How Do SMEs with Single and Multiple Owners Finance Their Operations Differently? Empirical Evidence from China

We study the impact of firm‐level characteristics on the capital structures of private small and medium‐sized enterprises (SMEs) as well as the differences between the capital structures adopted by SMEs with single and multiple owners in China. Our findings highlight the limited use of asset‐based financing by Chinese SMEs. We also find that the propensity of SMEs with single‐owners to use external debt was significantly less than those with multiple owners. Furthermore, our findings suggest that single‐owned firms are subject to a more constrained pecking order than those with multiple owners. © 2013 Wiley Periodicals, Inc.     

International Debt Shifting: The Value-Maximizing Mix of Internal and External Debt

Abstract

We study the capital structure of multinationals and expand previous theory by incorporating international debt tax shield effects from both internal and external capital markets. We show that: (i) multinationals’ firm value is maximized if both internal and external debt are used to save tax; (ii) the use of internal and external debt is independent of each other; and (iii) multinationals have a tax advantage over domestic firms, which cannot shift debt across international borders. We test our model using a large panel of German multinationals and find that internal and external debt shifting are of about equal importance.     

Asset Substitution and Capital Use by Firms Facing Financial Repression

Firm behavior is examined during a period of financial repression in Brazil. Empirical findings indicate that firms experiencing rising inflation rates: (1) increase their capital stock while reducing liquid asset holdings; (2) experience increases in the productivity of capital (i.e. a rise in the output–capital ratio); (3) increase the scale of the firm’s operations both because of the rising capital productivity and the greater quantity of capital; (4) most firms increase liquid asset holdings as they expand production, although Brazilian firms do so at about twice the rate of multinational firms; (5) do not change overall inventory holdings; however, inventories increase as output rises for multinational firms while for Brazilian firms inventories decrease as output rises; and (6) firms that are more likely to face financial constraints expand their scale of operations at a faster rate as they accumulate more debt.     

The Effects of Ownership Structure on Corporate Financing Decisions: Evidence from Stock Market Liberalization

We analyze the impact of firm‐specific stock market liberalization events on the capital structure and debt maturity decisions of firms from emerging market economies. We differentiate between firms based on their ownership structures at the time of liberalization and analyze their post‐liberalization behavior regarding corporate financing decisions. Our empirical results show that single–class‐share firms (typically with stronger corporate governance and better information environments) respond differently to their dual–class‐share counterparts. Liberalization results in lower debt reliance for the former group while the latter lengthen the maturity of their debt portfolios. Jel Classification: F30; G15; G32.     

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.     

How SME Uniqueness Affects Capital Structure: Evidence From A 1994–1998 Spanish Data Panel

The principal aim of this paper is to test how firm characteristics affect Small and Medium Enterprise (SME) capital structure. We carry out an empirical analysis of panel data of 6482 non-financial Spanish SMEs during the five years period 1994–1998, modelling the leverage ratio as a function of firm specific attributes hypothesized by capital structure theory. Our results suggest that non-debt tax shields and profitability are both negatively related to SME leverage, while size, growth options and asset structure influence positively SME capital structure; they also confirm a maturity matching behaviour in this firm group.     

Firm diversification and equilibrium risk pooling: The Korean financial crisis as a natural experiment

We use the Korean Financial Crisis as a natural laboratory for examining interactions among firm diversification, equilibrium capital structure and tail probability events. When the crisis hit in 1997, several major firms, including a large number of highly leveraged conglomerates (Chaebols), experienced bankruptcies. We show how diversified Chaebols obtain higher equilibrium leverage than non-Chaebols (a “cosigner effect”). In the event of a low probability macro-economic shock, the model predicts a systematic change in relative bankruptcy risks of Chaebol firms. To examine this implication, we introduce an empirical methodology that decomposes equilibrium debt into demand, supply and Chaebol-specific factors, for use in a bankruptcy prediction model. We find that the primary cause of Chaebol firm bankruptcies was not idiosyncratic leverage, but leverage systematically related to greater equilibrium access to debt during normal times.     

