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1 – 10 of over 20000Songhee Kim, Jaeuk Khil and Yu Kyung Lee
This paper aims to investigate the impact of corporate dividend policy on the capital structure in the Korean stock market. To distinctly discern the voluntariness of changes in…
Abstract
This paper aims to investigate the impact of corporate dividend policy on the capital structure in the Korean stock market. To distinctly discern the voluntariness of changes in corporate dividend policy, we analyze companies that, following a substantial increase, do not reduce dividends for the subsequent two years or, after a significant decrease, do not raise dividends for the following two years. Our empirical findings indicate that companies that increase dividends experience a significant decrease in both book and market leverage, even after controlling for variables such as target leverage ratios. This result suggests that a large increase in dividends can effectively reduce information asymmetry, leading to a lower cost of equity. On the contrary, after a decrease in dividends, both book leverage and market leverage significantly increase, revealing a symmetric relationship between dividend policy and capital structure. In conclusion, large dividend increases in Korean companies not only reduce information asymmetry but also lower the cost of equity capital, resulting in observable changes in the leverage ratio.
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Tatiana Albanez and Gerlando Augusto Sampaio Franco de Lima
According to the market timing theory, firms try to take advantage of windows of opportunity to raise capital by exploiting temporary cost fluctuations of alternative financing…
Abstract
Purpose
According to the market timing theory, firms try to take advantage of windows of opportunity to raise capital by exploiting temporary cost fluctuations of alternative financing sources. In this context, the main objective of this paper is to examine the influence and persistence of market timing in the financing decisions of Brazilian firms that launched IPOs in the period from 2001 to 2011.
Methodology/approach
We analyze the influence of past market values on the capital structure of these firms, based on the main models proposed by Baker and Wurgler (2002), adapted to reflect the characteristics of Brazilian firms’ financial statements.
Findings
We find evidence of market timing, but this behavior is not sufficiently persistent in the period studied to the point of determining these firms’ capital structure. We believe the fact that Brazilian companies rarely carried out follow-on primary equity issues after floating their capital in the period analyzed, due to the presence of more advantageous financing sources (particularly from the national development bank, BNDES), explains the results. Therefore, Brazilian firms appear to be pay heed to different funding sources, in search of windows of opportunity, to guide their financing decisions and determine their capital structures.
Originality/value
The Brazilian capital market has been developing intensely in recent years, making it increasingly relevant to analyze the financing and investment decisions of the country’s listed companies. The Brazilian literature on capital structure is extensive, but few works have addressed the issue of market timing.
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Several studies have observed that stocks tend to drop by an amount that is less than the dividend on the ex-dividend day, the so-called ex-dividend day anomaly. However, there…
Abstract
Several studies have observed that stocks tend to drop by an amount that is less than the dividend on the ex-dividend day, the so-called ex-dividend day anomaly. However, there still remains a lack of consensus for a single explanation of this anomaly. Different from other studies, this dissertation attempts to answer the primary research question: how can investors make trading profits from the ex-dividend day anomaly and how much can they earn? With this goal, I examine the economic motivations of equity investors through four main hypotheses identified in the anomaly's literature: the tax differential hypothesis, the short-term trading hypothesis, the tick size hypothesis, and the leverage hypothesis.
While the U.S. ex-dividend anomaly is well studied, I examine a long data window (1975–2010) of Thailand data. The unique structure of the Thai stock market allows me to assess all four main hypotheses proposed in the literature simultaneously. Although I extract the sample data from two data sources, I demonstrate that the combined data are consistently sampled. I further construct three trading strategies – “daily return,” “lag one daily return,” and “weekly return” – to alleviate the potential effect of irregular data observation.
I find that the ex-dividend day anomaly exists in Thailand, is governed by the tax differential, and is driven by short-term trading activities. That is, investors trade heavily around the ex-dividend day to reap the benefits of the tax differential. I find mixed results for the predictions of the tick size hypothesis and results that are inconsistent with the predictions of the leverage hypothesis.
