Corporate Financing Decisions Research Articles

Executive gender and firm leverage decisions: The role of firm ownership and governance

Female leadership in strategic decision-making has received considerable attention in the context of global gender inequality. To advance our understanding of the role of executive gender in corporate financing decisions, we examine whether family firms are less likely to use leverage than their non-family counterparts when they have a female leader (considering CEO and board chair as leadership positions). In addition, we examine whether board independence influences gender differences in the use of leverage in family firms. Drawing on the behavioral agency model (BAM) and socioemotional wealth (SEW) theory, we develop and empirically test our hypotheses using a large dataset of firms from 40 countries. Our results show that family ownership increases the reluctance of female-led firms to use leverage, but board independence mitigates this effect.

Multiple large shareholders and asset-liability maturity mismatches

This paper examines the effect of multiple large share ownership on a firm's asset-liability maturity mismatch. Using a sample of Chinese A-share listed companies over the 2007-2022 period, the results of this study suggest that multiple large share ownership is negatively associated with asset-liability maturity mismatches. These results still hold after several endogeneity and sample selection concerns are addressed. Furthermore, the results of mechanism study suggest that multiple large share ownership can mitigate asset-liability maturity mismatches by reducing default risks of firms, firm-level financial constraints, and related-party transactions. These findings provide insights into how ownership structure affects corporate financial decisions.

The determinants of corporate cost of debt during a financial crisis

Panel data from publicly listed US industrial firms is used to investigate how firm-specific cost of debt (COD) determinants impact COD at different quantiles during a financial crisis. Six COD determinants: firm size, firm age, profitability, leverage, liquidity, and firm value, and advanced estimators: robust and bootstrapped fixed effects, bias-corrected least square dummy variable (LSDVC), and quantile regression, are employed within the context of pecking-order theory. The results show that firm size and leverage negatively impact COD, while liquidity positively impacts it when COD is high (90% quantile). The degree of profitability only confirms the pecking order theory when COD is extremely low (10% quantile) and contrasts with the theory for the 25% and above COD quantiles during the Global Financial Crisis (GFC). These findings confirm that the practicalities of access to finance matter during a financial crisis for corporate financing decisions.

The Impact of ESG on Corporate Financing Decisions Before and After Covid-19: Evidence from Taiwan

Abstract This study examines the differences in corporate financing decisions between companies engaged in ESG activities and those that are not during the COVID-19 pandemic. Our primary focus is on listed companies in Taiwan from 2018 to 2022 and panel regression is employed for analysis. The empirical findings show that companies during the Covid-19 pandemic raise more debt. However, the effect is offset by ESG engagement. As firms conduct more ESG activities, they will raise less debt after the pandemic. Our findings shed some lights on corporate financing decisions. JEL classification numbers: G32. Keywords: ESG, Capital structure, Covid-19, Financing decisions.

The Influence of the Financial System on the Puzzle of Corporate Financing Decisions: Review

The main purpose of this study is to conduct a literature review on the influence of country-specific characteristics of financial systems on corporate financing decisions, to help complete the complex puzzle on the problematic of capital structure theories. Recently, several international studies have analysed the convergence of firms’ financing decisions according to countries’ financial system, but, in terms of literature review, it becomes necessary to establish the interconnection between the explanatory theories of capital structure and empirical studies in explaining the financing behaviour of firms in different countries. Following this, the methodology of this paper was based on summarizing the empirical literature in a non-systematic way, verifying in several international studies that the capital structure is influenced by the specific characteristics of the country’s financial system, in which the efficiency of the function of financial intermediaries contributes to reducing transaction and information costs, helping to complete the understanding about the similarities and differences in the financing choices of firms in different countries.

CEO foreign experience and corporate financial investment

Using a hand-collected sample of CEOs' foreign experience data for Chinese listed firms from 2008 to 2018, we investigate the impact of CEO foreign experience on corporate financial investment behaviors. We find a significantly negative association between CEO foreign experience and risky financial investment and a significantly positive association between CEO foreign experience and safety financial investment, suggesting CEOs with foreign experience can help constrain their firms' risky investment. The result is robust to Heckman two-stage analysis, instrumental variable approach, propensity score matching, and other robustness tests. Further analyses reveal that CEOs with foreign experience act as a key role of inhibiting the risky financial investment when firms have suffered poor internal or external corporate governance. Moreover, the relation between CEOs' foreign experience and financial investment is more pronounced when CEOs have financial background or CEO's tenure is shorter. The relation between CEOs' foreign experience and financial investment is more significant when CEO's overseas background belongs to a common law country or region. After replacing the dependent variable, this paper finds that CEO's overseas background also inhibits firm's share price risk and business risk. Finally, this conclusion is consistent with the CFO's overseas experience as the research object. Overall, the findings suggest that CEO foreign experience matters for corporate financial decisions in emerging markets.

