Do group affiliated firms specialize in debt? Evidence from Pakistan

2016 ◽  
Vol 32 (1) ◽  
pp. 46-62 ◽  
Author(s):  
Qamar Uz Zaman Malik ◽  
Talat Afza
Keyword(s):  
Market Imperfections ◽  
Group Affiliation ◽  
Debt Structure ◽  
Content Type ◽  
Corporate Groups ◽  
Loan Guarantee ◽  
Cluster Threshold ◽  
Debt Market ◽  
Financing Strategy ◽  
Internal Debt

Purpose – The purpose of this paper is to examine the debt structure of group affiliated firms in Pakistan for the period of 2009-2011. The study seeks to know the level of debt specialization in group affiliated firms. If they do; then how are they different from stand-alone firms? Design/methodology/approach – The study primarily uses Herfindahl-Hirschman Index and Excl90 as measures of debt specialization, which are further used in cluster, threshold and conditional analysis. Corporate groups are characterized to subsidize their affiliates through internal debt market and loan guarantee. Logistic regression model is used to analyze association among the measures of debt specialization and firm-specific characteristics for group affiliated and stand-alone firms. Findings – The results show that about 85 percent firms use more than 50 percent of debt from one debt type. However, group affiliated firms are more inclined toward debt specialization than stand-alone firms. Tangibility and book leverage are negatively and significantly associated to the measures of debt specialization. Moreover, internal debt market and loan guarantee are suggestive reasons of debt specialization in group affiliated firms. Practical implications – This study highlights the issue of group affiliation and its significance on firm’s debt structure. It has implications for determination of the optimal financing strategy. In the context of emerging economies, group affiliated firms can create market imperfections as a protection shield. In case of emerging markets, it is recommended to strengthen regulatory mechanism to avoid such market imperfections. Originality/value – Prior studies have explored the phenomenon of debt specialization for rated and unrated firms. However, firm group affiliation is widely studied in the context of capital structure. This is a pioneer study to establish and analyze a link between firm group affiliation and debt specialization.

How do group affiliates benefit from dual legitimacy to acquire resources in emerging economies? Evidence from China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Xiaoyong Zheng
Keyword(s):  
Emerging Economies ◽  
Structural Equation ◽  
Environmental Uncertainty ◽  
Resource Acquisition ◽  
Equation Modeling ◽  
Hierarchical Regression ◽  
Group Affiliation ◽  
Content Type ◽  
Environmental Munificence ◽  
New Interpretation

Purpose This paper aims to examine the relationships between the group affiliates’ dual legitimacy (membership legitimacy and societal legitimacy) and dual resource acquisition (intra-group and out-group), and the moderating roles of environmental uncertainty and munificence in the emerging economies. Design/methodology/approach This paper adopts hierarchical regression analysis to test the hypotheses based on the unique data of 251 group affiliated firms in China and applies the alternative measurements and alternative methodology of structural equation modeling into robustness check to confirm the results. Findings The results show as follows: the group affiliates can benefit from membership legitimacy for intra-group resource acquisition and out-group resource acquisition through the mediations of societal legitimacy and intra-group resource acquisition. However, in the linkage between affiliates’ membership legitimacy and intra-group resource acquisition and the linkage between societal legitimacy and out-group resource acquisition, environmental uncertainty plays the positive moderating roles while environmental munificence plays the negative moderating roles. Under the condition of high environmental uncertainty and low environmental munificence, the linkage between membership legitimacy and intra-group resource acquisition, and the linkage between societal legitimacy and out-group resource acquisition reach the strongest level. Research limitations/implications The findings highlight the importance of dual legitimacy building for group affiliates to acquire resources both inside and outside the business group when they operate in emerging economies characterized by high environmental uncertainty and low environmental munificence. However, it does not explore the contextual factors (e.g. institutional distance) affecting the relationship between the affiliate’s membership legitimacy and societal legitimacy. Then more group-level factors are expected to be included and explored with multi-level models in the future studies. Originality/value The findings reveal the mechanism of how group affiliates benefiting differently from dual legitimacy to acquire resources in the emerging economies, which also provide a new interpretation for the questions of who benefiting more from the group affiliation, how and why (Carney et al., 2009). This research also explores the moderating roles of task environmental characteristics (environmental uncertainty and environmental munificence) on the affiliate's dual legitimacy and dual resource acquisition, which helps understand why legitimacy building is more important in terms of resource acquisition in the emerging economy characterized by uncertainty and non-munificence.

