Leverage Value Research Articles

Capital Structure Model (CSM): correction, constraints, and applications

This paper extends the Capital Structure Model (CSM) research by performing the following tasks. First, a correction is offered on the corporate tax rate adjustment found in the break-through concept of the levered equity growth rate (gL) given by Hull (2010). This correction is important because gL links the plowback-payout and debt-equity choices and so its accuracy is paramount. Second, this paper introduces a retained earnings (RE) constraint missing from the CSM growth research when a firm finances with internal equity. The RE constraint governs the plowback-payout and debt-equity choices through the interdependent relation between RE and interest payments (I). Third, a by-product of the RE constraint is a second constraint that governs a no-growth situation so that I does not exceed the available cash flows. Fourth, with the gL correction and two constraints in place, updated applications of prior research and new applications are provided. These applications reveal lower gain to leverage (GL) values than previously reported with more symmetry around the optimal debt-to-equity ratio (ODE) while minimizing steep drop-offs in firm value. For larger plowback ratios, the optimal debt level choice can change. The new constraints serve to point out the need for further research to incorporate external financing within the CSM framework.

Factors Affecting Debt to Equity Mixture in Kuwait, Bahrain and Oman

The key objective of present study analysis is to investigate the impact of various indicators on the value of debt to equity mixture (leverage) of the selected firms in the region of Bahrain, Kuwait and Oman during the time of 2011 to 2016. The key method being implemented in the present study is based on the robust multiple regression equations. The time of the study is from 2011 to 2016 with the factors like current assets, operating fixed assets, the net book value of fixed assets, admin expenses, earnings before interest and tax, return on assets, gross profit and finally the age of the firm. Findings of the study indicate that in the overall sample of the study key factors like of operating fixed assets along with net book value of the fixed assets has their significant contribution to predicting the value of financial leverage in the business. As per the originality/value of the study, it is found that in the selected region, this is a very first attempt to check the impact of selected indicators on the value of leverage over time. However, the limitation of the study includes the limited sample size which can be covered in the coming time for the better generalization of the results and suitable decisions. Besides, the study is contributing to existing literature while providing in-depth analysis of selected firms in three regions.

Predictability of Craniofacial Skeletal Age with Geometric Morphometrics

This study aims to estimate skeletal age of craniofacial shape obtained from cone beam computed tomography (CBCT)-defined facial and basicranial landmarks using geometric morphometrics method in a random sample of growing patients, and explore the correlation between craniofacial shape and skeletal age as determined from hand and wrist radiograph. Generalized Procrustes analysis (GPA) of craniofacial shape with estimation of centroid size was performed on CBCTs of 48 growing patients (mean age 11.7 ± 1.5 years). Greulich and Pyle method for skeletal age assessment were used for correlation with centroid size. Correlation among the variables relied on Pearson's coefficient and its 95% confidence interval was estimated. The model's R2 was calculated, (Cook's distances, Mahalanobis distances, leverage values, and studentized residuals) and multiple regression analysis performed using the Statistical Package for the Social Sciences (SPSS) version 22. Mean skeletal age was 11.9 ± 2.4 years. Centroid size (151.5 ± 7.2) was significantly correlated with chronological age (R = 0.616, 95% CI 0.355-0.789, p < 0.01) and skeletal age (R = 0.605, 95 % CI 0.331-0.794, p < 0.01). A new equation for determining craniofacial skeletal age was developed, using the centroid size of the craniofacial frame, gender, and the known chronological age. A CBCT may be used for skeletal age assessment without additional hand wrist radiograph.

Use and limits in project finance of the capital asset pricing model: overview of highway projects

The Capital Asset Pricing Model (CAPM) has become the standard and most popular tool in corporate finance for assessing t he risk and return in a shareholder´s equity. It is widely used in project finance, particularly in transportation projects. Yet in highly leveraged projects, the CAPM can produce misleading results. In this paper, we show that the values that the CAPM provides for projects that use debt to finance more than 80% of their total investment are unrealistic. This finding is mainly the result of a high leverage value in the CAPM formula. We examine 20 highway projects in Portugal launched between 1999 and 2010. We argue that in transport projects with high debt levels, investors must rely on the weighted average cost of capital. We find that larger and more complex projects tend to have higher equity and capital costs. Further, the financial crisis has a significant effect on increasing the cost of these projects.

