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Article

Shagun Thukral, Sharada Sridhar and Medha Shriram Joshi

The paper aims to understand the factors that have limited the development of this market in India. With a conservative bank-based economy in the backdrop and with the…

Abstract

Purpose

The paper aims to understand the factors that have limited the development of this market in India. With a conservative bank-based economy in the backdrop and with the Central Bank pulling the strings, the sovereign debt market occupies the most space in the bonds universe of India. The latter and almost minuscule portion of this market is occupied by the corporate and industrial houses that have forayed into the market to raise finances. This has led to a cycle where lack of participation leads to lack of liquidity and underdeveloped rating mechanisms which further pressurizes the development of this market in India.

Design/methodology/approach

The paper is designed as a literature review which has attempted to identify the commonly agreed upon factors that have constrained the development of Corporate Bond markets in India especially and some other emerging economies who are successful or unsuccessful in their attempt to establish a corporate bond markets. These factors have then been categorized into broader heads and commented upon as a part of the analysis.

Findings

Corporate bond markets in India, although steadily progressing, is still impeded by the nature of the market itself. While the necessary steps have been taken to implement some of the recommendations by the Expert Committee, the response solicited has not quite been as expected. The poor liquidity, weak rating-mechanisms, absence of standardization and disclosure nomenclatures and illiquidity in the government bond market itself need to be addressed objectively.

Research limitations/implications

The research adopted attempts to validate prior research and the attempts by regulators to implement an action plan. However, further progress on the changing scenarios is encouraged to be tested through a quantitative analysis.

Originality/value

The government and the Central Bank have constantly emphasized the importance of developing the Corporate debt market. Several studies have attempted to analyze the factors that have crippled the growth and steps taken by the Central Bank and Securities and Exchange Board of India by appointing an Expert Committee. This paper has attempted to visit all these factors and analyze the attempts to overcome by the Expert Committee including the backdrop of other nations who have a vibrant corporate debt market today. It sets the tone for further quantitative or statistical analysis.

Details

Qualitative Research in Financial Markets, vol. 7 no. 4
Type: Research Article
ISSN: 1755-4179

Keywords

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Article

Abel Ebeh Ezeoha

The purpose of this paper is to examine whether industry‐specific factors play a more significant role in the financing decisions of firms than firm‐specific…

Abstract

Purpose

The purpose of this paper is to examine whether industry‐specific factors play a more significant role in the financing decisions of firms than firm‐specific characteristics; and to determine the degree of uniformity that exists between a firm's capital structure and industry financing patterns in Nigeria.

Design/methodology/approach

The described study makes use of fixed effects panel regression techniques. The dataset, which covers the period 1990‐2006, comes from a sample of 71 non‐financial firms quoted in the Nigerian Stock Exchange.

Findings

The study finds support for both the pecking order theory and the trade‐off theory of capital structure in Nigeria. Firms/industries that are more profitable have less proportion of debt, and those that have a higher level of asset tangibility use more long‐term finances. Empirically, the study reveals that the set of factors that explain firm‐specific determinants of capital structure do not statistically and significantly explain the way industries follow finance.

Practical implications

The study affirms the need for firms to invest reasonable resources in setting up capital structure policies, rather than herd along industry patterns.

Originality/value

Though studies on industry herding and financial leverage are not new, the paper gives interesting insights into the nature of the relationship in an atmosphere of shortage of capital supply and poor corporate performance.

Details

African Journal of Economic and Management Studies, vol. 2 no. 1
Type: Research Article
ISSN: 2040-0705

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Article

Mohammad Al Mutairi, Gary Tian, Helen Hasan and Andrew Tan

This paper aims to explore the issue of corporate governance mechanisms by including the importance of stakeholders, primary objectives of the firm and the ownership of

Abstract

Purpose

This paper aims to explore the issue of corporate governance mechanisms by including the importance of stakeholders, primary objectives of the firm and the ownership of top financial managers of listed firms in Kuwait in the survey tool. It attempts to investigate whether theory aligns with the behaviour of financial managers in practice in an emerging market case.

Design/methodology/approach

A survey was developed to focus primarily on the current corporate finance practices implemented by CFOs in listed companies in Kuwait. The target respondents are listed firms in the Kuwaiti Stock Exchange (KSE). The survey includes questions on topics that are closely related to capital budgeting, capital structure, cost of capital and dividend policy. For example, the survey asks the managers how they estimate their cost of equity (CAPM or other methods) and whether the impact of the weighted average cost of equity is taken into consideration in their capital structure choices.

