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Article
Publication date: 19 May 2020

Hongling Guo and Keping Wu

This study aims to investigate how opening high-speed railways affects the cost of debt financing based on China's background.

Abstract

Purpose

This study aims to investigate how opening high-speed railways affects the cost of debt financing based on China's background.

Design/methodology/approach

Using panel data on Chinese listed firms from 2008 to 2017, this study constructs a quasi-natural experiment and adopts a difference-in-difference model with multiple time periods to empirically examine the relation between the high-speed railway openings and debt financing cost.

Findings

Our results show that opening high-speed railways reduces the cost of debt financing, and this negative correlation is more significant in non-state firms, firms with weaker internal control, and firms that hire non-Big Four auditors. Besides, we explore the impact mechanisms and find that opening high-speed railways improves analyst attention, institutional investor participation, and information disclosure quality, which in turn lowers the cost of debt financing.

Research limitations/implications

The results imply that the opening of high-speed railways helps to alleviate the information asymmetry and adverse selection between firms and creditors and ultimately reduces the cost of corporate debt financing.

Practical implications

This paper can inform firms and stakeholders about the impact of opening high-speed railways on debt financing cost: it improves the information environment, reduces the geographical location restrictions of debt financing, ensures the reasonable pricing of corporate debt, and thus promotes the healthy and sound development of the debt market.

Originality/value

This paper provides theoretical support and empirical evidence for the impact of infrastructure construction on the information environment of the debt market in China, which enriches the research on the “high-speed railway economy.” In addition, as an exogenous event, the opening of high-speed railways instantly shortens the time distance between firms and external stakeholders, which gives us a natural environment to conduct empirical research, thus providing a new perspective for financial research on firms' geographical location.

Details

China Finance Review International, vol. 10 no. 4
Type: Research Article
ISSN: 2044-1398

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Book part
Publication date: 20 May 2019

H. Kiaee and M. Soleimani

In literature, a vast number of researches have tried to analyse the interaction between different financing methods and corporate governance. Some believe that good…

Abstract

In literature, a vast number of researches have tried to analyse the interaction between different financing methods and corporate governance. Some believe that good corporate governance companies are more successful in equity financing whereas others believe in positive relationship between corporate governance and debt finance. In this chapter, the authors analyse the interaction between sukuk financing and corporate governance. The authors first tried to differentiate between the financer and company's point of view in the financing decisions of different corporate governance quality companies, and then showed that, theoretically, there should be a positive relationship between murabahah sukuk and ijarah sukuk issuance and the corporate governance quality of companies in both types of views. The corporate governance characteristics of sukuk issuing companies in Iran are also analysed. The results from model estimation confirmed theoretical conclusion and corporate governance variables had positive and significant effects on the Sukuk issuance among Iranian Sukuk issuer companies.

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Research in Corporate and Shari’ah Governance in the Muslim World: Theory and Practice
Type: Book
ISBN: 978-1-78973-007-4

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Article
Publication date: 21 April 2010

Masaya Ishikawa and Hidetomo Takahashi

This study examines the relationship between managerial overconfidence and corporate financing decisions by constructing proxies for managerial overconfidence based on the…

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1861

Abstract

This study examines the relationship between managerial overconfidence and corporate financing decisions by constructing proxies for managerial overconfidence based on the track records of earnings forecasts in Japanese listed firms. We find that managers have the stable tendency to forecast overly upward earnings compared to actual ones and that their upward bias decreases the probability of issuing equity in the public market by about 4.7 percent per one standard error, which economically has the strongest impact on financing decisions. This tendency is observed when we employ alternative measures for managerial overconfidence and other model specifications. However, in private placements, the choice to offer equity is not always avoided by managers. This implies that managers place private equity with the expectation of the certification effect

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Review of Behavioural Finance, vol. 2 no. 1
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 3 August 2015

Faizul Haque

– This paper aims to investigate whether firm-level corporate governance has an influence on the equity financing patterns in an emerging economy such as Bangladesh.

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3278

Abstract

Purpose

This paper aims to investigate whether firm-level corporate governance has an influence on the equity financing patterns in an emerging economy such as Bangladesh.

