Search results

We examine what changes, if any, firms are making to their capital structure around the time they cross-list because both of these affect a firm’s corporate governance. Cross-listing requires firms to follow SEC rules and regulations, which helps improve the firm governance. A firm’s capital structure, specifically the use of debt, is an effective way to mitigate the conflict between managers and shareholders by reducing the cash available to managers. We examine whether these governance mechanisms are complimentary or being used as substitutes by cross-listing firms.

We compare the capital structures of Level II and Level III cross-listing firms from both civil law and common law countries in the three years before and the three years after cross-listing.

We show firms are significantly reducing their debt to equity ratio after the cross-listing. This reduction is shown for both Level II and Level III firms; however, it is primarily seen in civil law countries.

The corporate governance improvement firms recognize by cross-listing is partially offset by the reduced use of debt after the cross-listing. These governance characteristics may be especially relevant for shareholders in Level III cross-listings because those firms are actually raising addition cash.

Using harmonized wealth data and a novel decomposition approach in this literature, we show that cohort effects exist in the income profiles of asset and debt portfolios for a sample of European countries, the United States, and Canada. We find that the association between household wealth portfolios at the intensive margin (the level of assets) and household characteristics is different from that found at the extensive margin (the decision to own). Characteristics explain most of the cross-country differences in asset and debt levels, except for housing wealth, which displays large unexplained differences for both the under-50 and over-50 populations. However, there are cohort differences in the drivers of wealth levels. We observe that younger households’ levels of wealth, given participation, may be more responsive to the institutional setting than mature households. Our findings have important implications, indicating a scope for policies which can promote or redirect investment in housing for both cohorts and which promote optimal portfolio allocation for mature households.

The objective of the study is to determine if an over-borrowing bias emerges when the state fiscal base is shared by multiple general-purpose and special-purpose jurisdictions serving different groups of citizens.

This study uses panel data from all 50 states in the US from 1997 to 2007 to estimate models of total debt levels of state governments and total debt levels of all local governments aggregated at the state level. For comparison, it also estimates total debt levels of state and local governments taken together for the same years.

This study finds that jurisdictional overlap will increase state government debt, local government debt, as well as combined state and local government debt.

The finding from the study suggests that the fiscal common-pool model provides a more accurate analysis and more appropriate understanding of the institutional composition at the state and local public sector, especially for the vertical dimension of the local public sector where there are more specialized and overlapping jurisdictions.

This study aims to evaluate the impact of listed Portuguese companies' specific determinants on adjustment of actual debt towards target debt ratio. The specific determinants on adjustment of actual debt towards target debt ratio that we consider are: asset tangibility, size, profitability and market to book ratio.

Dynamic panel estimators are used to determine adjustment of the actual level of debt towards optimal level of debt, revealing the level of transaction costs borne by companies. OLS regressions are also used, in order to estimate the impacts of companies' specific determinants on debt adjustment.

The results suggest that transaction costs are relevant in listed Portuguese companies' access to debt. Tangibility of assets and size are determinants that contribute for a greater adjustment of debt towards optimal level. The results also suggest that the capital structure decisions of listed Portuguese companies can be explained in the light of trade‐off and pecking order theories, and not according to what is forecast by market timing theory.

Through this study, the level of adjustment of actual debt towards target debt ratio in the context of companies belonging to under‐developed capital markets are determined, in the particular case of this study, belonging to the Portuguese capital market. Furthermore, from target debt ratio depending on companies' specific determinants, the explanatory power of trade‐off, pecking order and market timing theories are investigated. The results contribute for a deeper understanding about companies' capital structure decisions.

The purpose of this paper is to evaluate the impact of the Law on Budgetary Stability of 2012 over the level of accumulated debt in Spanish municipalities. The paper also analyses the influence of the socioeconomic environment, political factors and budgetary indicators on the level of accumulated debt for the 2008–2014 period, which coincides with the economic crisis.

The paper uses panel data methodology. First, the t-test of difference of means is used to analyse which political variables are significant. Then, the analysis is carried out using the generalised method of moments in order to obtain the explanatory variables of the level of debt.

The results show that in 2013–2014, the Law on Budgetary Stability did not have a significant effect on reducing the accumulated debt. However, the law has led to a change of the trend in debt levels, as the debt decreased from 2013 to 2014. Moreover, population, unemployment, immigration, personnel expenditure, direct fiscal pressure and level of investment have an influence over the level of accumulated debt.

This paper contributes to analyse to what extent the Law on Budgetary Stability has affected accumulated debt. The study reveals a slight impact on reducing debt, although it is not significant. An original aspect of this paper is that it uses dynamic models to study the accumulated debt of Spanish municipalities. The study shows the impact of socioeconomic, environmental and political factors as well as of budgetary indicators on the level of debt in the context of economic crisis.

