Rating and capital structure: How do the signs affect the speed of adjustment?

Standard and Poor's ratings can be modified by the addition of a plus (+) or minus (?) sign to show the relative standing within each major rating category. In this paper, we analyze the influence of these signs on the speed of leverage adjustment for listed European companies in the 2004–2014 period. Our results indicate that (a) when a qualification is accompanied by a minus sign, it adjusts more slowly than qualifications either with a plus sign or without a sign; (b) when a rating has a plus sign, the adjustment is slower than when it has no sign; and (c) when a qualification is BBB‐, the speed of its leverage adjustment is close to zero. These results suggest that companies with signs in their ratings decrease their speed of adjustment to the target leverage ratio. In addition, such companies are especially concerned about a credit rating downgrade when it implies a possible loss of the degree of investment (BBB‐).     

Product–market flexibility and capital structure

Many companies have the ability to adjust their product's price and/or quantity in response to changes in the marketplace. We show that this product–market flexibility or market power, hitherto ignored in the contingent-claim modeling literature, can potentially have a significant effect on the corporate capital structure decision. When the firm is operating at full capacity, product–market flexibility is not important, hence market power has a negligible effect on optimal capital structure. However, when operating below capacity, product–market flexibility becomes important and market power has, in general, a positive effect on optimal debt level and optimal leverage ratio. This is consistent with available empirical evidence. Numerical results indicate that the effect of product–market flexibility on optimal debt level and optimal leverage ratio can potentially be large enough to be economically significant, hence it should not be ignored as a determinant of capital structure.     

Does market attention affect Bitcoin returns and volatility?

Decisions in Economics and Finance - In this paper, we analyze the relative impact of attention measures either on the mean or on the variance of Bitcoin returns by fitting nonlinear econometric...     

Does mandatory disclosure affect subprime lending to minority neighborhoods?

We examine changes in lending behavior in response to the Federal Reserve??s requirement for disclosure of loan pricing information implemented in 2004 for two broad types of lenders, depository and nondepository institutions. We find that although subprime approval rates generally increased after 2004 as the housing market boomed, there was nonetheless a reduction in subprime approval rates to minority neighborhoods following implementation of the pricing disclosure requirement. We also find that the effect of the pricing disclosure requirement on subprime approval rates was stronger for depository institutions than for nondepository institutions. Moreover, depository institutions with good reviews from regulators for effectively serving the financing needs of local communities are less likely to issue higher-priced subprime loans.     

Does intellectual capital matter? Assessing the profitability and marketability of IC design companies

Under a highly competitive market and a dynamic industrial environment, how to evaluate and enhance an integrated circuit (IC) design company??s good performance is important. This paper develops a two-stage data envelopment analysis (DEA) combined intellectual capital theory through financial and non-financial data to evaluate a performance process on the IC design company. It adopts a new slacks-based measure (SBM) to obtain a more accurate performance estimation and rank between companies. This paper further uses the Simar and Wilson procedure with a truncated regression to explore the impact of intellectual capital variables on performance and competitive advantage. From the study we suggest to the company in how to enhance precisely its performance to create company value and success.     

Does air pollution change a firm's business strategy for employing capital and labor?

We examine the impact of air pollution on a firm's capital-labor ratio. We propose the hypothesis that, in dealing with air pollution, a firm responds strategically by using relatively more capital and less labor to contain labor costs and remain competitive in the market. Using a sample of Chinese firms and a satellite-based air pollution metric, we test this hypothesis, and our results confirm it. In addition, we document that the impact of air pollution on the capital-labor ratio is more salient for firms with high economic incentives and close monitoring. Further, we report that to respond to worsening air pollution, a firm uses more capital and substitutes lower-quality labor with more high-quality labor. Finally, after increasing the capital-labor ratio, a firm's value increases, in terms of Tobin's Q, suggesting that the adoption of a higher capital-labor ratio, due to air pollution, is a sound business strategy.     

Does total quality management affect applicant perceptions of recruitment and selection processes?

145 job seeking engineers were surveyed to determine whether applicants who interviewed at Total Quality Management (TQM) organizations perceived any differences in the way they were recruited or selected as compared with those who interviewed at non-TQM firms. TQM firms were identified in two ways: “explicit TQM” (where applicants were specifically told that the firm was a TQM employer) and “inferred TQM” (where TQM was inferred on the basis of specific reported practices). Results showed that there were significant differences between TQM firms (regardless of classification) and non-TQM firms, and between explicit TQM firms and inferred TQM firms. For example, explicit TQM firms screened more stringently, whereas inferred TQM status was predictive of positive applicant reactions to the people met during the site visit. Implications for practice and future research are discussed.     