Design/methodology/approach

The regression framework uses a questionnaire survey-based corporate governance index (CGI) comprising five dimensions – ownership structures, shareholder rights, independence and responsibilities of the board and management, financial reporting and disclosures and responsibility towards stakeholders. In addition, a number of semi-structured interviews have been carried out with the relevant stakeholders.

Findings

The results suggest a statistically significant positive relationship between CGI and equity capital and, thus, confirm the prediction of the agency theory.

Research limitations/implications

This study does not address endogeneity and reverse causality issues with respect to the relationship between CGI and equity finance.

Practical implications

Firms should improve their legal compliance and voluntary activism in corporate governance matters to ensure increased access to equity finance.

Originality/value

This study is among the first to examine the relationship between overall corporate governance quality and equity finance of a firm from the perspective of a bank-based emerging economy.

Details

Journal of Financial Economic Policy, vol. 7 no. 3
Type: Research Article
ISSN: 1757-6385

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Book part
Publication date: 4 December 2018

Indranarain Ramlall

Abstract

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The Corporate, Real Estate, Household, Government and Non-Bank Financial Sectors Under Financial Stability
Type: Book
ISBN: 978-1-78756-837-2

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Book part
Publication date: 1 December 2004

Fazilah Abdul Samad

This study outlines some major findings of the impact of ownership concentration on corporate performance, investment and financing decisions in the Malaysian corporate

Abstract

This study outlines some major findings of the impact of ownership concentration on corporate performance, investment and financing decisions in the Malaysian corporate sector. Earlier studies on corporate governance linked very concentrated ownership structure to weak corporate governance, thus leading firms to make poor investment and financing decisions. However, a firm that strives towards maximising shareholder’s wealth would select its investment and financing strategy with care. Thus concentrated ownership has also been found to lead to better corporate performance, and that composition of ownership is an important element to spur better corporate performance.

Details

Corporate Governance
Type: Book
ISBN: 978-0-76231-133-0

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Book part
Publication date: 14 December 2018

Syed Munawar Shah and Mariani Abdul-Majid

This study analyses the threshold for debt of corporations under the debt-bias corporate tax system. We adopt a contingent claim model of the corporation to reflect the…

Abstract

This study analyses the threshold for debt of corporations under the debt-bias corporate tax system. We adopt a contingent claim model of the corporation to reflect the incentive effect of the debt-bias corporate tax system. This framework is based on aspiration level theory and the required probability for the successful completion of a project that is identical to decision weight probability in prospect theory. The proposed framework incorporates the debt-bias tax regulations prevailing in Organization for Economic Co-operation and Development (OECD) countries. When the OECD countries’ financial and non-financial corporation data were applied into framework, we observe that the government achieve equilibrium by employing contradictory corporate tax regulations. Moreover, we observe that corporations are intrinsically equity-loving, although the debt-bias corporate tax system stimulates corporations toward debt. This situation makes the government corporate revenue sensitive by placing it at the disposal of corporations’ financing choice instead of corporate profitability. The corporations’ threshold for debt assists in distinguishing between debt and equity-loving corporations. Moreover, corporations’ threshold for debt assists policy makers in deciding the appropriate combination of such reform policies as the Allowance on Corporate Equity and Comprehensive Business Income Tax. A transition from debt-oriented capital structure to equity-oriented capital structure may play an important role in promoting Islamic finance.

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Article
Publication date: 22 December 2020

Najaf Iqbal, Ju Feng Xu, Zeeshan Fareed, Guangcai Wan and Lina Ma

This study attempts to document the impact of financial leverage on corporate innovation in the Chinese nonfinancial public firms listed on Shenzhen and Shanghai stock exchanges.

Abstract

Purpose

This study attempts to document the impact of financial leverage on corporate innovation in the Chinese nonfinancial public firms listed on Shenzhen and Shanghai stock exchanges.

Design/methodology/approach

The firm-level data are collected from CSMAR database for ten years, ranging from 2007 to 2016. The authors have employed the panel fixed effects model and further system GMM approach for analysis. The sample is segregated on the basis of state (SOE) and nonstate ownership (NSOE) to check for the diverse effects. In total, three different proxies of financial leverage are used to unearth the varying impact of short-time and long-term leverage separately. Further, corporate innovation is divided into input innovation (R&D/Sales and R&D/Assets) and output innovation (patents and inventions).

