or read book Stock Return Anomalies Industry Risk and Capital Structure written by Engin Kose and published by . This book was released on 2012 with total page 131 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation studies several topics related to the anomalous behavior of stock returns in the time series and cross section. It includes three parts. The first part investigates the relation between leverage and stock returns. First, we provide the first empirical evidence that this relation is masked by maturity: stocks with higher short-maturity debt earn significantly higher returns, but stocks with higher long-maturity debt earn lower returns. The opposite directions separated by maturity help explain why the relation between leverage and returns has been mixed. We further show that the positive short-maturity return spread is significant, persistent, and not explained by well-known risk factors (such as size or book to market). Second, we also provide the first theoretical model to explain the relation between maturity-related leverage and stock returns by endogenizing debt maturity; Firms optimally choose the maturity of their debt by trading off the cost of long term maturity with its financial risk on equity. Firms with lower credit quality find it more expensive to borrow long term, so they optimally have debt with shorter maturity. In equilibrium, firms with higher short-term debt or lower long-term debt are riskier firms and earn higher expected returns. We show that the empirical evidence we uncover can be consistent with theoretical predictions. In the second part; my co-authors, Long Chen, Ohad Kadan and I demonstrate an inconsistency of the momentum and reversal effects in explaining stock return dynamics. We argue that a two-way sorting based on long-term and recent performance can accommodate the two effects by distinguishing between fresh and stale winners and losers. Building on this idea, we propose a 'fresh momentum' strategy which invests in fresh winners and fresh losers only. This strategy generates a fresh momentum profit of 5.1\% per year even after controlling for the Carhart four-factor model (including momentum). To explain the phenomenon, we argue that investors mistakenly respond to shocks to firm fundamentals as if they are going to continue in the long run, and these mistakes are exacerbated for fresh momentum stocks, presumably generating the abnormally large returns over the short run. This hypothesis is strongly supported by evidence from earnings shocks, analyst forecast revisions, and post-earnings announcement returns. In the third part, my co-author, Long Chen and I provide one of the first papers to document extensive stock return anomalies at the industry level. We find smaller industries, industries with lower investment and industries with lower inventory changes have bigger average industry returns. Value industries have lower industry returns in contrast to higher average returns of value firms. These anomalies are robust to even controlling for known (firm-level sorted) risk factors. We further explore the relation between these anomalies and business cycles. We find consistent business cycle dynamics with the return spreads associated with these anomalies.
Download or read book Stocks Bonds and Debt Imbalance written by Massimo Massa and published by . This book was released on 2009 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study how the relative availability of bond and bank financing supply affects the firm's ability to use its leverage to buffer shocks, impacting the firm's stock and bond returns. We define a measure that proxies for the regional imbalance in the availability of bank and bond financing. We call this measure Debt quot;Imbalancequot;. It proxies for a particular type of financial constraint that is more related to the local capital market to which the firm belongs, than to the characteristics of the firm itself. We show that Imbalance tilts the financial structure towards equity, increasing SEOs and lowering leverage. Firms characterized by higher debt imbalance also act as more financially constrained. Higher imbalance increases the sensitivity of cash holdings to cash flows, reduces dividend payment and makes the firm more likely to pay equity in mergers and acquisitions. This has important price implications. Imbalance, by constraining the investment of the firm, keeps the firm's Q above its marginal value and induces the firm to select higher value investments. Firms characterized by higher Imbalance have higher stock beta and idiosyncratic volatility. However, Imbalance is not a separate source of uncertainty, but merely increases the sensitivity of the firm's stock to market and idiosyncratic shocks. The bonds of firms characterized by higher Imbalance are more subject to Treasury yield shocks. The higher the Imbalance, the more a market shock will impact the bond yield and credit spread of the firm. A natural experiment confirms our story: the downgrade of GM and Ford bonds in 2005. We show that the contagion effect of the downgrade has affected more severly the bonds that are characterized by higher Imbalance.
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 Art of Conjecturing Together with Letter to a Friend on Sets in Court Tennis written by Jacob Bernoulli and published by JHU Press. This book was released on 2006 with total page 468 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Part I reprints and reworks Huygens's On Reckoning in Games of Chance. Part II offers a thorough treatment of the mathematics of combinations and permutations, including the numbers since known as "Bernoulli numbers." In Part III, Bernoulli solves more complicated problems of games of chance using that mathematics. In the final part, Bernoulli's crowning achievement in mathematical probability becomes manifest he applies the mathematics of games of chance to the problems of epistemic probability in civil, moral, and economic matters, proving what we now know as the weak law of large numbers."
Download or read book Capital Structure Decisions written by Yamini Agarwal and published by John Wiley & Sons. This book was released on 2013-03-29 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inside the risk management and corporate governance issues behind capital structure decisions Practical ways of determining capital structures have always been mysterious and riddled with risks and uncertainties. Dynamic paradigm shifts and the multi-dimensional operations of firms further complicate the situation. Financial leaders are under constant pressure to outdo their competitors, but how to do so is not always clear. Capital Structure Decisions offers an introduction to corporate finance, and provides valuable insights into the decision-making processes that face the CEOs and CFOs of organizations in dynamic multi-objective environments. Exploring the various models and techniques used to understand the capital structure of an organization, as well as the products and means available for financing these structures, the book covers how to develop a goal programming model to enable organization leaders to make better capital structure decisions. Incorporating international case studies to explain various financial models and to illustrate ways that capital structure choices determine their success, Capital Structure Decisions looks at existing models and the development of a new goal-programming model for capital structures that is capable of handling multiple objectives, with an emphasis throughout on mitigating risk. Helps financial leaders understand corporate finance and the decision-making processes involved in understanding and developing capital structure Includes case studies from around the world that explain key financial models Emphasizes ways to minimize risk when it comes to working with capital structures There are a number of criteria that financial leaders need to consider before making any major capital investment decision. Capital Structure Decisions analyzes the various risk management and corporate governance issues to be considered by any diligent CEO/CFO before approving a project.
