Degree Of Leverage Research Articles

Does being Shariah-compliant affect capital structure decision: evidence from emerging markets

Purpose This paper aims to examine the relationship between Shariah compliance and corporate capital structure decisions. This study explores the variation of capital structure speed of adjustment. Design/methodology/approach The authors’ sample includes a sample of the largest 200 nonfinancial firms trading in the Malaysian and Pakistan stock markets. This study uses ordinary least squares and dynamic two-step system generalized method of moments to test the hypotheses of the study. Findings The results show that Shariah-compliant firms use a lower level of leverage than the noncomplaint firms. Moreover, while both types of firms have optimal capital structures, the speed of adjustment toward the targets is slower for Shariah-complaint firms than non-Shariah-compliant firms. This variation can be seen through the different levels of market imperfection experienced by the two types of firms. Shariah-compliant firms follow Islamic rules that restrict the type and degree of leverage, thus affecting the availability of external funding to Shariah-compliant firms. Research limitations/implications The findings call for more development and innovation of financing instruments that comply with Shariah rules that will increase of supply of external funds for Shariah-compliant firms and, thus, reduce market imperfections that are faced by Shariah-compliant firms. Originality/value The study contributes to the limited number of studies that examine the nexus between conventional corporate theories and Islamic corporate finance.

Enforcement, corporate governance, and financial decisions

PurposeThis study aims to analyze the impact of corporate governance on firms’ external financing decisions in the Middle East and North Africa (MENA) region.Design/methodology/approachThe authors analyzed a unique set of panel data comprising 2,425 nonfinancial firms whose shares are traded on stock exchanges in countries in the MENA region. The authors fitted an ordinary least squares model to estimate the regression coefficients. The authors performed a sensitivity analysis using alternative measures of the critical variables and an endogeneity analysis using instrumental variable methods with plausible external instruments.FindingsThe results revealed that corporate governance characteristics of firms are strongly associated with their degree of leverage. They also showed that macrofinancial conditions, financial regulations, corporate governance enforcement and social conditions mitigate the impact of corporate governance on firms’ financing decisions.Research limitations/implicationsA larger sample size will further improve the results; however, this is difficult and depends on the extent to which increasing disclosure practices allow more corporate information to reach international databases.Practical implicationsThis study provides new evidence on the role of corporate governance on firms’ financing decisions and documents the essential mitigating role of institutions, alerting managers to consider them.Originality/valueThis study is a novel attempt. Based on information from different data sources, this study explored the predictive power of corporate governance, ownership structures and other firm-specific characteristics in explaining corporate leverage in MENA countries. Overall, the analysis provides new evidence of the association between corporate governance and capital structure in the MENA region, highlighting the critical role of institutions.

Firm behaviour under negative deposit rates

Using rich microdata from Denmark, the first country in the world to move its key monetary-policy rate below zero, we find that firms which become exposed to negative interest rates on their bank deposits increase their fixed investments and employment to a larger extent than what can be explained by the associated reduction in the level of interest rates. They also tend to rebalance their liquid portfolio, reduce their degree of leverage and become more inclined to change bank connections. Our results also indicate that it is the event of becoming exposed to negative rates (the extensive margin), not the share of deposits exposed to negative interest rates (the intensive margin), that matters for firm behaviour. These findings support the existence of a corporate channel of monetary transmission when bank deposit rates cross zero and become negative.

Pengaruh Kepemilikan Manajerial, Non-Debt Tax Shield, Operating Leverage, Cash Holding dan Risiko Bisnis Terhadap Struktur Modal Pada Perusahaan Manufaktur

The purpose of this study was to determine the effect of managerial ownership, non-debt tax shield, operating leverage, cash holding, and business risk on capital structure. In this study, managerial ownership is proxied by the calculation of managerial shares divided by outstanding shares, non-debt tax shield is proxied by depreciation divided by total assets, operating leverage is proxied by Degree Of Leverage (DOL), cash holding is proxied by the calculation of cash and cash equivalents, and business risk. proxied by EBIT divided by total assets. While the capital structure is proxied by the Debt Equity Ratio (DER). The population of this study are manufacturing companies listed on the Indonesia Stock Exchange in 2018-2020. The research sample was obtained from 193 manufacturing companies and the research period was for three consecutive years (2018-2020). The data analysis technique in this study used descriptive analysis, classical assumption test, and multiple regression analysis. The results showed that managerial ownership, non-debt tax shield, cash holding had a significant effect on capital structure. Meanwhile, operating leverage and business risk have no Significant Effect On Capital Structur.

