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1 – 10 of over 2000
Article
Publication date: 1 February 1996

Woodrow W. Cushing and Daniel E. McCarty

This study develops a model for estimating an index measure of asset specificity based on the liquidation value of corporate firms and the proportional distribution of their pre…

Abstract

This study develops a model for estimating an index measure of asset specificity based on the liquidation value of corporate firms and the proportional distribution of their pre‐liquidation assets. A statistically significant positive relationship was found to exist between the estimated specificity index and financial leverage supporting the theoretical prediction. Additional evidence was found that firms with higher variability in sales, lower probabilities of failure, higher valued non‐debt tax shields and higher levels of financial slack use less financial leverage.

Details

Managerial Finance, vol. 22 no. 2
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 7 September 2015

Ran Lu-Andrews and Yin Yu-Thompson

The authors intend to perform empirical analysis to test the theory proposed by Edmans and Liu (2011) that CEOs with more debt-like compensations care more about the liquidation

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Abstract

Purpose

The authors intend to perform empirical analysis to test the theory proposed by Edmans and Liu (2011) that CEOs with more debt-like compensations care more about the liquidation value of the firm. The purpose of this paper is to examine the relations between CEO inside debt ratios and tangible assets (i.e. asset tangibility, liquidation value, and fixed asset investment).

Design/methodology/approach

The authors use the Ordinary Least Square (OLS) contemporaneous and lead-lag regression analyses. They also use two-stage least-square (2SLS) regression analysis for robustness check.

Findings

The findings are fourfold: first, CEO inside debt has a positive effect on asset tangibility of the firm; second, CEO inside debt has a positive effect on the liquidation value of the firm; third, CEO inside debt has a positive effect on the tangible asset investment (as measured by capital expenditures) of the firm; and fourth, these positive effects are found in both the contemporaneous year and the subsequent year and in both OLS and 2SLS frameworks. The research provides further evidence that CEOs with higher inside debt holdings exhibit safety-seeking behavior. The authors document direct proof for the theory proposed by Edmans and Liu (2011) that these CEOs, like any creditors, care a great deal of the asset tangibility and liquidation value of the firm.

Originality/value

This study contributes to the existing literature by providing further empirical evidence to support that CEO inside debt holdings have impacts on firm investment decisions and capital allocations. Inside debt does help align the executive managers’ personal incentive with firms’ value, and mitigate the agency conflicts between managers and debt holders. This study provides significant empirical evidence to support the theory suggested by Edmans and Liu (2011) that CEOs with higher level of inside debt holdings do care a greater deal about the asset liquidation value of the firm, and these firms tend to invest more in tangible assets to preserve the liquidation value.

Details

International Journal of Managerial Finance, vol. 11 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 24 June 2021

Mahmoud Shahin

Through portfolio diversification, the author identifies the risk sharing deposit contract in a three-period model that maximizes the ex ante expected utility of depositors.

Abstract

Purpose

Through portfolio diversification, the author identifies the risk sharing deposit contract in a three-period model that maximizes the ex ante expected utility of depositors.

Design/methodology/approach

In this paper, the author extends the study by Allen and Gale (1998) by adding a long-term riskless investment opportunity to the original portfolio of a short-term liquid asset and a long-term risky illiquid asset.

Findings

Unlike Allen and Gale, there are no information-based bank runs in equilibrium. In addition, the model can improve consumers' welfare over the Allen and Gale model. The author also shows that the bank will choose to liquidate the cheaper investments, in terms of the gain-loss ratios for the two types of existing long-term assets, when there is liquidity shortage in some cases. Such a policy reduces the liquidation cost and enables the bank to meet the outstanding liability to depositors without large liquidation losses.

Originality/value

The author believe that the reader would be interested in this article because it is relevant to real world where depositors rush to withdraw their deposits from a bank if there is negative information about future prospect of the bank asset portfolio and bank investment. Economists and financial analysts need to determine the suitable mechanism to improve the stability of the bank and the depositor welfare.

