The Determinants of Debt Maturity Structure: Evidence from France,Germany and the UK

We examine the determinants of the debt maturity structure of French, German and British firms. These countries represent different financial and legal traditions that may have implications on corporate debt maturity structure. Our model incorporates the factors representing three major theories (tax considerations, liquidity and signalling, and contracting costs) of debt maturity. It also controls for capital market conditions. The results confirm the applicability of most theories of debt maturity structure for the UK firms. However, the evidence from France and Germany are mixed. Overall the findings suggest that the debt maturity structure of a firm is determined by firm‐specific factors and the country's financial systems and institutional traditions in which it operates.     

An Empirical Examination of the Dissemination of Equity Price Innovations Between the Emerging Markets of Nordic-Baltic States and Major Advanced Markets

: We employ three econometric models to examine the relative influence of the stock markets of the United States, the United Kingdom, France, and Germany on the stock markets of the Nordic-Baltic states. The results show that the Nordic-Baltic markets respond to price innovations from the United States, the United Kingdom, France, and Germany in diverse ways in the period 2001–2013. Response patterns for Finland, Norway, Sweden, Iceland, and Denmark are more significant to market innovations from the United States, the United Kingdom, and France, and less significant to those from Germany. German influence is more significant over Latvia, Lithuania, and Estonia than the rest of the advanced markets. While the dynamics of the Nordic-Baltic markets exhibit a dominance of own price innovation, the influence of the United States is stronger than that of France, the United Kingdom, and Germany. These results imply that investors from the Nordic States may derive greater benefits by diversifying into Germany and vice versa, rather than diversifying into the United States, the United Kingdom, or France. Investors from the Baltic States may obtain greater advantages by adopting portfolio strategies that take advantage of potentially better diversification benefits obtainable from the United States, the United Kingdom, and France rather than from Germany, and the reverse will also be in order.     

Government Bond Market Seasonality, Diversification, and Cointegration: International Evidence

Using government bond market data for the United States, Canada, the United Kingdom, Germany, France, and Japan, I investigate several hypotheses. Market efficiency is investigated by testing for seasonality and cointegration. The seasonality results are mixed. In regression tests, a January effect is detected in several markets (United States, Germany, France, United Kingdom, and Canada) using local currencies. However, in a nonparametric test, the January effect is supported only for France. When U.S. dollar returns are used, regression results also reveal a January effect for several markets (United States, Germany, France, and United Kingdom). These results are not confirmed by a nonparametric test. Correlation analysis shows considerable diversification opportunities for short‐term investors. Cointegration tests indicate that several of the markets share cointegrating vectors, increasing the possibilities of using other endogenous bond markets to better predict movements in a particular market.     

Financial Regulation: A Perspective from the United Kingdom

Many of the papers at this conference focus on regulation and its impact on the structure of the financial system. The objective of this paper is to offer a discussion of some of these, and related, issues from the perspective of the United Kingdom, where the structure and content of regulation is in many important respects in stark contrast to that of the United States. A British perspective on financial regulation might be particularly interesting, given the historical differences in the regulatory regimes in the United Kingdom and the United States as well as the changes occurring in the structure and approach to regulation in the United Kingdom.     

The European Venture Capital and Private Equity country attractiveness indices

We calculate composite indices to compare the attractiveness of 27 European countries for institutional investments into the Venture Capital and Private Equity asset class. To achieve this we use 42 different parameters, and propose an aggregation structure that allows for benchmarking on more granulated levels. The United Kingdom leads our ranking, followed by Ireland, Denmark, Sweden, and Norway. While Germany is slightly above the average European attractiveness level, the scores are rather disappointing for France, Italy, Spain, and Greece. Our analyses reveal that while the UK is similar to the other European countries with respect to many criteria, there are two major differences, which ultimately affect its attractiveness: its investor protection and corporate governance rules, and the size and liquidity of its capital market. The state of the capital market is likewise a proxy for the professionalism of the financial community, for deal flow and exit opportunities. We determine a reasonable correlation between our attractiveness index scores and actual Venture Capital and Private Equity fundraising activities and prove the robustness of our calculations. Our findings across all the European countries suggest that, while investor protection and capital markets are in fact very important determinants for attractiveness, there are numerous other criteria to consider.     

Control considerations,creditor monitoring,and the capital structure of family firms

In this paper, I analyze the motives moving founders and their families to influence the capital structure decision. For this, I complement detailed corporate governance information for Germany with data from other countries. The results for the German bank-based financial system contradict prior findings for other institutional environments. According to these results, family firms in Germany rely less heavily on debt than non-family firms. Less surprisingly, the opposite holds true for the international dataset. Different empirical tests indicate that this puzzling result can be explained by control considerations. Founders and their families use the capital structure to optimize their control over the firm. However, whether family firms rely more or less on debt depends on the level of creditor monitoring in an institutional environment. These findings emphasize that control considerations of major shareholders are important—although often overlooked—determinants of the capital structure.     

