Corporate Financial Leverage Research Articles

Climate vulnerability and capital structure: Moderating effect of financial development, financial constraints, and 2015 Paris Agreement

Previous studies show that climate vulnerability affects capital structure. This research goes beyond by extending to cross-sessional analysis emphasizing the impact of climate vulnerability on capital structure conditional on firm-level financial constraints, country-level financial development, and the Paris Agreement. Using a sample of 15,612 firms across 13 Asian countries over the period from 2010 to 2020, we find that the effect of the vulnerability is more pronounced among firms with higher financial constraints and in countries with higher levels of financial development. We also find that the impact of climate vulnerability on corporate financial leverage is stronger after the Paris Agreement. Our findings are consistent with the argument that climate vulnerability incentivizes firms to lower their reliance on debt, and the heightened climate transition risk after the Paris Agreement intensifies this effect. This study provides insights into firms' capital structure choice behaviour when faced with climate change risks.

Periodic information enhancing and controlling stability of complex corporate financial systems

We explore the mechanism and control behavior of how periodic information affects the stability of complex corporate financial systems from two viewpoints: the corporate life cycle and the stability of financial leverage risk. A complex corporate financial system model with correlated noise and periodic driving is proposed. Furthermore, two stability indicators are proposed to measure the stability of the corporate life cycle and the risk of corporate financial leverage. Stochastic simulation results show that enhancing the intensity and frequency of controllable periodic information can improve system stability. The stability of complex corporate life cycles and financial leverage risks exhibits opposite behaviors in terms of noise correlation. In addition, it is observed that there are specific threshold values of system parameters, and the relationship with the intensity of periodic information shows non-monotonic characteristics, manifesting peculiar phenomena and transition behaviors. Finally, by comparing with actual financial data, the proposed model is verified to be superior to the benchmark model.

Corporate credit mismatch, financial leverage and corporate investment efficiency

We empirically test the relationship between credit mismatch and corporate investment efficiency. The study analyzes the heterogeneity of mismatch direction, corporate nature, and corporate life cycle. Results reveal that corporate credit mismatch has a significant negative impact on corporate investment efficiency; corporate financial leverage fully mediates this impact, indicating that corporations may increase their financial leverage to bridge financing gaps in cases of credit mismatch. This practice, however, may bring about greater financial risk and affect corporate investment efficiency. This study provides an important reference for enterprises and financial institutions for optimizing the financing environment, ensuring the effective allocation of financing resources, promoting the sustainable development of enterprises, thereby enhancing overall economic efficiency. This study also provides new ideas and future directions for studying corporate financing and investment behavior.

Value‐added Tax and Leverage: Evidence from China's Value‐added Tax Rate Reform

AbstractThis paper uses China's value‐added tax (VAT) rate reform as a quasi‐natural experiment to identify the impacts of VAT rate shocks on corporate financial leverage. The results indicate that the reform reduced corporate total leverage significantly. There was a decrease in short‐term leverage, but long‐term leverage showed no significant change. These results remained robust across a series of robustness checks. Mechanism analysis shows that increasing profitability and improving cash flows acted as intermediary channels for the reform's impact on leverage. The reform also contributed to the mitigation of the asset–liability mismatch problem and the reduction of debt risk, while having no apparent impact on corporate investments. Finally, enterprises with more elastic demand and those with lower intermediate input ratios were affected most by the deleveraging effect of the VAT rate reform. This study suggests how the VAT rate cut shaped corporate capital structure. It thus helps to explain the economic consequences of VAT rate shocks.

INVESTIGATING DEBT RATIOS AND THEIR DETERMINANTS IN THE CAPITAL STRUCTURE OF INDIAN FMCG COMPANIES: AN EMPIRICAL STUDY

This research paper investigates the determinants of capital structure within Indian FMCG companies, utilizing a representative sample of firms listed on the Bombay Stock Exchange (BSE) over a decade (2011–12 to 2020–21), sourced from the CMIE Prowess database. Employing a panel data methodology, the study evaluates indices of corporate financial leverage, including short-term debt, long-term debt, total debt, and the debt-equity ratio. The findings indicate that firm-specific variables such as size, asset tangibility, sales growth, profitability, and non-debt tax shields (NDTS) exhibit significant relationships with financial leverage in the Indian FMCG sector. Specifically, determinants of the short-term debt ratio (SDR) include firm size, age, NDTS, profitability, tangibility, and liquidity. The debt-equity ratio (DER) is significantly influenced by profitability and the effective tax rate, while total debt ratio (TDR) is associated with firm age, size, effective tax rate, asset turnover ratio, and liquidity. Additionally, long-term debt ratio (LDR) is significantly linked to firm size, asset turnover ratio, tangibility, and liquidity. The statistical analysis demonstrates that fixed effects panel regression models are the most suitable for representing SDR, LDR, TDR, and DER. Consequently, this study contributes to the existing body of knowledge on capital structure, offering empirical insights that are particularly relevant for Indian FMCG firms as they navigate financial decision-making processes informed by recent data through 2020–21.

