scholarly journals Reorganization or Liquidation: Bankruptcy Choice and Firm Dynamics

2021 ◽  
Author(s):  
Dean Corbae ◽  
Pablo D’Erasmo
Keyword(s):  
Capital Structure ◽  
Firm Dynamics ◽  
Law Firms ◽  
Bankruptcy Law ◽  
Entry And Exit ◽  
Dynamics Model ◽  
Financial Decisions ◽  
Long Run ◽  
Bankruptcy Policy

Abstract In this paper, we ask how bankruptcy law affects the financial decisions of corporations and its implications for firm dynamics. According to current U.S. law, firms have two bankruptcy options: Chapter 7 liquidation and Chapter 11 reorganization. Using Compustat data, we first document capital structure and investment decisions of non-bankrupt, Chapter 11, and Chapter 7 firms. Using those data moments, we then estimate parameters of a general equilibrium firm dynamics model with endogenous entry and exit to include both bankruptcy options. Finally, we evaluate a bankruptcy policy change similar to one recommended by the American Bankruptcy Institute that amounts to a “fresh start” for bankrupt firms. We find that changes to the law can have sizable consequences for borrowing costs and capital structure which via selection affects productivity, as well as long run welfare.

scholarly journals Entry and Exit, Multiproduct Firms, and Allocative Distortions

2018 ◽  
Vol 10 (2) ◽  
pp. 86-112 ◽  
Author(s):  
Roberto N. Fattal Jaef
Keyword(s):  
Firm Dynamics ◽  
Multiproduct Firms ◽  
Product Portfolio ◽  
Factor Productivity ◽  
Entry And Exit ◽  
Welfare Gains ◽  
Transition Dynamics ◽  
Dynamic Factors ◽  
Long Run ◽  
Productivity Gains

Most studies quantifying the gains from reversing allocative distortions are static in nature. We propose a model of firm dynamics featuring entry, exit, and multiproduct firms to understand the contribution of these dynamic factors in shaping the welfare and long-run productivity gains from removing distortions. We find that while the entry and exit of firms and their product-portfolio choices exert countervailing forces over long-run total factor productivity (TFP), they reinforce each other in shaping the welfare gains from reversing misallocation. Welfare gains, which account for transition dynamics, become more than twice as high as the long-run changes in TFP. (JEL D21, D24, D61, L11, O41)

scholarly journals Impact of Financial Signaling and Information Asymmetries of Macroeconomic Covariates on Capital Structure

2019 ◽  
Vol 5 (4) ◽  
Author(s):  
Rana Shahid Imdad Akash ◽  
Iqbal Mahmood ◽  
Kashif Hamid
Keyword(s):  
Capital Structure ◽  
Financial Sector ◽  
Information Asymmetries ◽  
Macroeconomic Policies ◽  
Financial Decisions ◽  
Asymmetry Of Information ◽  
Financing Decisions ◽  
Extreme Bounds Analysis ◽  
Long Run ◽  
Econometric Technique

Present study investigates the existence of macroeconomic variables effect on capital structure and to evaluate the behavioral aspects of financial signaling and asymmetry of information on the non-financial sector of Pakistan. Extreme bounds analysis an econometric technique is used to analyze the robustness of financial signaling and information asymmetry covariates of macroeconomic factorson capital structure policies and to compute the empirical findings.The resultsconclude that interest rate is significantly influencing the decisions of the managers regarding to the composition of long run financing decisions. Hence it is identified that corporate non-financial sector has lesser signaling effect generated by the macroeconomic forces in financial decisions. However the null hypnosis cannot be rejected as this study identified. This study is meaning full and leads toward the practical version of financing decisions by the corporate sectors with the changing policies of the macroeconomic forces in Pakistan. There must be coherence between the macroeconomic policies and corporate sector policies, therefore information asymmetries may overcome.

scholarly journals Ownership Structure, Financial Decisions, and Institutional Setting: An International Analysis through Simultaneous Equations

2012 ◽  
Vol 2012 ◽  
pp. 1-12 ◽  
Author(s):  
Félix J. López-Iturriaga ◽  
Juan Antonio Rodríguez-Sanz
Keyword(s):  
Capital Structure ◽  
Ownership Structure ◽  
Common Law ◽  
Civil Law ◽  
Simultaneous Equations ◽  
Ownership Concentration ◽  
Institutional Setting ◽  
Law Firms ◽  
Financial Decisions ◽  
The Common

We analyze the mutual relations among firms’ capital structure, ownership structure, and valuation. Through the estimation of a system of simultaneous equations for a sample of 1,130 firms from 16 countries from both the common law and the civil law environments, our results confirm the differential effect of ownership structure on firms’ value in each setting. Whereas in civil law firms the higher ownership concentration results in an entrenchment and an alignment effect, in the common law firms higher ownership concentration increases the value of the firm. Second, we corroborate the endogeneity of ownership structure since we find that ownership structure is affected by the value of the firm and by the capital structure. Third, our results suggest that corporate finance decisions are taken simultaneously with other mechanisms of corporate governance and conditional on firms’ valuation.

