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The primary purpose of this paper is to develop the translation formula between the required return on unlevered and levered equity for the specific case where cash flows have a finite lifetime and the flow to debt is prespecified. The secondary purpose of this paper is to underpin the importance of the type of stochasticity of cash flows for translation formulas. A general derivation of such formulas and the discount rate in the free cash flow approach is shown.

The paper starts with the same assumptions that have been applied by Modigliani and Miller (1963), Miles and Ezzell (1980) and other researchers. Then the paper develops the mathematical foundations to apply a deterministic backward-iterative scheme for valuing cash flows. After stating the valuation formulas for levered and unlevered equity, debt and tax shields, the authors mathematically derive the relationship between the unlevered return and levered return on equity.

Conventional translation formulas apply to very special cases. They can generally not be used for projects with nonconstant leverage and a finite lifetime. In general, translation formulas depend on continuing values, cash flows, leverage, taxation, risk-free rate, etc. In this paper, the translation depends on the structure of the debt in addition to the well-known parameters in conventional formulas. This paper formula contains the Modigliani-Miller translation formula as a special case.

The authors develop a novel formula for the translation of the required return on unlevered to levered equity. With this formula, the authors offer a solution for the consistent valuation of cash flows with a limited lifetime and given debt financing.

There is a wealth of literature on the financing structure of a company. For this reason, the authors considered it useful to present a theoretical and empirical literature review of classical and new theories of the financial structure. The purpose of this study is to realize on a panel of 15 nonfinancial Moroccan companies listed on the Casablanca Stock Exchange, over a period of 11 years.

The results obtained indicate that only a few variables from financial theory have an important role in the financing policy of Moroccan companies. The authors have presented the positive role of size and self-financing on the debt ratio. The analysis of the effects of profitability shows in this study that it is negative related on the debt ratio which asserts the predictions of the pecking order theory. Also, the age of the company and the growth opportunities explain the level of indebtedness.

Econometric analysis is used to ascertain the nature of the financial structure of listed companies. For this purpose, a large number of companies listed on the Casablanca stock exchange were used.

The authors have presented the positive role of size and self-financing on the debt ratio. Regarding the influence of profitability, this analysis shows that it is negative related on the debt ratio which asserts the predictions of the pecking order theory. Also, the age of the company and the growth opportunities explain the level of indebtedness.

This paper seeks to analyze the family firm's capital structure decisions, focusing on the speed of adjustment (SOA) as well as on the effect of distance from the target capital structure on the SOA towards target short-term and long-term debt ratios in unlisted small and medium-sized family firms.

Methodologically, we use dynamic panel data estimators to estimate the effects of distance on the speeds of adjustment towards those targets. Data for the period 2006–2014 were collected for two research sub-samples: one sub-sample with 398 family firms; the other sub-sample contains 217 non-family firms.

The results show that the deviation from the target debt ratios impacts negatively on the speeds of adjustment towards target short-term and long-term debt ratios in unlisted family firms. These results suggest that family firms, deviating from target debt ratios, face deviation costs, i.e. insolvency costs, inferior to the adjustment costs, i.e. transaction costs. Therefore, family firms stay away from the target debt ratios for a long time than do non-family firms.

The research sample comprises a low number of family firms, therefore for future research we suggest increasing the size of the sample of family firms to get a deeper understanding of family firms' SOA towards capital structure. Additionally, we suggest the analysis of other potential determinants of the speed of adjustment towards target capital structure.

The results obtained suggest that the distance from the target short-term and long-term debt ratios can be avoided if these firms do not depend almost exclusively on internal finance to adjust towards target capital structure. Moreover, for policymakers, we suggest the creation/promotion of alternative external finance sources, allowing reduced transaction costs that contribute to a faster adjustment of small family firms towards target capital structure.

The most previous research focusing on capital structure decisions have focused on listed family firms. To fill this gap, this study examines the speed of adjustment towards target debt ratios in the context of unlisted family firms. Moreover, transaction costs are a function of debt maturity, therefore this study examines separately the speeds of adjustment towards target short-term and long-term debt ratios. This paper shows that the adjustment costs (i.e. transaction costs) could hold back family firms from rebalancing its capital structure.

This study aims to examine whether audit partner public-client specialization and busyness impact the cost of debt.

This paper uses data from companies in Thailand for the 1998–2016 period. To measure the cost of debt, this study uses the realized interest cost, measured as the total interest expense for the one year ahead divided by the average value of total debt outstanding during that year.

The results show a positive association between the cost of debt and two measures of public-client specialization and busyness, which are the number of public clients audited by an individual audit partner in each year and the proportion of the number of public clients divided by the number of total clients in an individual audit partner’s portfolio.