Factors Affecting Maternal Health Care Services Utilization in Nepal: Insight from the Nepal Demographic Health Survey 2006 and 2011

Background: In this study, a maternal health care service is analyzed under the components of place of delivery (POD). POD is highlighted as ‘home delivery’ and ‘institutional delivery’.Objective: The objective of this study is to analyze factors associated with the utilization of health institute as delivery and estimate the probabilities of institutional delivery using some selected independent variables.Materials and Methods: Data used were extracted from individual recode of a data file of Nepal Demography Health Survey (NDHS) 2006 and 2011. The unit of analysis for this study is Ever Married Women (EMW) who had at least one live birth in the five years preceding the survey. Sample of this study consists of 4182 EMW for 2006 NDHS and 4079 EMW for 2011 NDHS. The dependent variable is place of delivery. The independent variables are mixture of categorical and continuous variables. For building of suitable statistical models, various types of models were explored and different measure of models adequacy test were applied. Finally, two logistic regression models were developed separately for 2006 and 2011 NDHS data.Results: Fitted model showed several variables: education level, wealth index, birth order, residence and ANC by provider were highly significant predictors for the selection of place of delivery for 2006 NDHS but in 2011 NDHS age was also highly significant. Goodness of fit tests (Hosmer-Lemeshow chi-square statistic), multicollinearity diagnostics, residual analysis and outliers (leverage value) showed that both models fit well to the proposed logistic regression model.Conclusion: A Comparative assessment of model coefficients between 2006 and 2011 NDHS, it is found that the values are only slightly different for most of the predictors under consideration demonstrating consistency of associations found in the two surveys.Nepalese Journal of Statistics, 2017, Vol. 1, 55-72

Pengaruh Capital Intencity Ratio, Free Cash Flow, Kualitas Audit, dan Leverage terhadap Manajemen Laba pada Perusahaan Manufaktur yang Terdaftar Di BEI

The purpose of this research is to analyze the influence of variable capital intencity ratio, free cash flow, audit quality, and leverage to earnings management action. The population in this study is manufacturing companies listed on the BEI during the period 2013-2015. Tests on the formulation using multiple regression analysis methods contained in the SPSS program. Based on the result of this research indicate that variable of capital intencity ratio, free cash flow, and audit quality do not influence to earnings management action. While the leverage variable has an influence on earnings management. This is evidenced by the average value of high sample company leverage. Management will try to manage its profits to reduce the failure rate to pay corporate liabilities.Keywords: Earnings Management, Capital Intencity Ratio, Free Cash Flow, Audit Quality, Leverage

Analyzing Relationship between Financial Leverage and Firmss Performance: A Case of Pakistan Textile Industry (2008-2013)