The underreaction hypothesis and the new issue puzzle: evidence from Japan

This article investigates the long-term equity performance ofJapanese firms issuing convertible debt and equity. We findthat issuing firms perform poorly (except for equity rightsissues) compared to nonissuing firms even though the stock-pricereaction to convertible debt and equity issues is not negativefor Japanese firms. This underperformance is strongest for firmsissuing public convertible debt. In contrast to the United States,poor performance is not concentrated in smaller firms and infirms with a high market-to-book ratio. Simple behavioral explanationsadvanced for the new issue puzzle in the United States do notseem consistent with the Japanese experience.     

HOW FIRM CHARACTERISTICS AFFECT CAPITAL STRUCTURE: AN INTERNATIONAL COMPARISON

In this empirical study I examine the factors correlated with capital structure in France, Germany, Japan, the United Kingdom, and the United States. Although mean leverage and many firm factors appear to be similar across countries, some significant differences remain. Specifically, differences appear in the correlation between long-term debt/asset ratios and the firms' riskiness, profitability, size, and growth. These correlations may be explained by differences in tax policies and agency problems, including differences in bankruptcy costs, information asymmetries, and shareholder/creditor conflicts. The findings of this study suggest links between varying choices in capital structure across countries and legal and institutional differences.     

THE CHOICE AMONG DEBT,EQUITY, AND CONVERTIBLE BONDS

The hybrid nature of convertible bonds continues to interest corporate financial managers, investors, and economists. While much theoretical and empirical research examines an issuer's choice between using straight debt and equity, little research evaluates how an issuer chooses among debt, equity, and convertible bonds. This study extends Marsh's [ 13 ] research on the differences between debt and equity issuers in the United Kingdom by examining U.S. industrial firms that issue debt, equity, or convertible bonds. It also illustrates how various distinguishing features influence the probability that each security will be issued.     

Firms’ performance under different bankruptcy systems: a Europe–USA empirical analysis

This study empirically analyses the effect that the bankruptcy law has on firms’ performance based on its financial situation. To do this, we considered the different types of efficiency and their influence on firms’ value. The study was carried out for Germany, Spain, the United States, France and the United Kingdom. We applied System‐GMM estimation to dynamic panel data. The main results show that under creditor‐oriented systems, there is a decrease in the value of both financially distressed firms and those filing for bankruptcy.     

Forecasting the macroeconomy with contemporaneous financial market information: Europe and the United States

Using Economic Tracking Portfolios (ETP), I find that it is possible to forecast future values of inflation and changes in industrial production in the United States and three core euro countries - Italy, France and Germany - utilizing only current and past financial market information. The longer the forecasting horizon, the better the forecasts based solely on financial market information compared to results from other methods. Of the countries I analyze, the overall forecasting performance of the tracking portfolios is the best for the U.S., and my method outperforms the forecasting performance of a VAR approach.     

International financial services: determinants of banks’ foreign assets held by non-banks

Banks’ foreign assets held by non-banks are part of the growing volume of international trade in financial services. This paper investigates, for the first time, the determinants of banks’ assets held by non-banks for Germany, Japan, the United Kingdom and the United States. The underlying model used to measure banks’ foreign assets held by non-banks in this study, is based on those models which have measured the determinants of banks’ total foreign assets and international inter-bank activities. The empirical results of this model suggest a positive relationship with foreign direct investment in banking and banks’ foreign assets held by non-banks. Other significant factors identified include bilateral trade, the value of national income, and the real interest rate differential. Furthermore, banks’ foreign assets held by non-banks are found to be significantly related to the respective level of inter-bank dealings, such that a restriction on the overall amount of activities exists. Finally, global bank flows of opposite directions are found to be positively correlated, highlighting the fact that the perceived risk of foreign lending is reduced by simultaneous increases in banks’ foreign liabilities.     

Corporate domicile and average effective tax rates: The cases of Canada,Japan, the United Kingdom,and the United States

We use financial statement information to estimate three alterantive average effective tax rates for firms domiciled in Canada, Japan, the United Kingdom, and the United States during the period 1982 to 1991. While many of the firms we examine operate worldwide, we use the termdomicile to refer to the legal residence or site of incorporation of the parent company. Our objective is to determine themarginal impact of a company's domicile on its worldwide tax burden, with controls for industry and year. We find both among domestic-only companies and among multinational companies the domiciles are consistently ranked in descending order by average effective tax rates as Japan, the United Kingdom, the United States, and Canada. In comparing domestic-only companies and multinationals domiciled in the same jurisdiction, only U.S. multinationals consistently face a greater tax burden than their domestic counterparts.     

