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Corporate Financing Decisions When Firms Have Information Investors Do Not Have
Abstract
This paper considers a firm that must issue common stock to raise cash to undertake a valuable investment opportunity. Management is assumed to know more about the firm's value than potential investors. Investors interpret the firm's actions rationally. An equilibrium model of the issue-invest decision is developed under these assumptions. The model shows that firms may refuse to issue stock, and therefore may pass up valuable investment opportunities. The model suggests explanations for several aspects of corporate financing behavior, including the tendency to rely on internal sources of funds, and to prefer debt to equity if external financing is required. Extensions and applications of the model are discussed.
... The trade-off theory of capital structure anticipates that firms will choose an optimal debt/equity structure based on the costs and benefits of debt (Lemmon and Zender, 2010). Myers and Majluf (1984) suggest that firms follow a pecking order in which financing departs from internal funds, followed by increased debt and then equity issues. Changes in capital structure signal that performance targets associate with an implicit risk of varying strategic financing decisions ( , strategic changes in capital structure (i.e. ...
... volatility on the ratio of debt to equity) might activate greater voluntary disclosure to assure investors that there is a potential for future success. As acceptable informational transparency allows the firms' access to considerable amounts of funding (Lemmon and Zender, 2010), information asymmetry is then an obstacle for firms that aim to issue equity or debt, as it increases costs for shareholders (Myers and Majluf, 1984) because managers' intentions to raise equity are associated with the risk of future stock price crash (Reichmann et al., 2022). As a result, there are strategic incentives to increase transparency in the view of reducing the information asymmetry problem, thereby reducing the firm's cost of external financing, leading to the following hypothesis: ...
Based on agency and asymmetric information theories, the objective of this paper is to investigate whether the transparency on corporate governance is determined by strategies followed by the board of directors (liquidity, investment, capital structure, innovation and board composition impact on the corporate governance transparency). The study sample is composed by 826 observations from Latin American firms during the period 2004-2010 (128 unique firms). A two-way cluster standard errors and GMM methods have been adopted to perform the econometric analysis. Results suggest that corporate governance disclosure is attributable to changes on firm’s decisions made by the board with respect to financial aspects and innovation. However, the impact upon transparency of board composition with regards to female directors, independence and size of boards are attributable to industry and/or country effects. Although the main limitation of the study is focused on the period of analysis, the results provide important implications for the business sector, demonstrating that the board composition and the financial and innovation strategies adopted by the board encourage greater corporate transparency, thus increasing confidence in the markets.
... Another theory related to capital structure is the pecking-order theory, where information asymmetry between management and investors causes costs when raising external capital. Therefore, Corporate payout policy and capital structure companies in need of funds tend to utilize the lowest-cost internal retained earnings first, covering any shortfall with relatively inexpensive convertible bonds and debt, rather than opting for the issuance of costly new equity (Myers, 1984;Myers and Majluf, 1984) [2]. Numerous studies have examined the relationship between capital structure and dividend policy; however, the results still exhibit a mixed pattern Aggarwal and Kyaw, 2010) [3]. ...
... Existing research indicates that the degree of information asymmetry between management and external investors may impact the selection of capital financing methods (Shleifer and Vishny, 1997;La Porta et al., 2000;Kim and Kim, 2017). Companies experiencing significant information asymmetry tend to follow the pecking-order theory more closely (Myers and Majluf, 1984;Bharath et al., 2009) leverage ratios, with the analysis partitioned by whether a firm's actual leverage is above or below its target leverage. Panel A uses book lev [tþ3,t] as the dependent variable, while panel B uses market lev [tþ3,t] . ...
This paper aims to investigate the impact of corporate dividend policy on the capital structure in the Korean stock market. To distinctly discern the voluntariness of changes in corporate dividend policy, we analyze companies that, following a substantial increase, do not reduce dividends for the subsequent two years or, after a significant decrease, do not raise dividends for the following two years. Our empirical findings indicate that companies that increase dividends experience a significant decrease in both book and market leverage, even after controlling for variables such as target leverage ratios. This result suggests that a large increase in dividends can effectively reduce information asymmetry, leading to a lower cost of equity. On the contrary, after a decrease in dividends, both book leverage and market leverage significantly increase, revealing a symmetric relationship between dividend policy and capital structure. In conclusion, large dividend increases in Korean companies not only reduce information asymmetry but also lower the cost of equity capital, resulting in observable changes in the leverage ratio.
... This is attributed to the greater availability of internal funds from higher profits, which can be allocated towards investment without the need for external financing. Such an assertion is consistent with established financial literature that views profitability as a primary driver for investment decisions [66]. Contrastingly, the Sales growth (SGR) did not show a statistically significant impact on investment in the presence of other factors. ...
... Moreover, a positive coefficient for cash flow is consistent with the pecking order theory, which suggests that firms prefer to finance investments internally if possible. Ample cash flow provides the means to fund investments without resorting to external financing, which can carry additional costs or signaling issues [66]. ...
This study investigates the impact of the Energy-related Uncertainty Index (EUI) on corporate investment among Chinese non-financial listed companies, focusing on two aspects: the effect of EUI fluctuations on investment behavior, and its differential impact on energy versus non-energy sectors. Utilizing a dataset of 2487 firms from 2007 to 2022, encompassing 22,346 firm-year observations, our analysis reveals that a 1% increase in the EUI leads to a 0.045% decrease in overall corporate investment. Notably, this effect is more pronounced in energy-related firms, where a 1% increase in EUI leads to a 0.057% reduction in investment. In comparison, non-energy-related firms exhibit a milder response, with a 1% increase in EUI resulting in a 0.026% decrease in investment. Given the average annual change in EUI over the sample period [2007–2022] of 27.710%, a 0.045% decrease in investment implies a substantial 1.246% per annum change in investment. This highlights the economically significant impact of EUI fluctuations on corporate investment decisions, particularly during periods of heightened uncertainty. These findings, validated through alternative EUI measures and investment metrics, provide crucial insights for understanding investment behavior under energy uncertainty. Conclusively, our study contributes to the literature by highlighting how energy uncertainty uniquely impacts corporate investment, taking into account the specific financial and operational conditions within different sectors. The findings highlight the importance of incorporating energy policy considerations into corporate strategic planning, particularly for energy-intensive industries within transitional economies like China.
... it postulates that various agency costs arise due to the selection of different financing sources, which could be influenced by the managers' interest rather than the owners. to minimise information asymmetry, Myers and Majluf (1984) proposed an order, i.e. using internally available funds, followed by debt and equity at last, naming it the pecking order theory. in contrast to internal factors dominating the firm's capital structure, Baker and Wurgler's (2002) market timing theory highlighted the external factor, i.e. managers choose the debt or issue the equity, based on external market conditions. ...
