Search

We investigate the interdependence of debt financing and R&D activities of young firms. Using micro-level data of the KfW/ZEW Start-up Panel, our estimation results show that firm characteristics are more important than personal characteristics of the founders for explaining young firms' leverage, whereas firm characteristics and human capital of both founders and employees heavily influence R&D intensity. Applying a bivariate Tobit model, we find that there is a positive interdependent relationship between the share of loan financing and R&D intensity. A higher share of loan financing allows for more R&D in young firms and, at the same time, a higher R&D intensity allows for a higher loan share. This relationship cannot be detected by merely estimating single-equation models for R&D intensity and debt financing.

We build a dynamic capital structure model to study the link between systematic risk exposure and debt maturity, as well as their joint impact on the term structure of credit spreads. Our model allows for time variation and lumpiness in the maturity structure. Relative to short-term debt, long-term debt is less prone to rollover risks, but its illiquidity raises the costs of financing. The risk premium embedded in the bankruptcy costs causes firms with high systematic risk to favour longer debt maturity, as well as a more stable maturity structure over the business cycle. Pro-cyclical debt maturity amplifies the impact of aggregate shocks on the term structure of credit spreads, especially for firms with high leverage or high beta, and for firms with a large amount of long-term debt maturing when the aggregate shock arrives. However, endogenous maturity choice can also reduce and even reverse the effect of rollover risk on credit spreads. We provide empirical evidence for the model predictions on both debt maturity and credit spreads., À l’aide d’un modèle dynamique de la structure de capital, les auteurs étudient le lien entre l’exposition des entreprises au risque systématique et l’échéance de leur dette, ainsi que les incidences conjointes de ces deux facteurs sur la structure par terme des écarts de crédit. Dans leur modèle, la structure des échéances peut varier dans le temps et être irrégulière. Les obligations à long terme sont moins sensibles au risque de refinancement que les titres à court terme, mais leur illiquidité a pour effet d’alourdir les coûts d’emprunt. La prime de risque intégrée aux coûts de faillite amène les firmes très exposées au risque systématique à préférer une dette à plus long terme et une structure des échéances plus stable sur le cycle économique. La procyclicité des échéances amplifie les répercussions des chocs globaux sur la structure par terme des écarts de crédit, surtout dans le cas des entreprises fortement endettées ou dont les titres affichent un bêta élevé et de celles qui ont un volume considérable d’obligations à long terme échéant au moment du choc global. Cependant, le choix endogène de l’échéance peut également atténuer, voire inverser, les effets du risque de refinancement sur les écarts de crédit. Les auteurs testent empiriquement la validité des prévisions de leur modèle concernant l’échéance de la dette et les écarts de crédit.

Using internal data of a leasing company in Germany, we examine the determinants of the probability and use of leasing by small firms. We find that small and young firms are likely to be constrained on the leasing market but use leasing to increase their debt capacity. Beyond contract- and firm-specific characteristics, demographic and socio-economic characteristics of the entrepreneur matter. Older and higher qualified entrepreneurs have easier access to leasing than those who are younger or non-educated, but the latter lease more than highly educated entrepreneurs. Female and non-married entrepreneurs of young firms use leasing to increase their debt capacity. These results are important for aging populations where the financing of entrepreneurial activities by highly qualified, older and female persons are important to sustain growth.

The purpose of this dissertation is to contribute to the closure of these aforementioned research gaps. Answering these calls, the following research objectives are proposed: 1. Understanding the main factors that have an influence on the capital structure decision of firms. 2. Understanding how the capital structure of firms differs among various industries and to fathom cross-sectional differences in the importance of debt determinants among industries. 3. Investigating the influence of time on the capital structure decision of firms. In specific, it must be found out whether certain debt determinants alter their effect on the capital structure decision of firms over time. 4. Studying the market-timing effect of debt financing. It must be researched how managers time the debt market when engaging in bond or loan issues. 5. Empirically proving how stylized factors and market-timing behaviour influences the transaction of equity, bond and loan issues as well as of share repurchases. 6. Finally, discussing how far the stylized facts can be explained by existing capital structure theory in order to crown the theory, whose notion can best account the observed financing patterns across the world.

Multinational companies can exploit the tax advantage of debt more aggressively than national companies by shifting debt from affiliates in low tax countries to affiliates in high tax countries. Previous papers have either omitted internal debt or external debt from the analysis. We are the first to model the companies’ choice between internal and external debt shifting and show that it is optimal for them to use both types of debt to save taxes. Using a large panel of German multinationals, we find strong empirical support for our model. The estimated coefficients suggest that internal and external debt shifting are of about equal relevance. Since the tax variables that determine the incentive to shift internal and external debt are correlated both with each other and with the host country tax rate, previous estimates of the tax sensitivity of debt suffer from omitted variable bias.

