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Leverage
Kinds of Leverage Terms modified by Leverage Selected AbstractsTHE EFFECTS OF UNCERTAINTY ON THE LEVERAGE OF NONFINANCIAL FIRMSECONOMIC INQUIRY, Issue 2 2009CHRISTOPHER F. BAUM This paper investigates the link between the optimal level of nonfinancial firms' short-term leverage and macroeconomic and idiosyncratic sources of uncertainty. We develop a structural model of a firm's value maximization problem that predicts a negative relationship between uncertainty and optimal levels of borrowing. This proposition is tested using a panel of nonfinancial U.S. firms drawn from the COMPUSTAT quarterly database covering the period 1993,2003. The estimates confirm that as either form of uncertainty increases, firms decrease their levels of short-term leverage. This effect is stronger for macroeconomic uncertainty than for idiosyncratic uncertainty. (JEL C23, D8, D92, G32) [source] THE FAMA-FRENCH MODEL, LEVERAGE, AND THE MODIGLIANI-MILLER PROPOSITIONSTHE JOURNAL OF FINANCIAL RESEARCH, Issue 3 2004Martin Lally Abstract For a cost-of-equity model to conform to the Modigliani-Miller cost-of-capital propositions, any sensitivity coefficients in the model must be related to the firm's leverage. In this paper I apply these principles to the Fama-French model for the cost of equity and develop the relation between its sensitivity coefficients and firm leverage. I then examine an empirical process developed by Fama and French (1997) to model the evolution through time of their sensitivity coefficients and show that this empirical process is inconsistent with the Modigliani-Miller propositions. Separable functions are proposed for these sensitivity coefficients that are consistent with the Modigliani-Miller propositions. [source] Taxes, Leverage, and the Cost of Equity CapitalJOURNAL OF ACCOUNTING RESEARCH, Issue 4 2006DAN DHALIWAL ABSTRACT We examine the associations among leverage, corporate and investor level taxes, and the firm's implied cost of equity capital. Expanding on Modigliani and Miller [1958, 1963], the cost of equity capital can be expressed as a function of leverage and corporate and investor level taxes. Based on this expression, we predict that the cost of equity is increasing in leverage, and that corporate taxes mitigate this leverage-related risk premium, while the personal tax disadvantage of debt increases this premium. We empirically test these predictions using implied cost of equity estimates and proxies for the firm's corporate tax rate and the personal tax disadvantage of debt. Our results suggest that the equity risk premium associated with leverage is decreasing in the corporate tax benefit from debt. We find some evidence that the equity risk premium from leverage is increasing in the personal tax penalty associated with debt. [source] Precision in Accounting Information, Financial Leverage and the Value of EquityJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 7-8 2007Glenn Feltham Abstract:, Using an equity valuation model characterized by periodic imperfect accounting information, we examine how financial leverage affects a firm's accounting quality choice (i.e., precision). We find that the existence of financial leverage motivates firms with average to good performance to prepare accounting information with a high degree of precision. However, we conclude that when a firm is performing poorly it has an incentive to reduce accounting precision in order to lower the likelihood of both a debt covenant violation and the detection of accounting bias. [source] Luck, Leverage, and Equality: A Bargaining Problem for Luck EgalitariansPHILOSOPHY AND PUBLIC AFFAIRS, Issue 3 2007MATTHEW SELIGMAN First page of article [source] Land Leverage: Decomposing Home Price DynamicsREAL ESTATE ECONOMICS, Issue 2 2007Raphael W. Bostic This article demonstrates the importance of separating the bundled good of housing into land and improvements, arguing that changes in a property's overall value will depend critically on how much of its total value is contained in the land, a proportion we call land leverage. The importance of this deconstruction is demonstrated by highlighting how land leverage helps to explain variation in house price appreciation in Wichita, Kansas. Noting that land leverage should be relevant for many real estate issues and policies, we highlight four specific areas where consideration of land leverage could significantly improve our understanding of real estate markets. Land is the only thing in the world that amounts to anything , for ,tis the only thing in this world that lasts, and don't you be forgetting it!,Tis the only thing worth working for, worth fighting for,worth dying for. Gerald O'Hara in Gone with the Wind1 [source] Asset Bubbles, Leverage and ,Lifeboats': Elements of the East Asian CrisisTHE ECONOMIC JOURNAL, Issue 460 2000H. J. Edison