Corporate Financing Decisions Research Articles

PERAN CEO PEREMPUAN DALAM KEPUTUSAN STRUKTUR MODAL DAN OPTIMASI NILAI PERUSAHAAN

We extend the literature on how managerial trait relates to corporate financing decisions by documenting that firms run by female CEOs have lower leverage than otherwise similar firms run by male CEOs. We employ a database containing firms listed on Indonesia Stock Exchange from 2008 to 2021. The results are robust in controlling for the variable of firm maturity and corporate governance. We further document that this risk-avoidance behaviour of female CEO appears to lead to distortions in the value maximisation process. However, risk-averted female CEO in a small size company optimise corporate firm value more than in a big size company. These results have important economic implications for long-term corporate growth
 
 Keywords: Leverage, Female CEO, capital structure, firm value, firm size

Private benefits of corporate philanthropy and distortions to corporate financing and investment decisions

AbstractResearch Question/IssueThis study examines whether private benefits of control, as measured by corporate philanthropic activities, distort corporate financing and investment decisions.Research Findings/InsightsWe find that corporate giving represents a private benefit of control that distorts corporate investment and financing activity, consistent with free cash flow agency theory. Corporate giving discourages managers from pursuing external financing, especially debt issuance, to minimize outside monitoring. It creates preferences for internally financed cash acquisitions for the same reason. These distortions reduce shareholder wealth. Following both the 2003 dividend tax cut and hedge fund activism, corporate charitable contributions fall while investment rises, suggesting suboptimal investment caused by managerial private benefit extraction. Acquisition announcements of firms making large charitable contributions show negative stock market reactions that are more pronounced for acquirers with poor corporate governance.Theoretical/Academic ImplicationsOur findings suggest that due to agency problems and managerial rent extraction, corporate philanthropic activities can distort corporate financing and investment decisions and yield corporate charitable contribution allocations that personally benefit a firm's CEO at shareholder expense.Practitioner/Policy ImplicationsAs corporate philanthropy imposes a significant cost to shareholders, managers may seek shareholder approval on corporate philanthropic activities. The Securities and Exchange Commission may also require timely disclosure of corporate donations.

The effect of option listing on financing decisions

AbstractThis paper investigates the effect of option listing on corporate financing decisions. Firms experience a significant drop in leverage, which is driven mainly by an increase in new equity issues. This effect is more prominent in firms with greater information asymmetry and lower percentages of quasi‐index and transient investors before listing and those with active options trading after listing. After options are listed, the newly listed firms hold more cash and engage in more acquisitions, which are funded mainly by equity issues. These findings suggest that option listing has a significant impact on financing decisions because of lower information asymmetry and that firms use the post‐listing equity to build up financial slack and support major investments, such as acquisitions.

The Effect of Access to the Public Debt Market on Corporate Financing Decisions: The Case of REITs

We examined the effects of access to public debt on the corporate financing decisions in real estate investment trusts (REITs) using a difference-in-differences approach and a propensity score approach. The introduction of credit ratings by S&P and Moody’s has allowed REITs to access the public debt market. To investigate the impacts of the introduction of credit ratings, we compared the financing policies in REITs with initial credit ratings before and after the introduction of credit ratings with REITs that had not obtained a credit rating between 1980 and 2016. After obtaining credit ratings, REITs have significantly increased the corporate leverage ratios and the use of long term debt, which suggest that REITs were constrained from debt financing, in particular long term debt financing, in the past until they could gain access to the public debt market after the introduction of credit ratings. Access to the public debt market has also significantly reduced both equity issuances and cash holdings. Our empirical results suggest that the introduction of credit ratings can reduce information asymmetry, and affect REITs’ capital structure decisions and the level of cash holdings.

