Firm crash risk, information environment, and speed of leverage adjustment

An, Zhe; Li, Donghui; Yu, Jin

doi:10.1016/j.jcorpfin.2015.01.015

Cited by 92 publications

(73 citation statements)

References 52 publications

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“…The influence of asymmetric information on capital structure adjustments is also consistent to the diminishing speed of adjustment in the disclosure environment as observed by An, Li, and Yu (2015) and the weak corporate governance structure (Grahan, Leary, & Roberts, 2014;Lepetit, Saghi-Zedek, & Tarazi, 2015).…”

Section: Resultssupporting

confidence: 73%

“…Lockhart (2014) found that a credit line is associated with cross-sectional variation in estimated speeds of adjustments of the target leverage because credit lines offer lower adjustment costs to under-levered firms. An, Li, and Yu (2015) state that the exposure to a crash-risk diminishes the issue of capital structure speed of adjustment.…”

Section: Capital Structure Adjustmentsmentioning

confidence: 99%

“…The macroeconomic conditions, such as the government leverage and output of financial sector from business credit and equity, have been found by Graham, Leary, and Roberts (2014) as the historical determinants of capital structures. An, Li, and Yu (2015) have indicated a positive association between capital structure speed of adjustment and transparent information environment.…”

Section: Capital Structure Adjustmentsmentioning

confidence: 99%

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Capital Structure Adjustments and Asymmetric Information

Ripamonti¹

2019

IJEF

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The findings of this paper suggest another reason for capital structure adjustments besides the Trade-Off and Pecking Order theories propositions because asymmetric information impacts capital structure changes and deviations only for a quarter whilst stationarity impacts them for 4 quarters, even when controlled. Asymmetric information has been measured by Corwin-Schultz bid ask spread estimator and capital structure target as the mean of debt-to-equity ratio of 262 Nyse non-financial and non-regulated companies and their industries during 91 quarters. The data were analyzed with Johansen-Fisher panel cointegration. The capital structure deviations last from 2 to 4 quarters and move toward a target.

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Section: Resultssupporting

confidence: 73%

Section: Capital Structure Adjustmentsmentioning

confidence: 99%

Section: Capital Structure Adjustmentsmentioning

confidence: 99%

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Capital Structure Adjustments and Asymmetric Information

Ripamonti¹

2019

IJEF

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“…The empirical evidence illustrates that exogenous factors such as macro-economic shocks which influence firms' riskiness as well as variance in cash flows tend to have an impact on speed of adjustment (Cook and Tang, 2010). The risk factor is moderated by information of the capital market with firms operating in markets where there are greater levels of information asymmetry tending to face greater transaction costs (An et al, 2015).…”

Section: Adjustment To Target Capital Structure and Firm Valuementioning

confidence: 94%

Environmental Reporting and Speed of Adjustment to Target Leverage: Evidence from a Dynamic Regime Switching Model

et al. 2020

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Background and Purpose: This study investigates the impact of environmental reporting on speed of adjustment and adjustment costs which is evaluated based on the ability of firms to adjust to target leverage level for non-financial firms listed in the Malaysian Stock Exchange (Bursa Malaysia).Design/Methodology/ Approach: The study selects Malaysian firms based on the contracting and political cost of the economy which is seen as a relationship-based economy. This in turn influences a firm’s ability to obtain external financing and thus has an important impact on capital structure decisions. In addition, the method employed allows for a direct measure on adjustment cost for firms. The current study utilises a dynamic regime switching model based on the DPF estimator to estimate rate of adjustment to optimal target levels based on the distinction of environmental reporting of public listed firms. The approach allows statistical inferences to control for potential serial correlation, endogeneity and heterogeneity concerns which accounts for firm specific characteristics.Results: The empirical findings suggest voluntary disclosure on environmental reporting increases a firm’s ability to access external financing at a cheaper cost as evidenced by a more rapid rate of adjustment. The findings are consistent across differing endogenous and exogenous factors indicating that these firms tend to face lower adjustment costs.Conclusion: The current study provides a direct measure on the ability of firms to adjust to target levels via security issues and repurchases in the capital markets. This in turn is a reflection of perceived riskiness and value from the investors’ point of view in an emerging market. Prior studies have focused on environmental reporting and equity risk premiums and have not evaluated the direct impact on firm value given that the trade-off theory of capital structure predicts that firm value is maximised at target i.e. optimal levels of leverage. This study addresses the current gap in the literature by evaluating the impact on firms’ value, based on the adjustment cost.

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“…We further truncate our sample by eliminating countries with less than 25 companies and firm years with stock data fewer than 26 weeks. Last, we drop observations with the absolute value of weekly returns greater than 0.5 (i.e., 50%) to avoid possible errors caused by nonadjusted stock splits in Datastream (An et al ) . Our final sample consists of 21,986 firms from 36 countries over the period from 1997 to 2008.…”

Section: Datamentioning

confidence: 99%

The Impact of Firm‐Level Illiquidity on Crash Risk and the Role of Media Independence: International Evidence

Gao

et al. 2017

Int Rev Finance

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This study investigates the impact of firm-level illiquidity on stock price crash risk by employing a sample of 21,986 firms across 36 countries spanning the years 1997 to 2007. In doing so, the role of media independence in shaping this impact is also examined. The empirical results suggest that stock illiquidity is significantly and positively associated with firm-level crash risk. Furthermore, the positive association between illiquidity and crash risk has been mitigated in countries with independent media, characterized by a lower level of state ownership and a higher level of press freedom, in addition to the reduction effect of media independence per se on crash risk. Our main conclusions remain valid after taking into account the endogeneity issues and various robustness tests.

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Firm crash risk, information environment, and speed of leverage adjustment

Cited by 92 publications

References 52 publications

Capital Structure Adjustments and Asymmetric Information

Capital Structure Adjustments and Asymmetric Information

Environmental Reporting and Speed of Adjustment to Target Leverage: Evidence from a Dynamic Regime Switching Model

The Impact of Firm‐Level Illiquidity on Crash Risk and the Role of Media Independence: International Evidence

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