S. Ongena, Gunseli Tumer-Alkan, Natalja von Westernhagen
Most of the literature on multiple banking assumes equal financing shares. However, unequal, asymmetric or concentrated bank borrowing is widespread, and creditor concentration is only weakly correlated with the number of bank relationships. This paper therefore investigates the determinants of creditor concentration for German firms using a comprehensive firm-bank level dataset for the time period between 1993 and 2003. We document that corporate borrowing from banks is very often concentrated, even for the largest firms in our sample. Leveraged firms and firms with more redeployable assets concentrate their borrowing from banks, as are firms dealing with a relationship lender that is profitable, that has lower monitoring costs, or that operates in a concentrated regional lending market.
{"title":"Creditor Concentration: An Empirical Investigation","authors":"S. Ongena, Gunseli Tumer-Alkan, Natalja von Westernhagen","doi":"10.2139/ssrn.1010353","DOIUrl":"https://doi.org/10.2139/ssrn.1010353","url":null,"abstract":"Most of the literature on multiple banking assumes equal financing shares. However, unequal, asymmetric or concentrated bank borrowing is widespread, and creditor concentration is only weakly correlated with the number of bank relationships. This paper therefore investigates the determinants of creditor concentration for German firms using a comprehensive firm-bank level dataset for the time period between 1993 and 2003. We document that corporate borrowing from banks is very often concentrated, even for the largest firms in our sample. Leveraged firms and firms with more redeployable assets concentrate their borrowing from banks, as are firms dealing with a relationship lender that is profitable, that has lower monitoring costs, or that operates in a concentrated regional lending market.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-11-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129129746","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study investigates how the use of debt covenants around the world varies with legal institutions. On the basis of syndicated loans in 36 countries, we find that debt covenants are more prevalent in countries with stronger law enforcement and weaker creditor rights, suggesting that law enforcement facilitates, and creditor rights substitute for, the use of covenants. We also find that the substitution effect between covenant use and creditor rights exists mainly in countries with strong law enforcement, and the effect of legal institutions on covenants is primarily driven by covenants that preserve seniority and capital. In addition, timely loss recognition increases with the use of debt covenants and strong creditor rights attenuate this relation. Overall, our study is the first to provide comprehensive evidence on how the use of debt covenants responds to legal institutions and how it bridges the previously documented link between legal institutions and accounting conservatism.
{"title":"The Use of Debt Covenants Worldwide: Institutional Determinants and Implications on Financial Reporting","authors":"Hyun A Hong, Mingyi Hung, Jieying Zhang","doi":"10.2139/ssrn.1496611","DOIUrl":"https://doi.org/10.2139/ssrn.1496611","url":null,"abstract":"This study investigates how the use of debt covenants around the world varies with legal institutions. On the basis of syndicated loans in 36 countries, we find that debt covenants are more prevalent in countries with stronger law enforcement and weaker creditor rights, suggesting that law enforcement facilitates, and creditor rights substitute for, the use of covenants. We also find that the substitution effect between covenant use and creditor rights exists mainly in countries with strong law enforcement, and the effect of legal institutions on covenants is primarily driven by covenants that preserve seniority and capital. In addition, timely loss recognition increases with the use of debt covenants and strong creditor rights attenuate this relation. Overall, our study is the first to provide comprehensive evidence on how the use of debt covenants responds to legal institutions and how it bridges the previously documented link between legal institutions and accounting conservatism.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124207241","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine three pairs of cross-section regressions that test predictions of the tradeoff model, the pecking order model, and models that center on market conditions. The regressions examine (i) the split of new outside financing between share issues and debt, (ii) the split of new debt financing between short-term and long-term, and (iii) the split of new equity financing between share issues and retained earnings. The pecking order does well until the early 1980s, when the share issues that are its bane become common. The adjustment of leverage to target predicted by the tradeoff model and the response of equity financing to market valuations predicted by the market conditions model have statistically detectable but rather second-order effects on the split of new outside financing between share issues and debt. Targets for shortterm debt seem to influence the mix of short-term versus long-term debt choices of smaller firms, but this targeting effect is weak to non-existent for large firms. Sticky dividends plague the predictions of the pecking order and market conditions models about the split of equity financing between share issues and retained earnings.
