Leverage change, debt overhang, and stock prices

Cai, Jie; Zhang, Zhe

doi:10.1016/j.jcorpfin.2010.12.003

Cited by 136 publications

(99 citation statements)

References 87 publications

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“…Cai and Zhang (2011) examined the changes in the ratio of financial leverage of some of the companies in the USA and indicated that these changes are negatively related to the stock returns. Moreover, the conclusions disclose that increasing leverage decreases future investments and finally decreases firm value.…”

Section: Research Backgroundmentioning

confidence: 99%

The Relationship between Changes in the Financial Leverage and the Values of the Tehran Listed Firms

Damouri

Khanagha

Kaffash³

2013

IJARAFMS

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Section: Research Backgroundmentioning

confidence: 99%

The Relationship between Changes in the Financial Leverage and the Values of the Tehran Listed Firms

Damouri

Khanagha

Kaffash³

2013

IJARAFMS

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“…They state that the results support the agency theory of leverage which plays a disciplining role on leveraged firms. Cai and Zhang (2011) use data on US listed firms and document a negative and significant effect of increased leverage ratios on firm performance (investment, default risk and stock performance). Long-lasting effects of a credit crunch on firm investment were found following the Asian financial crisis of the late 1990s Millar, 2008, 2011).…”

Section: Introductionmentioning

confidence: 99%

SME recovery following a financial crisis: Does debt overhang matter?

Lawless

OʼConnell²,

O’Toole

2015

Journal of Financial Stability

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Martina Lawless, Brian O'Connell and Conor O'TooleAbstract: The years before the financial crisis saw a dramatic build-up in private debt levels in several countries and this increase was particularly marked in Ireland. In this paper, we look at whether outstanding debt taken out by small and medium sized enterprises in Ireland constrains current performance. We find that the level of debt is generally associated with positive firm performance, facilitating growth and investment. Higher debt burdens (measured as the ratio of debt to turnover), on the other hand, have significant negative effects on all measures of firm performance, in particular investment, employment and indicators of financial distress.Corresponding Author: Martina.Lawless@esri.ie ESRI working papers represent un-refereed work-in-progress by researchers who are solely responsible for the content and any views expressed therein. Any comments on these papers will be welcome and should be sent to the author(s) by email. Papers may be downloaded for personal use only.

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“…Conversely, increasing debt levels could increase the financial stress on companies from higher interest payments (Cai & Zhang, 2011). Additionally, investors perceive a dollar already held in cash as more valuable than a dollar invested in working capital (de Almeida & Eid, 2014;Kieschnick et al, 2013).…”

Section: Review Of Working-capital Literaturementioning

confidence: 99%

The Impact of Working Capital Components on Firm Value in US Firms

Cumbie¹,

Donnellan²

2017

IJEF

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Working capital is an important part of any businesses day-to-day operations. However, most businesses do not take into consideration that continuous investment into working capital does not maximize firm value. The specific problem addressed was firm managers that do not understand the optimal level for each component of working capital create sub-optimal value firm; leading to diminished investment returns for shareholders. For this study, 140 firms for the years 2003-2012 were selected from a stratified random sample of firms listed on the Russell 2000 index. Accounts receivable days outstanding, accounts payable days outstanding, and inventory days outstanding were regressed on economic value to determine whether a curvilinear relationship existed. All three models showed a statistically significant relationship to firm value, F(6, 2268), p<.01, R2= .40, F(6, 2268), p<.01, R2= .38, F(6, 2268), p<.01, R2= .39. Recommendations for firm managers included lowering accounts receivable, accounts payable, and inventory days during boom economic times while increasing accounts receivable, accounts payable, and inventory days during recessionary economic times. Consideration for future research into working-capital management and firm value should consider whether different curvilinear relationships exist between firm value and working-capital components during different economic cycles.

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Leverage change, debt overhang, and stock prices

Cited by 136 publications

References 87 publications

The Relationship between Changes in the Financial Leverage and the Values of the Tehran Listed Firms

The Relationship between Changes in the Financial Leverage and the Values of the Tehran Listed Firms

SME recovery following a financial crisis: Does debt overhang matter?

The Impact of Working Capital Components on Firm Value in US Firms

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