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.

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.

scholarly journals Antecedents of voluntary corporate governance disclosure: a post-2007/08 financial crisis evidence from the influential UK Combined Code

2016 ◽  
Vol 16 (3) ◽  
pp. 507-538 ◽  
Author(s):  
Mohamed H. Elmagrhi ◽  
Collins G. Ntim ◽  
Yan Wang
Keyword(s):  
Corporate Governance ◽  
Financial Crisis ◽  
Fixed Effects ◽  
Global Financial Crisis ◽  
Theoretical Perspective ◽  
Data Sets ◽  
Outside Directors ◽  
Content Type ◽  
Listed Firms ◽  
The Impact

Purpose The purpose of this study is to investigate the level of compliance with, and disclosure of, good corporate governance (CG) practices among UK publicly listed firms and consequently ascertain whether board characteristics and ownership structure variables can explain observable differences in the extent of voluntary CG compliance and disclosure practices. Design/methodology/approach This study uses one of the largest data sets to-date on compliance and disclosure of CG practices from 2008 to 2013 containing 120 CG provisions drawn from the 2010 UK Combined Code relating to 100 UK listed firms to conduct multiple regression analyses of the determinants of voluntary CG disclosures. A number of additional estimations, including two stage least squares, fixed-effects and lagged structures, are conducted to address the potential endogeneity issue and test the robustness of the findings. Findings The results suggest that there is a substantial variation in the levels of compliance with, and disclosure of, good CG practices among the sampled UK firms. The authors also find that firms with larger board size, more independent outside directors and greater director diversity tend to disclose more CG information voluntarily, whereas the level of voluntary CG compliance and disclosure is insignificantly related to the existence of a separate CG committee and institutional ownership. Additionally, the results indicate that block ownership and managerial ownership negatively affect voluntary CG compliance and disclosure practices. The findings are fairly robust across a number of econometric models that sufficiently address various endogeneity problems and alternative CG indices. Overall, the findings are generally consistent with the predictions of neo-institutional theory. Originality/value This study extends, as well as contributes to, the extant CG literature by offering new evidence on compliance with, and disclosure of, good CG recommendations contained in the 2010 UK Combined Code following the 2007/2008 global financial crisis. This study also advances the existing literature by offering new insights from a neo-institutional theoretical perspective of the impact of board and ownership mechanisms on voluntary CG compliance and disclosure practices.

Accounting conservatism, capital structure, and global diversification

2015 ◽  
Vol 27 (1) ◽  
pp. 119-138 ◽  
Author(s):  
Feras M Salama ◽  
Karl Putnam
Keyword(s):  
Capital Structure ◽  
Financial Reporting ◽  
Fixed Effects ◽  
Reporting Quality ◽  
Accounting Conservatism ◽  
Fixed Effects Model ◽  
Financial Leverage ◽  
Content Type ◽  
The Impact ◽  
Global Diversification

Purpose – The purpose of this paper is to investigate the effect of accounting conservatism (as a proxy for financial reporting quality) on the degree of financial leverage. In addition, this paper examines the impact of global diversification (as a proxy for operational complexity) on the relationship between conservatism and financial leverage. Design/methodology/approach – A panel data regression analysis is conducted for the period 2000-2006. The authors utilized a two-way fixed-effects model to control for unobservable firm characteristics and time effects that may influence the firm’s decision to report conservatively. Findings – This paper provides empirical evidence that conservatism is positively associated with the degree of financial leverage, and the influence of conservatism on financial leverage is enhanced by the degree of global diversification. Originality/value – A major issue in corporate finance is the identification of variables that influence corporate capital structure choices. The evidence presented in this paper reveals that more conservative financial reporting is associated with a higher degree of financial leverage in the firm’s capital structure. This effect increases with the extent of global diversification, indicating that bondholders place a higher value on conservatism when there is more information asymmetry between stakeholders and managers caused by global diversification.

The effects of the global financial crisis on the capital structure of EPRA/NAREIT Europe index companies

2015 ◽  
Vol 8 (1) ◽  
pp. 3-23 ◽  
Author(s):  
Giacomo Morri ◽  
Andrea Artegiani
Keyword(s):  
Financial Crisis ◽  
Real Estate ◽  
Capital Structure ◽  
Global Financial Crisis ◽  
Pecking Order ◽  
Trade Off ◽  
Content Type ◽  
The Global Financial Crisis ◽  
The Impact ◽  
The Capital Structure

Purpose – The purpose of this paper is to test whether the financial crisis has affected the capital structure of real estate companies in Europe and whether these impacts can be studied utilizing the variables traditionally used by the trade-off and pecking-order theories to explain the capital structure of companies. Design/methodology/approach – The study uses a fixed-effect panel regression analysis and a sample composed of companies included in the EPRA/NAREIT Europe Index. The effect of the financial crisis has been accounted for within the model by means of a dummy variable. Findings – The global financial crisis did have an impact on the capital structure of companies and the main variables traditionally used by the trade-off and pecking order theories proved to be suitable in explaining the capital structure of real estate companies. Real estate investment trusts are, on average, more leveraged than traditional real estate companies due to their special regulatory status. Research limitations/implications – The study is limited to the European market and UK companies in particular account for a large part of the sample. In addition, major regulatory differences between the various European countries are not taken into account in the model. Originality/value – Similar studies have been performed for the US and Australian market. However, the impact of the global financial crisis has not been traditionally considered in these studies.

