Corporate Leverage Research Articles

Emerging Markets at Risk

Policymakers would like to predict and mitigate the risks associated with the post-global financial crisis rise in corporate leverage in emerging markets. However, long-standing advanced-economy bankruptcy models fail to capture the idiosyncrasies that impact the solvency of emerging market firms. We study how a machine learning technique for variable selection, LASSO, can improve corporate distress risk models in emerging markets. Exploring the trade-off between model fit and predictive power, we find that larger models forecast distress with more accuracy during periods of economic stress (when global factors gain relevance), while more parsimonious specifications outperform during normal times.

MEKANISME GOOD CORPORATE GOVERNANCE DAN LEVERAGE TERHADAP KINERJA KEUANGAN PERBANKAN

This study aims to examine the mechanism of Good Corporate Governance And Leverage On Banking Financial Performance. the population is a banking company registered on the IDX in 2016, which is 43 companies. The sample collection technique has been done using a purposive sampling method and based on predetermined criteria, 8 companies have been selected as samples. The company's financial report data has been obtained from the official IDX website. The analytical method used is panel data regression analysis with the help of E-Views 8. The initial test is to test the Chow-Test to decide whether the Pooled Least Square method or Fixed Effect is used; and the Hausman-Test test to decide whether the Fixed Effect or Random Effect method can be used. The results showed that Managerial Ownership variables have a positive and not significant effect on financial performance that is proxy by ROA, the board of directors has a positive and significant effect on financial performance (ROA), leverage has a positive and not significant effect on financial performance (ROA).

Pengaruh Corporate Social Responsibility terhadap Kinerja Perusahaan Sektor Pertambangan Terdaftar di Bursa Efek Indonesia&Malaysia 2014-2018

The aims of this research is to analyze the effect of corporate social responsibility, leverage, firm size and firm size towards firm performance using return on assets and Tobin’s Q as a proxy in mining sector companies listed in Indonesian Stock Exchange and Malaysia Stock Exchange in the period 2014-2018. This research uses quantitative approach with two least square regression analysis model. This study uses sample of firms which are listed on mining in IDX and MYX on 2014-2018. The findings result of this research CSR have positive and significant effect towards firm performance in mining sector companies BEI on the period 2014-2018, while CSR insignificant effect towards firm performance in mining sector companies BEM on the period 2014-2018.
 Keywords: corporate social responsibility, financial performance, firm value

Firm Size, Profitability, Leverage as Determinants of Audit Report Lag: Evidence From Indonesia

This study examines the factors that influence Audit Report Lag in Indonesia. This factor is seen from the financial performance of the company size, profitability and corporate leverage. The research sample was 91 manufacturing companies listed on the Indonesia Stock Exchange (IDX) for the period of 2015 and 2016. The total observation for 2 years amounted to 182. The method of data analysis is random effect models. The results showed that company size and profitability are variables that can shorten Audit Report Lag. Meanwhile, leverage has not empirically proven to have a significant effect. The findings implies that large companies have better information and technology systems compared to smaller companies so as to strengthen internal control and speed of presentation of financial statements. High profitability encourages companies to present financial reports on time so that the impact of ARL decline.

Pengaruh Good Corporate Governance dan Leverage Terhadap Manajemen Laba

This study aims to determine the effect of good corporate governance and leverage on earnings management. The population used is manufacturing companies listed on the Indonesia Stock Exchange in 2014-2015 and the sample determination method used is purposive judgment sampling. Samples obtained were 44 companies. Data analysis techniques used are descriptive analysis, classic assumption test, multiple linear regression test, and hypothesis testing. This study found that simultaneous good corporate governance and corporate leverage influence earnings management. Partially, this research found that good corporate governance is proxied by institutional ownership (KI), managerial ownership (KM), audit committee (KA), company size (UK), and leverage affect earnings management, while the independent board of commissioners (DKI) and the board of directors (DD) have no effect on earnings management.

