Corporate Financial Structure Research Articles

The Impact of Changes in Tax Regulations on Corporate Tax Avoidance Practices in Indonesia

Using a quantitative approach using Structural Equation Modeling with Partial Least Squares (SEM-PLS), this study examines the effects of tax law changes on business tax evasion practices in Indonesia. The research delves into the moderating impacts of industry type and economic conditions, in addition to the mediating roles of corporate financial structure and firm size. Each of the 150 companies in the sample, which come from a variety of industries, offers insightful information about their operational and financial traits. The findings show that corporate tax avoidance and changes in tax laws have a substantial positive correlation, which is mediated by company financial structure and business size. The moderating effects of business type and economic conditions are evident, underscoring the significance of industry-specific characteristics and contextual economic factors in comprehending the behavior of corporation taxes. Policymakers, tax authorities, and enterprises can benefit from the findings, which offer practical insights for formulating and enforcing tax policies.

A methodology to estimate the optimal debt ratio when asset returns, and default probability follow stochastic processes

The purpose of this paper is to propose a methodology that allies both theoretical and empirical aspects to model and solve the problem of finding the optimal market-based corporate financial structure in a risky environment; the firm's asset value follows a geometric Brownian motion with a return adjusted by the probability of default which is stochastic and follows an Ornstein-Uhlenbeck process. We consider a decision manager to optimize the financial structure of his company, maximizes the expected utility of the shareholders' final wealth by solving a dynamic programming problem. The value function obeys a quadratic Hamilton-Jacobi-Bellman (HJB) equation and the explicit solution gives the optimal debt ratio. The Kalman filter approach is used to estimate the model parameters. We empirically examined the implications of the credit ratings on the optimal capital structure decision. The data used are daily, obtained from the 'Data Stream' database and cover a sample of 16 U.S companies of various sectors and different rating categories over the period from January 01, 2015, to December 31, 2015. The estimated average optimal debt ratios are relatively high showing different patterns between and within investment and speculative-grade firms. In fact, the evolution of the optimal debt ratio according to the rating is influenced by a restrictive or an easy entry into the debt market and by the value of the estimated rate of return.

The underlying mechanisms of the relationships between corporate financial policies and firm value: flexibility and agency theory perspectives

PurposeThis paper aims to discover the underlying mechanisms by which corporate financial policies, cash holdings, capital structure and dividend payouts, transmit their effects on firm value in the “Middle East and North Africa” (MENA) emerging markets.Design/methodology/approachThe authors employ a novel integration of path modelling with parallel multiple mediation analysis to empirically test the hypothesised indirect effects through the mechanisms represented by the value of financial flexibility (VOFF) and agency costs.FindingsThe authors do not find any evidence of the association between cash holdings, dividend payouts, and firm value when the mechanisms through the VOFF and agency costs are considered. While these two forces, i.e. the VOFF and agency costs, have balanced mediation effects on the relationship between cash holdings and firm value, they represent equivalent and complementary mechanisms by which dividend payouts transmit their positive impact on firm value. Moreover, we document a significant negative partial mediation effect of agency costs on the relationship between leverage and firm value; however, we do not find any evidence supporting the mediation effect of the VOFF on such a relationship.Originality/valueThis paper sheds new light on the forces that govern the nature of the relationships between corporate financial policies and firm value.

