How does uncertainty influence target capital structure?

Im, Hyun; Kang, Ya; Shon, Janghoon

doi:10.1016/j.jcorpfin.2020.101642

Cited by 42 publications

(26 citation statements)

References 81 publications

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“…There is great unsurety about the duration and extent of this pandemic, and its long-term economic impact. These issues have in turn created instability in the financial markets, which has had a serious impact on the corporate decision-making process ( Im, Kang, & Shon, 2020 ). Furthermore, the uncertain future of the novel coronavirus and its spread puts into question the efficacy of public policies developed to curb its run and ensure a second wave does not come to be.…”

Section: Introductionmentioning

confidence: 99%

Covid-19 pandemic and spillover effects in stock markets: A financial network approach

Samitas

Kampouris

Polyzos

2022

International Review of Financial Analysis

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This paper examines the impact of the COVID-19 pandemic on 51 major stock markets, both emerging and developed. We isolated the countries susceptible to shock transmissions, and evaluated countries with immunity, during the lockdown. Specifically, using dependence dynamics and network analysis on a bivariate basis, we identify volatility and contagion risk among stock markets during the COVID-19 pandemic. The empirical findings add to the existing body of literature, given that previous work has not placed emphasis on network topologic metrics when it comes to financial networks, specifically during the COVID-19. The evidence shows instant financial contagion a result of the lockdown and the spread of the novel coronavirus. The methodological framework outlines important information for investors and policymakers on using financial networks to improve portfolio selection, by placing an emphasis on assets according to centrality.

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Section: Introductionmentioning

confidence: 99%

Covid-19 pandemic and spillover effects in stock markets: A financial network approach

Samitas

Kampouris

Polyzos

2022

International Review of Financial Analysis

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“…From Table 5, as predicted by Bond (2002) and Im et al (2020) the coefficients of lagged lev estimated by LSDVC (0.532) and system-GMM (0.486) comfortably fall between the OLS (0.535) and WG (0.362). The estimation results in Table 3 indicate that monetary policy uncertainty negatively affects the speed of capital structure adjustment (the inverse of the coefficient in each column is negative, with statistical significance at the 1% level.…”

Section: The Effect Of Monetary Policy Uncertainty On Leverage Targetsmentioning

confidence: 78%

“…Measuring control variables. This paper selects the influences on the capital structure and its rate of adjustment based on the following principles: first, the influences discussed in mainstream theories, including the trade-off theory; second, the variables that have been used by dynamic capital structure literature, such as (Faulkender et al, 2012;Flannery & Rangan, 2006;Im et al, 2020); third, the influences determined by China's institutions and conditions and the actual economic situation; and fourth, the availability of data. All variables are computed for firm i in period t .…”

Section: [ | ]mentioning

confidence: 99%

“…To estimate the dynamic adjustment of firm capital structure, we follow on Flannery and Rangan (2006) and Im et al (2020) to adopt a partial adjustment model of the capital structure, which is often used to study the speed of leverage adjustment. Due to various frictional factors such as bankruptcy costs, agency costs, and information asymmetry, it is clear that capital structure is closely related to enterprise value, which implies that there is an optimal capital structure from the perspective of enterprise value maximization, that is, an arrangement between equity and debt that minimizes the cost of capital and maximizes the value of the firm.…”

Section: Introductionmentioning

confidence: 99%

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How Does Monetary Policy Uncertainty Influence Firms’ Dynamic Adjustment of Capital Structure

Yan

2022

Sage Open

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This study employs high-dimensional factors model to depict the development of monetary policy uncertainty (MPU) in China over the past decades and develops a logical analytical framework to analyze the effect of MPU on the dynamic adjustment of a firm’s capital structure through bank risk-taking channels. We investigate how MPU affects dynamic adjustment of a firm’s capital structure using a panel data set of China public manufacturers between 2007 and 2018 and find that the higher the MPU, the more detrimental it is to the dynamic adjustment of firm’s capital structure. Further, bank risk-taking plays the role of a financial stabilizer. In addition to the willingness to take risks in on-balance sheet operations and the scale of loans, the risk-taking of our banks may also be reflected in the adjustment of the off-balance-sheet shadow banking scale. This study also finds that in terms of on-balance sheet business, heighten MPU decreases the scale of bank credit and tightens loan approval criteria, in terms of off-balance sheet business, heighten MPU decreases the scale of shadow banking, thereby leading to a lower dynamic adjustment of firm’s capital structure. JEL classification C13, C36, E50, G21

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“…However, arranging enterprises' financial decisions based on such conclusions results in pure debt or no debt, and quantifying the specific optimal capital structure is impossible. Another type of literature studied the influencing factors of capital structure, analysed how corporate characteristics (including ownership structure) determine the corporate capital structure (Dakua, 2019;Hang, Geyer-Klingeberg, Rathgeber, & Stöckl, 2018;Jarallah et al, 2019), and how these factors affect the corporate capital structure in transforming to the target capital structure (Byoun, 2008;Im, Kang, & Shon, 2020;Lambrecht & Myers, 2017;Mukherjee & Mahakud, 2010;Ramjee & Gwatidzo, 2012). However, from the perspective of capital structure decision making by maximizing corporate value, this type of research cannot yet provide a perfect explanation for the optimal capital structure.…”

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confidence: 99%

Does ownership structure affect the optimal capital structure? A PSTR model for China

Yao

Zhou

2020

Int. J Fin Econ

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In the context of Chinese enterprises' privatization reforms, the relationships between ownership structure and optimal capital structure and between ownership structure and firm performance are worth attention. Using data on listed companies in China, this article uses the panel smooth transfer regression (PSTR) model and multiple regression models to test the nonlinear relationship between capital structure and firm performance. The optimal capital structure is calculated using the partial correlation function of the PSTR model, and the ownership structure-optimal capital structure relationship is analysed. This research found that (a) the effect of the debt-to-asset ratio on firm performance shows a nonlinear relationship with sudden changes in characteristics, and a debt-to-asset ratio interval exists that can significantly improve firm performance; (b) under the premise of the effect of ownership checks and balances, an increase in ownership concentration can improve the optimal capital structure; thus, enterprises can achieve effective operations with higher debt; (c) the promotion effect of ownership concentration on firm performance varies depending on a company's debt-to-asset ratio; and (d) different industries have different optimal capital structures. The raw materials industry has a high optimal capital structure. A series of robustness tests verify the robustness of these conclusions. This research enriches the theoretical interpretation of the optimal capital structure and provides new insights into the relationship between ownership structure and firm performance. The conclusions drawn by this article are helpful to enterprises making corresponding financial decisions and the government in formulating corresponding capital market systems.

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How does uncertainty influence target capital structure?

Cited by 42 publications

References 81 publications

Covid-19 pandemic and spillover effects in stock markets: A financial network approach

Covid-19 pandemic and spillover effects in stock markets: A financial network approach

How Does Monetary Policy Uncertainty Influence Firms’ Dynamic Adjustment of Capital Structure

Does ownership structure affect the optimal capital structure? A PSTR model for China

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