Debt Structure Of Firms Research Articles

Debt financing of SMEs: The certification role of R&D Subsidies

This study investigates the (unintended) effects of public subsidies for research and development (R&D) on the debt financing of small and medium-sized enterprises (SMEs) by examining a public program implemented in the Marche region of Italy during the 2005–2012 period. The study combines matching methods with a difference-in-differences estimator to examine whether receiving public subsidies affects total indebtedness and the structure and cost of debt of awarded firms. The results indicate that R&D subsidies are associated with a modification of firm debt structure (especially for young, high-tech, and risky firms) in favor of long-term maturities and help firms limit the average cost of debt. Subsidies also foster the use of bank financing and reduce trade debt, but they do not affect the overall level of debt. Taken together, these findings suggest that the public funding of SME innovation projects plays a certification role in the access to external financial resources for firms receiving subsidies.

Universal Banks and Firm Debt Structure

Universal Banks and Firm Debt Structure

Options Trading and Corporate Debt Structure

Options trading activity can affect firm debt structure decisions by stimulating informed trading that improves the informational environment in which firms raise debt capital. We find supporting evidence, at both the extensive and intensive margin, that firms with actively traded options are able to shift from bank to public debt financing. We provide cross-sectional evidence that the shift from bank financing reflects reduced demand for the special role that banks play in ex ante information collection and ex post monitoring for firms with greater information asymmetry. Instrumental variable analysis and three quasi-natural experiments support a causal interpretation of our findings.

Foreign currency invoicing of domestic transactions as a hedging strategy: evidence for Uruguay

ABSTRACTThis study is an empirical analysis of the factors associated with the use of the US dollar for the invoicing of domestic transactions, which is a common practice of Uruguayan firms. Using a novel dataset we find that both the input and debt structure of firms are relevant for determining their currency of invoicing. Intuitively, firms will generate cash flows in US dollar if they have to make expenditures in foreign currency, either because they use imported inputs or if they cover debt services with currency risk. This practice can be seen as a hedging strategy to mitigate exchange risk in a highly dollarized economy. We empirically show that firms use their flows position to hedge currency mismatches in their stocks; domestic invoicing in US dollar is correlated with large negative financial positions, and the share of imported inputs and of exports.

Capacity Governance and Rebalance of Debt Structure: From the Perspective of the Relationship between Trade Credit and Bank Credit

During the period of 2003-2015, the relationship of trade credit and bank credit financing of Chinese industrial enterprises above a designated size showed a significant complementary” growth pattern, being in sharp contrast to the extrude expectation under traditional alternative financing” theory. Although the complementary patter can be explained by traditional signaling theory”, this theory still does not sufficiently explain why trade credit grows in units combing with much more growth of bank credit, and why enterprise debt structure increasingly skews towards bank credit, especially when the GFC led the bank sector to a renewed bout of risk aversion and reduced the willingness of commercial banks to identify the signaling effect”. The above background determines the following research tasks. Firstly, in addition to the western signaling effect” hypothesis, how to construct a new complementation logic （e.g. capacity-driven hypothesis） is studied to explain why the relationship between bank credit and trade credit is dynamically transformed from substitution to complementation, and why bank credit, instead of being crowding out, eventually takes on more radical growth, which in turn leads to firm debt structure shifting toward bank loans. These introspections contribute to the localization interpretation of corporate debt structure distortion as well as to the formation mechanism of the rising level of bank credit dependence. Secondly, by observing the evolution characteristics （e.g. threshold value, magnitude of complementation coefficient） of corporate debt structure imbalance through subgroup tests and comparing their coefficient differences, the determinants which are able to adjust firms’ bank credit dependence and rebalance firm debt structure can be found out. These introspections contribute to the optimization of credit policies that aim to optimize firm debt structure, and correct firms’ bank credit distortion. On the basis of a literature review and the introspection of complementary logic, this paper puts forward the capacity-driven hypothesis”, and investigates the determinants of firm debt structure distortion by introducing adjustment cost and RD （2） it reveals, through the introspection and empirical subgroup test, the impacts of R&D investment and adjustment costs on reducing offset of financial structure. This facilitates the optimization of credit policy.

Financial Structure and Corporate Growth: Evidence from Italian Panel Data

We study the relationships between firm financial structure and growth for a large sample of Italian firms (1998–2003). We expand upon existing analyses testing whether liquidity constraints affect firm expansion by considering amongst growth determinants also firm debt structure within a unified framework. Panel regression analyses show that more liquid firms tend to grow more. However, firms do not use their capital to expand, but rather to increase debt. We also find that firm growth is highly fragile as it is positively correlated with non‐financial liabilities and it is not sustained by a long‐term debt maturity. Finally, quantile regressions suggest that fast‐growing firms are characterized by higher growth/cash‐flow sensitivities and heavily rely on external debt, but seem to be less bank‐backed than the rest of the sample. Overall, our findings suggest that the link between firms’ financial structure and expansion decisions is far more complicated than postulated by standard tests of investment/cash‐flow sensitivities.

Financial Structure and Corporate Growth, Evidence From Italian Panel Data

We study the relationships between firm financial structure and growth for a large sample of Italian firms observed from 1998 to 2003. We expand upon existing analyses testing whether liquidity constraints affect firm performance by considering among growth determinants also firm debt structure. Panel regression analyses show that more liquid firms tend to grow more. However, firms do not use their capital to expand, but rather to increase debt. We also find that firm growth is highly fragile as it is positively correlated with non financial liabilities and it is not sustained by a long term debt maturity. Finally, quantile regressions suggest that fast growing firms are characterized by higher growth cashflow sensitivities and heavily rely on external debt, but seem to be less bank backed than the rest of the sample. Overall, our findings suggest that the link between firms investment and expansion decisions is far more complicated than postulated by standard tests of investment cashflow sensitivities.

