Assurance on sustainability reporting and debt financing

Czech family businesses are currently experiencing their first changeover of generations in history. The first generation (founders or successors), two or more generations collectively operate in management and administrative authorities. This article aims to compare and evaluate preference for use of debt or equity financing in family businesses with the differing involvement of generations and the diversity of its allocation for the specific need of the company’s growth. This empirical study is performed based on a qualitative analysis of 245 family businesses. Hypotheses were confirmed using the Pearson correlation coefficient. This study confirms the dependence of equity and debt financing on the number of generations in management. This brings differing perspectives, opinions, and practices for financial management in the sense of a preference for debt or equity financing. The need for debt arises at the moment of compensating the transfer of ownership between generations. The analysis results indicate that family businesses managed by one generation prefer equity financing, companies managed by first and second generations prefer debt financing, and companies managed by second and third generations prefer equity financing. AcknowledgmentThe result was created in solving the project TA ČR ETA 2 (STA02018TL020) “Family businesses: Value drivers and value determination in the process of succession”, TL02000434. We are grateful also to representatives of enterprises who were willing to participate in this research.

This paper compares long-run stock performance following debt financing and equity financing for a sample of rapidly growing firms. If managers are subject to overly optimistic predictions for their asset acquisitions, they are more likely to finance asset growth by debt rather than by equity. The managerial overoptimism hypothesis predicts worse long-term performance for debt-financed asset acquisitions than equity-financed asset acquisitions. If, on the other hand, managers take advantage of “windows of opportunity” for issuing equity, we expect worse performance following equity issuance than following debt issuance. Consistent with the managerial overoptimism hypothesis, we find that debt financing is followed by significantly worse stock performance than equity financing. Managerial overoptimism seems to be a significant factor affecting the choice between debt and equity financing and post-financing stock performance.

We use panel data techniques to analyze the debt and equity financing strategies of the non-financial firms operating in the G8 countries and the selected emerging economies and compare them with those adopted during the financial crisis of 2007–2008. For this purpose, we analyze corporate financial data of 9952 firms in the G8 and 10,531 firms in the emerging economies over 12 years (2003–2014) to understand the corporate financing strategies in two different business environments. We find an increase in corporate debt financing in the G8 as well as the emerging economies during the period of financial crisis. Specifically, the firms operating in the G8 increased short-term debt financing whereas the firms operating in the emerging economies increased long-term debt financing. We also find institutional factors playing their role significantly but differently during the period of financial crisis.

The purpose of this research is to analyze the influence of working capital, fixed financial assets, financial debt and firm size on probability. Data of this research is obtained from 19 companies of textile and garment industry that have been listed on Jakarta Stock Exchange and it has selected using purposive sampling method during 2001 to 2005. Data analysis method used in this research are multiple linier regression and testing hypothesis. Independent variables used in this research are working capital, fixed financial assets, financial debt and firm size and the dependent variable is profitability. Based on testing hypothesis, we have results that working capital and firm size have positive effect and significant on profitability whereas fixed financial assets and financial debt have negative effect and significant on profitability. The implication of this research explain that the company need to play attention on working capital management, fixed financial assets, sales and debt proportion because all those things have influence on profitability.

Debt reduction in the eurozoneThe different forms of debt reorganization 1 Sovereign debt problems are not new.They have troubled nations for centuries.What has changed in the past few decades is the source of sovereign debt financing and the approach to reorganizing that debt in the case of illiquidity or insolvency.Before Brady bonds were introduced in 1989, sovereign debt was typically provided bi-laterally through country to country sovereign credit or banking credits which may or may not have been guaranteed by the government or government institutions [Krugman, 1998].The Brady plan introduced a new instrument in the form of bonds issued by a country as a result of a restructuring of its defaulted bank debt.And bonds began to play an important role in raising funds not only for middle-income countries.Today the sovereign debt is funded largely by state institutions (such as the Treasury or Ministry of Finance) issuing bonds to banks and other financial organizations.By 2010 2 quarter the foreign debt of middle income countries amounted to USD 3.31 trillion, of which USD 1.5 trillion were international debt securities 2 representing an increase of about 5 times over the last 20 years.As financial markets have taken over from banks in fundraising there has been a fundamental change of players in debt negotiations.And new challenges have emerged in restructur-*

Avoiding Distortion in Corporate Valuation Litigation: An Application of Discounted Cash Flow