Download or read book Stock Return Volatility and Capital Structure Decisions written by Hui Chen and published by . This book was released on 2016 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Stock return volatility significantly predicts active leverage adjustment, consistent with the trade-off theory. Firms respond asymmetrically to rising volatility instead of falling volatility, more with debt reduction than equity issuance. The forecasting power of stock return volatility mostly resides on surprise (idiosyncratic) volatility, as a proxy for uncertainty; while the forecasting power of expected (systematic) volatility is largely subsumed by those of firm fundamentals and market information. Falling earning growth appears to be the channel through which increasing volatility predicts leverage reduction and investment contraction.
Download or read book Inequality Leverage and Crises written by Mr.Michael Kumhof and published by International Monetary Fund. This book was released on 2010-11-01 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper studies how high leverage and crises can arise as a result of changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of the rich, a large increase in leverage for the remainder, and an eventual financial and real crisis. The paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes. A financial crisis can reduce leverage if it is very large and not accompanied by a real contraction. But restoration of the lower income group's bargaining power is more effective.
Download or read book Business Environment and Firm Entry written by Leora Klapper and published by World Bank Publications. This book was released on 2004 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Using a comprehensive database of firms in Western and Eastern Europe, we study how the business environment in a country drives the creation of new firms. Our focus is on regulations governing entry. We find entry regulations hamper entry, especially in industries that naturally should have high entry. Also, value added per employee in naturally "high entry" industries grows more slowly in countries with onerous regulations on entry. Interestingly, regulatory entry barriers have no adverse effect on entry in corrupt countries, only in less corrupt ones. Taken together, the evidence suggests bureaucratic entry regulations are neither benign nor welfare improving. However, not all regulations inhibit entry. In particular, regulations that enhance the enforcement of intellectual property rights or those that lead to a better developed financial sector do lead to greater entry in industries that do more R & D or industries that need more external finance"--National Bureau of Economic Research web site.
Download or read book Financial Statement Analysis and Security Valuation written by Stephen H. Penman and published by . This book was released on 2010 with total page 754 pages. Available in PDF, EPUB and Kindle. Book excerpt: Valuation is at the heart of investing. A considerable part of the information for valuation is in the financial statements.Financial Statement Analysis and Security Valuation, 5 e by Stephen Penman shows students how to extract information from financial statements and use that data to value firms. The 5th edition shows how to handle the accounting in financial statements and use the financial statements as a lens to view a business and assess the value it generates.
Download or read book Financial Crises Explanations Types and Implications written by Mr.Stijn Claessens and published by International Monetary Fund. This book was released on 2013-01-30 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.
Download or read book Liquidity and Asset Prices written by Yakov Amihud and published by Now Publishers Inc. This book was released on 2006 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: Liquidity and Asset Prices reviews the literature that studies the relationship between liquidity and asset prices. The authors review the theoretical literature that predicts how liquidity affects a security's required return and discuss the empirical connection between the two. Liquidity and Asset Prices surveys the theory of liquidity-based asset pricing followed by the empirical evidence. The theory section proceeds from basic models with exogenous holding periods to those that incorporate additional elements of risk and endogenous holding periods. The empirical section reviews the evidence on the liquidity premium for stocks, bonds, and other financial assets.
Download or read book The Fourth Industrial Revolution written by Klaus Schwab and published by Currency. This book was released on 2017-01-03 with total page 192 pages. Available in PDF, EPUB and Kindle. Book excerpt: World-renowned economist Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, explains that we have an opportunity to shape the fourth industrial revolution, which will fundamentally alter how we live and work. Schwab argues that this revolution is different in scale, scope and complexity from any that have come before. Characterized by a range of new technologies that are fusing the physical, digital and biological worlds, the developments are affecting all disciplines, economies, industries and governments, and even challenging ideas about what it means to be human. Artificial intelligence is already all around us, from supercomputers, drones and virtual assistants to 3D printing, DNA sequencing, smart thermostats, wearable sensors and microchips smaller than a grain of sand. But this is just the beginning: nanomaterials 200 times stronger than steel and a million times thinner than a strand of hair and the first transplant of a 3D printed liver are already in development. Imagine “smart factories” in which global systems of manufacturing are coordinated virtually, or implantable mobile phones made of biosynthetic materials. The fourth industrial revolution, says Schwab, is more significant, and its ramifications more profound, than in any prior period of human history. He outlines the key technologies driving this revolution and discusses the major impacts expected on government, business, civil society and individuals. Schwab also offers bold ideas on how to harness these changes and shape a better future—one in which technology empowers people rather than replaces them; progress serves society rather than disrupts it; and in which innovators respect moral and ethical boundaries rather than cross them. We all have the opportunity to contribute to developing new frameworks that advance progress.