{"title":"Capital Structure Choices","authors":"E. Fama, K. French","doi":"10.2139/ssrn.1120848","DOIUrl":"https://doi.org/10.2139/ssrn.1120848","url":null,"abstract":"We examine three pairs of cross-section regressions that test predictions of the tradeoff model, the pecking order model, and models that center on market conditions. The regressions examine (i) the split of new outside financing between share issues and debt, (ii) the split of new debt financing between short-term and long-term, and (iii) the split of new equity financing between share issues and retained earnings. The pecking order does well until the early 1980s, when the share issues that are its bane become common. The adjustment of leverage to target predicted by the tradeoff model and the response of equity financing to market valuations predicted by the market conditions model have statistically detectable but rather second-order effects on the split of new outside financing between share issues and debt. Targets for shortterm debt seem to influence the mix of short-term versus long-term debt choices of smaller firms, but this targeting effect is weak to non-existent for large firms. Sticky dividends plague the predictions of the pecking order and market conditions models about the split of equity financing between share issues and retained earnings.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-06-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114922685","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine how the demand for financial flexibility affects firms' capital structure decisions. We find that: developing firms that are in the phase of financial flexibility building have low leverage; growth firms that are in the phase of utilizing financial flexibility to fund growth opportunities have high leverage; finally, mature firms that are in the phase of recharging financial flexibility have moderate leverage. The financial flexibility framework provides explanations for several capital structure "puzzles" raised in the literature, suggesting that financial flexibility can be an important "missing link" in existing capital structure theories.
{"title":"Financial Flexibility and Capital Structure Decision","authors":"Soku Byoun","doi":"10.2139/ssrn.1108850","DOIUrl":"https://doi.org/10.2139/ssrn.1108850","url":null,"abstract":"We examine how the demand for financial flexibility affects firms' capital structure decisions. We find that: developing firms that are in the phase of financial flexibility building have low leverage; growth firms that are in the phase of utilizing financial flexibility to fund growth opportunities have high leverage; finally, mature firms that are in the phase of recharging financial flexibility have moderate leverage. The financial flexibility framework provides explanations for several capital structure \"puzzles\" raised in the literature, suggesting that financial flexibility can be an important \"missing link\" in existing capital structure theories.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-03-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129418912","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We find dividends do matter to shareholders, but more in declining markets than advancing ones. Dividend-paying stocks outperform non-dividend-paying stocks by 1 to 2% more per month in declining markets than in advancing markets. These results are economically and statistically significant and robust to many risk adjustments and across industries. In addition, we find an asymmetric response to dividend changes based on market conditions: dividend increases matter more in declining markets than advancing ones. Tests indicate that results are not due to more profitable firms and appear not to be caused either by free cash flow or signaling explanations. We also find that it is the existence of dividends, and not the dividend yield, that drives returns' asymmetric behavior relative to market movements.
{"title":"Do Dividends Matter More in Declining Markets?","authors":"Kathleen P. Fuller, M. Goldstein","doi":"10.2139/ssrn.687067","DOIUrl":"https://doi.org/10.2139/ssrn.687067","url":null,"abstract":"We find dividends do matter to shareholders, but more in declining markets than advancing ones. Dividend-paying stocks outperform non-dividend-paying stocks by 1 to 2% more per month in declining markets than in advancing markets. These results are economically and statistically significant and robust to many risk adjustments and across industries. In addition, we find an asymmetric response to dividend changes based on market conditions: dividend increases matter more in declining markets than advancing ones. Tests indicate that results are not due to more profitable firms and appear not to be caused either by free cash flow or signaling explanations. We also find that it is the existence of dividends, and not the dividend yield, that drives returns' asymmetric behavior relative to market movements.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"36 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-12-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133603637","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Murray D. Carlson, Adlai J. Fisher, Ron Giammarino
We theoretically and empirically investigate firm-level risk dynamics around seasoned equity offerings (SEOs). Empirically, beta increases before SEOs and decreases gradually thereafter. Using real options theory, commitment-to-invest generates a gradual post-issuance beta decline whereas instantaneous investment and time-to-build do not. In a behavioral theory, systematic mispricing can cause increasing pre-issuance and decreasing post-issuance risk but idiosyncratic mispricing cannot. In the empirical cross-section, investment, own-firm runup, SEO proceeds, and primary issuance--associated with the real options theory--predict beta declines. Sentiment proxies have weaker effects in the full sample, but are significant in a post-1996 subsample. SEOs coincide with low firm- and market-volatility, suggesting volatility-timing in corporate decisions. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.