The Impact of CSR on the Financial Performance of Firms in Different Industries: An Example from the Financial Industry and the Healthcare Industry

This paper analyses the impact of corporate social responsibility (CSR) on corporate financial performance (CFP) in the financial and healthcare sectors in China, examining the annual financial data and ESG scores of a total of 124 companies between 2016 and 2021 and selecting ROA, corporate financial leverage, company size and board size as variables. A panel data regression was used to conduct an econometric analysis to examine the impact of social responsibility on corporate financial performance in the total industry, the financial industry and the healthcare industry, respectively. The empirical analysis of this study concluded that the effect of CSR on corporate financial performance has different results in different industries, the effect of CSR on CFP is significant and negative in the healthcare industry and insignificant in the financial industry.
 However, there are some limitations to this study. The study only considered the financial sector and the healthcare sector and was not able to include a number of other sectors for comparison. The study was also limited by the sample size of CSR in Chinese companies, which made the model less convincing, and the choice of variables also affected the results. However, these provide ideas and provide a pavement for future research.

Retracted: Analysis and Risk Assessment of Corporate Financial Leverage Using Mobile Payment in the Era of Digital Technology in a Complex Environment

Retracted: Analysis and Risk Assessment of Corporate Financial Leverage Using Mobile Payment in the Era of Digital Technology in a Complex Environment

Economic Policy Uncertainty, Financial Leverage, and Corporate Investment: Evidence from U.S. Firms

This paper examines the effect of economic policy uncertainty (EPU) on firm-level investment and corporate financial leverage. The panel data of 1072 firms traded on the New York Stock Exchange (NYSE), New York Stock Exchange Market (NYSE MKT) (formerly known as American Stock Exchange—AMEX), or NASDAQ over the period 2012–2021 was analyzed using the fixed-effect model. The empirical results show that the financial leverage of a firm is negatively affected by EPU. Additionally, EPU depresses firms’ investment decisions and debt financing. Our results are robust when alternative measures of our main variables are used.

Corporate climate risk exposure and capital structure: Evidence from Chinese listed companies

This study investigates how corporate climate risk exposure (CCRE) affects corporate capital structure. We find that CCRE significantly reduces corporate financial leverage, and the result still holds after robustness tests. We further find that the negative impact of CCRE on corporate financial leverage is partly driven by both the corporate capital demand and debt supply effects. We also find that this relationship is more significant for companies with higher physical risk and transition risk. These results suggest that corporate capital structure decisions -change in response to CCRE.

PENGARUH GOOD CORPORATE GOVERNANCE DAN LEVERAGE TERHADAP KINERJA KEUANGAN PERUSAHAAN SUB SEKTOR MAKANAN DAN MINUMAN

A good corporate governance and financial leverage are necessary for a company. This study aims to determine the influence of good corporate governance and leverage towards the financial performance of food and beverage companies listed on the IDX (Indonesia Stock Exchange) in period (2013-2017). The supporting variable includes good corporate governance determined by the board of commissioner, the independent commissioner, the audit committee, and the managerial ownership, leverage through the DAR (Debt-Asset Ratio), and financial performances determined by ROA (Return on Assets). The study analyzes four companies based on purposive sampling. The technique of analysis uses multiple linear regression with the IBM SPSS statistic version 24. The result indicates that good corporate governance which determined by the board of director; the independent commissioner, the audit committee, the managerial ownership, and the leverage variable simultaneously have a significant effect on the company performance. Partially, the capacity of the board of commissioner, the independent commissioner, the audit committee, and the managerial do not have a significant influence in the company performance. Both of the independent commissioner and the leverage have a negative influence. However, independent commissioner significantly influenced the company financial performances, while the leverage doesn’t significantly influence it.

