Shareholder litigation rights and capital structure decisions

We exploit the staggered adoption of the universal demand (UD) laws across U.S. states, which impedes shareholder rights to initiate derivative lawsuits, as a quasi-natural experiment to examine the relation between shareholder litigation rights and firm capital structures. We find that weaker shareholder litigation rights due to the UD laws adoption lead to higher financial leverage, which enhances firm value. Furthermore, the positive relation between the UD laws adoption and financial leverage is more pronounced for firms exposed to higher shareholder litigation risk ex ante or financially constrained firms. Our evidence is consistent with lower shareholder litigation threats motivating firms to increase financial leverage.     

Information asymmetry,leverage and firm value: Do crisis and growth matter?

Drawing on pecking order and agency cost theories, we assess the extent to which information asymmetry is an important determinant of firm value and the extent to which this relationship is conditional on the leverage level of firms. We also assess the impact of information asymmetry on firm value during the pre and post 2007/09 financial crisis period and for high and low growth opportunity firms. Using a large sample of UK firms, our empirical findings suggest that information asymmetry adversely impacts firm value, and that this effect decreases with firm's leverage. We also find that leverage has a negative effect on firm value, and that the marginal effect of leverage is lower for information asymmetric firms. Further, we find that the relation between information asymmetry and firm value is more pronounced in the post-crisis period than the pre-crisis period. Finally, we show that the impact of information asymmetry on firm value is higher (lower) for firms with high (low) growth opportunities.     

Corporate governance,capital structure and firm performance: Evidence from Thailand

We examine the relationship between corporate governance and firm performance for a panel sample of 493 firms of non-financial firms in Thailand during the period 2001–2014. We find that for the full sample, corporate governance is not associated with financial leverage and firm performance. Leverage has a positive effect on firm performance. When we split firms into small and large firm subsamples, we observe some influence of corporate governance. The negative effect of audit committee size on firm performance is evident for large firms while the effect of audit reputation on firm performance is evident for small firms only. Furthermore, financial leverage mediates the effect of audit committee size on firm performance for the large firms.     

Labor unemployment risk and corporate financing decisions

This paper presents evidence that firms choose conservative financial policies partly to mitigate workers' exposure to unemployment risk. We exploit changes in state unemployment insurance laws as a source of variation in the costs borne by workers during layoff spells. We find that higher unemployment benefits lead to increased corporate leverage, particularly for labor-intensive and financially constrained firms. We estimate the ex ante, indirect costs of financial distress due to unemployment risk to be about 60 basis points of firm value for a typical BBB-rated firm. The findings suggest that labor market frictions have a significant impact on corporate financing decisions.     

Macroprudential policies and bank competition: International bank-level evidence

The paper analyzes the effect of changes in eight types of bank-oriented macroprudential policies on bank competition and stability. Using a bank-level database of a maximum of 2511 listed banks from 52 countries, I find that a tightening in bank-oriented macroprudential policies on average increases both bank competition and stability. However, there are differences across policies and countries. Loan supply and liquidity-based policies increase bank competition whereas capital and tax-based policies reduce bank competition. Tighter legal restrictions on entry and activity in a country reduce the positive (increase the negative) effect of macroprudential policies on bank competition. In terms of policy implications, I identify a sub-set of especially useful macroprudential policies that increase not only financial stability but also bank competition.     

Capital Structure and Firm Efficiency

Abstract:  This paper investigates the relationship between firm efficiency and leverage. We consider both the effect of leverage on firm performance as well as the reverse causality relationship. In particular, we address the following questions: Does higher leverage lead to better firm performance? Does efficiency exert a significant effect on leverage over and above that of traditional financial measures of capital structure? Is the effect of efficiency on leverage similar across different capital structures? What is the signalling role of efficiency to creditors or investors? Using a sample of 12,240 New Zealand firms we find evidence supporting the theoretical predictions of the Jensen and Meckling (1976) agency cost model. Efficiency measured as the distance from the industry's 'best practice' production frontier is positively related to leverage over the entire range of observed data. The frontier is constructed using the non-parametric Data Envelopment Analysis (DEA) method. Using quantile regression analysis we show that the reverse causality effect of efficiency on leverage is positive at low to mid-leverage levels and negative at high leverage ratios. Firm size also has a non-monotonic effect on leverage: negative at low debt ratios and positive at mid to high debt ratios. The effect of tangibles and profitability on leverage is positive while intangibles and other assets are negatively related to leverage.     

Multinational capital structure and financial flexibility

We address multinational capital structure decisions when firms have varying degrees of financial flexibility for shifting income and/or tax shields between subsidiaries. We find: (1) firms can use leverage to dramatically reduce negative valuation effects from operating in a high-tax country; (2) financial flexibility is a key determinant of optimal capital structure, acting as both a substitute and a complement for leverage; (3) multinational firms derive a synergistic effect from financial flexibility, which can enhance their value beyond that for a single-country firm from a low-tax jurisdiction; and (4) optimal capital structure typically differs substantially across subsidiaries, with each having positions in multiple currencies.     