The Effect of Contributed Capital Mix on Dividend Policy: Testing Life Cycle Theory in The Covid-19 Pandemic Era

Objective: This study aims to test whether life cycle theory is relevant in the era of the Covid-19 pandemic crisis. Specifically, whether the contributed capital mix has a significant effect on dividend policy. Theoretical framework: In this study, we tested the life cycle theory and whether it is relevant to the COVID-19 pandemic situation. The dividend policy of a corporation should be determined by where it is in its life cycle. Mature, well-established businesses usually give dividends. Method: We studied 66 companies in the non-cyclical consumer sector listed on the Indonesia Stock Exchange during the pandemic period from 2020 to 2022. The dependent variables used in this study are in the category of dividend payers and non-dividend payers. As for the independent variables, we use the variables return on assets, sales growth, rete, MarCap, Papen, teta, and cash holding. We use the logistic regression method with the data panel. Results and conclusion: It is statistically found that life cycle theory is relevant to some contributed capital mixes such as rete, MarCap, Papen, and cash holding. Meanwhile, ROA, SGR, and teta have no significant effect on dividend policy paying dividends or not but still have a positive relationship direction. Implications of the research: The life cycle hypothesis is being tested in the context of the pandemic era in this investigation. A better knowledge of how company financial decisions are impacted by economic crises may result from the results, regardless of whether they confirm or refute the life cycle theory. In terms of strategic financial planning, the research may provide financial managers with useful advice. It will assist them in understanding how to modify capital structure and dividend policies in response to economic shocks such as the COVID-19 pandemic. Originality/value: Studying Life Cycle Theory in the context of a pandemic enhances the research's theoretical components. It exhibits the willingness to adapt well-established ideas to unusual and intricate circumstances, which may result in a more thorough comprehension of the dynamics underlying corporate financial decisions.

Environment Social Governance Performance and Capital Structure: Evidence in Indonesia and Malaysia

Purpose: This research aims to investigate the relationship between Environmental, Social, and Governance (ESG) performance and capital structure, using Debt-to-Equity Ratio (DER) and Debt-to-Asset Ratio (DAR) proxies, in Indonesia and Malaysia. The study seeks to address the gap in the literature by exploring how ESG factors influence the capital structure decisions of both financial and non-financial companies in these countries. Additionally, the research analyzes the impact of ESG performance on the cost of equity and cost of debt. Methods: The research utilizes secondary data extracted from annual reports and sustainability reports spanning from 2015 to 2020. A total of 102 companies, comprising 59 Indonesian companies and 52 Malaysian companies registered on CSRHub, are included in the analysis. ESG performance is assessed based on community, environmental, social, and governance indicators. Capital structure is measured using DER and DAR proxies. Statistical analysis techniques are employed to examine the relationship between ESG performance and capital structure, as well as its impact on the cost of equity and cost of debt. Results and Discussion: The research findings indicate that community, environmental, social, and governance performance exhibit a negative effect on the cost of equity, suggesting that companies with stronger ESG performance experience lower costs of equity financing. However, these ESG factors do not significantly affect the cost of debt. This implies that while ESG performance may influence equity holders' perceptions of risk and return, it may not have a direct impact on the cost of debt financing for companies in Indonesia and Malaysia. Implications of the Research: The results of this research have important implications for companies, investors, and policymakers interested in understanding the relationship between ESG performance, capital structure decisions, and financing costs. By demonstrating the impact of ESG factors on the cost of equity, the findings underscore the importance of integrating sustainability considerations into financial decision-making processes. Moreover, the research highlights the need for further investigation into the mechanisms through which ESG performance influences capital structure and financing costs. Originality/Value: This study contributes to the literature by offering novel insights into the relationship between ESG performance and capital structure in Indonesia and Malaysia. By examining the impact of ESG factors on both equity and debt financing costs, the research expands our understanding of how sustainability considerations influence corporate financial decisions. The findings provide valuable guidance for companies seeking to enhance their ESG performance and optimize their capital structure, ultimately contributing to more sustainable and responsible business practices in emerging markets.