I conclude that, on the Stock Exchange of Thailand, juristic and foreign investors can profitably buy stocks cum-dividend and sell them ex-dividend while local investors should engage in short sale transactions. On average, investors who employ the daily return strategy have earned significant abnormal return up to 0.15% (45.66% annualized rate) and up to 0.17% (50.99% annualized rate) for the lag one daily return strategy. Investors can also make a trading profit by conducting the weekly return strategy and earn up to 0.59% (35.67% annualized rate), on average.
Kersten Kellermann and Carsten Schlag
In September 2009, G20 representatives called for introducing a minimum leverage ratio as an instrument of financial regulation. It is supposed to assure a certain degree of core…
Abstract
Purpose
In September 2009, G20 representatives called for introducing a minimum leverage ratio as an instrument of financial regulation. It is supposed to assure a certain degree of core capital for banks, independent of the controversial procedures used to assess risk. The paper aims to discuss these issues.
Design/methodology/approach
This paper discusses the interaction and tensions between the leverage ratio and risk-based capital requirements, using financial data of the Swiss systemically important bank United Bank of Switzerland.
Findings
It can be shown that the leverage ratio potentially undermines risk weighting such that banks feel encouraged to take greater risks.
Originality/value
The paper proposes an alternative instrument that is conceived as a base risk weight and functions as a backstop. It ensures a minimum core capital ratio, based on unweighted total exposure by ensuring a minimum ratio of risk-weighted to total assets for all banks. The proposed measure is easy to compute like the leverage ratio, and also like the latter, it is independent of risk weighting. Yet, its primary advantage is that it does not supersede risk-based capital adequacy targets, but rather supplements them.
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Sulagna Mukherjee and Jitendra Mahakud
The purpose of this paper is to study the dynamics of capital structure in the context of Indian manufacturing companies in a partial‐adjustment framework during the period…
Abstract
Purpose
The purpose of this paper is to study the dynamics of capital structure in the context of Indian manufacturing companies in a partial‐adjustment framework during the period 1993‐1994 to 2007‐2008.
Design/methodology/approach
This paper specifies a partial‐adjustment model and uses the generalized method of moments technique to determine the variables which affect the target capital structure and to find out the factors affecting the adjustment speed to target capital structure.
Findings
Firm‐specific variables like size, tangibility, profitability and market‐to‐book ratio were found to be the most important variables which determine the target capital structure across the book and market leverage and the factors like size of the company, growth opportunity and the distance between the target and observed leverage determine the speed of adjustment to target leverage for the Indian manufacturing companies.
Research limitations/implications
The behavioural variables like managers' confidence and attitude towards raising the external finance have not been incorporated in the model to determine the target capital structure due to the data constraint.
Practical implications
This paper has implications for corporate managers in India, for example, to consider the various adjustment costs while altering the financing decisions of the company with other variables like flexibility of the manager, direct cost of debt and equity.
Originality/value
This paper is first of its kind to study both the determination of target capital structure and the speed of adjustment to target capital structure in the context of Indian companies.
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This study aims to understand how quickly Japanese banks readjust their capital ratios (leverage, regulatory capital, tier-I capital and common equity) following an economic shock.
Abstract
Purpose
This study aims to understand how quickly Japanese banks readjust their capital ratios (leverage, regulatory capital, tier-I capital and common equity) following an economic shock.
Design/methodology/approach
This study uses a two-step system GMM framework to test the study's hypotheses using the annual data of Japanese commercial and cooperative banks ranging from 2005 to 2020.
Findings
The findings show that banks adjust their leverage ratio faster than regulatory capital, tier-I capital and common equity ratios. In addition to that, the results reveal that the speed of capital adjustment is higher for commercial banks than for cooperative banks, suggesting higher economic costs and implications for commercial banks. Furthermore, it is worth noting that well-capitalised (under-capitalised) banks tend to prioritise the adjustments to common equity (leverage) before considering the adjustments to leverage (common equity). According to the results, high-liquid (low-liquid) banks alter their regulatory capital and tier-I capital ratios (leverage) more quickly (more slowly) than low-liquid (high-liquid) banks.