The Impact of Financial Leverage on a Company’s Market Valuation

The purpose of the article is to examine the impact of leverage on the market valuation of companies. The article verifies two hypotheses: 1. the degree of leverage is an important factor that impacts the market valuation of companies; 2. for companies with a high level of leverage, the impact of this leverage on their valuation is negative, and for companies with a low level of leverage, the impact is positive.
 The methodology of the study includes a critical literature review and empirical research based on correlation and regression analysis, including univariate and multivariate regression. The analysis covered quarterly data of ten energy companies listed on the Warsaw Stock Exchange. An important component of the research was classifying those companies into several groups, depending on their level of debt ratio in relation to the industry median debt ratio.
 The results of the research: The literature review did not provide an unequivocal conclusion to the problem. The empirical analysis did not give grounds to reject the first hypothesis; however, the second one was rejected. The research showed positive correlation and regression coefficients between the debt ratio and the price to book value ratio for highly leveraged companies and negative ones for companies with a low level of debt. The results are surprisingly contrary to the expectations based on theoretical premises.

Risk Parity: The Democratization of Risk in Asset Allocation

The risk parity investment model for asset allocation offers an alternative to the mean–variance framework. The fundamental idea is that the allocation to different asset classes should not be based on an optimization that targets a specific return with a minimal level of risk but, rather, should generate a portfolio in which the contribution to portfolio risk of each asset class is equal, regardless of its expected returns. In this article, the authors explain the fundamentals of the risk parity investment model and the variants in risk parity strategies due to the selection of the asset classes to be included in the portfolio, the choice of the risk metric, the portfolio risk target, how to obtain leverage, associated leverage, whether the selection of the specific investments within an asset class is made using an active or passive approach, and the tactical risk allocation strategy. In addition to describing the practical aspects of implementing risk parity strategies, the authors identify the various shortcomings of the model and some extensions of the basic risk parity model that attempt to address some of the issues identified by the model’s critics. TOPICS:Portfolio theory, portfolio construction, risk management, performance measurement Key Findings ▪ Unlike mean–variance optimization, a risk parity strategy allocates across asset classes such that each asset class contributes equally to portfolio risk, regardless of its expected returns. ▪ In practice, there are variants of the risk parity strategy due to choices made by the portfolio manager, such as selection of the asset classes, risk measure, targeted volatility, degree of leverage, asset selection using active or passive approach, and tactical risk allocation strategy. ▪ The performance of the risk parity strategy has varied, with critics of the strategy identifying theoretical and practical implementation issues.

Market Depth, Leverage, and Speculative Bubbles

Abstract We develop a model of rational bubbles based on leverage and the assumption of an imprecisely known maximum market size. In a bubble, traders push the asset price above its fundamental value in a dynamic way, driven by rational expectations about future price developments. At a previously unknown date, the bubble will endogenously burst. Households optimally decide whether to lend to traders with limited liability. Bubbles increase welfare of the initial asset holders, but reduce welfare of future households. We provide general conditions for the possibility of bubbles depending on uncertainty about market size, traders’ degree of leverage, and the risk-free rate. This allows us to discuss several policy measures. Capital requirements and a correctly implemented Tobin tax can prevent bubbles. Implemented incorrectly, however, these measures may create the possibility of bubbles and can reduce welfare.

A leverage-based measure of financial stability

The size and the leverage of financial market investors and the elasticity of demand of unlevered investors define MinMaSS, the smallest market size that can support a given degree of leverage. The financial system’s potential for financial crises can be measured by the stability ratio, the ratio of total market size to MinMaSS. We use that financial stability metric to gauge the buildup of vulnerability in the run-up to the 1998 Long-Term Capital Management crisis and argue that policymakers could have detected the potential for the crisis.

Medical Imaging System and the Health Care Delivery System in Nigeria: An Overview

The concept of using an imaging system to effectively diagnose and treat patients is well embraced in medical health care delivery systems of most advanced countries of the world. This has brought a lot of efficiency, availability and a high degree of leverage to the systems. But implementing such a system in third world countries especially a state such as Nigeria is still a challenge. The prospect of implementation, however, is enormous. This study aims at providing first-hand information about medical imaging to the health care practitioners. It is also intended to give a brief overview of the state of medical imaging in the health care delivery system with a focus on Nigeria. It additionally gives an insight into its challenges and discusses the benefits and prospects of the computer imaging system in the system. A methodological review of the current state of medical imaging system was examined with particular focus on its relationship to the health care delivery system in Nigeria. The use, benefits, method of generating as well as challenges and the huge potential of medical imaging in the advancement of the health care delivery system in Nigeria were examined. The study exposes the latest trend in medical imaging technologies and the relevancies to the Nigeria health care delivery system. Also, it examines the use of imaging technologies to treat various medical conditions of a patient in pre-medical and post-medical therapy. Also, up-to-date information about medical imaging focusing on Nigeria health care delivery system was discussed. It provides the first-hand informative source for medical practitioners as well as the general public when evaluating the need and importance of medical images to the overall health care delivery system in Nigeria. It reveals the uses, process in generating, capturing, storage and reporting of medical imaging as well as exploring the challenges and benefit of an imaging system in advancing health care delivery system in Nigeria. The study exposes the latest trend in medical imaging technologies and the relevancies to the Nigeria health care delivery system.

