Do Leveraged Firms Underinvest in Corporate Social Responsibility? Evidence from Health and Safety Programs in U.S. Firms

The explosion of health-related costs in U.S. firms over more than a decade is a huge concern for managers. The initiation of Health and Safety (H&;S) programs at the firm level is an adequate Corporate Social Responsibility (CSR) initiative to contain this evolution. However, in spite of their documented efficiency, firms underinvest in those programs. This appears as a puzzle for health economists. In this paper, we uncover a strong negative relation of financial leverage to the implementation of H&;S programs. The negative impact of debt on investment and CSR activities is generally interpreted as an efficient disciplinary effect of debt on managers. H&;S are particularly well suited to revisit this evidence, given their strong profitability and homogeneity across firms. Very interestingly, the negative effect is stronger for firms with high free cash flows, for which debt is used to prevent overinvestment. This strongly suggests that debt, while disciplining managers, also discourages investments which are valuable both for firms and society.     

Ownership Differences,Auditor Reputation,and Debt Financing: Evidence from China

This research examines whether “the paradox of auditor reputation” exists in China’s private debt market. Two types of hypotheses are developed to explain the “paradox” in terms of ownership differences. Our findings suggest: (1) by retaining big name auditors, non-state-owned enterprises (non-SOEs) significantly reduce the cost of debt and lower financial constraints; (2) For the non-SOEs, the effect of auditor reputation on the cost of debt and financial constraints declines over time due to the accumulation of these firms’ own reputation; (3) SOEs are more sensitive to the interest rate of bank loans than their counterparts, implying their stronger bargaining power when negotiating with potential creditors than non-SOEs due to their government connections. However, SOEs’ government connections weaken the informational role of auditors and firm reputation on signaling debt market; and (4) Corporate governance is taken into consideration by creditors as an important indicator of solvency. Further investigation demonstrates that after controlling for firm size, operating cash flow, profitability and leverage ratio, the possibility of hiring big name auditors by the younger and median-aged group of non-SOEs is considerably higher than “elder” non-SOEs. Moreover, poor-performing SOEs have greater incentives to make use of their government connections in their bargaining for lower debt cost, as compared with their well-performing peers.     

The Financial Structure of Private Held Belgian Firms

We examine the determinants of the debt-equity choice and the debt maturity choice for a sample of small, privately held firms in a creditor oriented environment. Our results, which are based on 4,706 firm-year observations for 1132 Belgian firms in the period 1996–2000, generally confirm the role of asymmetric information and agency costs of debt as major determinants of the financial structure of privately held firms. High growth firms and firms with less tangible assets have a lower debt ratio. We also find that more profitable firms have less debt. Firms tend to match the maturity of debt with the maturity of their assets. Growth options do not seem to influence debt maturity, which would suggest that the underinvestment problem is resolved by lowering leverage and by bank monitoring, not by reducing debt maturity. Credit risk is also an important determinant of debt maturity: firms with higher credit risk borrow more on the short term. Finally, in contrast to most studies on the financial structure of companies, we find that larger firms tend to have a higher debt ratio and a shorter debt maturity.      

Does Family and Lone Founder Involvement Lead to Similar Indebtedness?

This study evaluates whether the presence of a lone founder and family involvement impact private firms’ leverage differently from a methodological view. Using a sample of 4,102 private firms in Spain and taking under consideration a panel data structure from 2006 to 2013, we find that lone founder and family involvement matter in capital structure decisions and size shapes the forementioned influence. Our findings show that lone founder involvement always implies higher debt than the rest of firms and suggest that firms with genuine family involvement are significantly low debt companies.     

中国上市公司控股结构与债务融资关系的实证研究

论文以中国五个行业上市公司2005年的横截面数据为样本,通过分析第一大股东终极现金流量权与债务融资比例的经验关系,考察了负债的股权非稀释性和破产机制的治理作用.研究发现,非国有上市公司大股东的终极现金流量权比例与公司债务水平呈一种非线性的倒"U"型关系;而国有上市公司大股东的终极现金流量权比例与公司的债务融资水平则呈一种非线性的"U"型关系.此外,论文并没有发现股权制衡结构能够对大股东控制下的债务融资决策产生影响.     