Details

Journal of Economic Studies, vol. 49 no. 4
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 10 September 2018

Mohd Irfan, Sarani Saha and Sanjay Kumar Singh

The purpose of this paper is to examine the factors associated with three modes of firms’ exit (voluntary liquidation, involuntary liquidation and acquisition) in a mutually…

Abstract

Purpose

The purpose of this paper is to examine the factors associated with three modes of firms’ exit (voluntary liquidation, involuntary liquidation and acquisition) in a mutually exclusive environment. In particular, three modes of exit are treated as independent events given that different causes and consequences exist for each exit mode. The data set is a panel of 4,408 US manufacturing firms spanning over the period 1976–1995.

Design/methodology/approach

The discrete choice model is used to establish a relationship between modes of exit and a set of explanatory variables, which are specific to the firm, industry and macroeconomic conditions. Use of panel data encourages us to estimate a random effects multinomial logistic regression model, which allows exit modes as mutually exclusive events and at the same time controls the firm-specific unobserved heterogeneity in the sample.

Findings

The analysis suggests that the determinants of voluntary liquidation are age, size, profitability, technology intensity and inflation level. The determinants of involuntary liquidation are size, leverage, profitability and inflation level. For acquisition, determinants are age, size, advertising intensity, Tobin’s q, GDP growth, inflation level and interest rate. The findings suggest that exit modes have a different set of determinants and the scale of effects of some common determinants such as age, size and profitability differs between exit modes.

Research limitations/implications

The analysis presented in this study relies on data from US manufacturing firms only. Thus, there is a need to explore the determinants of exit modes in other countries as well using the proposed econometric model.

Practical implications

The findings presented in this paper are useful for managers and policymakers to design strategies/actions for avoiding particular mode of exit.

Originality/value

This study provides empirical evidence on the differences in factors associated with exit modes and confirms the existence of mutually exclusive nature of exit modes. Findings suggest that for future empirical studies on firm exit, the exit modes must be treated as a heterogeneous event.

Details

Journal of Economic Studies, vol. 45 no. 4
Type: Research Article
ISSN: 0144-3585

Keywords

Open Access
Article
Publication date: 9 June 2021

Fahad Alarifi

The purpose of the paper is to analyze the new Bankruptcy Law in Saudi Arabia (KSA Bankruptcy Law) under both a comparative lens and a policy-oriented one, while highlighting some…

3178

Abstract

Purpose

The purpose of the paper is to analyze the new Bankruptcy Law in Saudi Arabia (KSA Bankruptcy Law) under both a comparative lens and a policy-oriented one, while highlighting some of the most essential operational steps and procedures in a bankruptcy proceeding under the law.

Design/methodology/approach

The approach adopted analyzes the specific mechanics and procedures of a bankruptcy law under the general policies and goals of bankruptcy. Additionally, where appropriate, a brief comparison to the US Bankruptcy code and its provisions is presented to provide an alternative approach on how similar issues are handled under a reputable and proven bankruptcy system.

Findings

Overall, the KSA Bankruptcy Law is a major accomplishment and advancement to the Kingdom’s insolvency regime. The law consolidated and codified the laws governing bankruptcy under the Kingdom’s prior regime, and followed the structure of a modern bankruptcy regime. In doing so, several of the law’s policies and objectives have been fulfilled by providing an effective, predictable and reliable bankruptcy system.

Originality/value

Given the relatively recent adoption of the KSA Bankruptcy Law, the paper provides a comprehensive assessment of the law’s operation and its effectiveness in achieving its policy goals as a modern bankruptcy law.

Details

PSU Research Review, vol. 7 no. 3
Type: Research Article
ISSN: 2399-1747

Keywords

Article
Publication date: 4 October 2011

Mazin A.M. Al Janabi

The purpose of this paper is to originate a proactive approach for the quantification and analysis of liquidity risk for trading portfolios that consist of multiple equity assets.