This research of the relationship of firms’ financial leverage with firms’ performance is based on six year (2008-2013) financial record of 151 textile companies. The net profit before tax (NPBT) has been used as proxy to represent the firm profitability while total debt as a ratio of total equity has been defined as financial leverage. Of the total, 17 firms (11%) have been found with negative NPBTs, 36 firms (24%) have positive NPBTs and 98 firms (65%) have mix NPBTs (having positive for some years and negative for some years). The trend analysis suggests that on average financial leverage of negative NPBT yielding firms remained at -28.756 and increased by 2.747 every year during the period of 2008 to 2013. While the average leverage of mixed NPBT yielding firms remained positive at 1.939 and increased by 0.174 every year, and the average leverage of positive NPBT yielding firms remained at 1.547 and decreased by 0.007 every year during the studied period (2008-13). Leaving negative NPBT yielding firms aside, the average leverage of mixed NPBT yielding firms is higher (1.939) and has been being increased (0.174 per year) while that of positive NPBT yielding firms is relatively lower (1.547) and has decreased (0.007 per year). Separating all negative equity and negative NPBT bearing observations, we are left with 519 positive equity positive NPBT yielding observations. The mean value of leverage (L) of these observations is estimated at 1.8338 and ranged between a minimum and maximum of 0.03 and 9.65. The mean value of NPTA (NPTA = NPBT/Total Assets) estimates at 0.0725 and ranges between minimum and maximum values of 0.0001 and 0.3233. For measuring a mathematical relationship between NPTA and L, the former variable was regressed over the latter, using three formulations (Linear form: NPTA = β0 β1L; Quadratic form: NPTA = β0 β1L β1L2; Cubic form: NPTA = β0 β1L β1L2 β1L3). The linear and squared form of the model gave good results; the cubic model yielded insignificant results. The results in the linear form (NPTA = 0.102 – 0.016L) suggest that there is an inverse relationship between leverage and profitability; for every one unit of leverage (L) increase, profitability (NPTA) decreases by 0.016 units. The results of the Quadratic form are reproduced, as follows: NPTA = 0.122 – 0.036L 0.003L2. Taking the F.O.C, and solving for L helps us estimate L = 6. These results suggest that with L = 0, the NPTA estimates at 0.122 (net profits are 12.20% of total assets) and with L = 6, NPTA minimizes at 0.014 (net profits drops to 1.40%). The existence of statistically significant inverse relationship between firms’ profitability and financial leverage persuades one to recommend that financial leverage be kept and managed as low as possible for greater firms’ profitability.

ChemBCPP: A freely available web server for calculating commonly used physicochemical properties

The behavior of a chemical in human or environment mostly depends on its several key physicochemical properties, such as aqueous solubility, octanol-water partition coefficient (logP), boiling point (BP), density, flash point (FP), viscosity, surface tension (ST), vapor pressure (VP) and melting point (MP). Commonly, these properties are important for the environmental sciences and drug discovery, such as the absorption, distribution, metabolism, excretion, and toxicity (ADMET) for medicinal compounds and the common risk assessment for problematic chemicals. At present, the quantitative structure-property relationship (QSPR) model was widely applied to save time and money investment in the early stage of chemical research. Although some satisfactory models were already obtained, most of them are not available for the public researchers and thus cannot be directly applied to practical research projects. Herein, in this study, we developed a user-friendly web server named ChemBCPP that can be used to predict aforementioned 8 important physicochemical properties and calculate several other commonly used properties just by uploading a molecular structure or file. In addition, for a new chemical entity, users can not only get its predicted value but also obtain a leverage value (h value) which can be used to evaluate the reliability of predictive result. We believe that ChemBCPP could be widely applied in environmental science, chemical synthesis and drug ADMET fields with the demand for high quality of chemical properties. ChemBCPP could be freely available via http://chembcpp.scbdd.com.

Leverage, Dividend Policy, Profitability and Market Value Relationships: A Case of Nepalese Commercial Banks

This study examines the relationship among leverage, dividend policy, profitability and market value in the context of Nepalese commercial banks. The dependent variables are value of commercial banks defined in terms of dividend per share and market price per share. The independent variables are earnings per share, price earnings ratio, book value per share, return on assets, debt to equity, size and taxes are taken as independent variables. The data are collected from various issues of Banking and Financial Statistics and Bank Supervision Report published by Nepal Rastra Bank and annual reports of selected commercial banks. The study is based on 14 commercial banks of Nepal for the period of 2003 to 2014 leading to the total of 168 observations. The regression models are estimated to test the significance and importance of effect of leverage, dividend policy and profitability on value of Nepalese commercial banks. The result shows positive relationship of dividend per share with bank size, earning per share, financial leverage. This means that increase in bank size, earning per share and financial leverage lead to increase in dividend per share. Likewise, the results also shows that there is positive relationship of dividend per share with reserve and surplus, return on assets and tax liabilities indicating that higher the reserve, return on assets and tax liabilities, higher would be the dividend per share. Similarly, market price per share is positively related to earning per share, reserve and financial leverage. It indicates that increase in dividend per share, earning per share, reserve and financial leverage leads to increase in the market price per share. The beta coefficients are significant for size and reserve with dividend per share. Likewise, the beta coefficient is significant for leverage with market price per share.

