Corporate financial soundness and its impact on firm performance: implications for corporate debt restructuring in Slovenia

This article studies the extent of corporate leverage and range of excessive debt of Slovenian firms during the recent financial crisis. Half of all firms (of those with some non-zero debt and at least one employee) are found to face an unsustainable debt-to-EBITDA leverage ratio beyond 4, accounting for almost 80% of total outstanding debt. Moreover, a good quarter of all firms experience debt-to-EBITDA ratios exceeding 10 and hold almost half of total aggregate net debt. We then examine how this financial distress affects firm performance in terms of productivity, employment, exports, investment and survival. We find that, while less important during the good times (pre-recession period), lack of firms’ financial soundness during the period of financial distress becomes a critical factor constraining firm performance. The extent of financial leverage and ability to service the outstanding debt are shown to inhibit firms’ productivity growth as well as the dynamics of exports, employment and investment. Micro and small firms are found to suffer relatively more than larger firms from high leverage in terms of export and employment performance during the recession period.     

债务杠杆与企业投资:双重预算软约束视角

文章以我国2000~2004年的上市公司为样本,在政府、银行和企业三方的预算软约束框架内实证检验了企业投资支出和债务杠杆之间的关系。研究发现,企业投资支出整体上同债务杠杆呈负相关。但在国有绝对控股的上市公司中,企业投资支出对于负债水平不敏感,并且,随着国有股权比例的上升,企业投资支出对债务杠杆的敏感度逐渐下降。基于此,文章认为,政府对国有企业和国有商业银行同时实施的双重预算软约束是导致国有企业投资行为扭曲和债务治理机制失效的重要原因。     

Corruption and corporate leverage in an emerging economy: The role of economic freedom

This study investigated the effects of corruption and economic freedom on corporate leverage. We also evaluated how economic freedom shapes the effect of corruption on corporate leverage. Using a sample of Vietnamese firms covering a nine-year period from 2010 to 2018, we find evidence that increased control of corruption has a significant positive impact on firm leverage, whereas the opposite is true for economic freedom. This effect is robust to alternative measures of control of corruption as well as advanced estimation methods, such as firm-fixed effects and quantile regressions. Our results also reveal that the positive impact of corruption controls on corporate leverage is more pronounced for firms with high economic freedom. Econometrically, our findings indicate that firms with better control over corruption prefer debt financing, as demonstrated by their higher leverage ratio.     

Social Security Reform and Corporate Governance

Abstract

This paper considers implementation issues arising from potential reforms to the United States Social Security system. Many reform proposals involve individually invested accounts, but the corporate governance implications of such accounts have not been fully explored. Existing reform plans will result in a large fraction of votes being concentrated at one private fund manager. The implications for corporate governance and debt management under alternative fund management strategies are evaluated. The use of futures to construct synthetic investments could alleviate corporate governance and debt management problems.     

家族创始人职业经历与企业财务保守行为研究

基于创始人自身特征的异质性,文章研究了家族创始人职业经历与企业财务保守行为的关系。研究发现,与家族创始人具有企业部门职业经历的企业相比,创始人具有公共部门职业经历的企业财务杠杆更低,短期借款占比更小,现金持有更多,且连续三年采用低杠杆的可能性更高。进一步地,企业所处行业的产品市场不确定性越高,家族创始人公共部门职业经历与企业财务保守行为的正相关关系越强。此外,家族创始人具有公共部门职业经历的企业会计及市场业绩均更好。研究表明,家族创始人具有公共部门职业经历的企业财务决策更为保守,原因在于这类家族创始人的风险厌恶程度较高,使企业更易形成相对保守的文化氛围。文章从创始人职业经历异质性的角度发展了家族企业财务保守成因的研究,以及管理者个人特征与企业财务决策关系的研究,同时有助于投资者识别企业财务风险。     

The impact of corporate debt on long term investment and firm performance

Prior research indicates a linkage between debt, research and development (R&D) and physical investment, and that the relationship varies depending on the type of firm (science versus non–science). Leverage also plays a multidimensional role in corporate performance and growth. The relationship between financial leverage and R&D expenditure is analysed using a sample of large United States (US) manufacturing firms. Then, the impact of leverage on R&D expenditure is studied using corporate performance drivers as intermediate variables. The results indicate that there is a strong negative relationship between the degree of financial leverage and the level of R&D expenditure that firms undertake. The negative relationship is robust to changes in model specifications and sample periods. More importantly, the results show that it is higher leverage that leads to lower R&D expense rather than R&D causing variations in future leverage. In addition, the results indicate that higher leverage adversely influences future investment in R&D which may in turn lead to negative impact on long term operating performance and future growth opportunities.     

