Industry peer effect and the maturity structure of corporate debt

2015 ◽  
Vol 41 (7) ◽  
pp. 714-733 ◽  
Author(s):  
Hong Kim Duong ◽  
Anh Duc Ngo ◽  
Carl B. McGowan
Keyword(s):  
Firm Performance ◽  
Stock Returns ◽  
Empirical Evidence ◽  
Information Acquisition ◽  
Debt Maturity ◽  
Future Research ◽  
Least Squares Regression ◽  
Content Type ◽  
Debt Maturity Structure ◽  
Maturity Structure

Purpose – The purpose of this paper is to examine the role of industry peers in shaping firm debt maturity decisions. Design/methodology/approach – The authors use idiosyncratic equity shocks as instruments to disentangle industry fixed and peer effects. The authors also employ a three-stage least squares regression (3SLS) model to capture the correlation among thee (short, medium, and long) debt maturity decisions. Findings – The authors find that a one standard deviation change in peer short (medium, long) maturity debt leads to a 50 percent (37 percent, 23 percent) change in firm corresponding maturity debt and that these mimetic behaviors are statistically significant within, but not between, firm size groups. The findings also reveal that firms that mimic the short and medium (long) debt maturity structure of their peers tend to increase (decrease) firm performance as measured by profitability, return-on-assets, and stock returns. Research limitations/implications – First, given the research design, the authors are constraint from pinpointing the exact date of the mimicking behaviors. This limitation prevents the authors from establishing the causality of the mimicking behavior and firm performance. Future research can extend the findings by solving this problem. Second, it should be interesting to address the question of whether mimicking behavior is good or bad for firm performance. The authors only compare the performance of Close Followers and Loose Followers; however, it would be more precise to compare the performance of mimicking firms with the performance of non-mimicking firms. Originality/value – First, the findings extend the debt maturity structure literature by providing empirical evidence that an important determinant of firm debt maturity is industry peer debt maturity. Since debt maturity directly influences firm risk and performance, it is important for debt and equity holders to know how firms choose their debt maturity so that they can estimate their investment risk precisely. Second, the paper provides new empirical evidence supporting the information acquisition and principal-agent theories in demonstrating that firm performance increases when managers herd over short and medium debt maturity decisions and decreases when managers herd over long debt maturity decisions.

The impact of cash flow volatility on firm leverage and debt maturity structure: evidence from China

2018 ◽  
Vol 8 (1) ◽  
pp. 69-91 ◽  
Author(s):  
Zulfiqar Ali Memon ◽  
Yan Chen ◽  
Muhammad Zubair Tauni ◽  
Hashmat Ali
Keyword(s):  
Standard Deviation ◽  
Cash Flow ◽  
Cash Flows ◽  
Debt Maturity ◽  
Percent Reduction ◽  
Content Type ◽  
Debt Maturity Structure ◽  
Maturity Structure ◽  
Cash Flow Volatility

Purpose The purpose of this paper is to investigate the influence of cash flow volatility on firm’s leverage levels. It also analyzes how cash flow volatility influences the debt maturity structure for the Chinese listed firms. Design/methodology/approach The authors construct the measure for cash flow variability as five-year rolling standard deviation of the cash flow from operations. The authors use generalized linear model approach to determine the effect of volatility on leverage. In addition, the authors design a categorical debt maturity variable and assign categories depending upon firm’s usage of debt at various maturity levels. The authors apply Ordered Probit regression to analyze how volatility affects firm’s debt maturity structure. The authors lag volatility and other independent variables in the estimation models so as to eliminate any possible endogeneity problems. Finally, the authors execute various techniques for verifying the robustness of the main findings. Findings The authors provide evidence that higher volatility of cash flows results in lower leverage levels, while the sub-sampling analysis reveals that there is no such inverse association in the case of Chinese state-owned enterprises. The authors also provide novel findings that irrespective of the ownership structure, firms facing high volatility choose debt of relatively shorter maturities and vice versa. Overall, a rise of one standard deviation in volatility causes 8.89 percent reduction in long-term market leverage ratio and 26.62 percent reduction in the likelihood of issuing debentures or long-term notes. Research limitations/implications This study advocates that cash flow volatility is an essential factor for determining both the debt levels and firm’s term-to-maturity structure. The findings of this study can be helpful for the financial managers in maintaining optimal leverage and debt maturity structure, for lenders in reducing their risk of non-performing loans and for investors in their decision-making process. Originality/value Existing empirical literature regarding the influence of variability of cash flows on leverage and debt maturity structure is inconclusive. Moreover, prior research studies mainly focus only on the developed countries. No previous comprehensive study exists so far for Chinese firms in this regard. This paper endeavors to fulfill this research gap by furnishing novel findings in the context of atypical and distinctive institutional setup of Chinese firms.