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.     

The impact of firm and industry characteristics on small firms’ capital structure

We study the impact of firm and industry characteristics on small firms’ capital structure, employing a proprietary database containing financial statements of Dutch small and medium-sized enterprises (SMEs) from 2003 to 2005. The firm characteristics suggest that the capital structure decision is consistent with the pecking-order theory: Dutch SMEs use profits to reduce their debt level, and growing firms increase their debt position since they need more funds. We further document that profits reduce in particular short-term debt, whereas growth increases long-term debt. We also find that inter- and intra-industry effects are important in explaining small firms’ capital structure. Industries exhibit different average debt levels, which is in line with the trade-off theory. Furthermore, there is substantial intra-industry heterogeneity, showing that the degree of industry competition, the degree of agency conflicts, and the heterogeneity in employed technology are also important drivers of capital structure.     

Supply Chains,Global Financial Shocks and Firm Behaviour towards Liquidity Needs

Driven by the increasingly important role of supply chains in global production, this paper studies empirical association between global credit‐market shocks and firm behaviour towards liquidity needs across countries and industries. Focusing on the adjustment of working‐capital financing, we find two pieces of supporting evidence from international firm‐level panel data covering the period 2002:I–2012:IV. First, for industries where specific investment in the input supplier–customer relationship is large, firms are more exposed to credit‐market shocks. We find that measures of global credit‐market shocks are negatively associated with trade receivables, trade payables and inventories, conditional on the level of contract intensity in the industries where firms operate. Second, firms in emerging markets are more vulnerable to credit‐market shocks than are firms in developed countries. We are also able to verify the economic significance of sales growth, operating cash flows, cash stock and firm size in the overall adjustment. Our findings highlight the importance of balance‐sheet contagion along supply chains during the 2007–09 global financial crisis.     

中国上市公司债务期限结构及影响因素研究

债务期限结构是资本结构相关研究中的热点。在对债务期限实证研究回顾和对中国上市公司债务期限结构总体分析的基础上,采用混合回归、固定效应回归和随机效应回归模型,以2006年-2012年628家非金融上市公司组成的混和面板数据为样本（共4396个观察值）,选取资产期限、成长期权、公司规模、自由现金流量、实际税率、公司价值波动性和资本结构为解释变量,考察影响债务期限结构的因素。实证结果显示,资产期限、公司规模和杠杆率与债务期限呈显著正相关,自由现金流量与债务期限呈显著负相关,但成长期权、实际税率和公司价值波动性与债务期限结构的相关性不显著。而且,不同行业之间的债务期限结构存在显著差异。     

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.     

Capital Structure,Management Ownership and Large External Shareholders: A UK Analysis

This paper examines empirically the effects of management ownership and ownership by large external shareholders on the capital structure of the firm from an agency theory perspective. The paper extends the US literature on the topic by examining the effect of interactions between management ownership and ownership by large external shareholders on the capital structure of UK firms. For a sample of UK firms, the paper provides empirical evidence that suggests the debt ratio is positively related to management ownership and negatively related to ownership by large external shareholders. Furthermore, the presence of a large external shareholder acts to negate the positive relationship between debt ratios and management ownership; in the presence of a large external shareholder, no significant relationship between debt ratios and management ownership exists. These findings are consistent with the hypothesis that the presence of large external shareholders affects the agency costs of debt and equity.     

Family firms and debt: Risk aversion versus risk of losing control

This study examines the effect of family management, ownership, and control on capital structure for 523 Colombian firms between 1996 and 2006. The study finds that debt levels tend to be lower for younger firms when the founder or one of his heirs acts as manager, but trends higher as the firm ages. When family involvement derives from direct and indirect ownership, the family–debt relationship is positive, consistent with the idea that external supervision accompanies higher debt levels and reduces the risk of losing control. When families are present on the board of directors (but are not in management), debt levels tend to be lower, suggesting that family directors are more risk-averse. The results stress the tradeoff between two distinct motivations that determine the capital structure of family firms: risk aversion pushes firms toward lower debt levels, but the need to finance growth without losing control makes family firms to prefer higher debt levels.     