scholarly journals Urbanicity and nutrition: evidence from rural–urban migrants in China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Qian Sun ◽  
Xiaoyun Li ◽  
Dil Bahadur Rahut
Keyword(s):  
Energy Intake ◽  
Fixed Effects ◽  
Dietary Diversity ◽  
Urban Environments ◽  
Fe Model ◽  
Nutrition Survey ◽  
Content Type ◽  
Urban Migrants ◽  
The Individual ◽  
The Impact

PurposeThe purpose of this paper is to examine the impact of urbanicity on rural–urban migrants' dietary diversity and nutrition intake and whether its effect differs across various urban environments of migrants.Design/methodology/approachUsing the individual- and time-invariant fixed effects (two-way FE) model and five-year panel data from the China Health and Nutrition Survey (CHNS), this paper estimates a linear and nonlinear relationship between urbanicity and nutrition. The paper also explores the spatial heterogeneity between rural–urban migrants and rural–suburban migrants. Dietary diversity, total energy intake and the shares of energy obtained from protein and fat, respectively, are used to measure rural–urban migrants' nutrition on both quality and quantity aspects.FindingsThe study shows that rural–urban migrants have experienced access to more diverse, convenient and prepared foods, and the food variety consumed is positively associated with community urbanicity. Energy intake is positively and significantly affected by community urbanicity, and it also varies with per capita household income. The obvious inverse U-shaped relationship reveals that improving community urbanicity promotes an increase in the shares of energy obtained from protein and fat at a decreasing rate, until reaching the urbanicity index threshold of 66.69 and 54.26, respectively.Originality/valueThis paper focuses on the nutritional status of rural–urban migrants, an important pillar for China's development, which is often neglected in the research. It examines the urbanicity and the nutrition of migrants in China, which provides a new perspective to understand the dietary and nutritional intake among migrants in the economic and social development. Moreover, the urbanicity index performs better at measuring urban feathers rather than the traditional rural/urban dichotomous classification.

scholarly journals Do corporate governance and ownership structure impact dividend policy in emerging market during financial crisis?

2017 ◽  
Vol 18 (3) ◽  
pp. 274-297 ◽  
Author(s):  
Mili Mehdi ◽  
Jean-Michel Sahut ◽  
Frédéric Teulon
Keyword(s):  
Corporate Governance ◽  
Financial Crisis ◽  
Ownership Structure ◽  
Dividend Policy ◽  
East Asian ◽  
Emerging Countries ◽  
Ownership Concentration ◽  
Ceo Duality ◽  
Content Type ◽  
The Impact

Purpose The purpose of this paper is to study the impact of the ownership structure and board governance on dividend policy in emerging markets. The authors test whether the effects of corporate governance on dividend policy change during crisis periods. Design/methodology/approach The authors use a panel regression approach on a sample of 362 non-financial listed firms from East Asian and Gulf Cooperation Council countries. Findings The results provide evidence that dividend payout decision increases with institutional ownership and board activity. The authors find that in emerging countries, dividend policy of firms with CEO duality and without CEO duality does not depend on the same set of factors. It is shown that the ownership concentration and board independency affect significantly the dividend policy of firms with COE duality. Finally, the results show that during the recent financial crisis, dividend decision is inversely related to CEO duality, board size and the frequency of board meetings. Research limitations/implications Other variables of corporate governance and ownership structure can be studied more in depth. The results can be directly compared to an alternative sample of developed countries. Practical implications This study is of particular interest for managers and shareholders when adjusting their strategies of dividend payout during financial crisis. Originality/value The authors employ a specific approach to investigate the impact of CEO duality on dividend policy in East Asian countries. An important aspect of the results is that that for firms with CEO who is also the chairperson, the dividend decision is negatively related to ownership concentration and board independence. This research contributes to the understanding of dividend policy by testing whether the impact of corporate governance on dividend policy changes during crisis periods in emerging countries. To the best of the authors’ knowledge, this work is the first to directly address this issue from this perspective.

scholarly journals Trustee board diversity, governance mechanisms, capital structure and performance in UK charities

2018 ◽  
Vol 18 (3) ◽  
pp. 478-508 ◽  
Author(s):  
Mohamed H. Elmagrhi ◽  
Collins G. Ntim ◽  
John Malagila ◽  
Samuel Fosu ◽  
Abongeh A. Tunyi
Keyword(s):  
Capital Structure ◽  
Least Squares ◽  
Fixed Effects ◽  
Ordinary Least Squares ◽  
Moderating Effect ◽  
Board Diversity ◽  
Content Type ◽  
The Impact ◽  
New Evidence ◽  
The Relationship