Collapsing credit markets have been blamed for the depth and persistence of the Great Depression in the United States. Could similar mechanisms have played a role in ending the East Asian economic miracle , and in creating fragility in global financial markets? After a brief account of the nature of the East Asian crises of 1997/8, we use the framework of highly-leveraged, fully-collaterised firms due to Kiyotaki and Moore (1997) to explore the impact of a credit crunch. The paper emphasises the fragility of equilibrium and how rapidly boom can turn to bust. [source] Who Cares about Auditor Reputation?,CONTEMPORARY ACCOUNTING RESEARCH, Issue 3 2005JAN BARTON Abstract I provide evidence on the demand for auditor reputation by examining the defections of Arthur Andersen LLP's clients following the accounting scandals and criminal conviction marring the auditor's reputation in 2002. About 95 percent of clients in my sample did not switch auditors until after Andersen was indicted for criminal misconduct regarding its failed audit of Enron Corp. I test whether the timing of client defections and the choice of a new auditor are consistent with managers' incentives to mitigate potentially costly information and agency problems. I find that clients defected sooner, mostly to another Big 5 auditor, if they were more visible in the capital markets; such clients attracted more analysts and press coverage, had larger institutional ownership and share turnover, and raised more cash in recent security issues. However, my proxies for agency conflicts , managerial ownership and financial leverage , are not associated with the timing of defections or the choice of new auditor. Overall, my study suggests that firms more visible in the capital markets tend to be more concerned about engaging highly reputable auditors, consistent with such firms trying to build and preserve their own reputations for credible financial reporting. [source] Corporate Governance and Capital Structure Decisions of the Chinese Listed FirmsCORPORATE GOVERNANCE, Issue 2 2002Yu Wen This paper studies the relationship between some characteristics of the corporate board and the firm's capital structure in Chinese listed firms. The findings provide some preliminary empirical evidence and seem to suggest that managers tend to pursue lower financial leverage when they face stronger corporate governance from the board. However, the empirical results of the relationships are statistically significant only in the case of the board composition and the CEO tenure. The results are statistically insignificant in the case of the board size and fixed CEO compensation. This may in general suggest that, up to the time period of our investigation, the corporate board structures and processes in Chinese listed firms might not as yet be fully working in the manner, or as well, as might have been so far assumed on the basis of Western theoretical finance literature. [source] Factors Associated with the Development of Board Sub,committeesCORPORATE GOVERNANCE, Issue 1 2002Elizabeth Carson This study examines the factors associated with the presence of board sub,committees, specifically audit, remuneration and nomination committees. Factors which are hypothesised in this study to affect sub,committee presence are Big 6 auditors, non,executive directors, non,executive chairmen, number of intercorporate relationships of the board and shareholder type. Company size, number of board members and leverage are employed as control variables as suggested by earlier research. An analysis of board sub,committees in the Australian corporate environment is relevant to other jurisdictions as there are no mandatory requirements on either board composition or board sub,committees. There is, however, a mandatory requirement to disclose corporate governance practices which allows for a study of this type to be reliably conducted. A sample of 361 Australian companies drawn from the largest 500 public companies is employed. Audit committee presence is found to be positively associated with Big 6 auditors and the number of intercorporate relationships of the directors of the board. Remuneration committees are also found to be associated with Big 6 auditors and intercorporate relationships and also higher levels of institutional investment. The presence of nomination committees is not associated with auditors, directors or investors, but is associated with board size and leverage. The study concludes that audit committees are a highly developed and mature governance mechanism, and that remuneration committees can be classed as a developing and maturing structure whilst nomination committees are relatively immature. [source] Roles of the actin-binding proteins in intracellular Ca2+ signallingACTA PHYSIOLOGICA, Issue 1 2009J. T. Chun Abstract Starfish oocytes undergo massive intracellular Ca2+ signalling