Are U.S. firms using more short-term debt?

We show that, despite the sharp but temporary decline around the financial crisis of 2007–08, corporate debt maturity has risen significantly in the last two decades, erasing much of the secular decline from the 1980–90s documented in the literature. The reversal in debt maturity trend is driven by the rise in the use of intermediate-term debt among medium and large-sized firms. The low interest rates observed in the last two decades and the decline in the demand for long-term corporate bonds partly explains the rise in intermediate-term debt.     

Why are firms unlevered?

In this paper, we examine why firms have no debt in their capital structure. We reject the hypothesis that zero-leverage policies are driven by entrenched managers attempting to avoid the disciplinary pressures of debt. These firms do not have weaker internal or external governance mechanisms. The debt initiation decisions of these firms are not preceded by shocks to their entrenchment, such as takeover threats or the emergence of activist blockholders. Our evidence supports the hypothesis that these firms are financially constrained. Zero-debt firms are small, young, conserve cash from cash-flow, and are more likely to lease their assets. When they have access to a line of credit, they face stricter covenants and higher all-in costs than comparable control firms. They lose market share in economic downturns, consistent with the financial constraints explanation, but inconsistent with theories of predation which suggest that they may be voluntarily stockpiling debt capacity.     

US firms – How global are they? A longitudinal study

Many studies examine firm-level internationalisation using measures such as percentage foreign sales, number of foreign subsidiaries and the number of countries in which the firm operates, but few examine the changes in these measures over time. We conduct a longitudinal study of the internationalisation of Russell 1000 US firms between 1996 and 2010, with further categorisations by age, industry and size. We find little change in the number of purely domestic firms, but substantial overall increases in the extent and scope of internationalisation of MNCs, with periods of both de- and re-internationalisation. Firms appear to expand into new regions and increase their foreign sales in those regions in subsequent years. More than half of the MNCs in our sample experienced a decrease in foreign sales after the 2007/08 credit crisis, with relatively few decreases in the regions in which they operate. By 2010 we find that the majority of the MNCs in our sample are pursuing a semi-global strategy.     

How costly are debt crises?

The aim of this paper is to assess the short and medium-term impact of debt crises on GDP. Using an unbalanced panel of 154 countries from 1970 to 2008, the paper shows that debt crises produce significant and long-lasting output losses, reducing output by about 10 percent after 8 years. The results also suggest that debt crises tend to be more detrimental than banking and currency crises. The significance of the results is robust to different specifications, identification and endogeneity checks, and datasets.     

Are family firms more tax aggressive than non-family firms?

Taxes represent a significant cost to the firm and shareholders, and it is generally expected that shareholders prefer tax aggressiveness. However, this argument ignores potential non-tax costs that can accompany tax aggressiveness, especially those arising from agency problems. Firms owned/run by founding family members are characterized by a unique agency conflict between dominant and small shareholders. Using multiple measures to capture tax aggressiveness and founding family presence, we find that family firms are less tax aggressive than their non-family counterparts, ceteris paribus. This result suggests that family owners are willing to forgo tax benefits to avoid the non-tax cost of a potential price discount, which can arise from minority shareholders’ concern with family rent-seeking masked by tax avoidance activities [Desai and Dharmapala, 2006. Corporate tax avoidance and high-powered incentives. Journal of Financial Economics 79, 145–179]. Our result is also consistent with family owners being more concerned with the potential penalty and reputation damage from an IRS audit than non-family firms. We obtain similar inferences when using a small sample of tax shelter cases.     

Why do some Chinese technology firms avoid ChiNext and go public in the US?

Some Chinese technology firms prefer to go public on US exchanges despite the launch of ChiNext as a NASDAQ-style board of the Shenzhen Stock Exchange in late 2009. Conventional hypotheses based on sales internationalization and issuing costs fail to explain this preference. Instead, our findings suggest the existence of a separating equilibrium in which small but profitable firms choose ChiNext and large firms backed by foreign venture capital prefer US exchanges as their IPO location. Our findings have broader implications for entrepreneurial finance in China. Policy suggestions are offered for increasing the number of foreign VC-backed IPOs on ChiNext.     

Why do private firms adopt IFRS?