Carbon risk and corporate capital structure

This research exploits Australia's ratification of the Kyoto Protocol, which mandates the country to reduce carbon emissions, thereby exposing Australian firms to increased carbon risk, as a quasi-natural experiment to examine the causal effect of carbon risk on firm capital structure. We find that the Kyoto Protocol ratification leads to a decrease in financial leverage of heavy carbon emitting firms and such a decrease is more pronounced for financially constrained firms. Further analysis indicates that increased carbon risk leads to higher financial distress risk, which motivates firms to decrease financial leverage.     

Is corporate social responsibility engagement influenced by nearby firms? Evidence from China

This paper explores whether the CSR engagement of a focal firm is influenced by the CSR density formed by nearby firms. Using a sample of listed firms from 2010 to 2019 in China, we find a positive relationship between the local CSR density and the CSR engagement of a focal firm. Based on the heterogeneous analysis, we find that the impact of local CSR density is more pronounced for firms with worse financial conditions (i.e., lower profits, cash to debt, sales to inventory, and higher leverage), less corporate investment (i.e., lower capital expenditure growth, organization capital investment, employee growth) and fewer market shares. The primary findings are robust after addressing potential concerns. Overall, our findings provide evidence of the effect of firms' locations in the context of CSR engagement and have insightful implications for managers and governments seeking CSR improvement in emerging markets.     

Do productive firms get external finance? Evidence from Chinese listed manufacturing firms

Due to information asymmetry problem in financial markets good quality firms often find it difficult to prove to external finance providers about their true quality and to distinguish themselves from bad quality firms. We argue that instead of sending indirect signals to financial market good quality firms could focus on improving their productivity to obtain external finance. Besides relying solely on firms' balance sheet information external finance providers using firms' TFP or labour productivity information would have a true knowledge of firms' efficiency and risk. Overall, using a panel of 1591 Chinese listed manufacturing firms between 2003 and 2016 we find that productivity measured by TFP or labour productivity is statistically and economically important and positive in determining firms' external finance, i.e. total leverage, new issue of equity and long-term debt. We find that productivity is helpful for firms to raise new equity finance, but only some weak results for total leverage and long-term debt. Such results hold for both the whole sample and private firm sample. We also find that large and/or old firms and exporting firms are able to make better use of their productivity to gain external finance than their respective counterparts, i.e. small young firms and non-exporting firms. The causality of the regression results is also confirmed by difference-in-difference tests using an exogenous industrial policy shock.     

Do labor unions affect firm payout policy?: Operating leverage and rent extraction effects

While previous literature documents weak effects of unionization on payout policy on average, we find that this average relationship hides significant heterogeneous effects of unionization on payouts across firms that depend on firm profitability. The effect of unionization on payouts is negative for low-profitability firms but positive for high-profitability firms. We posit that labor unions (i) increase operating risk, which negatively affects payouts, but (ii) increase potential for rent extraction from unions, which could induce shareholders to demand positive payouts. Higher profitability mitigates the negative effect while strengthening the positive effect, making the relation between unionization and payouts less negative or more positive. We provide evidence consistent with both the negative and positive effects of unionization on payouts. Our empirical design mitigates endogeneity concerns. Further, an instrumental variable analysis and a cross-sectional test using right-to-work laws confirm that endogeneity is unlikely to drive our results.     

Optimal macroprudential policy and rational bubbles

We provide a microfounded framework for the welfare analysis of macroprudential policy within a model of rational bubbles. For this, we posit an overlapping generation model where productivity and credit supply are subject to random shocks. We find that when real interest rates are lower than the rate of growth, credit financed bubbles may be welfare improving because of their role as a buffer in channeling excessive credit supply and inefficient investment at the firms’ level, but their sudden price decrease may cause a systemic crisis. Therefore, a well designed macroprudential policy plays a key role in improving efficiency while preserving financial stability. Our theoretical framework allows us to compare the efficiency of alternative macroprudential policies. Contrarily to conventional wisdom, we show that macroprudential policy (i) may be efficient even in the absence of systemic risk, (ii) has to be contingent on productivity shocks and (iii) must be contingent upon the level of real interest rates.     

The Net Benefits to Leverage

I estimate the market's valuation of the net benefits to leverage using panel data from 1994 to 2004, identified from market values and betas of a company's debt and equity. The median firm captures net benefits of up to 5.5% of firm value. Small and profitable firms have high optimal leverage ratios, as predicted by theory, but in contrast to existing empirical evidence. Companies are on average slightly underlevered relative to the optimal leverage ratio at refinancing. This result is mainly due to zero leverage firms. I also look at implications for financial policy.     