... Kraus and Litzenberger (1973) trade-off theory up to optimal level of debt can contribute to the value of the firm positively. Myers and Majluf (1984) Pecking-order theory Debt is a secondary choice for financing after internal financing, assuming the negative impact of debt on firm value under the assumption of information asymmetry. Baker and Wurgler (2002) Market timing theory Choosing debt or equity based on the market situation can enhance the firm value. ...
This study examines the empirical relationship between the different leverage levels as a proxy of financing mix on the financial performance of the non-financial firms listed on capital markets in GCC economies. The study uses the pooled ordinary least squares regression (OLS), fixed and random effects regression, and feasible generalised least square (FGLS) regression to explore the relationship among variables on the data of GCC firms listed from 2011 to 2021. The results suggest that the capital structure considerably affects firms’ performance. Findings refute the theoretical assumptions of Modigliani and Miller’s debt irrelevance and debt-supporting theorem. The findings also contradict the debt-supporting benefits the agency and trade-off theory suggest. Empirically, short-term, long-term, and total debt adversely affect the return on assets, equity, and earnings per share. Control variables, growth opportunities, and size of the firm positively and asset tangibility negatively contribute to the performance. The results will support the managers in making performance-improving financing decisions. Lenders should improve ex-ante screening and ex-post monitoring to avoid possible defaults. Local and foreign investors should carefully examine the firms’ debt levels before making investment decisions. Policymakers should focus on the flourishing of the bond markets to support privatisation and economic diversification. Our study is the first to use the recent data of GCC-listed firms to examine the impact of capital structure on firms’ performance. Contributing to the literature gap will also lay a foundation for a more comparative study on corporate financing with alternative financial instruments.
... According to Pecking Order Theory, companies first use internal financing to fund innovative investments, and when their funds become insufficient, they seek external financing channels (Myers and Majluf 1984). China's main external financing channels currently obtain credit funds from banks and financing capital markets (Backman and Wallin 2018). ...
... To estimate the impact of digital transformation on innovation, other driving factors for innovation were controlled for, and all control variable indicators were based on a sample of Chinese A-share listed companies. (1) Capital structure: The asset-liability ratio can measure whether a company can innovate and the possibility of taking action (Myers and Majluf 1984). This study uses the asset-liability ratio to represent a company's capital structure. ...
This study explores the role of financial support in the digital transformation of Chinese A-share-listed companies from 2001 to 2020. By utilizing the moderating effect model and threshold regression model, this study finds the following results: (1) Digital transformation positively impacts innovation, and the support of banking and capital markets further strengthens this impact. (2) With the development of banking and capital markets, the impact of digital transformation on innovation changes from negative to positive, which is also reflected in the subsamples of Eastern companies, small and medium-sized companies (SMEs), and non-SMEs. (3) The study reveals that only the capital market in the non-Eastern region has no threshold, and capital market support is effective only for non-SMEs when it reaches a higher level. These findings have important implications for policymakers in promoting digital transformation through financial support and help companies understand how to use financial support to improve competitiveness.
... Since 2008, there has been renewed interest in this topic. The theoretical basis of this cluster is based on the capital structure (Modigliani & Miller, 1958), the SEW approach and the agency, trade-off, and pecking order theories (Myers & Majluf, 1984). The main keywords that define the content of this cluster are "leverage," "capital structure," "board of directors," "private equity," "SMEs," and "financing decisions." ...
Investment and financing decisions are especially important in a family firm context, as family and business dynamics interact to produce unique behaviors that may affect these decisions. However, research on how the family nature of these firms shapes their investment and financing preferences is still lacking. To help fill this
gap, this study aims to provide a robust picture of the literature to identify key questions that can help guide future research. Using a systematic approach based on bibliometrics and network analysis of 891 papers published in the Web of Science database between 1992 and 2023, we show the evolution of research in terms of
publications and identify the most active and influential articles, authors, and journals. Using bibliographic coupling analysis, the paper reveals the thematic structure and trends of the research. This study provides valuable insights into the future by identifying knowledge gaps and offering guidance to both researchers and
practitioners seeking to understand the specific needs and challenges faced by family firms in their investment and financing endeavors.
... In an imperfect capital market, there is a difference in cost associated with both external and internal sources of funds due to the presence of various frictions in the market. Such frictions may be due to information asymmetries, as argued in the pecking order theory (Myers & Majluf, 1984), agency problems, as highlighted in the agency theory (Jensen, 1986), taxes, and various transaction costs, as underlined in the static trade-off theory (Myers, 1977). The difference in cost of internal and external funds motivates a manager to choose wisely between these two alternatives, and imperfectness in the capital market makes the external sources of funds even more costlier than internal sources (Gupta, 2022). ...
This paper investigates the impact of Economic Policy Uncertainty (EPU) on Investment-Cash Flow Sensitivity (ICFS). Further, this study examines whether ESG moderates the impact of such uncertainty on the ICFS of the manufacturing firms in India. The study has applied system-GMM regression with a sample of 222 firms from 2012 to 2022. It reveals that EPU dampens corporate investment and magnifies the role of cash flow in corporate investment. Further, firms' Environmental, Social and Governance (ESG) performance decelerates the adverse impact of EPU on ICFS and makes the investment-cash flow less sensitive. Furthermore, the study highlights that ESG helps to access external funds easily. Overall, this paper contributes new insights to the present literature, and the outcomes of this study are of greater interest to economists, firms, managers, and investors. JEL: D80; E22; G18; G31;G38 SDG: SDG 9;SDG 12; SDG 13; SDG 17
... Additionally, this theory asserts that a positive correlation between cash flow and firm size, and market-to-book ratio is invented. Conversely, a negative association exists between cash flow and leverage, dividends, capital expenditure, and R&D expenditure (Myers and Majluf, 1984). This theory suggests that firms do not maintain specific target levels of cash; instead, cash serves as a buffer between retained and investment requirements. ...
This study seeks to explore the information value of free cash flow (FCF) on corporate sustainability and investigate the moderating effects of board gender diversity and firm size on the association between FCF and corporate sustainability of Thai listed companies. The dataset consists of companies listed on the Stock Exchange of Thailand (SET) in 2022. Multivariate regression analysis is executed in this study. Subsequently, PROCESS macro served to evaluate the proposed hypotheses. This study found that FCF has a significant positive relationship with corporate sustainability. As well, board gender diversity and firm size both moderate the relationship between FCF and corporate sustainability, such that the positive effect of FCF on corporate sustainability is stronger when the proportion of female boards diminishes, while firm size is smaller. However, when firms have a larger proportion of females on the boards of directors for all levels of firm size, free cash flow indicates that there is no statistically significant effect on corporate sustainability. This study contributes to FCF and sustainability literature by understanding the extent of corporate sustainability.