Practical implications
The findings suggest that when formulating and implementing new banking regulations, particularly in assessing and adjusting specific capital requirements under Pillar II of Basel III, management (including bankers, regulators and policymakers) should consider the heterogeneity observed in the rate of capital adjustment across various bank characteristics. Additionally, bank managers should also consider the speed of adjustment when determining optimal half-life and target capital structures.
Originality/value
To the author's knowledge, this study represents a pioneering investigation into the rate of adjustment of capital ratios (leverage, regulatory, tier-I and common equity) within Japan's banking sector. The study employs a comprehensive dataset encompassing both commercial and cooperative banks to facilitate this analysis. A notable contribution to the existing body of literature, this study offers a detailed analysis and emphasises the varying degrees of adjustment in capital ratios. The study also highlights the heterogeneous nature of the adjustment rate in these ratios by categorising the data into well-capitalised, under-capitalised, highly liquid and low-liquid banks.
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The purpose of this study is to examine the impact of interest rates on the size and the maturity choice of a syndicated bank loan. In addition, it attempts to determine the…
Abstract
Purpose
The purpose of this study is to examine the impact of interest rates on the size and the maturity choice of a syndicated bank loan. In addition, it attempts to determine the long‐run impact of a syndicated loan on the borrower's capital structure.
Design/methodology/approach
The paper uses a sample of 6,903 syndicated bank loans in the USA, covering the period 1984‐2004. First, all syndicated loans are categorized into two groups: loans in periods of increasing interest rates, and loans in periods of decreasing rates. Then, non‐parametric tests are performed to compare the characteristics of the two groups, including the proceeds from the loans, and robust regressions are used to examine the impact of the interest rates on the maturity choice. Finally, robust regressions are employed to examine the long‐run impact of the interest rates on the borrowers' leverage ratios.
Findings
On the whole, the results reject the market timing theory of capital structure for syndicated bank loans. Firms in the two groups borrow in similar amounts, and in the long run, the difference between the two groups' leverage ratios is statistically insignificant. On the other hand, firms tend to choose longer maturities when the interest rates are low compared to the rates two or three years ago.
Originality/value
To the best of the author's knowledge, this is the first study that links debt market conditions to the leverage ratios of firms that borrow in the syndicated bank loan market. In other words, this is the first study that tests the market timing theory of capital structure for syndicated bank loans.
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Tasneem Khan, Mohd Shamim and Mohammad Azeem Khan
The purpose of this paper is to examine the optimal leverage ratio, speed of adjustment, and which factors contribute to achieving the target of selected telecom companies in a…
Abstract
Purpose
The purpose of this paper is to examine the optimal leverage ratio, speed of adjustment, and which factors contribute to achieving the target of selected telecom companies in a partial adjustment framework from 2008 to 2017. Further is to analyze the likelihood of bankruptcy of sample companies by Altman Z-Score model and to suggest which theory of capitals structure is better in explaining leverage strategies and judicious mix of debt and equity structure of the selected telecom companies.
Design/methodology/approach
This paper chooses a partial adjustment model and uses the generalized method of moments technique to identify the variables that influence the target leverage ratio and the factors that influence the speed at which the target leverage is adjusted. Second, the Altman Z-score model is used in this paper to research the financial status of telecom companies using financial instruments and techniques.
Findings
For Indian telecom firms, firm-specific variables such as profitability, NDTS and Z-score lead to greater debt adjustment towards optimal level target leverage. The paper also highlights new paradigms in the Indian telecom sector, stating that top market leaders such as Bharti Airtel, BSNL, Idea, Vodafone and R.com, among others, should focus on debt reduction and interest payments, as well as implement new strategies to solve the crisis and change financial policies.
