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Article
Publication date: 7 September 2012

Khaled Hussainey and Khaled Aljifri

The purpose of this study is to examine the impact of corporate governance mechanisms on corporate financial decisions in one of the emerging economies, United Arab…

Abstract

Purpose

The purpose of this study is to examine the impact of corporate governance mechanisms on corporate financial decisions in one of the emerging economies, United Arab Emirates (UAE). In particular, the paper examines the degree to which internal corporate governance mechanisms and an external corporate governance mechanism affect UAE firms’ capital structure.

Design/methodology/approach

The paper uses a multiple regression analysis to examine the association between corporate governance and capital structure for a sample of 71 UAE firms listed either in the Dubai financial market or the Abu Dhabi securities market during 2006.

Findings

The paper finds that institutional investors have a negative impact on debt‐to‐equity ratio. This result does not support the “active monitoring hypotheses” where institutional investors are expected to exercise their voting rights effectively in order to prevent managers from reducing their “employment risk” at the expense of the interests of shareholders. It also finds that dividend policy is negatively associated with debt‐to‐equity ratio, while firms’ size is positively associated with debt‐to‐equity ratio.

Research limitations/implications

Empirical analysis suggests that corporate governance mechanisms have important implications for UAE firms’ financial policies. UAE managers should be aware of the benefits of the implementation of effective internal and external corporate governance mechanisms while embracing international corporate governance standards. An effective implementation of the codes of corporate governance should improve the efficiency and effectiveness of UAE firms and the UAE stock markets.

Originality/value

To the best of the authors’ knowledge, there is no study that has yet empirically examined the effect of the corporate governance mechanisms on capital structure in UAE or Middle Eastern countries. This study offers the first evidence of the impact of corporate governance mechanisms on capital structure in UAE.

Details

Journal of Applied Accounting Research, vol. 13 no. 2
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 16 August 2011

Basil Al‐Najjar and Khaled Hussainey

This paper seeks to explore the potential drivers of corporate capital structure.

Abstract

Purpose

This paper seeks to explore the potential drivers of corporate capital structure.

Design/methodology/approach

The paper applies both fixed effects panel models and random effects tobit models to examine this issue. A sample of 379 firms is used across the period from 1991 to 2002.

Findings

It is found that corporate characteristics (firm size, firm risk, firm growth rate, firm profitability and asset tangibility) and corporate governance characteristics (board size and outside directorships) are the main drivers of capital structure of UK firms. In addition, the results show that changing the definition of capital structure may result in changing the sign and the significance of these potential drivers.

Originality/value

The paper argues that another dimension of the capital structure puzzle can be introduced which is related to the definition of capital structure used in prior studies. It is worth noting that the aim of this paper is not to provide an optimal set of factors that may affect the decision of capital structure, but to highlight the effect of the different definitions of capital structure that can be used by different studies, which makes the comparison between such studies difficult or even erroneous.

Details

The Journal of Risk Finance, vol. 12 no. 4
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 1 July 2005

Kamran Ahmed, A. John Goodwin and Kim R. Sawyer

This study examines the value relevance of recognised and disclosed revaluations of land and buildings for a large sample of Australian firms from 1993 through 1997. In…

Abstract

This study examines the value relevance of recognised and disclosed revaluations of land and buildings for a large sample of Australian firms from 1993 through 1997. In contrast to prior research, we control for risk and cyclical effects and find no difference between recognised and disclosed revaluations, using yearly‐cross‐sectional and pooled regressions and using both market and non‐market dependent variables. We also find only weak evidence that revaluations of recognised and disclosed land and buildings are value relevant.

Details

Pacific Accounting Review, vol. 17 no. 2
Type: Research Article
ISSN: 0114-0582

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Book part
Publication date: 4 December 2018

Indranarain Ramlall

Abstract

Details

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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Article
Publication date: 1 March 2001

Lawrence J. Abbott

Summarizes previous research on the impact of the investment opportunity set (IOS) on firm financing, dividend and compensation policies, develops hypotheses on the…

Abstract

Summarizes previous research on the impact of the investment opportunity set (IOS) on firm financing, dividend and compensation policies, develops hypotheses on the effects of IOS changes on these three areas and tests them using 1980‐1989 data from a sample of US firms moving high and low IOS rankings (and vice versa) plus a control (stable) group. Explains the sample selection method and shows that most declining IOS firms were small, high‐tech firms; firms dealing in food and consumer products showed increasing IOS; and control firms were mostly from capital intensive industries. Finds that rising IOS firms generally reduced their dividends and market debt‐to‐equity ratio. Adds that all three groups increased their use of stock option plans but this was only significant for the IOS rising firms. Briefly comments on the underlying reasons for the findings and their implications for further research.