Geopolitical risk and corporate cash Holdings in China: Precautionary motive and agency problem perspectives

Using a sample of Chinese A-share listed companies, we investigate the relationship between geopolitical risk and corporate cash holdings, integrating two contrasting theories—precautionary motive and agency problems—into the analysis. To explore our core findings about the negative impact of geopolitical risk on cash holdings, we examine the cash flows of operating, investing, and financing activities. We find that corporations strategically reduce cash flow from financing activities and increase dividend distributions to alleviate agency problems when geopolitical risk rises. In contrast, geopolitical risk does not significantly affect the cash flow from operating activities, whereas the cash flow from investing activities increases. The overall adverse effect of geopolitical risk on cash holdings reflects the incentive to mitigate agency problems. This is valued by external shareholders, alleviating the negative impact of geopolitical risk on firm value. However, corporations also adopt precautionary actions by increasing their credit loans to defend against potential liquidity risk. Additionally, we document that corporations with high board independence and those in regions with high marketization diminish more cash when geopolitical risk rises, with non-state-owned corporations, overinvested corporations, and corporations with low financial constraints particularly negatively affected by geopolitical risk. Our results withstand rigorous robustness tests, shedding light on the intricate dynamics of corporate financial decisions amidst geopolitical risk and offering a fresh perspective to the corporate governance literature.

Brand capital and debt choice

This paper investigates the effect of brand capital on firms' choices of debt structure. Using a sample of publicly listed U.S. firms between 2001 and 2019, we find that firms with higher levels of brand capital rely less on bank debt financing. This finding is robust to the use of alternative regression models and alternate measures of brand capital and bank debt financing. Employing an industry-level positive shock to brand capital as a quasi-natural experiment, we demonstrate that such a shock negatively affects firms' reliance on bank debt. Our cross-sectional analyses reveal that the effect of brand capital on bank debt is more pronounced for firms with high information asymmetry, weak corporate governance mechanisms, and poor financial conditions. We also find that brand capital-intensive firms raise funds from the public debt market and issue more (or less) unsecured (or secured) debt. Taken together, we show that brand capital has an important bearing on corporate financing decisions.

Dividend announcement and the value of sentiment analysis

Payout policy constitutes one of the most important corporate financial decisions since dividends are essential factors in determining a firm’s value. A dividend announcement generates a market signal which translates into changes in stock returns, impacting short-term price fluctuations and producing abnormal returns. The sample consists of 394 companies listed on the S&P500 index, from which 1574 dividend announcements and 7222 news items are derived during the years 2022–2023. News pieces are obtained from 58 specialized sources, and ChatGPT is used to automate the sentiment extracted from them. Using sentiment analysis, this paper shows the key role played by sentiments derived from financial news posted just after dividend announcements in predicting market reaction and helping investors to select optimal investment strategies. This paper contributes to the current literature, highlighting the influence that sentiments have on determining stock market returns.

Corporate Borrowings: A Conceptual Perspective

In the dynamic landscape of global business and finance, corporate borrowings play a crucial role in addressing firms' capital needs, promoting economic growth, and facilitate expansion (Levine, 2003) amidst ever-changing global business and financial scene. Corporate borrowings are essential in forming the financial frameworks of companies in all sectors of the economy. The borrowings, as a source of capital, are considered by the corporate due to limitation of equity capital such as higher risk association from the investors’ perspective and high cost of capital from the company perspective. Borrowings include debt securities, loans, and other credit instruments. Corporations strategically decide whether to leverage borrowed capital in order to maximise their capital structure (Rocca et al., 2011), manage risk (Eunju & Jang SooCheong, 2005), and take advantage of growth prospects (Zhang & Wu, 2017). It is because of the fact that borrowings hold an ambivalent status of acceptance among the corporate. In one hand, borrowings bring benefits to a firm in the form of tax shield effect and less costly capital thereby enhancing shareholders value. On the contrary, it brings many costs to a firm like bankruptcy cost, financial distress etc. So, when making financial decisions, managers carefully examine the option of corporate borrowings as a critical source of funding.
 The recent emphasis on environmental sustainability by the Govt. and corporate, has led emphasis on the raising capital through green bond by the corporate that contribute positively to the climate or environment. Further, the concept of ESG (Environmental, Social and Governance) performance of the corporate has now dragged the attention of the investor as a measure of good corporate citizenship and thereby enabling the corporate to raise less costly capital through borrowings.
 In a time of economic uncertainties, technological advancements, and evolving paradigms in financial markets, it is critical to comprehend the corporate borrowings. Hence, this paper aims to give a thorough overview of corporate borrowings by exploring the various facets that characterise this important component of contemporary financial ecosystems.
 Further, this paper navigates across the potential benefits and theories which affect corporate financing decisions. On this investigation of corporate borrowings, we aim to provide valuable insights for scholars, policy makers, and industries. The remainder of this paper deals with importance, theories, cost, benefits, and determinants of corporate borrowings and last section provides the conclusion.