Leverage and Market Value: Fitting a Hump-Shaped Function

This study analyzes the effect of financial leverage on firm value to determine whether there is an optimal capital structure. The paper separates the effect of leverage in financially constrained and unconstrained firms. Using a sample of 666 US companies belonging to seven different sectors between 1989 and 2007, we carry out two-stage least square panel data regressions estimated with fixed effects and using different leverage functions to find the one that best fits the data. The results show no clear effects of leverage on the market price of common shares, especially in the case of constrained firms. Furthermore, the effect of leverage on firm value is different among sectors and changes over time. These results make it redundant to ask for an optimal capital structure, and no guidance can be offered to CFOs seeking to maximize firm value using leverage.

DEALING WITH OUTLIERS AND INFLUENTIAL POINTS WHILE FITTING REGRESSION

Dealing with outliers and influential points while fitting regression is recognizing them, identifying the reasons to their existence in the process and employing the best alternatives to lessen their effect to the fitted regression model. In this paper, before considering elimination of outliers and the influential points while fitting a regression, as they contain important information, issues why unusual observations (possible outliers) appear in the process and how to analyze them to detect if they were real outliers, have been discussed thoroughly. And, when detected as outliers and influential points, to investigate and eliminate their effect in the fitted model, analytic procedures; leverage value, studentized residuals and cook's distance were carefully employed to optimize a multiple regression model for rice production forecasting in Nepal. This model was fitted with 35 years (1961-1995) time series data, collected from Ministry of Agriculture and Cooperatives, Food and Agriculture Organization Statistics Database, International Rice Research Institute and Department of Hydrology and Metrology which to its end was consisted of the three predictors, price at harvest, rural population and area harvested.Journal of Institute of Science and TechnologyVolume 22, Issue 1, July 2017, Page: 61-65

Working capital management and shareholders' wealth creation: evidence from non-financial firms listed on the Johannesburg Stock Exchange

Working capital plays a vital role in shareholders’ wealth creation, yet there is a dearth of empirical studies on the relationship between working capital management and firm value in the South African economic environment. This study attempts to fill this gap by using Richards and Laughlin’s (1980) Cash Conversion Cycle theory to investigate the impact of working capital management efficiency and its separate components on firm value of South African firms listed on the Johannesburg Stock Exchange (JSE). Panel data regression methodology was used to analyze accounting data obtained from I-Net Bridge/BFA McGregor for 75 firms for the 10 year period, 2003 to 2012, to determine the nexus between WCM and profitability (proxied by return on assets). The key findings of the study are as follows: 1) there exists a significant positive relationship between firm value and both inventory conversion period and receivables conversion period; 2) the relationship between the cash conversion cycle and firm value is positive but insignificant; 3) there is a significant positive relationship between accounts payable deferral period (PDP) and profitability; 4) firm size and firm value are significantly positively related, and 5) there is a significant negative relationship between leverage and firm value.

Accurate density prediction for aqueous Na-K-Mg-Ca-Li-Cl-Br-SO4 solution at high-pressure and high-temperature conditions