Large external debt stock has been identified as one of the most important factors, which have restricted the development of many poor countries. The consensus in the literature remains that external debt promotes growth to the extent that a country does not exceed its debt carrying capacity. Otherwise, additional debt accumulation would serve as a tax on future investment returns capable of creating disincentive to invest in the highly indebted countries. In the light of these arguments, this study investigated the possible role of domestic investment in the non-linear relation between external debt and economic growth in Nigeria over the period from 1981 to 2015. Based on the results of threshold regression analysis employed in this study, the overall findings showed that the impact of external debt on economic growth is sensitive to both measures of external debt used, and whether or not the role of domestic investment is accounted for. Specifically, this study confirmed the existence of the debt Laffer curve associated with the debt overhang theory arising from excessive external debt accumulation. Similarly, empirical support was obtained for the crowding-out effect of excessive external debt servicing. In addition, accounting for the role of domestic investment in the non-linear relation between external debt and economic growth reduces the optimal debt carrying capacity of the country. It is therefore suggested that the Nigerian government internalizes a maximum ceiling of 6.81% as the share of external debt stock in gross national income (GNI) to enjoy the resulting growth benefits. External debt financing sources that are free of interest charge could also be explored to circumvent the burden imposed by excessive external debt servicing.

How environmental regulation imperatives introduce innovation in firm financing choice among selected asian economies

Executive Summary Capital structure decisions are vital for firms. Existing theories on capital structure partially explain the difference in capital structure decisions of identical firms. Researchers have integrated psychology with finance in recent years to explain the difference in capital structure decisions better. To help practitioners and academicians understand the role of psychology in capital structure decisions, this article focuses on CEO overconfidence and its influence on equity versus debt financing, short-term versus long-term debt financing, and level of debt financing concerning tax shields. Indian CEOs are unique in their leadership style, values and beliefs. Overconfidence among CEOs of S&P BSE 200 firms is measured using the press coverage of CEOs, and this proxy depicts how the press portrays CEOs. An extensive search on CEOs in relevant search engines helped measure overconfidence among CEOs. The results from regression models document that overconfident CEOs prefer debt over equity and short-term debt over long-term debt. In addition, overconfident CEOs are found to not avail the full benefits of tax shield and follow a conservative debt policy. The presence of bias of overconfidence among CEOs distorts optimal decision-making and deviates capital structure decisions from trade-off theory and pecking order theory of capital structure. The evidence on external versus internal financing helps explain the biased preference of overconfident CEOs for debt and short-term financing. The biased beliefs lead CEOs to form high expectations of cash flows. Overconfidence among CEOs is found to significantly influence capital structure decisions. The robustness of the results corroborates existing findings and documents the influence of behavioural biases on corporate decision-making.

An increase in fixed capital investments is necessary for accelerating the growth of the Russian regions and the economy as a whole and requires increased financial resources. The paper considers the possibility of increasing financial resources of regional companies by attracting additional debt financing. The proposed methodology determines the potential demand for debt financing, considering the performance requirements ensuring financial stability. The paper analyses how an increase in debt financing influences credit rating of a company as well as the cost of debt financing attraction. Unlike other works, this paper considers the debt capital structure of companies. Additionally, the study proposes a methodology for identifying changes in the coefficient of interest coverage (that affects credit rating of companies) depending on various debt financing structures. The application of the developed methodology allowed determining the potential increase in debt financing, which is necessary for the investment of regional companies. Debt financing can increase by 1.7 times (43.5 trillion roubles) in Russia in general, 1.4 times in the Sverdlovsk region, 2 times in the Tyumen region, and 1.6 times in the Chelyabinsk region. There are no opportunities to increase debt financing in the Kurgan region. A reduction in interest rates on loans to non-financial companies allows expanding debt financing of the Russian economy without lowering the credit rating. The study results can be used to determine the potential demand for debt financing from companies, industries, regions and the economy as a whole. Further research may consider the validity of the policy of high interest rates on loans to non-financial companies for achieving high economic growth.

This study analyzes a prime example of corporate restructuring and financial engineering through a detailed analysis of Saudi Aramco's bond and equity financing program which started April 1, 2019. The key steps involved in the ongoing privatization of Aramco, the world’s largest integrated national oil company, via additional major initial public offerings (IPO) in 2021, are explained - including the 2020 acquisition of Saudi Basic Industries Corporation (SABIC). The coupled corporate restructurings of both SABIC and Aramco are visualized in a number of concise diagrams which highlight the impending changes in the appropriation of capital inflows and outflows. The 2020 SABIC acquisition, and 2021 IPO will cause major changes in Aramco’s corporate equity and debt financing, which will be reflected in its financial statements (balance sheet, cash flow account and income statement). We explain what will be the associated accounting shifts and make forward projections for Aramco's financial performance over the next decade, based on certain assumptions of market development and likely debt and equity financing scenarios. Cash flows generated by Aramco for the Saudi Government, before and after the corporate restructuring, are also analyzed in some detail. While the current focus of Aramco’s privatization is on short-term value creation, we argue that the company is also poised for a new global leadership role. The potential impact on the global energy supply system is highlighted, including possible future developments in Aramco’s role as the global oil swing supplier.