during meiotic maturation and fertilization. Although the igniting stimulus of Ca2+ mobilization may differ in different cell contexts, its final leverage is usually the Ca2+ -releasing second messengers such as InsP3, cADPr and NAADP. The general scheme of intracellular Ca2+ release is that the corresponding receptors for these molecules serve as ion channels to release free Ca2+ from its internal stores such as the lumen of the endoplasmic reticulum. However, a growing body of evidence has suggested that intracellular Ca2+ release can be strongly modulated by the actin cytoskeleton. Although it is known that Ca2+ contributes to remodelling of the actin cytoskeleton, whether the actin cytoskeleton modulates Ca2+ signalling in return has not been much explored. An emerging candidate to answer to this reciprocal causality of Ca2+ and the actin cytoskeleton may be actin-binding proteins. In this review, we discuss how the actin cytoskeleton may fit into the known mechanisms of intracellular Ca2+ release, and propose two models to explain the experimental data. [source] Using the Malcolm Baldrige National Quality Award in Teaching: One Criteria, Several Perspectives,DECISION SCIENCES JOURNAL OF INNOVATIVE EDUCATION, Issue 2 2004James A. Belohlav ABSTRACT The Malcolm Baldrige National Quality Award (MBNQA) has influenced the thinking and operations within organizations from all sectors of the American economy. This paper presents the experiences of three faculty members who have used the Criteria for Performance Excellence and the underlying concepts of the MBNQA to enhance the learning experiences of their students. The authors discuss how Dale's Cone of Experience is employed, by means of concrete exercises and experiences, to better leverage the student's ability to understand the abstract concepts. The formal, end-of-term student evaluations indicate that the described approach has led to a higher level of student engagement in the learning process, as evidenced by more abundant and higher-quality feedback to the instructors. [source] Drought, Domestic Budgeting and Wealth Distribution in Sahelian HouseholdsDEVELOPMENT AND CHANGE, Issue 5 2000Matthew Turner Over the past twenty-five years, Sahelian households have experienced recurrent harvest failure and greater reliance on remittances from migratory wage labour. Household subsistence has become less dependent on household grain stores and more on the liquidation of individual wealth stores. This study investigates how these broader changes have affected struggles between household members over obligations to support the household in the Zarmaganda region of western Niger. As the land-derived leverage of male patriarchs has declined and household dependence on individual wealth stores has increased, domestic budgeting has become more contested. Household heads make case-by-case moral claims on other household members during times of grain shortage. Women and subordinate males invoke Islamic law, which accords primary provisioning responsibility to the household head, to protect their individual wealth in times of grain deficit. This article investigates the nature of these budgetary struggles, showing how individuals' decisions to contribute individual wealth to support the household are best understood as highly situated, affected not only by the specific material conditions of the household but also the interplay of the moral, structural, and individualistic imperatives that derive from one's position within the household. Using reconstructed livestock wealth histories for the members of fifty-four households in western Niger, this study investigates the material consequences of these struggles. Male heads of corporate households, the historic managers of the household's land and agricultural labour, have lost wealth relative to their wives and married male subordinates since the drought of 1984. [source] From the Theory of Aid Effectiveness to the Practice: The European Commission's Governance Incentive TrancheDEVELOPMENT POLICY REVIEW, Issue 5 2009Nadia Molenaers Around the turn of the millennium a growing consensus emerged on the dos and don'ts of development assistance, based on lessons drawn from failed aid. Donors now increasingly see aid as a leverage to induce or support governance reforms in recipient countries. The EC, which considers itself to be a forerunner of the new aid approach, has recently launched a new instrument to incentivise such reforms: the ,Governance Incentive Tranche'. However, the evidence presented in this article suggests that, in design and practice, the incentive tranche is surprisingly similar to some of the unsuccessful aid modalities of the past. [source] Glucose homeostasis and the gastrointestinal tract: insights into the treatment of diabetesDIABETES OBESITY & METABOLISM, Issue 1 2008D. Maggs The gastrointestinal tract is increasingly