Linking organizational trust and performance through ambidexterity

2019 ◽  
Vol 49 (4) ◽  
pp. 956-973 ◽  
Author(s):  
Odette Chams-Anturi ◽  
Maria D. Moreno-Luzon ◽  
Juan P. Escorcia-Caballero
Keyword(s):  
Firm Performance ◽  
Empirical Evidence ◽  
Structural Equation ◽  
Organizational Trust ◽  
Future Research ◽  
Organizational Ambidexterity ◽  
Content Type ◽  
Food Industries ◽  
Mediating Role ◽  
And Performance

Purpose The literature provides mixed empirical evidence on the trust–performance relationship. The purpose of this paper is to shed additional light on this relationship, using organizational ambidexterity as an explanatory variable. Design/methodology/approach A structural equation technique was used to examine survey data obtained from 377 Spanish organic agro-food industries. Findings The results obtained provide support to show that organizational ambidexterity has a mediating role in the relationship between organizational trust and firm performance, in the organic agro-food industry. Research limitations/implications This study used a sample taken from only one industry and country. Future research could expand the model to other countries and industries. Practical implications This study suggests that managers could use tools to enhance organizational trust that would help to improve firm performance, given that trust can cause employees to adopt behaviors related to ambidexterity. Therefore, managers can use trust as a mechanism to encourage more stable relationships, increase the transfer of existing knowledge, facilitate experimentation and express ideas to promote organizational ambidexterity, thus benefiting firm performance. Originality/value This research paper offers a new insight into how ambidexterity affects the organizational trust-firm performance relationship. Even though there is growing theoretical importance given to the concepts of trust and ambidexterity, the empirical evidence that demonstrates how both variables are related to firm performance, especially in emerging sectors, is scarce.

Crash risk and debt maturity: evidence from Australia

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mostafa Hasan ◽  
Dewan Rahman ◽  
Grantley Taylor ◽  
Barry Oliver
Keyword(s):  
Stock Price ◽  
Fixed Effects ◽  
Positive Association ◽  
Debt Maturity ◽  
Crash Risk ◽  
Content Type ◽  
Panel Data Estimation ◽  
Debt Maturity Structure ◽  
Maturity Structure ◽  
Data Estimation

PurposeThe purpose of this paper is to examine the association between debt maturity structure and stock price crash risk in Australia.Design/methodology/approachThe authors employ panel data estimation with industry and year fixed effects. The paper uses a sample of 1,548 publicly listed Australian firms (8,661 firm-year observations) covering the 2000–2015 period.FindingsStock price crash risk is positively and significantly associated with the long-term debt maturity structure of firms. In addition, this positive association is more pronounced for firms with a more opaque information environment.Originality/valueThis is the first study to examine stock price crash risk in Australia. The findings are value relevant as it uncovers how debt maturity structure affects shareholders' wealth protection.

scholarly journals Ownership control and debt maturity structure: evidence from China

2014 ◽  
Vol 10 (3) ◽  
pp. 385-403 ◽  
Author(s):  
Wenjuan Ruan ◽  
Grant Cullen ◽  
Shiguang Ma ◽  
Erwei Xiang
Keyword(s):  
Discrimination Problem ◽  
Institutional Development ◽  
Debt Maturity ◽  
Financial Reform ◽  
Short Term ◽  
Content Type ◽  
Debt Maturity Structure ◽  
Data Limitations ◽  
Maturity Structure ◽  
Ownership Control