Labor lawsuits and debt maturity

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Omer Unsal
Keyword(s):  
Chief Executive ◽  
Debt Maturity ◽  
Employee Relations ◽  
Short Term ◽  
Content Type ◽  
Negative Effect ◽  
Debt Market ◽  
Legal Fees

Purpose This paper aims to investigate how firms’ relationships with employees define their debt maturity. The authors empirically test the role of employee litigations in influencing firms’ choice of short-term versus long-term debt. The authors study employee relations by analyzing the importance of the workplace environment on capital structure. Design/methodology/approach The author’s test hypotheses using a sample of US publicly traded firms between 2000 and 2017, including 3,056 unique firms with 4,256 unique chief executive officer, adopting the fixed effect panel model. Findings The authors document that employee litigations have a significant negative effect on the use of short-term debt and a significant positive affect on long-term debt. Employee litigations, along with legal fees, outcomes and charging parties, matter the most in explaining debt maturity. In addition, frequently sued firms abandon the short-term debt market and use less shareholders’ equity to finance their operations while relying more on the longer debt market. Originality/value To the best of the authors’ knowledge, this is the first study to examine the role of employee mistreatment in debt maturity choice. The study extends the lawsuit and finance literature by examining unique, hand-collected data sets of employee lawsuits, allegations, violations, settlements, charging parties, case outcomes and case durations.

scholarly journals Phylogenetic structure of Shiga toxin-producing Escherichia coli O157:H7 from sub-lineage to SNPs

2021 ◽  
Author(s):  
Timothy J. Dallman ◽  
David R. Greig ◽  
Saheer E. Gharbia ◽  
Claire Jenkins
Keyword(s):  
Escherichia Coli ◽  
Shiga Toxin ◽  
Sequence Similarity ◽  
Evidence Base ◽  
Point Sources ◽  
Single Linkage ◽  
Phylogenetic Structure ◽  
Content Type ◽  
Geographically Dispersed ◽  
Cluster Threshold

Sequence similarity of pathogen genomes can infer the relatedness between isolates as the fewer genetic differences identified between pairs of isolates, the less time since divergence from a common ancestor. Clustering based on hierarchical single linkage clustering of pairwise SNP distances has been employed to detect and investigate outbreaks. Here, we evaluated the evidence-base for the interpretation of phylogenetic clusters of Shiga toxin-producing Escherichia coli (STEC) O157:H7. Whole genome sequences of 1193 isolates of STEC O157:H7 submitted to Public Health England between July 2015 and December 2016 were mapped to the Sakai reference strain. Hierarchical single linkage clustering was performed on the pairwise SNP difference between all isolates at descending distance thresholds. Cases with known epidemiological links fell within 5-SNP single linkage clusters. Five-SNP single linkage community clusters where an epidemiological link was not identified were more likely to be temporally and/or geographically related than sporadic cases. Ten-SNP single linkage clusters occurred infrequently and were challenging to investigate as cases were few, and temporally and/or geographically dispersed. A single linkage cluster threshold of 5-SNPs has utility for the detection of outbreaks linked to both persistent and point sources. Deeper phylogenetic analysis revealed that the distinction between domestic UK and imported isolates could be inferred at the sub-lineage level. Cases associated with domestically acquired infection that fall within clusters that are predominantly travel associated are likely to be caused by contaminated imported food.

