Meeting Earnings Benchmarks via Real Activities Manipulation: Debt Market Effects

2017 ◽  
Vol 35 (2) ◽  
pp. 349-378 ◽  
Author(s):  
Timothy P. Hinkel ◽  
Benjamin W. Hoffman
Keyword(s):  
Cash Flows ◽  
Cost Of Debt ◽  
Share Repurchase ◽  
Market Effects ◽  
Accruals Management ◽  
Managerial Decisions ◽  
Earnings Benchmarks ◽  
Prior Literature ◽  
The Cost ◽  
The Impact

We investigate the cost of debt effects for firms that manage earnings per share (EPS) through abnormal share repurchases. Although prior research finds a significant cost of debt decrease for firms that meet earnings benchmarks, our results suggest that firms using the abnormal share repurchase strategy realize no cost of debt decrease associated with meeting earnings benchmarks. We find some evidence of a smaller decrease in cost of debt associated with measures of abnormal decreases in cash flows but weak evidence for measures that are cash flow increasing. We also find that the effect of using abnormal stock repurchases to meet earnings benchmarks leads to smaller reductions in the cost of debt when compared with the cost reduction when earnings benchmarks are met through accruals management. This study extends prior literature regarding the effects on the cost of debt through alternative strategies to meet earnings benchmarks and will be of interest to managers as they consider the impact of their managerial decisions.

Turning Around Distressed Project Finance Assets in India: What More Needs to Be Done?

2018 ◽  
Keyword(s):  
Cash Flows ◽  
Project Finance ◽  
Cost Of Debt ◽  
Risk Allocation ◽  
Debt Overhang ◽  
Balance Sheets ◽  
Infrastructure Project ◽  
Bankruptcy Code ◽  
The Cost ◽  
Future Cash Flows

With the Insolvency and Bankruptcy Code firmly in place, India’s distressed project finance assets are turning out to be attractive to institutional investors. Project finance assets need asset-and deal-specific financing solutions in order to achieve successful turnarounds. The turnaround solution must ensure optimum risk allocation and mitigation leading to the buildup of future cash flows. This will, in turn, lead to deleveraging of stressed balance sheets. The authors present a conceptual model and argue that even now the political and regulatory risks for infrastructure project loans in India have not been completely mitigated. This has resulted in a situation of a debt overhang, wherein even economically viable projects may not attract fresh funding. To address this, the article suggests the possible use of priority funding structures, where existing lenders cede charge of the assets in favor of a new lender as a way to reduce the cost of debt and unlock shareholder value. This solution will also ensure that the restructuring package is properly priced (from the project finance lender’s perspective), resulting in the efficiency and viability of the restructured asset.

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.

Management Earnings Forecasts and the Cost of Debt

2019 ◽  
pp. 0148558X1988731
Author(s):  
Norio Kitagawa ◽  
Akinobu Shuto
Keyword(s):  
Default Risk ◽  
Lower Cost ◽  
Earnings Forecasts ◽  
Bond Market ◽  
Cost Of Debt ◽  
Yield Spread ◽  
Management Earnings Forecasts ◽  
Bond Yield ◽  
Earnings Benchmarks ◽  
The Cost

Prior studies have indicated that earnings are useful for bond market investors and that beating earnings benchmarks is related to a firm’s lower cost of debt. This study examines whether management earnings forecasts are related to a firm’s cost of debt. Our results indicate that (a) positive forecast innovations (i.e., forecasted increases in earnings) are related to a firm’s lower bond yield spread after controlling for the effect of other earnings benchmarks and (b) the negative association between positive forecast innovations and bond yield spread is weaker for firms with high default risk than for those with low default risk. The results suggest that management earnings forecasts are useful for investors in the Japanese bond market and are consistent with the findings in the equity market. However, the usefulness of management earnings forecasts in the bond market depends on a firm’s level of default risk. Our results suggest that bond investors discount the management earnings forecasts of firms with high default risk because such forecasts are more likely to have an optimistic bias.

scholarly journals The cost load regulation and management of electrical energy by directions of impact on the components of total price

2021 ◽  
Vol 295 ◽  
pp. 02001
Author(s):  
Alexey Pleshkov ◽  
Aleksey Kopylov ◽  
Petr Ulyankin
Keyword(s):  
Electrical Energy ◽  
Energy Resources ◽  
Managerial Decisions ◽  
Regional Features ◽  
Cost Of Energy ◽  
Load Regulation ◽  
Kaliningrad Region ◽  
The Cost ◽  
The Impact ◽  
Total Price

The issues of optimizing regional pricing are especially acute for the Kaliningrad Region due to its exclave features. At the same time, the cost of energy resources has become one of the main issues in making managerial decisions. Recently, the so-called Technoparks have become one of the new forms of organizing the production process in a certain branch of industry, or a process that is at the junction of several branches. There are a variety of descriptions of the indisputable advantages of this work format for a specific technological process, however, the possibilities in the field of reducing the costs of consumed energy resources that arise with such a local siting of production are not discussed that often. According to the authors of the article, based on the structure of the tariff, it is possible to classify methods of reducing the cost price by the impact on the components of the final cost of energy supply services. It should be noted that the classification sign of saving methods will be precisely the component of the tariff, while the methods themselves can be aimed both at reducing the price expression of each component of the tariff and at the volume of services for this component. The authors have also identified regional features of the pricing processes in the energy industry.

