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

Borensztein, Eduardo; Ye, Lei Sandy

doi:10.1111/infi.12382

Cited by 8 publications

(6 citation statements)

References 44 publications

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“…Following Borensztein and Ye (2021), we measure debt overhang (inverse) (NDOH) as the ratio of earnings before interest and taxes (EBIT) to total debt. The NDOH is first multiplied with negative one (−1), so that a higher value would indicate a higher carbon emission.…”

Section: Resultsmentioning

confidence: 99%

“…The concept of corporate debt overhang (DOH) and its impacts on businesses have garnered significant attention in the field of finance and economics. The DOH points to a challenging financial business situation when the business accumulates excessive debt relative to its earnings and assets (Borenztein and Ye, 2021). Businesses facing financial constraints due to DOH generally find it difficult to secure necessary funding leading to limitations in their ability to allocate resources to further investment (Fang et al ., 2023).…”

Section: Introductionmentioning

confidence: 99%

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Debt overhang and carbon emissions

Safiullah,

Houqe,

Ali

et al. 2023

IJMF

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PurposeThis study investigates the association between debt overhang and carbon emissions (both direct and indirect emissions) using a sample of US publicly listed firms.Design/methodology/approachThe study applies generalized least squares (GLS) regression analyses to a sample of 2,043 US firm-year observations over a period of 14 years from 2007 to 2020. The methods include contemporaneous effect, lagged effect, alternative measures of carbon emissions and debt overhang, intensive versus non-intensive analysis, channel analysis, firm fixed effects, change analysis, controlling for credit rating analysis, propensity score matching approach, instrumental variable analysis with industry and year fixed effect.FindingsThis study's findings reveal that the debt overhang problem increases carbon emissions. This finding holds when the authors use alternative measures of carbon emissions and debt overhang. The authors find that carbon abatement investment is a channel that is negatively impacted by debt overhang, which in turn increases carbon emissions. This study's results are robust for several endogeneity tests, including firm fixed effects, change analysis, propensity score matching approach and two-stage least squares (2SLS) instrumental variable analysis.Practical implicationsThe outcome of this research has policy implications for several stakeholders, including investors, firms, market participants and regulators. This study's findings offer insights for investors and firms, helping them allocate resources effectively and make financing decisions aimed at reducing carbon emissions. Regulators and policymakers can also use the findings to formulate policies that promote alternative sustainable finance practices.Originality/valueThe outcome of this research is likely to help firms develop their understanding of the debt overhang problem and undertake strategies that yield a significant amount of funding to invest in reducing carbon emissions.

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Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Debt overhang and carbon emissions

Safiullah,

Houqe,

Ali

et al. 2023

IJMF

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“…Frequent corporate debt defaults have exacerbated the corporate credit crisis and contributed to low-risk aversion. While corporate loans in emerging markets and developing countries increased from an average of around 60% of GDP in 2006 to roughly 80% in 2019, they reached 150% of GDP in China in 2019 (Borensztein and Ye, 2021). When a publicly traded company is having financial difficulties, it is possible that its earnings will not reach investors’ expectations, which would cause a drop in the stock price and firm value.…”

Section: Literature Review and Development Of Hypothesesmentioning

confidence: 99%

Internal control, debt risk, CEO education and earnings management evidence from China