The effects of China’s split-share reform on firms’ capital structure choice

China’s split-share structure reform in 2005–2006 mitigates agency conflicts between controlling shareholders and minority shareholders and thus may bring substantial changes to corporate financing behaviour. This article examines the impact of that reform on the capital structure decisions of firms by applying a variety of trade-off and pecking-order models. Using data from 1176 non-financial Chinese listed firms during the period 2000–2012, we present empirical evidence indicating that equity tracks the financing deficit better than debt in Chinese firms, a finding which is not consistent with pecking-order theory. This phenomenon is more prominent after 2006 as share reform increases trading activity in the secondary stock market and improves the transparency of financial markets. In addition, Chinese firms have an optimal leverage ratio and they adjust below-target leverage ratios faster than above-target leverage ratios after the implementation of share structure reform, although they make symmetric adjustments towards the target leverage ratio before 2007. Finally, recent share reform has prompted Chinese firms to more quickly address the divergence of actual leverage ratios from long-term target levels, but has slowed their response to short-term target leverage divergence.     

The role of corporate governance strength in crisis and non-crisis times

This study evaluates corporate governance practices of listed firms in the United Arab Emirates and investigates whether corporate governance mitigates/exacerbates the impact of leverage and risk on firm performance during crisis and non-crisis times. The study constructs a corporate governance index not only to examine the dispute of the role of corporate governance during the crisis but also its influence on other factors that fuelled the crisis. A firm-level panel data is used that spans the period 2008–2012 of all listed firms on Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM). The study finds a positive influence of corporate governance strength on the accounting performance, but a negative influence on the firms’ economic performance. In normal times, corporate governance mitigates the negative influence of leverage and risk on the accounting and economic firm performance. However, this synergy effect varies across performance indicators during crisis.     

Corporate leverage and the terms of employment: evidence from French small businesses before and during the global crisis

Despite the particular importance of corporate leverage and human capital for small businesses, little is surprisingly known about the relationship between these two factors for this category of firms. Accordingly, this article tries to fill this gap by investigating the relationship between leverage and human capital examined through the investment in employee-related expenditure. The analysis focuses on a sample of French listed small businesses before and during the recent global crisis. The empirical findings show that leverage serves as a monitoring mechanism of corporate managers prone to over or underinvest in employee-related expenditure to obtain private benefits. Due notably to the availability of debt, this monitoring is more effective before the crisis period, especially for low growth firms. Overall, these results provide support to the theory that leverage has a disciplining role. Simultaneously, they lead to moderate the strength of this role according to the global crisis. Thus, they should provide useful insights for academics, regulators, managers and credit institutions.     

Debt and corporate governance in emerging economiesEvidence from India1

We analyze the role of debt in corporate governance with respect to a large emerging economy, India, where debt has been an important source of external finance. Using cross‐sectional data on listed manufacturing firms we estimate, simultaneously, the relation between Tobin's Q and leverage for three years, 1996, 2000 and 2003. Our analysis indicates that while in the early years of institutional change, debt did not have any disciplinary effect on either standalone or group affiliated firms, the disciplinary effect appeared in the later years as institutions became more market oriented. We also find limited evidence of debt being used as an expropriation mechanism in group firms that are more vulnerable to such expropriation. In general, our results highlight the role of ownership structures and institutions in debt governance.     

Market timing and corporate capital structure: a transatlantic comparison

This article provides comparative international evidence on the effect of market timing on corporate capital structures using panel data for US, UK and continental European firms. We document that the empirical regularity found for US firms, that historical market-to-book ratios and corporate leverage correlate negatively does not extend to UK and continental European firms. The latter tend to raise debt rather than equity when stock prices are high, thus sticking more closely to a pecking order in which debt is preferred over external equity.     

Capital structure in South Korea: a quantile regression approach

Knowledge of how South Korean firms choose their capital structures has particular value due to the country's specific corporate structure and the role of leverage in the evolution of its financial crisis of 1997 and recovery. Using a large panel for the years 1992–2001, we investigate the evolution and determinants of Korean firms' capital structure and focus on differences between firms in different quantiles of the debt–capital distribution. Conditional quantile regressions show that while variables associated with standard models of asymmetric information costs are significant throughout the distribution, there are considerable differences, including differences in sign, in their impact on firms with different degrees of leverage. Those observed nonlinearities in the determinants of capital structure are consistent with a model of capital structure that includes both costs resulting from asymmetric information and an upper bound on the debt–capital ratio.     

Distress cost and corporate financing policy: evidence from the equity options market

This study examines the link between distress cost and corporate financing policy through the lens of the equity options market. Four features stand out. First, the cost of distress is comparable to the tax shield from debt financing. Second, the results provide evidence that ordinary least-squares estimates understate the impact of market leverage on default risk. Third, consistent with the information models of debt maturity, firms with higher default probability use more long-term debt. Finally, more distressed firms rely on secured debt to a greater extent. Overall, the results support the trade-off theory of capital structure.     