The Impact of Financial Culture on the Operation of Hungarian SMEs before and during COVID-19

The main aim of this study is to explore the conceptual framework of corporate financial culture and its practical relevance in an emerging Central European market economy, at the level of the Hungarian SME, with a special emphasis on the Hungarian SME sector. In our study, we highlight each dimension of corporate financial culture, focusing on the established corporate financial culture index, and within it, we examine the significance of the financial management elements sub-index and the risk and insurance sub-index separately. In addition, we look for logical, causal, and statistically verifiable relationships between corporate financial literacy and the outcome of corporate financial decisions and corporate risk taking. The relationships were broken down over two years in the analysis. Approximately 2167 responses were included in the 2019 sample and 3281 in the 2021 sample. These representative samples were taken from the Hungarian SME sector and multiple linear regression models were built to find a significant moderation effect of financial literacy between perceived risks and the insurance activity of companies. We conducted our research in two different periods, the unique feature of which is that we conducted a survey before and during the coronavirus crisis, so we could make a comparative analysis. The method used in this research study is a literature review analysis of reference manuscripts, discussing topics related to financial literacy, corporate risk management, and corporate financial management, published in the last 10 years. Our results show that there are positive and significant relationships between company management, corporate risk management, and corporate financial literacy. The results of our study draw the attention of company leaders to the practical significance of financial culture—efficiency, profitability, and stability.

Debt structure and debt overhang

We study the impact of heterogeneous debt structures on corporate financing and investment decisions in a dynamic trade-off model. The issuance of bank debt along with market debt accelerates investment and mitigates the ex-post debt overhang relative to exclusive market debt structures. A growth firm optimally increases its reliance on bank debt and decreases its usage of market debt when it has fewer valuable growth opportunities, its asset volatility is higher, its bankruptcy cost is lower, or it faces a low tax rate environment. We identify the non-monotonic effects of the cyclicality of growth opportunities on firms’ optimal debt composition.

Corporate financial decision under green credit guidelines: evidence from China

Developing green finance is an important measure for China to achieve a win-win situation between economy and ecology. This study adopts the implementation of Green Credit Guidelines (GCG) in China in 2012 as an intervening event and empirically examines its relative impact on corporate financing and investment using Difference-in-Difference and Difference-in-Difference-in-Difference models. Employing the financial data of A-share listed enterprises from 2009 to 2015, we find that the implementation of GCG restrains the financing and investment behavior of heavily polluting enterprises. The effects of GCG are influenced by institutional factors, and GCG has a more inhibitory effect in the higher polluting, state-owned, and eastern region registered enterprises. This result reveals the importance of GCG in adjusting financial leverage and promoting environmental protection. Policy implications, such as governments should improve incentive and punishment mechanism for heavily polluting enterprises and financial institutions should innovate in green credit business, are proposed.

Duration of executive compensation and maturity structure of corporate debt

While recent studies show that long vesting periods in managerial compensation increase corporate investments, these investments such as research and development contribute to information asymmetry and therefore may affect the maturity structure of corporate debt. We find that firms with longer CEO pay duration have shorter debt maturity, which is consistent with the notion that firms shorten debt maturity to mitigate information asymmetry. This effect is stronger for firms with larger bid-ask spread, less analyst coverage, more growth options, more volatile returns, and lower default risk and for firms in R&D intensive industries. Firms with longer CEO pay duration prefer debt issuance over equity issuance, and they also exhibit higher future investment growth and Tobin's Q. We strengthen the identification by exploiting the quasi-randomly staggered compliance of a regulatory change (FAS 123-R) and the enforceability of noncompetition agreements as exogenous shocks to CEO pay duration. Our paper shows that the duration of executive compensation affects corporate financing decisions.

Evaluation of enterprise financial investment environment based on block‐chain and cloud computing

AbstractImproving and strengthening the various factors of the financial investment system to improve the entire investment system has become an important part of modern economic development. This research is based on block‐chain and cloud computing on the evaluation of corporate financial investment environment. It aims to fully apply the advantages of block‐chain and computing technology to conduct a thorough analysis of corporate financial investment environment and increase the stability of corporate financial investment decisions. Provide economic benefits to a certain extent. The article mainly analyzes the status quo, influencing factors, and evaluation principles of the financial investment environment, and combines the advantages of cloud computing and block‐chain in data acquisition and processing applications to conduct experiments; this research constructs a structural correlation model between the enterprise and the external environment, and investment business data process and cloud computing and financial investment information organization structure model, which can visually present specific investment operation details, and so on; formulate comprehensive evaluation indicators for regional investment, and focus on the role of the institutional environment based on the analysis of the role of regional factors on the regional development of the enterprise. The research results show that cloud computing technology and block‐chain technology have greatly improved the construction of financial investment data whether it is intertemporal, predictive or follow‐up. From the data inspection results, the maximum value of this performance has been expanded from the original 5.98 to 9.27; from the perspective of computational performance, it has been increased from 5.98 to 9.27.

