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Article
Publication date: 18 April 2023

Zilong Liu, Hongyan Liang and Chang Liu

In theory, the impact of debt liquidity risk (DLR) on the firm's future growth is ambiguous. This study aims to examine the empirical relationship between the DLR and firms'…

Abstract

Purpose

In theory, the impact of debt liquidity risk (DLR) on the firm's future growth is ambiguous. This study aims to examine the empirical relationship between the DLR and firms' growth rate using annual data for USA companies from 1976 to 2020.

Design/methodology/approach

Given the longitudinal nature of the data, the author uses OLS (ordinary least squares) regression methodology with fixed effects to control for unobserved characteristics that might affect the dependent variable. Instrument variable regression is also used to address the potential endogeneity problem.

Findings

The results show that firms having higher DLR, as proxied by more short-term debt, experience lower growth rate. An increase in firms' short-term debt decreases the firms' future growth rate as evidenced by lower assets, revenue and employee growth rate. Moreover, the authors' results show that small firms or firms with more investment opportunities grow fast if the firms take higher DLR. Finally, cyclical firms with higher DLR exhibit lower growth rate during the credit tighten period. The authors' results hold for both the pre-zero lower bound (ZLB) era and ZLB period.

Originality/value

To the authors' best knowledge, this is one of the earliest studies to carefully examine the effects of DLR on firms' growth rate. While prior research finds that firms with higher growth potential, measured by market-to-book (MTB) ratio, use more short-term debt, the authors' research directly addresses whether DLR affects firms' future growth rate. The authors’ findings also help explain why firms with high growth potential use more short-term debt.

Details

International Journal of Managerial Finance, vol. 20 no. 1
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 26 January 2022

Muhammad Nouman, Ijaz Ahmad, Muhammad Fahad Siddiqi, Farman Ullah Khan, Mohammad Fayaz and Idrees Ali Shah

The financial policies of the modern world corporations and their investment decisions are generally considered as interrelated because the agency problems, associated with the…

Abstract

Purpose

The financial policies of the modern world corporations and their investment decisions are generally considered as interrelated because the agency problems, associated with the debt level and its maturity structure, give rise to incentives for overinvestment or underinvestment. The present study empirically investigates the linkage between debt maturity structure and firm investment in a financially constrained environment, using Pakistan as a case study, to determine how the institutional environment in which firms operate affect these decisions and their linkage.

Design/methodology/approach

The empirical analysis is carried in a panel data setting using panel regression models as the baseline methods. Moreover, generalized methods of moments (GMM) estimators are used, coupled with the instrumental variables approach, for robustness and improving the efficiency and consistency of estimates.

Findings

Results suggest that firms rely more on short financing in Pakistan. Thus, given the capital structure which is characterized by higher proportion of short-term financing, the higher level of leverage is less likely to cause underinvestment problem. However, the underinvestment problem do persists in the firms that have higher portion of long-term debt. These findings imply that the debt-overhang problem may persist even in the financially constrained environments where attractive investment opportunities are limited, and long-term financing is difficult to acquire.

Originality/value

This study contributes to the literature by revealing how corporate investment and financing decisions and their linkage is influenced by the institutional environment of the less developed countries which is characterized by underdeveloped financial markets, inefficient legal system and weak investor protection system.

Details

International Journal of Emerging Markets, vol. 18 no. 10
Type: Research Article
ISSN: 1746-8809

Keywords

Open Access
Article
Publication date: 8 January 2024

Hind Muhtaseb, Veronica Paz, Geoffrey Tickell and Mukesh Chaudhry

This study explores the relationship between leverage and earnings management in the context of Palestinian-listed companies, while also investigating whether audit industry…

Abstract

Purpose

This study explores the relationship between leverage and earnings management in the context of Palestinian-listed companies, while also investigating whether audit industry specialization influences this relationship.

Design/methodology/approach

The data used in this study are extracted from public financial reports of 39 firms listed on Palestine Stock Exchange (PEX), spread across the service, insurance, industry and investment sectors, for the time period 2011–2022. A model is developed to test 4 hypotheses about the relationships between long-term and short-term debts, and earnings management, and then to examine the influence of audit industry specialization on these relationships.

Findings

The results depict a significant, negative relationship between long-term debt and earnings management. Whereas the association between short-term debt and earnings management is insignificant. Audit industry specialization is proven to have no influence on the relationships between the independent and the dependent variables. Results are robust for firms that changed their accounting policies and using different audit industry specialization proxies.

Originality/value

The association between leverage and earnings management is a significant research topic, given that previous research identifies credit ratings and debt covenant violations as key factors which motivate earnings management. This paper fills a substantial research gap by examining the relationship between the two variables in the context of Palestinian-listed firms, while emphasizing the distinction between long-term and short-term debts. It also highlights key relationships that have been neglected in this particular context, which adds to the body of literature. Furthermore, the research's findings provide a solid information base that is of great interest to accounting and auditing experts and that may be seriously evaluated to support and advance the PEX sector.