Abstract

Purpose

The purpose of this paper is to originate a proactive approach for the quantification and analysis of liquidity risk for trading portfolios that consist of multiple equity assets.

Design/methodology/approach

The paper presents a coherent modeling method whereby the holding periods are adjusted according to the specific needs of each trading portfolio. This adjustment can be attained for the entire portfolio or for any specific asset within the equity trading portfolio. This paper extends previous approaches by explicitly modeling the liquidation of trading portfolios, over the holding period, with the aid of an appropriate scaling of the multiple‐assets' liquidity‐adjusted value‐at‐risk matrix. The key methodological contribution is a different and less conservative liquidity scaling factor than the conventional root‐t multiplier.

Findings

The proposed coherent liquidity multiplier is a function of a predetermined liquidity threshold, defined as the maximum position which can be unwound without disturbing market prices during one trading day, and is quite straightforward to put into practice even by very large financial institutions and institutional portfolio managers. Furthermore, it is designed to accommodate all types of trading assets held and its simplicity stems from the fact that it focuses on the time‐volatility dimension of liquidity risk instead of the cost spread (bid‐ask margin) as most researchers have done heretofore.

Practical implications

Using more than six years of daily return data, for the period 2004‐2009, of emerging Gulf Cooperation Council (GCC) stock markets, the paper analyzes different structured and optimum trading portfolios and determine coherent risk exposure and liquidity risk premium under different illiquid and adverse market conditions and under the notion of different correlation factors.

Originality/value

This paper fills a main gap in market and liquidity risk management literatures by putting forward a thorough modeling of liquidity risk under the supposition of illiquid and adverse market settings. The empirical results are interesting in terms of theory as well as practical applications to trading units, asset management service entities and other financial institutions. This coherent modeling technique and empirical tests can aid the GCC financial markets and other emerging economies in devising contemporary internal risk models, particularly in light of the aftermaths of the recent sub‐prime financial crisis.

Open Access
Article
Publication date: 14 December 2022

Hyun Soo Doh

This paper aims to develop a credit-risk model in which firms face rollover risk, and the markets for defaulted assets are segmented due to entry costs. The paper shows that…

Abstract

This paper aims to develop a credit-risk model in which firms face rollover risk, and the markets for defaulted assets are segmented due to entry costs. The paper shows that reducing the entry costs in this economy may decrease the total surplus of the economy. This outcome can arise because when market barriers are lifted, the gap between the liquidation prices across the markets will shrink, but then the market that would experience a price drop may face more bankruptcies because the rollover risk will increase in that market. The paper describes under which condition such an intervention policy improves or hurts the total surplus.

Details

Journal of Derivatives and Quantitative Studies: 선물연구, vol. 31 no. 1
Type: Research Article
ISSN: 1229-988X

Keywords

Article
Publication date: 22 March 2011

Erkki K. Laitinen

The purpose of this paper is to analyze the effect of different reorganization actions on long‐term financial performance of reorganizing small entrepreneurial firms in Finland.

2988

Abstract

Purpose

The purpose of this paper is to analyze the effect of different reorganization actions on long‐term financial performance of reorganizing small entrepreneurial firms in Finland.

Design/methodology/approach

An structural equation model estimated by partial least squares is applied to survey data from 98 reorganizing very small firms to analyze the effect of organizational change (OC), financial reorganization, management control system change (MCSC), and management accounting change (MAC) on performance.

Findings

Evidence supports three of the seven research hypotheses. Debt restructuring has a positive effect on performance. Liquidation of assets and OC do not show a significant direct effect but OC has a positive total effect. MCSC has a positive effect whereas the effect of MAC is negative. Compatibility of reorganization actions with the confirmed reorganization plan affects positively performance.

Research limitations/implications

The sample is small. In further studies, larger samples should be used. Effect of reorganization on performance is self‐assessed by the firms. Further studies should apply more objective measures. The constructs of variables are intended for larger firms. New constructs should be developed for very small firms.

