Amount Of Leverage Research Articles

Affectors on The Financial Distress of Businesses Listed on The Indonesian Stock Exchange: Hotel, Restaurant, And Tourism

The purpose of this research is to ascertain how operating capacity, liquidity, profitability, and leverage affect financial hardship in lodging, dining, and tourism businesses that are listed on the Indonesia Stock Exchange. With 35 hotel, restaurant, and tourism enterprises listed on the Indonesia Stock Exchange, this study employs quantitative methodologies. Additionally, 12 companies were selected as samples through the use of purposive sampling. In this work, logistic regression analysis, hypothesis testing, and descriptive statistics were employed as data analytic approaches. The findings demonstrate that the profitability ratio significantly and negatively impacts financial strain. This finding suggests that a company's financial performance improves with increased profitability, putting it in a better position to avoid financial trouble. Additionally, there is a noteworthy and positive correlation between the liquidity ratio and financial difficulty. It demonstrates that a company's likelihood of experiencing financial problems increases with its liquidity. Conversely, there is a negligible and adverse impact of the leverage ratio on financial distress. This finding suggests that a company's amount of leverage has an effect on the financial difficulties it experiences. Furthermore, financial distress is positively and significantly impacted by the operational capacity ratio. This finding demonstrates that the likelihood of experiencing financial trouble increases with TATO

DEBT RATIO, RETURN ON ASSET, FIRM SIZE AND EARNINGS MANAGEMENT: AGE MODERATION

Earnings management still become a phenomenon both in Indonesia and abroad. Many cases of earnings management practices have occurred and the company's amount of leverage is one of the drivers of earnings management practices. This research aims to examine and describe the relationship between various debt policy, profitability, and company size on earning management moderated by firm age. The selected samples were 102 companies listed on the Indonesia Stock Exchange (IDX) in 2010-2018. The independent variables in this study include DER, bank debt, short-term debt and long-term debt, age, and company size. Earnings management as the dependent variable in this study uses the Modified Jones Model. The results of the regression equation analysis show that all debt policy proxies consistently have a negative and significant effect on earnings management. Furthermore, the company's experience as a proxy for firm age strengthens the relationship between debt policy and earnings management practices. More interestingly, specifically among the three debt policies, bank debt is the policy that is most able to represent the influence on earnings management practices. This indicates that the most effective monitoring of earnings management practices comes from banking institutions. Overall, the profit information shown in financial statements is the product of earnings management, so the level of quality of financial reports is deserving of close inspection and prudence when making decisions based simply on profit information.

Effect of Leverage Ratio and Ownership Structure on Internationalization of Indian Firms

The paper attempts to find a relation between internationalization of firms & the amount of leverage and ownership stake in the capital structure. 'Ownership' & 'Leverage' have been taken as independent variables for the purpose of this study; and 'Degree of internationalization'- defined as 'the percentage of total sales coming from foreign operation' is taken as the dependent variable for the purpose of this analysis. The multivariate dummy regression was run on the data of 100 firms to determine the nature of relationship between the capital structure and internationalization of firms. Further, t-test was used to find the strength of this relationship. The study found that a significant relationship exists between the degree of internationalization and capital structure. Ownership impacts internationalization, much more that leverage. Also the number of years used in the study was found insignificant to influence the nature of relationship.

Determinants of Excess and Deficit Cash Holdings of Firms: Evidence from Emerging Market

Using a sample of Indian firms, we study the determinants of corporate cash holdings in an emerging economy. We study the excess and deficit cash holdings and assess the impact of leverage, accrual quality and working capital accruals on cash holdings. We find that after controlling for growth and size, leverage depends upon whether the firm holds excess or deficit cash. Levered firms with high profitability (measured via return on equity—ROE) hold less cash as compared to firms holding less than desired cash even if the profitability is high, and ample growth opportunities are available. We also find that while operating profit has no significant impact on cash holdings, volatility of sales does have a positive and significant impact. Firms having ready access to capital market (proxied by size and amount of leverage) are less likely to hold cash. Therefore, we argue that such firms can focus on value-generating activities without having to worry about liquidity. At the same time, smaller firms with good profitability (measured as return to equity) may also hold less cash as presented in this study.