viewed as a critical organ in glucose metabolism because of its role in delivering glucose to the circulation and in secreting multiple glucoregulatory hormones that, in concert with insulin and glucagon, regulate glucose homeostasis. Under normal conditions, a complex interplay of these hormones acts to maintain plasma glucose within a narrow range despite large variations in the availability of glucose, particularly during transition from the fasting to fed state. In the fed state, the rate at which nutrients are passed from the stomach to the duodenum, termed gastric emptying rate, is a key determinant of postprandial glucose flux. In patients with diabetes, the regulation of glucose metabolism is disrupted resulting in fasting and postprandial hyperglycaemia. Elucidation of the role of the gastrointestinal tract, gut-derived glucoregulatory peptides and gastric emptying rate offers a new perspective on glucose homeostasis and the respective importance of these factors in the diabetes state. This review will highlight the importance of the gastrointestinal tract in playing a key role in glucose homeostasis, particularly in the postprandial period, and the role of established or new therapies that either leverage or modify gastrointestinal function to improve glycaemic state. [source] THE EFFECTS OF UNCERTAINTY ON THE LEVERAGE OF NONFINANCIAL FIRMSECONOMIC INQUIRY, Issue 2 2009CHRISTOPHER F. BAUM This paper investigates the link between the optimal level of nonfinancial firms' short-term leverage and macroeconomic and idiosyncratic sources of uncertainty. We develop a structural model of a firm's value maximization problem that predicts a negative relationship between uncertainty and optimal levels of borrowing. This proposition is tested using a panel of nonfinancial U.S. firms drawn from the COMPUSTAT quarterly database covering the period 1993,2003. The estimates confirm that as either form of uncertainty increases, firms decrease their levels of short-term leverage. This effect is stronger for macroeconomic uncertainty than for idiosyncratic uncertainty. (JEL C23, D8, D92, G32) [source] Interpreting sustainable development and societal utility in Norwegian GMO assessmentsENVIRONMENTAL POLICY AND GOVERNANCE, Issue 4 2008G. Kristin Rosendal Abstract This article examines the process of assessing applications for genetically modified (GM) crops or plants for import or commercial planting in Norway. GMO legislation in Norway is closely linked to the EU through the Agreement on the European Economic Area (EEA), to which Norway is a party. A central difference with the EU processes emanates from specific clauses in the Norwegian Gene Technology Act on ,sustainable development' and ,societal utility', which provide a potentially wider leverage for Norwegian authorities to turn down the applications. Research material indicates evidence of an increasingly restrictive practice in the Norwegian evaluations, raising the question of how this can be explained in the face of increasing global acceptance of GMOs. A related question is to what extent and how this result is affected by the trends in the EU. An increasingly restrictive practice may be explained by changes in the access structure to the evaluating body, or it may be due to learning and a growing acceptance of the precautionary principle in this sector. Third, a higher number of rejections may largely be associated with the interest structure pertaining to GMOs in Norway. Final decisions are pending and there are uncertainties concerning how Norwegian authorities will apply the specific criteria of the Gene Technology Act. Copyright © 2008 John Wiley & Sons, Ltd and ERP Environment. [source] Why Study Large Projects?EUROPEAN FINANCIAL MANAGEMENT, Issue 2 2004An Introduction to Research on Project Finance G32; G34; L22; G31 Abstract Despite the fact that more than $200 billion of capital investment was financed through project companies in 2001, an amount that grew at a compound annual rate of almost 20% during the 1990s, there has been very little academic research on project finance. The purpose of this article is to explain why project finance in general and why large projects in particular merit separate academic research and instruction. In short, there are significant opportunities to study the relationship among structural attributes (i.e., high leverage, contractual details, and concentrated equity ownership), managerial incentives, and asset values, as well as improve current practice in this rapidly growing field of finance. [source] Agency Costs and Strategic Considerations behind Sell-offs: the UK EvidenceEUROPEAN FINANCIAL MANAGEMENT, Issue 3 2001Kevin M.J. Kaiser We analyse the impact of the motivation behind the sell-off and the use of the proceeds from the sale on the value of UK firms divesting assets during 1984,94. We find that managers do not create