The cost of debt capital revisited

Baule, Rainer

doi:10.1007/s40685-018-0070-6

Cited by 15 publications

(10 citation statements)

References 25 publications

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“…Based on this consideration, the approach used in this article is more empirical and aims to determine the significance of the variables used, especially in the F&B sector in Indonesia (Kanita, 2014). Some empirical studies of the capital structure theories have focused on the effect of factors on leverage and the firm value (Baule, 2019;Ben-Nasr, Boubaker & Rouatbi, 2015). Some research compared pecking order theory and trade-off theory to analyze which one better affects the leverage (Zunckel & Nyide, 2019;Arsov & Naumoski, 2016).…”

Section: Introductionmentioning

confidence: 99%

The Effect of Financial Performance and Innovation on Leverage: Evidence from Indonesian Food and Beverage Sector

Santosa

2020

OMEE

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This article aims to investigate the determinants of firm’s capital structure (debt ratio) such as asset structure, profitability, agency cost, innovation and technology, and firm size as a moderating variable. This study used quarterly data from the financial statements of food and beverage firms at the Indonesia Stock Exchange with a purposive sampling method that met the research criteria with panel data analysis. The findings show that firm size and asset structure affect leverage positively; however, profitability and innovation and technology negatively affect the debt ratio, while agency cost does not affect leverage. All findings are in line with the hypotheses except agency cost. The firm size as a moderating variable shows strengthening of the interaction between agency cost and innovation with leverage. However, interacting with firm size weakens the effect of the relationship between assets structure and profitability with the debt ratio. Managerial implications of the target of debt ratio that creates the value of the firm need to be flexible and controlled by the interaction of the firm size with firm characteristics and innovation to achieve an optimal firm value of F & B sector.

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Section: Introductionmentioning

confidence: 99%

The Effect of Financial Performance and Innovation on Leverage: Evidence from Indonesian Food and Beverage Sector

Santosa

2020

OMEE

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“…This information must also be considered in the evaluation of the risk-return profile and (therefore) the value of a firm. The possibility of insolvency is described in the literature on corporate valuation as an insolvency risk, which influences the company value, in particular via its effect on the cost of debt (Baule 2018;Schüler and Schwetzler 2019) and the expected value of cash flows and earnings (Gleißner 2010;Friedrich 2015;Lahmann et al 2018). In the detailed planning phase, the risk of insolvency must be directly considered when calculating expected earnings values, e.g., via Monte Carlo simulation.…”

Section: Measuring the Earnings Risk Profile As An Attractive Incenti...mentioning

confidence: 99%

Financial sustainability: measurement and empirical evidence

Gleißner

Walkshäusl

2022

J Bus Econ

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Financial sustainability is underrepresented in both the research on and practice of sustainability management and reporting. This article proposes a conceptual measure of financial sustainability and examines its association with capital market returns. The measure is positioned at the intersection of sustainability management, risk management and risk governance. Financial sustainability is regarded as a crucial control parameter complementing shareholder value and can be viewed by risk-averse investors as a secondary condition of investment decisions. It reduces refinancing and insolvency risks, leading to risk-adjusted excess returns in an imperfect capital market with financing restrictions and insolvency costs. We propose measuring a firm’s financial sustainability in terms of four conditions: (1) firm growth, (2) the company’s ability to survive, (3) an acceptable overall level of earnings risk exposure, and (4) an attractive earnings risk profile. We show that the application of a conditions-based investment strategy to European firms with high financial sustainability (i.e., firms fulfilling all four conditions) over the period from July 1990 to June 2019 results in monthly excess returns of 0.39%. This portfolio’s risk is lower than the risk of market investment. We find that the excess returns increase when incrementally adding each of the four conditions to the investment strategy.

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“…This formula applies to both active debt management according to ME and active debt 1 The discount rate to compute the market value of the tax shield depends on assumptions regarding the tax treatment. Depending on the taxation in the case of default, differences in the market value occur, see, for example, Sick (1990); Kruschwitz et al (2005); Rapp (2006); Krause and Lahmann (2016); Baule (2019). A more explicit consideration of the insolvency risk for discontinuous financing can be found in Arnold et al (2019).…”

Section: Valuation With Hybrid Financingmentioning

confidence: 99%

Valuation with mixed financing strategies

Dierkes

Maeyer

2020

Bus Res

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In corporate valuation, it is common to assume either passive or active debt management. However, it is questionable whether these pure financing policies reflect the real financing policies of firms with a sufficient degree of accuracy. This shortcoming has led to the development of mixed financing strategies as combinations of pure financing strategies. Whereas hybrid financing is directly linked to the two-phase model, it is unclear how to apply discontinuous financing in such a setting. In this study, according to the two versions of hybrid financing, we analyze the implementation of discontinuous financing in a two-phase model. Thereby, we present a simpler and more intuitive derivation of the valuation equation for discontinuous financing to increase its acceptance and its use for corporate valuation practice. Moreover, we compare the different mixed financing strategies with each other theoretically, and we conduct simulations to elucidate the impact on market values and the sensitivities of input parameters. The study concludes that the presented mixed financing strategies can help in the attempt to reflect the real financing behavior of firms more accurately and, therefore, constitute a valuable alternative to pure financing strategies for valuation.

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The cost of debt capital revisited

Cited by 15 publications

References 25 publications

The Effect of Financial Performance and Innovation on Leverage: Evidence from Indonesian Food and Beverage Sector

The Effect of Financial Performance and Innovation on Leverage: Evidence from Indonesian Food and Beverage Sector

Financial sustainability: measurement and empirical evidence

Valuation with mixed financing strategies

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