... It serves as the primary source of cash that firms rely on to fund dividend payments. According to Myers and Majluf (1984), firms utilize free cash flow when they are unable to obtain external funds due to inefficient or imperfect markets or when managers and capital providers face a situation of information asymmetry. The excess cash can also be utilized to mitigate price fluctuations, ensuring continued investment funding, particularly during periods of declining generated funds. ...
This paper investigates the impact of debt financing on dividend payments when they face the agency costs of free cash flow. Focusing on a sample of 120 firms listed on the Saudi Stock Exchange during the period 2011-2021. The study found a negative association between agency cost of free cash flow and dividend payment. More importantly, our research highlights the significant role of long-term debt in making more prudent use of free cash flow. The obligation to meet interest and principal payments acts as an incentive for them to steer clear of unprofitable expenses and risky investments. Concurrently, long-term debt imposes restrictive clauses in debt contracts, such as minimum dividend distribution requirements, which further encourage higher dividend payments. Since interest and debt repayments are fixed obligations, using free cash flow for dividend disbursement is considered a more profitable and beneficial approach for shareholders in the context of Saudi Arabia.
... The Pecking Order theory offers insights into the financing decisions related to working capital management. According to this theory, firms prefer internal financing sources, such as retained earnings, over external financing to fund their working capital needs (Myers & Majluf, 1984). Recent research has examined how firms adjust their working capital levels in response to changes in internal cash flows and external financing constraints (Deloof, 2003;Afza & Nazir, 2008). ...
This study investigates the interconnectedness of competitor analysis, market orientation, service quality, working capital management, and operational leverage in shaping organizational financial stability. The research aims to identify strategic implications for effective management of these factors and provide insights for both theoretical understanding and managerial practice. The study employs a systematic literature review methodology to analyze existing research across various domains and synthesizes findings to elucidate the relationships among the variables. The results reveal that competitor analysis serves as a foundational element in strategic planning by providing insights into market dynamics and competitive positioning. Market orientation complements this by emphasizing customer-centricity and responsiveness to market needs, while service quality emerges as a critical determinant of organizational success. Effective working capital management and operational leverage strategies significantly impact financial stability by optimizing resource utilization and cost efficiency. The findings suggest that organizations must adopt a multidimensional approach to strategic management, integrating insights from marketing, finance, and operations. Managerial implications include prioritizing investments in market intelligence, fostering a customer-centric culture, optimizing working capital management practices, and carefully managing operational leverage. Collaboration across functional areas and agile decision-making are essential for adapting strategies to dynamic market conditions. Overall, the study contributes to a deeper understanding of the complex interplay among these factors and provides actionable recommendations for enhancing financial stability and sustaining competitive advantage.
The study delves into the factors that influence the capital structure of commercial banks in Vietnam. Capital structure, measured by the net debt-to-asset ratio, is a key indicator of bank leverage. The study uses pooled OLS, fixed effects, and random effects models to analyze the impact of factors such as net interest-earning rate, Corporate Income Tax rate, and liquidity on commercial banks’ profitability and their capital structure. Data from 26 banks during the 2010–2022 period in Vietnam was collected for the analysis. The results indicate that factors such as Tax, ROA, growth, and liquidity have significant impacts on the capital structure of the banks. Specifically, Tax has a beta coefficient of –0.05967, ROA has a beta of –0.01796, growth has a beta of 0.000509, and liquidity has a beta of –0.00045. The study found that ROA, Tax, and liquidity are negatively related to the capital structure of Vietnamese commercial banks, meaning that an increase in these factors leads to a decrease in the banks’ total debt-to-total assets and vice versa. The empirical results suggest that commercial banks can manage their capital structure through these factors to reduce their debt-to-asset ratio, resulting in reduced credit risk, improved asset quality, and increased business efficiency. However, lowering the debt-to-asset ratio may also lead to reduced profits from lending activities, particularly when interest rates are high.
In this article, we investigate how the participation of firms’ existing shareholders affects the pricing and valuation of private investments in public equity (PIPEs). Using a large sample of PIPEs issued by Chinese listed firms from 2006 to 2019, we find that the effective discount and long‐term buy‐and‐hold abnormal stock returns of PIPEs with existing shareholder participation are significantly higher than those with only new investor participation, after controlling for heterogeneous types of PIPE investors. However, the superior post‐PIPE stock performance of deals with existing shareholders is not driven by improved operating performance but by tunneling activities such as frequent dividend announcements, related‐party transactions, and positive earnings management during the lock‐up period. Our findings suggest that the effect of existing shareholders’ participation in private equity placements is more consistent with the tunneling hypothesis than the certification hypothesis. We document that the tunneling incentives are stronger when firms face greater financial constraints and can be mitigated when the firm's corporate governance is stronger.
While previous studies primarily use economy-wide indicators for political risk, Hassan et al. (Quart J Econ 134(4):2135–2202, 2019) propose that a significant portion of political risk manifests itself at the individual firm level. We use their measure of political risk to examine whether and how acquirers’ firm-level idiosyncratic political risks affect their mergers and acquisitions (M&A) decisions based on a sample of U.S. firms. We find that firms exposed to a high level of perceived political risk are less likely to conduct M&As. Furthermore, the negative association between firm-level political risk and M&As is more pronounced when acquiring firms lack either financial capacities or non-financial political/social capacities. More importantly, while firms with high political risk generally delay M&As, we find evidence suggesting that acquiring firms may hedge against their firm-level political risk by strategically choosing low-risk M&A targets and conducting vertical integration. Finally, we show that effectively hedged deals exhibit superior post-M&A performance in terms of higher announcement return, lower likelihood of subsequent divestiture and higher post-acquisition change in financial performance.
Purpose
This paper aims to explore the determinants of the level of minibonds issued by companies. In doing so, it discusses the importance of minibonds in providing a market-based funding source. In the empirical analysis, special attention is paid to the study of the recovery from the COVID-19 crisis.
Design/methodology/approach
The analysis is carried out through an econometric approach, on the basis of a high-quality empirical dataset related to the Italian small- and medium-sized enterprises (SMEs). The reference period covers the recent pandemic. From a theoretical point of view, a regression model is implemented, including a multicollinearity analysis and an outlier detection procedure.
