The impact of financial and economic crisis on leverage: the case of Icelandic private firms

2019 ◽  
Vol 16 (3) ◽  
pp. 297-315
Author(s):  
Twahir Khalfan ◽  
Stefan Wendt
Keyword(s):  
Financial Crisis ◽  
Capital Structure ◽  
Cash Flow ◽  
Fixed Effects ◽  
Generalized Method Of Moments ◽  
Private Firms ◽  
Data Set ◽  
Content Type ◽  
Crisis Period ◽  
The Impact

Purpose The purpose of this paper is to provide empirical insight into the impact of a financial crisis on capital structure of private firms. Specifically, the authors use the example of the systemic Icelandic financial crisis from 2008 to 2010 and analyze the influence of internally generated funds on leverage during the financial crisis compared to the non-crisis period. Design/methodology/approach The authors use a fixed-effects dynamic model to examine the impact of internally generated funds – measured as cash flow – with a data set that includes non-listed Icelandic firms. In addition, generalized method of moments is used to address potential endogeneity issues. Findings The authors find that internally generated funds have a different effect on capital structure during the financial crisis compared to the non-crisis period. While cash flow has an overall negative association with leverage, a positive relationship appears to exist during the crisis. However, when analyzing changes in cash flow from one year to the other, the sample firms appear to rely more on internally generated funds to adjust leverage during the financial crisis than in the non-crisis period. Originality/value Analyzing the extreme case of the Icelandic financial crisis allows us to shed light on capital structure effects in situations when both debt financing and internal financing opportunities are heavily curtailed.

Is leverage a substitute or outcome for governance? Evidence from financial crises

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hasan Tekin ◽  
Ali Yavuz Polat
Keyword(s):  
Financial Crisis ◽  
Capital Structure ◽  
Fixed Effects ◽  
East Asian ◽  
Fe Model ◽  
Governance Mechanism ◽  
Asian Countries ◽  
Content Type ◽  
Competing Hypotheses ◽  
The Impact

PurposeThe authors investigate the impact of governance on the leverage of East Asian firms in the financial crisis context, in order to understand the puzzle whether debt acts as a substitute for governance or an outcome of the governance mechanism.Design/methodology/approachThe authors use 86,030 firm-years and the country-level governance data from eight East Asian countries over the period 1996–2017. The authors employ the fixed effects (FE) model, in the main analysis and the weighted least squares model, as a robustness check in order to compare the two competing hypotheses of agency theory, substitute and outcome models.FindingsThe authors’ results show that debt acts as a substitute for governance before the GFC, but during and after the GFC the picture changes. Namely, debt acts as an outcome of the governance mechanism during the GFC and its aftermath. Since during financial downturns both agency costs increase, and information asymmetry widens, firms in poor-governed countries may be reluctant to increase their leverage in order not to face financial distress and additional restrictions. Thus, the results imply that the use of debt as a tool to mitigate agency conflicts and a substitute for governance strongly depends on the environment that the firms operate and the general macroeconomic conditions, such as facing a financial crisis or not.Research limitations/implicationsThis study provides an interesting case of the firms' capacity to raise money during a crisis and that governance plays an important role in borrowing activities of firms. This will undoubtedly help motivating owners and policymakers for improving governance. The authors’ findings may be useful for policymakers to develop policies considering the adverse effects caused by exogenous shocks. This is crucial because the severity of GFC as a shock seems to change the macro and institutional environment that firms operate. While the authors properly address the research hypotheses using country governance data, future research may employ corporate governance data to attain firm-level results by testing two competing hypotheses.Originality/valueThere are several important areas where this study makes original contributions. First, while Tsoy and Heshmati (2019) focus on the dynamics of capital structure for only Korean firms, the authors extend the sample including eight East Asian countries considering the impact of country governance on capital structure policy. Specifically, this study is the first in using the robust country governance data, which differs by country and year, in the crisis context. Next, the authors investigate both the AFC and GFC to compare whether these two crises have different effects on capital structure policy of East Asian firms. Finally, the authors aim to understand whether leverage is used as a substitute for governance or an outcome of governance mechanism considering recessions.