Fee Structures in Private Equity Real Estate

Although fees in real estate are important for investors and fund managers, they have received little attention in the finance literature. In this paper, I examine fee structures for private equity real estate funds from an investor's perspective. Fee structures, as proposed by fund managers in placing documents, are used to calibrate the total fee load. The average total fee load for closed-end funds equals 2.7%, which is substantially lower than for private equity funds. Through regression and simulation, I show that core and value-add funds charge significantly lower performance fees compared with opportunistic funds, although there is no difference in management fees. Moreover, larger funds charge significantly less management fees. Investors can substantially reduce fees by controlling the amount of leverage and avoiding commitment fees and catch-ups.

Leverage and Beliefs: Personal Experience and Risk Taking in Margin Lending

What determines risk-bearing capacity and the amount of leverage in financial markets? Using unique archival data on collateralized lending, we show that personal experience can affect individual risk-taking and aggregate leverage. When an investor syndicate speculating in Amsterdam in 1772 went bankrupt, many lenders were exposed. In the end, none of them actually lost money. Nonetheless, only those at risk of losing money changed their behavior markedly – they lent with much higher haircuts. The rest continued as before. The differential change is remarkable since the distress was public knowledge. Overall leverage in the Amsterdam stock market declined as a result.

Leverage and Beliefs: Personal Experience and Risk-Taking in Margin Lending

What determines risk-bearing capacity and the amount of leverage in financial markets? Using unique archival data on collateralized lending, we show that personal experience can affect individual risk-taking and aggregate leverage. When an investor syndicate speculating in Amsterdam in 1772 went bankrupt, many lenders were exposed. In the end, none of them actually lost money. Nonetheless, only those at risk of losing money changed their behavior markedly; they lent with much higher haircuts. The rest continued largely as before. The differential change is remarkable since the distress was public knowledge. Overall leverage in the Amsterdam stock market declined as a result. (JEL D12, D14, D83, G11, G21)

The possible influence of the shipper on carbon emissions from deep-sea container supply chains: An empirical analysis

This article examines the extent to which shippers can influence the level of carbon emissions from the deep-sea container supply chain. It uses data collected in an online questionnaire survey of 34 large UK shippers, supplemented by the results of focus group discussions and interviews with a range of key stakeholders, including shipping lines, freight forwarders, logistics companies and port operators. The online sample comprised shippers responsible for inbound and/or outbound deep-sea containers flows. The amount of leverage that they can exert on ‘carbon-sensitive’ decisions depends partly on the Incoterms that they employ and their use of freight forwarders. Many large shippers still retain significant influence over the choice of carriers used for deep-sea and port feeder services, consignment routing and scheduling and the choice of port. Shippers responsible for inbound flows reported high levels of container fill, though opportunities exist for improving the weight utilisation of outbound containers, possibly by moving to a port-centric logistics model. Around 40 per cent of the shippers consulted currently measure CO2 emissions from their deep-sea container supply chains with only 6 per cent explicitly implementing carbon reduction initiatives. The research shows the importance of adopting a broader supply chain approach to decarbonisation in the maritime sector and emphasises the need for a multi-stakeholder perspective that recognises the important role of the shipper in the process.

Equilibrium risk shifting and interest rate in an opaque financial system

We analyse the risk-taking behaviour of heterogenous intermediaries that are protected by limited liability and choose both their amount of leverage and the risk exposure of their portfolio. Due to the opacity of the financial sector, outside providers of funds cannot distinguish “prudent” intermediaries from those “imprudent” ones that voluntarily hold high-risk portfolios and expose themselves to the risk of bankrupcy. We show how the number of imprudent intermediaries is determined in equilibrium jointly with the interest rate, and how both ultimately depend on the cross-sectional distribution of intermediaries' capital. One implication of our analysis is that an exogenous increase in the supply of funds to the intermediary sector lowers interest rates and raises the number of imprudent intermediaries. Another one is that easy financing may lead an increasing number of intermediaries to gamble for resurection following a bad shock to the sector's capital, again raising economywide systemic risk.

