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Public-Private Partnerships, Capital Infrastructure Project Investments and Infrastructure Finance
Type: Book
ISBN: 978-1-83909-654-9

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Article
Publication date: 19 November 2007

Yong H. Kim Ph., Jong C. Rhim and Daniel L. Friesner

This paper examines the interrelationships among debt policy, dividend policy, and ownership structure using a simultaneous equation framework. Our approach allows us to…

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1013

Abstract

This paper examines the interrelationships among debt policy, dividend policy, and ownership structure using a simultaneous equation framework. Our approach allows us to test both the convergence of interests theory and entrenchment theory. Using a sample of publicly traded South Korean manufacturing firms, we find that debt policy and ownership structure have a positive impact on dividend policy. We also find that both debt and dividend policy are positively related to ownership structure. Our findings support both the theory of convergence of interests between management and ownership and entrenchment theory, and also explain why many studies have found conflicting results.

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Multinational Business Review, vol. 15 no. 3
Type: Research Article
ISSN: 1525-383X

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Article
Publication date: 2 November 2015

Edward C. Hoang and Indrit Hoxha

– The purpose of this article is to empirically explore the sensitivity of payouts to cash flows and the other financing decisions, such as debt and investment, of firms.

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660

Abstract

Purpose

The purpose of this article is to empirically explore the sensitivity of payouts to cash flows and the other financing decisions, such as debt and investment, of firms.

Design/methodology/approach

Using panel regressions based on COMPUSTAT data for 7,544 public firms during the period 1973–2013, we estimate the sensitivity of total payouts. Specifically, following the theory presented in Lambrecht and Myers (2012), we test the interdependent financing decisions of the firm. First, we compute total payout as the sum of cash dividends and net stock repurchases; second, we examine the sensitivity of total payouts to changes in the firm’s net income, debt and investment. Furthermore, we present several tests to demonstrate the robustness of our results.

Findings

We suggest evidence in support of the theory in Lambrecht and Myers (2012) showing that there is a negative relationship between total payouts and investment. Furthermore, we find that total payouts are positively associated with net income and debt of the firm.

Originality/value

Previous research has shown how cash flows affect different financing decisions, but it is not clear how total payouts are sensitive to other financing decisions. The focus of this paper is the response of total payouts to investment policy, debt financing policy and changes in cash flows.

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Journal of Financial Economic Policy, vol. 7 no. 4
Type: Research Article
ISSN: 1757-6385

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Open Access
Article
Publication date: 4 June 2020

Nghia Nguyen Trong and Cong Thanh Nguyen

Debt, dividend and investment policy constitutes a company's important financial decisions to determine firm performance. The research emphasizes on the problem of…

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3887

Abstract

Purpose

Debt, dividend and investment policy constitutes a company's important financial decisions to determine firm performance. The research emphasizes on the problem of overinvestment, a phenomenon that worsens firm operation. Furthermore, it clarifies the moderation role of debt and dividend policy in mitigating the negative effect of overinvestment on firm performance in the case of Vietnamese listed companies.

Design/methodology/approach

The research uses all financial statement of non-financial Vietnamese listed companies on Ho Chi Minh and Hanoi Stock Exchange in the period of 2008–2018. The data are collected from Thomson Reuters Eikon. The final data set is comprised of 669 listed companies. The study measures overinvestment though investment demand function and HP filter. Moreover, the research employs the dynamic model, so it has to apply the SGMM method to deal with the problem of endogeneity caused by the lagged dependent variable.

Findings

The research finds that overinvestment is negatively associated with firm performance. Debt or dividend policy separately can moderate the negative effect of overinvestment on firm performance. However, when these two policies are combined, they lessen the positive interaction impact of each policy due to the substitution between debt and dividend policy.

Research limitations/implications

The research may have two limitations. Firstly, the research measures overinvestment indirectly through investment demand function and HP filter. These two measures only help identify the sign that companies may have the problem of overinvestment because we cannot determine whether they overinvest or not in reality. Secondly, when using interaction variables, the problem of multicollinearity may be higher, and this may adjust the signs and significance level of variables in the models.

