Proportion Of Short-term Debt Research Articles

Does foreign competition affect corporate debt maturity structure? Evidence from import penetration

This paper examines an unexplored issue of how a firm's competitive environment, proxied by import penetration, affects its debt maturity structure. We document a significant, positive relationship between foreign product competition and the proportion of short-term debt. Our results are robust to a series of sensitivity tests and endogeneity concerns. Utilising large, unexpected reductions in import tariffs as exogenous shocks to foreign competition, we validate the positive effect of import penetration on short-term debt. Our results hold more strongly for firms with high information asymmetry and weak external monitoring. These findings indicate that lenders offer short-term debt to prospective borrowers when they exhibit higher information asymmetry in response to increased foreign competition. Additional tests reveal that short-term debt in a firm's financial structure, contingent upon foreign competition, encourages managers to engage in tax avoidance as an alternative funding source. Our study provides novel evidence of the consequential impact of foreign product competition in debt contracting, giving us insights into its practical implications for corporate strategies and the ramifications of trade liberalisation for policymakers.

Debt maturity structure of private lodging firms

ABSTRACT This study tests the signalling and liquidity risk hypotheses about the choice of debt maturity structure in the context of private lodging firms. We find a positive and significant relationship between the Z-score (as a proxy for firm quality) and the proportion of short-term debt. This finding supports the signalling hypothesis that low-quality firms prefer to issue long-term debt, while high-quality firms issue short-term debt. However, we find no evidence consistent with the liquidity risk hypothesis. We further find that the most influential factor affecting debt maturity is firm size, followed by Z-scores and then firm age. Our findings are robust to alternative estimation specifications and endogeneity concerns. Overall, our study contributes to expanding our understanding of the debt maturity structure in private firms.

PENGARUH STRUKTUR UTANG, PERINGKAT KREDIT, DAN STRUKTUR MODAL TERHADAP IMBAL JASA AUDIT

Introduction: The purpose of this study is to empirically examine any effect of short-term debt structure, credit ratings, and capital structure on the audit fee. The sample used in this study are the companies listed in the PT Pemeringkat Efek Indonesia (Pefindo) and the Indonesia Stock Exchange. Methods: Data were analyzed using linear regression.The independent variables in this study are the proportion of short-term debt, credit ratings, and capital structure. Dependent variable is audit fee. This research uses the control variables representing firm size, its complexity, and risk. Number of assets and current assets to total assets ratio represent the size of the company. Number of business segments and the proportion of export sales to total sales represent the complexity of the company. Risk represented by the ratio of short-term liabilities to total assets, short-term liabilities to total assets ratio, quick ratio, and return on assets. Results: Hypothesis testing shows that the proportion of short-term debt does not significantly influence audit fee. Ratings have a negative impact on the audit fees of listed companies in Indonesia's credit rating. Capital structure does not significantly influence audit fee. Conclusion and suggestion: This study has limitations that are audit fee is measured by the natural logarithm of the nominal value of professional fees expense presented in the financial statements of the company and there is a possibility of mediating variables such as risk governance and audit, in examining impact of the proportion of debt and capital structure on audit fee.

The impact of crises on investments and financing of Brazilian companies: an approach in the context of financial constraints

The purpose of this paper is to investigate the impacts of financial crises on investments and financing of constrained and unconstrained Brazilian firms, specifically analyzing the impact of the 2008 subprime crisis and the 2015 Brazilian economic crisis. For this purpose, the companies were classified as constrained or non-constrained by the criterion of the existence or non-existence of ratings, using quarterly data between Q1 2007 and Q3 2016, and adopting the panel analysis as the method. The results indicate that only the Brazilian crisis of 2015 had a negative impact on corporate investments, with this impact being greater on constrained firms, with evidence that cash was more relevant to these firms. Regarding the impact of crises on leverage, the 2008 subprime crisis showed a greater negative impact on the leverage of constrained firms, accompanied by an increase in the proportion of short-term debt, mainly to these companies.

Board Characteristics and Capital Structure of Malaysia Consumer Products Sector

This study investigated the relationship between board characteristics and capital structure, namely total debt, short-term debt, and long-term debt of firms in the Malaysian consumer products sector for the period 2010 to 2014. Based on 109 firms selected for the study, the firms’ decision about capital structure regardless of total debt, short-term debt or long-term debt is not influenced by the size of the board. However, if the board membership constitutes more independent directors, the proportion of short-term debt is even higher than the long term-debt. Board meetings were found to have a significantly negative influence on firms’ decisions concerning total debt financing. The findings also revealed that large firms hold more short-term and long-term debts when there is an increase in the number of members on the board. The firms that have been long in existence focused more on short-term debt financing and their growth in terms of capital expenditure. Consequently, the total debt of the firms also increased.

