Financial Constraints Investment And Capital Structure
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| Author | : Kunal Sengupta |
| Publisher | : |
| Total Pages | : 53 |
| Release | : 2002 |
| Genre | : |
| ISBN | : |
Intertemporal considerations have been largely ignored in the theory of capital structure. We provide a dynamic model that integrates firms' investment, financing and cash holding decisions in the presence of moral hazard. The distinguishing feature of this model is that it takes into account financially constrained firms' incentives to intertemporally allocate their liquidity between current and future projects. The incentive to intertemporally allocate liquidity comes from the concavity of a payoff function similar to that considered by Froot, Scharfstein and Stein (1993), which causes firms to behave as though they are risk averse when financially constrained. We show that once intertemporal considerations are brought in, stylized relationships that are often associated with models based on information asymmetry could be modified significantly, making it difficult to accept or reject such models empirically. Three such relationships that we examine are: (i) the relation between cash flows (or changes in liquidity) and investment, (ii) the relation between profitability and leverage, and (iii) the relation between future investment opportunities and leverage. As regards the first, we show that there is a critical level of liquid balances such that firms below this level exhibit greater cash flow sensitivity of investment than those above; however, the cash flow sensitivity of investment can be non-monotonic over a particular range of liquid balances (equivalently, firms' hurdle rates for projects can increase in the level of liquid balances). These results reconcile recent empirical evidence in Fazzari, Hubbard and Petersen (1988, 2000), Kaplan and Zingales (1995, 2000) and Cleary (1999). Second, we show that in a dynamic framework, firm's debt level could be positively related to profitability - contrary to the conventional wisdom of one-period models (but consistent with recent empirical evidence in MacKay and Phillips (2001)). Finally, an improvement in future growth opportunities can either cause the firm to increase or decrease its current leverage, depending on the nature of this improvement.
| Author | : Vojislav Maksimovi?, Asl? Demirgüç-Kunt |
| Publisher | : World Bank Publications |
| Total Pages | : 54 |
| Release | : 1999 |
| Genre | : |
| ISBN | : |
October 1996 The findings suggest that across very different financial systems, financial markets and intermediaries have a comparative advantage in funding short-term investment. An active, though not necessarily large, stock market and high scores on an index of respect for legal norms are associated with faster than predicted rates of firm growth. Government subsidies to industry do not increase the proportion of firms growing faster than predicted. Demirgüç-Kunt and Maksimovic focus on two issues. First, they examine whether firms in different countries finance long-term and short-term investment similarly. Second, they investigate whether differences in financial systems and legal institutions across countries are reflected in the ability of firms to grow faster than they might have by relying on their internal resources or short-term borrowing. Across their sample, they find: * Positive correlations between investment in plant and equipment and retained earnings. * Negative correlations between investment in plant and equipment and external financing. * Negative correlations between investment in short-term assets and retained earnings. * Positive correlations between investment in short-term assets and external financing. These findings suggest that across very different financial systems, financial markets and intermediaries have a comparative advantage in funding short-term investment. For each firm in their sample, they estimate a predicted rate at which it can grow if it does not rely on long-term external financing. They show that the proportion of firms that grow faster than the predicted rate in each country is associated with specific features of the legal system, financial markets, and institutions. An active, though not necessarily large, stock market and high scores on an index of respect for legal norms are associated with faster than predicted rates of firm growth. They present evidence that the law-and-order index measures the ability of creditors and debtors to enter into long-term contracts. Government subsidies to industry do not increase the proportion of firms growing faster than predicted. This paper - a product of the Finance and Private Sector Development Division, Policy Research Department - is part of a larger effort in the department to understand the impact of financial constraints on firm growth.
| Author | : H. Kent Baker |
| Publisher | : John Wiley & Sons |
| Total Pages | : 504 |
| Release | : 2011-03-31 |
| Genre | : Business & Economics |
| ISBN | : 1118022947 |
A comprehensive guide to making better capital structure and corporate financing decisions in today's dynamic business environment Given the dramatic changes that have recently occurred in the economy, the topic of capital structure and corporate financing decisions is critically important. The fact is that firms need to constantly revisit their portfolio of debt, equity, and hybrid securities to finance assets, operations, and future growth. Capital Structure and Corporate Financing Decisions provides an in-depth examination of critical capital structure topics, including discussions of basic capital structure components, key theories and practices, and practical application in an increasingly complex corporate world. Throughout, the book emphasizes how a sound capital structure simultaneously minimizes the firm's cost of capital and maximizes the value to shareholders. Offers a strategic focus that allows you to understand how financing decisions relates to a firm's overall corporate policy Consists of contributed chapters from both academics and experienced professionals, offering a variety of perspectives and a rich interplay of ideas Contains information from survey research describing actual financial practices of firms This valuable resource takes a practical approach to capital structure by discussing why various theories make sense and how firms use them to solve problems and create wealth. In the wake of the recent financial crisis, the insights found here are essential to excelling in today's volatile business environment.
| Author | : Kenneth H. Marks |
| Publisher | : John Wiley & Sons |
| Total Pages | : 514 |
| Release | : 2005-05-31 |
| Genre | : Business & Economics |
| ISBN | : 0471726311 |
An in-depth look at the strategies, capital structure, and fund raising techniques for emerging growth and middle-market companies. Here is a comprehensive and practical guide to understanding and applying the basics of corporate finance to emerging growth and middle-market companies. Using empirical data and actual company cases to illustrate capital structures and financing approaches, the book provides a detailed discussion of the many funding instruments, from traditional bank loans and asset-based financing to different types of private equity and other creative solutions; the types of funding sources and their expected rates of returns; and typical deal terms.