Details

Managerial Finance, vol. 27 no. 3
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 8 July 2020

Fekadu Agmas W.

Capital structure decisions are important decisions for any business activity because they have considerable influence on the worth and cost of companies. Most previous…

Abstract

Purpose

Capital structure decisions are important decisions for any business activity because they have considerable influence on the worth and cost of companies. Most previous studies in Ethiopia were primarily focused on identifying and measuring problems in banking sectors and other sectors and paying little attention to the construction sector. The purpose of this study is mainly to fill the gap by examining the effects of capital structure on the profitability of construction firms in Ethiopia.

Design/methodology/approach

To test hypotheses of the study, time series secondary data were gathered from the sample of 30 grade one construction companies in Ethiopia during the 2011–2015 period. To examine the correlation among capital structures and its determinants, random effect multiple regression models were used.

Findings

From the regression outcomes, the study indicates that capital structure measured by debt to equity and long-term debt to total assets has a significant positive correlation with return on equity (ROE) and return on assets (ROA) of sampled construction companies. However, the capital structure measured by debt to assets has a significant negative correlation with ROE and ROA of sampled construction companies in Ethiopia.

Originality/value

This paper is the author’s original work and assures that the paper was not undertaken anywhere and is also not published in any journal before.

Details

Journal of Financial Management of Property and Construction , vol. 25 no. 3
Type: Research Article
ISSN: 1366-4387

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Article
Publication date: 26 September 2019

Isil Erol and Tanja Tyvimaa

The purpose of this paper is to explore the levels and determinants of net asset value (NAV) premiums/discounts for publicly traded Australian Real Estate Investment Trust…

Abstract

Purpose

The purpose of this paper is to explore the levels and determinants of net asset value (NAV) premiums/discounts for publicly traded Australian Real Estate Investment Trust (A-REIT) market during the last decade. A-REITs were severely affected by the global financial crisis as S&P/ASX 200 A-REIT index-listed property stocks experienced 47 per cent discount to NAV, on average, in 2008–2009 crisis. Since 2013, A-REIT sector has exhibited a strong recovery from the financial crisis and traded at high premiums to date. Understanding the relationship between pricing in the public and private real estate markets has taken on great importance as A-REITs continue to trade at significant premium to NAV unlike their counterparts in the USA and Europe.

Design/methodology/approach

This paper follows a rational approach to explain variations in NAV premiums and explores the company-specific factors such as liquidity, financial leverage, size, stock price volatility and portfolio diversification behind the A-REIT NAV premiums/discounts. The study specifies and estimates a model of cross-sectional and time variation in premiums/discounts to NAV using semi-annual data for a sample of 40 A-REITs over the 2008–2018 period.

Findings

The results reveal that A-REIT premiums to NAV can be explained not only by the liquidity benefit of listed property stocks but also positive financial leverage effect. During the past decade, A-REITs have followed an aggressive approach in financing their growth by using borrowed funds to purchase assets as the income from the property offsets the cost of borrowing and the risk that accompanies it. Debt-to-equity ratio has to be considered as an important source of NAV premiums as highly geared A-REITs that favoured debt financing over equity financing traded at significant premiums to NAV of their underlying real estate assets.

Practical implications

The paper includes implications for the REIT market investors. The regression analysis shows that specialty A-REITs with a focus on creative market niches traded at higher premiums compared with other property stocks, especially in the post-GFC recovery period. Specialty REITs are more highly valued by the market than their traditional specialised counterparts (e.g. office and retail REITs), and those pursuing a diversified strategy.

Originality/value

This paper presents an Australian case study as the A-REIT market provides a suitable environment for testing the effect of financial gearing on the REIT premium to NAV. The study provides empirical evidence supporting the importance of debt-to-equity ratio in explaining the variation in A-REIT NAV premiums.

Details

Journal of Property Investment & Finance, vol. 38 no. 1
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 8 April 2019

Shahbaz Sheikh

The purpose of this paper is to investigate the effect of market competition on the relation between CEO inside debt and corporate risk-taking.

Abstract

Purpose

The purpose of this paper is to investigate the effect of market competition on the relation between CEO inside debt and corporate risk-taking.

Design/methodology/approach

Ordinary least squares regressions are used to estimate the relation between CEO inside debt and firm risk. Additionally, instrumental variable (IV-GMM) regressions are used to check the robustness of the results.

