Search results

1 – 10 of over 34000
To view the access options for this content please click here
Article
Publication date: 2 December 2021

Ismail Kalash

The purpose of this article is to examine how financial distress risk and currency crisis affect the relationship between financial leverage and financial performance.

Abstract

Purpose

The purpose of this article is to examine how financial distress risk and currency crisis affect the relationship between financial leverage and financial performance.

Design/methodology/approach

This study uses data of 200 firms listed on Istanbul Stock Exchange during the period from 2009 to 2019, resulting in 1950 firm-year observations. Pooled ordinary least squares, random effects, firm fixed effects and two-step system GMM models are used to investigate the hypotheses of this study.

Findings

The results reveal that financial leverage has negative and significant effect on financial performance, and that this effect is stronger for firms with higher financial distress risk. Furthermore, the findings provide moderate evidence that currency crisis exacerbates the negative association between leverage and performance.

Practical implications

The results of this study have important implications for firms in emerging markets. Managers can enhance firm performance by reducing the level of financial leverage, especially in firms with higher financial distress risk. These firms incur higher debt costs, and then they can benefit more from the decreases in debt ratio in their capital structure. Moreover, the decreases in debt level have more importance in currency crisis times, when the access to external finance becomes more expensive and more difficult.

Originality/value

To the author's knowledge, this research is the first to examine the effect of currency crisis on the financial leverage–financial performance relationship and is one of few that investigate the role of financial distress risk in determining the linkage between leverage and firm performance.

Details

EuroMed Journal of Business, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1450-2194

Keywords

Content available
Article
Publication date: 23 November 2021

Wilkista Lore Obiero and Seher Gülşah Topuz

This study aims to determine whether there is an effect of internal and public debt on income inequality in Kenya for the period 1970–2018.

Abstract

Purpose

This study aims to determine whether there is an effect of internal and public debt on income inequality in Kenya for the period 1970–2018.

Design/methodology/approach

The relationship is examined by using the Autoregressive Distributed Lag (ARDL) model by Pesaran et al. (2001) and Toda Yamamoto causality by Toda and Yamamoto (1995).

Findings

Our findings suggest that both internal and public debt harm inequality in Kenya in the long term. Furthermore, a one-way causality from internal debt to income inequality is also obtained while no causality relationship is found to exist between public debt and income inequality. Based on these findings, the study recommends that to reduce income inequality levels in Kenya, other methods of financing other than debt financing should be preferred because debt financing is not pro-poor.

Originality/value

This study is unique based on the fact that no previous paper has analysed the debt and inequality relationship in Kenya. To the best of our knowledge, this will be the first study to analyse the applicability of redistribution effect of debt in Kenya. The study is also different in that it provides separate analysis for public debt and internal debt on their effects on income inequality.

Details

Journal of Economics, Finance and Administrative Science, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2077-1886

Keywords

To view the access options for this content please click here
Expert briefing
Publication date: 9 April 2020

The impact of the COVID-19 crisis on Africa's debt landscape.

Details

DOI: 10.1108/OXAN-DB251899

ISSN: 2633-304X

Keywords

Geographic
Topical
Content available
Article
Publication date: 2 November 2021

Mesbah Fathy Sharaf

Within a multivariate framework, this study examines the asymmetric and threshold impact of external debt on economic growth in Egypt during the period 1980–2019.

Abstract

Purpose

Within a multivariate framework, this study examines the asymmetric and threshold impact of external debt on economic growth in Egypt during the period 1980–2019.

Design/methodology/approach

The paper uses a nonlinear autoregressive distributed lag (NARDL) bounds testing approach to cointegration and a vector error-correction model to estimate the short- and long-run parameters of equilibrium dynamics. A multiple structural breaks model is estimated to test nonlinearity in the relationship between external debt and economic growth.

Findings

Results of the NARDL model show a robust statistically significant negative long-run impact on economic growth stemming from both positive and negative external-debt-induced shocks. In terms of magnitude, on the one hand, the impact of external-debt-induced negative shocks exceeds that of the positive. In the short and long run, on the other hand, the growth impact of external debt in Egypt is symmetric. There is also support for the nonlinearity hypothesis in which a negative impact on growth of external debt obtains once the threshold level of external debt-to-GDP ratio equals or exceeds 96.7%.

Practical implications

Identifying the threshold level after which external debt becomes harmful to economic growth would help inform policymakers in Egypt about maximum external debt levels that can be sustained without impairing economic growth.

Originality/value

The current study makes a substantial contribution to the extant literature on the debt-growth tradeoffs. It breaks ground by being the first tract that examines, using a NARDL model, asymmetry and nonlinearity of debt-growth tradeoffs in Egypt.

Details

Journal of Business and Socio-economic Development, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2635-1374

Keywords

To view the access options for this content please click here
Article
Publication date: 3 November 2021

Jianrong Wang, Haizhi Wang, Desheng Yin and Yun Zhu

The purpose of this paper is to investigate the role of social capital in the issuances of Rule 144A debt. Using a sample of 1,378 debt offerings from 1997 to 2015 in the…

Abstract

Purpose

The purpose of this paper is to investigate the role of social capital in the issuances of Rule 144A debt. Using a sample of 1,378 debt offerings from 1997 to 2015 in the US, this paper provides empirical evidence on whether and to what extent social capital affects the cost of Rule 144A debt.

