Economic conditions, lending competition, and evaluation effect of credit line announcements on borrowers

Liu, Yong-Chin; Chen, Hsiang-Ju

doi:10.1016/j.pacfin.2011.12.006

Cited by 4 publications

(1 citation statement)

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“…9 In contrast to the capital structure literature, there are more studies conducted during the GFC period in other areas, such as audit committee ; financial risk management (Ganegoda and Evans, 2014); superannuation investment choices (Gerrans, 2012); individual financial risk tolerance (Gerrans et al, 2015); banking (Akhtar and Jahromi, 2015); corporate governance (Adams, 2012); bank risk taking behaviour (Hoang, Faff, and Haq, 2014); trade credit (Kestens, Cauwenberge, and Bauwhede, 2012), bank regulation (Levine, 2012); and accounting areas (Mala and Chand, 2012;Xu et al, 2013). Having said that, there are two recent studies slightly related to the financial crisis by examining capital structure issues through business cycles (Akhtar, 2012;Liu and Chen, 2012). For a brief review on the GFC articles, refer to Allen and Faff (2012). research in the leading journals in the Asia Pacific Basin.…”

Section: Introductionmentioning

confidence: 99%

A contemporary view of corporate finance theory, empirical evidence and practice

Faff

Gray

Tan

2016

Australian Journal of Management

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This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals. Abstract This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals.

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Section: Introductionmentioning

confidence: 99%

A contemporary view of corporate finance theory, empirical evidence and practice

Faff

Gray

Tan

2016

Australian Journal of Management

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Do enterprise–bank relationships improve market quality? Evidence from Taiwan

Wang

Ding

Chiang

2018

The Quarterly Review of Economics and Finance

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Why Do Overconfident REIT CEOs Issue More Debt? Mechanisms and Value Implications

Tan

2017

Abacus

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This paper examines why overconfident CEOs issue more debt than equity within US Real Estate Investment Trusts (REITs) and the value implications of this debt preference. Consistent with a demand‐side story, the paper finds that overconfident CEOs choose to issue more debt than equity than their non‐overconfident counterparts. The findings also rule out the supply‐side story that overconfident CEOs are screened out of the equity market. CEO preference for debt is associated with a decline in shareholder wealth. Specifically, using an event study, the paper finds that overconfident CEOs suffer an approximately $67 million loss associated with debt issues in market capitalization. Further analysis suggests that the loss stems from the higher default risk induced by overconfident REIT CEOs’ debt preference. The demand‐side explanation remains robust even after considering several CEO demographics, estimation methods, and the following five possible alternative drivers of the main results: (1) insider information; (2) risk tolerance; (3) past performance; (4) dividends; and (5) board pressure.

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Economic conditions, lending competition, and evaluation effect of credit line announcements on borrowers

Cited by 4 publications

References 41 publications

A contemporary view of corporate finance theory, empirical evidence and practice

A contemporary view of corporate finance theory, empirical evidence and practice

Do enterprise–bank relationships improve market quality? Evidence from Taiwan

Why Do Overconfident REIT CEOs Issue More Debt? Mechanisms and Value Implications

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