New careers for old? Organizational and individual responses to changing boundaries

Much has been written about the implications for employees in the post-corporate era of boundaryless careers. Much less has been written about the problems and challenges facing employers within a boundaryless career context. This paper contributes to both levels of analysis. At the level of the individual employee, focusing upon the middle of the organization, we suggest that there has been a differential impact upon individuals with some ‘losers’ and some ‘winners’. Skilled specialist employees and younger employees may welcome changing career boundaries, whereas those with more generic skills and older employees may be less enthusiastic. At the employer level, our research suggests that the rise of new career boundaries has left employers marginalized in unforeseen ways from the emerging new social structures that individuals are increasingly reliant upon to support the development of their skills and professional networks. We agree with Van Buren (2003 Van Buren, H.J. 2003. Boundaryless Careers and Employability Obligations. Business Ethics Quarterly, 13(2): 131–49. [Crossref] , [Google Scholar]) that the demise of the organization-career poses challenges at the organization and industry level in terms of developing and leveraging knowledge. However, the emergence of new boundaries has compounded the difficulties that organizations and industries now face. Thus it may be that even if employers were willing and eager to tackle the employability challenge, the shifting form of career boundaries make this a significant strategic human resource challenge.     

Does asymmetric information always help entry deterrence? Can it increase welfare?

This paper compares the scenarios of complete and incomplete information in a general model where the incumbent can make a capital investment to deter entry. We show that the informational structure can make an unexpected difference in terms of entry deterrence and efficiency. Although asymmetric information encourages entry deterrence behavior, in some cases it decreases the probability of this behavior inducing no entry and thus promotes competition. In other cases, asymmetric information induces less entry but may lead to higher welfare.     

Do institutional investors monitor management? Evidence from the relationship between institutional ownership and capital structure

We examine the dynamic relations between institutional ownership and a firm's capital structure. We find that a firm's leverage decreases when institutional ownership increases. This result implies that a firm reduces its debt level as institutional investors substitute for the monitoring role of debt. More importantly, we find that a firm's suboptimal leverage decreases when the institutional ownership increases, and institutional ownership decreases when a firm's suboptimal leverage increases. This finding shows that institutions not only effectively monitor a firm's capital structure but they also passively sell their shares when dissatisfied with it. In addition, we find that the monitoring evidence on a firm's leverage and suboptimal leverage are more pronounced when the institutional investors are less likely to have business relationships with a firm or the information asymmetry is high in the market.     

Are emergers a threat to the global recovery?

Last year the emergers led the global recovery with the advanced economies lagging, but in recent months there has been a range of positive indicators across the advanced economies, most notably the PMI surveys, with the US non‐manufacturing index reaching an eight‐year high in August and the UK composite index recording its highest ever reading in the same month. By contrast, the indicators from emerging economies have been more mixed and while some of the Chinese data have been better in recent months, the PMI surveys point to stagnation or contraction across a number of other emergers. While emerging economies will continue to make a large contribution to world growth, the global upturn is now being driven by strengthening domestic demand in the advanced economies.…     

Student performance in business and economics statistics: Does exam structure matter?

We investigate whether exam structure really matters in an economics and business statistics course by (1) determining how well performance on multiple choice questions alone expalins overall performance on exams composed of both multiple choice questions and problems, and (2) discovering whether various student characteristics have significantly different impacts on student performance on multiple choice questions versus problems. Our findings suggest that student scores on multiple-choice portions of exams do not adequately determine overall student performance, and that some students are predisposed to do better on multiple choice or problems depending on the characteristics they possess.(JEl A22, A29)     

Does the professionalism of management practices in nonprofits and for-profits affect job satisfaction?

This paper examines workers' satisfaction related to the level of professionalism of managerial practices in the French services sector. The data used are from the original survey conducted by the French Institute for Demographic Research and include both workers' responses on their satisfaction level, individual characteristics, job conditions, etc. and employers' responses on managerial practices implemented. We construct an index of workers' overall satisfaction and an index of ‘managerial professionalism’. In our model of workers' overall job satisfaction, the index of managerial practices is treated as an endogenous variable using two-stage least squares regressions. We show that the index of managerial practices is strongly and positively associated with workers' overall workplace satisfaction. Overall workplace satisfaction is found to be strongly associated with wages and individuals' perceptions about work environment. Finally, working in nonprofits is positively associated with greater overall job satisfaction.     

Does corruption affect health outcomes in the Philippines?

We examine the effect of corruption on health outcomes in the Philippines. We find that corruption reduces the immunization rates, delays the vaccination of newborns, discourages the use of public health clinics, reduces satisfaction of households with public health services, and increases waiting time at health clinics. We also find that corruption affects public services in rural areas in different ways than urban areas, and that corruption harms the poor more than the wealthy. The research underlying this paper was supported by a grant from the World Bank, financed by the Netherlands Trust Fund.     