Role of Credit Rating in determining Capital structure: Evidence from Non-Financial sector of Pakistan

2020 ◽  
Vol 38 (3) ◽  
Author(s):  
Shoaib Ali ◽  
Imran Yousaf ◽  
Muhammad Naveed
Keyword(s):  
Capital Structure ◽  
Credit Rating ◽  
Least Square ◽  
Annual Data ◽  
Leverage Ratio ◽  
Financial Decisions ◽  
Financial Firms ◽  
High Level ◽  
The Impact ◽  
The Capital Structure

This paper aims to examine the impact of external credit ratings on the financial decisions of the firms in Pakistan.  This study uses the annual data of 70 non-financial firms for the period 2012-2018. It uses ordinary least square (OLS) to estimate the impact of credit rating on capital structure. The results show that rated firm has a high level of leverage. Moreover, Profitability and tanagability are also found to be a significantly negative determinant of the capital structure, whereas, size of the firm has a significant positive relationship with the capital structure of the firm.  Besides, there exists a non-linear relationship between the credit rating and the capital structure. The rated firms have higher leverage as compared to the non-rated firms. The high and low rated firms have a low level of leverage, while mid rated firms have a higher leverage ratio. The finding of the study have practical implications for the manager; they can have easier access to the financial market by just having a credit rating no matter high or low. Policymakers must stress upon the rating agencies to keep improving themselves as their rating severs as the measure to judge the creditworthiness of the firm by both the investors and management as well.

Capital Structure Following Chapter 11 Reorganizations

2004 ◽  
Author(s):  
Randall A. Heron ◽  
Kimberly Rodgers Cornaggia ◽  
Erik Lie
Keyword(s):  
Capital Structure

scholarly journals Institutional quality and the capital structure of microfinance institutions: the moderating role of board gender diversity

2021 ◽  
pp. 1-21
Author(s):  
Michael Adusei ◽  
Beatrice Sarpong-Danquah
Keyword(s):  
Capital Structure ◽  
Institutional Environment ◽  
Gender Diversity ◽  
Institutional Quality ◽  
Microfinance Institutions ◽  
Female Representation ◽  
Long Run ◽  
Board Gender Diversity ◽  
The Relationship

Abstract We test the effect of institutional quality on capital structure in the microfinance setting. In doing this, we rely on data from 532 microfinance institutions (MFIs) located in 73 countries dotted across the six microfinance regions in the world. We observe that institutional quality exhibits a robust negative and statistically significant relationship with capital structure in both the short and long run, implying that MFIs in countries with a better institutional environment are less likely to utilize more debt. Our moderation analysis furnishes us with evidence that the presence of women on the board of an MFI significantly moderates the relationship between institutional quality and its capital structure. We show that in the presence of more female representation on the boards of MFIs, the tendency of MFIs using less debt is higher.

Debt and International Organizations

2021 ◽  
Author(s):  
Pablo Nemiña ◽  
María Emilia Val
Keyword(s):  
International Political Economy ◽  
Bank Lending ◽  
Labor Rights ◽  
Development Bank ◽  
Financial Decisions ◽  
Early 21St Century ◽  
Long Run ◽  
Financial Interests ◽  
Negative Impacts ◽  
Political Spectrum

International financial organizations that lend to developing countries are the subject of controversy. Their functions, structures and effectiveness have generated important debates across disciplines, analysts and positions on the ideological-political spectrum. What interests and logic motivate the international financial institutions’ (IFIs) loans? Following an international political economy perspective and mainly based on the literature produced in the early 21st century, we analyze the role played by three variables: the geopolitical and financial interests of powerful global actors, institutional and bureaucratic logic, and the borrower’s interest and domestic policy. These three variables interact and influence the financial decisions made by the International Monetary Fund (IMF), the World Bank, and the major regional development banks (the Inter-American Development Bank [IADB], Asian Development Bank [AsDB], and African Development Bank [AfDB]). On the other hand, what are the main economic and political effects in the recipient countries? The IMF’s credit tackles balance-of-payments crises mainly through adjusting domestic output and consumption, which usually has negative social costs. Development bank lending has diverse effects. Although it tends to boost growth and strengthen domestic accountability, it does not always guarantee the attainment of development goals. In this sense, the literature has found negative impacts on labor rights and forestry, while improvements in health and education cannot always be sustained in the long run.