The Impact of Financial Leverage on A Company’s Market Valuation

The purpose of the article is to examine the impact of leverage on the market valuation of companies. The article verifies two hypotheses: 1. the degree of leverage is an important factor that impacts the market valuation of companies; 2. for companies with a high level of leverage, the impact of this leverage on their valuation is negative, and for companies with a low level of leverage, the impact is positive.The methodology of the study includes a critical literature review and empirical research based on correlation and regression analysis, including univariate and multivariate regression. The analysis covered quarterly data of ten energy companies listed on the Warsaw Stock Exchange. An important component of the research was classifying those companies into several groups, depending on their level of debt ratio in relation to the industry median debt ratio.The results of the research: The literature review did not provide an unequivocal conclusion to the problem. The empirical analysis did not give grounds to reject the first hypothesis; however, the second one was rejected. The research showed positive correlation and regression coefficients between the debt ratio and the price to book value ratio for highly leveraged companies and negative ones for companies with a low level of debt. The results are surprisingly contrary to the expectations based on theoretical premises.

Financing and Performance of Female-Owned Firms in Middle Eastern and African Economies

ABSTRACTEmpirical evidence suggests that lack of access to financing is a major constraint to performance of female-owned firms in most countries. Firm performance, financing structure, and constraints have been well explored in the case of firms in developed economies but remain understudied in the case of firms in developing countries, especially in Africa and the Middle East. Largely due to lack of relevant cross-country financial data, existing literature on African firms has presented some survey-based evidence on firm performance and financing structures, while evidence based on detailed financial information remains lacking. This study aims at filling this research gap. We identify female-owned firms operating in the formal sector and examine the impact of ownership structure on financing and firm performance. We use a panel of financial data covering 25,500 companies in the Middle East and Africa for the years 2006 to 2015. Our results reveal a clear, but perhaps surprising, gender-specific pattern. Increased availability of equity and/or debt capital as well as higher leverage has significant positive effects on firm performance, measured by sales, profits and returns on equity. Female ownership per se appears to lower firm performance significantly, according to all measures used even when we control for the levels of available capital and the degrees of leverage. However, when the interplay of female ownership with capital availability is taken into account, we find that this interaction has a positive impact, implying that women are actually more productive when they are equally able to access finance. These results are also confirmed for a subsample including only Sub-Saharan African countries.

De-westernization, democratization, disconnection: the emergence of Brazil’s post-diplomatic foreign policy

ABSTRACT For some time, foreign policy as an expression was perfectly interchangeable with diplomacy, given the degree of leverage enjoyed by diplomatic corps in Brazil's political system. However, there has arguably been some degree of discontinuity in this trajectory, which is noticeable from a couple of trends: Brazil's strategy toward Western powers vis-à-vis the rise of Asia,on the one hand, and democratization of foreign policymaking and the resulting tumultuous relationship between the foreign ministry and the presidency of the country, on the other. I posit that, from Fernando Henrique Cardoso to Jair Bolsonaro, this combination of factors prompted an epochal shift in Brazil's external relations, whose bottom line might be Itamaraty's demise as chief formulator while other governmental bureaucracies, political parties and individuals take over as the gravity centre, turning the contents of Brazil's foreign policy more responsive to social inputs, however less predictable and coherent over time.

A cross-cultural analysis of how individualism and collectivism impact collaborative consumption

The practice of collaborative consumption is increasingly spreading and diversifying nowadays, impacting both individuals and businesses. This paper seeks to contribute to the emerging debate that acknowledges its global importance by providing a cultural understanding of the deeper mechanisms underlying attitudes and intentions associated with collaborative consumption. The survey design aims to integrate personal norms, behavioral beliefs and individualism-collectivism constructs within the theory of planned behavior framework and thus to better explain the intention to engage in collaborative consumption. The study was conducted in Romania and Italy and a Partial Least Squares – Path Modeling approach was implemented to analyze the data. The findings illustrates the role played by responsibility, uniqueness and advice, as cultural facets revealed by the Auckland Individualism and Collectivism Scale –as significant predecessors of attitude and subjective norms related to collaborative consumption. Responsibility is the dimension with a positive impact on attitude in both countries, and even on behavioral intention in Italy, while advice and uniqueness show a certain degree of leverage only in Romania. The implications reinforce the need for tailored approaches at the cultural level in order to increase the uptake of collaborative consumption.