Financial Crises, Institutional Environment, and Corporate Leverage

This study examines corporate leverage during systemic banking crises in an international setting including 85 countries from 1987 to 2017. Using the historically determined component of institutions and exogenous variations in institution building, the analyses show that leverage cyclicality varies substantially across institutional settings. Leverage is strongly counter-cyclical under more binding constraints on the capital supply, suggesting important supply effects of such crises on leverage. Weak institutions are more conducive to crises and uncertainty. Leverage counter-cyclicality is more pronounced during crises that coincide with higher uncertainty, whereas leverage is pro-cyclical with stronger legal systems and information sharing in capital markets.

Corporate Leverage and Investment

In this article, we examine the relationship between high corporate leverage and future firm investment spending on structures, machinery, and equipment. In other words, we examine how debt influences the growth of a firm’s capital stock or fixed assets. We find that, on average, more leveraged firms across industries tend to have lower levels of investment activity in the future. Specifically, we find that the negative relationship between debt and investment is strongest for the most highly indebted firms and is evident in both economic downturns and expansions.

Contradictions of Financial Capital Switching: Reading the Corporate Leverage Crisis through The Port of Liverpool's Whole Business Securitization

David Harvey argued there to be an animating tension at the heart of the geographical dynamics of capital: a simultaneous need for both spatial fixity and perpetual motion. I adapt this frame for an era of financial globalization, arguing that fixity has been overcome through a ‘quaternary circuit’ of credit-mediated capital switching which undermines the distinct roles of the three circuits Harvey identified. However, rather than resolving the fixity/motion contradiction, this has instead given it intensified form as capital liquidity versus spatial fixity. I explore this through the Port of Liverpool's innovative ‘whole business securitization’, tracing out the logic of leverage underpinning financial capital switching and how such practices transform the spatiotemporality of circulation while fostering the conditions for greater crises. By theorizing financial globalization from a capital switching perspective, this article combines Minskian and micro-founded approaches to understanding investment chains in a way that reprises geographical political economy's critique of the territoriality of capitalist crisis.

Kalecki’s principle of increasing risk violated: debt, cash flow and free cash

The recent expansion of leverage among the largest U.S. nonfinancial firms violates Michal Kalecki’s “Principle of Increasing Risk” in the sense that the largest firms are more leveraged than their smaller counterparts. The thesis presented herein is that this violation is critically dependent on cash and free cash flows derived from public and noncorporate private deficit spending outside of the corporate sector. In reference to public deficits, this dependency was first elaborated in Hyman Minsky’s elaboration of Kalecki’s derivation of free cash. Arguably, noncorporate private debt relative to personal income—based mainly on household deficit spending—has approached an upper limit. Arrival at such a limit would mean that corporate leverage in the nonfinancial sector would be dependent on public deficits alone. Under present circumstances, this means a continued dependency on the hegemonic role of the dollar in world markets and the continued willingness of foreigners to absorb U.S. public debt.

Emerging market corporate leverage and global financial conditions

This paper explores how global financial conditions influence corporate leverage growth in emerging markets (EMs). Using a sample of 800,000 listed and non-listed firms across 28 EMs, we find that accommodative global financial conditions—initially proxied with a measure of U.S. monetary policy—are associated with faster leverage growth. The impact is more pronounced for financially constrained firms, such as small- and medium-sized enterprises (SMEs), and for EMs whose domestic monetary policy is more aligned with that of the United States. The findings suggest that global financial conditions affect EM firms' leverage growth by influencing domestic interest rates and by relaxing corporate borrowing constraints. Finally, leverage increases disproportionately more for firms that are either relatively less profitable or less solvent when global financial conditions become looser.

Female CFOs, Leverage and the Moderating Role of Board Diversity and CEO Power

This paper investigates the extent to which female Chief Financial Officers (CFOs) affect corporate leverage. We examine female CFOs in UK firms and find that they significantly reduce the leverage of the firm; however, a female CFO’s ability to influence corporate leverage is moderated by the senior decision-making environment in the firm. In particular, female CFOs are more effective in reducing leverage in firms with boards that are diverse with respect to gender, nationality and age, and in firms where the Chief Executive Officer (CEO) is not overly powerful. In addition, we find that externally appointed female CFOs reduce leverage more, in line with them having less allegiances to other top managers and greater scope to deviate from existing policies. Our work contributes to the literature by examining the conditions under which gender-specific risk-taking preferences lead to observable effects on corporate outcomes.