Corporate tax policy, Shariah compliance and financial decisions: evidence from Malaysia

PurposeThis study investigates the influence of corporate income tax on two corporate financial decisions — dividend and capital structure policies, particularly for Shariah compliant companies in Malaysia.Design/methodology/approachThe study considered data from a sample of 529 Malaysian listed companies from four industrial sectors from 2007–2021 (6,746 company-year observations, before eliminating outliers). Panel models such as Fixed Effect and Random effect models were used. The study specifically tested the effect of corporate income tax on dividend and capital structure policies for Shariah compliant companies (3,148 observations) and controlled for industrial sectors.Findings(1) Firms are mostly Shariah-compliant, less liquid, less profitable and smaller in size, (2) Broadly when analysed together, tax has no impact on debt-equity ratio while it has an impact on dividend per share, (3) However, when tested separately for Shariah compliant companies, the influence of effective tax on capital structure is very evident but not for dividend and (4) influence of industrial sector on the relationship between corporate tax and capital structure and dividend policy is significant. Results indicate that Shariah firms might be raising debt to gain tax advantage. Companies in general pay dividends to avoid reputational damage.Research limitations/implicationsThis study assumes that leverage and dividend policy decisions are the main outcomes of the changing tax policies, while it seems that there could be other important outcomes that can be tested in future research. The study also shows the changing tax regimes of different ASEAN countries but they have not been tested to see the differences between countries. It will be indeed interesting for future researchers to focus on this aspect.Originality/valueThe findings contribute to the literature on tax planning of the Shariah-compliant firms, a high growth business segment in the Asian context. The study discussed potential tax-based Islamic market product development.

Regional Climate Policy and Corporate Financing Decisions: Evidence from China's Water Pollution Control

Regional Climate Policy and Corporate Financing Decisions: Evidence from China's Water Pollution Control

The influence of return investment on enterprise financing cost

In this paper, the influence of return investment on the financing cost of enterprises is deeply studied, and several key factors related to it are discussed. Firstly, from the perspective of regional differences, this paper analyzes the influence of financial market characteristics, regulatory environment and tax policies in different regions on corporate financing decisions. It is found that fully considering regional differences will help enterprises to formulate financing strategies for return investment, reduce costs and improve efficiency. Secondly, by digging deep into the interaction between enterprise strategy and financing, it reveals how enterprise strategic choice shapes financing structure and its influence on financing cost. The choice of different strategies may lead to the difference of financing demand, and the synergy between the long-term stability strategy and financing cost highlights the complex relationship. Furthermore, from the perspective of global financial market, this paper discusses how enterprises can reduce costs through flexible financing by taking advantage of the opportunities of global financial market. The in-depth analysis of the factors of global financial market, such as exchange rate risk, interest rate difference and capital flow, enables enterprises to better grasp the financing opportunities on a global scale. Finally, suggestions for future research are put forward, including in-depth study of regional and industry differences, attention to the impact of emerging technologies on financing, and more interdisciplinary research methods.