Findings

The results suggest that financial leverage is detrimental to the input innovation while conducive for the output innovation when measured by the number of patents. Contrarily, leverage has a negative influence over the output innovation when measured by the number of inventions. This implies that leverage is more damaging for the highest form of innovativeness (inventions) in China. Input innovation is more sensitive to the changes in long-term leverage versus short-term leverage. Further, the authors find that innovation in SOEs is more sensitive to the changes in the leverage as compared to the NSOEs. The results are free from the threat of endogeneity and identification problems, as reported by the system GMM model.

Research limitations/implications

The authors did not segregate the sample on the basis of industry/sector.

Practical implications

The firms pursuing a strategy of radical innovation should try to keep their debt levels lower in order to achieve a higher innovation performance. Although, a rise in the leverage may mean an increased access to finance for a firm but such an access comes at a cost in the form of damage to the corporate innovation. However, increased debt financing may not be so bad for the firms that want to achieve a moderate and not the highest level of innovation. Such firms can produce recurring and synergic effects with debt financing and moderate innovation, once they achieve a level of innovation performance that satisfies their financiers.

Originality/value

To the best of authors’ knowledge, this is probably the first study to check the impact of firm-level financial leverage on both input and output innovation in the Chinese public-listed nonfinancial firms' panel data perspective till now.

Details

European Journal of Innovation Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1460-1060

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Article
Publication date: 7 November 2016

Weerakoon Banda Yatiwelle Koralalage

The purpose of this paper is to examine the managerial views on the corporate financing practices of firms in the emerging market of Sri Lanka.

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1907

Abstract

Purpose

The purpose of this paper is to examine the managerial views on the corporate financing practices of firms in the emerging market of Sri Lanka.

Design/methodology/approach

A survey approach was employed using chief financial officers (CFOs) from the top non-financial firms listed on the Colombo Stock Exchange.

Findings

CFOs’ views on corporate financing practices are not fully consistent with the theory: financial hierarchy appears to be more important and firms are less leveraged. Most Sri Lankan CFOs perceive some policy factors as important and theoretically support: volatility of earnings and cash flows, tax advantages of interest deductibility, transaction costs, timing of interest rates, low foreign interest rates and debt equity targets. These factors are high priority in emerging markets but either not important at all or less important in developed markets. Matching debt maturity with the life of assets is equally important in both markets. Most CFOs adhere their financing to the local debt market, while a few firms use foreign debt. CFOs are concerned about earnings per share (EPS) dilution, providing a natural hedge in foreign debt issues, credit ratings, under/overvaluation of stocks and corporate control, whereas they are significantly important in developed markets. Age and education mostly explain the differences.

Research limitations/implications

The study is restricted to large companies in a relatively smaller market. Hence, sample size is relatively small, even though it shows a higher response rate.

Practical implications

The study offers insights for corporate financing decision-makers that could impact on firm value through a shift in emphasis toward capital structure theories.

Originality/value

The paper focuses on corporate financing practices in Sri Lanka in search of emerging market features that could mitigate the gap in the emerging market literature through survey evidence.

Details

Qualitative Research in Financial Markets, vol. 8 no. 4
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 1 April 2002

Arnold L. Redman, John R. Tanner and Herman Manakyan

This study examines the financing methods used by corporations to acquire real estate for their operations. It also examines the opinion of managers about the factors that…

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2659

Abstract

This study examines the financing methods used by corporations to acquire real estate for their operations. It also examines the opinion of managers about the factors that they consider in choosing financing methods. The data were provided by a survey questionnaire that was sent to members of the International Association of Corporate Real Estate Executives. It was found that companies rely on internal financing (operating cash flows) and external financing such as long‐term leasing, joint ventures, property mortgages and sale/leaseback arrangements. The top‐ranked methods of finance include operating cash flows, property mortgages, leasing and sales/leasebacks. Use of real estate investment trusts, collateralised mortgage obligations and mortgage‐backed securities were the lowest‐ranked forms of financing. Managers tend to look at tax advantages of debt and availability of cash flows in deciding which financing methods to use, rather than theoretical corporate finance factors such as bankruptcy cost. There were significant differences in opinion by industry and by company size regarding the use of cash flows and the impact of debt financing on common stock prices.

Details

Journal of Corporate Real Estate, vol. 4 no. 2
Type: Research Article
ISSN: 1463-001X

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