2020년 회사법 기업재무구조·구조개편 분야 판례의 분석

이 글에서는 2020년에 선고된 대법원 판례 중 기업재무구조 분야 판례2건, 기업구조개편 분야 판례 2건과 하급심 판례 1건을 소개하고 분석해보았다. 이 판례들의 주요 판시사항을 요약해 보면 다음과 같다. ① 투자계약이 주주평등의 원칙에 위배되어 무효인지 여부에 관한 판결(대법원 2020. 8. 13. 선고 2018다236241 판결)은 투자계약이 유상증자에 참여하여 주주의 지위를 갖게 되는 자들에게 그 신주인수대금의 회수를 전액 보전해 주는 것을 내용으로 하고 있어서, 회사가 주주에 대하여 투하자본의 회수를 절대적으로 보장하는 것이라면, 주주평등의 원칙에 위배된다고 판시하였다. ② 소수주주가 주주의 지위를 상실하게 된 주식병합 및 자본금감소의 무효여부에 관한 판결(대법원 2020. 11. 26. 선고 2018다283315 판결)은 2011년 상법 개정으로 소수주식의 강제매수제도가 도입된 이후에도, 소수주주가 주주의 지위를 상실하게 되는 주식병합에 의한 자본감소가 허용될 수 있음을 밝혔다. ③ 지배주주의 매도청구권제도의 공탁에서 ‘매매가액’의 의미에 관한판결(대법원 2020. 6. 11. 선고 2018다224699 판결)은 상법 제360조의26에서 말하는 ‘매매가액’의 의미에 관하여 ‘지배주주가 일방적으로 산정하여 제시한 가액이 아니라 소수주주와 협의로 결정된 금액 또는 법원이 산정한 공정한 가액으로 보아야 한다.’라고 판시하였다. ④ 하이마트 LBO와 배임죄 성립여부에 관한 판결(대법원 2020. 10. 15.선고 2016도10654 판결)은 담보제공형 LBO가 문제된 이 사건에서 배임죄의 성립을 인정하였다. 향후 대법원이 학계의 비판과 실무의 우려를 반영하여 보다 명확하고 정치한 배임죄 인정기준을 제시해주기를 기대한다. ⑤ 신주 제3자배정의 적법여부에 관한 판결(서울중앙지방법원 2020. 12. 1., 2020카합22150 판결)은 이 사건 신주발행은 경영상 목적을 달성하기 위해 이루어진 것으로 보이고, 경영권 방어 목적을 달성하기 위해 이루어진 것이라 보기 어려우므로 적법하다고 판시하였다.

2020년 회사법 기업재무구조·구조개편 분야 판례의 분석

이 글에서는 2020년에 선고된 대법원 판례 중 기업재무구조 분야 판례2건, 기업구조개편 분야 판례 2건과 하급심 판례 1건을 소개하고 분석해보았다. 이 판례들의 주요 판시사항을 요약해 보면 다음과 같다. ① 투자계약이 주주평등의 원칙에 위배되어 무효인지 여부에 관한 판결(대법원 2020. 8. 13. 선고 2018다236241 판결)은 투자계약이 유상증자에 참여하여 주주의 지위를 갖게 되는 자들에게 그 신주인수대금의 회수를 전액 보전해 주는 것을 내용으로 하고 있어서, 회사가 주주에 대하여 투하자본의 회수를 절대적으로 보장하는 것이라면, 주주평등의 원칙에 위배된다고 판시하였다. ② 소수주주가 주주의 지위를 상실하게 된 주식병합 및 자본금감소의 무효여부에 관한 판결(대법원 2020. 11. 26. 선고 2018다283315 판결)은 2011년 상법 개정으로 소수주식의 강제매수제도가 도입된 이후에도, 소수주주가 주주의 지위를 상실하게 되는 주식병합에 의한 자본감소가 허용될 수 있음을 밝혔다. ③ 지배주주의 매도청구권제도의 공탁에서 ‘매매가액’의 의미에 관한판결(대법원 2020. 6. 11. 선고 2018다224699 판결)은 상법 제360조의26에서 말하는 ‘매매가액’의 의미에 관하여 ‘지배주주가 일방적으로 산정하여 제시한 가액이 아니라 소수주주와 협의로 결정된 금액 또는 법원이 산정한 공정한 가액으로 보아야 한다.’라고 판시하였다. ④ 하이마트 LBO와 배임죄 성립여부에 관한 판결(대법원 2020. 10. 15.선고 2016도10654 판결)은 담보제공형 LBO가 문제된 이 사건에서 배임죄의 성립을 인정하였다. 향후 대법원이 학계의 비판과 실무의 우려를 반영하여 보다 명확하고 정치한 배임죄 인정기준을 제시해주기를 기대한다. ⑤ 신주 제3자배정의 적법여부에 관한 판결(서울중앙지방법원 2020. 12. 1., 2020카합22150 판결)은 이 사건 신주발행은 경영상 목적을 달성하기 위해 이루어진 것으로 보이고, 경영권 방어 목적을 달성하기 위해 이루어진 것이라 보기 어려우므로 적법하다고 판시하였다.