Cash Holdings, Use of Debt and Dividend Structure of Family Firms

In this study we examine the relation between firm’s financial structure and family ownership. We develop a theoretical model of the precautionary cash holdings. Our empirical results show that the fraction of a company’s shares that are held by the founding family members or their descendants influences the use of cash and equivalents, dividend policy and debt structure of a firm. Our results are robust to different estimation methods and alternative model specifications. We find that family firms tend to rely less on long-term debt financing, pay fewer dividends and carry higher precautionary cash balances.

Relationship Banks, Debt Rollovers and Credit Crises

In deciding whether to roll over a loan, a relationship bank that has imperfect private information about its borrowers faces a trade-off. It wants to avoid rolling over a loan to a bad firm so as to safeguard its reputation as an effective monitor. However, refusing to roll over a loan to a good firm can provoke inefficient liquidation and cause losses to the relationship bank if the firm is unable to find alternative lenders. This paper explores the differential effects of this trade-off in situations with many alternative lenders (booms) and with few alternative lenders (credit crises), and explains how the results depend on factors such as the severity of a credit crisis, the strength of the firm-bank relationship and the firm debt structure.

Firm debt structure, firm size and risk volatility in US industrial firms

US industrial-firm panel data on short-term and long-term borrowing (term debt structure) for annual and quarterly time periods over the years 1995 to 2008 are used to test an insulation hypothesis and a related volatility hypothesis. The former test uses a regression model relating the log of the ratio of accounts payable in trade to Long-Term Debt (LTD) to firm size and other variables. The focus is on the firm's response to the US Federal Reserve (FED)'s monetary policy, where the response is a micro perspective on the earlier macro debate over the existence of bank lending channels. The latter hypothesis uses the panel heteroscedastic variances from the first regression procedure to test for a quadratic-form risk function (either U-shaped or inverted U-shaped) using sigma squared and the Coefficient of Variation (CV) as risk indexes and firm size as a determinant. The findings suggest that there is some evidence that US industrial firms in their borrowing behaviour do insulate themselves from the effe...

Corporate Debt and Outsourcing in India

The structure of firms' activities, as to whether they should be undertaken internally or performed wholly or partially with the help of external firms, has been important. The issue of outsourcing has generated interest among academics and practitioners. Simultaneously, how firms' capital structures influence behaviour is important, because the divergent goals and preferences of different providers of capital can manifest themselves in the form of differences in strategies pursued by firms. This article uniquely evaluates whether variations in Indian firms' capital structures, and more specifically, the quantity and type of debt chosen by firms, have influenced firms' outsourcing decisions. Governance mechanisms in Indian organizations have been unique when compared to that elsewhere, with government playing a big role in the financing of firms since banks and financial institutions are, in the main, government-owned. Also, the legal environment is unique and different from those in advanced economies. The link between capital structure and strategy, thus, can become quite unusual in India. The evaluation is based on a large sample of firms for which debt data were available. The main finding noted is that as the proportion of funds borrowed by Indian firms from commercial banks and financial institutions rise, these firms engage in greater levels of outsourcing and are less inclined to vertically integrate. In the presence of financing by government-owned banks and financial institutions, industry has been able to engage in strategies that may not be compatible with asset and property rights protection and performance enhancement. This is due to the collective action problem banks and financial institutions may face in monitoring lenders. As far as corporate debentures are concerned, where debentures rise as a proportion of borrowings, firms continue to engage in outsourcing. Possibly they can ignore the pressures from bondholders, who in India have not yet had a significant presence as the corporate debt market in India is still relatively under-developed and inadequate as a source of funds. By that same logic, firms can ignore pressures from fixed deposit holders to adopt performance-enhancing or property rights protecting strategies. Yet, fixed deposit holders show an ability to influence firms to lower outsourcing as their presence in the debt structure of firms enhances. This may be not due to fixed deposit holders' influencing abilities but because the relative costs of fixed deposits are high, with interest rates on fixed deposits five to ten percentage points more than that for other debt. The enhancement of fixed deposits in firm' debt profiles will cause margin pressures. To obviate these, firms may resort to potentially cost-saving integration strategies.

Determinants of the floating-to-fixed rate debt structure of firms

We analyze the effects of managerial incentive, firm characteristics and market timing on floating-to-fixed rate debt structure of firms. We find that chief financial officer's (CFO's), not chief executive officer's (CEO's), incentive has a strong influence on firm's debt structure. When CFOs have incentives to increase (decrease) firm risk, firms obtain volatility-increasing (-decreasing) debt structure. These effects are present only for CFOs who are not subject to high monitoring by board members, CEOs, or corporate control market. Our findings suggest that agency problems at the level of non-CEO executives could be an important driver of various corporate decisions.

Determinants of the Floating-to-Fixed Rate Debt Structure of Firms

We analyze the effects of managerial incentive, monitoring, firm characteristics and market-timing on floating-to-fixed rate debt structure of firms. We find that the CFO's (not CEO's) incentive has a strong influence on a firm's debt structure. When CFOs have incentives to increase (decrease) firm-risk, firms obtain volatility-increasing (decreasing) debt structure. Internal monitoring by the CEO and independent board members as well as external monitoring through corporate control market weakens the link between CFO's incentive and debt structure. Our findings suggest that agency problems at the level of non-CEO executives may be an important driver of various corporate decisions.