Sensitivity of executive pay to accounting performance measures in all-equity firms

We investigate the relation between chief executive officer compensation and accounting performance measures as a function of the firm's capital structure. We specifically analyse pay–performance relationships for all‐equity firms relative to high‐levered firms. We find a significant positive association between return on equity and the level of compensation for all‐equity firms. Consistent with optimal contracting theory, we cannot discern any such relationship for high‐levered firms. Because of agency costs of debt, managerial compensation in high‐levered firms plays the role of a precommitment mechanism in addition to its conventional role of aligning management incentives with shareholder interest.     

The tax-efficient use of debt in multinational corporations

Affiliates of multinationals borrow a considerable amount from their parent company, even when the parent is located in a high-tax country. This is at odds with standard theories of a tax-efficient capital structure. We set up a model that analyzes the functioning of the internal capital market and investigates the trade-off between tax savings and capital market frictions within the group. We test the model on data of the universe of German multinationals. The empirical analysis largely supports our model in that: (i) smaller multinationals often rely on parental debt financing; (ii) larger multinationals are more likely to use internal banks; (iii) parental debt and external debt are substitutes and the mix depends on the relative cost of raising capital through the parent and the affiliates; (iv) local and within-group tax incentives play an important role in determining all three types of debt.     

The determinants of debt maturity in Australian firms

We examine the determinants of debt maturity in the Australian capital market with the Top 400 firms listed on the Australian Securities Exchange for the period 1989–2006. We find that Australian firms not only exhibit a positive leverage–maturity relationship but also use short‐term debt to signal their high quality to the market. Our results are robust to different estimation methods that control for endogeneity and error‐dependence. We also find that ignoring the interaction between leverage and maturity can lead to erroneous conclusions about the support for the matching principle, the agency costs hypothesis and the transaction costs hypothesis.     

Investment-based financing constraints and debt renegotiation

We consider how equity holders’ bargaining power during financial distress influences the interactions between financing and investment decisions when the firm faces the upper limit of debt issuance. We obtain four results. First, weaker equity holders’ bargaining power is more likely that the firm is financially constrained. Second, the investment quantity is independent of equity holders’ bargaining power. Third, the constrained credit spreads are increasing with equity holders’ bargaining power, contrary to the unconstrained ones. Fourth, higher volatility and weaker equity holders’ bargaining power are likely that the firm prefers to issue debt with renegotiation, compared with debt without renegotiation.     

上市房地产企业零杠杆现象影响因素研究

我国上市房地产企业存在债务保守融资策略的零杠杆现象。基于1992～2010年的报表数据,运用Logistic回归方法,探究与企业融资策略有关的资金来源、企业特征变量、宏观经济环境和宏观政策四个方面的影响因素与企业是否选择零杠杆融资之间的相关性。实证结果表明,当货币资金、短期借款、商业信用融资充足,股票上市融资充分时,上市房地产企业倾向于零杠杆融资决策。与非零杠杆企业相比,这样的企业通常规模小、有形资产少、成长性高,对宏观经济环境变化敏感。     

Firm location and corporate debt

This study examines the influence of a firm’s geographical location on corporate debt and provides evidence that the higher cost of collecting information on firms distant from urban areas has significant implications on a wide array of corporate debt characteristics. We find that rural firms face higher debt yield spreads and attract smaller and less prestigious bank syndicates than urban firms. Rural firms attempt to reduce their informational disadvantage by relying more on relationship banking. Our results on the effect of location on corporate debt are robust to the inclusion of an extensive set of firm and issue characteristics.     

Implications of public corruption for local firms: Evidence from corporate debt maturity

Using political corruption conviction data from the U.S. Department of Justice, we examine the impact of local corruption on firms’ debt maturity structure while exploring both demand-side and supply-side explanations. Our results support the demand-side story and indicate that firms in high corruption areas utilize less short-term debt to mitigate liquidity and refinancing risks. Consistent with this, we find the effect is more pronounced among firms with smaller size, lower asset redeployability, and higher volatility. Our findings remain robust to the inclusion of an array of controls expected to influence debt maturity preferences as well as time, industry, and state fixed effects. Moreover, a seemingly unrelated regression approach, instrumental variables regression, propensity score matching, placebo analyses, and alternative corruption measures corroborate our findings. Altogether, our results indicate that firms alter their debt maturity choices in response to local corruption to limit refinancing risk and the uncertainty created by corrupt government officials.     

