Corporate financialization and the long-term use of short-term debt: Evidence from China

Chen, Yan; Sun, Ruiqi

doi:10.1016/j.frl.2023.104602

Cited by 11 publications

(3 citation statements)

References 26 publications

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“…Firms need shortterm financing to fund their investments in working capital and ensure the continuity of production and sales. Additionally, they utilize short-term debt as a means to address their long-term investment demands (Chen and Sun 2023). According to the agency theory of Jensen and Meckling (1976), short-term debt helps mitigate the problem of underinvestment and, as a result, increases shareholder value.…”

Section: The Moderating Effect Of Debt Financingmentioning

confidence: 99%

Does Debt Structure Explain the Relationship between Agency Cost of Free Cash Flow and Dividend Payment? Evidence from Saudi Arabia

Dabboussi

2024

JRFM

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This paper investigates the impact of debt financing on dividend payments when they face the agency costs of free cash flow. It focuses on a sample of 120 firms listed on the Saudi Stock Exchange during the period of 2011–2021. The findings from the Generalized Least Squares regression model revealed that the presence of agency costs of free cash flows may limit the funds available for dividend payments. Regarding the moderating effect of debt structure, the research highlights the significant role of long-term debt in making more prudent use of free cash flow. The use of long-term debt becomes more effective and can enhance shareholder wealth when a firm is facing agency costs of free cash flow. More specifically, bondholders primarily focus on affirmative covenants which require the firm to undertake specified actions such as maintaining assets and financial ratios, or paying taxes, but they do not restrict financing activities such as dividend payments. Since interest and debt repayments are fixed obligations, using free cash flow for dividend disbursement is considered a more profitable and beneficial approach for shareholders in the context of Saudi Arabia. This study contributes to our understanding of financial management under different debt structures and improves our scientific knowledge of the culture of Saudi firms regarding the dividend distribution policy.

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Section: The Moderating Effect Of Debt Financingmentioning

confidence: 99%

Does Debt Structure Explain the Relationship between Agency Cost of Free Cash Flow and Dividend Payment? Evidence from Saudi Arabia

Dabboussi

2024

JRFM

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show abstract

“…Firms need short-term financing to fund their investments in working capital and ensure the continuity of production and sales. Additionally, they utilize short-term debt as a means to address their long-term investment demands (Chen and Sun, 2023). According to the agency theory of Jensen and Meckling (1976), short-term debt helps mitigate the problem of underinvestment and, as a result, increases shareholder value.…”

Section: The Moderating Effect Of Debt Financingmentioning

confidence: 99%

Does Debt Structure Explain the Relationship between Agency Cost of Free Cash Flow and Dividend Payment? Evidence from Saudi Arabia

DABBOUSSI

2024

Preprint

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This paper investigates the impact of debt financing on dividend payments when they face the agency costs of free cash flow. Focusing on a sample of 120 firms listed on the Saudi Stock Exchange during the period 2011-2021. The study found a negative association between agency cost of free cash flow and dividend payment. More importantly, our research highlights the significant role of long-term debt in making more prudent use of free cash flow. The obligation to meet interest and principal payments acts as an incentive for them to steer clear of unprofitable expenses and risky investments. Concurrently, long-term debt imposes restrictive clauses in debt contracts, such as minimum dividend distribution requirements, which further encourage higher dividend payments. Since interest and debt repayments are fixed obligations, using free cash flow for dividend disbursement is considered a more profitable and beneficial approach for shareholders in the context of Saudi Arabia.

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“…Since corporate sustainable development ability may in turn affect financialization behavior, it leads to the endogeneity of reverse causality. Therefore, drawing on the method of Chen et al [65], we conduct an empirical test using the first-order lag of both the linear and quadratic terms of corporate financialization. At the same time, to avoid potential interference from control variables, the control variables are also treated with a one-period lag.…”

Section: Addressing Endogeneitymentioning

confidence: 99%

Nonlinear Impact of Corporate Financialization on Sustainable Development Ability: Evidence from Listed Companies in China

Chen,

Nie,

Huang

2024

Sustainability

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This paper takes 1179 non-financial listed companies in China from 2010 to 2021 as samples and constructs a panel fixed-effect model to examine the effect of corporate financialization on sustainable development ability. Also, we further use the moderating effect model and the mediating effect model to explore the moderating roles played by financing constraints and environmental uncertainty, as well as the influencing mechanisms transmitted by financialization motives. The results are as follows: (1) There is a significant and robust inverted U-shaped relationship between corporate financialization and sustainable development ability, which indicates the existence of a moderate range of corporate financialization in regard to the sustainable development ability of companies. (2) Financing constraints and environmental uncertainty have moderating effects on the inverted U-shaped relationship between corporate financialization and sustainable development ability. With high financing constraints (environmental uncertainty), the sustainable development ability of companies reacts more sensitively to thep change in corporate financialization level. (3) Companies hold financial assets with precautionary saving motive in the low financialization level, and the reservoir effect plays a dominant role. The sustainable development ability of companies is enhanced. However, companies increase their holdings of financial assets for speculative arbitrage motive in the high financialization level, where the short-term wealth effect becomes dominant. The results of this paper are helpful for companies’ decision-making in sustainable development and for government policy formulation in economic development.

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Corporate financialization and the long-term use of short-term debt: Evidence from China

Cited by 11 publications

References 26 publications

Does Debt Structure Explain the Relationship between Agency Cost of Free Cash Flow and Dividend Payment? Evidence from Saudi Arabia

Does Debt Structure Explain the Relationship between Agency Cost of Free Cash Flow and Dividend Payment? Evidence from Saudi Arabia

Does Debt Structure Explain the Relationship between Agency Cost of Free Cash Flow and Dividend Payment? Evidence from Saudi Arabia

Nonlinear Impact of Corporate Financialization on Sustainable Development Ability: Evidence from Listed Companies in China

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