External balances,trade flows and financial conditions

This paper studies how changing expectations concerning future trade and financial conditions are reflected in international external positions. In the absence of Ponzi schemes and arbitrage opportunities, the net foreign asset position of any country must, as a matter of theory, equal the expected present discounted value of future trade deficits, discounted at the cumulated world stochastic discount factor (SDF) that prices all freely traded financial assets. I study the forecasting implications of this theoretical link in 12 countries (Australia, Canada, China, France, Germany, India, Italy, Japan, South Korea, Thailand, The United States and The United Kingdom) between 1970 and 2011. I find that variations in the external positions of most countries reflect changing expectations about trade conditions far into the future. I also find the changing forecasts for the future path of the world SDF are reflected in the dynamics of the U.S. external position.     

Monetary policy and the twin crises

After presenting a brief overview of the recent financial crisis and the European debt crisis that followed in its wake, this paper goes on discuss monetary policy in the United States, the United Kingdom and the Euro bloc prior to and during the course of the two crises. The paper presents historical evidence for the three areas on the relationships linking the volatilities of output, inflation and monetary growth. In all three these relations are strongly positive. There is, therefore, no tradeoff between inflation and output volatility; the two move up and down together. Both, moreover, move up and down with the volatility of monetary growth. Viewed from this perspective, the increased volatilities of money supplies and the monetary base in the United States, the United Kingdom and the Euro bloc over the last half decade pose problems.     

Impact of COVID-19 on stock market efficiency: Evidence from developed countries

This study investigates the impact of the novel coronavirus (COVID-19) pandemic on stock market efficiency for six hard-hit developed countries, namely, the United States (US), Spain, the United Kingdom (UK), Italy, France, and Germany. Applying the wild bootstrap automatic variance ratio test on daily stock market data from July 29, 2019 to January 25, 2021, it is found that all stock markets used in this study deviate from market efficiency during some periods of the pandemic. Deviations from market efficiency are seen more in the stock markets of the US and UK during the COVID-19 outbreak than in other stock markets. These results are strengthened when a different econometric method, the automatic portmanteau test, is used. The findings of this study indicate an increasing chance for stock price predictions and abnormal returns during the COVID-19 pandemic.     

The Effect of Volume of Intrafirm Transfers on Market Metrics

In this paper, we examine the relationship between international intrafirm area transfers and market metrics as measured by market-to-book value and systematic risk. Intrafirm transfers – the amount that multinational corporations charge one another for the transfer of goods, intellectual property, and services – have become an increasingly important issue for policymaking, managerial, financial, and tax purposes. This paper also examines whether international intrafirm intergeographic area transfers are attributed to corporate tax. We find that firms with a sizable volume of international intrafirm transfers have higher systematic risk than comparable firms without these transfers. We show cross-sectionally that firms engage in international transfers have a higher market-to-book ratio, suggesting that transfers add value through their effect on earnings and taxes. Consistent with Mills and Newberry (2003) and Collins, Kemsley, and Lang (1998), we document that U.S. (global) income tax is positively (negatively) related to intrafirm transfers, implying that U.S. multinational firms shifted taxable income to the United States from 1995 to 1999.     

Cross-country diversity and non-IFRS financial performance measures

We investigate the disclosure of non-IFRS performance measures by 400 companies from eight countries using IFRS Standards (Australia, France, Germany, Hong Kong, Italy, Singapore, Sweden and the United Kingdom) in the years 2005, 2008, 2011 and 2013 (1595 company-years). The incidence of disclosure is higher in UK and France but lower in Hong Kong, Germany and Singapore. Exclusions relating to impairment, tax, and mergers and acquisitions are frequent. Firms making non-IFRS disclosures are more likely to be larger, have higher leverage, and exhibit greater volatility in their reported income. Additional tests show national reporting traditions and practices affect non-IFRS disclosures.     

Corporate Financing Decisions: UK Survey Evidence

Abstract:  Despite theoretical developments in recent years, our understanding of corporate capital structure remains incomplete. Prior empirical research has been dominated by archival regression studies which are limited in their ability to fully reflect the diversity found in practice. The present paper reports on a comprehensive survey of corporate financing decision-making in UK listed companies. A key finding is that firms are heterogeneous in their capital structure policies. About half of the firms seek to maintain a target debt level, consistent with trade-off theory , but 60% claim to follow a financing hierarchy, consistent with pecking order theory . These two theories are not viewed by respondents as either mutually exclusive or exhaustive. Many of the theoretical determinants of debt levels are widely accepted by respondents, in particular the importance of interest tax shield, financial distress, agency costs and also, at least implicitly, information asymmetry. Results also indicate that cross-country institutional differences have a significant impact on financial decisions.