Chi,

Gooda

2023

JFRA

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Purpose This study aims to explore how earnings management techniques are affected by corporate financial debt risk (FDR), internal control (IC) effectiveness and CEO education. Design/methodology/approach The study uses a sample from listed firms in China from 2010 to 2017, comprising different industries, including agriculture, forestry, livestock farming and fishing; mining; manufacturing; electric power, gas and water production and supply; construction; transport and storage; information technology; the real estate industry; social services; and communication and cultural. The regression analysis is used to test the hypotheses. The two-stage least squares technique is used to check for endogeneity issues. Findings The study finds that firms are less likely to manage real earnings when they have more robust IC and FDR. Likewise, companies with weak ICs are more likely to manipulate real earnings. Besides, the study finds an influence of CEO education on the relationship between IC, FDR and real earnings management (REM). These results can be applied to the sectors in the sample covered by the research, and the authors do not overlook the energy industry sector for the importance of its role in the economy. Research limitations/implications There are some limitations for the researcher when performing any research, and this study is no exception. Researchers are urged to take these circumstances into consideration when generalizing or comparing the results because the methods used to calculate the measurement variables in each study may differ somewhat from those used in other research. In addition, expanding the current research design to incorporate additional nations may be an area of interest for future research and could aid in evaluating the effects of nation-specific elements (such as inflation, culture, legal systems and political considerations) on the usefulness of IC and decreasing FDR. Second, the current study focuses on the impact of IC and FDR on REM; this paper does not dissect the “black box” of IC and consider how each element affects earnings management. Future research may need to focus specifically on how effective IC would affect earnings management and precisely what IC mechanisms would discourage the management of earnings. Practical implications Helping companies listed in China to make decisions and improve investors’ vision of the results of real companies’ businesses, as well as helping management to avoid falling into debt risk and the consequent effects and manipulation of earnings. Originality/value By highlighting the significance of IC and debt risk in enhancing information quality in China, the results contribute to the body of work examining the relationship between IC, FDR and REM. In addition, this study uses a CEO’s education to moderate this link.

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“…Penyebab dari internal perusahaan antara lain karena proses internal perusahaan (Geng et al, 2015;Shahwan, 2015) dan kesulitan likuiditas (Drehmann & Nikolaou, 2014). Selain itu, manajemen terlalu banyak membiayai kegiatan usahanya dari utang yang melebihi kemampuan dalam menghasilkan pendapatan yang disebut dengan debt overhang (Alfaro et al, 2019;Borensztein & Ye, 2021).…”

Section: Kesulitan Keuanganunclassified

Pengaruh Restrukturisasi Utang RDI/SLA pada Likuiditas, Struktur Modal, dan Kinerja Keuangan BUMN

2022

Journal ITRev

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Penelitian ini menganalisis pengaruh restrukturisasi utang RDI/SLA pada likuiditas, struktur modal, dan kinerja keuangan Badan Usaha Milik Negara (BUMN). Rekening Dana Investasi (RDI) bersumber dari dalam negeri dan Subsidiary Loan Agreement (SLA) bersumber dari luar negeri. RDI/SLA merupakan pinjaman pemerintah kepada BUMN yang aktifitasnya mendukung program prioritas nasional. Data yaitu 19 BUMN yang mengalami restrukturisasi utang RDI/SLA periode 2014-2019. Data dianalisis dengan menggunakan Wilcoxon signed rank test. Variabel untuk likuiditas yaitu current ratio (CR), quick ratio (QR), dan cash ratio (KR). Untuk struktur modal yaitu total debt to total assets (TDTA), shorterm debt to total assets (SDTA), dan longterm debt to total assets (LDTA). Untuk kinerja keuangan yaitu operating margin (OPM), return on assets (ROA), dan return on equity (ROE). Hasil uji menunjukkan bahwa restrukturisasi utang RDI/SLA berpengaruh secara signifikan pada CR tetapi tidak pada QR dan KR sebagai ukuran untuk likuiditas. Pada penurunan struktur modal restrukturisasi utang RDI/SLA berpengaruh signifikan untuk SDTA, tetapi tidak pada TDTA dan LDTA. Pada peningkatan kinerja keuangan restrukturisasi utang RDI/SLA berpengaruh signifikan untuk semua pengukuran OPM, ROA, dan ROE. Hal ini menunjukkan bahwa restrukturisasi utang RDI/SLA berpengaruh pada perbaikan keuangan BUMN hanya dalam jangka pendek.

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

Cited by 8 publications

References 44 publications

Debt overhang and carbon emissions

Debt overhang and carbon emissions

Internal control, debt risk, CEO education and earnings management evidence from China

Pengaruh Restrukturisasi Utang RDI/SLA pada Likuiditas, Struktur Modal, dan Kinerja Keuangan BUMN

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