Why is the Inter-firm Credit Market in Korea Special? An Agency View of Trade Credit Use by Chaebols

We study inter-firm credit (also known as trade credit (TC) or the delayed payment a supplier allows its downstream customer on a product sale) with an emphasis on its unique features in Korea. It is the prominence of chaebol-affiliated firms in the Korean economy that makes Korea unique because chaebol firms are linked together by common ownership and thus distort the assumption common to all theories of TC that the input supplier is independent from its customer. We find several aspects of TC use by chaebols. First, viewed as input purchasers, these firms take more TC (the chaebol effect). The amount of TC taken is positively related to purchases from other chaebol affiliates (the affiliate effect), and with the degree of the chairman's ownership-control disparity (the ownership multiplier effect). Also TC as proportion of short-term debt increases significantly after profit growth (the profit effect). Furthermore, chaebol members give less TC although this is strongly correlated with transactions with affiliates. We suggest a unifying interpretation of these patterns based on agency cost: TC, by substituting for external financing and reducing monitoring by outsiders, presents controlling minority owners the opportunity to misuse their greater control for their own benefit.

How Tax Hypothesis Determines Debt Maturity in Indian Corporate Sector

Trade-off theory states that the optimum debt maturity is determined by a dynamic trade-off between the tax advantages of debt and deadweight cost of bankruptcy as the firms recapitalize with debt depending upon the term structure of interest rate and asset volatility. Therefore, the corporate tax rate, term structure, and asset variance jointly determine corporate debt maturity. This paper empirically examines how the tax hypothesis determines debt maturity in the Indian corporate sector using a panel data of 266 companies drawn from BSE 500 for the period 2000-2010. Our research findings unequivocally establishes that the tax rate, term structure and asset variance profoundly influence the debt maturity structure in Indian corporate sector. The statistically significant and negative coefficient on tax rate clearly indicates that optimal debt maturity is determined by the trade-off between the tax benefits of debt against the cost associated with financial distress and bankruptcy risk. The coefficient on term structure shows that in the periods of declining term structure and higher corporate tax rate, the firms maximize market value by increasing the proportion of short-term debt in the capital structure. The statistically significant but positive regression coefficient on asset variance rejects the tax hypothesis that debt maturity is inversely related to asset variance. The complex tax regime, high rate of corporate tax and dysfunctional corporate bond market have adversely affected the growth and development of the business and industry. Therefore, comprehensive reforms are required in tax code, and initiatives are to be taken for developing the corporate bond market by introducing diverse products, which can provide avenues for financing, investment, and risk diversification.

The Overhang Cost of Long and Short Term Debt in the Presence of Default Risk

This research studies the implications of short term debt for firm investment decisions on a sample of U.S. non-financial firms from 1985-2011. We argue that short term debt does not always help to reduce the overhang cost of leverage as is the case in Myers (1977) model. Our empirical results show that short term debt has a negative effect on subsequent investment, which is further amplified in the presence of high default risk. Moreover, a high proportion of short term debt also intensifies the negative impact of default risk on investment. This finding is consistent with our argument that short term debt overhang becomes more dominant than long term debt overhang when the firm faces high risk of bankruptcy. This finding provides another explanation for corporate failures during the 2007-2009 crisis in the U.S. It is the prolonged implications of the under-investment problem that delay recovery, and this problem is more severe for firms with short term debt because short term debt intensifies the negative impact of financial distress on firm investments. Finally, our results provide support for the model in Diamond and He (2011).

Corporate Debt Maturity and Monitoring by Institutional Investors

I provide novel evidence that institutional investors, by influencing the maturity structure of corporate debt, play an active monitoring role. First, I find that institutional ownership is positively related to short-term debt and this relationship is not only statistically significant, but also economically sizeable. Second, I show that longer investment horizons and absence of potential business relations with the firm provide investors with stronger incentives to monitor managers by increasing the proportion of short-term debt in the company. This monitoring role is corroborated by robustness tests which reveal an increased probability of issuing short-term debt following a change in investor characteristics.