Investigating the Impact of Managerial Entrenchment on Corporate Financial Structure: Evidence from Nigeria

Finance decisions have been some of the most significant but challenging decisions for corporate organizations in recent times. Against this backdrop, this study examines the impact of managerial entrenchment on the financial structure of companies listed on the Nigerian Stock Exchange (NSE). The study employed a regression technique to analyze data from 2010 to 2019. The results reveal evidence that managerial entrenchment is essential to explain the proportion of debt in listed firms' capital structure in Nigeria. The significant negative connection between executive shareholding, CEOs’ tenure, and debt, suggests managerial entrenchment's power to alleviate agency problems and pressure the managers to deploy optimal financial structure in Nigerian listed firms. However, CEO duality, board composition and board size reveal a positive connection with the debt ratio of listed firms in Nigeria. These findings offer empirical evidence on the importance of adopting a mix of monitoring and control mechanisms during decision-making to ensure optimal capital structure and protect stakeholders' interests.

Book review: “Corporate governance: Theoretical essentials and international practices”

This review covers the textbook titled “Corporate governance: Theoretical essentials and international prectices”, authored by Aws Alhares and Naser Ibrahim Abumustafa (Virtus Interpress, 2021; ISBN: 978-617-7309-17-7). The review focuses particularly on the relationship between corporate governance and financial structure, the role of institutional investors in corporate governance, the board of directors’ impact on performance and the role of non-executive directors, the audit function and the role of regulation international corporate governance, and socially responsible investment. It also highlights the contribution of this textbook to the ongoing discussion on key points relating to corporate governance

Signalling to Experts

Abstract We study competitive equilibria in a signalling economy with heterogeneously informed buyers. In terms of the classic Spence (1973, The Quarterly Journal of Economics, 87, 355—374) model of job market signalling, firms have access to direct but imperfect information about worker types, in addition to observing their education. Firms can be ranked according to the quality of their information, i.e., their expertise. In equilibrium, some high-type workers forgo signalling and are hired by better informed firms, which make positive profits. Workers’ education decisions and firms’ use of their expertise are strategic complements, allowing for multiple equilibria that can be Pareto ranked. We characterize wage dispersion and the extent of signalling as a function of the distribution of expertise among firms. Our model can also be applied to a variety of other signalling problems, including securitization, corporate financial structure, insurance markets, or dividend policy.

The Deviations in Financial Risk Correlations, and Some Analyses to the Banking Risk Governance after 2015

In this study, we aimed to discuss the institutional risk dimension of financial risk elements within the global process on the basis of both EU banks as primary financial institutions and structural global financial risk correlations. In this context, determining the institutional risk impact levels of banks, which are important financial risk sources for EU and the other countries, has revealed the primary purpose of our study. On the other hand, the analyses of the structural-institutional management effects of financial crisis management on a global ground express the unique aspect of our study. Structural institutional arrangements and the analysis of international financial activities in the financial risk management process have also revealed important criteria for determining corporate performances. In addition, the developments in bank loans since the crisis have been found meaningful in terms of our study, which's as an impact level of the corporate financial structures and how it creates a component balance in terms of financial crises. Although it has an indirect impact on our work, it has been understood that also the financial developments in the overall bank credits since the crisis have been taken as a meaningful part in our analyses intended to put forth institutional financial risk governance. Keywords : EU Countries, Financial Developments, Financial Risk, Financial Rask Governance, Institutional Standards. JEL Codes: G01, G14, G15. DOI: 10.7176/RJFA/11-10-12 Publication date: May 31 st 2020

The Impact of Capital Structure on Firm Performance of Vietnamese Non-financial Listed Companies Based on Agency Cost Theory

This paper investigates the impact of capital structure on firm performance using a sample of 3,122 observations of 446 non-financial listed companies on the Vietnam stock market during 2011-2017. Using firm performance measures, namely ROE and Tobin Q, we examined if higher leveraged firms are more efficient or less in their performance. We employed the fixed effect model to prove that there is an inverse U-shaped relationship between leverage and ROE, and then we can find a preferred capital structure for Vietnam non-financial firms. To deal with endogeneity problem of the leverage variable, we employ two stage least squares (2SLS) regression with instrument variable estimators, which helps us strengthen the above results.
 Keywords
 Capital structure, firm performance, leverage, efficiency, instrument variable estimator, agency cost theory
 References
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Factors affecting the financial structure of Slovak and Czech enterprises in the Manufacture of machinery and equipment industry