Corporate social responsibility, business group affiliation and shareholder wealth: evidence from an emerging market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Eswaran Velayutham ◽  
Vijayakumaran Ratnam
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Emerging Market ◽  
Business Group ◽  
Shareholder Wealth ◽  
Group Affiliation ◽  
Content Type ◽  
Business Group Affiliation ◽  
Corporate Social ◽  
The Relationship

Purpose This paper aims to examine the relationship between corporate social responsibility (CSR) and shareholder wealth arising from announcement returns of security issuance from a frontier market. It also explores the role of business group affiliation (BGA) on this relationship. Design/methodology/approach The study uses short-term scenarios to examine the link between CSR and shareholder wealth using the event study methodology which helps us mitigate the reverse causality problems related to studies of the relationship between CSR and firm value. Abnormal returns surrounding the security issue announcements were generated using the market model. Findings This paper finds that security issuers with high CSR scores are associated with higher shareholder value. However, this paper finds that CSR activities of security issuers with BGA are value-destroying which is consistent with the agency perspective of CSR. Research limitations/implications This study is limited to only one nascent market, namely the Colombo Stock Exchange. Originality/value This study documents that CSR and BGA are important determinants, among others, of stock price reactions to security offerings in emerging markets.

Does opening high-speed railways affect the cost of debt financing? A quasi-natural experiment

2020 ◽  
Vol 10 (4) ◽  
pp. 473-496
Author(s):  
Hongling Guo ◽  
Keping Wu
Keyword(s):  
High Speed ◽  
Geographical Location ◽  
Debt Financing ◽  
Cost Of Debt ◽  
High Speed Railway ◽  
Content Type ◽  
Financing Cost ◽  
Debt Market ◽  
The Cost ◽  
The Impact

PurposeThis study aims to investigate how opening high-speed railways affects the cost of debt financing based on China's background.Design/methodology/approachUsing panel data on Chinese listed firms from 2008 to 2017, this study constructs a quasi-natural experiment and adopts a difference-in-difference model with multiple time periods to empirically examine the relation between the high-speed railway openings and debt financing cost.FindingsOur results show that opening high-speed railways reduces the cost of debt financing, and this negative correlation is more significant in non-state firms, firms with weaker internal control, and firms that hire non-Big Four auditors. Besides, we explore the impact mechanisms and find that opening high-speed railways improves analyst attention, institutional investor participation, and information disclosure quality, which in turn lowers the cost of debt financing.Research limitations/implicationsThe results imply that the opening of high-speed railways helps to alleviate the information asymmetry and adverse selection between firms and creditors and ultimately reduces the cost of corporate debt financing.Practical implicationsThis paper can inform firms and stakeholders about the impact of opening high-speed railways on debt financing cost: it improves the information environment, reduces the geographical location restrictions of debt financing, ensures the reasonable pricing of corporate debt, and thus promotes the healthy and sound development of the debt market.Originality/valueThis paper provides theoretical support and empirical evidence for the impact of infrastructure construction on the information environment of the debt market in China, which enriches the research on the “high-speed railway economy.” In addition, as an exogenous event, the opening of high-speed railways instantly shortens the time distance between firms and external stakeholders, which gives us a natural environment to conduct empirical research, thus providing a new perspective for financial research on firms' geographical location.

Malaysian banking: is the current practice of ibrā’ (rebate) reflecting its true meaning?

2019 ◽  
Vol 11 (1) ◽  
pp. 22-30 ◽  
Author(s):  
Muhammad Shahrul Ifwat Ishak
Keyword(s):  
Interest Rates ◽  
Advisory Council ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Structured Interviews ◽  
Debt Structure ◽  
Content Type ◽  
Content Analysis Method ◽  
Original Concept