A comparison of new firm financing by gender: evidence from the Kauffman Firm Survey data

This study uses data from the new Kauffman Firm Survey to explore gender differences in the use of start-up capital and subsequent financial injections by new firms. We find that, consistent with previous studies, women start their businesses with significantly lower levels of financial capital than men. A new finding from this research is that women go on to raise significantly lower amounts of incremental debt and equity in years two and three. These results hold even controlling for a variety of firm and owner characteristics, including the level of initial start-up capital and firm sales. Our findings also reveal that women rely heavily on personal rather than external sources of debt and equity for both start-up capital as well as follow-on investments. Our findings have implications for further research into gender differences in financing sources and strategies and business outcomes.     

Financial Policy and Capital Structure Choice in U.K. SMEs: Empirical Evidence from Company Panel Data

This article utilises up-to-date financial panel data, and investigates the capital structure of small and medium sized enterprises (SMEs) in the U.K. Different capital structure theories are reviewed in order to formulate testable propositions concerning the levels of debt in small businesses, and a number of regression models are developed to test the hypotheses.The results suggest that most of the determinants of capital structure presented by the theory of finance appear indeed to be relevant for the U.K. small business sector. Size, age, profitability, growth and future growth opportunities, operating risk, asset structure, stock turnover and net debtors all seem to have an effect on the level of both the short and long term debt in small firms. Furthermore, the paper provides evidence which suggest that the capital structure of small firms is time and industry dependent. The results indicate that time and industry specific effects influence the maturity structure of debt raised by SMEs. In general terms, average short term debt ratios in SMEs appear to be increasing during periods of economic recession and decrease as the economic conditions in the marketplace improve. On the other hand, average long term debt ratios exhibit a positive relationship with changes in economic growth.     

The Interaction of Post‐Acquisition Integration and Acquisition Focus in Relation to Long‐Run Performance

We examine the joint influence of post‐acquisition integration management and acquisition focus on long‐run post‐acquisition performance. We develop a financial measure related to integration that is based on changes in net purchases/disposals of physical assets. For a sample of acquisitions by Australian listed firms, we find that the main effects and the interaction of our integration measure and focus are related to performance in the direction suggested by theory. Our results suggest that inconsistencies in previous studies of the focus‐performance relation are partly explained by the failure to consider the post‐acquisition asset management strategies.     

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.     

Debt signaling and outside investors in early stage firms

By imposing a market like governance and directing entrepreneurs towards professional management, debt, and especially business debt, can serve as a reliable signal for outside equity investors. Such signals of firm accountability can alleviate the stringent information asymmetry at the early stages of the firm, and become stronger for bank business debt, in the presence of personal debt, and in high capital industries. Using the Kauffman Firm Survey, we find evidence consistent with our hypotheses. Outside investors can rely on the governance role of debt and its underpinnings such as the bank-firm relationship. We also corroborate that young firms tend to focus on growth rather than profitability.     

资本结构与经营绩效非线性关系研究——来自中国能源行业上市公司的经验证据

以中国1999-2008年能源行业上市公司的平衡面板数据为样本,运用非线性计量方法—面板门限模型,实证分析资本结构与经营绩效的关系。以Tobinq值作为经营绩效衡量指标进行负债(资产负债率)门限测试,实证结果发现:存在单一门限效果,其门限值为26.4%,其区间上下影响系数分别为正相关、负相关,并且都很显著,即存在一正一负的非线性关系。对我国能源行业上市公司来说,适度的利用财务杠杆、提高资产负债率,可以提高经营绩效;但是过度使用财务杠杆会增大企业财务风险并无法有效提高经营绩效。因此,企业经营管理者应在适度的范围内,合理运用财务杠杆,实现股东财富最大化的目标。