Corporate cash holdings and financial crisis: evidence from the emerging market of Greece

This paper investigates the determinants and implications of cash holdings during both a recessionary and a growth phase of the Greek economy. Using a sample from 2003 to 2014, we find that, on average, Greek firms hold 13.8% of their total assets as cash and cash equivalents. We build upon the theoretical underpinnings of cash holdings determinants and provide evidence generally supportive of both a static trade-off model and pecking order model. The empirical results indicate that the cash ratio is positively associated with cash flow to assets, capital expenditures, industry cash flow volatility, and dividend payment. In contrast, corporate leverage, net working capital ratio, firm size, and loss are negatively related to cash ratio. This study highlights the importance of formulating additional regulatory actions and accounting policies to shield markets from a looming global shock.

Corporate cash holdings and financial crisis: evidence from the emerging market of Greece

This paper investigates the determinants and implications of cash holdings during both a recessionary and a growth phase of the Greek economy. Using a sample from 2003 to 2014, we find that, on average, Greek firms hold 13.8% of their total assets as cash and cash equivalents. We build upon the theoretical underpinnings of cash holdings determinants and provide evidence generally supportive of both a static trade-off model and pecking order model. The empirical results indicate that the cash ratio is positively associated with cash flow to assets, capital expenditures, industry cash flow volatility, and dividend payment. In contrast, corporate leverage, net working capital ratio, firm size, and loss are negatively related to cash ratio. This study highlights the importance of formulating additional regulatory actions and accounting policies to shield markets from a looming global shock.

Hubristic Hydraulics: Water, Dictatorship, and Modernity in the Dominican Republic

In this article, I focus on how water operated as symbolic capital during the notoriously repressive dictatorship of Rafael Trujillo (1930–61) in the Dominican Republic. Under his regime, alongside an apex of territorial control and modern aesthetics came a nadir of political freedoms. During Trujillo's tenure, water took on important symbolic and material dimensions as a conduit for authoritarianism: it served as a tool to bind together dictatorial power and spatial order through a mode of territorial and urban design rooted in hubristic hydraulics. With hubristic hydraulics I refer to the strategic ways that water flow was harnessed through infrastructure and choreographed through landscape and monumental architecture to embody and lionize the dictator's power. Channeled into reflecting pools, nationwide irrigation works, and monumental fountains, water functioned at the juncture of aesthetics and politics as an important tool in the modernization of urban space and the territory at large. Water was a strategic resource that enabled Trujillo to be cast as the “arquitecto de la patria nueva” (the architect of a new fatherland), and the ways it was made to flow through modern architecture and infrastructure offer an illuminating means to expose the entanglement of territorial control, urban modernity, and authoritarian politics.

Firm-Level Policy Risk in China: The Effects on Corporate Leverage Target Following Behaviour

This study proposes a new approach that bridges the asset pricing implications of economic policy uncertainty (EPU) and the dynamic debt-financing decisions of Chinese firms. The approach introduces a new variable, firm-level policy risk (FLPR), in empirical tests. FLPR embraces two elements, the exposure of a firm’s stocks to EPU shocks and the change of EPU as economy-wide policy risk. Our approach rectifies the defect that all firms respond homogeneously to EPU innovations and underpins the connection between EPU and capital structure with established theories. We show firms with positive (negative) EPU betas have their FLPRs impact negatively (positively) the leverage target, supporting the prediction derived from trade-off theory that rising economy-wide risk leads to falling optimum debt ratios. We also find that over-levered firms adjust towards the leverage target faster than under-levered firms.

Does export intensity affect corporate leverage? Evidence from Portuguese SMEs

This paper examines the effect of export intensity on a firm's capital structure using a sample of 7,676 Portuguese SMEs. Results obtained from a system GMM estimation method show that the leverage ratio is negatively affected by export intensity. We document that firms with more growth opportunities have a higher leverage, while firms that have more profits, higher asset tangibility and face higher business risk have lower debt ratios. Our results also show that the implementation of governmental mechanisms that support export firms’ borrowing activities are critical in economies facing a financial crisis.