Dynamic Equilibrium with Two Stocks, Heterogeneous Investors, and Portfolio Constraints

We study dynamic equilibrium in a Lucas economy with two stocks, two heterogeneous constant relative risk aversion investors, and portfolio constraints. We focus on margin and leverage constraints, which restrict access to credit. We find a positive relationship between the amount of leverage in the economy and magnitudes of stock return correlations and volatilities. Tighter constraints generate rich patterns in correlations and volatilities, make them less countercyclical, increase risk premia proportionally to assets' margins, and increase prices of low-margin assets more than prices of high-margin assets. We derive closed-form solutions for the unconstrained case and the case of leverage constraints.

Dynamic Equilibrium with Two Stocks, Heterogeneous Investors, and Portfolio Constraints

We study dynamic general equilibrium in a Lucas economy with two trees, one consumption good, two CRRA investors with heterogeneous risk aversions, and portfolio constraints. We focus on margin and leverage constraints, which restrict access to credit markets. We find positive relationship between the amount of leverage in the economy and magnitudes of conditional stock return correlations and volatilities. Tighter constraints give rise to rich saddle-type patterns in correlations and volatilities, make them less countercyclical, increase risk premia proportionally to assets' margins, and increase price-dividend ratios of low-margin assets more than those of high-margin assets. The paper offers a new methodology for solving models with constraints, and derives closed-form solutions for the unconstrained case and the case of leverage constraints.

The U.S. Financial Crisis: A Summary of Causes & Consequences

The near-collapse of the financial system in the United States was the most substantial economic crisis in the U.S. since the Great Depression of the 1920s and 1930s. Since the crisis began in late-2007, more than 6 million Americans have lost their jobs, large and important financial institutions have failed, and trillions of dollars in savings and retirement accounts have been lost. It is generally accepted that problems in the United States housing market are at the root of the current United States and global financial crisis. However, even in mid-2009, twelve months after the financial crisis fully erupted in the United States, it is still too early to determine all of the precise causes and consequences of the crisis. Many different entities share the responsibility for creating or enabling the crisis: mortgage lenders, borrowers, regulators, investors, rating agencies, and probably many others. At its broadest level, this crisis was caused by a failure of governance: of political governance by regulators and legislators, of corporate governance by firms and executives, and of personal governance by individuals. Just as it is too early to determine all of the precise causes of the U.S. and global financial crisis, it is too early to determine the best way to address the crisis. The U.S. government has implemented a plethora of facilities to try to fix the problems – from increased liquidity to mortgage modification programs. Financial institutions have also changed their ways: many are working hard to reduce their exposure to risky assets and extreme amounts of leverage. It seems apparent now that the U.S. will get through this crisis and the U.S. financial system will emerge in reasonably good shape. Whether or not this will be due to all of the efforts of the U.S. government is unclear. It is likely that much of what the government did was essential to saving the system during the peak of the crisis during September and October of 2008. It is also likely that legislators will react to this crisis by instituting legislation that will be misguided and unnecessary. It is important to thoroughly study the causes and consequences of the U.S. financial crisis and its implications for financial markets around the globe in order to better understand how the entities responsible for governing economies and firms might work to prevent a similar crisis from occurring in the future. This chapter attempts to do just that.