Purpose – The authors examine the debt maturity structure of Chinese listed companies during the period when bond market was under-developed and the majority of commercial banks were owned by the state. The purpose of this paper is to answer why and how the different ownership control types impact the firms’ preference and accessibility to either long- or short-term debts. Design/methodology/approach – The univariate analysis was used to test the differences of debt maturity choices for firms grouped by ownership control types, profitability and institutional development. Then, logit regression and ordinary least squares regression were applied to examine the determinants of ownership control types in debt maturity structures. Findings – Compared to privately controlled firms, state-owned enterprises had greater access to long-term debt and used less short-term debt during the sample period. Evidences also indicate that the on-going financial reform has increased the motivation of banks to consider company profitability in their lending decisions. However, state-owned banks still discriminate private firms in allocation of financial resources, particular in less-developed regions. Research limitations/implications – Due to the research scope and data limitations, the authors cannot take some factors into consideration, such as collateral, guarantee, credit ranking, financing agreement and leasing obligation. Originality/value – This study extends the existing literature in three ways. First, the authors investigate the bank discrimination problem into the loan term structure. Second, the authors recognise the effect of financial reform on alleviation in bank discrimination problem. Finally, the authors take the consideration of institutional development of firms’ location areas in their analyses.

scholarly journals Debt maturity structure, institutional ownership and accounting conservatism

2019 ◽  
Vol 4 (1) ◽  
pp. 35-51 ◽  
Author(s):  
Mahdi Salehi ◽  
Mohsen Sehat
Keyword(s):  
Significant Relationship ◽  
Stock Exchange ◽  
Panel Data Analysis ◽  
Institutional Ownership ◽  
Debt Maturity ◽  
Accounting Conservatism ◽  
Content Type ◽  
Debt Maturity Structure ◽  
Maturity Structure ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of debt maturity structure and types of institutional ownership on accounting conservatism by using different financial variables and proxies. Design/methodology/approach Employing panel data analysis in the R programming language, the authors test their hypotheses on a sample of 143 (858 firm-year observations) companies listed on the Tehran Stock Exchange during 2011–2016. Findings Using Basu (1997) and Beaver and Ryan (2000) models as proxies for accounting conservatism, the findings suggest a non-significant relationship between accounting conservatism and debt maturity structure. Contrary to the primary expectation, the results indicate that short-maturity debts are also non-significantly and negatively associated with accounting conservatism in financially distressed firms. Finally, using both conservatism measures, the authors document that there is no significant relationship between both active and passive institutional ownership and accounting conservatism as well as debt maturity structure. Originality/value The current study is the first study conducted in a developing country like Iran, and the outcomes of the study may be helpful to other developing nations.

Regulation and information asymmetry

2008 ◽  
Vol 16 (1) ◽  
pp. 59-76 ◽  
Author(s):  
Robyn McLaughlin ◽  
Assem Safieddine
Keyword(s):  
Information Asymmetry ◽  
Stock Returns ◽  
Operating Performance ◽  
Cost Benefit ◽  
Future Research ◽  
Information Asymmetries ◽  
Cross Sectional ◽  
Industrial Firms ◽  
Content Type ◽  
Regulated Utilities

PurposeThis paper seeks to examine the potential for regulation to reduce information asymmetries between firm insiders and outside investors.Design/methodology/approachExtensive prior research has established that there are substantial effects of information asymmetry in seasoned equity offers (SEOs). The paper tests for a mitigating effect of regulation on such information asymmetries by examining differences in long‐run operating performance, changes in that performance, and announcement‐period stock returns between unregulated industrial firms and regulated utilities that issue seasoned equity. The authors also segment the samples by firm size, since smaller firms are likely to have greater asymmetries.FindingsConsistent with regulated utility firms having lower levels of information asymmetry, they have superior changes in abnormal operating performance than industrial firms pre‐ to post‐issue and their announcement period returns are significantly less negative. These findings are most pronounced for the smallest firms, firms likely to have the greatest information asymmetries and where regulation could have its greatest effect.Research limitations/implicationsThe paper does not examine costs of regulation. Thus, future research could seek to measure the cost/benefit trade‐off of regulation in reducing information asymmetry. Also, future research could examine cross‐sectional differences between different industries and regulated utilities.Practical implicationsRegulation reduces information asymmetry. Thus, regulation or mandated disclosure may be appropriate in industries/markets where information asymmetry is severe.Originality/valueThis paper is the first to compare the operating performance of regulated and unregulated SEO firms.

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