This paper first examines the effects of value relevance of earnings and incremental value relevance of cash flows on net external financing, net equity financing and net debt financing. The investors, in general, suffer beta risk and idiosyncratic risk of a firm. The former is the main determinant of risk premium, and the latter can be controlled by the manager. If the firm has better control of idiosyncratic risk, it implies the manager has larger influence on stock returns. Under control accruals, value relevance of earnings and incremental value relevance of cash flows, we also examine the effects of net external, net debt and net equity financings on idiosyncratic risk. To test whether the external financing policy of a firm is consistent with over-investment hypothesis, this study investigate the effects of net external, net debt and net equity financings on future stock returns under controlling for value relevance of earnings and cash flows. This paper further analyzes the relation between current idiosyncratic risk and future stock returns following financing activities. We find that external financing activities are positively related to value relevance of earnings but are unrelated to incremental value relevance of operating cash flows, and external financing is unrelated to value relevance of operating cash flows but is positively related to incremental value relevance of earnings. Moreover, debt financing is unrelated to value relevance of cash flows but is positively correlated to incremental value relevance of earnings, and equity financing is unrelated to value or incremental value relevance of earnings but is positively correlated to value relevance and incremental value relevance of cash flows. We also find that both value relevance of earnings and cash flows are positively correlated to idiosyncratic risk, and current idiosyncratic risk and equity financing are negatively correlated to future returns after controlling value relevance of earnings and cash flows.

PurposeThe purpose of this study was to extend the understanding of restaurant firms’ overall debt and equity financing practices by considering what drives equity financing. More importantly, this study attempted to identify whether an optimal financial leverage point exists in the relationship between debt financing and equity financing for restaurant firms.Design/methodology/approachThis study used fixed-effects regression models with a sample of 1,549 unbalanced firm-year panel data to identify restaurant firms’ financial practices and the impacts of financial constraints.FindingsFirst, restaurant firms tend to issue long-term debt to pay back existing debt. However, the amount of debt does not exactly match the debt’s maturity. Second, small restaurant firms’ net debt financing, as well as net equity financing, has an inverted-U-shaped relationship with financial leverage. Finally, the effect of financial leverage on external financing significantly differs between small and large restaurant firms.Practical implicationsRestaurant firms routinely use both debt and equity financing interchangeably to manage their financial constraints and target debt ratio. Further, firm size is an important indicator of financial constraints, while equity financing plays an important role in managing an optimal target debt ratio.Originality/valueThis study is unique in that it considers determinants of restaurant firms’ long-term debt financing as well as equity financing. This study also examines differences in long-term debt and equity financing practices between financially constrained and unconstrained firms.

PurposeThe study aims to examine whether corporate social responsibility (CSR) disclosure does improve debt financing of listed firms with sustainable development agendas coupled with high chief executive officer (CEO) tenure in India.Design/methodology/approachEmploying panel regression based on fixed effect and instrumental variable regression with fixed effect assumptions, the study examined data from the Bombay stock exchange from the period 2010 to 2019.FindingsThe study demonstrates that the disclosure of current exchange capital and moral capital cannot cause a firm to access short-term and long-term debt financing. However, lag investment in moral capital causes a positive effect on short-term debt financing. The second findings show that CEO tenure has a positive and statistically significant association with short-term debt financing and an insignificant association with long-term debt financing. The third findings show that the interaction of current CSR disclosure (moral and exchange capital) and CEO tenure is insignificant in affecting short-term and long-term debt finance. However, the interaction of lag CSR disclosure (moral and exchange capital) and CEO tenure positively affect short-term debt financing. The study addresses any endogeneity concerns arising from the CSR disclosure-debt financing association.Research limitations/implicationsThis study uses a single country to examine the inter-relationship between CEO tenure and debt financing and CSR measured by moral capital and exchange capital, thereby limiting the study's results for generalisation.Practical implicationsThe observation is that moral capital investment and disclosure do not guarantee new entrants the chance to access debt financing, but subsequent and lag CSR disclosure ensures access.Originality/valueNo studies examine morality from CSR disclosure on debt financing. This study shows that decoupling CSR into exchange capital and moral capital in accessing debt financing presents new inputs for scholarly debate on CSR.

Human capital, public debt, and economic growth: A political economy analysis