{"title":"SEO Risk Dynamics","authors":"Murray D. Carlson, Adlai J. Fisher, Ron Giammarino","doi":"10.2139/ssrn.868284","DOIUrl":"https://doi.org/10.2139/ssrn.868284","url":null,"abstract":"We theoretically and empirically investigate firm-level risk dynamics around seasoned equity offerings (SEOs). Empirically, beta increases before SEOs and decreases gradually thereafter. Using real options theory, commitment-to-invest generates a gradual post-issuance beta decline whereas instantaneous investment and time-to-build do not. In a behavioral theory, systematic mispricing can cause increasing pre-issuance and decreasing post-issuance risk but idiosyncratic mispricing cannot. In the empirical cross-section, investment, own-firm runup, SEO proceeds, and primary issuance--associated with the real options theory--predict beta declines. Sentiment proxies have weaker effects in the full sample, but are significant in a post-1996 subsample. SEOs coincide with low firm- and market-volatility, suggesting volatility-timing in corporate decisions. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134290297","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2010-09-01DOI: 10.1111/J.1540-6261.2010.01616.X
A. Rampini, S. Viswanathan, A. Dasgupta, Douglas W. Diamond, E. Farhi, Alexander Gümbel, Yaron Leitner, Christine A. Parlour, Guillaume Plantin, D. Scharfstein, David Skeie, René M. Stulz
Collateral constraints imply that financing and risk management are fundamentally linked. The opportunity cost of engaging in risk management and conserving debt capacity to hedge future financing needs is forgone current investment, and is higher for more productive and less well-capitalized firms. More constrained firms engage in less risk management and may exhaust their debt capacity and abstain from risk management, consistent with empirical evidence and in contrast to received theory. When cash flows are low, such firms may be unable to seize investment opportunities and be forced to downsize. Consequently, capital may be less productively deployed in downturns. Copyright (c) 2010 the American Finance Association.
{"title":"Collateral, Risk Management, and the Distribution of Debt Capacity","authors":"A. Rampini, S. Viswanathan, A. Dasgupta, Douglas W. Diamond, E. Farhi, Alexander Gümbel, Yaron Leitner, Christine A. Parlour, Guillaume Plantin, D. Scharfstein, David Skeie, René M. Stulz","doi":"10.1111/J.1540-6261.2010.01616.X","DOIUrl":"https://doi.org/10.1111/J.1540-6261.2010.01616.X","url":null,"abstract":"Collateral constraints imply that financing and risk management are fundamentally linked. The opportunity cost of engaging in risk management and conserving debt capacity to hedge future financing needs is forgone current investment, and is higher for more productive and less well-capitalized firms. More constrained firms engage in less risk management and may exhaust their debt capacity and abstain from risk management, consistent with empirical evidence and in contrast to received theory. When cash flows are low, such firms may be unable to seize investment opportunities and be forced to downsize. Consequently, capital may be less productively deployed in downturns. Copyright (c) 2010 the American Finance Association.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"118324559","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Liquidity constraints have been proposed as an important explanation for deviations from the rational expectations/permanent income hypothesis. This paper introduces to the liquidity constraint literature the ratio of a household's debt payments to its disposable personal income, the debt service ratio (DSR). We find that a household with a high DSR is significantly more likely to be turned down for credit than other households. Also, the consumption growth of likely constrained households, identified using the DSR along with the liquid-asset-to-income ratio, is significantly more sensitive to past income than that of other households, confirming the DSR's value in identifying constrained households. Copyright (c) 2010 The Ohio State University.