The Overall and Disaggregate China’s Bank Efficiency from Sustainable Business Perspectives

The goal of the basic business perspective has switched from previously maximizing profit to the current three fields of environment, society, and the economy, within the viewpoint of corporate social responsibility (CSR). This study, from the perspective of sustainability, discusses the current business model of the relationship between CSR and the performance of the Industrial and Commercial Bank of China (ICBC), a state−owned bank, with SBM-DEA and Tobit regression methods, and it puts forward a direction for improvement for future business models. Through the analysis of the years from 2010 to 2018, it has been found that the years with the best performances are 2010, 2011, and 2018, and some empirical evidence from the ICBC is as follows. First, corporate financial leverage closely follows gross domestic product (GDP) growth in terms of utilizing total assets. The ICBC seems to place less attention on its sales and on the number of deposits because of its high ratio of government stock holdings. Second, the ICBC raises labor productivity through education and training of its employees as well as through the proper utilization of capital for input-side management. Lastly, performance has improved as the ICBC has focused more on long-term society contributions, which are directed toward charity donations, loans for poverty alleviation, and green economy development in terms of output-side management. Therefore, through the above three CSR strategies, the ICBC has positively contributed toward environmental innovation and the societal transition of China, and its practices can be used as a sustainable model for future development.

Minority shareholders protection and corporate financial leverage: Evidence from a natural experiment in China

Using the online voting policy in Chinese market as a natural experiment of minority shareholders protection, this paper explores the relationship between minority shareholders protection and corporate financial leverage. The results show that the participation of minority shareholders in online voting of shareholders' meeting can significantly reduce corporate financial leverage. Our results are still valid after a series of robustness tests. In terms of mechanism, we find that minority shareholders participating in the online voting can play a crucial supervisory role on the management, which can improve the level of internal control and reduce the overconfidence of the management. The above monitoring effect can reduce the corporate financial leverage. In addition, our heterogeneity test results show that the impact of online voting on financial leverage is more significant for small capitalization, non-state-owned firms, and firms with relatively low level of external supervision.

Retracted] Analysis and Risk Assessment of Corporate Financial Leverage Using Mobile Payment in the Era of Digital Technology in a Complex Environment

The study aims to improve the enterprise’s ability to respond to financial crises and find some countermeasures to prevent potential financial risks. The enterprise financial risk is assessed, and the automatic summary function of mobile payment platforms based on long short‐term memory (LSTM) is performed to extract the structured data and unstructured texts from its annual report. On this basis, the early warning system model of financial risks is implemented and its accuracy is improved. The structured data and unstructured text in the company’s annual report are extracted. The enterprise financial risk early warning system model is constructed. The accuracy of the enterprise financial risk early warning system has been improved. Firstly, we use the convolutional neural network (CNN) to establish a financial risk prediction system using financial data and test various indicators of the system. Secondly, the financial annual report of the listed company is obtained from the Internet. The required financial statements are obtained in two ways. The first is to set high special treatment (ST) sample weights and delete some non‐ST samples. The second is to delete punctuation marks, interjections, numbers, and so on and process the collected text data. The financial risk prediction model is established using the financial text, and the LSTM + attention mechanism is used to optimize the model. Finally, combining structured financial data and unstructured financial text to establish a forecasting model, the model uses LSTM. Combined with a single‐layer neural network or CNN model, the comparison experiment is carried out in two ways. Experiments show that the CNN or LSTM attention mechanism cannot significantly improve the performance of the system only using financial data or texts. Using the financial data and financial text using the LSTM + CNN model, the F1 value reached 85.29%. Financial data and other indicators in the text have also been greatly improved, and the overall performance is the best. In summary, LSTM using financial data and financial texts combined with CNN to establish a risk prediction system can help investors and companies themselves find possible financial crises in listed companies as soon as possible and help companies deal with their financial risks in a timely manner.

The Effect of Managerial Share Pledges on the Cost of Debt

We examines whether share pledges by controlling shareholders influence a firm’s cost of debt. We also investigate whether the relationship between share pledges and the cost of debt stems from the managerial risk-taking incentives or pursuing the private benefits of controlling shareholders. We make three major findings. First, we find the cost of debt is higher in firms with share pledges than in firms without share pledges. Furthermore, we identify a positive relationship between the cost of debt and the level of share pledges. Second, we find that there is no increased corporate financial leverage or investment activities in firms with share pledges. Finally, our empirical evidence demonstrates that the positive relationship between share pledges and cost of debt is more pronounced for lower foreign institutional investor stakes or higher controlling shareholders ownership. Overall, the results indicate that share pledges by controlling shareholders negatively affect the cost of debt. However, the effect of share pledges on the cost of debt is differently influenced by a firm’s ownership structure. Our findings suggest that share pledges induce stockholder-bondholder conflict, and the bondholder requires more risk premium due to the decrease of firm value.