预期转股冲击与企业杠杆调整——基于可转债的断点回归分析

股票价格高于转股价格时可转换债券内嵌期权由虚值变成实值状态,可转债持有者可能自愿转为股票对企业而言是一种外生的杠杆率下降冲击。文章从可转债预期转股冲击视角,采用断点回归分析的方法,探讨预期转股冲击对企业杠杆调整的作用程度和影响路径,同时分析预期转股冲击对不同来源负债的影响差异,并检验债务累积风险不同的企业杠杆调整的异质性。研究发现：企业增加当期杠杆率以应对预期转股冲击,预期转股冲击通过增加股价信息含量和提高股票流动性的路径影响企业杠杆调整,其显著提高经营杠杆而不影响金融杠杆。进一步分组检验表明,债务累积风险低的企业对预期转股冲击导致的预期杠杆率下降更为敏感,积极调整企业杠杆率,预期转股冲击不会叠加债务累积风险高的企业杠杆率。可转债融资工具有助于企业实现稳杠杆。     

Housing boom,real estate diversification,and capital structure: Evidence from China

By exploiting the unique situation in China that numbers of listed firms diversified into the real estate industry during the recent housing boom period, we find that firms' real estate diversification positively influences their subsequent leverage ratios. Further investigations suggest that such an increase in leverage mainly comes from short-term debt instead of long-term debt. We also find that housing price growth and state ownership are underlying mechanisms through which real estate diversification stimulates leverage. Last, we find that firms with real estate diversification enjoy less financing cost deterioration and less market value deterioration when they raise more debt.     

Carbon Risk,Carbon Risk Awareness and the Cost of Debt Financing

We seek insights into potential benefits for firms adopting strategies to improve business sustainability in a carbon-constrained future. We investigate whether lenders incorporate a firm’s exposure to carbon-related risk into lending decisions through the cost of financing, and if so, importantly whether firms can mitigate the penalty by demonstrating an awareness of their carbon risks. We use a sample of 255 firm-year observations from eight industries over the period 2009–2013. We measure carbon-related risk exposure as the firm’s historical carbon emissions and our primary measure of carbon risk awareness is based on the firm’s willingness to respond to the Carbon Disclosure Project (CDP) survey. We document a positive association between cost of debt and carbon risk for firms failing to respond to the CDP. Further, this association is economically meaningful, with a one standard deviation increase in carbon risk mapping into between a 38 and 62 basis point increase in the cost of debt. Equally, we find that this penalty is effectively negated for firms exhibiting carbon risk awareness. Our results are robust when we consider alternate measures of carbon awareness—disclosure through alternative medium to the CDP and firms’ annual cash investment in new capital assets using “cleaner” technology. Our results highlight not only the importance of carbon awareness as a business strategy for polluting firms, but also its importance to lenders exposed to their clients’ default and reputational risk. The debt market appears to incorporate historical carbon emissions and forward-looking indicators of carbon performance.     

Why Greater Cash Holdings and Short-Term Debt Simultaneously Persist? The Case of Transition Economy

This study observes and explores a puzzle in Chinese firms whereby both cash holdings and short-term debt simultaneously account for more than 20% of total assets for at least two consecutive years over the sample period. This phenomenon conflicts with the principle of corporate value maximization, and is not clearly explained by the classical theories in corporate finance. Based on the implications in the extant literature and discussions of institutional constraints of the transition economy in China, this paper develops four hypotheses that are involved with agency conflicts between the largest shareholders and creditors and the formation of this puzzling financial structure. The empirical analyses suggest that the largest shareholders with tunneling motives seek to hold more cash to serve their private interests and/or the consequent operational deficit of the listed corporations. To the ends, these corporations tend to manage the timing of short term debt financing to increase cash reserves temporarily at the end of year. Essentially, greater cash holdings on the balance sheet of these corporations related with the puzzle become a misleading signal for potential creditors, possibly contributing to the refinancing of short-term debt of these listed firms for the following year. Hence, the puzzling financial structure is connected with the timing of debt financing and adverse selection of creditors. This study enriches the stream of literature on cash holdings and debt maturity, and provides new evidence on the impact of agency problems of the largest shareholders on the association between cash holdings and debt maturity in the context of a transition economy.     

