Risk changes and external financing activities: Tests of the dynamic trade-off theory of capital structure

Dierker, Martin; Lee, Inmoo; Seo, Sung Won

doi:10.1016/j.jempfin.2019.03.004

Cited by 36 publications

(46 citation statements)

References 49 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…In particular, the SPSM process using the KSS PURT with the trend and Fourier functions offers robust proof showing the debt-ratio stationarity for 10 of 15 firms. These results are consistent with supporting trade-off theory (e.g., Solomon 1963;Shyam-Sunder and Myers 1999;Hovakimian et al 2001;Ozkan 2001;Sogorb Mira and López-Gracia 2003;Leary and Roberts 2005;Flannery and Rangan 2006;Hackbarth et al 2007;Chang and Yu 2010;Elsas and Florysiak 2011;Chen et al 2019;and Dierker et al 2019). In particular, the outcomes of this study were consistent with those of Flannery and Rangan (2006); Elsas and Florysiak (2011); and Ozkan (2001) in developed countries.…”

Section: Discussion Of the Resultssupporting

confidence: 89%

Do DJIA Firms Reflect Stationary Debt Ratios?

Lin

2020

Economies

View full text Add to dashboard Cite

To form optimum firm capital structure strategies to face unanticipated economic events, firm managers should understand the stability of a firm’s capital structure. The aim of this research was to study whether the debt ratio is stationary in listed firms on the Dow Jones Industrial Average (DJIA). Two vital capital structure concepts regarding pecking order and trade-off theory are fairly contradictory. Using opposing theoretical contexts, the Sequential Panel Selection Method apparently categorizes which and how many series are stationary processes in the panel. This method was used to test the mean reverting properties of the 25 companies listed on Dow Jones Industrial Average between 2001 and 2017 in this study, which is expected to fill the current gap in the literature. The overall results show that stationary debt ratios exist in 10 of the 25 studied firms, supporting the trade-off theory. Moreover, the 10 firms utilizing trade-off theory are affected by firm size, profitability, growth opportunity, and dividend payout ratio. These results provide vital information for firms to certify strategies to optimize capital structure.

show abstract

Section: Discussion Of the Resultssupporting

confidence: 89%

Do DJIA Firms Reflect Stationary Debt Ratios?

Lin

2020

Economies

View full text Add to dashboard Cite

show abstract

“…Debt maturity influenced insolvency risk positively, and it was significant for panels A & B but insignificant for panel-C. Whereas, the impact of capital structure on insolvency risk represented by debt ratio is negative in the case of panel A similar to (Dierker, Lee, & Seo, 2019) but positive for Panel B & C as in (Bhagat, Bolton, & Lu, 2015). However, this relationship is insignificant in all three cases, as also reported by (Chung, Na, & Smith, 2013).…”

Section: Methodssupporting

confidence: 52%

Are Growth Led Financing Decisions Causing Insolvency in Listed Firms of Pakistan?

Hussain

Wen

Butt

et al. 2020

Zagreb International Review of Economics and Business

View full text Add to dashboard Cite

We examine the relationship between growth opportunities and insolvency risk in a mediating framework through financing decisions for 330 listed firms on the Pakistan Stock Exchange (PSX) This study covers a data period of five years ranging from 2013 to 2017. Financing decisions used in this study involve capital structure decision and debt maturity decision. We applied robust clustered panel OLS regression to the data and found a negative relationship between growth opportunities and insolvency risk in all samples consisting of overall, large and small firms. Growth opportunities have a negative impact on the capital structure, but debt maturity was influenced positively. Financing decisions influenced the insolvency risk positively. We used Baron and Kenny’s (1986) approach to detect the intervening effects of financing decisions. Further, Sobel’s test used to check the significance of mediation. Partial mediation was found for the debt maturity ratio in the large and overall sample of firms. However, the capital structure did not mediate the relationship between growth opportunities and insolvency risk in this study.

show abstract

“…Following Dierker et al (2019), we use two measures of external financing: (1) External Equity Financing, estimated as the ratio of the difference between the sale of common and preferred stocks (SSTK) and the purchase of common and preferred stocks (PRSTKC) to total assets at the beginning of the year, and (2) External Debt Financing, estimated as the ratio of long-term debt issuance (DLTIS) minus long-term debt reduction (DLTR) to total assets at the beginning of the year. The term X i t , is a vector of controls.…”

Section: Data Breaches and External Financingmentioning

confidence: 99%

“…However, given that breached firms are probably viewed as a higher credit risk by the financial markets and therefore face higher costs of capital, we expect that they would find it difficult to raise external financing, and, therefore, external financing activities should decline after the disclosure of a breach incident. To test this, we specify the following model:

E x t e r n a l F i n a n c e_{i, t} = α + β B r e a c h {MathClass-open(0 / 1 MathClass-close)}_{t} + γ X_{i, t} + ρ_{j} + δ_{t} + ε_{i, t} .

Following Dierker et al (2019), we use two measures of external financing: (1) External Equity Financing , estimated as the ratio of the difference between the sale of common and preferred stocks (SSTK) and the purchase of common and preferred stocks (PRSTKC) to total assets at the beginning of the year, and (2) External Debt Financing , estimated as the ratio of long‐term debt issuance (DLTIS) minus long‐term debt reduction (DLTR) to total assets at the beginning of the year. The term

X_{i, t}

is a vector of controls.…”

Section: Effects Of Actual Data Breachesmentioning

confidence: 99%

Data breaches and corporate liquidity management

Boasiako

Keefe

2020

Euro Fin Management

View full text Add to dashboard Cite

This paper investigates the effects of data breach disclosure laws and the subsequent disclosure of data breaches on the cash policies of corporations in the United States. Exploiting a series of natural experiments regarding staggered state-level data breach disclosure laws, we find that the passage of mandatory disclosure laws leads to an increase in cash holdings.Our finding suggests that mandatory data breach disclosure laws increase the risks related to data breaches.Further, we find firms that suffer data breaches adjust their financial policies by holding more cash as well as decreasing external finance and investment.

show abstract

Risk changes and external financing activities: Tests of the dynamic trade-off theory of capital structure

Cited by 36 publications

References 49 publications

Do DJIA Firms Reflect Stationary Debt Ratios?

Do DJIA Firms Reflect Stationary Debt Ratios?

Are Growth Led Financing Decisions Causing Insolvency in Listed Firms of Pakistan?

Data breaches and corporate liquidity management

Contact Info

Product

Resources

About