Corporate governance practices and capital structure decisions: the moderating effect of gender diversity

2020 ◽  
Vol 20 (5) ◽  
pp. 939-964
Author(s):  
Mohammad A.A Zaid ◽  
Man Wang ◽  
Sara T.F. Abuhijleh ◽  
Ayman Issa ◽  
Mohammed W.A. Saleh ◽  
...  
Keyword(s):  
Corporate Governance ◽  
Panel Data ◽  
Capital Structure ◽  
Generalized Method Of Moments ◽  
Gender Diversity ◽  
Business Environment ◽  
Board Structure ◽  
Content Type ◽  
Financing Decisions ◽  
The Impact

Purpose Motivated by the agency theory, this study aims to empirically examine the nexus between board attributes and a firm’s financing decisions of non-financial listed firms in Palestine and how the previous relationship is moderated and shaped by the level of gender diversity. Design/methodology/approach Multiple regression analysis on a panel data was used. Further, we applied three different approaches of static panel data “pooled OLS, fixed effect and random effect.” Fixed-effects estimator was selected as the optimal and most appropriate model. In addition, to control for the potential endogeneity problem and to profoundly analyze the study data, the authors perform the one-step system generalized method of moments (GMM) estimator. Dynamic panel GMM specification was superior in generating robust findings. Findings The findings clearly unveil that all explanatory variables in the study model have a significant influence on the firm’s financing decisions. Moreover, the results report that the impact of board size and board independence are more positive under conditions of a high level of gender diversity, whereas the influence of CEO duality on the firm’s leverage level turned from negative to positive. In a nutshell, gender diversity moderates the effect of board structure on a firm’s financing decisions. Research limitations/implications This study was restricted to one institutional context (Palestine); therefore, the results reflect the attributes of the Palestinian business environment. In this vein, it is possible to generate different findings in other countries, particularly in developed markets. Practical implications The findings of this study can draw responsible parties and policymakers’ attention in developing countries to introduce and contextualize new mechanisms that can lead to better monitoring process and help firms in attracting better resources and establishing an optimal capital structure. For instance, entities should mandate a minimum quota for the proportion of women incorporation in boardrooms. Originality/value This study provides empirical evidence on the moderating role of gender diversity on the effect of board structure on firm’s financing decisions, something that was predominantly neglected by the earlier studies and has not yet examined by ancestors. Thereby, to protrude nuanced understanding of this novel and unprecedented idea, this study thoroughly bridges this research gap and contributes practically and theoretically to the existing corporate governance–capital structure literature.

scholarly journals Credit composition and income inequality in Vietnam: an empirical analysis

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Le Quoc Hoi ◽  
Hương Lan Trần
Keyword(s):  
Income Inequality ◽  
Educational Level ◽  
Generalized Method Of Moments ◽  
Institutional Quality ◽  
Primary Data ◽  
Data Set ◽  
Content Type ◽  
Private Credit ◽  
The Impact

PurposeThis paper aims to examine the credit composition and income inequality reduction in Vietnam. In particular, the authors focus on the distinction between policy and commercial credits and investigate whether these two types of credit had adverse effects on income inequality. The authors also examine whether the impact of policy credit on income inequality is conditioned by the educational level and institutional quality.Design/methodology/approachThe authors use the primary data set, which contains a panel of 60 provinces collected from the General Statistics Office of Vietnam from 2002 to 2016. The authors employ the generalized method of moments to solve the endogenous problem.FindingsThe authors show that while commercial credit increases income inequality, policy credit contributes to reducing income inequality in Vietnam. In addition, we provide evidence that the institutional quality and educational level condition the impact of policy credit on income inequality. Based on the findings, the paper implies that it was not the size of the private credit but its composition that mattered in reducing income inequality, due to the asymmetric effects of different types of credit.Originality/valueThis is the first study that examines the links between the two components of credit and income inequality as well as constraints of the links. The authors argue that analyzing the separate effects of commercial and policy credits is more important for explaining the role of credit in income inequality than the size of total credit.

scholarly journals Revenue diversification and financial sustainability of microfinance institutions

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Peter Nderitu Githaiga
Keyword(s):  
Generalized Method Of Moments ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
Revenue Diversification ◽  
Estimation Model ◽  
Data Set ◽  
Content Type ◽  
Method Of Moments Estimation ◽  
The Impact ◽  
Positive Effect

PurposeThis paper aims to investigate whether revenue diversification affects the financial sustainability of microfinance institutions (MFIs).Design/methodology/approachThe study uses a worldwide panel data set of 443 MFIs in 108 countries for the period 2013–2018 and two-step system Generalized Method of Moments estimation model.FindingsThe study finds that revenue diversification has a significant and positive effect on the financial sustainability of MFIs.Practical implicationsThe findings of this study actually offer important managerial and policy lessons on MFIs’ financial sustainability. Microfinance managers and policymakers should consider revenue diversification as a strategy through which MFIs can attain financial sustainability instead of overreliance on donations and government subsidiesOriginality/valueUnlike previous studies that examined revenue diversification in the context of banking firms, this study contributes to literature by examining the impact of revenue diversification of the financial sustainability of MFIs.