Purpose This paper aims to investigate the current regulation of ibrā’ (rebate) set by the Central Bank for the Islamic banks in Malaysia and how far its original concept has been compromised to make it adaptable to the modern financial system. Design/methodology/approach This study, with regard to practising ibrā’ in Islamic banking in Malaysia, is qualitative in nature, using semi-structured interviews carried out with two types of informant: members of either the National Sharīʿah Advisory Council (NSAC) or the Internal Sharīʿah Committee (SC). All data are analysed based on the content analysis method. Findings The findings reveal that while stipulating an ibrā’ clause makes practising ibrā’ stray from its original concept, it has successfully tackled the current problem. However, the long-term consequences should be a concern, particularly Islamic banking products, which have been significantly influenced by the conventional system, including interest rates and the debt structure, neither of which should be identified with Islamic banking. Research limitations/implications This study is limited because it focusses on the practice of ibrā’ in Malaysian Islamic banking. Moreover, data are collected from nine interviewees from NSAC and SC from different Islamic banks. Thus, the results cannot be generalised to other countries. Originality/value This paper provides a fresh discussion of ibrā’ from the perspective of regulators and the experience of practitioners in Malaysia, particularly in respect of aspects of Sharīʿah and current actual practice.

The impact of macroeconomic condition on investment-cash flow sensitivity of Indian firms

2019 ◽  
Vol 9 (1) ◽  
pp. 19-42
Author(s):  
Gaurav Gupta ◽  
Jitendra Mahakud
Keyword(s):  
Cash Flow ◽  
Economic Condition ◽  
Investment Decisions ◽  
Group Affiliation ◽  
Content Type ◽  
Flow Sensitivity ◽  
Macroeconomic Condition ◽  
Gdp Growth Rate ◽  
Cash Flow Sensitivity ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of the macroeconomic condition on investment-cash flow sensitivity (ICFS) of Indian firms and examine whether the effect of macroeconomic condition on ICFS depends on the size and group affiliation of the firm. Design/methodology/approach An empirical investigation is conducted using a dynamic panel data model or more specifically system generalized method of moments (GMM) estimation technique. Findings Empirical findings postulate that the availability of cash flow influences the investment decisions which depicts that Indian manufacturing firms are internally as well as externally financially constrained. This study finds that good economic condition (period of high GDP growth rate) reduces the ICFS, although this effect is stronger for small-sized and standalone firms than the large-sized and business group affiliated firms. The authors find that macroeconomic condition has a positive and significant effect on investment decisions. Research limitations/implications This study has considered only the non-financial sector. The future research could explore the effect of macroeconomic condition on ICFS might be affected by firm other characteristics such as firm age and firm capital structure. Social implications The government should provide loan on the low rate to the small-sized firms and standalone firms because it is very difficult for these firms to finance their investment during the bad economic condition (period of low high GDP growth rate). Originality/value This study contributes to the existing literature by analyzing the impact of the macroeconomic condition on ICFS as well as investment decisions of the Indian manufacturing firms, which is an unexplored issue from an emerging market perspective. To the best of my knowledge, this is a first-ever study which explores the effect of macroeconomic condition on investment decisions with respect to business group affiliation and firm size.

Valuing firm’s financial flexibility under default risk and bankruptcy costs: a WACC based approach

2019 ◽  
Vol 15 (5) ◽  
pp. 688-699
Author(s):  
Carlo Mari ◽  
Marcella Marra
Keyword(s):  
Capital Structure ◽  
Default Risk ◽  
Weighted Average ◽  
Debt Management ◽  
Costs And Benefits ◽  
Debt Structure ◽  
Financial Flexibility ◽  
Content Type ◽  
Bankruptcy Costs ◽  
Debt Capacity