Does organisational capital influence environmental strategies? Evidence from environmental innovation

As a result of increasing consumer awareness and stakeholder demands about environmental management, firms face stricter challenges surrounding the impact of business operations on the environment. In this regards, environmental innovation is one of the important ways of acting in harmony with the environment. Thus, the purpose of this study is to examine the impact of organisational capital on environmental innovation measured as the process innovation and product innovation. Using environmental innovation data from ASSET4 for the US listed firms between 2002 and 2018, our empirical results reveal a significant positive association between organisational capital and both the process innovation and product innovation. Furthermore, the relationship is stronger in high-profitability and sensitive industries subsamples. These results are robust to additional control variables and endogeneity tests. This study, while endorsing the resource-based view (RBV), provides important implications for the top management teams that organisational capital could be an important channel through which managers can boost environmental innovation.     

Does supplier development lead to supplier satisfaction and relationship continuation?

The primary purpose of this study is to find out if supplier development can serve as a means for buying firms to actively increase supplier satisfaction and eventually predict relationship continuity. Supplier relationships provide an essential means for buying firms to access and leverage supplier resources. One way in which buying firms influence the supply management process is through supplier development. The findings show that supplier development is an important means by which buying firms can increase supplier satisfaction. Supplier development significantly predicts the future of business relationships. Further analysis based on polynomial regressions provides evidence to show how congruence or discrepancy between economic and non-economic satisfaction impact continuance.     

Fetal protection policies: A threat to employee rights?

Corporations utilizing toxic substances in the workplace are faced with the possibility that the use of those substances will cause reproductive damage in their employees. In the face of complex and confusing government regulation on the issue and scientific uncertainty about the effects of many substaces, several major corporations have sought to minimize legal liability for any potential reproductive damage by excluding the fertile female worker from the workplace, Yet, by adopting such fetal protection policies, corporations have opened themselves up to a host of new problems and threatened the rights of workers.     

Financial liberalization and firms’ capital structure adjustments evidence from Southeast Asia and South America

This paper investigates the impact of financial liberalization on the adjustment of debt ratios in 12 emerging markets using firm-level data from 1991 to 2004. The results support the central hypothesis of this paper that adjustment costs are important in explaining firms’ adjustment toward their debt ratio targets. Our results show that deviations from targets are halved within 1.09 years in South America and 1.19 years in Southeast Asia, suggesting speed of adjustment is relatively faster in South American countries than Southeast Asian countries. Furthermore, our results show that after full liberalization those countries where rule of law and creditors rights were properly enforced, firms had higher adjustment speed compared to those countries where such enforcement was not present.The estimated adjustment coefficients imply that on average firms’ adjustment speeds have increased in all South American countries over the period of financial liberalization. On the contrary, firms’ adjustment speeds did not increase in Southeast Asian countries, reflecting the uneven effect of liberalization on the firms’ financing behaviour in Asian countries. There was a significant reduction in time (in years) taken to half the gap between actual debt ratios and targets only in Pakistan and South Korea. This finding supports the idea of uncertain impact of financial liberalization programs on the domestic financial markets in those emerging markets which started opening up their market and integrating with the rest of the world latter than others. These findings have significant implications for the sequence of banking sector liberalization in the emerging markets.     

Does financial integration affect real exchange rate volatility and cross-country equity market returns correlation?

Existing empirical studies show that financial integration affects the behavior of average excess returns, cross-country equity market returns (EMR) correlations and real exchange rate (RER) volatility. We employ a recently developed two-country model with recursive preferences, frictionless and complete markets and highly correlated long-run innovations to examine whether full financial integration (i.e. full risk-sharing) affects the US-Canada EMR correlation and the US RER volatility, consistently with existing empirical findings. First, full risk-sharing gives rise to a relatively high RER volatility. Second, it induces very strong positive cross-country EMR correlations. Both quantities are higher than those observed in the US-Canada asset pricing data, and increase as the risk-sharing incentive increases. In contrast, “international consumption quantities” are weakly sensitive to changes in the level of aversion to consumption and utility risk.     

Power of sustainable development: Does environmental management system certification affect a firm's access to finance?

Although prior research generated inconclusive findings between a firm's environmental management system and firm financial performance, attention to resolve this inconsistency by examining the internal channels is limited. Thus, this study focuses on a firm's access to finance and investigates whether a firm's environmental management system certification (EMS) leads to better access to finance. Based on the organizational legitimacy perspective, we hypothesize that this certification will benefit a firm with stakeholder approval and support and consequently alleviate its financial capital constraints. We further posit that the proposed relationship will be moderated by three types of legitimacy environments pertaining to how stakeholders and investors make the judgment on the environmental management system certification. We document that the proposed relationship, that is, the positive relationship between environmental management system certification and access to finance, will be stronger when the government attaches larger importance to environmental protection (regulative legitimacy), better environmental record (moral legitimacy), and better financial position (pragmatic legitimacy). Empirical analyses provide strong corroborating evidence for our predictions. These findings have important theoretical and managerial implications that are well discussed in this study.