Do private firms voluntarily adopt IFRS? If so, why? Answers to these questions have been very limited so far, mainly due to the absence of financial data on private firms. In this paper, I exploit the German setting where the financial statements of private firms are widely available. I estimate multi-period logit regressions on the choice between national GAAP and IFRS for the consolidated financial statements of nearly 3000 German private firms with more than 14,000 firm-years in the period 1998–2010. My results suggest that the expected net benefits of IFRS adoption vary substantially across the group of private firms, depending on their financing needs, governance system, and organizational and informational complexity. Specifically, I find that private firms using IFRS have more growth opportunities, are more leveraged, are externally rated, seek to raise external capital by issuing public bonds or equity, are registered as a stock corporation, are characterized by private equity (PE) involvement, have more international sales and operations, and have a Big Five auditor. These insights should be of great interest to both preparers and regulators in the current debate about the future of financial reporting in private firms.     

Are zombie firms more incentivized to financialize?

This paper investigates whether zombie firms demonstrate a tendency to invest in the financial sector, a practice we term financialization strategy. Unlike those in the United States, Japan, and Europe, we find that zombie firms in China are not necessarily small and that they rely heavily on government subsidies in addition to bank loans for survival. In addition, we document that zombie firms in China experience limited investment opportunities in their core businesses. This combination of readily available funding and limited investment opportunities jointly motivate the financialization of firms with zombie status. We further find that financialization is preferred by non-state-owned firms and by those located in regions with less developed markets. Finally, we suggest that a contagion effect can occur in terms of financialization in provinces that have a high percentage of zombie firms. This research sheds light on the effects of a triangular relationship among firms, government agencies, and financial institutions on both the operations of individual firms and overall market efficiency.     

Why do bank-dependent firms bear interest-rate risk?

I document that floating-rate loans from banks, particularly important for bank-dependent firms, drive most variation in firms’ exposure to interest rates. I argue that banks prefer to supply floating-rate loans, due to their finite ability to transform short-duration deposit liabilities into long duration assets. Three key findings support this argument: banks with more floating-rate liabilities make more floating-rate loans, hold more floating-rate securities, and quote lower prices for floating-rate loans. Intermediary funding structures therefore help determine what types of contracts non-financial firms use. Banks transmit rising policy rates to firms by contractually raising interest rates on existing loans, not just by reducing the supply of new loans.     

Why do privatized firms pay higher dividends?

We examine state income and reputation incentives to account for the high dividends of privatized firms. Consistent with these agency-cost based incentives, we show strong and robust evidence that the extent of state ownership is positively related to corporate dividends. We distinguish between the empirical importance of these incentives using variation in the rule of law to protect minority shareholders, the fiscal deficit and the political orientation of the state. Our findings show that an incentive to enhance the state's reputation with minority shareholders can account for the high dividends of privatized firms.     

Are firms from developed markets more international than firms from emerging markets?

Regionalist supporters’ claim that most of the world's largest firms are regional rather than global and that managers should be encouraged to ‘think regional, act local and forget global’ (Rugman and Moore, 2004, p. 67). We apply the matrix of multinationality proposed by Aggarwal et al. (2011) to a sample of the world's 500 largest corporations, the Fortune Global 500. We show that these firms range from purely domestic to regional, trans-regional and entirely global with most lying in the trans-regional and global categories. Our results imply that global strategies are essential to international trade and management in today's business environment. We compare multinationality results by market type (developed versus emerging market), industry, size and age. We find that firms from more advanced economies tend to be older, larger and more multinational than firms from emerging markets. We find no relationship between multinationality and age or multinationality and size, and conclude that developed market firms are not more multinational as a result of size, age or industrial structure.     

Why are Stock Splits Declining?

The percentage of firms undertaking stock splits has fallen from a peak of 23% in 1982 to less than 1% in 2009. Controlling for time trends and other economic determinants, the declining incidence of stock splits is significantly associated with a drop in household investors’ equity holdings and with a rise in household income. We also report a decline in the size of split factors that is associated with an increase in institutional ownership of equity and with an increase in household income. Collectively, the evidence is consistent with firms responding rationally to changes in investor characteristics.     

Why do firms appoint CEOs as outside directors?

Companies actively seek to appoint outside CEOs to their boards. Consistent with our matching theory of outside CEO board appointments, we show that such appointments have a certification benefit for the appointing firm. CEOs are more likely to join boards of large established firms that are geographically close, pursue similar financial and investment policies, and have comparable governance to their own firms. The first outside CEO director appointment has a higher stock-price reaction than the appointment of another outside director. Except for a decrease in operating performance following the appointment of an interlocked director, CEO directors do not affect the appointing firm's operating performance, decision-making, and CEO compensation.     