The financial structure of enterprises is influenced by many factors. The aim of this paper is to analyze, evaluate and assess the effect of selected internal corporate factors and external macro-environment factors on the financial structure of enterprises. All the studied enterprises were operating in the Manufacture of machinery and equipment industry. We have also analyzed whether there were any differences in the action of these factors between enterprises operating in various countries—Slovakia and Czech Republic (i.e., what was the impact of the environment on the corporate financial structure). The analysis has been done for the years 2009–2014. The research results pointed to the fact that although the influence of some macro-environment factors has been proved, that were the internal corporate factors which had dominant position in shaping the financial structure of Slovak and Czech enterprises (concerning the Manufacture of machinery and equipment industry). Keywords: Financial structure, internal corporate factors, external factors of macroenvironment

English

This paper investigated the effect of capital structure on corporate financial distress of manufacturing firms in Nigeria by employing panel corrected standard error (PCSE) technique. The variables used in the study are corporate financial distress, capital structure, firm size, assets tangibility, revenue growth, profitability and age of firms. The outcome of the research reveals that capital structure affects corporate financial distress negatively while company age from listing years, profitability and asset tangibility affects corporate financial distress positively. The result further revealed that firm growth and firm size affects financial distress negatively. Policy implication from the study is that managers have to be cautious when designing their capital structure. Also, government should encourage firms to use internally generated fund than external fund by granting preferential tax treatment on their retained earnings. This will encourage investment in growth-oriented strategies. In addition, the Central Bank of Nigeria should direct banks to lower the cost of borrowing for manufacturing firms to ensure financial stability. Key words: Corporate financial distress, capital structure, PCSE, Nigeria.

Allowance for Corporate Equity and Financial Structure of Belgian SMEs

Allowance for Corporate Equity and Financial Structure of Belgian SMEs

Corporate financial structure and firm’s decision to export

Purpose The purpose of this paper is to analyse the decision to export in relation to financial issues, specifically the impact of corporate financial structure on a firm’s export propensity (the likelihood of a firm becoming an exporter) by firm size. Design/methodology/approach A multivariate probit model is applied to a sample of 8,019 Spanish manufacturing firms drawn from the Iberian Balance Sheet Analysis System (SABI). The analysis is performed separately for small, medium and large firms. Findings The paper evidences, by firm size, a positive link between ownership concentration and export propensity, although for SMEs if shareholder concentration is very high it can be counterproductive. In addition, a high degree of liquidity influences the probability of entering export markets, while those firms that face high costs as result of their export activity may need to become indebted in order to secure the necessary financial resources. However, the strength of these latter effects differs in SMEs. Originality/value This paper broadens the understanding of the relationship between firms’ export propensity and their financial health and ownership concentration, an internal factor not previously considered in the international business literature despite its relevance for firm’s decision to export. The paper highlights that their influence is not uniform but affects firms of different sizes in different ways. This is of interest and value to scholars, investors and policy makers worldwide, since handling corporate financial structure and international strategies needs to be addressed in today’s global business environment.

Corporate financial structure of South Korea after Asian financial crisis: the chaebol experience

The chaebol, a South Korean form of business conglomerate, has been a key factor in the country’s economic growth. In this study, the chaebol sector is added to the asset–liability matrix derived from a flow-of-funds analysis in order to explain the role of the chaebol in the Korean financial system. We find that the power-of-dispersion indices in the asset-oriented system differ between the chaebol and other private corporations. Between 1987 and 2002, the former has increased while the latter has declined. In the case of the chaebol, excess liabilities were reduced, while investments in financial assets were increased. This tendency led to an increase in the power-of-dispersion index in this asset-oriented system. Our previous research found a decrease in this index for the private sector in Korea. However, the index increased for chaebol when the private sector is divided into the chaebol and small-/medium-sized corporations in this paper. These results point to a greater concentration of economic power in the chaebol in the Korean financial market.