Findings
The results of the study indicate that factors such as leverage, cash flow, firm collaterals and seniority can explain the amount of minibonds issued. These findings provide valuable insights into the drivers of minibond issuance and highlight the potential benefits of minibonds as a funding option for Italian SMEs.
Practical implications
Importantly, results highlight relevant managerial implications at two levels. On one side, we carry on a managerial discussion about the worthiness of accessing the minibonds market; on the other side, we give insights on the managerial implications related to the features of the companies issuing minibonds.
Originality/value
The paper investigates an innovative financial instrument that has been introduced recently and has not yet been studied in depth. To the best of our knowledge, this is the first contribution assessing the main drivers for minibonds issuance level, which is a timely and relevant managerial research topic. In addition, this study also takes into account the impact of the COVID-19 pandemic on minibond issuance, making the analysis appropriate for explaining the current economic context.
Intellectual capital (IC) plays a critical role in determining firm performance (FP), market value (MV), financial stability, and sustainable competitive advantage. The strategic investment in both IC and physical capital allows firms to enhance FP by optimizing resource utilization. However, non-financial firms in Pakistan often encounter a deficiency in tangible and intangible resources, skills, and competencies necessary for FP improvement. Consequently, these firms prioritize acquiring intangible skills, such as human skills and innovative activities, to enhance FP. Effective management of IC is vital for maintaining competitiveness and sustaining a competitive advantage through continued reinvestment in IC. Thus, this study explores the dynamic impact of investment in IC resources and financial stability on FP, MV, and bankruptcy risk. Additionally, the study examines how firm financial stability moderates the IC-FP association. Employing the system generalized method of moments (system-GMM), this study analyzes the dynamic association between IC and FP using an unbalanced panel of Pakistani non-financial firms spanning from 2010 to 2021. The results validate the theoretical prediction of a dynamic association, indicating that both current and past investments in aggregate or components of IC collectively influence FP, MV, and bankruptcy risk. Notably, the findings underscore the more substantial impact of structural capital efficiency (SCE) compared to human capital efficiency (HCE) on FP, MV, and bankruptcy risk. Furthermore, the study reveals that the level of financial stability within firms moderates the relationship between investment in IC and FP, MV, and bankruptcy risk. This study contributes to the IC literature by empirically analyzing the impact of both aggregate and component aspects of IC on FP, MV, and bankruptcy risk within the context of Pakistan, an emerging market. Moreover, it contributes by reaffirming the efficacy of the dynamic association between IC and FP, MV, and bankruptcy risk while also examining the moderating influence of financial stability on this relationship. The findings highlight the potential of IC investment in helping firms navigate financial turbulence during periods of economic instability, thereby holding significant practical and policy implications for firm management, owners, investors, and creditors.
The article outlines the basics for using the debt—equity dichotomy in the financial instruments typology and analyzes the contradictions and short-comings of the existing approach to classification. It is shown that the “trap” of the debt—equity dichotomy comes from the path dependence process, mainly formed by the inertia of the tax system. It is noted that the applying of the debt—equity dichotomy entails a formalist approach to classification, which does not bring closer to the clarity of the delimitation of contracts according to the criteria of risk and reward distribution, and restrictions on post-contractual opportunism. Arguments are given to explain why the foundations of the debt— equity doctrine may be weakened in relation to crypto assets. This is supported by the fact that the genesis of digital assets occurs in a specific technological context, which determines its own criteria and framework for the typology of instruments. Another set of arguments comes from the fact that the world of crypto assets appears to be coherent with the specific environment of venture capital investment. This environment, in turn, arouses the demand for overcoming the debt—equity dichotomy to implement the tasks of risky investors and structuring the relations of the parties involved in projects. This demand has now led to the emergence of a number of instruments that cannot be classified as either debt or equity, including those using the construct of tokens or contractual agreements used by crowdfunding platforms. Overall, the intellectual effort that previously satisfactorily explained companies’ choices of financing styles and modes is now insufficient to reconcile capital structure theories with the practice of digital asset financing.
Nghiên cứu này nhằm mục đích khám phá các nhân tố ảnh hưởng đến việc quản lý tiền mặt tại các ngân hàng thương mại Việt Nam, sử dụng dữ liệu thứ cấp từ 29 ngân hàng tại Việt Nam trong giai đoạn 2010 - 2021. Tác giả sử dụng phương pháp định lượng – hồi quy đa biến với nhiều mô hình và chọn ra mô hình hiệu quả nhất (cụ thể là GMM). Dựa trên kết quả mô hình GMM, tác giả nhấn mạnh tầm quan trọng của các yếu tố như Tỷ lệ cho vay trên tiền gửi (LDR), Khả năng cho vay (LA), Tỷ lệ tiền gửi của khách hàng (DEP) và mối tương quan nghịch chiều với tỷ lệ nắm giữ tiền mặt, hàm ý các quyết định thận trọng về cho vay hoặc khi có lượng tiền gửi lớn thì xem xét kỹ về lượng tiền mặt nắm giữ. Mối tương quan giữa tỷ suất sinh lời trên tài sản (ROA) và việc nắm giữ tiền mặt cho thấy các ngân hàng ưu tiên nắm giữ tiến mặt khi có nhiều lãi hơn. Hơn nữa, kết quả chỉ ra các ngân hàng lớn có xu hướng nắm giữ nhiều tiền mặt hơn, có thể quản lý hiệu quả các hoạt động tài chính quy mô lớn. Nghiên cứu cũng xem xét lạm phát (INF) và các giai đoạn phát triển kinh tế. Các ngân hàng tăng nắm giữ tiền mặt trong thời kỳ lạm phát để đáp ứng nhu cầu giao dịch và quản lý rủi ro.
Green innovation is inevitable for improving the environment and achieving sustainable economic development. Using panel data of 3,076 enterprises listed on the Shenzhen and Shanghai stock from 2012 to 2021, the research employs the zero-inflated negative binomial (ZINB) regression to examine the impacts of government subsidies on corporate green innovation and the moderating effect of digital finance. Moreover, this paper investigates the impacts of ownership structure and industry heterogeneity. We find reliable evidence indicating a positive U-shape correlation between government subsidies and corporate green innovation. Moreover, the overall U-shape curve is elevated under the moderation of digital finance. Further analysis indicates that government subsidies significantly enhance the green innovation of non-state-owned and industrial enterprises. The findings herein provide new guidance for the government to stimulate corporate green innovation, balancing environmental quality and high-quality economic development.
