“Peer effects” in capital structure decision of Chinese firms-empirical investigation based on Chinese a-share listed firms

2018 ◽  
Vol 9 (3) ◽  
pp. 289-315 ◽  
Author(s):  
Tianli Zhong ◽  
Tianyu Zhang
Keyword(s):  
Capital Structure ◽  
Peer Effects ◽  
Management Practices ◽  
Structure Theory ◽  
Outcome Variable ◽  
Content Type ◽  
Financial Decisions ◽  
Listed Firms ◽  
Social Multiplier ◽  
Peer Firms

Purpose The purpose of this paper is to identify if peer firms’ capital structure decision plays a role in determining focal firms’ capital structure decision, despite the fact that correlated effects can also lead to co-movement of financing behavior among firms from the same industry (i.e. industry-specific capital structure). Design/methodology/approach Instead of using relative measurement (of individual outcome variable over industry variable) as in previous work, this paper borrows the linear-in-means model and, after controlling for potential endogeneity problems, directly identifies the existence of peer effects with coefficient estimation. To deal with correlated effects, additional empirical investigations such as test of heterogeneity in direction and scale, social multiplier identification test and instrumental regression test based on another instrumental variable (that is less influenced by correlated effects) are performed. Findings Using data from Chinese listed firms, this paper, for the first time, identifies the presence of peer effects in capital structure and debt maturity decision. Further investigations show that first, focal firms react asymmetrically to peer firms’ debt adjustment of different direction and scale. Second, social multiplier, a unique attribute of peer effects, is identified in the leverage choices. Third, the significant correlation of capital structure decision remains even if we use another “correlated effects-immune” instrument. All these results point to the fact that peer effects, rather than correlated effects, play a significant role in determining capital structure. Practical implications The empirical results of this paper provide strong evidence that firms, driven by motivations such as either learning or competition, will actively react to peers’ financial decisions. As the bridge between individual firms and the industry, social multiplier can be fully taken advantage of to induce positive spillover of good management practices and prohibit inefficient decisions from spreading. Originality/value This paper theoretically and empirically introduces peer effects – a well-acknowledged social concept – into capital structure decision of Chinese listed firms, thus both complementing the traditional capital structure theory and providing an empirical paradigm for peer effects research.

Capital structure in a tax-free economy: evidence from UAE

2017 ◽  
Vol 10 (1) ◽  
pp. 102-116 ◽  
Author(s):  
Yomna Abdulla
Keyword(s):  
Capital Structure ◽  
United Arab Emirates ◽  
Structure Theory ◽  
Comprehensive Overview ◽  
Content Type ◽  
Listed Firms ◽  
Financial Firms ◽  
Main Determinants ◽  
Free Environment ◽  
The Capital Structure

Purpose This paper aims to investigate the determinants of capital structure for non-financial listed firms in the United Arab Emirates (UAE) for the period 2004-2010. The contradiction between the different capital structure theories, limited literature on UAE and its distinctive characteristic of tax-free environment were the motivation for this paper. Design/methodology/approach The authors used two panel data techniques to estimate the regression models, and a series of robustness checks. Findings The authors find that growth opportunities, size, profitability and liquidity are the main determinants of leverage. The results support the argument of the inadequacy of one capital structure theory, although the results are more inclined toward the pecking-order level. Practical implications The results provide a comprehensive overview of the capital structure in the UAE; this information will be of use to managers, shareholders and lenders. Originality/value The findings of this paper contribute to the debate of the dominance of capital structure theories. The results also add to the strand of literature on the capital structure of firms in the Middle East, as the authors provide a comprehensive investigation of the determinants of capital structure in UAE non-financial firms.

scholarly journals The capital structure of Chinese listed firms: is manufacturing industry special?

2014 ◽  
Vol 40 (5) ◽  
pp. 469-486 ◽  
Author(s):  
Chin-Bun Tse ◽  
Timothy Rodgers
Keyword(s):  
Capital Structure ◽  
Manufacturing Industry ◽  
Business Environment ◽  
Structure Theory ◽  
Content Type ◽  
Listed Firms ◽  
Leading Role ◽  
Financial Characteristics ◽  
Industry Membership ◽  
Special Case

Purpose – The purpose of this paper is to examine whether or not industry membership can explain the leverage of Shanghai listed firms prior to the 2007 financial crisis. In view of the central role that manufacturing industry played in China's rise as a global economic power, the authors are particularly interested in whether or not manufacturing is a special case. Design/methodology/approach – The paper undertakes a comparative study of leverage differences between manufacturing and non-manufacturing industry firms on both a cross-section and time-series basis. This is supplemented by a pooled regression analysis that models the factors determining leverage on an industry-by-industry basis. Findings – The authors find that leverage levels differ across industries because of industry-based differences in financial characteristics. It is also found that, despite playing a leading role in China's economic development, there is no evidence to suggest that manufacturing is a special case. Across all sectors borrowing-power-related variables were identified as being important determinants of leverage and, contrary to the expectations, factors relating to profitability were largely insignificant. Research limitations/implications – The trade off and pecking order capital structure theories found to be commonly applicable to firms in the western business environment do not appear to adequately explain capital structure in China. Originality/value – The paper identify evidence to suggest that China needs to be treated as a “special case” in the context of capital structure theory due to the unique cultural and business environment.