scholarly journals The influence of firm, industry and concentrated ownership on dynamic capital structure decision in emerging market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Razali Haron ◽  
Naji Mansour Nomran ◽  
Anwar Hasan Abdullah Othman ◽  
Maizaitulaidawati Md Husin ◽  
Ashurov Sharofiddin
Keyword(s):  
Capital Structure ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Dynamic Environment ◽  
Order Theory ◽  
Ownership Concentration ◽  
Content Type ◽  
Dynamic Panel Model ◽  
The Impact ◽  
Dynamic Capital Structure

Purpose This study aims to evaluate the impact of firm, industry level determinants and ownership concentration on the dynamic capital structure decision in Indonesia and analyses the governing theories. Design/methodology/approach This study uses the dynamic panel model of generalized method of moments-System (one-step and two-step) by using a panel data from 2000 to 2014 to examine the relationship between the determinants and leverage. The results are robust to the various definitions of leverage, heterogeneity, autocorrelation, multicollinearity and endogeneity concern. Findings Growing firms and firms operating in a highly concentrated industry use high level of debt, taking advantage of the tax shield (trade-off theory). However, if the firms are operating in a highly dynamic environment, they take on less debt as to avoid bankruptcy risk. Firms in Indonesia opt for debt financing perhaps to act as a controlling mechanism to mitigate agency conflicts that may exist between the large controlling shareholders and the minority. Aged and highly profitable firms with high tangible and intangible assets and liquidity level operating in a high dynamic environment follow the pecking order theory. Research limitations/implications This study does not perform each industry regression individually. All the industries are pooled together, as the main focus of this study is to examine the factors affecting leverage of firms in general without giving particular attention to individual industry. Originality/value The insights on the impact of ownership concentration and industry characteristics are novel especially on Indonesia, thus fill the gap in the literature.

Corporate cash flow and dividends smoothing: a panel data analysis at Bursa Malaysia

2015 ◽  
Vol 13 (1) ◽  
pp. 2-19 ◽  
Author(s):  
Apedzan Emmanuel Kighir ◽  
Normah Haji Omar ◽  
Norhayati Mohamed
Keyword(s):  
Panel Data ◽  
Cash Flow ◽  
Panel Data Analysis ◽  
Generalized Method Of Moments ◽  
Cash Flows ◽  
Payout Policy ◽  
Free Cash Flow ◽  
Content Type ◽  
Financial Firms ◽  
The Impact

Purpose – The purpose of this paper is to contribute to the debate and find out the impact of cash flow on changes in dividend payout decisions among non-financial firms quoted at Bursa Malaysia as compared to earnings. There has been renewed debate in recent finance and accounting literature concerning the key determinants of changes in dividends payout policy decisions in some jurisdictions. The conclusion in some is that firms base their dividend decisions on cash flows rather than published earnings. Design/methodology/approach – The research made use of panel data from 1999 to 2012 at Bursa Malaysia, using generalized method of moments as the main method of analysis. Findings – The research finds that Malaysia non-financial firms consider current earnings more important than current cash flow while making dividends payout decisions, and prior year cash flows are considered more important in dividends decisions than prior year earnings. We also found support for Jensen (1986) in Malaysia on agency theory, that managers of firms pay dividends from free cash flow to reduce agency conflicts. Practical implications – The research concludes that Malaysian non-financial firms use current earnings and less of current cash flow in making changes in dividends policy. The policy implication is that current earnings are dividends smoothing agents, and the more they are considered in dividends payout decisions, the less of dividends smoothing. Social implications – If dividends smoothing is encouraged, it could lead to dividends-based earnings management. Originality/value – The research is our novel contribution of assisting investors and government in making informed decisions regarding dividends policy in Malaysia.

The role of national culture in the impact of board gender diversity on firm performance: evidence from a multi-country study

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Navaz Naghavi ◽  
Saeed Pahlevan Sharif ◽  
Hafezali Bin Iqbal Hussain
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Generalized Method Of Moments ◽  
Gender Diversity ◽  
Governance Structure ◽  
Corporate Governance Structure ◽  
Data Set ◽  
Content Type ◽  
Board Gender Diversity ◽  
The Impact

PurposeThis study seeks to add more insights to the debate on “whether”, “how”, and “under which condition” women representation on the board contributes to firm performance. More specifically, the current study aims to investigate if the effect of board gender diversity on firm performance is dependent on macro factors of national cultures.Design/methodology/approachThe authors used the generalized method of moments regression and a data set consists of 2,550 company year observations over 10 years.FindingsThe results indicated that cultural variables interact with board diversity to influence firm performance. Having women on the board in countries with high power distance, individualist, masculine and low-uncertainty avoidance culture influences the firm performance negatively.Originality/valueThe findings indicate that the effects of corporate governance structure on firm performance depends on culture-specific factors, providing support for the argument that institutional norms that are governed by cultural norms affect the effectiveness of corporate governance structure.