Research limitations/implications
It mainly focuses on firm-specific variables because the firm-specific variables affect the leverage framework. The country-specific variables are not taken into the study. These results may be unique to telecom companies due to some peculiarities existing in the telecom sector in India. Although other sectors, both national and international level, can be taken into consideration.
Practical implications
This paper has ramifications for corporate executives, investors and policymakers in India, for example, in terms of considering different transition costs while changing a telecom company’s financing decisions.
Originality/value
To the best of the authors’ knowledge, this is the first paper of its kind to look at both financial and econometric tools to assess financial performance using the Altman Z-Score model, as well as decide leverage strategies and the pace with which they can be adjusted to target leverage in the context of Indian telecom companies.
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– The purpose of this paper is to explore the impact of the credit expansion in 2009 and 2010 in China on the capital structure of listed real estate companies.
Abstract
Purpose
The purpose of this paper is to explore the impact of the credit expansion in 2009 and 2010 in China on the capital structure of listed real estate companies.
Design/methodology/approach
Chinese listed real estate companies are divided into two groups, state-owned and non-state-owned, because their access to credit markets have different priority to state-owned banks that dominate bank lending. The difference-in-differences approach is employed to test the impact of changes in leverage ratios and loan ratios before and after the credit expansion period in state-owned firms and non-state-owned firms.
Findings
Using quarterly panel regressions, the authors find that during the credit expansion period, state-owned companies exhibit a relatively greater increase in leverage ratios than non-state-owned firms. State-owned firms have greater increases in book leverage ratios, market leverage ratios and long-term debt ratios by 5.2, 4.9 and 1.1 per cent, respectively. It is also shown that loan ratios have increased more in state-owned firms than non-state-owned firms during the credit expansion period.
Research limitations/implications
The paper explores only the impacts of credit expansion on capital structure of listed real estate firms in China. Further studies can be conducted to investigate the impact of credit supply on corporate investment decisions of real estate firms and on real estate markets.
Practical implications
The findings can help explain the surge in land and housing prices after 2008 in China. Deng et al. (2015) find that state-owned real estate firms paid more for land price than non-state-owned firms, which contributed to upward pressure on housing prices. This paper shows that such “over-investment” may be due to the increase of debt financing and availability of bank loans to real estate firms. Thus the credit market can affect real estate markets through debt financing at company level.
Originality/value
This paper is the first to investigate the impact of credit supply on capital structure of real estate companies, and presents evidence of the importance of credit supply as a determinant of capital structure.
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The purpose of this study is to investigate the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex post risk of Japanese banks.
Abstract
Purpose
The purpose of this study is to investigate the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex post risk of Japanese banks.
Design/methodology/approach
To test the hypotheses, the authors have implemented a panel of 507 commercial and cooperative banks of Japan over the period extending from 2001 to 2020, using a two-step system Generalized Method of Moments (GMM) framework.
Findings
The overall sample banks' results show that the impact of leverage, regulatory capital and tier-I capital ratios on ex ante and ex post risk is positive. The findings reveal that the effects of regulatory and tier-I capital ratios on ex post risk are negative (positive) for commercial (cooperative) banks, high-liquid, low-liquid and high-growth banks in Japan. In addition, the regulatory capital ratio is more beneficial for risk due to its power to absorb losses. The lagged coefficient indicates that banks require more time to adjust their ex post and ex ante risk during crisis period than during normal economic conditions.
Practical implications
The heterogeneity in results has practical implications for regulators, policymakers and bank managers in formulating the capital requirement guidelines with respect to ex ante and ex post risk across different categories and characteristics of banks.
Originality/value
To the best of the authors' knowledge, this is the first study investigating the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex-post risk of Japanese commercial and cooperative banks over the period from 2001 to 2020. The insights into the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex post risk of well-capitalized, under-capitalized, high and low-liquid banks are new in the context of Japan.
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