Implementasi PSAK 10 dalam Menyusun Laporan Keuangan (Transaksi Mata Uang Asing)

Accounting for foreign currency transactions is an important aspect in the scope of corporate finance, especially in the context of business globalization. PSAK 10 (Statement of Financial Accounting Standards) regulates this aspect and provides guidelines on how companies should account for transactions in foreign currencies as well as related financial reporting. This research explores the implementation of PSAK 10 in preparing financial reports, with a focus on foreign currency transactions. In PSAK 10, companies are directed to use the foreign currency exchange rate on the transaction date to measure transactions in foreign currency. In addition, significant changes in foreign currency exchange rates after the transaction date are also taken into account and recognized as exchange gain or loss. A deep understanding of the application of these provisions is crucial so that financial reports accurately reflect the company's financial position. Through literature research and analysis of accounting practices, this article investigates how companies effectively manage foreign currency risks and present relevant and reliable information in their financial reports. A comparison between the methods used by companies in implementing PSAK 10 and best practices in the industry is explained to provide a comprehensive picture. It is hoped that the results of this research will provide in-depth insight into the challenges, opportunities and best policies in dealing with foreign currency transactions based on PSAK 10. The practical implications of compliance with this standard, as well as the potential impact on corporate financial decisions, will also be reviewed. With a better understanding of foreign currency transaction accounting, companies are expected to improve the quality and credibility of their financial reports in an ever-expanding global market.

Killing Growth: Homicides and Corporate Investment in Brazil

We examine the effects of violent crime on corporate investment and financing decisions of Brazilian firms. Exploring city variation in homicides, we find that an increase in the growth rate of homicides is associated with significantly lower corporate investments, with lower labour investments, and with a higher likelihood of layoffs. Spikes in violent crime are also associated with more conservative financing policies, reflected in higher cash holdings, in lower R&D (research and development) expenditures, and in lower dividend payments. Homicides further affect investment efficiency and financing choices, decoupling investment from debt finance and profitability. Moreover, the negative association between homicides and investment is significantly stronger in smaller firms, which highlights the uneven costs of violent crime in reducing firm growth.

Effects of Bad News on Stock Returns and Analysts’ Recommendations: The Influence of Executive Gender

Although women are more conservative and more ethical than men, the proportion of female executives is still lower than that of men. Both Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) have strong influences in making corporate financial decisions. However, most of the literature focuses only on CEOs and ignores CFOs. Therefore, when bad news happens, it is possible that a female CEO/CFO can better alleviate the negative impact. We thus employ 4,405 firm-year observations over the period of 1996–2018, of which 680 are unique companies listed on the S&P1500 index, to examine how CEO and CFO gender influences stock returns and analyst recommendations. Our ordinary least squares and logistic regression results show that investors are pessimistic about companies led by female CEOs/CFOs, especially female CEOs. That is, when something bad happens, stock returns and analyst recommendations are worse for firms with female CEOs. Overall, this study is first to use stock returns to observe market reactions to firms with female CEOs/CFOs. In other words, the corporate remains unfriendly toward women, even those who are qualified as CEOs/CFOs

Analyst coverage and corporate financing

This paper selects the data of listed companies from 2012 to 2021 as the research sample to explore the relationship between analyst coverage and corporate financing decisions. It is found that the higher the analyst coverage, the more enterprises tend to engage in debt financing. The role of analyst coverage on corporate financing methods is more evident in non-state-owned and small-scale enterprises.

Corporate climate change disclosures and capital structure strategies: evidence from Türkiye

PurposeThere has been an increase in research examining whether and how companies disclose climate change impacts and how these disclosures influence capital structure strategies in recent years. However, prior literature has generally focused on developed countries. This paper proposes to examine the impact of voluntary climate change disclosures on corporate financing decisions in an emerging economy.Design/methodology/approachThe dataset includes 335 firm-year observations listed in the Borsa Istanbul (BIST) 100 manufacturing industry firms that participated in the Carbon Disclosure Project (CDP) questionnaire from 2016 to 2020, characterized by high public awareness of greenhouse gas emissions in Turkey. To accomplish this aim, two models have been constructed that link capital structure strategies with voluntary corporate climate change disclosures while controlling for firm-level attributes in terms of size, profitability, market value and free float ratio (FFR).FindingsThe significant and negative relationship between the voluntary disclosure of climate-related activities and long-term borrowing is consistent with the arguments that companies with high commitments are unlikely to reduce default risk in emerging markets. This paper also provides empirical evidence that the high size and the level of low profitability magnify this relationship between CDP and financial leverage.Originality/valueThe Paris Agreement seems to be a significant point where corporate lenders have become aware of the commitment of policymakers to fight climate change. The results have significant implications for both managerial strategies and environmental regulatory policy-making issues. In addition, the findings shed light on the strategic behavior of managers in the consideration of climate change risks and related transparency.