In this study, we develop the first daily news-based Economic Policy Uncertainty (EPU) index for Nigeria, which was previously not covered in recent EPU indices. The need to track economic uncertainties in Nigeria becomes crucial for investment and policy, especially with the renewed interest in the country as an important investment destination. To construct the EPU index, we use relevant keywords from articles in prominent newspapers in the country, covering the aftermath of the global financial crisis and the COVID pandemic, with a data scope of January 2010 to November 2022. We evaluate the predictability of the index by examining its connection with economic and financial variables like exchange rates, stock prices, and inflation in Nigeria. The results are robust to alternative model specifications, data frequencies, and multiple forecast horizons. We hope to extend this exercise to other useful indices, including Geopolitical Risk, Financial Stress Indicators, and Monetary Policy Uncertainty, which are not readily available for Africa, including Nigeria.
We posit that geopolitical events that elevate investor risk prompt equity investors to shift capital from emerging markets to safer mature markets, raising the cost of equity capital for firms in emerging economies. Using a sample of 55,900 observations spanning 19 economies from 1987 to 2018, we find that higher geopolitical risk increases the cost of equity capital, on average. We further find that this effect is moderated by country-level institutional context and firm-level factors. With regard to the former, we find that stronger constraints on the executive branch of government and stronger regulatory arrangements both mitigate higher equity costs due to geopolitical risk. With regard to the latter, we find that firms cross-listing in the U.S. and those with a higher proportion of foreign sales both mitigate the negative effects of geopolitical risk on the cost of equity.
Multifactor productivity (MFP) growth is an imperative economic engine. MFP dynamism across five advanced and seven developing countries from 1996 to 2015 is analyzed, elucidating its association with financing and intangible assets. Debt is manifested by its inverted U-shaped nonlinear relationship with MFP advancement, while corporate cash holdings are negatively (positively) associated with MFP development in five (three) countries. The heterogeneous relationships between intangible assets and MFP growth are identified across industries, countries, and time; intangible assets are requisite MFP growth enhancers for manufacturing in developing countries, for service businesses in advanced countries, and for the period after the global financial crisis. The greater the productivity effect of intangible assets is, the higher a country’s per-capita income and/or governance quality becomes. Additionally, the results evince the catching-up of MFP to the technological frontier. Moreover, older firms exhibit slower MFP growth than their peers, whilst the positive effects of firm size on MFP growth are larger in high-tech and knowledge-intensive industries.
Purpose
The purpose of the study is to examine factors influencing cash holding of firms during periods of crisis. In recent times, the level of cash holdings in firms has seen a steady rise across industries for diverse reasons. However, the need to study cash holding becomes even more compelling during geopolitical instability as it causes firms to hold greater cash reserves for precautionary reasons.
Design/methodology/approach
This paper systematically reviews literature from 1984 to 2024 by organising the findings thematically based on the relationship between corporate cash holdings (CCH) and firm performance in times of war. The paper used 47 research articles from the Scopus database and Google Scholar. Literature connected to CCH, firm performance and war times was explored. The title and abstract analysis were conducted using VOSviewer software. As a result, the predetermined body of literature was visualised, and six theme-based clusters were identified.
Findings
This paper systematically reviews empirical studies, categorising them into six theme-based groups. These clusters encompass CCH and Determinants, Optimal Cash Holding Levels, Cash Holding Adjustment Speed and Theory, Cash Holding and Firm Value, Cash Holding and Firm Performance, Cash Holding in the Context of the Ukraine War and the adaptive financial strategies of firms in response to economic conditions by using cash holding as a hedging instrument. Inflation prompts adjustments in cash-holding strategies at a macro level. During crises, lower interest rates lead to increased cash holdings. Various motives influence firms’ cash-to-assets ratios. According to the pecking order theory, geopolitical risk negatively affects cash holdings. Exposure to pandemics prompts an increase in cash reserves. War shocks have a profound impact on economies, markets and stability; hence, geographic diversification can reduce the need for precautionary cash. In times of uncertainty, the financial stress of firms can get elevated, and therefore, having a well-diversified geographical portfolio of a firm’s investments can aid in meeting any financially distressing situation.
Originality/value
The literature on CCH has been phenomenal. This paper attempts to structure the issues surrounding cash holding and firm performance in wartime, like the Ukraine war, using the VOSviewer software. This study endeavours to highlight the reasons for cash holding during crises and understand how cash holding affects firm performance. Finally, this paper also tries to comprehend whether cash holding helps as a hedging instrument in times of war.
The present study systematically reviews literature on zombie firms using a hybrid approach integrating framework-based review with bibliometric and content analysis. A total of 132 relevant articles identified from the Scopus and Web of Science databases were evaluated for developing a state-of-the-art review. In order to gain more meaningful insights into zombie research and firm zombification, the theories, contexts, characteristics, and methodology framework is adopted to synthesize the existing literature. Bibliometric and content analysis helped in exploring the developmental trend, key themes of the research domain, and the research hot spots. Four research clusters were identified using bibliographic coupling. The study also provides directions for further research on the zombie phenomenon. Research results provide comprehensive insights and would be relevant for academicians and policymakers alike.
Panel data from publicly listed US industrial firms is used to investigate how firm-specific cost of debt (COD) determinants impact COD at different quantiles during a financial crisis. Six COD determinants: firm size, firm age, profitability, leverage, liquidity, and firm value, and advanced estimators: robust and bootstrapped fixed effects, bias-corrected least square dummy variable (LSDVC), and quantile regression, are employed within the context of pecking-order theory. The results show that firm size and leverage negatively impact COD, while liquidity positively impacts it when COD is high (90% quantile). The degree of profitability only confirms the pecking order theory when COD is extremely low (10% quantile) and contrasts with the theory for the 25% and above COD quantiles during the Global Financial Crisis (GFC). These findings confirm that the practicalities of access to finance matter during a financial crisis for corporate financing decisions.
Purpose
This study aims to examine the reaction of anchor investors (AIs) to pre-IPO earnings management (EM). The authors use the unique detailed bid data from the Indian anchor experiment. The authors also study the reputed AIs’ EM detection ability and pricing behavior in response to pre-IPO EM.
Design/methodology/approach
The authors use unique AI bid data for 169 Indian IPO firms. Utilizing the logistic regression and Tobit regression models with industry and year-fixed effects, the authors examine the relationship between various measures of AI participation and proxies of short-term and long-term discretionary accruals.
Findings
The authors document that pre-IPO EM is positively associated with the likelihood of anchor backing but negatively related to the likelihood of reputed anchor backing. The findings indicate that AIs are misled by pre-IPO EM, but reputed AIs are not. The authors also observe that reputed AIs, compared to the non-reputed, pay less than the upper band with increasing EM. The findings are robust to using various AI measures and EM proxies.