DISCUSSION OF Dominant Owners and Performance of Continental European Firms

K rivogorsky and Burton (2012) examine the association between dominant shareholders and firm performance for 1,533 firms from seven Continental European countries using ownership data from 2005 to 2007. The primary analysis in the paper tests the effects of four separate types of dominant owners (institutions, blockholders, banks, and individuals and families) on two measures of accounting performance (return on assets and return on shareholder funds) and a measure of firm value (market-to-book ratio). Supplemental tests examine cross-sectional differences in the effects of each type of dominant owner across individual countries. The main results indicate that banks and individual and family owners have a positive effect on firm performance, while institutions and blockholders have a negative effect on firm performance. The evidence from the within-country tests shows that the relation between particular shareholder types and firm performance varies across different jurisdictions, with dominant owners generally having a positive effect. Dominant shareholders have incentives and the ability to influence the firms in which they own a controlling interest. Dominant owners are motivated to utilize their control to monitor managerial actions because of their claims to the residual profits of the firm (Shleifer and Vishny 1997). Dominant shareholders also have the ability to monitor managerial actions because of their access to inside information and their ability to control internal forces designed to curb managerial actions that are not consistent with maximization of firm value. Thus, monitoring by dominant owners can serve to address the classic agency conflicts between shareholders and investors (Jensen and Meckling 1976), thereby having a positive effect on firm value. In an international context, however, country-level institutions, laws, and other regulatory features can interfere with dominant shareholders’ typical incentives and ability to monitor managerial behavior. Depending on a country’s institutional environment, dominant shareholders could be motivated by a different set of factors, perhaps leading them to take advantage of their ownership status to extract personal benefits from the firm. This type of situation would result in a negative relation between dominant ownership and firm value. Given the potential for either

Equilibrium Risk Shifting and Interest Rate in an Opaque Financial System

We analyze the risk-taking behavior of heterogeneous intermediaries that are protected by limited liability and choose both their amount of leverage and the risk exposure of their portfolio. Due to the opacity of the financial sector, outside providers of funds cannot distinguish 'prudent' intermediaries from 'imprudent' ones that voluntarily hold high-risk portfolios and expose themselves to the risk of bankruptcy. We show how the number of imprudent intermediaries is determined in equilibrium jointly with the interest rate, and how both ultimately depend on the cross-sectional distribution of intermediaries’ capital. One implication of our analysis is that an exogenous increase in the supply of funds to the intermediary sector (following, e.g., capital inflows) lowers interest rates and raises the number of imprudent intermediaries (the risk-taking channel of low interest rates). Another one is that easy financing may lead an increasing number of intermediaries to gamble for resurrection following a bad shock to the sector’s capital, again raising economy wide systemic risk (the gambling-for-resurrection channel of falling equity).

Almost Stochastic Dominance: A Penchant for Risk

This paper shows that the Almost Stochastic Dominance (ASD) decision rule overlooks the effect of leverage on the variance of portfolio returns. If a portfolio dominates another by ASD then that portfolio bought with any amount of leverage will also be dominant by ASD. Therefore, there is no limit to the risk that a portfolio may have and still be dominant. The effect of leverage on returns is particularly important as new Exchange Traded Funds offer returns on an index which are enhanced by leverage. ASD cannot distinguish between index returns which are and are not enhanced by leverage, and therefore the decision rule could lead financial planners using ASD to recommend far too risky investments.

Lender Control and the Role of Private Equity Group Reputation in Buyout Financing

