Do Country-level Creditor Protections Affect Firm-level Debt Structure Concentration?

We study the effects of country-level creditor protections on the firm-level choice of debt structure concentration. Using data from 46 countries, we show that firms form more concentrated debt structures in countries with stronger creditor protection. We propose a trade-off framework of optimal debt structure and show that in strong creditor rights regimes, the benefit of forming concentrated structures outweighs its cost. Because strong creditor protections increase liquidation bias, firms choose concentrated debt structures to improve the probability of successful distressed debt renegotiations. Firms with ex-ante higher bankruptcy costs, including those with higher intangibility, cash flow volatility, R&D expenses, and leverage exhibit stronger effects. Firms with restricted access to capital are also affected more. A difference-in-differences analysis of firms’ debt structure responses to creditor rights reforms confirms the cross-country results. Our findings are robust to alternative settings and a battery of robustness checks.

THE DETERMINANTS OF BANK CAPITAL STRUCTURE IN THE WORLD

We examine the determinants of bank capital structure using a large sample of banks in the world. We find that banks determine their capital structure in much the same way as non-financial firms, except for growth opportunities. We also provide evidence that country-level factors, such as the legal system, bank-specific factors and economic conditions influence banks’ capital decisions through their impacts on bankruptcy costs, agency costs, information asymmetry and liquidity creation. The results show that, besides the direct effects, there are indirect impacts of country-level factors on the decision of bank capital. Our results have potential policy implications for the on-going regulatory reform.

MODELING AND SIMULATION FOR SUPPLY CHAIN FINANCE UNDER UNCERTAIN ENVIRONMENT

This paper studies the role of factoring in a bilateral supply chain, where both the supplier and retailer are financially constrained. Applying the stylized Stackelberg game, we analytically present that the supplier’s capital shortage limits the advantage of trade credit provided to the retailer. To overcome this limitation, we design a hybrid strategy composing of trade credit and factoring, and then investigate how the supplier uses factoring strategy to achieve the best performance. Analytical and numerical results show that: (1) each supply chain partner can benefit from factoring, and the benefits depend on operational and financial characteristics; (2) in a fairly priced factoring market, bankruptcy costs reduce the benefits of factoring, but does not change the dominance of full factoring; (3) in a strategically priced factoring market, partial factoring may dominate full factoring. Managerially, our study implies that a supplier may benefit from dividing his accounts receivable when facing a factor with a strong pricing ability.

A novel insurance system for associated loans: the realization of reducing bankruptcy cost

Purpose The assets of bankrupt firms are usually sold to unsuitable buyers at an extremely discounted price. Aiming to reduce the bankruptcy cost, the purpose of this paper is to propose a novel insurance system for associated loans. Design/methodology/approach In this insurance system, the joined firms are from the same industry and have a responsibility to buy the assets of potentially bankrupt firms at a relatively high price, because they could make better use of the assets than the buyers outside the industry. Further, the authors use the Shapley value to address the problem of bankruptcy cost allocation and additionally employ the method of Monte Carlo simulation to derive the numerical solution of the insurance premium of bankruptcy cost. Findings First, the relatively healthy and solvent firms in the insurance system could gain a larger proportion of benefits derived from the reduced cost of default, interestingly, the more so when the external cost of default is larger. Second, given the positive relationship between bankruptcy cost and asset correlation in practice, lenders and insurers face a trade-off to balance the cost against the benefit of asset correlation. Third, insurance premiums and bankruptcy costs decrease with the number of firms participating in this insurance system. Originality/value This paper proposes a novel insurance for associated loans, in which joined firms can pay a relatively low insurance premium due to the realization of reducing bankruptcy cost.

On Relation between No-Arbitrage Pricing Principle and Modigliani-Miller Propositions

An extension of Merton’s (1974) model (EMM) taking account of the firm’s payments and generating a new statistical distribution for the firm value is suggested. In an open log-value space, this distribution evolves from the initially normal to negatively skewed one. When payments are zero or proportional to the firm value, EMM turns into the Geometric Brownian model (GBM). We show that Modigliani-Miller Propositions (MMPs) and the no-arbitraging principle (NAP) result from the use of GBM with no payments. For a firm with payments, MMPs hold for short times and are false for time intervals exceeding a year. In contradiction with MMPs, the asset structure affects the firm value at the perfect market, and at the market with taxes, debt decreases the firm value even when there are no bankruptcy costs. NAP always holds for the entire market for short time deals. For long-term investments, the firm’s mean year returns decline in time intervals whose length depends on the firm’s initial conditions and its business environment. In these conditions, NAP does not hold for the whole market, but it temporarily holds for individual stocks as far as the mean year returns of the firms issuing them remain constant and fails when the mean year returns begin to decline.

Perlindungan Hukum Hak-Hak Tenaga Kerja Yang Perusahaannya Diputus Pailit

Penelitian ini bertujuan untuk mengkaji dan perlindungan hukum hak-hak tenaga kerja yang perusahaannya diputus Pailit. Permasalahan penelitian, Pertama, Bagaimanakah Perlindungan Hukum Terhadap Hak-Hak Pegawai Dalam Kepailitan Perusahaan; Kedua, Bagaimanakah Upaya Hukum Yang Dapat Dilakukan Pekerja Jika Tidak Memperoleh Hak Sebagai Kreditor Istimewa/Preference. Penelitian ini menggunakan metode penelitian hukum normatif dengan pendekatan yang bersifat kualitatif. Hasil penelitian bahwa Perlindungan hukum terhadap hak-hak karyawan dalam kepailitan perseroan adalah melindungi hak-hak dan kepentingan dari para karyawan selaku stakeholders perusahaan. Kewenangan pengadilan niaga dalam tuntutan karyawan atas upah atau uang pesangon yang tidak dibayar oleh perseroan dalam memindahkan kewenangan mutlak (absolut) dari pengadilan umum untuk memeriksa permohonan pailit. upah pekerja dalam pemenuhan adalah utang harta pailit, sebelum didistribusikan kepada kreditor biaya kepailitan harus dibayar didahulukan, termasuk kreditor separatis. This study aims to examine and protect the legal rights of workers whose companies have been declared bankrupt. Research problems, First, How Legal Protection of Employee Rights in Corporate Bankruptcy; Second, What Legal Efforts Can Be Done If Workers Don't Obtain Rights As Special Creditors / Preferences. This study uses a normative legal research method with a qualitative approach. The results of the study that the legal protection of the rights of employees in the bankruptcy of the company is protecting the rights and interests of the employees as the company's stakeholders. The authority of the commercial court in the employee's claim for wages or severance pay that is not paid by the company in transferring absolute authority (absolute) from the general court to examine the application for bankruptcy. wages of workers in fulfillment are bankruptcy debt, before being distributed to creditors bankruptcy costs must be paid first, including separatist creditors.

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

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.

Investment and Capital Structure of the Firm

This chapter examines the implications of the stochastic discount factor for optimal firm behaviour. The last section focuses on capital structure decisions with bankruptcy costs and the tax shield implied by debt.