Why do reputable agents work for safer firms?

Safer firms receive funding from reputable venture capitalists and offer new securities underwritten by reputable investment banks. We offer a new explanation for these facts employing a moral-hazard model in which a firm and an agent are matched endogenously. More reputable agent's effort has a greater impact on output. Safer firm's output reflects the agent's hidden effort more accurately and therefore the agent's pay scheme tied with the output powerfully motivates her to exert effort. In equilibrium, a safer firm should be matched with a reputable agent since this combination allows to maximize effort of the reputable agent.     

Entrepreneur’s incentives for risk-taking and short-term debt

We investigate the effects of short-term debt for entrepreneur’s incentives for risk-taking. To do so, we develop a model by introducing short-term debt and financing frictions into the entrepreneur framework. The more risk-averse entrepreneur overestimates the liquidity risk and undervalues the private equity, leading to higher incentives for risk-taking. Short-term debt mitigates the risk-shifting problem induced by the entrepreneur’s preference while generating additional risk-taking incentives via rollover risk. We consequently challenge the view of Seta et al. (2020) by predicting a trade-off between the two effects of short-term debt for entrepreneurs, offering a new perspective to harmonize the existing arguments.     

How skilful are US fixed-income fund managers?

We develop a performance evaluation model that incorporates the factors proposed by Huij and Derwall (2008) and a fund-specific benchmark to analyse the performance of US fixed income funds. Using the full sample, and accounting for the possibility of false discoveries, we find that fund management companies extract most of any abnormal performance produced by their fund managers. Our sub-sample analysis indicates that after the Global Financial Crisis (GFC) there was a substantial increase in the number of bond funds with: both positive gross-of-fee alpha and positive net-of-fee alpha performance; and also a reduction in funds with negative-alpha performance. However, because the GFC was such a unique event, it would still be difficult to conclude that these managers offer value for money for investors compared to passive alternatives.     

Why are some modes of acquisition more profitable? A study of the credit card industry

A key challenge in financial services marketing is attracting good customers to the firm. For most financial services firms, including credit card firms, a good customer is also a profitable customer. Managers would like to use marketing tactics that attract the most profitable customers while closely monitoring and perhaps limiting expenditures on marketing tactics that tend to attract relatively less profitable customers. Therefore, managers need to understand the relative effectiveness of different modes of new account acquisition and the impact that the various modes of acquisition may have on overall account profitability. To date, there have been very few studies that have calculated individual level customer profitability and then investigated the relationship between new customer acquisition source and customer profitability. That is, how do modes of acquisition differ in their ability to attract profitable customers? We answer this question using a proprietary and novel data set from the credit card industry. Of the four modes of acquisition used in this industry, we find that Internet and direct mail efforts generate more profitable customers than telemarketing and direct selling. We provide possible explanations for these findings. Our work adds to the growing literature in customer relationship management and our results have important managerial implications for resource allocation among acquisition strategies.     

Why do firms disclose and not disclose structural intangibles?

This study conducts 22 interviews with the directors of 11 firms chosen from the top 30 listed firms by market capital on the Colombo Stock Exchange, with each firm representing an industry. The interviews explore senior executives' views about disclosing the structural intangibles in annual reports to attract financial investments. The study identifies 20 intangible resources in 10 intangible classes. It analyzes the interview data using latent thematic analysis and explores them as responses to social, political, and economic interest groups. Corroborating interview data with annual report data, this study identifies five broad reasons for disclosure and non-disclosure. Build empathy, show they are good corporate citizens, win government support, and build confidence are about disclosure, and divert attention from issues at hand is about non-disclosure. This study finds that disclosure results in managing legitimacy of the social and political interest groups, and also in managing impressions of the economic interest group. Non-disclosure results in managing impressions of the social and political interest groups. The findings contribute to building an evidence-led theoretical connection to understand the structural intangibles disclosed and not disclosed to attract financial investment to firms.     

Why do firms repurchase stock to acquire another firm?

This study investigates firms that repurchase their stock to finance an acquisition. Since research shows that cash-financed acquisitions perform better than stock-financed acquisitions, why do firms that have available cash initiate the extra transactional step. I find these firms are well compensated for their efforts, especially in the long run. On average, these firms have negative abnormal returns prior to their repurchase announcements and thus may choose repurchasing to signal undervaluation. Furthermore, the stock acquisition step allows these firms to share risk, counteract the negative effects of dilution, and enjoy a tax advantage for their efforts.