Research of Microcosmic Affection Factors on Capital Misallocation: A Case of Chinese Listed Companies

With the restrictions of equity financing of Chinese listed companies, debt dimensions are increasing, and the issue of corporate financial structure and financing constraints influence on capital misallocation has become an important practical problem which Chinese listed companies face. This paper is concerned with a model about capital misallocation and its influencing factors of integrated financing, capital operation, and investment performance. We take 7096 observations of 646 Chinese listed companies during fiscal years 2003 to 2014 for A-shares on the Shanghai and Shenzhen stock exchange, for instance, to empirically test the microscopic influencing factors of capital misallocation under different external financing dependence. The study illustrates the following: (1) in descriptive statistics of different industries capital misallocation, more than half of firms experience the circumstance of capital misallocation; (2) although Chinese listed companies are faced with financing constraints, capital market inefficiency, and other issues, most companies still depend on external financing; (3) the main factors that affect capital misallocation of the listed companies are financial liquidity and financial pledgeability; (4) the firms with high innovation abilities generally have stronger profitability, superior financial liquidity, and better financial pledgeability, thus reducing corporate capital misallocation; (5) the Chinese listed companies with large-scale assets and strong profitability easily obtain bank loans and equity financing, while violating the principle of assets matching.

Financial leverage and export quality: evidence from France

Does corporate financial structure matter for a firm’s ability to compete in international markets through output quality? This study answers this question by using firm-level export and balance sheet data covering a large sample of French manufacturing exporters over the period 1997–2007. The main result is that there is a negative causal relation between a firm’s leverage and export quality, where quality is inferred from the estimation of a discrete choice model of foreign consumers’ demand. This result is robust across different specifications and estimation techniques. In addition, by estimating investment models we find that the negative impact of leverage on quality is consistent with theories predicting that the agency cost of debt determines suboptimal investment.

Financial leverage and export quality: Evidence from France

Abstract Does corporate financial structure matter for a firm’s ability to compete in international markets through output quality? This study answers this question by using firm-level export and balance sheet data covering a large sample of French manufacturing exporters over the period 1997–2007. The main result is that there is a negative causal relation between a firm’s leverage and export quality, where quality is inferred from the estimation of a discrete choice model of foreign consumers’ demand. This result is robust across different specifications and estimation techniques. In addition, by estimating investment models we find that the negative impact of leverage on quality is consistent with theories predicting that the agency cost of debt determines suboptimal investment.

Earnings Management Surrounding CEO Turnover: Evidence from Korea

This article examines the empirical relation between chief executive officer (CEO) turnover and earnings management in Korea using a sample of 403 CEO turnovers and 806 non‐turnover control firms during the period 2001–2010. We classify CEO turnovers into four types depending on whether the departure of the outgoing CEO is peaceful or forced and whether the incoming CEO is promoted from within or recruited from outside the firm. We measure earnings management by both discretionary accruals and real activities management. We also control for the endogeneity of CEO turnover and a potential selection bias using 2SLS and Heckman's two‐stage approach. After controlling for corporate financial performance and governance structure, we find upward earnings management by the departing CEO only when the departure is forced and the new CEO is an insider. In this case, the new CEO also engages in downward earnings management using both discretionary accruals and real activities management. We also find some evidence that the new CEO recruited from outside the firm manages discretionary accruals upward following the peaceful departure of his predecessor. In all other types of CEO turnover, we do not find evidence of significant earnings management by either CEO.

Management Buy-Outs a Hollywood Movie with a Great Ending?

Management buy-outs (MBOs) are one segment of business that could make a great movie. The reason being that in many occasions they consist of the drama of tough and tense negotiations as well as the stress of trying to raise a great deal of money. As if this was not enough, there is a nerve-wracking race to meet the ostensibly unattainable deadline. If one adds to all the above the philanthropic aspect that management buy-outs have in honoring loyal staff and preventing unemployment then it has all it needs to comprise a great movie. However, management buy-outs are (generally) risky to finance through a loan so there are two other forms that this funding can take. Namely, vendor financing and financing via Private Equity. The latter is imperative for the purposes of this article as it refers to finance provided by either institutions or individuals while in return they will receive shares in the company and in this way influence its strategy.This article will demonstrate that MBOs is not at all an easy process and thus some issues should be thought of very seriously before it is carried on. In doing so, we will discuss the key legal issues and their connection with core commercial considerations paying particular attention to corporate control and financial structure. The main question which is answered in this paper is Success for Whom? Since an MBO could have different interpretations as to its success or failure from different viewpoints.