This paper provides a quantitative review of the empirical evidence on the impact of taxation on corporate debt finance. On the basis of 626 primary estimates taken from 23 studies, we find that the median tax-rate elasticity of debt ratios is around 0.44. The median tax-rate elasticity of incremental debt changes amounts to 2.47. There is, however, considerable variation in estimated tax effects on financial leverage. By means of meta-regressions, the paper aims to systematically explain this variation in terms of underlying study characteristics. The meta-regressions indicate that the heterogeneity in the semi-elasticities from the different studies can be fairly well explained by the characteristics of these studies. We find that the estimated tax elasticities are more pronounced if large firms or holding companies are considered. Moreover, our results suggest significantly higher tax elasticities of intercompany debt supporting the view that tax planning strategies of multinational firms affect debt financing.

Etwa 8,8 Millionen Wohnungen in Deutschland werden durch gewerbliche Vermieter bewirtschaftet. Das Kapital dieser Wohnungsgesellschaften ist überdurchschnittlich lang gebunden, was wiederum langfristig durchdachte Finanzierungsstrukturen erfordert. Besonders das Risiko sich verändernder Zinsen trifft Wohnungsunternehmen deutlicher, als andere Unternehmen. Die Abhandlung befasst sich mit der Frage, inwieweit veränderte Zinskonditionen existenzbedrohende Aufwandserhöhungen mit sich bringen könnten. Kennzahlen zur Beurteilung von Risiken werden erläutert und beispielhaft für einige ausgewählte Wohnungsunternehmen berechnet. Basis dafür waren die veröffentlichten Jahresabschlüsse von acht ausgewählten Thüringer Wohnungsgesellschaften. Zur Verdeutlichung der Situation wurden die Auswirkungen einer fiktiven Zinssatzerhöhung auf wesentliche Ergebnisgrößen der Gesellschaften simuliert. Einige Ansätze, wie solcherart Risiken aus der Finanzierungsstruktur erkannt werden können und welche grundsätzlichen Möglichkeiten der Gegensteuerung bestehen, beschließen die Schrift.

Banks' leverage choices represent a delicate balancing act. Credit discipline argues for more leverage, while balance-sheet opacity and ease of asset substitution argue for less. Meanwhile, regulatory safety nets promote ex post financial stability, but also create perverse incentives for banks to engage in correlated asset choices and to hold little equity capital. As a way to cope with these distorted incentives, we outline a two-tier capital framework for banks. The first tier is a regular core capital requirement that helps deter excessive risk-taking incentives. The second tier, a novel aspect of our framework, is a special capital account that limits risk taking but preserves creditors' monitoring incentives.

The paper examines the relationship between leverage and growth in a group of emerging central and eastern European countries, who are at different levels of financial market development. We hypothesize a non-linear relationship in that moderate leverage could boost growth while very high leverage could lower it by increasing the likelihood of financial distress and bankruptcy. Estimates of a Threshold model confirm the non-linear relationship in our sample, after controlling for various firm, industry and financial market characteristics. We also endogenously determine a threshold level of leverage beyond which further increases in leverage could lower TFP growth.

This article aims at analyzing the link between subsidiaries' capital structure and taxation in Europe. First we introduce a trade-off model, which studies a MNCs' financial strategy and shows how debt policy allows multinational groups to shift profits from low-tax to high-tax jurisdictions. By letting the MNC choose both leverage and the percentage of profit shifting, we depart from the relevant literature which has mainly focused on the latter. Using the AMADEUS dataset we show that: i) subsidiaries' leverage increases with the statutory tax rate, levied in the country where it operates; ii) this positive effect is lower, the higher the parent company tax rate is. Furthermore, an increase in the parent company's tax rate is estimated to raise its subsidiaries' leverage.

This report evaluates and compares the evolution and the determinants of the capital structure of Brazilian firms, with a particular emphasis on external financing. One of its main conclusions is that country factors are nearly as important as firm level factors. Industry factors are not very important. In terms of the total debt levels, Brazilian firms have behaved differently from those in other emerging markets, particularly from those in Asia. While Brazilian firms have been increasing their total debt levels, in Asia there is a decreasing debt trend. The Brazilian economic tability is recent and the low foreign exchange volatility, the economic cycle, as well as the quality of institutions, such as the judiciary, are instrumental for the increase of debt levels. Firms in countries with more credit restrictions take on more debt when the economy grows. The demand for foreign exchange risk hedging has fallen in recent times, but the supply of such instruments seems to have been adequate. The term of such hedging instruments is increasing, despite the lower demand. There was no evidence that Brazilian public companies behave differently from those in other emerging economies with a similar external debt risk. A comprehensive literature review on the subject is presented, including research about non-public firms.Brazilian data on all the issues reported are also presented.