value when they divest assets in order to raise cash, in order to reshuffle assets without increasing corporate focus and when they do not announce the motivation behind the sale. In contrast, we find value increases for firms refocusing during the 1990s and for firms divesting loss-making assets. Returning the proceeds from the sale to shareholders or reducing leverage were also associated with value increases, whereas reinvesting the proceeds for growth had a negative impact during the 1980s, which disappeared in the 1990s, possibly as a result of the disciplinary role of the economic downturn on the investment behaviour of firms. [source] Measuring Investment Distortions when Risk-Averse Managers Decide Whether to Undertake Risky ProjectsFINANCIAL MANAGEMENT, Issue 1 2005Robert Parrino We create a dynamic model in which a self-interested, risk-averse manager makes corporate investment decisions at a levered firm with characteristics typical of public US firms. We examine the magnitude of distortions in those decisions when a new project changes firm risk and find expected changes in the values of future tax shields and bankruptcy costs to be important factors. We evaluate the extent to which these distortions vary with firm leverage, debt duration, project size, managerial risk aversion, managerial non-firm wealth, and the structure of management compensation packages [source] Hedging, Financing and Investment Decisions: A Simultaneous Equations FrameworkFINANCIAL REVIEW, Issue 2 2007Chen-Miao Lin D84; G31; G32 Abstract We empirically investigate the interactions among hedging, financing, and investment decisions. We argue that the way in which hedging affects a firm's financing and investing decisions differs for firms with different growth opportunities. We find that high growth firms increase their investment, but not leverage, by hedging. However, we also find that firms with few investment opportunities use derivatives to increase their leverage. [source] Determinants of Institutional Responses to Self,Tender OffersFINANCIAL REVIEW, Issue 3 2002Judith Swisher I examine how institutional investors respond to self,tender offers for common shares. I find that institutions sell more shares in larger offers and with higher proration factors. Institutions also sell more shares when officer and director holdings are not at risk in the offers. Banks, investment advisors, and other managers respond similarly, selling more shares in larger offers. Although institutions as a group do not respond differently by offer type, insurance companies and investment advisors sell more shares in fixed,price offers. Mutual funds, which differ from other types of institutions, sell more shares for firms with greater increases in leverage. [source] Corporate Bankruptcy in Korea: Only the Strong Survive?FINANCIAL REVIEW, Issue 4 2000Paola Bongini G30/G32/G33 Abstract We analyze whether the build-up of financial vulnerabilities led listed Korean companies to bankruptcy. We find that pre-crisis leverage is systematically high for both poor performing/slow growing firms and for profitable/fast-growing firms. Pre-crisis leverage raises the probability of bankruptcy, which is lower for firms: (1) relying more on (renegotiable) bank credit; (2) with less inter-firm debt; and (3) having higher interest coverage ratios. Finally, none of these liquidity variables help predict bankruptcies for chaebol-firms, suggesting that liquidity constraints are more stringent for non-chaebol. Thus, in a systemic crisis it is not only the strong/healthy that survive. [source] The determinants of corporate sustainability performanceACCOUNTING & FINANCE, Issue 1 2010Tracy Artiach M14 Abstract This paper investigates the factors that drive high levels of corporate sustainability performance (CSP), as proxied by membership of the Dow Jones Sustainability World Index. Using a stakeholder framework, we examine the incentives for US firms to invest in sustainability principles and develop a number of hypotheses that relate CSP to firm-specific characteristics. Our results indicate that leading CSP firms are significantly larger, have higher levels of growth and a higher return on equity than conventional firms. Contrary to our predictions, leading CSP firms do not have greater free cash flows or lower leverage than other firms. [source] Voluntary disclosure of operating incomeACCOUNTING & FINANCE, Issue 1 2010Jilnaught Wong M41 Abstract This study investigates whether New Zealand firms' voluntary disclosure of operating income, which is also known as earnings before interest and tax, in the income statement is related to the investment opportunity set. New Zealand provides an ideal setting to examine this because New Zealand generally accepted accounting principles do not require the disclosure of operating income as an intermediate income number in arriving at net income (earnings) in the income statement. We hypothesize and find evidence that firms with high assets-in-place and high leverage are more likely to voluntarily disclose operating income/earnings before interest and tax. However, the assets-in-place finding is sensitive to alternative measures of the investment opportunity set. [source] Managerial incentives and corporate leverage: evidence from the United KingdomACCOUNTING & FINANCE, Issue 3 2009Chrisostomos Florackis G3; G32 Abstract This paper investigates the effect of managerial incentives and corporate governance on capital structure using a large sample of UK firms during the period 1999,2004. The analysis revolves around the view that managerial incentives are important in determining a firm's leverage. However, we argue that the exact impact of these incentives on leverage is likely to be determined by firm-specific governance characteristics. To conduct our investigation, we construct a simple corporate governance measure using detailed ownership and governance information. We present evidence of a significant non-monotonic relationship between executive ownership and leverage. There is also strong evidence suggesting that corporate governance practices have a significant impact on leverage. More importantly, the results reveal that the nature of the relation between executive ownership and leverage depends on the firm's corporate governance structure. [source] Anomalies and stock returns: Australian evidenceACCOUNTING & FINANCE, Issue 3 2009Philip Gharghori G12; G14 Abstract Prior research has identified the existence of several cross-sectional patterns in equity returns, commonly referred to as effects. This paper tests for the existence of a number of well-known effects using data from the Australian equities market. Specifically, we investigate the size effect, book-to-market effect, earnings-to-price effect, cashflow-to-price effect, leverage effect and the liquidity effect. An additional aim of this paper is to investigate the capability of the Fama,French model in explaining any observed effects. We document a size, book-to-market, earnings-to-price and cashflow-to-price effect but fail to find evidence of a leverage or liquidity effect. Although our findings indicate that the Fama,French model can partially explain some of the observed effects, we conclude that its performance is less than satisfactory in Australia. [source] Supply-Side Economics of Germany's Year 2000 Tax Reform: A Quantitative AssessmentGERMAN ECONOMIC REVIEW, Issue 2 2003Holger Strulik Tax reform; corporate finance; investment; growth; welfare; Germany Abstract. The paper provides an assessment of supply-side economics following Germany's year 2000 tax reform. Investigated are a corporate tax cut, deteriorating depreciation allowances and imputation rules, and a private income tax cut. For this purpose, a neoclassical growth model is augmented by various fiscal policy parameters and endogenous corporate finance and calibrated with German data. The model is used to evaluate consequences of Germany's tax reform on production, firm finance and leverage, investment, consumption and welfare of a representative household. [source] A change process imbued with an Eastern ethos revitalizes an Indian businessGLOBAL BUSINESS AND ORGANIZATIONAL EXCELLENCE, Issue 3 2005Edwina Pio In the rush to outsource to developing countries, global corporations would do well to understand,and leverage,the cultural differences they are likely to encounter in their offshore alliances. In a story of East meets West, the author describes how the marriage of progressive management concepts with uniquely Eastern values and mental models enabled an Indian firm to improve its processes, quality, and productivity in a quest to assure its own long-term viability and provide better value to its global partners. © 2005 Wiley Periodicals, Inc. [source] Goodwill impairment as a reflection of investment opportunitiesACCOUNTING & FINANCE, Issue 1 2009Jayne M. Godfrey M41; C21; D23 Abstract We exploit a unique opportunity to examine whether goodwill impairment write-offs reflect firms' investment opportunities during the first years of the US goodwill impairment accounting regime. We find that impairment write-offs are negatively associated with firms' underlying investment opportunities. We also find associations between goodwill impairment write-offs and traditionally applied leverage, firm size and return on assets variables, although the leverage and firm size results are less robust. The results support the International Accounting Standards Board and Financial Accounting Standards Board contention that an impairment test regime can reflect firms' underlying economic attributes, while simultaneously indicating that managers use discretion to reduce contracting costs. [source] | |||||||||||||||||||||||||||||||||||||||||||||||||