Developing a Deep and Liquid Bond Market Experience of Sri Lanka

The bond market in Sri Lanka has shown a slow but steady growth since the primary issue of Treasury Bonds that began in 1997. The Primary Dealer System that existed since 1992 provided a sound institutional framework for this growth whilst the Real Time Gross Settlement System and Scripless Securities Settlement System that came into being recently provided further impetus to the development of the bond market. With regular primary issues and secondary market trading in long-term debt, a yield curve emerged in the Treasury Bond market. The existence of a yield curve in the government bond market would encourage issuance of corporate debt as it would provide a bench mark for pricing of corporate debt. The high degree of risks involving settlement and trading in scrip securities and systemic deficiencies were minimized with the introduction of new infrastructure and efficiency in the market operations increased due to scripless trading and electronic on-line settlement in a delivery versus payment environment. With the increased competition in the market, spreads between buying and selling prices have reduced gradually. This would assist, among other things, in reducing the cost of borrowing to the Government. The large institutional investors have taken the initiative to develop their fund management skills and, with better trading skills of dealers and investors, the market will be increasingly active and even the long-term bonds will become much more liquid instruments in the market. The organizational and policy related issues, such as the delay in the formation of a public debt management office, large and widening fiscal deficit, debt sustainability and solvency issues, high proportion of short term debt, irregular cash flows, deficiencies in cash management, primitive nature of the corporate debt market and taxation on debt instruments vis-à-vis conventional sources of financing, are the key remaining issues that need to be addressed. (JEL H63, G18) DOI: 10.4038/ss.v34i1.1240 <em>Staff Studies </em>Volume 34 Numbers 1& 2 2004 p.69-85

Growth Opportunities and Corporate Policies: The Case of the Airline Industry

The literature on growth opportunities as real options has established that growth options play a compelling role in determining corporate policies like debt policy, dividends payout policy and investment policy, or governance structure. Firms with good growth opportunities are expected to have less debt, higher proportion of short-term debt, and higher investment, and declines in growth opportunities might lead to stock repurchases and lower dividends. I use two common proxies to assess the differences in growth opportunities between two comparable groups of firms: traditional and budget airline companies, before and after the terrorist attack of 09/11/2001, and test the relationships above using panel data. I find that the event has had a significant differential impact on the growth options of the two groups of firms, and that most theoretical predictions regarding the relation between growth opportunities and corporate policies are confirmed for the examined sample of firms.

The Financing Structures of Firms with Poor Corporate Governance

Previous studies claim that firms with poor corporate governance are likely to encounter significant difficulties in raising external financing, but not much is known about their financing structures. This paper examines the financing structures of firms with corporate governance problems associated with the divergence in the controlling shareholders' voting and cash-flow rights. We find that firms with more severe corporate governance problems use significantly more bank debt, have a higher proportion of short-term debt, and utilize more trade credit. Our findings suggest that bank debt, short-term debt, and trade credits have comparative advantages over other risky capital in managing corporate governance problems.

The Effect of Payments Standstills on Yields and the Maturity Structure of International Debt

Payments standstills have been suggested as a tool for the resolution of financial crises in emerging markets economies. A simple model is developed here to examine the implications of standstills for yields and the maturity structure of debt. An emerging market country chooses to sell short and long-term debt to risk-neutral international investors. The key assumptions are that the level of short-term debt increases the probability of crisis, that crises have costs that spill over into the next period, and that the orderly resolution of financial crises will reduce the cost of crises. A standstill is depicted as an orderly rollover of short-term debt. Standstills have the benefit of reducing the proportion of short-term debt and so lower the probability of crisis. This comes at the cost of generally lower expected output.

Crises and Liquidity: Evidence and Interpretation

In a large panel of countries, we find that less liquid countries are more likely to default on their external debt. Specifically, for given total external debt, the probability of a crisis is increasing in the proportion of short-term debt and of debt service due and decreasing in foreign exchange reserves. This correlation, however, is consistent with a standard model of optimal default and need not be ascribed to self-fulfilling creditor runs. Also, the correlation with short-term debt appears to be driven by joint endogeneity. The policy implications are discussed.

Crises and Liquidity: Evidence and Interpretation

In a large panel of countries, we find that less liquid countries are more likely to default on their external debt. Specifically, for given total external debt, the probability of a crisis increases with the proportion of short-term debt and debt service coming due and decreases with foreign exchange reserves. This correlation, however, is consistent with a standard model of optimal default and need not be ascribed to self-fulfilling creditor runs. Also, the correlation with short-term debt appears to be driven by joint endogeneity. The policy implications are discussed.

The Effects of Foreign Capital Inflows

This thesis analyzes the pre-1996 foreign capital inflows to Korea and the major impact of macroeconomic variables, discussed the background of South Korean foreign exchange crisis. VAR model using the analysis results reflect the impact of capital inflows and the increase in the volume of overseas department of communication makes the current account deteriorated, and no increase in revenue. It is well known that the positive effects of free capital flows can lower interest rates, but after 1980 the results of analysis of data showed that, despite the freedom of capital inflows, but interest rates did not decline. In contrast, the increase in domestic credit makes incomes increase, although in the short term, but it makes interest rates decline. Under the circumstance than the inflow of overseas capital did not bring positive effects to economic circumstances, although the private sector (private enterprises) and the number of financial institutions has worsened the financial structure, but the government finances and private consumption has been showing a strong and stable trend, deflation does not exist. One particularly striking is the sudden increase of the phenomenon of short-term debt, although a higher proportion of short-term debt, but the basic conditions for economic point of view, the inevitability and certainty of the foreign exchange crisis, there is still room for debate.