Agency and Tax Explanations of Security Issuance Decisions

Walsh, Eamonn J.; Ryan, James C.

doi:10.1111/1468-5957.00144

Cited by 49 publications

(37 citation statements)

References 25 publications

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“…< TABLE 8 about here > Certain elements appear to have strong support and are generally consistent with results from UK regression studies (references in brackets): the tax advantage of debt interest (Walsh and Ryan, 1997); the need for collateral in debt contracts constraining the use of debt (asset tangibility influence: Bennett and Donnelly, 1993;Adedeji, 1998;Bevan and Danbolt, 2004); consideration of the market response to debt or equity issues (Marsh, 1984); and companies issuing debt when they feel that equity is undervalued. Respondents' concern about long-term company survivability is difficult to reconcile with UK regression results which report a positive relationship between debt and earnings variability (Bennett and Donnelly, 1993).…”

Section: Summary and Discussionsupporting

confidence: 56%

“…There is evidence that many of the theoretical arguments are accepted by a significant number of respondents: the importance of interest tax shield (consistent with Walsh and Ryan, 1997), financial distress, agency costs (consistent with Walsh andRyan, 1997 and, for large companies, Lasfer, 1998) also, at least implicitly, information asymmetry. The use of debt as an instrument in corporate control situations is not generally accepted.…”

Section: Summary and Discussionmentioning

confidence: 99%

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Diversity and Determinants of Corporate Financing Decisions: Survey Evidence

2004

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Despite theoretical developments in recent years, our understanding of corporate capital structure remains incomplete. Prior empirical research has been dominated by archival regression studies which are limited in their ability to fully reflect the diversity found in practice. The present paper reports on a comprehensive survey of corporate financing decision-making in 192 UK listed companies.A key finding is that firms are heterogeneous in their capital structure policies. About half of the firms seek to maintain a target debt level, consistent with trade-off theory, but 60% claim to follow a financing hierarchy, consistent with pecking order theory. These two theories are not viewed by respondents as either mutually exclusive or exhaustive, since some firms adopt (at least partially) both strategies, while a significant number of firms do not appear to follow either of these strategies. Such observations raise concerns about the usefulness of large-scale regression modelling of capital structure determinants. In normal usage, these models can only describe whether a particular theory is consistent with the observed capital structure of the 'average firm' in the population. They are not typically used to model the diversity of capital structure practice.As found in many regression-based determinant studies, there is clear evidence here that company size affects corporate financing decisions. For example, large companies are more likely to adopt a target debt level and to maintain financial slack (though not more likely to follow a hierarchy of finance). Similarly, current high levels of gearing encourage a greater focus on particular issues such as projected cash flows, loan covenants and non-interest tax shields. This contingency on debt levels suggests that empirical studies of capital structure dynamics may be particularly fruitful.Investigation of debt level determinants shows that many of the theoretical arguments are widely accepted by respondents, in particular the importance of interest tax shield, financial distress, agency costs and also, at least implicitly, information asymmetry.

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Section: Summary and Discussionsupporting

confidence: 56%

Section: Summary and Discussionmentioning

confidence: 99%

Diversity and Determinants of Corporate Financing Decisions: Survey Evidence

2004

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“…If fixed assets proxy for the availability of such noninterest tax shields, DeAngelo and Masulis' theory would imply a negative correlation between tangibility and gearing, contrary to what is generally observed (see section on tangibility below). In their Bradley et al, (1984), Titman and Wessels (1988), and Rajan and Zingales (1995) find a significant positive relationship between tangibility and total gearing, while Marsh (1982) and Walsh and Ryan (1997) find the probability of debt issues to be positively related to the fixed asset ratio. However, Chittenden et al, (1996) and Bevan and Danbolt (2002) find the relationship between tangibility and gearing to depend on the measure of debt applied.…”

Section: Tangibilitymentioning

confidence: 98%

Testing for inconsistencies in the estimation of UK capital structure determinants

Bevan

Danbolt

2004

Applied Financial Economics

105

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We analyse the determinants of the capital structure of 1,054 UK companies from 1991 to 1997, and the extent to which the influence of these determinants are affected by time-invariant firm-specific heterogeneity. Comparing the results of pooled OLS and fixed effects panel estimation, we find significant differences in the results. While our OLS results are generally consistent with prior literature, the results of our fixed effects panel estimation contradict many of the traditional theories of the determinants of corporate financial structure. This suggests that results of traditional studies may be biased owing to a failure to control for firm-specific, time-invariant heterogeneity. The results of our fixed effects panel estimation find larger companies to have higher levels of both long-term and short-term debt than do smaller firms; profitability to be negatively correlated with the level of gearing, although profitable firms tend to have more short-term bank borrowing than less profitable firms, and tangibility to positively influence the level of short-term bank borrowing, as well as all long-term debt elements. However, the level of growth opportunities appears to have little influence on the level of gearing, other than short-term bank borrowing, where a significant negative relationship is observed. Running title:Estimation of UK Capital Structure Determinants JEL classification: G32, G3

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“…Indeed, Walsh and Ryan [35] find that firms frequently issue debt from foreign finance subsidiaries, particularly in favorable tax jurisdictions such as the Netherlands, to avoid paying interest withholding tax and to achieve tax deductibility of interest payments. Arbitrage activities of this kind demonstrate the connection between a firm's strategies and its financing and tax decisions.…”

Section: Debtsmentioning

confidence: 99%

The Determinants of Tax Avoidance within Corporate Groups: Evidence from Moroccan Groups

Anouar¹,

Houria²

2017

IJEFM

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This paper examines the major tax avoidance determinants within the corporate groups, based on a hand-collected sample of 45 publicly-listed Moroccan corporate groups, over the 2011-2015 period. The literature review indicate that there are several practices of Moroccan corporate groups, used to reduce their tax liabilities, specially, we find, Group size, Intragroup transactions, Profitability, Intangible Assets, Debts, and Multinationality. Finally, our regression results show that only the multinationality, intra-group transactions and Debts are used to maximize tax avoidance opportunities, therefore to reduce the group's tax liabilities.

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Agency and Tax Explanations of Security Issuance Decisions

Cited by 49 publications

References 25 publications

Diversity and Determinants of Corporate Financing Decisions: Survey Evidence

Diversity and Determinants of Corporate Financing Decisions: Survey Evidence

Testing for inconsistencies in the estimation of UK capital structure determinants

The Determinants of Tax Avoidance within Corporate Groups: Evidence from Moroccan Groups

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