Findings

A surprising number of firms are now widely using IRR for decision making. CAPM is also in use, whereas WACC remains the most popular method used. There is some support for the “bird‐in‐hand” dividend theory in the tax‐free environment. Firms in Kuwait do not have any particular source of capital structure choices when it comes to how best to finance their projects as is the case in the US market. Firms in Kuwait are consciously striving for maximizing profits and those managers are regarded as their most important stakeholders. This may indicate the existence of agency problems.

Research limitations/implications

The limitation of this study lies in the absence of empirical investigation on how corporate finance decisions may affect firms' performance in Kuwait. Hence, empirical validation will be performed by the authors in the next stage of this research, which will form the basis for further research. Empirical validation for the impact of corporate governance on performance is needed.

Practical implications

This research may benefit managers and decision makers in many aspects, including having an understanding of applying popular and the most suitable corporate finance and corporate governance techniques in the management of their companies. In this research, the authors have identified the gap between practice and academia.

Originality/value

To the best of the authors' knowledge, this is the first study to examine comprehensively major areas of financial policies and practices and corporate governance in an emerging market case, especially in the Middle East. Kuwait provides a unique institutional setting in its taxation system. Therefore, this study will make a contribution to the general literature in this field.

Details

Corporate Governance: The international journal of business in society, vol. 12 no. 5
Type: Research Article
ISSN: 1472-0701

Keywords

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Article

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

Keywords

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Article

Danijela Miloš Sprčić and Ian Wilson

The overall purpose of the paper is to examine the factors influencing the speed of development of corporate bond markets and, within that, to investigate the factors that…

Abstract

Purpose

The overall purpose of the paper is to examine the factors influencing the speed of development of corporate bond markets and, within that, to investigate the factors that Chief Financial Officers in large Croatian companies consider important in using corporate bonds as a financing method and the barriers they perceive as inhibiting issuing of corporate bonds.

Design/methodology/approach

A survey was carried out of a sample of Chief Financial Officers from the largest companies in Croatia.

Findings

The paper concludes that a range of macro‐level, industry level, market level and firm level factors influence the rate at which corporate bond markets develop and that, in Croatia, progress can be expected to be inexorable, but slow.

Practical implications

Although a range of factors contribute to the speed at which a country's corporate bond market develops, it is clear that, in the case of Croatia, there needs to be more education of chief financial officers about the institutional and legal frameworks already in existence.

Originality/value

The paper contributes new empirical findings as it presents the first research that has been conducted on the Croatian capital market. The paper adds value to the conceptual understanding of the phenomena of bond market development.

Details

EuroMed Journal of Business, vol. 2 no. 1
Type: Research Article
ISSN: 1450-2194

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Article

Charles Amo Yartey

This paper aims to examine how unlisted companies in Ghana finance their growth and to what extent do they rely on internal finance relative to external sources of finance

Abstract

Purpose

This paper aims to examine how unlisted companies in Ghana finance their growth and to what extent do they rely on internal finance relative to external sources of finance. Additionally, the paper seeks to investigate the determinants of the capital structure of unlisted companies in Ghana.

Design/methodology/approach

The paper uses the Singh‐Hamid methodology as well as panel data techniques to evaluate the financing decisions of unlisted companies in Ghana.

Findings

The analysis shows that unlisted firms in Ghana finance most of their growth from external debt and they are also characterized by shorter debt maturity. The results also show that the dominant factors affecting the debt equity ratios of unlisted firms in Ghana are size, firm growth, tangibility, profit margin, and financial development.

Research limitations/implications

Overall, the evidence in this paper suggests that standard models of corporate finance can be applicable to unlisted companies in Ghana.

Practical implications

Informative when planning for future development of the small business sector of the Ghanaian economy.

Originality/value

Provides empirical evidence on how unlisted companies in Ghana finance their growth and what determines their capital structure.

Details

Management Research Review, vol. 34 no. 2
Type: Research Article
ISSN: 2040-8269

Keywords

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Article

Larry D. Su

The purpose of this paper is to investigate whether, and to what extent, corporate diversification into related and unrelated businesses affects capital structure choices…

Abstract

Purpose

The purpose of this paper is to investigate whether, and to what extent, corporate diversification into related and unrelated businesses affects capital structure choices, and whether ownership structure is germane to the understanding of corporate diversification strategies and debt‐equity financing choices.

Design/methodology/approach

Univariate approaches include the parametric two‐sample t‐test, non‐parametric Kolmogorov‐Smirnov test and Kruskal‐Wallis rank test, and cluster analysis. Multivariate approaches include panel data regressions to identify the sign and magnitude of the effect of diversification on capital structure, after controlling for a number of industry and firm characteristics as suggested in the literature.

