Is Short-Term Debt a Substitute or a Complement to Good Governance?

Anginer, Deniz; Demirgüç-Kunt, Aslı; Tepe, Mete; Şimşir, Şerif Aziz

doi:10.1596/1813-9450-9022

Cited by 4 publications

(2 citation statements)

References 86 publications

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“…The second set of variables incorporates the country-level variation in macroeconomic conditions, legal system effectiveness and financial institution developments, which may strengthen or weaken the influence of cash flow volatility on firm use of debt maturity or zero-debt policy. We follow Demirgüç-Kunt and Maksimovic (1999); Fan et al (2012); Anginer, Asli, Tepe and Simsir (2019) to include the growth rate of GDP per capita (GDPpcGrowth) to proxy for the level of a country's economic development; the inflation rate (Inflation); the law and order index (Law&Order) as an indicator of the overall efficiency of the legal system, with a higher value denoting more reliance on legal institutions to mediate disputes and enforce contracts, the corruption index (Corruption) as an indicator of whether the political system distorts the economic and financial environment, with a higher value denoting the lower corruption; three proxies for access to external financing, namely the size of a country's stock market (McapGDP), bond market (Bonds) and banking sector (Deposits).…”

Section: Control Variablesmentioning

confidence: 99%

“…Therefore, firms in countries with a developed stock market may use short-term debt to reduce agency costs. According to Anginer et al (2019), a large, active and liquid bond market within a country may indicate the ease of issuing long-term bonds and accessing long-term financing. Thus we expect a negative sign on Bonds.…”

Section: Country-level Control Variablesmentioning

confidence: 99%

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Three Essays on Corporate Finance: Capital Structure, Venture Capital, and Stock Market

Nguyen¹

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The thesis consists of three empirical essays on corporate finance. In the first essay, we examine the influence of cash flow volatility on firms’ uses of debt maturity and zero-leverage policy in an international context. Using a large international sample, we find that cash flow volatility is positively associated with our measure of debt maturity at less than the 1% level of significance. Relative to unconditional means of debt maturity, a one standard deviation increase in cash flow volatility implies a 2.57% decrease in the probability of firms using long-term debt, a 5.83% increase in the probability of firms using only short-term debt, and an 11.8% increase in the probability of firms using zero-debt. Our results support the screening and the trade-off theories that firms with high cash flow volatility are screened out of the long-term debt market and firms with low cash flow volatility lengthen their debt maturity to moderate expected bankruptcy costs. We also find the qualitatively identical influence of cash flow volatility on debt maturity and zero-debt policy in both advanced and emerging economies. In the second essay, we investigate the two-directional relationship between venture capital investment and stock market development around the globe. We employ a two-stage generalized method of moments model using an instrumental variable approach to mitigate the potential reverse causality in this relationship across 19 countries from 1997 to 2015. We find that stock market development positively affects future venture capital investment. A one standard deviation increase in stock market capitalization leads to an 0.87% increase in future venture capital investment. Likewise, we find evidence that venture capital investment positively affects future stock market capitalization. However, this effect disappears with the presenceof stock market capitalization’s lags as explanatory variables in the model. Interestingly, we find that venture capital investments from 5 to 7 years are statistically significant and jointly associated with future stock market development at less than the 1% level, which is consistent with the venture capitalists harvestingtheir investments through initial public offerings 5 years or more after investing in a venture. In the last essay, we explore the influence of venture capital and private equity backing prior to initial public offerings on the listed U.S. firms’ financial policies. We find that, relative to the mean, venture-capital-backed firms have an 18.89% higher cash flow volatility, a 23.12% lower leverage, and a 36.76% higher likelihoodto follow a zero-leverage policy than non-venture-capital-backed firms. In contrast, we find the opposite effects for private equity-backed firms. We also find evidence that the negative effect of venture capital backing on capital structure persists after the initial public offering.

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Section: Control Variablesmentioning

confidence: 99%

Section: Country-level Control Variablesmentioning

confidence: 99%

Three Essays on Corporate Finance: Capital Structure, Venture Capital, and Stock Market

Nguyen¹

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Does the firm's life cycle matter in the relationship between short‐term debt and investment efficiency?

Abuhommous

2024

Int. J Fin Econ

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In this paper, we investigate the role of short‐term debt in investment efficiency, and we examine the impact of the firm's life cycle stages on this relationship. Using data from non‐financial companies in the United States from 1971 to 2021, we argue that the short‐term debt may reduce the information asymmetries and discipline the management decisions, thus improving the investment efficiency. We argue, however, that the relationship varies throughout different life cycle stages. We find that short‐term debt positively influences investment efficiency and over‐investment. Furthermore, the firm's life cycle significantly impacts investment efficiency, with the introduction and growth stages negatively associated with it. The life cycle also affects the relationship between short‐term debt and investment efficiency, particularly during the growth stage. These results emphasis the role of short‐term debt and the firm's life cycle in mitigating information asymmetries and shaping management behaviour.

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The influence of cash flow volatility on firm use of debt of different maturities or zero-debt: International evidence

Keefe¹,

Nguyen²

2023

International Review of Economics & Finance

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Is Short-Term Debt a Substitute or a Complement to Good Governance?

Cited by 4 publications

References 86 publications

Three Essays on Corporate Finance: Capital Structure, Venture Capital, and Stock Market

Three Essays on Corporate Finance: Capital Structure, Venture Capital, and Stock Market

Does the firm's life cycle matter in the relationship between short‐term debt and investment efficiency?

The influence of cash flow volatility on firm use of debt of different maturities or zero-debt: International evidence

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