Do corporate diversification and earnings management practices affect capital structure?

2015 ◽  
Vol 7 (4) ◽  
pp. 360-378 ◽  
Author(s):  
Ranjitha Ajay ◽  
R Madhumathi
Keyword(s):  
Capital Structure ◽  
Earnings Management ◽  
Management Practices ◽  
Negative Relationship ◽  
Corporate Diversification ◽  
Content Type ◽  
Diversification Strategies ◽  
Market Product ◽  
Diversified Firms ◽  
The Impact

Purpose – The purpose of this paper is to empirically examine the impact of earnings management on capital structure across firm diversification strategies. Design/methodology/approach – The study focuses on firms operating in the manufacturing sector (diversified and focused). Panel data methodology compares diversification strategies and identifies the impact of diversification strategy with earnings management practices on capital structure decision. Findings – International and product diversified firms have lower levels of leverage than focused firms in their capital structure. Asset-based earnings management is positive for diversified (market/product) firms. Earnings management using discretionary expenditure (project based) is found to be higher for market diversified but product-focused firms. Earning smoothing method is found to be significant for focused firms and shows a negative relationship with capital structure. Originality/value – This study offers an insight into the relationship between corporate diversification, earnings management and capital structure decisions of manufacturing firms. The results provide an important contribution to accounting and strategy literature. A distinction is made between market- and product-diversified firms and influence of earnings management practices (asset-based, project-based and earnings smoothing (ESM)) on capital structure decisions. Diversified firms (market/product) tend to have lower levels of leverage than focused firms and earnings management practices within firm groups significantly influence the capital structure decisions.

Peer effects in the valuation and practices of food safety: findings from the study of dairy consumers in India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Raj Chandra ◽  
Abdul Munasib ◽  
Devesh Roy ◽  
Vinay K. Sonkar
Keyword(s):  
Social Networks ◽  
Food Safety ◽  
Peer Effects ◽  
Cross Sectional Study ◽  
Cross Sectional ◽  
Content Type ◽  
Information Campaigns ◽  
Social Multiplier ◽  
Multiplier Effects ◽  
The Right

Purpose Information is often available to consumers through their social networks. Focusing on dairy consumers in India, this paper aims to present evidence of peer effects in consumers’ attitudes towards various food safety attributes and food safety practices. Design/methodology/approach Unobserved individual heterogeneities are crucial confounders in the identification of social (endogenous) effects. The identification is based on exploiting within-consumer variation across different aspects of attitude (or practices) related to food safety. Findings This paper uses a novel identification strategy that allows for average effects across attributes and practices to be estimated. Using the strategy, though this paper cannot estimate endogenous effects in each attribute or practice, this paper is able to identify such effects averaged over attributes or practices. Research limitations/implications Cross-sectional study, caste affiliation is not defined at the right level of granularity. Practical implications The results suggest that information campaigns aimed at creating awareness about food safety can have social multiplier effects, and this also translates into changes in the practices followed to mitigate food safety risks. Social implications In health-related awareness and practices, there are well-established cases of multiplier effects. The most significant example of this is the Pulse Polio campaign in India, where an awareness drives through social multiplier effects had such a significant impact that in 2012 India was declared polio-free. Perhaps, a similar campaign in matters related to food safety could be very fruitful. Originality/value The methodology and the issue are unique. Little exists in assessing social networks in the context of food safety.

Determinants of voluntary formation of risk management committees

2014 ◽  
Vol 29 (7) ◽  
pp. 649-671 ◽  
Author(s):  
Nkoko Blessy Sekome ◽  
Tesfaye Taddesse Lemma
Keyword(s):  
South Africa ◽  
Risk Management ◽  
Corporate Governance ◽  
Management Practices ◽  
Emerging Economy ◽  
Board Structure ◽  
Content Type ◽  
Listed Firms ◽  
Practical Implications