Findings

Corporate diversification into related or unrelated industries has opposite effects on capital structure, after controlling for ownership structure and corporate governance mechanisms. Consistent with the prediction of organizational economics, an increase in the degree of business relatedness is associated with a reduction in debt while an increase in business unrelatedness is associated with an increase in debt. In addition, there is strong evidence that government‐controlled firms use less debt financing and that government ownership weakens the positive relationship between unrelated diversification and leverage. The results are robust to different measures of capital structure.

Originality/value

Traditional finance literature has not been able to provide conclusive evidence on what affects corporate capital structure decisions. This paper shows that a corporate strategy perspective, with its emphasis on a managerial decision‐making process, can provide a behavioral basis for understanding capital structure choices.

Details

Management Decision, vol. 48 no. 2
Type: Research Article
ISSN: 0025-1747

Keywords

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Article

Kevin Aretz, Söhnke M. Bartram and Gunter Dufey

In the presence of capital market imperfections, risk management at the enterprise level is apt to increase the firm's value to shareholders by reducing costs associated…

Abstract

Purpose

In the presence of capital market imperfections, risk management at the enterprise level is apt to increase the firm's value to shareholders by reducing costs associated with agency conflicts, external financing, financial distress, and taxes. The purpose of this paper is to provide an accessible and comprehensive account of these rationales for corporate risk management and to give a short overview of the empirical support found in the literature.

Design/methodology/approach

The paper outlines the main theories suggesting that corporate risk management can enhance shareholder value and briefly reviews the empirical evidence on these theories.

Findings

When there are imperfections in capital markets, corporate hedging can enhance shareholder value through its impact on agency costs, costly external financing, direct and indirect costs of bankruptcy, as well as taxes. More specifically, corporate hedging can alleviate underinvestment and asset substitution problems by reducing the volatility of cash flows, and it can accommodate the risk aversion of undiversified managers and increase the effectiveness of managerial incentive structures through eliminating unsystematic risk. Lower volatility of cash flows also leads to lower bankruptcy costs. Moreover, corporate hedging can also align the availability of internal resources with the need for investment funds, helping firms to avoid costly external financing. Finally, corporate risk management can reduce the corporate tax burden in the presence of convex tax schedules. While there is empirical support for these rationales of hedging at the firm level, the evidence is only modestly supportive, suggesting alternative explanations.

Originality/value

The discussed theories and the empirical evidence are described in an accessible way, in part by using numerical examples.

Details

The Journal of Risk Finance, vol. 8 no. 5
Type: Research Article
ISSN: 1526-5943

Keywords

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Article

Georgios I. Zekos

Aim of the present monograph is the economic analysis of the role of MNEs regarding globalisation and digital economy and in parallel there is a reference and examination…

Abstract

Aim of the present monograph is the economic analysis of the role of MNEs regarding globalisation and digital economy and in parallel there is a reference and examination of some legal aspects concerning MNEs, cyberspace and e‐commerce as the means of expression of the digital economy. The whole effort of the author is focused on the examination of various aspects of MNEs and their impact upon globalisation and vice versa and how and if we are moving towards a global digital economy.

Details

Managerial Law, vol. 45 no. 1/2
Type: Research Article
ISSN: 0309-0558

Keywords

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Article

Sisira R.N. Colombage

The main aim of this paper is to report on a comprehensive survey of corporate financing decision‐making process in Sri Lankan listed companies and to compare these…

Abstract

Purpose

The main aim of this paper is to report on a comprehensive survey of corporate financing decision‐making process in Sri Lankan listed companies and to compare these results with those of similar studies conducted in developed markets.

Design/methodology/approach

The study was based on a survey questionnaire distributed among the chief executive officers (CEOs) of companies listed on the Colombo Stock Exchange, with the content of the questionnaire being based upon a review of theoretical and empirical literature in the field of finance.

Findings

The results demonstrate an adherence to a financial hierarchy, which appears to be the dominant financial policy among listed Sri Lankan companies. Corporate financing decisions seem to be influenced mostly by interest and tax considerations, while lesser weight is accorded to financial flexibility in determining the amount of funds to be raised externally through debt contracts. The evidence largely supports the propositions of the pecking order model, but also confirms some predictions found in static trade‐off theory.

Practical implications

Some of the most striking implications of the analysis relate to the under‐development of the local capital market, and the apparent need for an efficient financial system that spurs economic growth. An efficient capital market will in turn ensure that capital will be more easily channeled into financing investments.

Originality/value

This paper highlights how and why the determinants of capital structure decisions reported for developed capital markets may differ from those existing in transitional or emerging economies.

Details

Studies in Economics and Finance, vol. 24 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

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