Knowledge of water volumetric properties is considered of extreme value in many disciplines of science and engineering, especially those seeking effective management of water resources. This knowledge is normally gathered through experimentation in laboratories within a wide span of time. Traditional methods have already been employed in integrating databases, but these are either afflicted by their limited accuracies or restricted in their applicability ranges. In this communication, density of aqueous electrolyte solution was estimated using adaptive network-based fuzzy inference system. Subtractive clustering was employed to transform crisp input data into fuzzy sets and radius of the clusters were tuned using a hybrid of particle swarm optimization and pattern search algorithms. Results of constructed model were compared to experimental data and excellent accordance was observed yielding an adjusted total correlation coefficient (R2) of 0.9847 and RMSE of 0.0003569. The model was also found to outperform a previously developed multiple regression model. Moreover, using the method of leverage value statistics, suspected outliers were diagnosed from the bulk of data. Results indicate that the model presented in this study can successfully be used for predicting saline water densities for Na-K-Mg-Ca-Li-Cl-Br-SO4-H2O system at temperatures ranging from −20 to 200°C, and pressures ranging from 1.013 to 684bars with acceptable degree of accuracy.

Predicted Residual Error Sum of Squares of Mixed Models: An Application for Genomic Prediction.

Genomic prediction is a statistical method to predict phenotypes of polygenic traits using high-throughput genomic data. Most diseases and behaviors in humans and animals are polygenic traits. The majority of agronomic traits in crops are also polygenic. Accurate prediction of these traits can help medical professionals diagnose acute diseases and breeders to increase food products, and therefore significantly contribute to human health and global food security. The best linear unbiased prediction (BLUP) is an important tool to analyze high-throughput genomic data for prediction. However, to judge the efficacy of the BLUP model with a particular set of predictors for a given trait, one has to provide an unbiased mechanism to evaluate the predictability. Cross-validation (CV) is an essential tool to achieve this goal, where a sample is partitioned into K parts of roughly equal size, one part is predicted using parameters estimated from the remaining K – 1 parts, and eventually every part is predicted using a sample excluding that part. Such a CV is called the K-fold CV. Unfortunately, CV presents a substantial increase in computational burden. We developed an alternative method, the HAT method, to replace CV. The new method corrects the estimated residual errors from the whole sample analysis using the leverage values of a hat matrix of the random effects to achieve the predicted residual errors. Properties of the HAT method were investigated using seven agronomic and 1000 metabolomic traits of an inbred rice population. Results showed that the HAT method is a very good approximation of the CV method. The method was also applied to 10 traits in 1495 hybrid rice with 1.6 million SNPs, and to human height of 6161 subjects with roughly 0.5 million SNPs of the Framingham heart study data. Predictabilities of the HAT and CV methods were all similar. The HAT method allows us to easily evaluate the predictabilities of genomic prediction for large numbers of traits in very large populations.

Factors Effecting Systematic Risk in Isolation vs. Pooled Estimation: Empirical Evidence from Banking, Insurance, and Non-Financial Sectors of Pakistan

The basic purpose of the financial manager is to maximize the wealth of shareholder by minimizing the risk. This study examines the validity of systematic risk determinants in banking, insurance, and non financial sectors of Pakistan. Panel data is used for the period of 2010 to 2014. Common Effect Model, Generalized Method of Moments and Two step regression model is used to identify the impact. Common effect results identify that leverage; operating efficiency, firm size, and market value of equity have significant impact on systematic risk in the banking sector. Firm size has significant impact on insurance sector, whereas liquidity, leverage, operating efficiency, firm size, market value of equity, profitability, and dividend pay-out are significant variables in the non-financial sector. In pooled data analysis leverage, firm size, market value of equity, and dividend pay-out are significant determinants in Common Effect Model and Two Step. However in GMM indicates that profitability has also positive impact on unsystematic risk in addition to Common effect and two step regression determinants. Policy implication indicates that shareholders and investors can maximize the return at low level of risk by investing in selected portfolios. It is finally concluded that variables significance changes from sector to sector in individual spectrum but in a pooled regression leverage and market value of equity has negative impact on systematic risk, whereas firm size, profitability and dividend pay-out has positive impact on systematic risk.