Practical implications

Practically, the research proposes three policy recommendations. Firstly, a company can exploit debt or dividend policy to limit excessive free cash flow in order to constrain the problem of overinvestment. Secondly, a company should enhance its corporate governance to resolve agency problems. Thirdly, the government should make the financial sector more transparent and effective to improve monitoring functions of various parties in the capital market.

Social implications

Overinvestment sometimes can cause social issues. Overinvestment means that companies make ineffective investment. If they continue this situation over a long time, companies may have financial distress or even go bankruptcy. As a result, it will slow down economic growth and increase unemployment in the economy.

Originality/value

The research is supposed to make two great contributions to the existing empirical studies in two aspects. Firstly, it is the first attempt to take into consideration the interaction between overinvestment and financial policies. Secondly, it helps enhance the fundamental stance of the agency theory, which supports the interdependence of debt, dividend and investment policy.

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Journal of Asian Business and Economic Studies, vol. 28 no. 1
Type: Research Article
ISSN: 2515-964X

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Article
Publication date: 6 July 2020

Edward C. Hoang and Indrit Hoxha

The purpose of this paper is to investigate payout smoothing in two emerging markets – China and Taiwan. The authors conduct a comparative study of two emerging market…

Abstract

Purpose

The purpose of this paper is to investigate payout smoothing in two emerging markets – China and Taiwan. The authors conduct a comparative study of two emerging market economies that have common cultural and historical characteristics but have experienced different government systems and different approach to the market-based system.

Design/methodology/approach

The authors collect firm-level data from Standard and Poor's Compustat Global database, which covers 5,298 public firms in China and Taiwan during the period 1996–2015, and use a variance decomposition methodology to estimate the smoothness of corporate payout in a common empirical framework that includes net income, and debt and investment policies.

Findings

Overall, the empirical findings support recently proposed theories of joint determination of corporate payout behavior with debt and investment policies. The authors find that debt and investment policies absorb the majority of shocks to net income, and that debt policy is the main shock absorber. Furthermore, the authors show that firms in China follow a similar strategy with their counterparts in United States and smooth their payout. In contrast to firms in China and US, the payout of the Taiwanese firms is relatively highly sensitive to net income shocks.

Originality/value

To the best of authors’ knowledge, this study is the first to use a joint model to empirically investigate the extent to which debt and investment policies are used to keep corporate payout smooth in emerging markets.

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International Journal of Managerial Finance, vol. 17 no. 3
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 5 July 2011

Jacob Oded, Allen Michel and Steven P. Feinstein

The traditional discounted cash flows (DCF) valuation procedure used by financial analysts assumes that firms maintain a policy of fixed debt. However, empirical evidence…

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3426

Abstract

Purpose

The traditional discounted cash flows (DCF) valuation procedure used by financial analysts assumes that firms maintain a policy of fixed debt. However, empirical evidence suggests that many firms rebalance their debt. This paper seeks to explore the implication of this discrepancy for valuation of firms that undergo a capital structure change.

Design/methodology/approach

The approach taken is both theoretical and empirical.

Findings

The authors show how the valuation process should be modified for firms that are expected to rebalance their debt and demonstrate the distortion in value that results if the traditional DCF valuation procedure is used instead. Furthermore, they illustrate the significance of their results using a sample of the largest largest leveraged buyouts of the current decade.

Originality/value

To the authors' knowledge, this is the first investigation into this issue.

Details

Managerial Finance, vol. 37 no. 8
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 March 2015

Ping Zhang

The recent recession provides us a good window to reveal fiscal problems and inadequate preparations of state and local governments. To address the fiscal crisis, and more…

Abstract

The recent recession provides us a good window to reveal fiscal problems and inadequate preparations of state and local governments. To address the fiscal crisis, and more importantly, to prepare for the potential economic downturns, this paper designs a framework of necessary tools to combat fiscal crisis. With matching policies of revenue diversification and counter-cyclical fiscal policy (CCFP), debt financing can be used as an effective tool to help state and local governments pull through fiscal crises. A brief example of local governments in Georgia proves the possibility and effectiveness of the counter-cyclical debt policy. It will be much better to institutionalize these policies to avoid the moral hazards of governments and politicians, which, in a great sense, requires engaging and educating the public and, finally, obtaining support from them.