Practical implications
The findings have significant implications for regulators in the implementation of AI concept in non-anchor markets and better implementation of policies in existing anchor settings. Findings can also be relevant for non-institutional investors in the IPO domain.
Originality/value
This is one of the few studies on institutional investors' IPO bidding behavior in response to pre-IPO EM. However, this is the first study to analyze AIs' IPO bidding behavior in response to pre-IPO EM.
This study seeks to investigate the potential effects of the recent pandemic (COVID-19) on capital structure dynamics. The Gulf Cooperation Council (GCC) is a fascinating topic for this study because of its distinct economic characteristics. The analysis draws upon a cross-country dataset covering 208 non-financial listed firms across five GCC countries, with data spanning the years 2010 to 2022. Capital structure is a dependent variable and is measured by total debt to equity, equity multiplier, and short-term debt ratios, while the COVID-19 pandemic, firm size growth, return on assets, tangibility, and growth were applied as independent variables. Using the generalized least squares (GLS) method, findings demonstrated that COVID-19 has a significant and positive influence on debt-to-equity and equity multiplier ratios but a negative one on short-term debt ratio. Thus, non-financial firms increased their debt financing and transferred debt from short-term to long-term funding. In addition, firm-specific factors, such as firm size, tangibility, and macroeconomic factors, such as GDP growth, positively and significantly impact capital financing. Conversely, profitability has a negative relationship with financial leverage. There is a lack of empirical research on how COVID-19 affects the financial structure of non-financial listed companies in GCC nations. Consequently, by filling the previously specified gaps, this study provides proof to support the idea of using debt financing to raise capital for economic recovery. GCC policymakers need to give priority to ensuring that firms have convenient access to inexpensive finance in light of the financial consequences caused by COVID-19. This will guarantee that companies have the resources necessary to bounce back and support economic growth.
This paper analyses the financial factors that affect the capital structure decisions of 29 shipping companies in the U.S. equity markets. The study focuses on the impact of International Maritime Organization (IMO) regulations and new initiatives. The results show that leverage has a negative impact on profitability and size, in contrast to tangibility. It is also confirmed that the decisions of shipping companies regarding capital structure align with the pecking order theory of capital structure.
This research examines the impact of capital structure on financial performance of listed pharmaceutical and medical firms in Vietnam. Using FGLS regression method on financial datasets of 24 pharmaceutical and medical firms listed on HOSE and HNX in the period from 2012 to 2021. The research results show that the capital structure represented by the debt to total assets ratio has a negative impact on financial performance, and the results have a consensus when using both short-term debt and long-term debt ratios. On the other hand, this research also shows that tangible fixed asset ratios have a negative effect, revenue growth opportunities have a positive effect on financial performance of pharmaceutical and medical firms. The research findings confirm the role of capital structure on the financial performance of firms according to the argument of the pecking order theory and are the basis for proposing some implications to improve financial efficiency for firms.
This paper examines the effect of fixed assets on capital structure. Agency theory argues that when firms use debt, there are agency costs of debt due to the information asymmetry between shareholders and lenders. Fixed assets can be used as a device to reduce the conflicts of interest between shareholders and lenders, thus reducing agency costs of debt and increasing firms’ leverage. Using a sample of Vietnamese-listed firms on Hanoi and Hochiminh stock exchanges, we find that there is a positive effect of fixed assets on firms’ financial leverage. Moreover, firms in emerging markets like Vietnam are more likely to use fixed assets as collateral for long-term rather than short-term loans since they demand high leverage but have a low level of fixed assets. Finally, the analysis indicates that the cost of debt for companies is lower for firms with a high proportion of fixed assets and this may encourage the firms to become more leveraged.
This study explores the influence of fundraising decisions on the sustainable growth of listed fishing companies in Vietnam. Employing a combination of qualitative and quantitative methods, the research analyzes financial data obtained from 35 fishing companies listed on the Vietnam stock market during the period from 2009 to 2021. The findings reveal that fundraising decisions exert a substantial impact on the sustainable growth of these listed fishing companies in Vietnam. More specifically, debt financing positively contributes to the sustainable financial development of these enterprises, whereas equity financing has a detrimental effect. Control variables have been incorporated into the model to assess their effects on the sustainable growth rate. These findings offer valuable insights to policymakers and practitioners within the fishing industry, empowering them to make well-informed decisions regarding financial strategies that foster sustainable growth.
The article uses data from 122 listed construction and materials firms between 2010 and 2020 to study the impact of factors on liquidity. The variables in the model include Liquidity, Firm Size, Financial Leverage, Receivables Management Performance, Inventory Management Performance, Growth Opportunity, and Speed revenue growth of construction and materials firms. The quantile regression method is used to determine factors influence on corporate liquidity and the impact level of each variable on each quantile. On different quantiles, the impact of each element is also different. The higher the quantile, the stronger the effect of financial leverage on liquidity. Research results support the practical basis of liquidity in construction and materials firms in Vietnam recently.
The Modigliani-Miller theorem on the irrelevancy of financial structure implicitly assumes that the market possesses full information about the activities of firms. If managers possess inside information, however, then the choice of a managerial incentive schedule and of a financial structure signals information to the market, and in competitive equilibrium the inferences drawn from the signals will be validated. One empirical implication of this theory is that in a cross section, the values of firms will rise with leverage, since increasing leverage increases the market's perception of value.
The report argues that aid volatility is an important source of volatility for the poorest countries. Following a method already applied by the Agence Française de Développement, the report argues that loans to LICs should incorporate a floating grace period, which the country could draw upon when hit by a shock. The definition of a shock should include aid uncertainty, along with others such as commodity shocks and natural disasters. The idea is calibrated to a key IMF policy instrument towards Low-Income Countries, the Poverty-Reducing and Growth Facility (PRGF).
Le rapport montre que l’aide aux pays pauvres contribue à accroître la volatilité de ces pays. Suivant une méthode déjà élaborée par l’Agence Française de Développement, l’article propose d’accorder des crédits aux pays pauvres, qui incorporent un droit de grâce flexible, utilisable par le pays, lorsqu’il est confronté à un choc négatif, quelle qu’en soit la cause : choc d’aide, de prix des matières premières ou catastrophe naturelle. Il montre comment l’instrument utilisé par le FMI à destination des pays pauvres, le PRGF, pourrait être modifié pour ce faire.