Design/methodology/approach

This paper employs a county-level measure of social capital and links social capital to the yield spreads of Rule 144A debt. A Heckman selection model is sued to address the sample selection bias, and an instrumental variable approach and propensity score matching methodology are implemented to deal with the potential endogeneity issue. The authors check for robustness using an alternative measure of social capital.

Findings

The results of the analysis provide evidence that issuers headquartered in the counties with higher levels of social capital experience lower yield spreads in their Rule 144A debt offerings. The findings are robust to a Heckman selection model, an instrumental variable approach and propensity score matching. Furthermore, the analysis reveals the marginal effect of social capital that the effect of social capital is more pronounced for the issuing firms with higher agency cost of debt and lower institutional ownership. The effect of social capital is more prominent after financial crisis.

Originality/value

This paper provides novel evidence of the effect of social capital on the cost of privately placed debt. The issuances of Rule 144A debt are subject to significant information asymmetry and are targeted at sophisticated institutional investors. This paper sheds further light on how institutional investors incorporate the regional social capital in their pricing scheme of private placement of Rule 144A debt.

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

Keywords

To view the access options for this content please click here
Article
Publication date: 1 March 1987

E.A. Evans

Considerable debate centres around the use of debt finance as opposed to new equity and internally generated funds for the financing of new investment projects. The…

Downloads
1680

Abstract

Considerable debate centres around the use of debt finance as opposed to new equity and internally generated funds for the financing of new investment projects. The favourable corporate tax treatment of debt interest payments compared to equity returns appears to be a government incentive to debt finance. In addition, the differential tax treatment of financial institutions' income and individual investors' income under the tax code, all leads to the idea, that debt financing may increase the market value of a firm beyond the expected value of its operational cash flows.

Details

Managerial Finance, vol. 13 no. 3/4
Type: Research Article
ISSN: 0307-4358

To view the access options for this content please click here
Article
Publication date: 16 March 2015

Jacques A. Schnabel

This paper aims to examine the nexus between hedging, which reduces the volatility of corporate assets, and the anomaly of debt overhang, whereby corporate management is…

Downloads
1150

Abstract

Purpose

This paper aims to examine the nexus between hedging, which reduces the volatility of corporate assets, and the anomaly of debt overhang, whereby corporate management is motivated to reject positive net present value (NPV) projects. The question of whether hedging ameliorates or aggravates debt overhang is addressed.

Design/methodology/approach

The Black–Scholes isomorphism between common shares and call options is exploited to determine the allocation of a project’s NPV between debt- and stock-holders. The effect of hedging on this NPV-partitioning is then gauged to determine the resulting likelihood of debt overhang.

Findings

If the volatility of corporate assets is below a critical maximum, hedging ameliorates debt overhang consistent with extant theoretical research. However, above that critical value of volatility, hedging aggravates debt overhang.

Originality/value

The novel result of this note, namely, hedging may exacerbate debt overhang, is demonstrated both analytically and intuitively. The latter is explained by allusion to a second agency-theoretic conflict between debt- versus stock-holders, namely, risk shifting. The disparate effects of hedging on debt overhang imply a non-monotonic relationship between metrics for these two variables, which is a phenomenon that extant empirical studies have failed to take into account.

Details

The Journal of Risk Finance, vol. 16 no. 2
Type: Research Article
ISSN: 1526-5943

Keywords

To view the access options for this content please click here
Expert briefing
Publication date: 16 September 2019

The outlook for provincial debt.

Details

DOI: 10.1108/OXAN-DB246414

ISSN: 2633-304X

Keywords

Geographic
Topical
To view the access options for this content please click here
Article
Publication date: 1 December 2007

Martin Lally

This paper examines the appropriate term of the risk free rate to be used by a regulator in price control situations, most particularly in the presence of corporate debt

Abstract

This paper examines the appropriate term of the risk free rate to be used by a regulator in price control situations, most particularly in the presence of corporate debt. If the regulator seeks to ensure that the present value of the future cash flows to equity holders equals their initial investment then the only choice of term for the risk free rate that can achieve this is that matching the regulatory cycle, but it also requires that the firm match its debt duration to the regulatory cycle. Failure of the firm to do so leads to cash flows to equity holders whose net present value will tend to be negative, and will also inflict interest rate risk upon equity holders. This provides the firm with strong incentives to match its debt duration to the regulatory cycle.

Details

Accounting Research Journal, vol. 20 no. 2
Type: Research Article
ISSN: 1030-9616

Keywords

To view the access options for this content please click here
Article
Publication date: 1 November 2001

Lesley Franklin and Penelope Tuck

Now that debt has replaced equity as the preferred source of finance for many UK companies, the correct calculation of the cost of debt assumes even greater importance…

Downloads
1177

Abstract

Now that debt has replaced equity as the preferred source of finance for many UK companies, the correct calculation of the cost of debt assumes even greater importance than it has done formerly. While financial management textbooks are in agreement on how to calculate the pre‐tax cost of debt, there is much less agreement on how to calculate the after tax cost of debt. The different approaches taken by different authors leave students and practitioners confused and unsure as to how they should proceed. This article explores the calculation of the after tax cost of debt in order to help both students and practitioners to understand the interaction of tax and debt in the current UK environment and to be aware of the limitations of the various simplifications which are made, explicitly or implicitly, in the textbooks.

Details

Journal of Applied Accounting Research, vol. 6 no. 2
Type: Research Article
ISSN: 0967-5426

Keywords

1 – 10 of over 34000