Debt Maturity and Corporate Capital Structure PDF Download

Author: Don Hamson
Publisher:
ISBN:
Category : Capital
Languages : en
Pages : 40

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Author: Guido Max Mantovani
Publisher:
ISBN:
Category :
Languages : en
Pages : 40

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This paper investigates whether the debt quality matters and the role of debt maturity choice. At corporate level, the mismatch between the debt maturity and other performance drivers widespread unexpected risks. Shortening the maturity incentivise more liquid investments, usually the less productive ones. In the same time, the shorter is the maturity of debt the higher is the probability of corporate default, given a fixed duration of the assets. At financial level, longer maturities tends to increase the cost of debt, but have no clear impact on the probability of default. The corporate nature, namely the dimension and the private status, may impact strongly over such a trade-off. An empirical analysis is made over a sample of Italian unlisted companies with the entire set of detailed financial reports for the five year period 2005-09. Two subsets are identified, separating the companies which disappeared in the source database in 2011. Comparing results from the two subsets contributes to better insulate the endogenous bankruptcy phenomena as proposed by Leland and Toft. We find out: (i) proof of L&T approach but the creditors (instead than the shareholders) seems to be the generators of the endogenous default; (ii) evidence of debt maturity impacts on business performance particularly as value driver of growing options; (iii) significant relations between debt maturity and company size; (iv) a specific contribute of debt maturity to value of the tax shield.

Author: Inessa Love
Publisher: World Bank Publications
ISBN:
Category : Bank loans
Languages : en
Pages : 34

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"The authors study the effect of financial crises on trade credit in a sample of 890 firms in six emerging economies. They find that although provision of trade credit increases right after the crisis, it consequently collapses in the following months and years. The authors observe that firms with weaker financial position (for example, high pre-crisis level of short-term debt and low cash stocks and cash flows) are more likely to reduce trade credit provided to their customers. This suggests that the decline in aggregate credit provision is driven by the reduction in the supply of trade credit, which follows the bank credit crunch. The results are consistent with the "redistribution view" of trade credit provision, in which bank credit is redistributed by way of trade credit by the firms with stronger financial position to the firms with weaker financial stand "--World Bank web site.

Author: Paul Asquith
Publisher: John Wiley & Sons
ISBN: 1119207436
Category : Business & Economics
Languages : en
Pages : 499

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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.

Author: Sophia Chen
Publisher: International Monetary Fund
ISBN: 1484397630
Category : Business & Economics
Languages : en
Pages : 77

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Book Description
The maturity structure of debt can have financial and real consequences. Short-term debt exposes borrowers to rollover risk (where the terms of financing are renegotiated to the detriment of the borrower) and is associated with financial crises. Moreover, debt maturity can have an impact on the ability of firms to undertake long-term productive investments and, as a result, affect economic activity. The aim of this paper is to examine the evolution and determinants of debt maturity and to characterize differences across countries.

Author: Sharjil M. Haque
Publisher: International Monetary Fund
ISBN: 1589064127
Category : Business & Economics
Languages : en
Pages : 51

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We study the impact of the COVID-19 recession on capital structure of publicly listed U.S. firms. Our estimates suggest leverage (Net Debt/Asset) decreased by 5.3 percentage points from the pre-shock mean of 19.6 percent, while debt maturity increased moderately. This de-leveraging effect is stronger for firms exposed to significant rollover risk, while firms whose businesses were most vulnerable to social distancing did not reduce leverage. We rationalize our evidence through a structural model of firm value that shows lower expected growth rate and higher volatility of cash flows following COVID-19 reduced optimal levels of corporate leverage. Model-implied optimal leverage indicates firms which did not de-lever became over-leveraged. We find default probability deteriorates most in large, over-leveraged firms and those that were stressed pre-COVID. Additional stress tests predict value of these firms will be less than one standard deviation away from default if cash flows decline by 20 percent.