According to basic economics, if demand exceeds supply, prices will rise, thus decreasing demand or increasing supply until demand and supply are in equilibrium; thus if prices do their job, rationing will not exist. However, credit rationing does exist. This paper demonstrates that even in equilibrium, credit rationing will exist in a loan market. Credit rationing is defined as occurring either (a) among loan applicants who appear identical, and some do and do not receive loans, even though the rejected applicants would pay higher interest rates; or (b) there are groups who, with a given credit supply, cannot obtain loans at any rate, even though with larger credit supply they would. A model is developed to provide the first theoretical justification for true credit rationing. The amount of the loan and the amount of collateral demanded affect the behavior and distribution of borrowers. Consequently, faced with increased credit demand, it may not be profitable to raise interest rates or collateral; instead banks deny loans to borrowers who are observationally indistinguishable from those receiving loans. It is not argued that credit rationing always occurs, but that it occurs under plausible assumptions about lender and borrower behavior. In the model, interest rates serve as screening devices for evaluating risk. Interest rates change the behavior (serve as incentive mechanism) for the borrower, increasing the relative attractiveness of riskier projects; banks ration credit, rather than increase rates when there is excess demand. Banks are shown not to increase collateral as a means of allocating credit; although collateral may have incentivizing effects, it may have adverse selection effects. Equity, nonlinear payment schedules, and contingency contracts may be introduced and yet there still may be rationing. The law of supply and demand is thus a result generated by specific assumptions and is model specific; credit rationing does exist. (TNM)
This paper relates quality and uncertainty. The existence of goods of many grades poses interesting and important problems for the theory of markets. On the one hand, the interaction of quality differences and uncertainty may explain important institutions of the labor market. On the other hand, this paper presents a struggling attempt to give structure to the statement: “Business in under-developed countries is difficult”; in particular, a structure is given for determining the economic costs of dishonesty. Additional applications of the theory include comments on the structure of money markets, on the notion of “insurability,” on the liquidity of durables, and on brand-name goods.
This paper provides evidence on the valuation effects of convertible debt issuance. Common stockholders earn significant negative abnormal returns at the initial announcement of a convertible debt offering, and also at the issuance date. In contrast, the average valuation effect on common stock at the announcement of non-convertible debt offerings is only marginally negative, and is zero at issuance. The significant negative average effect on common stock value appears not to be systematically related to either the degree of leverage change induced by the convertible debt issuance or the extent to which the proceeds from issuance are used for new investment or to refinance existing debt. If, as appears likely, the issuance of convertible debt on average increases financial leverage, these results are inconsistent with evidence from other recent studies documenting common stock price effects of the same sign as the change in leverage. The evidence suggests that convertible debt offerings convey unfavorable information about the issuing firms, but the specific nature of such information remains unidentified.
This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears these costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem.The directors of such [joint-stock] companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.Adam Smith, The Wealth of Nations, 1776, Cannan Edition(Modern Library, New York, 1937) p. 700.
In this paper a combined capital asset pricing model and option pricing model is considered and then applied to the derivation of equity's value and its systematic risk. In the first section we develop the two models and present some newly found properties of the option pricing model. The second section is concerned with the effects of these properties on the securityholders of firms with less than perfect ‘me first’ rules. We show how unanticipated changes in firm capital and asset structures can differentially affect the firm's debt and equity. In the final section of the paper we consider a number of theoretical and empirical implications of the joint model. These include investment policy as well as the causes and effects of non-stationarity in the systematic risk of levered equity and risky debt.
Many corporate assets, particularly growth opportunities, can be viewed as call options. The value of such ‘real options’ depends on discretionary future investment by the firm. Issuing risky debt reduces the present market value of a firm holding real options by inducing a suboptimal investment strategy or by forcing the firm and its creditors to bear the costs of avoiding the suboptimal strategy. The paper predicts that corporate borrowing is inversely related to the proportion of market value accounted for by real options. It also rationalizes other aspects of corporate borrowing behavior, for example the practice of matching maturities of assets and debt liabilities.
Thesis. 1979. Ph.D.--Massachusetts Institute of Technology. Alfred P. Sloan School of Management. MICROFICHE COPY AVAILABLE IN ARCHIVES AND DEWEY. Bibliography: leaves 271-278. by Nicolas S. Majluf. Ph.D.
I. Introduction, 488. — II. The model with automobiles as an example, 489. — III. Examples and applications, 492. — IV. Counteracting
institutions, 499. — V. Conclusion, 500.
This paper assumes that outside investors have imperfect information about firms' profitability and that cash dividends are taxed at a higher rate than capital gains. It is shown that under these conditions, such dividends function as a signal of expected cash flows. By structuring the model so that finite-lived investors turn over continuing projects to succeeding generations of investors, we derive a comparative static result that relates the equilibrium level of dividend payout to the length of investors' planning horizons.
This paper describes corporate investment and financing decisions when managers have inside information about the value of the firm's existing investment and growth opportunities, but cannot convey that information to investors. Capital markets are otherwise perfect and efficient. In these circumstances, the firm may forego a valuable investment opportunity rather than issue stock to finance it. The decision to issue cannot fully convey the managers' special information. If stock is issued, stock price falls. Liquid assets or financial slack are valuable if they reduce the probability or extent of stock issues. The paper also suggests explanations for some aspects of dividend policy and choice of capital structure.
In his article Determinants of Corporate Borrowing, Myers (1977) says that it is not guaranteed that the maximum value of the firm is reached before the maximum value of the debt is utilized in the case in which the interest payment is fully tax deductible, but the tax shield is lost if the firm goes bankrupt. I have shown here that even in such a case the maximum value of the firm will always be achieved before the maximum available debt is utilized.
This paper introduces a model of “feedback effect equilibrium” i.e. equilibria in which an asymmetrically informed agent is
motivated to communicate its privately known attribute but can do so only through channels or signals which convey directly
useful information to competing agents. This revelation to the competition serves to reduce the value of the private information
held by the first agent. Models of this kind are of obvious relevance to realistic theories of product or financial market
disclosure policies of firms, patenting, and a host of related behavioural and regulatory issues. This model is developed
in the context of a set of firms engaged in research and development rivalry, in which the value of privately held and disclosed
information arises from its implications for the likelihood and timing of productive innovation.
We extend the standard finance model of the firm's dividend/investment/financing decisions by allowing the firm's managers to know more than outside investors about the true state of the firm's current earnings. The extension endogenizes the dividend (and financing) announcement effects amply documented in recent research. But once trading of shares is admitted to the model along with asymmetric information, the familiar Fisherian criterion for optimal investment becomes time inconsistent: the market's belief that the firm is following the Fisher rule creates incentives to violate the rule.