Corporate Leverage and the Dynamics of Its Components

AbstractWe investigate the dynamics of observed and target leverage ratios and deviations from the targets. The cross-sectional persistence in leverage ratios is driven by persistent targets, whereas time-series variation is driven by transitory deviations from targets. Consistent with dynamic trade-off theories, persistence is higher when the costs of deviating from targets are lower and when the adjustment costs are higher. Deviations are less persistent for firms that are over-levered and firms that are smaller, younger, or more focused or that have lower credit ratings. In recessions, excess leverage is less persistent for larger firms and is more persistent for smaller firms.

Does money supply shape corporate capital structure? International evidence from a panel data analysis

ABSTRACTWe investigate how the growth rate of money supply, as a key dimension of the monetary policy, affects corporate debt decisions using a broad sample of companies from developed and emerging economies. Although expansionary measures increase market liquidity and encourage the use of debt, our results show that there is an optimal level of money supply beyond which additional liquidity discourages firms from using debt. However, the intensity of the effect of money growth on debt and the level of liquidity at which firms’ access to debt financing is maximized depends on the characteristics of the banking system. The effect is mitigated in countries where banks hold a higher fraction of liquid assets. By contrast, the relation between money supply and corporate leverage is more pronounced when a higher proportion of banks’ resources are allocated to private credit.

Corporate Governance and Leverage Implications on Firms’ Profitability, Cash Flows and Value in Nigeria

The paper examines the implications of Corporate Governance and leverage on firm profitability (ROA), value (MPS) and cash flows (FCF). The study utilized the agency, stewardship and free cash flow theories. The correlation research design was employed and data collected from ten (10) listed manufacturing firms in Nigeria between the period 2009-2018. The data was analysed for descriptive and correlation properties, with the research hypotheses tested through regression analysis. The results of the study indicates that independent boards have significant negative influence on debt usage, board size does not have a significant effect on debt capital, CEO duality positively impacts the usage of debt financing. The results also indicate that independent boards (BIND) have significant impact on ROA, FCF and MPS, BSIZE is found to exert no statistically significant impact on the financial performance variables, CEO duality negatively impacts both FCF and MPS of the sampled manufacturing firms in Nigeria. Furthermore, the impact of DEBT on ROA and FCF are found to be negative, with the negative effect on ROA being statistically insignificant at the 0.05 level (-0.015, (0.6846)), and the negative effect on FCF being statistically significant at the 0.05 alpha level. The research concludes that the research therefore upholds that capital structure, corporate governance board characteristics and financial performance of manufacturing firms listed on the NSE are significantly related at the 0.05 level. The study recommended that the role of the CEO and board chairman be separated and current debt levels in the manufacturing industry be maintained. Keywords: Corporate Governance, Leverage, Firm Profitability, Firm Cash Flows, Firm Value DOI : 10.7176/RJFA/10-24-04 Publication date: December 31 st 2019

Estrutura de Capital e Mecanismos de Governança Externos à Firma: Uma Análise Multipaís

Resumo Esse estudo investiga em que medida os mecanismos de governança externos à firma afetam a alavancagem de uma amostra de 7.490 empresas de 40 países. O diferencial do estudo está na distinção entre os mecanismos que afetam a proteção dos acionistas minoritários daqueles que afetam os direitos dos credores. Os resultados sugerem que as empresas se alavancam de maneira coerente ao previsto pela Teoria da Pecking Order (POT). Observou-se que os mecanismos associados à proteção de ambas classes de investidores (i.e., acionistas e credores) influenciam significativamente a estrutura de capital das empresas. Quando a proteção é alta, as empresas tomam menos dívida. Os resultados mostraram-se robustos a diversas variações no modelo estudado e indicam que, quando a proteção aos investidores externos é maior, as firmas tomam menos dívida, possivelmente com a finalidade de restringir o papel monitorador da dívida sobre a discricionariedade dos insiders.