Sensitivity of external resources to cash flow under financial constraints

This paper explores the external financing–cash flow relationship in capital structure theory by comparing unlisted (financially constrained) and listed (financially unconstrained) companies. We postulate that investment is determined endogenously in the case of unlisted firms, as they are strongly dependent on internally generated funds (cash flow). Consequently, unlisted firms invest their cash flow in profitable projects, using any residual cash flow to increase their holdings of safe assets. In turn, listed companies determine their investment exogenously and may reduce leverage if they raise an excess of cash flow. As a result, listed companies would react more negatively to shocks in cash flow. Our findings reveal that both unlisted and listed companies show a negative external financing–cash flow relationship, that of the latter being clearly more intense.     

Environmental,Social, and Governance (ESG) Profiles,Stock Returns,and Financial Policy: Australian Evidence

This study investigates the independent effects of environmental (E), social (S), corporate governance (G), and the composite ESG ratings on stock returns and corporate financing decisions of the largest stocks in the Australian equity market. Firms with high composite ESG ratings tend to increase their leverage. For the individual ratings, we find different inferences: firms with low E and high G ratings tend to raise less debt. Firms with high G ratings hold less cash, while those with low G ratings have lower dividend payouts. S ratings have no impact on corporate financing decisions. There appears to be no significant difference in risk‐adjusted returns for portfolios based on ESG ratings, effectively indicating that there is no cost of ESG investment.     

Firm exit after distress: differentiating between bankruptcy, voluntary liquidation and M&A

This paper examines firm-level determinants of mature firm exits after economic distress. Using nested logit models and a sample of 6,118 distress-related exits in Belgium, we analyze the type of exit that distressed firms experience. We show that 41% of the firms in our sample exit through a court driven exit procedure (mainly bankruptcy), 44% are voluntarily liquidated and 14% are acquired, merged or split (hereafter M&A). Distressed firm exit follows two distinct stages. First, a firm either decides to exit voluntarily or is forced into bankruptcy, which is the least efficient exit strategy. Compared to bankruptcy, the probability of a voluntary exit increases with higher levels of cash, lower leverage, holding no secured debt and being embedded in a group. If a firm exits voluntarily, it enters a second stage and decides either to exit through voluntary liquidation or through a M&A. Conditional on not going bankrupt, the likelihood of voluntary liquidation compared to M&A increases with higher levels of cash or secured debt, with smaller size and with an absence of group relations. We contribute to the firm exit literature by jointly analyzing three exit types and showing that bankruptcy and voluntary liquidation are fundamentally different exit routes. While voluntary liquidation is an important exit route for distressed firms, most previous studies have failed to distinguish between bankruptcy and liquidation. We hence contribute to the exit literature by showing that bankruptcy, voluntary liquidation and M&A are fundamentally distinct exit routes for distressed firms, driven by different firm level characteristics and following a two-stage process.     

家族企业代际传承与债务特征

代际传承前充分的制度安排有助于降低权杖交接的事后成本,债务政策如何支持代际传承构成传承前财务安排的重要内容。文章利用正处于代际传承实施期的家族企业十年的面板数据,检验了代际传承前家族企业债务特征变化。研究表明进入代际传承实施期后家族企业表现出更低的资产负债率、更大的长期债务比重以及更高的流动比率,研究还表明控制权与现金流权的分离程度对进入代际传承实施期的家族企业债务特征起到干扰作用。家族企业进入代际传承实施期后倾向于实施风险更低的债务政策。     

Governance mechanisms, investment opportunity set and SMEs cash holdings

This study analyses the effect of firm characteristics and governance mechanisms on cash holdings for a sample of UK SMEs. The results show that UK SMEs with greater cash flow volatility and institutional investors hold more cash; whereas levered and dividend paying SMEs with non-executive ownership hold less cash. We also find that ownership structure is significant only in explaining the cash holdings for firms with high growth investment opportunities, and leverage is only significant in explaining the cash held by firms with low growth investment opportunities. Our findings suggest that internal governance mechanisms are more effective for SMEs with high growth investment opportunities, while external governance mechanisms, such as capital market monitoring, are more effective for firms with low growth investment opportunities.     