Purpose – The aim of this paper is to examine the nexus between firm-specific attributes and a company’s decision to setup a separate risk management committee (RMC) as a sub-committee of the board within the context of an emerging economy, South Africa. Design/methodology/approach – The authors analyse data extracted from audited annual financial reports of 181 non-financial firms listed on the Johannesburg Securities Exchange (JSE) by using logistic regression technique. Findings – The results show a strong positive relationship between the existence of a separate RMC and board independence, board size, firm size and industry type. However, the authors fail to find support for the hypotheses that independent board chairman, auditor reputation, reporting risk and financial leverage have an influence on a firm’s decision to establish RMC as a separately standing committee in the board structure. The findings signify the role of costs associated with information asymmetry, agency, upkeep of a standalone RMC, damage to the reputation of directors and industry-specific idiosyncrasies on a firm’s decision to form a separate RMC. Research limitations/implications – As in most empirical studies, this study focuses on listed firms. Nonetheless, future studies that focus on non-listed firms could add additional insights to the literature. Investigating the role of firm-specific governance attributes other than those considered in the present study (e.g. gender of directors, ownership structure, etc.) could further enhance the understanding of antecedents of risk-management practices. Practical implications – The findings have practical implications for the investment community in assessing the quality of risk management practices of companies listed on the JSE. Furthermore, the results provide insights that are potentially useful to the King Committee and other corporate governance regulators in South Africa in their effort to improve corporate governance practices. Originality/value – The present study focuses on firms drawn from an emerging economy which has profound economic, institutional, political and cultural differences compared to advanced economies, which have received a disproportionately higher share of attention in prior studies. Thus, the study contributes additional insights to the literature on corporate risk management from the perspective of an emerging economy.

scholarly journals The influence of internal corporate governance mechanisms on capital structure decisions of Chinese listed firms

2017 ◽  
Vol 16 (4) ◽  
pp. 444-461 ◽  
Author(s):  
Agyenim Boateng ◽  
Huifen Cai ◽  
Daniel Borgia ◽  
Xiao Gang Bi ◽  
Franklin Nnaemeka Ngwu
Keyword(s):  
Corporate Governance ◽  
Capital Structure ◽  
Fixed Effects ◽  
The State ◽  
Ownership Concentration ◽  
Governance Mechanisms ◽  
Data Set ◽  
Content Type ◽  
Listed Firms ◽  
Corporate Governance Mechanisms

Purpose The purpose of this paper is to examine the effects of internal corporate governance mechanisms on the capital structure decisions of Chinese-listed firms. Design/methodology/approach Using a large and more recent data set consisting of 2,386 Chinese-listed firms over the period from 1998 to 2012, the authors use different statistical methods (OLS, fixed effects and system GMM) to analyse the effects of firm-specific and corporate governance influences on capital structure. Findings The authors find that the proportion of independent directors and ownership concentration exert significant influence on the level of Chinese long-term debt ratios after controlling for firm-specific determinants and split share reforms. Further analysis separating the sample of this paper into state-owned enterprises (SOEs) and privately owned enterprises (POEs) suggests that ownership concentration in the hands of the state leads to decrease in debt ratios. Research limitations/implications The finding implies that concentrated ownership in the hands of the state appears more efficient compared to their private counterparts in their monitoring role. Originality/value This paper extends prior literature, which has concentrated disproportionately on firm-specific influences on capital structure, to the effects of within-firm governance mechanisms on capital structure decisions. The paper contributes to the agency theory–capital structure discourse in an emerging country context where corporate governance system appears weak.

Corporate real estate, capital structure and value creation

2017 ◽  
Vol 10 (3) ◽  
pp. 384-404 ◽  
Author(s):  
Maria-Teresa Bosch-Badia ◽  
Joan Montllor-Serrats ◽  
Anna-Maria Panosa-Gubau ◽  
Maria-Antonia Tarrazon-Rodon
Keyword(s):  
Real Estate ◽  
Capital Structure ◽  
Structure Theory ◽  
Trade Off ◽  
Content Type ◽  
Default Option ◽  
Bankruptcy Costs ◽  
Corporate Real Estate ◽  
Tax Savings ◽  
The Impact

Purpose This paper aims to analyse the corporate rent-vs-buy decision on real estate through the trade-off theory and default option in the framework of a corporation that aims to optimise its capital structure. Design/methodology/approach The methodological core of this paper comprises the trade-off theory that approaches the optimal capital structure by counterbalancing debt tax savings with bankruptcy costs. Impacts on the default option and the default barrier are made explicit. The paper also explores the practical applicability of the renting scenarios in the European context by examining the regimes of real estate investment trusts in different countries from the demand-side of commercial renting. Findings Analytical relationships with tax savings, bankruptcy costs, default option and default barrier are identified for the renting-vs-buying real estate decisions. Research limitations/implications The theoretical model assumes simplifications, such as constant debt, to make it operational. The paper centres exclusively on the trade-off capital structure theory. Practical implications This paper is an analysis of corporate real estate decisions together with capital structure. Applications are not only quantitative but also conceptual and strategic. Originality/value Identifying the main variables that govern the impact of corporate real estate decisions on capital structure and interweaving different approaches generates a conceptual framework that enlightens strategic thinking in this field.