Findings

The results of this paper indicate that CEO inside debt is negatively associated with the measures of future risk. However, this negative association is influenced by market competition. Specifically, CEO inside debt results in lower levels of firm risk when market competition is high. When market competition is low, inside debt has no effect on firm risk. Additional results show that CEOs with large inside debt tend to decrease R&D investments and financial leverage and increase firm cash holdings and working capital only when market competition is high. Overall, these results suggest that market competition significantly influences the effect of CEO inside debt on corporate risk-taking by changing the strength of incentives from inside debt.

Practical implications

CEO inside debt could be used to provide incentives to CEOs to manage corporate risk-taking.

Social implications

The empirical results in this paper provide a practical tool to the boards of corporations to manage corporate risk-taking. The results suggest that boards can reduce excessive risk-taking by increasing the level of debt type compensation incentives. However, this strategy is effective only when market competition is high because in such markets inside debt provides the strongest incentives to reduce corporate risk. When competition is low, incentives from inside debt are ineffective in managing corporate risk-taking.

Originality/value

This is the first study that shows that the negative association between CEO inside debt and corporate risk-taking critically depends on the intensity of market competition.

Details

International Journal of Managerial Finance, vol. 15 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 1 April 2020

Shahbaz Sheikh

The purpose of this paper is to empirically examine the relation between incentives from CEO inside debt (deferred compensation and pension benefits) and corporate social…

Abstract

Purpose

The purpose of this paper is to empirically examine the relation between incentives from CEO inside debt (deferred compensation and pension benefits) and corporate social responsibility (CSR).

Design/methodology/approach

Instrumental variable (IV-GMM) regressions are used to estimate the relation between CEO inside debt and CSR.

Findings

The results of this paper indicate that CEOs with large inside debt tend to invest more in CSR. Analysis of CSR strengths and concerns supports this finding and shows that CEO inside debt is significantly positively (negatively) associated with CSR strengths (concerns). Further tests indicate that CEO inside debt exerts a positive and significant effect on all five dimensions of social performance (diversity, community, product, employee relations and environment).

Research limitations/implications

The results of this study are based on US corporations. Future research should investigate if these results hold for firms in other countries in order to better our understanding of the relation between CEO inside debt and CSR.

Practical implications

CEOs use CSR as a risk management strategy to reduce corporate risk in order to protect the value of their inside debt.

Social implications

The results in this paper provide a practical tool to boards of corporations to increase investment in CSR. The results suggest that boards can encourage CEOs to invest in CSR by increasing incentives from inside debt.

Originality/value

This study contributes to the literature that examines the relation between inside debt and CSR by showing that CEO inside debt exerts a positive impact on CSR.

Details

International Journal of Managerial Finance, vol. 16 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 27 June 2019

Sonali Bhattacharya and Dipasha Sharma

The purpose of this study is to determine the impact of environment, social and governance (ESG) disclosure on credit ratings of companies in India.

Abstract

Purpose

The purpose of this study is to determine the impact of environment, social and governance (ESG) disclosure on credit ratings of companies in India.

Design/methodology/approach

Firms under study are listed on the Bombay Stock Exchange (BSE) 500 and represent almost 93 per cent of the total market capitalization on BSE. This study considers a sample of 122 firms from a population of 500 to examine the relationship between ESG scores and Credit Rating. The scope of this study is confined to those firms listed on the S&P BSE 500 which have made ESG disclosures and were rated by various credit rating agencies like Crisil, ICRA and CARE. Data were sourced from Bloomberg. Ratings were given in ascending order. In the first model, credit rating was used as predicted variable; ESG score as predictor variable and market capitalization, net debt to equity, and total debt to asset as control considering the ordered nature of dependent variable in the study, ordered logistic regression was applied. It was repeated taking individual scores on environment rating, social rating and governance rating as predictors. The authors further segregated the 122 selected firms into large, medium and low capital firms and assessed separate logistic regression models taking credit rating as the predicted variable and overall ESG score as the predictor.

Findings

It was found that overall ESG performance and performance of individual components (environment, social and financial variables such as market capitalization, and debt to equity ratio) had significant positive indicators of creditworthiness as measured through credit rating. Governance score had a positive and insignificant relation with credit rating. Market capitalization was observed to have significant direct relationship with credit worthiness. On the other hand, number of independent directors in companies showed significant inverse relationship with creditworthiness. ESG significantly impacted credit rating in the desired direction only for small- and middle-level firms; for large firms which already had higher credit rating, ESG showed no effect. It was also found that credit rating itself determined significantly the extent of overall ESG reporting and disclosure of its components.

Originality/value

This is unique study that covers the aspects of ESG reports and its impact on credit rating.

Details

International Journal of Ethics and Systems, vol. 35 no. 3
Type: Research Article
ISSN: 2514-9369

Keywords

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