Financial development, human capital and its impact on economic growth of emerging countries

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Aaqib Sarwar ◽  
Muhammad Asif Khan ◽  
Zahid Sarwar ◽  
Wajid Khan
Keyword(s):  
Economic Growth ◽  
Human Capital ◽  
Financial Development ◽  
Emerging Economies ◽  
Generalized Method Of Moments ◽  
Emerging Countries ◽  
Data Set ◽  
Content Type ◽  
The World ◽  
The Impact

Purpose This paper aims to investigate the critical aspect of financial development, human capital and their interactive term on economic growth from the perspective of emerging economies. Design/methodology/approach Data set ranged from 2002 to 2017 of 83 emerging countries used in this research and collected from world development indicators of the World Bank. The two-step system generalized method of moments is used to conduct this research within the endogenous growth model while controlling time and country-specific effects. Findings The findings of the study indicate that financial development has a positive and significant effect on economic growth. In emerging countries, human capital also has a positive impact on economic growth. Financial development and human capital interactively affect economic growth for emerging economies positively and significantly. Research limitations/implications The data set is limited to 83 emerging countries of the world. The time period for the study is 2002 to 2017. Originality/value This research contributes to the existing literature on human capital, financial development and economic growth. Limited research has been conducted on the impact of financial development and human capital on economic growth.

Firm-level agreements, employment strategies and temporary workers

2020 ◽  
Vol 42 (1) ◽  
pp. 194-212
Author(s):  
Saverio Minardi
Keyword(s):  
Fixed Effects ◽  
Selection Process ◽  
Temporary Employment ◽  
Least Square ◽  
Temporary Workers ◽  
Firm Level ◽  
Data Set ◽  
Content Type ◽  
Collective Agreements ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of two-tier firm-level collective agreements on firms’ propensity to use temporary employment, accounting for the process of self-selection of firms into different bargaining levels in the Italian context. It further examines which firm-level characteristics drive this process of selection. Design/methodology/approach The empirical analysis uses a panel data set of Italian firms for the years 2005, 2007, 2010 and 2015. Estimations are produced and compared through ordinary least square regression, random-effects and fixed-effects models. Findings Results show that enterprises adopting two-tier firm-level agreements (TTFA) are associated with lower levels of temporary workers. However, a longitudinal analysis suggests that introducing a TTFA does not impact firms’ propensity to employ temporary workers. This novel finding highlights the presence of a selection process based on firm-level time-constant characteristics. The paper argues that these characteristics refer to management orientation toward high-road rather than low-road employment strategies. Further evidence is brought in support of this claim, showing that firms’ propensity toward the provision of training for their labor force partially explain the process of selection. Originality/value The study is the first to analyze the impact of secondary-level collective agreements on firms’ reliance on temporary employment, offering new evidence on the causes of the expansion of temporary employment. It further highlights the relevance of employers’ strategies in shaping the impact of the bargaining structure.

Can BRICS and ASEAN-5 emerging economies benefit from bank diversification?

2019 ◽  
Vol 27 (1) ◽  
pp. 43-69 ◽  
Author(s):  
Syed Moudud-Ul-Huq
Keyword(s):  
Risk Taking ◽  
Generalized Method Of Moments ◽  
The Other ◽  
Set Covering ◽  
Diversification Strategy ◽  
Data Set ◽  
Content Type ◽  
Diversification Benefit ◽  
The Impact ◽  
The Relationship

Purpose This paper aims to empirically investigate the impact of bank diversification on performance and risk-taking behavior. The analysis uses an unbalanced panel data set covering the period between 2007 and 2015 for a total of 1,397 banks from ASEAN-5 and BRICS economies. Design/methodology/approach Dynamic panel generalized method of moments (GMM) has been used primarily to examine the relationship between bank diversification on performance and risk-taking and later, validate the core results by incorporating two-stage least squares (2SLS). Findings Similar to the results of previous studies based on the developed economy, this study also confirms the hypothesis of the portfolio diversification. The key robust result is that the benefits from revenue and assets diversification are heterogeneous and the BRICS banks achieve higher benefit from using both diversification strategies. On the other hand, ASEAN-5 banks fail to show the significant advantage from assets diversification. Among the diverse sources of income, interest is not a major determinant of efficiency and bank’s stability, while ASEAN-5 banks should foster commission and others income as mechanisms for diversification benefit in the region. Originality/value A few studies are available in the current literature which examines the impact of revenue and assets diversification on either bank performance or risk-taking in the developed economy’s context. However, very few studies are found that examine the relationship between bank diversification, performance and risk-taking together. Moreover, to the best of the author’s knowledge, there is a dearth of literature on this topic that built on the comparative analysis between two regions, i.e. ASEAN-5 and BRICS. As a result, the empirical results of this research provide useful information to the stakeholders so that they can enhance bank diversification strategy and implement them successfully by considering the other factors.

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