A Study on Firms with Negative Book Value of Equity

This paper studies the puzzling negative book equity phenomenon among US public firms. Our evidence suggests that negative book equity firms exhibit heterogeneous characteristics. We show that a great portion of these firms, while operating at excessive capital structure with leverage ratio over 100%, are financially and operationally healthy. These healthy negative book equity firms increase their debt primarily motived by a need for funds to fulfill investment demand. We also find that the off‐balance sheet intangible assets and quality of intangible assets play an important role in determining the true debt capacity of these firms.     

RISK‐AVERSION,OPTIMAL LEVERAGE AND THE INVESTMENT–UNCERTAINTY RELATION

We develop a partial equilibrium dynamic model in which firms are risk‐averse. We analyse the determinants of the investment–uncertainty relationship by means of numerical techniques. When firms can borrow ‘outside’ resources at the riskless rate, an increase in price volatility depresses investment for realistic parameter values. In our model, portfolio considerations play an important role. When the marginal revenue of capital becomes more uncertain, the risk‐averse firm's owners reduce their ‘short position’ in the risk‐free asset, thus diminishing the firm's debt level. The contraction in leverage reduces the expected returns on investment because the expected marginal revenue product is higher than the user cost of capital. In turn, the reduction in expected yields tends to depress investment.     

Banking sector reforms and corporate leverage in emerging markets

Using a large panel of non-financial firms in emerging markets, we study the relation between detailed measures of banking sector reforms and corporate leverage. We find that banking sector reforms are associated with lower corporate debt in emerging market firms, consistent with the notion that these reforms improve banks' risk management and result in tighter lending standards, leading firms to use less bank debt in their capital structure. These effects are less pronounced for financially constrained firms, suggesting a relative increase in the supply of bank credit to firms which were rationed prior to the banking sector reforms.     

The different roles played by venture capital and private equity investors on the investment activity of their portfolio firms

Venture capital (VC) and private equity (PE) investors play different roles in their portfolio companies. We argue that this will translate in a recognizable difference in the investment sensitivity to cash flows of portfolio companies and its evolution after the first investment round. We hypothesise that VC, thanks to its ability in overcoming asymmetries in information, will entail a reduction in the financial constraints which hampered the growth of investee firms. We predict, instead, a greater dependency of investments to cash flow for PE-backed companies, driven by the renewed interest for growth of their management combined with higher leverage. We find evidence confirming our hypotheses on a large panel of Spanish unlisted firms in low and medium technology sectors, where both VC and PE firms are active.     

The Value Relevance of Reputation for Sustainability Leadership

This study investigates whether the market valuation of the two summary accounting measures, book value of equity and net income, is higher for firms with reputation for sustainability leadership, when compared to firms that do not enjoy such reputation. The results are interpreted through the lens of a framework combining signalling theory and resource-based theory, according to which firms signal their commitment to sustainability to influence the external perception of reputation. A firm’s reputation for being committed to sustainability is an intangible resource that can increase the value of a firm’s expected cash flows and/or reduce the variability of its cash flows. Our findings are according to expectations and show that the net income of firms with good sustainability reputation has a higher valuation by the market, when compared to their counterparts.     

Foreign institutional investors and dividend policy: Evidence from China

This study examines whether foreign institutional investment influences firms’ dividend policies. Using data from all domestically listed nonfinancial firms in China during the period of 2003–2013, we find that foreign shareholding influences dividend decisions and vice versa.Furthermore, changes in dividend payments over time positively affect subsequent changes in foreign shareholding, but the opposite is not true. Our study indicates that foreign institutional investors do not change firms’ future dividend payments once they have made their investment choices in China. Moreover, they self-select into Chinese firms that pay high dividends. Our evidence suggests that in an institutional setting where foreign investors have tightly restricted access to local securities markets and a relatively high risk of expropriation by controlling shareholders exists, firms can use dividends to signal good investment opportunities to foreign investors.