In the literature, there is a lack of research on whether a higher number of public clients in an audit partner’s portfolio leads to better or worse perceived audit quality. This study extends prior literature by examining whether creditors’ perception of audit quality depends on the audit partner specialization or busyness and specifically, on the number of public clients of the auditor. The findings indicate that public-client busyness of a particular audit partner, rather than the audit partner public-client specialization, matters in the cost of debt.

This study examines the influence of firm's international trade activities on the relationship between debt and firm's performance.

This study is based on a sample of 8,343 Portuguese manufacturing firms between 2010 and 2017 and resorts to a random effects model.

Results suggest that international engagement can have a moderating effect on the relationship between debt and a company's performance. In fact, results indicate that the impact of debt on performance is less negative for companies involved in international trade activities (either importing, exporting or both) than for purely domestic firms. Furthermore, results also suggest that the level of international involvement is relevant; importing activities are those that contribute most toward a positive impact.

The work extends the existing literature by considering various types of international trade activities.

This study aims at increasing the authors’ understanding how and why the oil curse takes place.

The study uses a structural equation model (SEM) and stochastic frontier analysis (SFA) in order to underline the mechanism under which the oil curse operates.

The study shows that oil abundance could lead to inefficient resource allocation. This inefficiency is strongly correlated with a weak institutional setting which would lead to accumulated external debt and ultimately to poor economic performance.

The quality of institutions and governance plays a major role in defining government success in allocating public resources efficiently. In a weak institutional setting, characterized with lack of accountability oil rents can promote rent-seeking behavior of public agents; a type of behavior that promotes misallocation and waste of resources. This in turn undermines public finances and leads to external debt accumulation. Debt per se is not necessarily a bad thing, but it has a turning point beyond which it can be a source of economy for countries (particularly countries with limited diversified source of revenue and inefficient public sector). It is to note that the authors work does not refute the positive impact that the increase in oil value has on economic growth (e.g. Nusair, 2016). However, it reminds policy makers that in order to sustain this impact over long term, it is necessary to build a strong institutional framework that prevents inefficient use of resource allocation as it could result in rapid accumulation of debt over short period of time. The adoption of sovereign wealth funds (SWFs) by a number of oil rich countries has helped them to manage adverse oil shocks. Nonetheless, the effectiveness of these funds could be limited in a country whose institutions are not very strong. Characterized by a mediocre institutional setting, Algeria's sovereign fund, for example, has lost 67% of its reserves over just two years (2014–2015) before reaching the level zero by February 2017 following the drop of oil prices in 2015 (see Central Bank of Algeria, 2017). Also, the foreign exchange reserves of the country experienced a drop of more than 72% over a short period of time (2014–2020), leading to the resurgence of the idea of contracting external debt. Similarly, following the sharp drop in oil prices in 2015, the Saudi Arabia's external debt (% of GDP) has jumped by more than 150% over three years only, reaching a level of 28.85% in 2020 compared to a 10.62% in 2015 (https://Fred.stlouisfed.org/series/SAUDGDPGDPPT). The positive correlation of weak institutions with inefficiency can lead to fiscal policy procyclicality. Inefficient public spending tends to be procyclical compared to productive public spending (Makin, 2014). This procyclicality is apparent in developing countries, particularly those characterized by corrupted and weak institutional environment (Alesina et al., 2008; Frankel et al., 2013). This is conducive to output fluctuations where booms and busts are exacerbated (Frankel et al., 2013).

Originality of the study resides in the idea that external debt is an important element that could help to explain why oil curse could take place. The transmission mechanism that underpins the oil curse hypothesis is yet to be fully understood. In doing so, the paper, with the use of two sophisticated statistical techniques, reconciles between the concept of debt overhang and oil curse hypothesis. Similar research efforts are scant.

This study examines the effect of public debt on the economic growth of OECD countries by disentangling the effect into permanent and transitory components. The study covers 37 OECD countries.

The Mundlak decomposition was employed to decompose the effect of public debt into its transitory and permanent effect on economic growth. To account for potential endogeneity problem, the Hausman and Taylor estimator was employed to estimate the decomposed model. Further, the study disaggregated the OECD model into country group models for further analysis of the dynamics of the relationship between the variables.

The findings of the study reveal that in the full OECD model public debt exerts a significant negative permanent and positive transitory effect on economic growth. This was robust to alternative model specifications. The magnitude of the negative permanent effect of debt was found to be larger than the positive transitory effect. Further, the estimates of the disaggregated models reveal that though public debt has a negative permanent effect across all the country groups, it was not the case for the transitory effect of debt. Also, a net public debt model was estimated, and its effect on public debt was found to be largely insignificant, exhibiting a Ricardian-like behaviour.

To the best of our knowledge, this is the first study, particularly in the OECD context that employed the Mundlak transformation to examine the permanent versus transitory effect of public debt on economic growth.