Details

Asian Journal of Accounting Research, vol. 9 no. 1
Type: Research Article
ISSN: 2459-9700

Keywords

Article
Publication date: 25 March 2024

Saleh F.A. Khatib, Dewi Fariha Abdullah and Hamzeh Al Amosh

The literature has dealt with the relationship between board characteristics (BC) and firm performance (FP) on a large scale. However, it yielded inconsistent results. Thus, this…

Abstract

Purpose

The literature has dealt with the relationship between board characteristics (BC) and firm performance (FP) on a large scale. However, it yielded inconsistent results. Thus, this paper aims to examine the indirect relationship between BC and FP through the mediating role of the capital structure (CS).

Design/methodology/approach

This study used a sample of 528 non-financial companies listed on Bursa Malaysia from 2015 to 2019. Also, a two-step system generalised method of moments estimation technique was applied.

Findings

The results show that board diversity and the frequency of board meetings positively affect financial performance, and it is negatively influenced by board turnover, size and independence. Also, the results indicate a positive relationship between the independence of the board and all CS variables. Importantly, the findings support the policy-setting role of the board of directors where CS (measured by total debt and short-term debt) suppresses some governance mechanisms’ detrimental effect on FP. Hence, the board of directors, apart from the monitoring function, introduce various policies (financial and non-financial) that enhance the overall performance of companies.

Originality/value

These results are consistent with the agency’s perspective that management practices in selecting the optimal capital reduce agency costs and improve performance. The findings contribute to developing a broader theoretical framework that accounts for the policy-setting role of the board of directors. The current study model of corporate governance offers insight for policymakers into the role of corporate governance other than monitoring functions in organisations and how CS should be taken into consideration with corporate governance and FP association.

Details

Corporate Governance: The International Journal of Business in Society, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1472-0701

Keywords

Open Access
Article
Publication date: 7 November 2023

Md. Atiqur Rahman, Tanjila Hossain and Kanon Kumar Sen

This study aims to measure impact of several firm-specific factors on alternative measures of leverage. The authors also aim to study impact of the subprime crisis on such…

Abstract

Purpose

This study aims to measure impact of several firm-specific factors on alternative measures of leverage. The authors also aim to study impact of the subprime crisis on such associations.

Design/methodology/approach

The authors utilized an unbalanced panel data of 973 firm-year observations on 47 UK listed non-financial firms for the years 1990–2019. Book-based and market-based long-term and total leverage measures have been used as explained variables. The explanatory variables are profitability, size, two measures of growth, asset tangibility, non-debt tax shields, firm age and product uniqueness. Fixed effect and random effect models with clustered robust standard errors have been utilized for data analysis. To find the effect of subprime crisis, original dataset was split to create pre-crisis and post-crisis datasets.

Findings

The authors find that profitability significantly reduces leverage while firms having more tangible assets use significantly more debt in capital structure. Firm size and non-debt tax shield have statistically insignificant positive impact on leverage. Having more unique products reduces use of external debt, albeit insignificantly. Growth, when measured as market-to-book ratio, has inconsistent impact, whereas capital expenditure insignificantly reduces leverage. Age is found to be an insignificant predictor of leverage. After the subprime crisis, firms started relying more on internal fund instead of external debt, more particularly short-term debt. Having more collateral is gradually becoming more important for availing external debt.

Research limitations/implications

Data limitations restrict generalization of the findings.

Originality/value

This is one of the pioneering attempts to show how subprime crisis altered the theoretical domain of capital structure research in the UK.

Details

Arab Gulf Journal of Scientific Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-9899

Keywords

Abstract

Purpose

The purpose of this study is to examine the determinants of the level of indebtedness in the health sector in Portugal, taking into account the effects of the COVID-19 pandemic. At the same time, an attempt is made to understand whether the effect of a pandemic crisis is similar to that of a financial crisis.

Design/methodology/approach

To achieve this aim, two subperiods were analyzed: a global period between 2011 and 2020 that includes the pandemic crisis and the period between 2011 and 2014, designated as the financial assistance period by the “Troika” in Portugal. For a sample of 514 companies belonging to the NACE code: 86100 – activities of the health sector with hospitalization, the panel data methodology was applied, specifically, the generalized method of moments system proposed by Arellano and Bover (1995) and Blundell and Bond (1998).

Findings

The results of the study are in line with the Pecking-order explanatory theory, demonstrating that companies in this sector follow a financing hierarchy, preferentially resorting to internally generated funds and external debt. Additionally, the results reveal that the capital structure of companies has changed due to the COVID-19 pandemic. As for the period of financial assistance, there are no major differences in evidence when the total debt ratio is considered. The results suggest different impacts when it comes to a bear market period caused by a health crisis or a period of growing economic slowdowns.

Originality/value

As far as we know, this is the first study that analyses the debt levels in the context of the health sector in a country with a financial system based on the bank sector, using short- and long-term debt ratios, taking into account the particularities of two different moments considered to be bear market that may eventually be useful for comparison with other bear market moments in other macroeconomic environments.