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Journal of Public Budgeting, Accounting & Financial Management, vol. 27 no. 4
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 3 April 2017

Stephanos Papadamou and Trifon Tzivinikos

This paper aims to investigate the effects of contractionary fiscal policy shocks on major Greek macroeconomic variables within a structural vector autoregression…

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1048

Abstract

Purpose

This paper aims to investigate the effects of contractionary fiscal policy shocks on major Greek macroeconomic variables within a structural vector autoregression framework while accounting for debt dynamics.

Design/methodology/approach

The sign restriction approach is applied to identify a linear combination of government spending and government revenue shock simultaneously while accounting for debt dynamics. Additionally, output and unemployment responses to fiscal shocks under different scenarios concerning the amalgamation of austerity measures are considered.

Findings

The results indicate that a contractionary consumption policy shock, namely, a 1 per cent decrease in government consumption and a 1 per cent increase in indirect taxes, is preferred, as it produces a minor decrease in output and substantially decreases public debt, while a contractionary wage policy shock is suitable only when the government aims to sharply reduce public debt, as the consequences for the economy are harsh. A contractionary investment policy shock is not recommended, as it triggers a rise in unemployment and a fall in output, while the effect on the public debt is minor.

Practical implications

Policymakers should focus their efforts on reducing unproductive government consumption on the expenditure side. Concerning revenues, the reinforcement of tax administration is recommended to ensure that indirect taxes will be collected.

Originality/value

This paper contributes to the existing literature by providing a disaggregated analysis of the effects of fiscal policy actions in Greece by implementing several fiscal policy scenarios and accounting for the level of public debt. All scenarios are in the vein of the economic adjustment programs guidelines.

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Journal of Financial Economic Policy, vol. 9 no. 1
Type: Research Article
ISSN: 1757-6385

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Article
Publication date: 27 December 2021

Wellington Charles Lacerda Nobrega, Cássio da Nóbrega Besarria and Edilean Kleber da Silva Bejarano Aragón

This paper aims to investigate the existing relations between the management of public bonds on the dynamics of debt, term structure of interest rates and economic cycle…

Abstract

Purpose

This paper aims to investigate the existing relations between the management of public bonds on the dynamics of debt, term structure of interest rates and economic cycle, through a dynamic stochastic general equilibrium model (DSGE), which was estimated through Bayesian inference techniques using data from Brazil.

Design/methodology/approach

The model developed was used to investigate the effects of the public debt average maturity management when the economy faces a monetary policy shock. For this, three management scenarios are evaluated, including Brazilian securities average term.

Findings

Contrary to what might be inferred from DSGE models that limited the analysis of the debt term by imposing only one-period bonds, a contractionary monetary policy shock does not necessarily cause public debt to increase significantly. Debt term structure plays a crucial role in this result since the government does not need to roll the debt over at higher costs when the debt term profile is longer, reducing the debt service costs and then the impact on the overall debt.

Originality/value

Despite the relevance of this theme and its implications for the dynamics of the economy, there is still a gap to be filled in the literature when using DSGE models, since most part of the work that used this methodology limited the analysis of the debt term by imposing that government issues only one-period bonds. This paper differs from the others insofar as it promotes an investigation focused on the role played by debt maturity management on the performance of the contractionary monetary policy. This approach can generate a better understanding of debt management policy and its interaction with fiscal and monetary policies.

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

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Book part
Publication date: 27 February 2009

Kamphol Panyagometh and Gordon S. Roberts

This chapter extends Panyagometh and Roberts (2008) by taking into account differences in costs of closure among countries and the effects of subordinated debt on moral…

Abstract

This chapter extends Panyagometh and Roberts (2008) by taking into account differences in costs of closure among countries and the effects of subordinated debt on moral hazard problems. Our results show that a mandatory subordinated debt policy (MSDP) can be used with contingent purchase and assumption policy to further reduce probability of future bank failure if the high level of uninsured debt can improve the effectiveness of monitoring. While a MSDP might be appropriate for some developed countries with effective informational and supervisory environments and developed financial markets, such as the U.S., extending a MSDP into developing countries is questionable.

Details

Research in Finance
Type: Book
ISBN: 978-1-84855-447-4

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