流动性约束被认为是偏离理性预期/永久收入假设的重要解释。本文在流动性约束文献中引入了家庭债务支付与可支配个人收入之比，即偿债比率(debt service ratio, DSR)。我们发现，DSR高的家庭比其他家庭更有可能被拒绝信贷。此外，使用DSR和流动资产与收入比率确定的可能受约束家庭的消费增长对过去收入的敏感程度明显高于其他家庭，这证实了DSR在识别受约束家庭方面的价值。版权所有2010俄亥俄州立大学。
{"title":"The Debt Payment to Income Ratio as an Indicator of Borrowing Constraints: Evidence from Two Household Surveys","authors":"Kathleen W. Johnson, Geng Li","doi":"10.2139/ssrn.1372062","DOIUrl":"https://doi.org/10.2139/ssrn.1372062","url":null,"abstract":"Liquidity constraints have been proposed as an important explanation for deviations from the rational expectations/permanent income hypothesis. This paper introduces to the liquidity constraint literature the ratio of a household's debt payments to its disposable personal income, the debt service ratio (DSR). We find that a household with a high DSR is significantly more likely to be turned down for credit than other households. Also, the consumption growth of likely constrained households, identified using the DSR along with the liquid-asset-to-income ratio, is significantly more sensitive to past income than that of other households, confirming the DSR's value in identifying constrained households. Copyright (c) 2010 The Ohio State University.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"87 10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-06-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126294121","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes a family of multivariate point process models of correlated event timing whose arrival intensity is driven by an affine jump diffusion. The components of an affine point process are self- and cross-exciting and facilitate the description of complex event dependence structures. ODEs characterize the transform of an affine point process and the probability distribution of an integer-valued affine point process. The moments of an affine point process take a closed form. This guarantees a high degree of computational tractability in applications. We illustrate this in the context of portfolio credit risk, where the correlation of corporate defaults is the main issue. We consider the valuation of securities exposed to correlated default risk and demonstrate the significance of our results through market calibration experiments. We show that a simple model variant can capture the default clustering implied by index and tranche market prices during September 2008, a month that witnessed significant volatility.
{"title":"Affine Point Processes and Portfolio Credit Risk","authors":"Eymen Errais, K. Giesecke, L. Goldberg","doi":"10.2139/ssrn.908045","DOIUrl":"https://doi.org/10.2139/ssrn.908045","url":null,"abstract":"This paper analyzes a family of multivariate point process models of correlated event timing whose arrival intensity is driven by an affine jump diffusion. The components of an affine point process are self- and cross-exciting and facilitate the description of complex event dependence structures. ODEs characterize the transform of an affine point process and the probability distribution of an integer-valued affine point process. The moments of an affine point process take a closed form. This guarantees a high degree of computational tractability in applications. We illustrate this in the context of portfolio credit risk, where the correlation of corporate defaults is the main issue. We consider the valuation of securities exposed to correlated default risk and demonstrate the significance of our results through market calibration experiments. We show that a simple model variant can capture the default clustering implied by index and tranche market prices during September 2008, a month that witnessed significant volatility.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"226 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114748250","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Brennan and Kraus (1987) show that an efficient separating equilibrium in a financing game where the firms have private information about their cash flows does not exist if the cash flows are ordered by the first-order dominance condition. In the present note we relax their assumption about cash flow indivisibility. We show that when the cash flow is divided in parts (projects) and the firms are allowed to issue securities with projects’ cash flows contingent on payoffs, a separating equilibrium may exist even if the firms total cash flows are ordered by the first-order dominance condition.
{"title":"Using Project Financing for Mitigating Asymmetric Information Problems","authors":"A. Miglo","doi":"10.2139/ssrn.686462","DOIUrl":"https://doi.org/10.2139/ssrn.686462","url":null,"abstract":"Brennan and Kraus (1987) show that an efficient separating equilibrium in a financing game where the firms have private information about their cash flows does not exist if the cash flows are ordered by the first-order dominance condition. In the present note we relax their assumption about cash flow indivisibility. We show that when the cash flow is divided in parts (projects) and the firms are allowed to issue securities with projects’ cash flows contingent on payoffs, a separating equilibrium may exist even if the firms total cash flows are ordered by the first-order dominance condition.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-01-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128362742","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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