Corporate Debt, Firm Size and Financial Fragility in Emerging Markets

Alfaro, Laura; Asis, Gonzalo; Chari, Anusha; Panizza, Ugo

doi:10.3386/w25459

Cited by 21 publications

(25 citation statements)

References 3 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Our results also suggest that the debt overhang‐investment linkage is stronger for large firms, in which the sensitivity of investment to debt overhang is about twice as high as small firms. This further supports a literature that documents the important role of large firms in driving aggregate economic activity and financial risks, both for EMDEs and advanced economies (e.g., Alfaro et al, 2019; Gabaix, 2011). These findings also point to policy implications that may warrant additional attention on large firms, such as the orderly resolution of their debt‐related defaults.…”

Section: Introductionsupporting

confidence: 87%

“…Debt overhang arises when accumulated debts may be excessive relative to the earnings flowing from new investments, and hence may lead firms to underinvest in positive net present value projects. Indeed, corporate earnings and returns have slowed during the postcrisis period in the context of the economic slowdown in many EMDEs (Alfaro et al, 2019).…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Corporate debt overhang and investment in emerging economies: Firm‐level evidence

Borensztein¹,

2020

International Finance

View full text Add to dashboard Cite

This paper investigates empirically the linkages between corporate debt overhang and investment activity at the firm level for a cross section of large‐sized emerging market and developing economies. It analyzes the extent to which investment may be discouraged by high levels of debt that put at risk future profits, as well as firm dimensions that may sharpen the debt‐investment link. Using balance sheet data from a broad set of emerging market and developing economy firms, the analysis suggests that corporate debt overhang imposes a sizable effect on investment at the firm level. This linkage is more pronounced for large firms and highly leveraged firms. The analysis also finds evidence of a nonlinear effect, in which debt overhang discourages investment more severely under high levels of indebtedness.

show abstract

Section: Introductionsupporting

confidence: 87%

Section: Introductionmentioning

confidence: 99%

Corporate debt overhang and investment in emerging economies: Firm‐level evidence

Borensztein¹,

2020

International Finance

View full text Add to dashboard Cite

show abstract

“…Firm size, leverage level, audit quality and firm profitability are the most famous characteristics that have been consider in the literature. It was proved that firm size and leverage level has a positive correlation with the financial distress (Alfaro et al, 2019). On the other side, audit quality and firm profitability are inversely correlated to the financial distress (Du and Lai, 2018).…”

Section: Financial Distressmentioning

confidence: 98%

أثر التعثر المالی وحجم الشرکة وجودة المراجعة علی إدارة الأرباح -دراسة تطبیقیة علی الشرکات المقیدة بالبورصة المصریة(باللغة الانجلیزیة)

الدیب¹,

رمضان²

2020

مجلة الاسکندریة للبحوث المحاسبیة

View full text Add to dashboard Cite

The way through which financial distress impact companies is the core of the economy especially after the COVID 19 wave all over the world. The main aim of the paper is to test the impact of Financial distress, firm size, and audit quality on earnings management. The study is applied on a sample of 42 companies listed in the Egyptian stock exchange market from the period 2015-2017. The paper main contribution is to add to the accounting literature of the financial distress and earnings management in the Egyptian environment as one of the leading developing countries in MENA region. The main research objective is to examine the relation between the financial distress, firm size, and audit quality from one side and earnings management from other side. This can help in understanding the behavior of earnings management in practice regarding these stressful variables. The researchers used regression analysis to find out the specific causal relationship among the research variables. The research results show that financial distress and audit quality are significantly impacting earnings management practices meanwhile the study failed to find a significant effect for firm size on earnings management within the Egyptian companies listed in the stock exchange market. The regression model include both variables and excluding firm value showed a 48.6% explanation power for explaining the change in the dependent variable. The limitation of the research is related to the other variables not considered in the study and the time period that included only 2015-2017. The main recommendation of the researchers that this study to be extended to include larger sample and a recent period to include the financial distress resulted by COVID 19 pandemic.

show abstract

“…Daskalakis and Psillaki [2008] reported that firms that invest more in fixed assets feel less distressed. Recently, Alfaro et al [2019] determined the importance of total assets in defining the association between financial leverage and financial fragility in emerging markets. They further insisted that large firms are more fragile and equally crucial for economic growth.…”

Section: Moderating Role Of Fixed Collateralsmentioning

confidence: 99%

Corporate board vigilance and insolvency risk: a mediated moderation model of debt maturity and fixed collaterals

Hussain

Wen

Saad

2021

International Journal of Management and Economics

View full text Add to dashboard Cite

Studies indicate that a consistent rise in insolvency risk should be addressed at the strategic level. Vigilant boards can use leverage maturity structure as a tool to control insolvency risk. However, according to the information asymmetry theory, leverage acquisition is subject to the presence of fixed assets which can be used as collateral. The current study focuses on the relationship between board vigilance and insolvency risk, mediated by debt maturity and moderated by fixed collaterals in Pakistan based non-financial firms. A data set of 284 firms is constructed between the years 2013 and 2017. Hierarchical multiple regression analysis is used to test the proposed hypothesis using ordinary least squares (OLS) and panel corrected standard errors (PCSE) regression estimators. The results indicate that debt maturity mediates the relationship between board vigilance and insolvency risk. New information is generated about the fixed collaterals, and these negatively moderate the relationship between leverage maturity and emerging market z-score indicating inefficiency in the usage of fixed assets as collaterals. These results are robust to both regression techniques confirming that the non-productive fixed collaterals overshadow the positives of tangible assets in asset structure.

show abstract

Corporate Debt, Firm Size and Financial Fragility in Emerging Markets

Cited by 21 publications

References 3 publications

Corporate debt overhang and investment in emerging economies: Firm‐level evidence

Corporate debt overhang and investment in emerging economies: Firm‐level evidence

أثر التعثر المالی وحجم الشرکة وجودة المراجعة علی إدارة الأرباح -دراسة تطبیقیة علی الشرکات المقیدة بالبورصة المصریة(باللغة الانجلیزیة)

Corporate board vigilance and insolvency risk: a mediated moderation model of debt maturity and fixed collaterals

Contact Info

Product

Resources

About