En este artículo se analiza el impacto que tiene la normativa de estabilidad presupuestaria española del año 2012 en el nivel de deuda acumulada de los municipios españoles. También se contrasta la influencia del entorno socioeconómico, político y presupuestario en el nivel de deuda viva durante el periodo 2008-2014 que coincide con la crisis económica.

Para alcanzar los objetivos, se utiliza la metodología de datos de panel. En primer lugar, se realiza un test de medias por el cual se descartan las variables políticas no significativas. Posteriormente, se plantea el Método Generalizado de Momentos (GMM) para obtener las variables explicativas del endeudamiento.

Se evidencia que durante el periodo 2013-2014, la normativa de estabilidad no ha tenido un efecto significativo en la reducción de la deuda viva. No obstante, la legislación ha permitido cambiar la tendencia del nivel de deuda, ya que durante 2013-2014 el endeudamiento se redujo. Además, se constata que la población, el desempleo, la inmigración, la concentración política, los gastos de personal, la presión fiscal y la inversión influyen en el endeudamiento.

La aportación de este trabajo radica en analizar en qué medida ha repercutido la normativa de estabilidad presupuestaria en el nivel de deuda viva. Se ha evidenciado un ligero impacto en la reducción de endeudamiento, aunque no es significativo. Resulta original la aplicación de modelos dinámicos en el estudio de la deuda viva española. Asimismo, se establece el impacto que tienen los factores del entorno político, socioeconómico y presupuestario en un entorno de crisis económica.

This paper aims to investigate whether the amount of local governments’ debt can be predicted by the level of political competition.

The study uses the artificial neural network (ANN) to test whether ANN can “learn” from the observed data and make reliable out-of-sample predictions of the target variable value (i.e. a local government’s debt level) for given values of the predictor variables. An ANN is a non-parametric prediction tool, that is, not susceptible to the common limitations of regression-based parametric forecasting models, e.g. multi-collinearity and latent non-linear relations.

The study finds that “political competition” is a useful predictor of a local government’s debt level. Moreover, a positive relationship between political competition and debt level is indicated, i.e. increases in political competition typically leads to increases in a local government’s level of debt.

The study contributes to public sector reporting literature by investigating whether public debt levels can be predicted on the basis of political competition while discounting factors such as “political ideology” and “fragmentation”. The findings of the study are consistent with the expectations posited by public choice theory and have implications for public sector auditing, policy and reporting standards, particularly in terms of minimising potential political opportunism.

The purpose of this study is to investigate the effects of two important financing sources, debt and cash, on a firm’s investment decisions and explores the intertemporal impact of this financing on future investment volatility.

This paper first reports our results using ordinary least squares (OLS) estimation and then employ an instrumental variable (IV) strategy which addresses potential endogeneity that arises from future investment volatility on current capital structure and cash levels.

This paper finds firms with low levels of debt or high levels of cash experience higher future investment volatility, and the probability of large future investment increases with high cash levels. This study’s findings are economically important; for example, a one-standard-deviation increase from the mean of debt ratio implies an approximate 7.8% decrease in future investment volatility; and a one-standard-deviation increase from the mean of a firm’s cash level leads to a 47% increase in the probability of a large investment in the next year.

The findings of this study help firms understand the impact of their present financing decisions on the plausibility of their future investments. This paper contributes to the literature by making both novel and confirmatory findings. This paper was structured to include confirmatory findings for two reasons. First, this paper uses different methods to construct investment volatility and the related investment spike. Second, and more importantly, the hypotheses are interrelated and communicate how firms plan for and execute against uncertain future investments. Growth options are ephemeral, and the hypotheses structure provides a guideline for how a firm finances future growth options.

The behavioural theory adds a new paradigm of analysis with the assumptions of the decision maker’s cognitive biases and their repercussions on financing decisions. The aim of the study is to analyse the repercussions of these biases on the adjustment speed of firm’s capital structure toward the optimal level.

Based on a partial adjustment model, the study uses the Dynamic Panel Fractional estimator to analyse panel data from 4,990 Portuguese entrepreneurial firms.

The results show that the cognitive overconfidence bias impacts the entrepreneurial firm’s capital structure. In fact, the firms run by overconfident managers adjust more slowly than their counterparts. Furthermore, the findings suggest that entrepreneurial firms make relatively fast adjustments toward the optimal debt level and follow a hierarchical financing order in the funding process.

The results of this paper are not only interesting to the academia, but also contain practical implications for corporate, institutional and business policy and governance. First, the paper introduces a new measure of cognitive bias in optimistic managers, which is useful for current and future academic research. Also, in practical terms, the findings of the paper reveal that when a company is contemplating hiring a manager, it should consider whether they need an optimistic or non-optimistic manager based on the company's present life cycle or situation.

The current analysis extends the existing literature. The study suggests that financial classical and behavioural paradigms should not be separated, which can provide evidence to help narrow the gap between these two major perspectives.