Earthly Reward to the Religious: Religiosity and the Costs of Public and Private Debt

2018 ◽  
Vol 53 (5) ◽  
pp. 2131-2160 ◽  
Author(s):  
Feng Jiang ◽  
Kose John ◽  
C. Wei Li ◽  
Yiming Qian
Keyword(s):  
Corporate Culture ◽  
Credit Ratings ◽  
Explanatory Power ◽  
Bank Loans ◽  
Soft Information ◽  
Cost Of Debt ◽  
Private Debt ◽  
Public And Private ◽  
The Cost ◽  
The Impact

We document that a firm’s culture, specifically, its religiosity, affects its cost of debt. Firms in higher-religiosity counties have higher credit ratings and lower debt costs. The impact of religiosity is stronger for firms with greater information asymmetry and during recessions. Further, religiosity has additional explanatory power for the cost of bank loans (but not the cost of public bonds) beyond its impact through ratings. This supports the argument that banks have superior abilities in pricing soft information, such as corporate culture. Finally, the impact of religiosity is stronger when the lender is a small bank.

scholarly journals The impact of financing policy on the cost of debt

2021 ◽  
Vol 18 (4) ◽  
pp. 177-189
Author(s):  
Tetiana Konieva
Keyword(s):  
Capital Structure ◽  
Cost Of Debt ◽  
Financing Policy ◽  
Financing Policies ◽  
Conservative Policy ◽  
Industrial Level ◽  
The Cost ◽  
The Impact ◽  
A Company ◽  
Interest Payments

The cost of debt is a key element to define the amount of the regular interest payments of a company and its business value. It is used for indicators that warn of the economic crisis, which is relevant for the countries where most companies are financially dependent on liabilities. The formalized criteria for the types of financing policy, improved procedure for the cost of debt calculation make it possible to reveal policy with the capital structure that minimizes the cost of debt.The study is based on Ukrainian food processing companies for the period 2013–2020. The studied database was distributed by the types of financing policies: 22% of the cases have a conservative policy, 15% – moderate, 26% – aggressive, 37% – super-aggressive. The results show that the highest weighted cost of debt (24.1%) belongs to the conservative policy, which replaces negative equity by the expensive long-term debts, as well as super-aggressive policy (20.8%) with trade payable that is near half of the capital, and long days payable outstanding. A company can reduce the cost of debt relying on non-interest-bearing liabilities and trade payable if its days payable outstanding are kept at the industrial level or below. Moderate and conservative financing policies, which are based on equity and avoid debts, provide the lowest weighted cost of debt: 2.1% and 1.2%.Thus, choosing the desired type of financing policy for the company, it is possible to form a capital structure that will reduce the cost of debt.

Web-based disclosure and the cost of debt: MENA countries evidence

2020 ◽  
Vol 18 (3) ◽  
pp. 533-561
Author(s):  
Henda Abdi ◽  
Mohamed Ali Brahim Omri
Keyword(s):  
Information Disclosure ◽  
Developed Countries ◽  
Economic Consequences ◽  
Cost Of Debt ◽  
Mena Region ◽  
Web Based ◽  
Content Type ◽  
Mena Countries ◽  
The Cost ◽  
The Impact

Purpose The aim of this study is to investigate the effect of web - based disclosure on the cost of debt for the MENA region setting. Design/methodology/approach The sample of this paper consists of 237 MENA listed non-financial companies for the year 2017. Multiple regression models were used to examine the impact of online disclosure on the cost of debt. Content analysis is used to measure the extent of web-based disclosure. Findings The results reveal that there is a negative and significant association between the web-based disclosure and the company’s cost of debt. These results support the hypothesis of the economic utility of the information disclosed on the website for creditors in this region. Practical implications The results of the study have important implications for managers in the MENA region. It is necessary for managers to improve the company’s transparency through web-based disclosure. The companies must benefit from the different technologies offered by the Internet in order to offer to the creditors unlimited access to up to date information. In fact, web-based disclosure may mitigate the information asymmetry, the uncertainty of creditors and, consequently, reduces the cost of debt. 10; 10;Moreover, the results of the study provide empirical evidence for the advantages of voluntary web-based disclosure. The results highlight the importance to companies and regulators of understanding the benefits of using the website as a means of information disclosure. The regulators in MENA countries can rely on these results to establish suitable policies to improve the quality of web-based disclosure. The regulators need also to put in rules in relation to the online disclosure. In fact, an understanding of web-based disclosure is important for regulators and companies. Given the positive effect of online disclosure (the reduction of the cost of debt), knowledge about the economic consequences of web-based disclosure would enable companies in the MENA region to optimize their online disclosure policies. Originality/value This study, added to the existing literature by examining the consequences of online disclosure practices in MENA countries. Most previous studies conducted in this region were limited to analyzing the determinants of the company’s web-based disclosure. This paper would extend the literature on the online disclosure practices by investigating the association between these practices and the cost of debt in a developing economics: the MENA region. Previous studies were limited to testing this association only in developed countries.

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