Creditor protection, shareholder protection, and cost of debt financing around the world

Debt financing plays an important role in corporate financial decisions. Therefore, the cost of debt is an interesting topic in corporate finance. Using a sample of 153,784 observations across 30 countries from 2003 to 2016, we find that creditor rights positively affect the cost of debt. In addition, the effect of shareholder rights is weaker in countries with stronger creditor protection. JEL Classification: G32, G34

Research on the Impact of Economic Policy Uncertainty on Enterprises’ Green Innovation—Based on the Perspective of Corporate Investment and Financing Decisions

Improving enterprises’ green innovation ability is beneficial to realize the “win–win” of economic development and environmental protection. As the global economic situation is complex and volatile, economic policies changed frequently. Will the rising uncertainty of economic policies affect enterprises’ green innovation? Taking China’s A-share-listed companies from 2008 to 2019 as the research sample, the Baker index based on news media and network information is used to measure the uncertainty of national economic policy, and the official exchange index based on the complex network is used to measure the uncertainty of economic policy in prefecture-level cities. It is found that there is an inverted U-shaped relationship between economic policy uncertainty and firms’ green innovation capability. Moreover, the uncertainty index of national macroeconomic policy is mostly on the left side of the inverted U shape, which can promote the improvement of enterprises’ green innovation ability. However, too frequent changes in regional economic policies will inhibit enterprises’ green innovation ability. This paper further analyzes the moderating effect of financialization of investment behavior and financing constraint on the impact of economic policy uncertainty on green innovation of enterprises from the perspective of investment and financing behavior choice. It is found that the impact of economic policy uncertainty on green innovation is more obvious for firms with low financing constraints and low financialization.

Debt maturity structure and firm investment in the financially constrained environment

PurposeThe financial policies of the modern world corporations and their investment decisions are generally considered as interrelated because the agency problems, associated with the debt level and its maturity structure, give rise to incentives for overinvestment or underinvestment. The present study empirically investigates the linkage between debt maturity structure and firm investment in a financially constrained environment, using Pakistan as a case study, to determine how the institutional environment in which firms operate affect these decisions and their linkage.Design/methodology/approachThe empirical analysis is carried in a panel data setting using panel regression models as the baseline methods. Moreover, generalized methods of moments (GMM) estimators are used, coupled with the instrumental variables approach, for robustness and improving the efficiency and consistency of estimates.FindingsResults suggest that firms rely more on short financing in Pakistan. Thus, given the capital structure which is characterized by higher proportion of short-term financing, the higher level of leverage is less likely to cause underinvestment problem. However, the underinvestment problem do persists in the firms that have higher portion of long-term debt. These findings imply that the debt-overhang problem may persist even in the financially constrained environments where attractive investment opportunities are limited, and long-term financing is difficult to acquire.Originality/valueThis study contributes to the literature by revealing how corporate investment and financing decisions and their linkage is influenced by the institutional environment of the less developed countries which is characterized by underdeveloped financial markets, inefficient legal system and weak investor protection system.

The effect of corporate social responsibility on Malaysian financial institutions' dividend payout