This paper investigates the determinants of liability maturity choice in transition markets. We formulate a model of firm value maximization that describes managers' choice of optimal debt structure. The theoretical predictions are tested using a unique panel of 4,300 Ukrainian firms during the period 2000-2005. Our estimates confirm the importance of liquidity, signaling, maturity matching, and agency costs for the liability term structure of firms operating in a transition economy. In addition, we find that companies do not react uniformly to determinants of debt maturity. Firms that mainly rely on external funds are sensitive to signaling and they consider the variability of firm value an important determinant of their debt maturity choice. For less constrained companies that rely more on internal funding, asset maturity is an essential determinant of debt structure.

This paper empirically analyses whether both personal and corporate taxation have an impact on companies' capital structure decisions. We investigate the effect of the difference in taxation of debt and equity financing on capital structures. Our empirical results, based on a comprehensive panel of European firm-level data, suggest that a higher tax benefit of debt has the expected significant positive impact on a company's financial leverage. Particularly, we find evidence that the capital structures of smaller companies respond more heavily to changes in the tax benefit of debt. Additional analysis confirms that not only corporate taxes are relevant for corporate financial planning, but variation in capital income tax rates at the shareholder level implicates significant capital structure adjustments as well. Moreover, we find substitutive relationships between non-debt tax shields and the effect of the corporate tax rate on capital structures.

In this article we use contingent-claim analysis to calculate the effective tax rate (ETR) under corporate debt finance. In particular, we deal with both pure debt and two of the most well-known hybrid securities, i.e., convertible, and reverse convertible bonds. We show that: 1) effective taxation crucially depends on the characteristics of debt, and 2) existing measures of ETR can be dramatically biased, since they do not account for debt maturity, default risk or the ability to convert debt into equity.

This study examines how family ownership affects the performance and capital structure of 613 Canadian firms using a panel dataset from 1998 to 2005. In particular, we distinguish the effect of family ownership from the use of control-enhancing mechanisms. We find that freestanding family-owned firms with a single share class have similar market performance than other firms based on Tobin's q ratios, superior accounting performance based on ROA, and higher financial leverage based on debt-to-total assets. By contrast, family-owned firms that use dual-class shares have valuations that are lower by 17% on average relative to widely-held firms, despite having similar ROA and financial leverage. Finally, concentrated ownership by either a corporation or a financial institution does not significantly affect firm performance., En se fondant sur un ensemble de données de panel relatif à 613 entreprises canadiennes et allant de 1998 à 2005, les auteurs examinent comment le fait qu'une entreprise soit la propriété d'une famille influe sur sa rentabilité et la structure de son capital. Ils s'attachent en particulier à bien distinguer les rôles respectifs de ce facteur et des mécanismes de renforcement du contrôle. Les auteurs constatent que les entreprises familiales indépendantes qui émettent une seule catégorie d'actions sont aussi bien évaluées que les autres (d'après le ratio q de Tobin), plus rentables (d'après le rendement de l'actif) et plus endettées (d'après le ratio de la dette à l'actif total). À l'opposé, les entreprises familiales dont les actions sont assorties de droits de vote différents sont sous-évaluées en moyenne de 17 % par rapport aux entreprises à capital dispersé, même si le rendement de leur actif et leur endettement sont semblables à ceux de ces entreprises. Enfin, le fait d'appartenir à une autre société ou à une institution financière n'influe pas de façon significative sur les résultats.

This paper studies capital structure adjustment mechanisms of firms that experience substantial changes in leverage. Adjustments appear to be asymmetric among firms with large increases and those with large decreases in debt ratios. The different adjustments are not due to differences in leverage targets or industry distributions between the samples. Speeds of adjustment are found to be affected by market timing opportunities. The persistence of equity market timing opportunities slows some firms' rebalancing process., L'auteure examine les mécanismes d'ajustement de la structure du capital des entreprises qui subissent d'importantes modifications du levier financier. Ces entreprises s'ajustent à des rythmes différents selon que leur ratio d'endettement augmente ou diminue beaucoup. Cette asymétrie du rythme d'ajustement ne résulte pas de la présence d'écarts entre les ratios cibles d'endettement ni de différences dans la composition sectorielle des échantillons. La vitesse de l'ajustement apparaît plutôt influencée par les possibilités avantageuses de financement sur les marchés boursiers. Dans certaines entreprises, la persistance de ces possibilités ralentit le rééquilibrage.

