International Variations in Transparency and Capital Structure: Evidence from European Firms

Abstract

This paper documents the impact of national transparency regimes on corporate capital structure in 14 European countries. After controlling for relevant firm, industry, and national variables, we find that owner-manager agency cost-reducing transparency such as higher levels of analysts following is associated with lower corporate debt levels. In contrast, transparency that reduces owner-creditor agency costs that helps creditors control business risks (and creditors-to-owners wealth transfers), such as disclosure timeliness, institutional trading activities, and enforcement of anti-insider trading laws, are associated with higher corporate debt levels. Among other transparency measures, levels of financial and governance disclosures are negatively associated with debt ratios and higher levels of audit intensity and accounting disclosures are positively associated with debt ratios. Further, transparency factors are more important for large firms and for firms in services and high technology.

An integrated model of capital structure to study the differences in the speed of adjustment to target corporate debt maturity among developed countries

“…The variables that are more significant in explaining the optimal debt maturity ratio are: the output decisions (the higher the variation in output, the lower the debt maturity ratio); deficit of funds (the higher the deficit, the higher the proportion of long term debt); bankruptcy risk (high bankruptcy risk means longer debt maturity); size of the company (larger companies show higher proportion of long term debt); profitability (companies with higher ROA have longer debt maturity) and debt tax shields. The results are mostly in agreement with those obtained in other studies (Aggarwal and Aung, 2009;Barclay and Smith, 1995;Lemmon et al, 2008;López, 2005). In particular, the relation between profitability and debt maturity structure is in agreement with the trade-off theory (DeJong and Verwijmeren, 2010).…”

“…As a result, the institutional environment will determine the speed at which the companies adjust to the target debt maturity structure; financial intermediaries can help companies reach their target ratio faster. As Aggarwal and Aung (2009) point out, companies' debt structure in developed Continental European countries, with bank-based and developed financial systems, is sensitive to the size of the banking. This finding is rooted in both the close relationship that the companies have with their banks and the lower costs of renegotiation of the debt.…”

The mediating effect of transparency in the relationship between corporate social responsibility and corporate reputation

“…The tendency to increase the amount of information disclosed by the firm as part of an open style initially led to the frequent use of the term transparency until Bushman, Piotroski, and Smith (2004) introduced the term corporate transparency as 'the availability of firm-specific information to those who are outside', a term that remains in the works, among others, of Kaptein and Van Tulder (2003), Almazán, Suárez and Titman (2003), or Aggarwal and Kyaw (2009).…”

How Country Affects the Capital Structure Choice: Literature Review and Criticism

“…Prior research (e.g., Rajan & Zingales, 1995;Demirguc-Kunt & Maksimovic, 1999;Booth et al, 2001;Giannetti, 2003;Hall et al, 2004;Bancel & Mittoo, 2004;Antoniou et al, 2008;de Jong et al, 2008;Aggarwal & Kyaw, 2009;Alves & Ferreira, 2011;Kayo & Kimura, 2011;Fan et al, 2012;Acedo-Ramirez & Ruiz-Cabestre, 2014) finds that a firm's capital structure is not only influenced by firm-and industry-specific determinants, but also by country-specific factors: many country characteristics, such as the macroeconomic context, the institutional framework and the financial system, seem to affect (directly and indirectly) a firm's capital structure. This paper briefly reviews most of the international studies on country effect since 2000 and identifies some areas of potential development in empirical testing.…”

“…analyzed the role of countries as a determinant of firm leverage (Booth et al, 2001;Giannetti, 2003;Hall et al, 2004;Antoniou et al, 2008;de Jong et al, 2008;Aggarwal & Kyaw, 2009;Alves & Ferreira, 2011;Kayo & Kimura, 2011;Fan et al, 2012;Acedo-Ramirez & Ruiz-Cabestre, 2014). Table 1 summarizes the relevant features of these empirical studies (from here on acronyms are used).…”