scholarly journals Key Fundamental Factors and Long-run Price Changes in an Emerging Market—A Case Study of Karachi Stock Exchange (KSE)

2002 ◽  
Vol 41 (4II) ◽  
pp. 517-533 ◽  
Author(s):  
Mohammad Irfan Chaudhary ◽  
Mohammed Nishat
Keyword(s):  
Capital Structure ◽  
Stock Exchange ◽  
Emerging Market ◽  
Share Price ◽  
Relevant Factor ◽  
Direct Relation ◽  
Price Changes ◽  
Important Indicator ◽  
Share Prices ◽  
Long Run

Share prices are the most important indicator readily available to the investors for their decision to invest or not in a particular share. Theories suggest that share price changes are associated with changes in fundamental variables which are relevant for share valuation like payout ratio, dividend yield, capital structure, earnings size of the firm and its growth, [Wilcox (1984); Rappoport (1986); Downs (1991)]. Linter (1956) linked dividend changes to earnings while Shapiro valuation model (1962) showed dividend streams discounted by the difference in discount rate and growth in dividend should be equal to share price. This predicts direct relation between pay out ratio and the price-earning multiple. Conversely it means that there is an inverse relation between pay out ratio and share price changes. Several eventbased studies established direct relation between share price changes and either earnings or dividend changes [Ball and Brown (1968); Baskin (1989)]. Sharpe (1964) and Hamada (1972) suggested direct relation between share price changes and capital structure. Beaver, Kettler and Sholes (1970) showed that firms appear to pay less of their earnings if they have higher earning volatility. This suggests payout ratio as relevant factor for share price changes. Investigations of share price changes appear to yield evidence that changes in fundamental variable(s) should jointly bring about changes in share prices both in developed and emerging markets. However, the actual fundamental factors found to be relevant may vary from market to market. For example, changes in asset growth of firms are significant in the case of Japanese shares while earnings appear to be universally a relevant factor [Ariff, et al. (1994)]. However, it is widely agreed that a set of fundamental variables as suggested by individual theories is no doubt relevant as possible factors affecting share price changes in the short and the long-run [Ariff and Khan (2000)].

The capital structure decision of Islamic and conventional banks: empirical evidence from Malaysia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Moncef Guizani ◽  
Ahdi Noomen Ajmi
Keyword(s):  
Capital Structure ◽  
Decision Criterion ◽  
Content Type ◽  
Leverage Ratio ◽  
Distributed Lag ◽  
Long Run ◽  
Short Run ◽  
Main Determinants ◽  
Conventional Banks ◽  
The Capital Structure

PurposeThe purpose of this paper is to investigate how Islamic banks (IBs) and conventional banks (CBs) in Malaysia choose their capital structure and what are the most significant factors that affect their decisions regarding their capital structure.Design/methodology/approachThis study applies the autoregressive distributed lag (ARDL) approach for a sample of 54 Banks listed on Malaysian stock market over the period 2010–2018.FindingsThe study findings show that the capital structure of IBs appears to be driven by similar factors to those previously found in the corporate finance literature. They also provide evidence of the existence of a long-run and short-run relationship between leverage and its main determinants for Islamic and CBs. However, the results show that various independent variables on the capital structure do exhibit different effects (in magnitude of the coefficient) among Islamic and CBs. Moreover, we find that IBs slowly adjust their capital structure toward the desired leverage ratio than CBs.Research limitations/implicationsThis research contributes to the theory in re-validating capital structure theories on IBs. It helps understand the capital structure of IBs in comparison with CBs. If in conventional finance, the standard presiding decisions of an economic agent is optimizing the risk-return ratio, this standard is not the only or the primary decision criterion in the Islamic finance context where spiritual and theological considerations are taken into consideration.Practical implicationsThis research can contribute to managers in understanding the choice of capital structure for IBs within the bound of Sharia requirement. Such an understanding provides managers with applied knowledge of determining their appropriate capital structure to compete locally and globally in which IBs operate.Originality/valueThis paper offers some insights on the determinants of capital structure by investigating Islamic and CBs. It explores the implication of relevant Islamic principles on capital structure. Moreover, it analyses the determinants of capital structure using ARDL method that permits to identify the short-run and long-run relationships between capital structure and its main determinants.

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