Market Depth, Leverage, and Speculative Bubbles

We develop a model of rational bubbles based on leverage and the assumption of an imprecisely known maximum market size. In a bubble, traders push the asset price above its fundamental value in a dynamic way, driven by rational expectations about future price developments. At a previously unknown date, the bubble will endogenously burst. Households’ decision to lend to traders with limited liability in a bubble is endogenous. Bubbles reduce welfare of future investors. We provide general conditions for the possibility of bubbles depending on uncertainty about market size, traders’ degree of leverage and the risk-free rate. This allows us to discuss several policy measures. Capital requirements and a correctly implemented Tobin tax can prevent bubbles. Implemented incorrectly, however, these measures may create the possibility of bubbles and can reduce welfare.

Independent central banks and banking crisis liquidity

This study develops and tests a formal model that shows why central banks protected from direct government borrowing supply a larger financial safety net for commercial banks during a crisis. This result is derived from a novel model of central bank independence grounded in the rules governing access to the central bank’s balance sheet, rather than in the politics of inflation. Subsequent analysis shows that this result is mediated by the degree of leverage in the banking system, but only in democracies where government borrowing restrictions are credible. Supporting quantitative evidence comes from an event study on a large sample of emerging market banking crises between 1980-2009.

Empirical Analysis of Firm’s Risk by their Degree of leverages: Employ at Textile Industry of Pakistan

This paper measures the risk of firms with respect to their degree of total leverage (DTL), degree of operating leverage (DOL) and degree of financial leverage (DFL). This paper is more concerned with the application of proposed relationship found in literature about these theories with the level of risk by taking actual data of companies. Further, prior researchers prove this theory of DTL by using some assumptions and hypothetical data but this research has analyzed actual records of Textile Firms listed at Karachi Stock Exchange to check the durability of the theory. For this, firstly DTL, DOL and DFL of selected companies have been calculated by using their true records. Then, in the following year changes had been analyzed that whether changes occurred according to the same results as predicted by DTL or not. Result suggests that there is more variation in profits (loss) than expected according to their degrees, which shows that on average firms under consideration are riskier. At the end, this study also highlighted some factors which may cause the variation more than expected and make the firms riskier.

The Impact of Economic Value Added & Return on Investment on the Changes in Stock Market’s Value (Analytical Study: ASE: 2006-2015)

This study aims to determine the effect of EVA and ROI and which is better able to explain the change in Stock market’s value in the companies listed in (ASE) (2006-2015), the researcher addresses a random sample consisting of (46) Company, and uses regression model, which connects the dependent and independent variables.The results of the study shows that the return on investment (ROI) is better than (EVA) to interpret the changes in Stock market’s value, where the coefficient of determination (R2) for the ROI is (22.5%), while the R2 for EVA Only 1.3%.This study also recommends the need to look for additional factors that would explain the changes in stock market's value such as: the degree of leverage, systemic risks, and macroeconomic indicators such as: (interest rates and inflation).

ECONOMIC VALUE ADDED VERSUS RISK IN AGRICULTURAL COMPANIES – INTERACTIONS AND CAUSES OF THEIR OCCURRENCES

The goal of the research is to present relations between the ability to generate value and risk in agribusiness companies. The ability to generate value of analyzed entities was determined using a rate of return on invested capital expressed by economic value addend (EVA). To characterize the risk of business indicators of operating and financial leverage were used. In periods of higher leverage lower rates of return on invested capital were noticed. The main reason for growth of the degree of leverage was an increase in the share of fixed cost in gross margin along with a decrease of operating profit. This gave an evidence of a negative influence of risk expressed by leverage on ability to generate value in agribusiness companies.

A Comparison of Overreactions of REIT and Non-REIT Funds Using Options Data: The Role of the Financial Crisis

Using Stein’s (1989) methodology, we compare changes in option implied volatilities of two real estate investment trust (REIT) funds and four non-REIT funds. Results indicate that before the 2007-2009 financial crisis, strengths of reactions to information of a liquid REIT fund and a financial fund are less pronounced than other funds analyzed and the markets for the two funds are considered underreaction. However, during and after the crisis the two funds have the strongest degree of overreaction. A possible explanation is that a higher degree of leverage and regulation uncertainties make REIT and financial sectors vulnerable to extreme downturns. Key words: REITs, option valuation, volatility mean reversion, overreaction

Tonka Corporation

Acting as management, students determine the effects of different degrees of leverage and review this company's current leverage in light of inherent industry risks and company goals.