The Experts below are selected from a list of 26001 Experts worldwide ranked by ideXlab platform
James Rosenfeld - One of the best experts on this subject based on the ideXlab platform.
-
raising Capital using monthly income preferred stock market reaction and implications for Capital Structure Theory
Social Science Research Network, 1997Co-Authors: Paul J Irvine, James RosenfeldAbstract:Monthly Income preferred stock (MIPS) was developed by Goldman Sachs in 1993. It is Structured so that the preferred dividends are tax deductible even though the rating services consider the security to be preferred equity. We find that MIPS users have S & P ratings that are generally at or just above the minimum investment-grade level. Issuers also tend to be more heavily leveraged and have inferior liquidity ratios than comparable firms. When proceeds are used to retire either long-term debt or preferred stock, the common stocks' two-day abnormal return is negligible. In contrast, when proceeds are used to repay bank loans, the two-day response is significantly negative. This result is consistent with the notion that banks perform a valuable monitoring function which, if removed, lowers shareholder wealth.
Mariateresa Marchica - One of the best experts on this subject based on the ideXlab platform.
-
financial flexibility investment ability and firm value evidence from firms with spare debt capacity
Financial Management, 2010Co-Authors: Mariateresa Marchica, Roberto MuraAbstract:We document, for the first time, that a conservative leverage policy directed at maintaining financial flexibility can enhance investment ability. Our analysis reveals that following a period of low leverage, firms make larger Capital expenditures and increase abnormal investment. We find that these new investments are financed through new issues of debt. The impact of financial flexibility is both statistically significant and economically sizable. Further, long-run performance tests reveal that financially flexible firms not only invest more but also invest better. Our results are consistent with the view that financial flexibility in the form of untapped reserves of borrowing power is a crucial missing link in Capital Structure Theory. There is a puzzling empirical regularity in the Capital Structure literature. Many firms appear to borrow less than the dominant theories predict. In his influential paper, Graham (2000) finds, “Paradoxically, large, liquid, profitable firms with low expected distress costs use debt conservatively.” He also reports that this conservative behavior appears to be persistent. Similar issues are discussed, among others, by Minton and Wruck (2001) and Strebulaev and Yang (2008). Recent survey evidence has shed some light on this matter (Bancel and Mittoo, 2004; Brounen, De Jong, and Koedijk, 2004; Graham and Harvey, 2001; Pinegar and Wilbricht, 1989). These studies suggest that it is financial flexibility that primarily drives chief finance officers’ leverage choices. Respondents say that flexibility is very important in enabling their companies to undertake investment in the future, when asymmetric information and contracting problems might otherwise force them to forego profitable growth opportunities. In other words, companies may adopt a conservative leverage policy to maintain “substantial reserves of untapped borrowing
-
financial flexibility investment ability and firm value evidence from firms with spare debt capacity
Social Science Research Network, 2010Co-Authors: Roberto Mura, Mariateresa MarchicaAbstract:We demonstrate that a conservative leverage policy directed at maintaining financial flexibility can enhance investment ability. Our analysis reveals that following a period of low leverage, firms make larger Capital expenditures and increase abnormal investment. We find that these new investments are financed through new issues of debt. The impact of financial flexibility is both statistically significant and economically sizeable. Further, long run performance tests reveal that financially flexible firms not only invest more, but also invest better. Our results are consistent with the view that financial flexibility in the form of untapped reserves of borrowing power is a crucial missing link in Capital Structure Theory.
Roberto Mura - One of the best experts on this subject based on the ideXlab platform.
-
financial flexibility investment ability and firm value evidence from firms with spare debt capacity
Financial Management, 2010Co-Authors: Mariateresa Marchica, Roberto MuraAbstract:We document, for the first time, that a conservative leverage policy directed at maintaining financial flexibility can enhance investment ability. Our analysis reveals that following a period of low leverage, firms make larger Capital expenditures and increase abnormal investment. We find that these new investments are financed through new issues of debt. The impact of financial flexibility is both statistically significant and economically sizable. Further, long-run performance tests reveal that financially flexible firms not only invest more but also invest better. Our results are consistent with the view that financial flexibility in the form of untapped reserves of borrowing power is a crucial missing link in Capital Structure Theory. There is a puzzling empirical regularity in the Capital Structure literature. Many firms appear to borrow less than the dominant theories predict. In his influential paper, Graham (2000) finds, “Paradoxically, large, liquid, profitable firms with low expected distress costs use debt conservatively.” He also reports that this conservative behavior appears to be persistent. Similar issues are discussed, among others, by Minton and Wruck (2001) and Strebulaev and Yang (2008). Recent survey evidence has shed some light on this matter (Bancel and Mittoo, 2004; Brounen, De Jong, and Koedijk, 2004; Graham and Harvey, 2001; Pinegar and Wilbricht, 1989). These studies suggest that it is financial flexibility that primarily drives chief finance officers’ leverage choices. Respondents say that flexibility is very important in enabling their companies to undertake investment in the future, when asymmetric information and contracting problems might otherwise force them to forego profitable growth opportunities. In other words, companies may adopt a conservative leverage policy to maintain “substantial reserves of untapped borrowing
-
financial flexibility investment ability and firm value evidence from firms with spare debt capacity
Social Science Research Network, 2010Co-Authors: Roberto Mura, Mariateresa MarchicaAbstract:We demonstrate that a conservative leverage policy directed at maintaining financial flexibility can enhance investment ability. Our analysis reveals that following a period of low leverage, firms make larger Capital expenditures and increase abnormal investment. We find that these new investments are financed through new issues of debt. The impact of financial flexibility is both statistically significant and economically sizeable. Further, long run performance tests reveal that financially flexible firms not only invest more, but also invest better. Our results are consistent with the view that financial flexibility in the form of untapped reserves of borrowing power is a crucial missing link in Capital Structure Theory.