Background: The corporate social responsibility (CSR) disclosure was made mandatory in Malaysia in 2007 with the introduction of the CSR Framework by Bursa Malaysia. Since then, the practice of CSR disclosure is growing, as Malaysia joins global efforts towards sustainable development. Despite increased research on CSR; limited studies are assessing the relationship of specific dimensions – environmental, community, workplace and marketplace, towards dividend payout, which is crucial to investment and corporate financial decision making. Method: The study involved 32 Malaysian public listed finance companies as of 2017. It deployed data from annual reports and databases. Additionally, the study used content analysis to measure the CSR disclosure score, and dividend payout was calculated from the database. Results: There was a significant correlation between community and workplace dimensions with dividend payout. Despite the absence of significant results, the regression analysis showed a positive relationship between community and workplace dimensions with dividend payout. Besides, there was an inverse relationship between the environmental and marketplace dimension with dividend payout. The results indicated that active involvement in the community dimension resulted from an immediate positive impact towards brand equity, attracting current and new customers, and therefore improving the earning levels and dividend payout. Additionally, greater participation in the workplace dimension solidifies employees' engagement and motivation, improves the productivity level, which can be translated into enhanced earning levels and dividend payout. Meanwhile, participation in environmental and marketplace dimensions requires a longer period to yield an impact, higher development expenditure, and involve sensitive information that might benefit competitors. Hence, companies tend to utilise internal funding instead of redistributing the wealth through dividend payout. Conclusion: The study contributes to the literature of CSR by explaining the relationship of specific dimensions of environmental, community, workplace, and marketplace towards dividend payout using the evidence from the emerging economy.

Impact of CEO Overconfidence on Corporate Financing Decision with Mediating Role of Risk Perception

The purpose of this paper is to investigate the impact of managerial (Chief Executive Officer) overconfidence on corporate financing decision with the mediating role of risk perception. This study indicates that psychological factors and biases affect the decision making of human beings including top management. The research design of this research work is causal and primary data has been used to test the results of this study. Among all the companies listed on Pakistan Stock Exchange, researchers have selected top executives of 200 companies as a sample. E-Questionnaire has been used to collect the required data through LinkedIn and other mailing sources. Simple linear regression and correlation have been employed to test the model and Baron and Kenny (1986) four-step mediation has been used to test the mediation effect of risk perception. Results of this study conclude that there is a significant positive relationship between overconfidence of CEO and leverage suggested that there is a significant negative relationship between CEO overconfidence and risk perception. However, there is an insignificant result for the mediating role of risk perception between CEO overconfidence and leverage. The results are in line with previous studies on emerging economies.

Impact of Financial Decisions on Firm Performance: Path Analysis Approach

This study intended to explore causal relationships between the corporate performance and financial decisions of the firms which are listed on the Pakistan stock exchange (PSX). This study has used Return on assets and Tobin's Q as the measures of accounting performance and market performance respectively. To effectively examine the causal structure of corporate financing, investment, dividend payout decisions, and the firm performance simultaneously this study has used path analysis approach. The sample comprises 292 non-financial firms which are listed on the Pakistan Stock Exchange (PSX). The findings clearly show that debt financing has positive effect on the investment and dividend has negative effect on the investment decisions. The debt financing and investment has a negative impact on corporate performance while dividend decisions has a positive impact on corporate performance. This study helps to understand the corporate decision making process of Pakistani firms. To the author's knowledge this is the first study attempted to check the application of path analysis in emerging economies to study the causal structure of corporate financial decisions and corporate performance.

A Survey on Corporate Financing Decision

A Survey on Corporate Financing Decision

The role of family control in determining the capital structure

This study aims to examine the effect of family control on the corporate financing decision of firms in Pakistan. This study uses the annual data of 100 non-financial firms listed at PSX for the period 2005-2012. To estimate the impact of family control on the corporate financing decision, we employ the ordinary least square (OLS) method. The findings of the univariate analysis show that a significant difference exists between family and non-family firms based on many characteristics of firms. Multivariate analysis results show that family firms maintain significantly high "total debt ratio" and "short-term debt ratio" compared to non-family firms. There are two reasons why family firms keep high debt ratios compared to non-family firms. First, family-owned firms do not want to dilute their ownership, and that is why they fulfill their major financing needs through debt instead of issuing new shares in the market. Second, family firms in Pakistan use extra cash flows for their private benefits. These findings reveal useful insights for investors, banks, regulators, and business families of Pakistan.

Monetary Policy Shocks and Corporate Financing Decisions

Monetary Policy Shocks and Corporate Financing Decisions

Pattern Recognition Technique and Corporate Finance Decisions “A Case of Pakistan”

Pattern Recognition Technique and Corporate Finance Decisions “A Case of Pakistan”

Mediating Effects of Accounting Conservatism on The Relationship Between Corporate Governance and Cost of Capital

Mediating Effects of Accounting Conservatism on The Relationship Between Corporate Governance and Cost of Capital