Assessing systems architecture: an exploratory framework

Competitive forces are pushing companies to leverage value from their system architecting competency that supports long-term growth. A system's architecture profoundly influences the cost and success of a system throughout the entire lifecycle and the business processes it supports. Assessment results can be used to drive changes in the architecture that would increase project success, alignment of business goals, stakeholder acceptance, decrease costs throughout the entire lifecycle, and enhance system performance and quality. Most relevant architecture assessment methods focus on system attributes. The key to success in this approach is to understand which system attributes should be addressed and what impact they have on architecture. The existing literature does not provide a comprehensive list of these attributes. This research identifies a set of relevant system architecture attributes in a classification framework aligned to business objectives that can be used for architecture assessment.

Same Leverage, Less Volatility: An Alternative Approach to the Construction of Leveraged Funds

This article introduces the concept of variable leverage for exchange-traded funds while keeping in mind that the target value for the leverage value is still fixed. This is done to ensure that the daily percentage hedging demand is kept constant, which in turn provides some assurance to investors that excessive buying and selling will not take place. By using simulations, the authors show that this newly constructed leveraged fund is better behaved than the usual constant multiple leveraged fund in terms of standard deviations and volatility of compounded returns.

An empirical investigation of capital structure and firm value in Vietnam

This study investigates the relationship between capital structure and shareholder value in Vietnam. We use accounting and stock market data for firms listed on the Ho Chi Minh City stock exchange during the period 2007–2013. Our analysis shows a negative relation between financial leverage and shareholder value, indicative of a proportionately greater cost to debt financing than benefit for Vietnamese firms. Moreover, we find that only low leveraged firms are likely to create value for shareholders. Our study has implications for Vietnamese firm's preferred capital structure and for investors who contemplate to invest in Vietnamese stock markets.

Designing Ubiquitous Media Services: Exploring the Two-Sided Market of Newspapers

The two-sided market of newspapers with its two customer groups, readers and advertisers, is changing due to digitalization. This former stable and profitable market has lately suffered from both decreasing subscription and advertiser revenue. In this paper we use the term ubiquitous media environments to represent the vision of future media environments enabling device independent mass-scale distribution of ubiquitous media services in integrated infrastructures. We build upon a two-year action research project where researchers worked together with the Swedish newspaper industry to envision future ubiquitous media services and explore the following research question: how can ubiquitous media services be designed to leverage and balance value in a two-sided market? Five examples of ubiquitous media services were developed in collaboration and thereafter evaluated. These services were then illustrated in movie clips to trigger discussions on how ubiquitous media services can be designed. Drawing on the value aspects of ubiquitous media services from an advertiser and reader point-of-view and the platform owner role of the newspapers in a future ubiquitous media environments, we describe and discuss how ubiquitous media services can be designed to leverage value for advertisers and readers, and how newspaper organizations can strategize ubiquitous media environments.

EXAMINING THE RELATIONSHIP BETWEEN DISCLOSURE LEVEL, OWNERSHIP STRUCTURE AND EARNING MANAGEMENT IN THE TEHRAN STOCK EXCHANGE

Earnings are one of the basic elements of financial statements, which has always been of interest to different groups and it is used as a measure of continuity of activity, efficiency and revision of earnings contracts, predicting future cash flows for investment. Managers, to mislead shareholders on the actual economic performance of the firm, often manage earnings. Earnings management is a biased intervention on external financial reporting that is done to secure unusual earnings for shareholders or managers. Given the importance of earnings management in financial and accounting literature, in this study, we examine the effect of different internal and external mechanisms and disclosure level on earnings management. In this study, to estimate the model we have used the data of 143 firms listed on Tehran Stock Exchange, obtained by screening or systematic elimination over the 2005-2014 period. The results show that the impact of institutional ownership variable (as an external mechanism of corporate governance) on earnings management is positive and significant. The concentration of ownership (as an internal mechanism of corporate governance) on earnings management is positive and statistically significant. The impact of disclosure on earnings management is negative and significant. In addition, the results show that firm size is positively correlated with earnings management. The other two control variables, the ratio of market value to book value of equity and financial leverage have a negative impact on earnings management. Based on the results we suggest that institutional investors and major shareholders play a more active role in supervision and help to align the interests of shareholders and managers to decrease the agency problems and finally improve the firm's performance.