PurposeThe purpose of this paper is to present a model to value leveraged firms in the presence of default risk and bankruptcy costs under a flexible firm’s debt structure.Design/methodology/approachThe authors assume that the total debt of the firm is a combination of two debt components. The first component is an active debt component which is assumed to be proportional to the firm’s value. The second one is a passive predetermined risk-free debt component. The combination of the two debt categories makes the firm’s capital structure more realistic and allows us to include flexibility into the firm’s debt structure management. The firm’s valuation is performed using the discounted cash flow technique based on the weighted average cost of capital (WACC) method.FindingsThe model can be used to define active debt management strategies that can induce the firm to deviate from its capital structure target in order to preserve debt capacity for future funding needs. The firm’s valuation is performed by using the WACC method and a closed form valuation formula is provided. Such a formula can be used to value costs and benefits of financial flexibility.Research limitations/implicationsThe proposed approach provides a good compromise between mathematical complexity and model capability of interpreting the various economic and financial aspects involved in the firm’s debt structure puzzle.Practical implicationsThis model offers a realistic approach to practical applications where real financing decisions are characterized by a simultaneous use of these two debt categories. By comparing costs and benefits deriving from using unused debt capacity for future funding needs, the model provides a quantitative support to investigate if financial flexibility can add value to firms.Originality/valueTo the authors knowledge, the approach the authors propose is the first attempt to build a valuation scheme that accounts for firm’s financial flexibility under default risky debt and bankruptcy costs. Including financial flexibility, this model fills an important gap in the literature on this topic.

Integrated reporting, financial reporting quality and cost of debt

2020 ◽  
Vol 28 (3) ◽  
pp. 517-534 ◽  
Author(s):  
Mohammad Badrul Muttakin ◽  
Dessalegn Mihret ◽  
Tesfaye Taddese Lemma ◽  
Arifur Khan
Keyword(s):  
Financial Reporting ◽  
Stock Exchange ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Cost Of Debt ◽  
Inverse Association ◽  
Integrated Reporting ◽  
Financial Reports ◽  
Content Type ◽  
Debt Market

Purpose Although proponents of integrated reporting (IR) advocate that this emerging practice has the potential to transform corporate reporting, the eventuation of this expectation would depend on the incentive IR provides to firms. This study aims to examine whether IR is associated with cost of debt and whether IR moderates the relationship between financial reporting quality and cost of debt. Design/methodology/approach Based on insights drawn from information asymmetry and agency theories, the authors develop models that link IR and financial reporting quality with a firm’s cost of debt. The authors analyze 847 firm-year observations drawn from non-financial firms traded on the Johannesburg Stock Exchange, for the period between 2009 and 2015. Findings The authors find that firms that provide integrated reports tend to have a lower cost of debt than those do not provide IR. The authors also find an inverse association between financial reporting quality and cost of debt, and that integrated reports accentuate this association. The findings suggest that the debt market perceives value in the information presented in integrated reports beyond what is furnished in financial reports. Originality/value To the best of the authors’ knowledge, this study is the first to document evidence suggesting that the debt market perceives value in the information presented in integrated reports, beyond what is furnished in financial reports.

Price premium of private placement: evidence from India

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Supriya Katti ◽  
Naval Verma ◽  
B.V. Phani ◽  
Chinmoy Ghosh
Keyword(s):  
Emerging Market ◽  
Least Square ◽  
Price Premium ◽  
Group Affiliation ◽  
Data Set ◽  
Content Type ◽  
Equity Issues ◽  
Private Placement ◽  
Ordinary Least Square Regression ◽  
Binary Probit

PurposeThis study identifies the factors responsible for obtaining price premium on privately placed equity in a developing market.Design/methodology/approachWe examine a unique data set of a special case of private placement of equity, Qualified Institutional Placement (QIP) in India purchased at a premium. The study analyzed 188 equity issues offered between September 2006 and December 2014. On average, we find that QIP issues received a price premium of 4.38%. The study employed binary probit and ordinary least square regression models to analyze the probability and magnitude of the premium.FindingsThe study attributes the price premium of QIP to certification effect through group affiliation, signaling through promoters' ownership and monitoring effect through existing institutional investors. These factors influence the probability of premium for QIP issues. However, group affiliation and institutional ownership do not significantly influence the magnitude of the premium.Originality/valueThe private placement of equity is usually offered at a discount. Our findings contribute to the existing literature by evaluating the premium obtained on private placement as a unique scenario in emerging market supported through certification hypothesis, monitoring hypothesis and signaling.

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