Analysis of capital structure stability of listed firms in China

2019 ◽  
Vol 10 (2) ◽  
pp. 213-228 ◽  
Author(s):  
Kelvin Henry Kyissima ◽  
Gong Zhang Xue ◽  
Thales Pacific Yapatake Kossele ◽  
Ahmed Ramadhan Abeid
Keyword(s):  
Panel Data ◽  
Capital Structure ◽  
Fixed Effects ◽  
Structure Stability ◽  
Individual Investors ◽  
Content Type ◽  
Corporate Managers ◽  
Listed Firms ◽  
Financing Decisions ◽  
Corporate Capital Structure

Purpose The purpose of this paper is to analyze the corporate capital structure stability of listed firms in China during the period 1990–2013. Design/methodology/approach The study uses panel data from a sample of 716 firms that have been listed in China for at least 15 years. A fixed-effects panel data regression model with time effects is used in the estimation. Findings The findings show that size, profitability and investment opportunities have a significant influence on capital structure, whereas the tangibility of assets is not found to be significant. Few industries show significance in explaining differences and variation in leverage ratios. Social implications It is recommended by this study that corporate managers of listed firms in China should consider leverage ratios variation while choosing the capital structure. Originality/value This study can be helpful in assisting companies to make financing decisions and setting up strategies relevant in their growth and profitability. The study will also have a significant assistance to bring to light corporate issues to policy makers, especially in the areas of both equity and debt financing, particularly the bond market. To the society, this study will show the nature of Chinese-listed companies, and it can assist individual investors in making decisions regarding companies in which they hold investments and in making meaningful comparisons with other companies. The paper also aims at contributing to the existing literature on the empirical study on capital structure.

A matter of others' money: How cash holdings of other firms affect a firm’s cash holding?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jisaba Jinkrawee ◽  
Ravi Lonkani ◽  
Suchanphin Suwanaphan
Keyword(s):  
Stock Exchange ◽  
Cash Flows ◽  
Cash Holding ◽  
Content Type ◽  
Listed Firms ◽  
Developed Markets ◽  
Stock Exchange Of Thailand ◽  
Peer Firms ◽  
Cash Flow Volatility ◽  
Practical Implications

PurposeThis study examines the effects of comparable companies, within the same industry, on cash-holding (CH) levels of a specific firm in the Stock Exchange of Thailand (SET). Peer effects are hypothesized to affect a firm's average CH levels.Design/methodology/approachThe authors use data of listed firms in the Thai stock markets from 1995 to 2018. The sample consists of 5,277 firm-year observations. The authors perform robustness tests by incorporating gross domestic product, economy and competitiveness.FindingsPeer firms' CH levels correspond positively to the specific firm's CH. This strengthens further for firms with high cash flow volatility during periods of high competition. Unfavorable economic periods also motivate the association between a firm's CH and peer firms' CH.Practical implicationsA policy on CH should account for cash held by peer firms. Firms can justify their CH policy as compatible with peers' cash flows, especially during periods of competitiveness and an unfavorable economy.Originality/valueThe authors provide novel evidence on how emerging markets' CH levels differ from those in developed markets and propose adjusted explanations for the rivalry- and information-based theories. The findings add substantial knowledge to corporate finance by arguing that CH policies are based on peer firms' strategic moves.

Risk management and firm value: recent theory and evidence

2016 ◽  
Vol 24 (1) ◽  
pp. 56-81 ◽  
Author(s):  
Timothy A Krause ◽  
Yiuman Tse
Keyword(s):  
Risk Management ◽  
Empirical Research ◽  
Financial Distress ◽  
Firm Value ◽  
Management Practices ◽  
Empirical Studies ◽  
Recent Theory ◽  
Content Type ◽  
Financial Decisions ◽  
Survey Paper

Purpose – This paper aims to provide an update to the risk management literature, as it compiles a survey of 65 recent theoretical and empirical studies on the topic. Design/methodology/approach – This is a survey paper that summarizes recent theoretical and empirical research regarding the relationship between risk management and firm value. Findings – Recent empirical evidence provides support for theoretical propositions in the literature that risk management increases firm value and returns, while reducing return and cash flow volatility. The results are largely consistent with early findings, and there have been significant empirical advances that address concerns regarding the endogeneity of risk management practices relative to corporate financial decisions. The literature has become broader and deeper, as there are now studies with larger sample sizes across more industries and geographic areas. Practical implications – Firms that use sound risk management practices obtain higher valuations, achieve better financial performance and experience diminished costs of financial distress. Recent research has emerged regarding enterprise risk management and its potential for value creation and risk reduction. Originality/value – The paper provides a new compilation and synthesis of recent theoretical and empirical research in risk management that addresses many of the limitations of prior research.

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