机构投资者"分心"与公司杠杆操纵

本文以机构投资者在其投资组合中注意力分配差异而产生的不同“分心”程度作为识别监督外在变化的手段,验证了其对企业杠杆操纵的重要影响。研究发现,上市公司会趁机构投资者“分心”而监督弱化时实施更多杠杆操纵行为,经稳健性检验后该结论依然成立。影响机制分析发现,机构投资者“分心”通过弱化其监督治理效应、降低公司股价信息含量进一步加剧企业杠杆操纵现象,使得企业得以隐藏真实杠杆水平,误导债权人以更低的资本成本借出资金,但也为企业的未来埋下隐患,致使企业潜在债务违约风险与财务风险增大。此外,在机构投资者“分心”加剧企业杠杆操纵的关系中,“去杠杆”政策实施和去杠杆压力发挥了正向调节作用。本文丰富了机构投资者“分心”经济后果研究,也为监管部门强化对企业监管提供了重要启示。     

Do cash flow imbalances facilitate leverage adjustments of Chinese listed firms? Evidence from a dynamic panel threshold model

This paper investigates the asymmetric impact of cash flow on firms’ leverage adjustments. We use a dynamic panel threshold model and estimate it with a newly-developed first-difference GMM approach, which allows endogeneity in both threshold variable and regressors. Employing data of 1054 Chinese listed firms during 2004–2016, we show that Chinese listed firms have leverage targets, towards which they adjust at an average speed of 25.9%. Moreover, firms with larger absolute cash flow adjust towards their leverage targets significantly faster than those with smaller absolute cash flow. This finding is robust to a post-financial crisis sample period, alternative measures of leverage and cash flow, and the incorporation of an additional control variable. We find evidence that cash flow imbalances facilitate leverage adjustments by reducing adjustment costs, and Chinese listed firms rely more on debt issues. These findings provide new insights on firms’ leverage adjustment and cash flow management.     

Corporate taxation, debt financing and foreign-plant ownership

This paper compares domestically and foreign-owned plants with respect to their debt-to-assets ratio and analyzes to which extent the difference is systematically affected by corporate taxation. To derive hypotheses about influence of corporate taxation on a firm's debt financing we adapt a standard model of taxation and financing decisions of firms for the case of international debt shifting activities of foreign-owned firms. We estimate the average difference between a foreign-owned and a domestically owned firm's debt ratio, treating the mode of ownership as endogenous. Using data from 32,067 European firms, we find that foreign-owned firms on average exhibit a significantly higher debt ratio than their domestically owned counterparts in the host country. Moreover, this gap in the debt ratio increases with the host country's statutory corporate tax rate.     

The dynamic adjustment towards target capital structures of firms in transition economies*

We examine the capital structure dynamics of Central and Eastern European firms to get a better understanding of the quantitative and qualitative development of the financial systems in this region. The dynamic model used endogenizes the target leverage as well as the adjustment speed. It is applied to microeconomic data for ten countries. We find that during the transition process, firms generally increased their leverage, lowering the gap between the actual and the target leverage. Profitability and age are the most robust determinants of capital structure targets. Although banking system development has in general enabled firms to get closer to their leverage targets, information asymmetries between firms and banks are still relatively large. As a result, firms prefer internal finance above bank debt and adjust leverage only slowly.     

US domestic barter: an empirical investigation

This paper studies the barter industry developed in North America during the 1950s, pointing out some of its main characteristics. Thus, it examines its two main sectors: (i) corporate barter and (ii) commercial barter. Contrary to expectations, the analysis of official data shows that this phenomenon is essentially pro-cyclical for the commercial barter component. Moreover, commercial barter activity turns out to be complementary to the cash economy. While the two sectors display some differences in their pattern, they both help firms to increase their profits.     

Insolvency regimes and firms' default risk under economic uncertainty and shocks

One of the arguments often advanced for implementing a stronger insolvency and bankruptcy framework is that it enhances credit discipline among firms. Using a large cross-country firm-level dataset, we empirically test whether a stronger insolvency regime reduces firms' likelihood of defaulting on their debt. In particular, we examine whether it reduces default risk during increased economic uncertainty and various external shocks. Our results confirm that a stronger insolvency regime moderates the adverse effects of economic shocks on firms' default risk. The effects are more pronounced for firms in the top half of the size distribution. We also explore channels through which improved creditor rights influence firms' default risk, including dependence on external finance, corporate leverage, and managerial ethics. Our main results are robust to an alternative measure of default risk, inclusion of currency and sovereign debt crisis episodes, and alternative estimations.     

财务杠杆对公司成长性影响的实证研究

本文认为财务杠杆对公司成长性具有积极、消极双重影响.鉴于现有文献中财务杠杆对公司成长性的消极作用,本文选取1998-2001年深沪两市2798个混合样本作为研究对象,研究上市公司在不同经营业绩条件下财务杠杆对成长性的影响.研究结果表明,与国内外已有的研究结果不同,不同经营业绩下公司财务杠杆对成长性的影响作用存在差异.对于业绩优良的公司,财务杠杆具有积极作用,举债经营可以促进公司的成长,而且,随着公司业绩的增强,财务杠杆所起的积极作用更为显著;对于业绩较差的公司,财务杠杆具有消极作用,财务杠杆对成长性有一定的抑制作用.