产业政策与企业资本结构调整速度

本文以2006-2015年我国沪深A股上市公司为研究样本,在“十一五”与“十二五”产业规划所处的时间区间内,考察了产业政策对企业资本结构调整速度的影响以及作用路径。结果显示,产业政策与企业资本结构调整速度显著正相关,且分别在非国有、小规模和融资约束较严重的企业中更加显著。区分调整方向后发现,产业政策能提高资本结构向上调整的速度,但只有重点产业政策能提高固定资产比例较低的企业向下调整的速度。基于作用路径的分析发现,产业政策提高了企业选择增加债务的方式来调整资本结构的概率;重点产业政策提高了特定类型企业以增加权益方式向下调整资本结构的概率。上述结果表明,产业政策主要通过债务融资方式影响资本结构调整速度,而只有受到重点产业政策支持的特定类型的企业能够通过权益融资方式提高资本结构调整速度。     

Foreign Ownership and Firm Value: Evidence from Australian Firms

The paper employs various measures of foreign ownership and investigates impact of foreign ownership on value of firms in Australia. We find that both, traditional measure and free float measure of foreign ownership has a positive and significant impact on firm value. We also find that foreign institutional holdings in Australian firms’ have a significant and positive impact on firm value. Results are robust to various econometric estimation techniques. Our results have implications for investors and corporate financial policies.     

CEO EXTRAVERSION AND CAPITAL STRUCTURE DECISIONS: THE ROLE OF FIRM DYNAMICS,PRODUCT MARKET COMPETITION,AND FINANCIAL CRISIS

Using panel data of U.S. firms, we focus on an important yet understudied facet of the chief executive officer's (CEO) personality—extraversion—and how it affects corporate capital structure decisions. We examine how this relation is moderated by financing (tax) benefits, financial crisis, firm size, growth opportunities, and collateralization. The results show that firms managed by extraverted CEOs use greater financial leverage, adjusting toward target leverage levels at a faster speed, with about half-life within a year for book and market leverage. In addition, the positive extraversion–leverage relation is enhanced for firms that are large, have greater collateralizable assets, and are more vulnerable to external shocks (financial crisis). Last, although the positive extraversion–leverage relation holds particularly when product market competition is high, the effect is attenuated for high-growth opportunity firms.     

An empirical analysis of zero-leverage firms: New evidence from the UK

This paper examines why some firms have no debt in their capital structures despite the potential benefits of debt financing. It adds new insights to this zero-leverage phenomenon by addressing two unexplored questions: Does a firm have zero leverage as a consequence of financial constraints or because of a strategic decision to mitigate underinvestment incentives and preserve financial flexibility? Is the decision to follow a zero-leverage policy affected by macroeconomic conditions? Analyzing a new sample of UK firms over the period 1980–2007, we show that the zero-leverage policy is prevalent but that zero-leverage firms are not homogeneous. There are two distinct groups of unlevered firms with different levels of constraints as measured by their dividend policy, namely payers and non-payers. Importantly, we find new evidence that these groups have different motives for eschewing debt. Firms in the second group (non-payers) have zero leverage mainly due to financial constraints. Firms in the first group (payers) deliberately eschew debt to mitigate investment distortions, as predicted by the underinvestment and financial flexibility hypotheses. Macroeconomic conditions have a significant effect on the zero-leverage decision, especially for this less constrained group.     

Emerging market corporate leverage and global financial conditions

This paper explores how global financial conditions influence corporate leverage growth in emerging markets (EMs). Using a sample of 800,000 listed and non-listed firms across 28 EMs, we find that accommodative global financial conditions—initially proxied with a measure of U.S. monetary policy—are associated with faster leverage growth. The impact is more pronounced for financially constrained firms, such as small- and medium-sized enterprises (SMEs), and for EMs whose domestic monetary policy is more aligned with that of the United States. The findings suggest that global financial conditions affect EM firms' leverage growth by influencing domestic interest rates and by relaxing corporate borrowing constraints. Finally, leverage increases disproportionately more for firms that are either relatively less profitable or less solvent when global financial conditions become looser.     

Wealth transfer,signaling and leverage in M&A

Merger activity amplifies the conflict of interest between a bidder's different classes of security holders. This study examines how equity returns and credit default swap spreads are affected by acquisition-driven changes in firm leverage. We develop an improved proxy for predicted leverage changes which includes transaction financing and find it has a positive relationship with both equity returns and credit spreads. Using data for North American firms that made acquisition announcements between 2008 and 2014, we find that in leverage increasing mergers, bidding firm shareholders gain while bondholders lose. While these results are consistent with the wealth transfer literature we show that the gains to bidders' shareholders and losses to bidders' bondholders are caused by the change in leverage, not the form of payment or its signaling effect as is commonly documented.     

失业保险与公司财务杠杆

我国劳动力市场化程度日益加深导致劳动者职业转换愈加频繁,失业保险的作用日益突出。本文探究了失业保险金水平对企业财务杠杆的影响。运用2009—2019年上市公司数据进行实证分析,结果发现失业保险金上升会导致公司财务杠杆下降。渠道检验显示,提高失业保险金可以降低员工失业风险溢酬,公司劳动力成本下降,公司有更多自由现金流和盈利进行内源融资和偿还债务,公司财务杠杆下降。进一步分析发现,失业保险金的作用在失业率高的地区更加显著。主要结果在分别运用《社会保险法》和《关于调整失业保险金标准的指导意见》构造双重差分模型和工具变量解决内生性问题、更改模型设置、排除投资水平影响、删除特殊省份、更换样本期间后,依然成立。本文结果说明加大失业保险保障力度有助于降低企业财务风险。