Pecking Order and Trade-off Explanations of Capital Structure and the Maturity Structure of Corporate Debt Obligations PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Pecking Order and Trade-off Explanations of Capital Structure and the Maturity Structure of Corporate Debt Obligations PDF full book. Access full book title Pecking Order and Trade-off Explanations of Capital Structure and the Maturity Structure of Corporate Debt Obligations by Paul Howard Richards. Download full books in PDF and EPUB format.
Author: Paul Howard Richards
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
It is shown i) that the under-investment problem is caused by the debt-equity mix of the financing rather than the investment itself and that a transfer of value (from shareholders to debt-holders) can be reversed by a post-investment adjustment in capital structure that restores the pre-investment gearing ratio. This simple, low-cost solution is preferable to reducing debt maturity (as in Myers (1977)) or gearing; ii) that transfers in value from debt-holders to shareholders to promote over-investment are not sustainable since investors will seek to avoid being disadvantaged by demanding higher returns, greater restrictions on the company or both; and that information asymmetry that restricts the issue of new shares can be managed by using several alternatives such as bridge financing in ways that remove the rationale for the pecking order theory; and iii) that managers have incentives to engage in empire building which is facilitated by a capital structure that reflects the degree of concentration among the other companies in the sector: faced with a low (high) degree of concentration, companies have lower (higher) gearing. The implications of these outcomes are empirically investigated using an extensive sample and robust estimating procedures providing strong support for the hypotheses tested.
Author: Paul Howard Richards
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
It is shown i) that the under-investment problem is caused by the debt-equity mix of the financing rather than the investment itself and that a transfer of value (from shareholders to debt-holders) can be reversed by a post-investment adjustment in capital structure that restores the pre-investment gearing ratio. This simple, low-cost solution is preferable to reducing debt maturity (as in Myers (1977)) or gearing; ii) that transfers in value from debt-holders to shareholders to promote over-investment are not sustainable since investors will seek to avoid being disadvantaged by demanding higher returns, greater restrictions on the company or both; and that information asymmetry that restricts the issue of new shares can be managed by using several alternatives such as bridge financing in ways that remove the rationale for the pecking order theory; and iii) that managers have incentives to engage in empire building which is facilitated by a capital structure that reflects the degree of concentration among the other companies in the sector: faced with a low (high) degree of concentration, companies have lower (higher) gearing. The implications of these outcomes are empirically investigated using an extensive sample and robust estimating procedures providing strong support for the hypotheses tested.
Author: Lakshmi Shyam-Sunder
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
This paper tests traditional capital structure models against the alternative of a pecking order model of corporate financing. The basic pecking order model, which predicts external DEBT (author's emphasis) financing driven by the internal financial deficit, has much greater explanatory power than a static trade-off model which predicts that each firm adjust toward an optimal debt ratio. We show that the power of some usual tests of the trade-off model is virtually nil. We question whether the available empirical evidence supports the notion of an optimal debt ratio.
Author: Lakshmi Shyam-Sunder
Publisher: Forgotten Books
ISBN: 9780666206985
Category : Business & Economics
Languages : en
Pages : 40
Get Book Here
Book Description
Excerpt from Testing Static Trade-Off Pecking Order Models of Capital Structure The theory of capital structure has been dominated by the search for optimal capital structure. Optimums normally require a trade-off, in this case between the tax advantages of borrowed money and the costs of financial distress when the firm finds it has borrowed too much. A value-maximizing firm would equate this benefit and cost at the margin, and operate at the top of the curve in Figure 1. The curve would top out at relatively high debt ratios for safe, profitable firms with plenty of taxes to shield and assets whose values would escape serious damage in financial distress. This static trade-017 theory quickly translates to empirical hypotheses. For example, it predicts reversion of the actual debt ratio towards a target or Optimum, and it predicts a cross-sectional relationship between average debt ratios and asset risk, profitability, tax status and asset type. Several pounds of empirical literature have been guided by such hypotheses. Most of these studies have supported the static trade-off theory. That is, they have rejected the null, and shown some statistically significant coefficients consistent with the theory. However, none of these papers has systematically compared the explanatory power of their fitted equations with alternative explanations of financing behavior, and none has checked whether their equations could seem to work even when actual financing is driven by other forces. That is, they have not checked the power of their tests against alternative hypotheses. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.
Author: Shyam-Sunder Lakshmi
Publisher: Hardpress Publishing
ISBN: 9781314772005
Category :
Languages : en
Pages : 50
Get Book Here
Book Description
Unlike some other reproductions of classic texts (1) We have not used OCR(Optical Character Recognition), as this leads to bad quality books with introduced typos. (2) In books where there are images such as portraits, maps, sketches etc We have endeavoured to keep the quality of these images, so they represent accurately the original artefact. Although occasionally there may be certain imperfections with these old texts, we feel they deserve to be made available for future generations to enjoy.
Author: Don Hamson
Publisher:
ISBN:
Category : Capital
Languages : en
Pages : 40
Get Book Here
Book Description
Author: Fabio Schiantarelli
Publisher: World Bank Publications
ISBN:
Category : Corporate debt
Languages : en
Pages : 44
Get Book Here
Book Description
Author: Eleuterio Vallelado
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
Get Book Here
Book Description
In this paper we propose an integrated model of capital structure to study the partial adjustment process to the optimal long term debt ratio. In our analysis we consider the characteristics of the institutional environment as a factor that influences such adjustment. We use a sample of quoted firms from Germany, Denmark, Spain, Italy, United States, Australia, Belgium, United Kingdom and France for the period 1995-2004. The key findings are that the firms follow optimal long-term debt ratios. Such optimal ratios are determined by firm characteristics identified in the trade off, pecking order and market timing theories and by the country institutional environment. We observe that in those countries with lower cost of adjustment, essentially in those where banks are the main source of funds, firms can reach their target debt ratio in half the time needed by those countries with higher adjustment costs.
Author: Don Hamson
Publisher:
ISBN:
Category : Capital
Languages : en
Pages : 40
Get Book Here
Book Description
Author: Stewart C. Myers
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 46
Get Book Here
Book Description
This paper contrasts the "static tradeoff" and "pecking order" theories of capital structure choice by corporations. In the static tradeoff theory, optimal capital structure is reached when the tax advantage to borrowing is balanced, at the margin, by costs of financial distress. In the pecking order theory, firms preferinternal to external funds, and debt to equity if external funds are needed. Thus the debt ratio reflects the cumulative requirement for external financing. Pecking order behavior follows from simple asymmetric information models. The paper closes with a review of empirical evidence relevant to the two theories.
Author: Arindam Banerjee
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
This research study was undertaken to understand if there were any significant changes in variables influencing the capital structure decisions of BSE 500 companies in the post period of recession in comparison with the pre- period of recession. A further endeavor was made in this article to investigate if there was a shift in the financing behavior of the firms during the same period of the study. It was observed from the study that the financing behavior of the firms was explained by the pecking order theory in the pre- recession period and trade off theory during the post- recession period.