In this paper, we examine whether the reputation of the acquiring private equity group (PEG) is related to the financing structure, loan contract terms, and valuation of LBOs. Using a sample of 181 public-to-private leveraged buyouts (LBOs) completed during the January 1, 1997 to August 15, 2007 period, we find that buyouts sponsored by high reputation funds pay narrower loan spreads, have fewer and less restrictive financial loan covenants, use less traditional bank debt, and borrow more and at a lower cost from institutional loan markets. In addition, PEG reputation is positively related to the amount of leverage used to finance the buyout. While we find that reputation is related to the amount of leverage used, and leverage is significantly related to buyout pricing, we do not find any direct effect of reputation on buyout valuations. We also find that deals sponsored by high reputation PEGs are less likely to experience financial distress or bankruptcy ex-post. The evidence is consistent with the hypothesis that deals involving reputable PEGs are perceived as less risky by creditors because reputable PEGs are more skillful in selecting and monitoring investments or because reputation serves to mitigate the agency costs of debt and thus lowers the need for bank monitoring and control. We also find that macroeconomic conditions (e.g. credit risk spreads), growth prospects, ex-ante risk, and deal size also impact buyout financing terms and valuations. Overall, our results suggest that the increase in leverage and the decline in both the proportion of bank debt financing and the restrictiveness of covenants in recent deals reflect in part the involvement of experienced PEGs in recent buyouts.

Shareholder-Manager Alignment and the Cost of Debt

We investigate the influence of shareholder-manager incentive alignment on the cost of debt using a sample of dual-class firms, where managerial voting rights and cash-flow rights can be separated. We find the cost of debt financing increases in managerial voting rights and decreases in cash-flow rights. However, we also find that the amount of leverage increases in managerial voting rights and decreases in cash-flow rights. Together the results suggest that although the cost of debt increases when shareholder and manager interests diverge, the cost of debt relative to the cost of equity declines, making debt more appealing to firms with high potential agency costs of equity.

How Much Should Investors Pay For Leverage?

In this paper we consider the problem of the appropriate management fee from the point of view of an investor who has a choice between similar products with different amounts of leverage. The results for fee scaling with leverage are different when the investor chooses to lever himself or has the fund group lever the investment, partly due to the transfer of risk of ruin. We also incorporate the dependence of the fee on the higher funding cost incurred by the manager as a function of increasing leverage.

The Impact of Leverage on Hedge Fund Risk and Return

As in the case of traditional investments, hedge funds are often compared on a risk adjusted basis. Risk adjustment is of particular importance for hedge fund analysis since two funds may differ solely by leverage, such that they may differ on an absolute return basis, but be similar on a risk adjusted basis. While leverage should theoretically not affect the level of risk adjusted return within a strategy, it is possible that funds which use higher levels of leverage may in fact trade differently than funds using lower levels of leverage. In this article, the effect of leverage on hedge fund risk and return is analyzed. In brief, results are presented on the level of leverage used in various hedge fund strategies. Results are also provided on the degree to which leverage above or below the median fund leverage results in superior or inferior risk adjusted performance within a particular hedge fund strategy. Overall the results show that while different hedge fund strategies may use different amounts of leverage, within a particular hedge fund strategy, there is little evidence of a significant difference between risk adjusted performance of funds with above-median and below-median leverage.

Labor's ace in the hole: casino organizing in Las Vegas

The fortunes of organized labor in the United States are on the decline. Union density has been steadily falling for decades, and even a concerted effort by innovative unions and new leadership at the AFL‐CIO since 1995 has failed to reverse the losses. Amidst this generally gloomy picture, casino workers in Las Vegas have provided a striking counter‐example. Since 1989, over 30,000 of them have joined the Culinary Union (HERE Local 226), more than doubling the union's membership and bringing union density on the famous Las Vegas Strip to 90%. What accounts for their success in an otherwise bleak landscape for labor? Three sets of factors emerge that explain the basis of the Culinary Union's growth: an unusual labor market, in which labor shortages have helped create high union density and high density in turn has generated new leverage; an industry whose growth strategy has been based exclusively on expansion through new casinos, making it vulnerable to disruption; and a dense web of political relationships and processes that the union has engaged to increase its power vis‐à‐vis the industry. Together these unique structural conditions have given the Culinary Union an unusual amount of leverage. They have used that leverage to sidestep the disadvantages that the National Labor Relations Board (NLRB) election process has created for workers trying to organize, and have instituted an alternative method for establishing union recognition. With the pitfalls of labor law significantly neutralized, the union has been able to organize on scale to a degree not possible in the rest of the labor movement.