Paul J Irvine - One of the best experts on this subject based on the ideXlab platform.
-
raising Capital using monthly income preferred stock market reaction and implications for Capital Structure Theory
Financial Management, 2000Co-Authors: Paul J Irvine, Jim RosenfeldAbstract:We examine the impact of selling Monthly Income Preferred Stock (MIPS) on the common share prices of the issuing firms. We find that issuing MIPS to retire preferred stock raises the value of the firm, and that government policy can significantly affect the present value of the tax savings. Using proceeds to retire bank loans negatively impacts common share value. This negative response is larger for MIPS users with lower credit ratings on their senior debt. These findings support the view that banks perform a valuable monitoring service, which, if removed, can invoke an adverse market reaction.
-
raising Capital using monthly income preferred stock market reaction and implications for Capital Structure Theory
Social Science Research Network, 1997Co-Authors: Paul J Irvine, James RosenfeldAbstract:Monthly Income preferred stock (MIPS) was developed by Goldman Sachs in 1993. It is Structured so that the preferred dividends are tax deductible even though the rating services consider the security to be preferred equity. We find that MIPS users have S & P ratings that are generally at or just above the minimum investment-grade level. Issuers also tend to be more heavily leveraged and have inferior liquidity ratios than comparable firms. When proceeds are used to retire either long-term debt or preferred stock, the common stocks' two-day abnormal return is negligible. In contrast, when proceeds are used to repay bank loans, the two-day response is significantly negative. This result is consistent with the notion that banks perform a valuable monitoring function which, if removed, lowers shareholder wealth.
Ajay Subramanian - One of the best experts on this subject based on the ideXlab platform.
-
manager characteristics and Capital Structure Theory and evidence
Journal of Financial and Quantitative Analysis, 2011Co-Authors: Sanjai Bhagat, Brian Bolton, Ajay SubramanianAbstract:We investigate the effects of manager characteristics on Capital Structure in a structural model. We implement the manager’s optimal contracts through financial securities that lead to a dynamic Capital Structure, which reflects the effects of taxes, bankruptcy costs, and manager-shareholder agency conflicts. Long-term debt declines with the manager’s ability, inside equity stake, and the firm’s long-term risk, but increases with its short-term risk. Short-term debt declines with the manager’s ability, increases with her equity ownership, and declines with short-term risk. We show support for these implications in our empirical analysis.
-
manager characteristics and Capital Structure Theory and evidence
Social Science Research Network, 2011Co-Authors: Sanjai Bhagat, Brian Bolton, Ajay SubramanianAbstract:We theoretically and empirically investigate the effects of manager-specific characteristics on Capital Structure. We develop a dynamic structural model in which a manager affects a firm's earnings through her ability and effort. The manager receives dynamic incentives through explicit contracts with shareholders. We derive the manager's contracts and implement them through financial securities. The firm's resulting Capital Structure is dynamic, and consists of long-term debt, short-term debt, inside equity, and outside equity. The different components of the firm's Capital Structure reflect the interactive effects of taxes, bankruptcy costs, as well as agency conflicts between the undiversified manager and well-diversified outside investors. The analysis of the model generates the following novel testable predictions: (i) Long-term debt declines with the manager's ability and with her inside equity ownership in the firm. (ii) Short-term debt declines with the manager's ability and increases with her equity ownership. (iii) Long-term debt increases with the firm's short-term risk and decreases with its long-term risk risk. (iv) Short-term debt declines with short-term risk. With the exception of the predicted relation between short-term debt and manager ownership, we show significant support for the above testable implications in our empirical analysis. Our theoretical and empirical results show that managerial discretion and manager-specific characteristics are important determinants of firms' financial policies.
