Multinationals' diversification and the risk-return trade-off

This paper advances a theoretical rationale to explain Bowman's paradox (1980) that firms with high returns can have low risk. Here we draw on the rich body of international management research and argue that global market diversification, which provides firms with three distinct options and opportunities over domestic firms, can explain the high return-low risk profile. We also argue that no strong theoretical rationale exists in support of either related or unrelated product diversification generating such a favorable risk-return profile. By integrating both the product and the global market dimension of diversification into our analyses and by controlling for the industry effect, this paper sheds new light on the relationship between corporate diversification and the risk-return tradeoff. The results of this research, which are based on the diversification experiences of 125 multinationals, reveal the strikingly important, though so far overlooked, role that global market diversification plays in the joint management of corporate risk and return. Global market diversification here reflects both the multiplicity of international market areas in which a firm operates and the distribution pattern of a firm's industries across these multiple areas.     

LINEX Loss Functions with Applications to Determining the Optimum Process Parameters

In the classical Taguchi quality model, the symmetric quadratic loss function has been used to measure the loss of quality. However, there are a number of situations in which the symmetric quadratic loss may be inappropriate. In this paper, we proposed an asymmetric loss function, called linear exponential (LINEX) loss function, to determine optimum process parameters for the product quality. When the coefficient of LINEX loss function is small, it will be close to the quadratic loss. Moreover, the trade-off problem between quality and cost will be discussed.     

Preferences for improvements in attributes associated with basal insulin: a time trade-off and willingness-to-pay survey of a diabetic and non-diabetic population in Sweden

Objective: Apart from improved health outcomes, treatment convenience per se may have a value to individuals. This is sometimes referred to as process utility and can be estimated in terms of willingness-to-pay (WTP) or quality-adjusted life-years (QALYs). Previous research has produced multiple studies on QALY gains and WTP estimates of insulin-related attributes. There are, however, significant variations between studies, and it is not clear to what extent the value is a reflection of the true preferences or a consequence of the methodological approach. The aim of this study is to estimate the preferences for treatment attributes associated with basal insulin (administration frequency, administration flexibility, and treatment-induced weight gain) using both QALYs—elicited using time trade-off (TTO) and WTP—among a sample of the Swedish general population and among a sample of the Swedish diabetes population.

Methods: Data was collected using web-based surveys which were distributed to members of internet panels. The WTP survey presented five hypothetical scenarios with an offer to pay the incremental cost to receive basal insulin with improved attributes. The TTO survey presented six hypothetical scenarios where the respondent could choose between living for the rest of his/her life with diabetes and receiving treatment with a basal insulin with certain attributes or live for a shorter time with full health. The scenarios were combined with either a basal or a basal–bolus treatment regimen. Results from the TTO analysis were translated into monetary estimates using a threshold value of SEK500,000 per QALY.

Results: In total, 2012 responses were included. The ratings of the attributes were almost identical, irrespective of method for the general population, while it differed to some extent for the diabetes population. The methods produced the same value for flexibility, but the estimates generated with the TTO approach were higher for one less injection and avoided weight gain. The general population assigned a higher utility gain to convenience attributes, while the diabetes population assigned a higher utility gain to avoiding weight gain.

Limitations: About a quarter of the respondents did not accept the scenario in the WTP survey, i.e. protesters.

Conclusions: The ranking of the attributes was generally independent of evaluation method, but the TTO method resulted in similar or higher values compared to the WTP method.     

混合所有制、股权激励与融资决策中的防御行为--基于动态权衡理论的证据

文章基于动态权衡理论,以1999-2014年上市公司为样本,运用混合所有制改革这一“自然实验”条件,研究了高管股权激励对其融资决策中防御行为的影响,分离出激励和治理双重效应。研究发现：(1)股权激励有助于抑制高管融资决策中的防御行为,但这种效应只存在于民营企业中;(2)对于国有企业,只在股权分置改革后才观察到类似效果,而股改前高管在减少债务融资的同时,提高了股权激励水平,自我激励问题明显;(3)公司股权混合度越高,其在赋予高管股权激励上越谨慎,但在国有股比例较高的公司中,混合所有制改革显著提高了股权激励水平;(4)股权混合安排显著改进了股权激励契约在抑制高管防御行为方面的效率,这种效应在非国有股比例较高的公司中更强。     

How Do Capital Structure Policies of Emerging Markets Differ from Those of Developed Economies? Survey Evidence from Korea

We examine the capital structure policies of Korean firms using survey data for business group (chaebol) firms and independent firms. Our results are compared with findings in earlier studies for developed economies: Graham and Harvey (2001) for the United States and Brounen et al. (2004, 2006) for Europe. Korean chief financial officers are concerned about financial flexibility and volatility of earnings when issuing debt; they are concerned about target debt ratio maintenance and recent stock price increases when issuing equity. In contrast to independent firms, chaebol firms are more concerned about differences in corporate tax rates between foreign and domestic markets and the risk of refinancing in bad times. Chaebol firms are less likely to issue debt when faced with insufficient internal funds, which indicates that active internal capital markets are at work among the firms in a business group. Our results suggest that, compared to U. S. and European firms, Korean firms are under more pressure from their peers in formulating capital structure policies, consider equity a cheap source of financing, are less concerned with the dilution of earnings per share, and less frequently provide shares to employees as compensation.     

The effect of corporate sustainability performance on leverage adjustments

We examine the impact of corporate sustainability performance (CSP) on the speed at which firms adjust their leverage ratios to the target levels for a large sample of 31 countries from 2002 to 2018. Using two proxies of CSP, we find that firms with superior CSP tend to adjust faster toward their target leverage ratios. In exploring the potential underlying economic mechanisms through which CSP affects leverage adjustments, we find that better CSP helps firms to ease information asymmetry, enhance stakeholder engagement, push up stock prices in the stock market, and improve competitive advantage in the product market. In the cross section, the positive association between CSP and leverage adjustment speed is less pronounced in countries with high-quality institutions. The results remain unchanged in robustness tests. Overall, this paper highlights the important role of CSP in shaping corporate capital structure dynamics and suggests implications for corporate strategic planning on the privately optimal levels of CSP activities.     

Risk changes and external financing activities: Tests of the dynamic trade-off theory of capital structure

We provide new insight into the relevance of the dynamic trade-off theory of capital structure by examining firms’ external financing activities following risk changes. Consistent with the prediction of the dynamic trade-off theory but inconsistent with the pecking order theory, we find that firms issue equity following risk increases and debt after risk decreases, even when we narrowly focus on financially unconstrained firms. However, the results do not hold for firms with high market-to-book assets ratios, indicating that in this case, external financing activities are better captured by other factors than those explicitly considered in the trade-off theory, such as market timing. Our results are robust to a variety of risk measures including stock return volatility, default probability, implied asset volatility, and adjusted Ohlson (1980) scores.     

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.     

The Determinants of Capital Structure Choice: Evidence from Polish Companies

The main objective of this paper is to investigate which of the two competing capital structure theories – the pecking order of financing choices or the traditional static trade-off model – better describes the financing decisions in Polish companies traded on the Warsaw Stock Exchange (WSE). The data come from financial statements of the companies and cover a 5-year period, 2000–2004. First, a correlation is run in order to separate a set of significant factors influencing the capital structure from the list of the following independent variables: assets structure, profitability, growth opportunities, liquidity, firm size, product uniqueness, earnings volatility, non-debt tax shields, dividend policy, and the effective tax rate. Next, in order to test the relationship between capital structure and its potential determinants, multiple regression is run. The evidence generally suggests the relevance of the pecking order hypothesis in explaining the financing choices of Polish firms.