Details

Management Research: Journal of the Iberoamerican Academy of Management, vol. 22 no. 1
Type: Research Article
ISSN: 1536-5433

Keywords

Article
Publication date: 23 June 2022

Ahsan Ahmed, Rozaimah Zainudin and Shahrin Saaid Shaharuddin

This paper investigates the impact of financial integration on the capital structure of the firms operating in mainland China, examining the firm-level and country-level…

Abstract

Purpose

This paper investigates the impact of financial integration on the capital structure of the firms operating in mainland China, examining the firm-level and country-level integrating variables for 2,878 listed Chinese firms over the period of 1991–2016 in regard to the firms' capital structures. Finally, the study revisits the associations for the state-owned and multinational firms in the context of China.

Design/methodology/approach

A large sample of unbalanced data from firms were used to explore the relationship firm-level and country-level integrating variables has with firm leverage and maturity; this is accomplished using the fixed effect model. For robustness, a system-generalised method of moments was used.

Findings

The results indicate that internationalisation positively impacts the leverage and debt maturity of all listed Chinese firms and multinational firms and that state-owned firms are financed mainly by the state. For country-level integration, the authors find that credit and equity markets are negatively related to a firm's leverage. A negative relation with credit markets suggests that Chinese firms have much cheaper financing options than the benefits that arise from credit market integration. Moreover, the effect of equity market integration is more pronounced on Chinese firms' capital structure and debt maturity than credit market integration.

Practical implications

The results provide valuable implications of financial integration for policymakers as well as capital structure decision-making for managers in China.

Originality/value

Few studies have examined the impact of integration on firms' capital structures in developing countries. After controlling for unobserved heterogeneity and endogeneity, this study adds new multilevel integration evidence on the capital structure of Chinese firms.

Details

International Journal of Emerging Markets, vol. 19 no. 2
Type: Research Article
ISSN: 1746-8809

Keywords

Open Access
Article
Publication date: 16 November 2023

P.K. Priyan, Wakara Ibrahimu Nyabakora and Geofrey Rwezimula

The study aims to evaluate the influence of capital structure decisions and asset structure on firms' performance for East African listed nonfinancial firms.

Abstract

Purpose

The study aims to evaluate the influence of capital structure decisions and asset structure on firms' performance for East African listed nonfinancial firms.

Design/methodology/approach

The research is descriptive and employs secondary data from the East African capital markets' websites. The generalized method of moments approach is used to estimate the relationship due to its ability to account for endogeneity problems.

Findings

The result shows that capital structure decisions and asset structure strongly influence the firms' performance. When long-term debts, short-term debts and tangible fixed assets increase, the return on total assets increases. An increase in the total debt ratio raises the return on equity (ROE). However, the increase in long-term debt lowers the ROE.

Practical implications

The results will help investors and potential investors decide on a financing policy that maximizes performance. Likewise, governments and other policymakers review the capital markets' frameworks to attract institutional and individual investors to the markets for financial availability and to increase profitability.

Originality/value

The research provides evidence on the influence of capital structure decisions and asset structure on firms' performance. Furthermore, its results contribute to firms' financing policy formulation and the corporate finance literature.

Details

PSU Research Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2399-1747

Keywords

Article
Publication date: 5 July 2023

Lara M. Al-Haddad, Zaid Saidat, Claire Seaman and Ali Meftah Gerged

This study examines the potential impact of capital structure on the financial performance of family-owned firms in Jordan.

Abstract

Purpose

This study examines the potential impact of capital structure on the financial performance of family-owned firms in Jordan.

Design/methodology/approach

Using panel data of 107 listed companies from 2019 to 2021, the authors use a multivariate regression model to empirically examine the role that family firms' capital structure can play in engendering financial performance in the short and long terms.

Findings

This study's evidence indicates that family businesses rely on equity as their primary source of funding. This approach has been proven to be detrimental to their financial performance, as evidenced by the negative impact of capital structure on family firms' financial performance in the current study.

Originality/value

Capital structure-related decisions are essential to a firm's performance. Thus, there have been numerous empirical studies examining the relationship between capital structure and corporate performance in various settings worldwide. However, the findings of these studies are inconclusive. Also, there are relatively few empirical studies investigating the association between capital structure and the performance of family firms in emerging countries, particularly Jordan. This study, therefore, addresses this empirical gap in extant literature.

Details

Journal of Family Business Management, vol. 14 no. 1
Type: Research Article
ISSN: 2043-6238

Keywords

Article
Publication date: 3 November 2023

Yusuf Yildirim

This paper aims to develop a compound measure, which is fiscal vulnerability index, provides early warning signals of fiscal sustainability problems for Türkiye's economy.

Abstract

Purpose

This paper aims to develop a compound measure, which is fiscal vulnerability index, provides early warning signals of fiscal sustainability problems for Türkiye's economy.

Design/methodology/approach

The index is constructed using twelve distinct fiscal indicators and applying the portfolio method, which considers the time-varying cross-correlation structure between the subindices.

Findings

Dynamics of the fiscal vulnerability index indicate that it accurately predicts to the well-known fiscal crisis occurring in Türkiye's recent history. As a result, such a compound measure should be used in the early identification of fiscal vulnerability in Türkiye.

Originality/value

The main contribution of this paper, relative to existing papers, is that a fiscal vulnerability index was constructed by employing the most contemporaneous method and evaluating its performance in terms of capturing historical stress periods.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

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