Establishing bounds on the tax advantage to debt

The partial dismantling of the imputation tax system that commenced in July 1997 once more opens the discussion on the relative tax advantage to debt and its impact on the cost of capital. In this paper we examine the implications of these recent changes for the value of the tax advantage to debt. We analyse the value of debt-related tax shields by computing the individual tax liabilities of 1268 quoted companies that reported during the period 1980–2000 taking account of any tax exhaustion or surplus ACT. We use these estimates to establish an upper bound on the tax advantage to debt. We conclude that even following the 1997 changes in the imputation tax system the probable value for the average current tax advantage to debt in the UK at present is at most about 13% of the value of debt.     

Debt, debt structure and corporate performance after unsuccessful takeovers: evidence from targets that remain independent

Significant increases in the level of target leverage have been previously documented following unsuccessful takeover attempts. This increased leverage may signal managerial commitment to improved performance, suggesting that corporate performance and leverage should be positively related. If, however, the increased leverage leads to further managerial entrenchment, then corporate performance and leverage should be negatively related. In this paper, we reexamine both motivations for the observed increase in leverage. Furthermore, we argue that changes in the composition of debt are also important, besides changes in the level of leverage. In particular, bank debt has frequently been assigned a proactive, beneficial monitoring role in the literature. Besides confirming the increase in the level of leverage, we also document increases in bank debt surrounding cancelled takeovers. As a result, we find a more complex relation between corporate performance and debt use: Overall, the relation between corporate performance and leverage is negative, as predicted by a dominant entrenchment effect. However, increases in bank debt reduce the adverse effect of the increase in the level of leverage.     

A two-part fractional regression model for the financial leverage decisions of micro,small, medium and large firms

In this paper we examine the following two hypotheses, which traditional theories of capital structure are relatively silent about: (i) the determinants of financial leverage decisions are different for micro, small, medium and large firms; and (ii) the factors that determine whether or not a firm issues debt are different from those that determine how much debt it issues. Using a binary choice model to explain the probability of a firm raising debt and a fractional regression model to explain the relative amount of debt issued, we find strong support for both hypotheses. Confirming recent empirical evidence, we find also that, although larger firms are more likely to use debt, conditional on their having some debt, firm size is negatively related to the proportion of debt used by firms.     

To Invest or not to Invest: A real options approach to FDIs and tax competition

Foreign investment decisions of firms are often characterized by investment irreversibility, uncertainty, and the ability to choose the optimal timing of foreign investments. We embed these characteristics into a real option theory framework to analyze international competition among countries to attract mobile investments when firms, after the investment is sunk, can shift profit to low tax countries by transfer pricing. We find that an increase in the uncertainty of profit income reduces the equilibrium tax rates, whilst lower investment costs or larger profits, counteracts the negative fiscal externality of tax competition leading to higher equilibrium tax rates. JEL Code H25     

To intervene,or not to intervene: Monetary policy and the costs of currency crises

In case of speculative attacks, the central banks' decisions to intervene or not to intervene seem to play an important role for the economic costs of currency crises. The central bank can either abstain from intervening or start an intervention, which in turn can be successful or unsuccessful. Therefore, an adequate analysis of the costs of currency crises has to take into account three different types of currency crises: (i) an immediate depreciation without any central bank interventions, (ii) a successful defense, and (iii) an unsuccessful attempt to defend the exchange rate. We find that the decision of the central bank to intervene or to remain passive is risky. If the central bank intervenes and succeeds she can achieve the best growth performance on average. However, if the interventions are not maintained and the currency depreciates the subsequent output loss is particularly severe. Abstaining from an intervention yields a scenario with a relatively small drop in output. Giving in to a speculative attack rather than trying to fight it can thus be a suitable option for a risk-averse central bank.