| Author | : Paul Butzen |
| Publisher | : Edward Elgar Publishing |
| Total Pages | : 354 |
| Release | : 2003-01-01 |
| Genre | : Business & Economics |
| ISBN | : 9781781956335 |
This book provides coherent theoretical and empirical analysis of firms’ investment and financing decisions. It assesses the role of uncertainty, financial imperfections, corporate governance and taxation. Evidence is obtained using several unique and high quality microeconomic data-sets, which explore features seldom addressed.
| Author | : Vojislav Maksimovic |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2005 |
| Genre | : |
| ISBN | : |
In this paper we focus on two issues. First, we examine whether firms in a thirty country sample finance long-term and short-term investment similarly. Second, we investigate whether perceived differences in the efficiency of the legal systems and in financial institutions across countries are reflected in the ability of firms to obtain external financing and grow at rates greater than they could attain by relying on their internal resources or short-term borrowing. Across our sample, we find positive correlations between investment in plant and equipment and retained earnings, and negative correlations between investment in plant and equipment and external financing. We find negative correlations between investment in short-term assets and retained earnings, and positive correlations between investment in short-term assets and external financing. The findings suggest that across different legal and financial systems, financial markets and intermediaries have a comparative advantage in funding short-term investment. For each firm our sample we estimate a predicted rate at which it can grow if it does not rely on long-term external financing. We show that the proportion of firms that grow at rates exceeding this predicted rate in each country is associated with specific features of the legal system, financial markets and institutions. In countries whose legal systems score high on the efficiency index a greater proportion of firms use long-term external financing, in particular, long-term debt. An active, though not necessarily large, stock market and a large banking sector are also associated with externally financed firm growth. In our sample government subsidies to industry to not increase the proportion of firms growing at rates that exceed the predicted rate.
| Author | : Aslı Demirgüç-Kunt |
| Publisher | : |
| Total Pages | : 54 |
| Release | : 1996 |
| Genre | : Business enterprises |
| ISBN | : |
| Author | : Kose John |
| Publisher | : Emerald Group Publishing |
| Total Pages | : 210 |
| Release | : 2011-03-31 |
| Genre | : Business & Economics |
| ISBN | : 0857249150 |
Presents research on corporate governance from a number of countries across the world, including the United States, Spain, Malaysia, Israel and others. This title examines many important corporate governance mechanisms, such as board characteristics, ownership structure, legal protection of shareholders, and annual general meetings.
| Author | : Vojislav Maksimovic |
| Publisher | : |
| Total Pages | : 54 |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
The findings suggest that across very different financial systems, financial markets and intermediaries have a comparative advantage in funding short-term investment. An active, though not necessarily large, stock market and high scores on an index of respect for legal norms are associated with faster than predicted rates of firm growth. Government subsidies to industry do not increase the proportion of firms growing faster than predicted.Demirguc-Kunt and Maksimovic focus on two issues. First, they examine whether firms in different countries finance long-term and short-term investment similarly. Second, they investigate whether differences in financial systems and legal institutions across countries are reflected in the ability of firms to grow faster than they might have by relying on their internal resources or short-term borrowing.Across their sample, they find:- Positive correlations between investment in plant and equipment and retained earnings.- Negative correlations between investment in plant and equipment and external financing.- Negative correlations between investment in short-term assets and retained earnings.- Positive correlations between investment in short-term assets and external financing.These findings suggest that across very different financial systems, financial markets and intermediaries have a comparative advantage in funding short-term investment.For each firm in their sample, they estimate a predicted rate at which it can grow if it does not rely on long-term external financing. They show that the proportion of firms that grow faster than the predicted rate in each country is associated with specific features of the legal system, financial markets, and institutions.An active, though not necessarily large, stock market and high scores on an index of respect for legal norms are associated with faster than predicted rates of firm growth.They present evidence that the law-and-order index measures the ability of creditors and debtors to enter into long-term contracts. Government subsidies to industry do not increase the proportion of firms growing faster than predicted.This paper - a product of the Finance and Private Sector Development Division, Policy Research Department - is part of a larger effort in the department to understand the impact of financial constraints on firm growth.
| Author | : Paul Asquith |
| Publisher | : John Wiley & Sons |
| Total Pages | : 499 |
| Release | : 2016-03-28 |
| Genre | : Business & Economics |
| ISBN | : 1119207436 |
A discussion-based learning approach to corporate finance fundamentals Lessons in Corporate Finance explains the fundamentals of the field in an intuitive way, using a unique Socratic question and answer approach. Written by award-winning professors at M.I.T. and Tufts, this book draws on years of research and teaching to deliver a truly interactive learning experience. Each case study is designed to facilitate class discussion, based on a series of increasingly detailed questions and answers that reinforce conceptual insights with numerical examples. Complete coverage of all areas of corporate finance includes capital structure and financing needs along with project and company valuation, with specific guidance on vital topics such as ratios and pro formas, dividends, debt maturity, asymmetric information, and more. Corporate finance is a complex field composed of a broad variety of sub-disciplines, each involving a specific skill set and nuanced body of knowledge. This text is designed to give you an intuitive understanding of the fundamentals to provide a solid foundation for more advanced study. Identify sources of funding and corporate capital structure Learn how managers increase the firm's value to shareholders Understand the tools and analysis methods used for allocation Explore the five methods of valuation with free cash flow to firm and equity Navigating the intricate operations of corporate finance requires a deep and instinctual understanding of the broad concepts and practical methods used every day. Interactive, discussion-based learning forces you to go beyond memorization and actually apply what you know, simultaneously developing your knowledge, skills, and instincts. Lessons in Corporate Finance provides a unique opportunity to go beyond traditional textbook study and gain skills that are useful in the field.