PurposeThis paper aims to investigate the association among trustee board diversity (TBD), corporate governance (CG), capital structure (CS) and financial performance (FP) by using a sample of UK charities. Specifically, the authors investigate the effect of TBD on CS and ascertain whether CG quality moderates the TBD–CS nexus. Additionally, the authors examine the impact of CS on FP and ascertain whether the CS–FP nexus is moderated by TBD and CG quality.Design/methodology/approachThe authors use a number of multivariate regression techniques, including ordinary least squares, fixed-effects, lagged-effects and two-stage least squares, to rigorously analyse the data and test the hypotheses.FindingsFirst, the authors find that trustee board gender diversity has a negative effect on CS, but this relationship holds only up to the point of having three women trustees. The authors find similar, but relatively weak, results for the presence of black, Asian and minority ethnic (BAME) trustees. Second, the authors find that the TBD–CS nexus depends on the quality of CG, with the relationship being stronger in charities with higher frequency of meetings, independent CG committee and larger trustee and audit firm size. Third, the authors find that CS structure has a positive effect on FP, but this is moderated by TBD and CG quality. The evidence is robust to different econometric models that adjust for alternative measures and endogeneities. The authors interpret the findings within explanations of a theoretical perspective that captures insights from different CG and CS theories.Originality/valueExisting studies that explore TBD, CG, CS and FP in charities are rare. This study distinctively attempts to address this empirical lacuna within the extant literature by providing four new insights with specific focus on UK charities. First, the authors provide new evidence on the relationship between TBD and CS. Second, the authors offer new evidence on the moderating effect of CG on the TBD-CS nexus. Third, the authors provide new evidence on the effect of CS on FP. Finally, the authors offer new evidence on the moderating effect of TBD and CG on the CS–FP nexus.

Capital structure of family firms: the effect of debt and equity market timing

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mushtaq Muhammad ◽  
Chu Ei Yet ◽  
Muhammad Tahir ◽  
Abdul Majid Nasir
Keyword(s):  
Financial Crisis ◽  
Capital Structure ◽  
South Asian ◽  
Family Firms ◽  
Market Timing ◽  
Content Type ◽  
The Family ◽  
Debt Market ◽  
The Impact ◽  
The Capital Structure

PurposeThis study aims to investigate how the timing behavior affects the capital structure decisions of South Asian family firms. A strand of literature is available based on the capital structure of firms in general but inconsistent with family businesses framework and not from market timing outlook. This study looks at the issues from the market timing perspectives of both equity and debt market timing.Design/methodology/approachThe sample of the study is the listed family firms of India, Pakistan and Bangladesh. The firm-level data are collected from Thomson Reuters' DataStream and the ownership data collected from the countries' stock exchanges and financial statements of the family firms.FindingsThe results show that there is strong support for the market timing in the family firms' capital structure. Moreover, the financial crisis of 2007–2009 surprisingly had a positive effect on the capital structure of South Asian family business.Originality/valueThis study looks at the issues from the market timing perspectives of both equity and debt market timing. It provides evidence for supporting the equity and debt market timing effect on the capital structure and financing decision of family firms. It also addresses the impact of the 2007–2009 financial crisis on the capital structure of family firms.

scholarly journals Relevance of corporate boards in driving performance in the period that covers financial crisis

2019 ◽  
Vol 19 (2) ◽  
pp. 321-338 ◽  
Author(s):  
Geeta Rani Duppati ◽  
Frank Scrimgeour ◽  
Albert Sune
Keyword(s):  
Financial Crisis ◽  
Fixed Effects ◽  
Global Financial Crisis ◽  
Gender Diversity ◽  
Negative Relationship ◽  
Board Size ◽  
Content Type ◽  
Positive Effects ◽  
And Performance ◽  
The Impact

Purpose This paper aims to examine the relevance of boards in driving firm level performance. For this purpose, it considers firms listed on Ireland and Spain stock exchanges for the period 2005 to 2014, over a period that includes the global financial crisis. Design/methodology/approach This study uses panel data regression analysis to analyse the effects of board characteristics on performance and also uses alternate model specifications to test the significance of robustness of relationships. Findings The impact of board size on performance is negative and significant for Irish and Spanish firms for the study period. In general, the board independence has a positive effect on the performance of Spanish firms for the complete study period and suggests consistency with the resource dependency theory. Research limitations/implications The analysis suggests that in general, the non-executive and the board size do not affect the corporate performance of Irish and Spanish firms during the financial crisis. The fixed effects model suggests positive effects of gender diversity on performance for Spanish firms, while the random effects indicates negative relationship between gender diversity and performance for Irish companies. Practical implications The evidence on the Spanish firms suggests that female representation on the boards may be critical during the financial crisis Social implications The quota legislation on female board representation in Spain is yielding superior results over the soft law approach by Irish firms during the times of financial crisis period. Originality/value This study contributes to the literature on the corporate governance practices and performance of two countries that were strongly affected by the crisis in the European Union. As governments increasingly contemplate board gender diversity policies, this study offers useful empirical insights on Spanish and Irish firms.

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