We show that an informationally consistent signalling equilibrium exists under asymmetric information and the trading of shares that restores the time consistency of investment policy, but leads in general to lower levels of investment than the optimum achievable under full information and/or no trading. Contractual provisions that change the information asymmetry or the possibility of profiting from it could eliminate both the time inconsistency and the inefficiency in investment policies, but these contractual provisions too are likely to involve dead-weight costs. Establishing which route or combination of routes serves in practice to maintain consistency remains for future research.
This paper is an empirical examination of the relation between firm value and two potential actions by entrepreneurs attempting to signal to investors information about otherwise unobservable firm features. The signals investigated are the proportion of equity ownership retained by entrepreneurs and the dividend policy of the firm; both signals are hypothesized to be positively related to firm value. Using a sample of unseasoned new equity issues, the empirical results are consistent with the entrepreneurial ownership retention hypothesis, but the dividend signaling hypothesis is rejected.
have special information about the target firm's resources which indicates that the target is really worth more than its current market valuation. Hence, the acquiring firm, by paying only a small premium, is able to acquire these resources at a price below the true worth to shareholders indicated by the inside information. Thus shareholders are unable to capture the true benefits of their investments, and an inefficient amount of investment will take place. Therefore the government should restrict takeover bids.' The above argument is clearly wrong if there is competition among informed bidders for the target firm's assets. However, proponents of the argument claim that some takeover bids occur exactly because only one agent has special, inside information about the target company's resources. In this paper we show that
beyond that of choosing the financial structure. This is in contrast to the neoclassical view of the manager as being concerned solely with activity choice, rather than with irrelevant financial matters. One of the purposes of this paper is to explore the relationship between these two functions. It is not unlikely that in some situations no incentive schedule can be found that simultaneously motivates that manager to make correct activity choices-efficient ones-and to signal the firm's type through the financial structure. Such a structure must reward the manager on the basis of competence while signalling, through finance, the framework of choice faced by the manager. The problem of assessing performance is further complicated by the inability to identify states. In the absence of a complete contingent description of the economy it will always be difficult to separate out the extent to which a particular firm's returns were the consequence of the manager's choices or nature's, i.e., skill or luck. The problems of moral hazard in such a situation are evident; if the manager's productive performance is positively rewarded it is in his interest to bias downward the market's perception of the activity set open to him. This evaluation problem is the second theme of this paper. The first section of the paper introduces the general incentive-signalling-financial (ISF) equilibrium model, and the following section specializes the model to a traditional state-space framework. Here a number of definitive results can be obtained. Some subsections deal with the relationship between ISF models and the general theory of incentive compatibility, the use of restricted instruments such as debt and equity, and the implications of disclosure rules and market purchases by insiders. The final sections examine the problems of establishing an (ISF) equilibrium when states of nature cannot be identified and the observation problem is present.
This essay details a model of capital structure and financial equilibrium, developed in order to provide more theoretical information about informational asymmetries, financial structure, and financial intermediation. Although direct information transfer about the abilities of the entrepreneur and/or the quality of the firm is uncertain, one publicly available signal is investment in the project by the entrepreneur. This model demonstrates how a firm's value increases with the share of the firm shared by the entrepreneur, and a firm's financial structure can be related to a project or firm's value. Other models cannot readily account for the presence of financial intermediaries, in part because they do not incorporate the role of asymmetric information -- with this model, financial intermediation (which provides a validation role for the credibility of information and has a means of recouping the cost of information gathering and legitimation) can be interpreted as a response to asymmetric information. Within this model, it is determined that the set of investment projects undertaken coincides with the set that would be undertaken if direct information transfer were possible. (CBS)
Do new issues of seasoned securities cause significant price movements in the neighborhood of the issue day? This paper presents an empirical comparison of three competing hypotheses: the SEC view that a new issue causes a permanent price decline; the underwriter view that there is only a temporary price decline during the distribution period; and the efficient market hypothesis (EMH) that implies the absence of any price effects. Several empirical tests of the competing hypotheses using data on new issues of utility stocks traded on the NYSE reject the SEC and underwriter views in favor of the EMH.
Innovation and communication: Signalling with partial Campbell Optimal investment financing decisions and the value of confidentiality
- S Bhattacharya
- J R Ritter
Bhattacharya, S. and J.R. Ritter, 1983, Innovation and communication: Signalling with partial Campbell, T.S., 1979, Optimal investment financing decisions and the value of confidentiality, Journal of Financial and Quantitative Analysis 14, 913-924.
Equity issues and stock price dilution, Working paper
- P Asquith
- D W Mullins
Asquith, P. and D.W. Mullins, 1983, Equity issues and stock price dilution, Working paper, May (Harvard Business School, Cambridge, MA).
The effect of new issues of equity: An empirical examination Working paper
- A N Korwar
Korwar, A.N., 1981, The effect of new issues of equity: An empirical examination Working paper (University of California, Los Angeles, CA).
Dividend policy under asymmetric information,Working paper, Nov. (Graduate School of Business
- M H Miller
- K Rock
Miller, M.H. and K. Rock, 1982, Dividend policy under asymmetric information,Working paper, Nov. (Graduate School of Business, University of Chicago, Chicago, IL).
Information asymmetries and optimal project financing, Working paper (Graduate School of Business
- R J Rendleman
Rendleman, R.J., 1980, Information asymmetries and optimal project financing, Working paper (Graduate School of Business, Duke University, Durham, NC).
The failure of financial contracts and the relevance of financial policy, Working paper No. 82-3 (Queen's University
- R M Giammarino
- E H Neave
Giammarino, R.M. and E.H. Neave, 1982, The failure of financial contracts and the relevance of financial policy, Working paper No. 82-3 (Queen's University, Kingston, Ont.).
Define a*(N') as the breakeven value of a, the value at which the cash—poor firm is just indifferent to being acquired at the equilibrium price Q'. Note that Q' a*(N') + S
- A Proof
A proof follows. Define a*(N') as the breakeven value of a, the value
at which the cash—poor firm is just indifferent to being acquired at the
equilibrium price Q'. Note that Q'
a*(N') + S. Refer again to (la),
the requirement for the firm to Issue stock:
E/P'(S+a)<E+b
If the merged firms' total slack does not fully cover their investment requirements, the merger may or may not increase value
If the merged firms' total slack does not fully cover their investment
requirements, the merger may or may not increase value.
See Majiuf
(1978), pp. 239—256.
The failure of financial contracts and the relevance of financial policy
- Giammarino