Practical implications

It is important that reorganization administrators and consultants prepare a careful reorganization plan to be followed during the program. In small reorganizing firms, it is beneficial to develop management control systems. However, one should be cautious when developing formal management accounting systems for very small firms.

Originality/value

This paper is the first one developing a structural model of the effects of reorganization actions on performance of small firms. It brings new evidence on the effects of organizational and control system change.

Details

Journal of Accounting & Organizational Change, vol. 7 no. 1
Type: Research Article
ISSN: 1832-5912

Keywords

Book part
Publication date: 29 December 2016

Mazin A. M. Al Janabi

Given the rising need for measuring and controlling of financial risk as proposed in Basel II and Basel III Capital Adequacy Accords, trading risk assessment under illiquid market…

Abstract

Given the rising need for measuring and controlling of financial risk as proposed in Basel II and Basel III Capital Adequacy Accords, trading risk assessment under illiquid market conditions plays an increasing role in banking and financial sectors, particularly in emerging financial markets. The purpose of this chapter is to investigate asset liquidity risk and to obtain a Liquidity-Adjusted Value at Risk (L-VaR) estimation for various equity portfolios. The assessment of L-VaR is performed by implementing three different asset liquidity models within a multivariate context along with GARCH-M method (to estimate expected returns and conditional volatility) and by applying meaningful financial and operational constraints. Using more than six years of daily return dataset of emerging Gulf Cooperation Council (GCC) stock markets, we find that under certain trading strategies, such as short selling of stocks, the sensitivity of L-VaR statistics are rather critical to the selected internal liquidity model in addition to the degree of correlation factors among trading assets. As such, the effects of extreme correlations (plus or minus unity) are crucial aspects to consider in selecting the most adequate internal liquidity model for economic capital allocation, especially under crisis condition and/or when correlations tend to switch sings. This chapter bridges the gap in risk management literatures by providing real-world asset allocation tactics that can be used for trading portfolios under adverse markets’ conditions. The approach to computing L-VaR has been arrived at through the application of three distinct liquidity models and the obtained results are used to draw conclusions about the relative liquidity of the diverse equity portfolios.

Article
Publication date: 12 May 2021

Mazin A.M. Al Janabi

This paper aims to examine from commodity portfolio managers’ perspective the performance of liquidity adjusted risk modeling in assessing the market risk parameters of a large…

Abstract

Purpose

This paper aims to examine from commodity portfolio managers’ perspective the performance of liquidity adjusted risk modeling in assessing the market risk parameters of a large commodity portfolio and in obtaining efficient and coherent portfolios under different market circumstances.

Design/methodology/approach

The implemented market risk modeling algorithm and investment portfolio analytics using reinforcement machine learning techniques can simultaneously handle risk-return characteristics of commodity investments under regular and crisis market settings besides considering the particular effects of the time-varying liquidity constraints of the multiple-asset commodity portfolios.

Findings

In particular, the paper implements a robust machine learning method to commodity optimal portfolio selection and within a liquidity-adjusted value-at-risk (LVaR) framework. In addition, the paper explains how the adapted LVaR modeling algorithms can be used by a commodity trading unit in a dynamic asset allocation framework for estimating risk exposure, assessing risk reduction alternates and creating efficient and coherent market portfolios.

Originality/value

The optimization parameters subject to meaningful operational and financial constraints, investment portfolio analytics and empirical results can have important practical uses and applications for commodity portfolio managers particularly in the wake of the 2007–2009 global financial crisis. In addition, the recommended reinforcement machine learning optimization algorithms can aid in solving some real-world dilemmas under stressed and adverse market conditions (e.g. illiquidity, switching in correlations factors signs, nonlinear and non-normal distribution of assets’ returns) and can have key applications in machine learning, expert systems, smart financial functions, internet of things (IoT) and financial technology (FinTech) in big data ecosystems.

1 – 10 of over 2000