Author: Joseph P. H. Fan
Publisher:
ISBN:
Category : Comparative economics
Languages : en
Pages : 53

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This study examines the influence of institutional environment on capital structure and debt maturity choices by examining a cross-section of firms in 39 developed and developing countries. We find that a country's legal and tax system, the level of corruption and the preferences of capital suppliers explain a significant portion of the variation in leverage and debt maturity ratios. Our evidence indicate that firms in countries that are viewed as more corrupt tend to use less equity and more debt, especially short-term debt, while firms operating within legal systems that provide better protection for financial claimants tend to have capital structures with more equity, and relatively more long-term debt. In addition, the existence of an explicit bankruptcy code and/or deposit insurance is associated with higher leverage and more long-term debt. We also find that firms tend to use more debt in countries where there is a greater tax gain from leverage, while firms in countries with larger government bond markets have lower leverage, suggesting that government bonds tend to crowd out corporate debt. Countries with more extensive defined benefit pension funds have higher debt ratios and longer debt maturities, whereas those with more extensive defined contribution fund activities have lower debt ratios. In addition, debt ratios are lower in countries that limit the bond holdings of pension funds. Finally, we do not find a significant association between financing choices and the size of the insurance industry -- National Bureau of Economic Research web site.

Author: Fabio Schiantarelli
Publisher: World Bank Publications
ISBN:
Category : Corporate debt
Languages : en
Pages : 44

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Author: Paul Howard Richards
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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It is shown i) that the under-investment problem is caused by the debt-equity mix of the financing rather than the investment itself and that a transfer of value (from shareholders to debt-holders) can be reversed by a post-investment adjustment in capital structure that restores the pre-investment gearing ratio. This simple, low-cost solution is preferable to reducing debt maturity (as in Myers (1977)) or gearing; ii) that transfers in value from debt-holders to shareholders to promote over-investment are not sustainable since investors will seek to avoid being disadvantaged by demanding higher returns, greater restrictions on the company or both; and that information asymmetry that restricts the issue of new shares can be managed by using several alternatives such as bridge financing in ways that remove the rationale for the pecking order theory; and iii) that managers have incentives to engage in empire building which is facilitated by a capital structure that reflects the degree of concentration among the other companies in the sector: faced with a low (high) degree of concentration, companies have lower (higher) gearing. The implications of these outcomes are empirically investigated using an extensive sample and robust estimating procedures providing strong support for the hypotheses tested.

Author: Lorenzo Sasso
Publisher: Kluwer Law International B.V.
ISBN: 9041148515
Category : Law
Languages : en
Pages : 248

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Despite a clear distinction in law between equity and debt, the results of such a categorization can be misleading. The growth of financial innovation in recent decades necessitates the allocation of control and cash-flow rights in a way that diverges from the classic understanding. Some of the financial instruments issued by companies, so-called hybrid instruments, fall into a grey area between debt and equity, forcing regulators to look beyond the legal form of an instrument to its practical substance. This innovative study, by emphasizing the agency relations and the property law claims embedded in the use of such unconventional instruments, analyses and discusses the governance regulation of hybrids in a way that is primarily functional, departing from more common approaches that focus on tax advantages and internal corporate control. The author assesses the role of hybrid instruments in the modern company, unveiling the costs and benefits of issuing these securities, recognizing and categorizing the different problem fields in which hybrids play an important role, and identifying legal and contracting solutions to governance and finance problems. The full-scale analysis compares the U.K. law dealing with hybrid instruments with the corresponding law of the most relevant U.S. jurisdictions in relation to company law. The following issues, among many others, are raised: decisions under uncertainty when the risks of opportunism of the parties is very high; contract incompleteness and ex post conflicts; protection of convertible bondholders in mergers and acquisitions and in assets disposal; use of convertible bonds to reorganise and restructure a firm; timing of the conversion and the issuer’s call option; majority-minority conflict in venture capital financing; duty of loyalty; fiduciary duties to preference shareholders; and financial contract design for controlling the board’s power in exit events. Throughout, the analysis includes discussion, comparison, and evaluation of statutory provisions, existing legal standards, and strategies for protection. It is unlikely that a more thorough or informative account exists of the complex regulatory problems created by hybrid financial instruments and of the different ways in which regulatory regimes have responded to the problems they raise. Because business parties in these jurisdictions have a lot of scope and a strong incentive to contract for their rights, this book will also be of uncommon practical value to corporate counsel and financial regulators as well as to interested academics.