Enterprise Financial Leverage and Risk Assessment Based on Mobile Payment under Artificial Intelligence

To better promote the healthy and long-term development of corporate financial management, the basement is established on the perspective of artificial intelligence (AI). Initially, based on the theories of modern mobile payment (MP) and corporate financial leverage, the corresponding data set is obtained through the questionnaire method as the research data. The reliability coefficients obtained after the test are all above 0.65, indicating that the reliability and stability of the entire data are relatively good. Besides, it is also found from the data of the questionnaire that some residents believe that MP will bring harm such as information leakage. Next, a new multilevel evaluation analysis method is introduced. After evaluating the financial management risk, operation risk, and network security risk existing in enterprise MP, it is found that the financial management risk accounts for the largest proportion of the three, with a risk weight of about 0.54, and the capital risk occupies the main position in the financial management risk. Finally, through the analysis of the risks existing in the whole operation process of the enterprise, it is found that about 50% of the financial management risk of the enterprise in the market belongs to the advanced risk, about 30% of the operational operation risk belongs to the low risk, and about 20% of the network security risk belongs to the advanced risk, which indicates that the financial management risk and network security risk are the top priority of the enterprise MP risk. Although the operational operation risk belongs to the low risk, it cannot be ignored. Subsequently, feasible suggestions and opinions are put forward on these phenomena from the perspectives of the government, enterprises, and residents. Therefore, there is great reference significance for the current financial risk assessment of enterprises based on MP.

The Effect of Ownership Structure, Board Size and Firm Value on Corporate Financial Leverage and Dividends Policy: An Applied Study

The Effect of Ownership Structure, Board Size and Firm Value on Corporate Financial Leverage and Dividends Policy: An Applied Study

Financial Leverage, Educational-Level Faultline Strength and Strategic Change: Evidence from China

With the improvement of financial leverage, enterprises will face more severe financial difficulties and more stringent external supervision. Enterprises tend to take a high-intensity strategic change to get rid of the trouble. Taking China's A-share manufacturing listed companies from 2008-2018 as the research sample, based on the theory of enterprise behavior and faultlines theory, this paper explores the impact of corporate financial leverage on strategic change and the moderating effect of the top management team (TMT) educational-level faultline strength. The results show that there is a positive correlation between corporate financial leverage and strategic change. TMT educational-level faultline strength negatively moderates the positive correlation between corporate financial leverage and strategic change. The existence of an educational-level faultline makes it difficult for the whole TMT to form a consensus of change. Our study suggests that improving the matching degree of education characteristics of TMT is the basic condition for enterprises to implement high-intensity strategic change.

The Impact on Corporate Financial Leverage of the Relationship Between Tax Avoidance and Institutional Ownership: A Study of Listed Firms in Vietnam

The Impact on Corporate Financial Leverage of the Relationship Between Tax Avoidance and Institutional Ownership: A Study of Listed Firms in Vietnam

Does Board Characteristics Affects Corporate Financial Leverage? Evidence from Non-Financial Companies Listed in Colombo Stock Exchange

With the recent developments in the discipline of corporate governance, concern for the Board of Directors has increased significantly. Even though there are a number of extensive researches in the field, the understanding of the board and its impacts on corporate Financial Leverage is still limited. This research investigated the linkage between some corporate governance characteristics and corporate Financial Leverage in an emerging market, Sri Lanka. The researchers have used a sample of 100 non – financial highly market capitalized firms selected from the most active trading listed Companies in Colombo Stock Exchange (CSE) covering the period from 2011 to 2019 with 900 observations. The Fixed effect multiple regression models (OLS) have used to analyze the data. Results show that proportionate of board non-executive directors and independent directors positively significantly affect the corporate financial leverage and CEO Duality and Board tenure have negatively significantly affected the corporate financial leverage.

Outsider CEOs and corporate debt

We examine the extent to which outsider chief executive officers (CEOs) influence corporate financial leverage policies. We define an outsider CEO as one who appears in the reporting year and became CEO either immediately upon joining or within 3 months of joining a firm. There are arguments in the literature that the selection of an outsider CEO can either increase or decrease financial leverage. We investigate this issue using 11,118 Australian firm-year observations from 1216 firms listed during the period 2001–2015. Our findings suggest that, in the short-term after their appointment, outsider CEOs reduce firm dependence on debt. This result is robust to several additional tests and four measures to minimize endogeneity concerns. However, with an increase in their tenure at the firm, outsider CEOs revert to greater dependency on corporate debt. After supplementary analyses, we determine that the outsider CEOs short-term strategy of reducing financial leverage involves using cash reserves and restricting dividends to reduce existing debt. Instead, outsider CEOs finance capital expenditure projects thus providing a positive signal to the market that such CEOs are more creditworthy. Our results also suggest that outsider CEOs exercise more control over financial leverage when they have specialist attributes.