Traditionally, firms in India have shown a low preference towards debt financing, despite its advantages. Using panel data from 450 firms during 1992-93 and 2003-04, we attempt to identify factors which could explain the pattern of financing of manufacturing firms in India and the key determinants of their debt structure. We examine the roles of age of the firm, long term borrowing and net sales in affecting its debt structure.

This paper analyzes the effectiveness of thin-capitalization rules in preventing debt finance by intercompany loans and explores their consequences for corporate decisions. A theoretical discussion emphasizes that limitations of the deduction of interest owed to foreign affiliates would not only affect multinationals' capital structure choice but also investment. An empirical investigation exploits a large firm-level panel dataset of multinationals in order to analyze the impact of thin-capitalization rules on capital structure choice and investment in the OECD and some further European countries in the time period between 1996 and 2004. The results indicate that thin-capitalization rules are effective in curbing tax planning via intercompany loans. However, investment is found to be adversely affected.

Prior work on leverage implicitly assumes capital availability depends solely on firm characteristics. However, market frictions that make capital structure relevant may be associated with a firm's source of capital. Examining this intuition, we find firms which have access to the public bond markets, as measured by having a debt rating, have significantly more leverage. Although firms with a rating are fundamentally different, these differences do not explain our findings. Even after controlling for firm characteristics which determine observed capital structure, and instrumenting for the possible endogeneity of having a rating, firms with access have 35 percent more debt.

In this paper we introduce flexibility as an economic concept and apply it to the firm’ssecurity issuance decision and capital structure choice. Flexibility is the ability to makedecisions that one thinks are best even when others disagree. The firm’s management valuesflexibility because it allows management to make decisions it believes are best forshareholders without being blocked by dissenters. The amount of flexibility management has atany point in time depends on how the firm is financed. Debt offers little flexibility relativeto equity. However, the flexibility offered by equity depends on the extent to whichshareholders are inclined to agree with management’s strategic choices. Equity offers thegreatest flexibility when the propensity for shareholder agreement is the highest. It turnsout that the firm’s stock price is also increasing in shareholders’ propensity to agree withmanagement. Thus, the flexibility benefit of equity is high only when the sh!are price is high. The firm’s optimal security-issuance choice trades off the flexibilitybenefit of equity against the now-familiar debt tax shield, and the firm’s capital structure isthe consequence of a sequence of past security-issuance choices. The strongest implication ofthis theory of capital structure evolution is that optimal capital structure is essentiallydynamic, and depends on the firm’s stock price, implying that firms issue equity when stockprices are high and debt when stock prices are low. The theory explains many stylized factsthat fly in the face of existing capital structure theories and also generates new testablepredictions. Moreover, the theory can rationalize the use of debt in the absence of taxes,agency costs or signaling considerations.

Die Finanzstruktur eines Unternehmens beeinflußt dessen Wettbewerbs verhalten auf dem Gütermarkt. Dieser Sachverhalt wird im Rahmen von industrieökonomischen Oligopolmodellen aufgezeigt, in denen die Aufnahme von Fremdkapital eine strategische Verpflichtung der Unternehmen für eine bestimmte Gütermarktstrategie darstellt. Auf dem Gütermarkt wird zwischen Wettbewerb in strategischen Substituten und Komplementen unterschieden, dabei wird die Interaktion der Unternehmen jeweils im Ein-, Zwei- oder Mehrperioden-Fall analysiert. Die Finanzstruktur eines Unternehmens wird von den Haftungsbedingungen, den Bankrottkosten, der Bankenstruktur, der Schuldenfristigkeit oder der Art des Kreditvertrages beeinflußt, die optimale Höhe der Verschuldung wird rekursiv aus dem Gütermarktgleichgewicht bestimmt. Kurzfristige Verschuldung fuhrt bei Mengenwettbewerb zu aggressivem Verhalten am Gütermarkt. Langfristige Verschuldung hingegen läßt die Unternehmen kollusiv agieren, bis auch sie am Ende der Schuldenlaufzeit zu aggressivem Outputverhalten übergehen. Im Fall von Preiswettbewerb führt die strategische Verschuldung der Unternehmen (sowohl kurz- als auch mittelfristig) zu Absprachen und Preiserhöhungen am Gütermarkt, die durch Produktdifferenzierung und Wechselkosten noch verstärkt werden.