Leverage, investment, and firm growth

Lang, Larry H.P.; Ofek, Eli; Stulz, René M.

doi:10.1016/0304-405x(95)00842-3

Cited by 1,027 publications

(478 citation statements)

References 17 publications

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“…Our hypothesis H1 is rejected. Our results, which are opposed to the free cash flow hypothesis of Jensen (1986) and contradict those of Smith and Watts (1992), Lang et al (1996) and Gugler (2003) and Pappadopoulos and Dimitrios (2007), can be concluded that the mass distribution of dividends does not limit the discretionary management of excess cash and can no longer reduce the risk of free cash flow. In this case, the dividend policy cannot be considered in the context of listed Tunisian firms as a control mechanism used by the shareholders.…”

Section: Interaction Between Dividend Policy and Free Cash Flowcontrasting

confidence: 57%

“…Rajan and Zingales (1995) asserts that a ratio that includes the total debts doesn't constitute a good indicator, notably to put in exergue risks of bankruptcy of the firm. However, the short-term debt ratio has also been used by Titman and Wessels (1988 In our study, we use the same definition of leverage as Lang et al(1996), namely the ratio of the book value of long-term debt to the book value of total assets in order to not neutralize the impact of agency costs joined to the leverage (Myers, 1977). This measure would not reflect recent changes in the markets.…”

Section: Fee Cash Flowmentioning

confidence: 99%

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A survey on the relationship between ownership structure, debt policy and dividend policy in Tunisian stock exchange : Three stage least square simultaneous model approach

Moussa

Chichti

2013

International Journal of Accounting and Economics Studies

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This research tests the efficiency of the debt policy, dividend policy and ownership structure as mechanism of resolution of agency conflicts between shareholders and managers due to the problem of overinvestment, in the limitation of the problem of the free cash flow. By estimating three stage least square simultaneous model and on the basis of a sample of 35 non-financial Tunisian listed companies selected for the period 2000-2009, our results are in favor of the theory of free cash flows of Jensen (1986) that stipulates that the debt policy represents the principal governance mechanism that can limit the risk of free cash flow. However, our empirical results do not confirm our hypothesis implies that the solution to reduce the level of free cash flow in the Tunisian firms with low growth opportunities is the use of policy dividends. It therefore appears that in the case of our sample, managers must settle their debts to creditors. They should thus allocate free cash flow to profitable projects. Thus, the debt reduces agency costs of free cash flow and present as a control mechanism which substitute dividend policy. Also, it is found that managerial ownership lowers the level of agency costs of free cash flow. However, the ownership concentration increases the risk of the free cash flow. Finally, regarding the impact of ownership structure on the payout ratio, our results support the idea that more risk aversion of the majority shareholders and their intention to expropriate minority shareholders through the extraction private benefits are the cause of a low dividend.

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Section: Interaction Between Dividend Policy and Free Cash Flowcontrasting

confidence: 57%

Section: Fee Cash Flowmentioning

confidence: 99%

A survey on the relationship between ownership structure, debt policy and dividend policy in Tunisian stock exchange : Three stage least square simultaneous model approach

Moussa

Chichti

2013

International Journal of Accounting and Economics Studies

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“…Other studies focus on investment. Lang, Ofek, and Stulz (1996) show that 9 Roberts and Sufi (2009b) survey the theoretical and empirical literature on debt renegotiations. leverage is negatively related to investment, employment growth, and capital expenditure growth.…”

Section: Introductionmentioning

confidence: 99%

Snow and Leverage

Giroud¹,

Mueller

Stomper³

et al. 2011

Rev. Financ. Stud.

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Using a sample of highly (over-)leveraged Austrian ski hotels undergoing debt restructurings, we show that reducing a debt overhang leads to a significant improvement in operating performance (return on assets, net profit margin). In particular, a reduction in leverage leads to a decrease in overhead costs, wages, and input costs, and to an increase in sales. Changes in leverage in the debt restructurings are instrumented with Unexpected Snow, which captures the extent to which a ski hotel experienced unusually good or bad snow conditions prior to the debt restructuring. Effectively, Unexpected Snow provides lending banks with the counterfactual of what would have been the ski hotel's operating performance in the absence of strategic default, thus allowing to distinguish between ski hotels that are in distress due to negative demand shocks ("liquidity defaulters") and ski hotels that are in distress due to debt overhang ("strategic defaulters").

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“…Other studies focus on investment. Lang, Ofek, and Stulz (1996) show that 9 Roberts and Sufi (2009b) survey the theoretical and empirical literature on debt renegotiations. 7 leverage is negatively related to investment, employment growth, and capital expenditure growth.…”

Section: Introductionmentioning

confidence: 99%

Snow and Leverage

Giroud

Mueller

Stomper

et al. 2010

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Using a sample of highly (over-)leveraged Austrian ski hotels undergoing debt restructurings, we show that reducing a debt overhang leads to a significant improvement in operating performance (return on assets, net profit margin). In particular, a reduction in leverage leads to a decrease in overhead costs, wages, and input costs, and to an increase in sales. Changes in leverage in the debt restructurings are instrumented with Unexpected Snow, which captures the extent to which a ski hotel experienced unusually good or bad snow conditions prior to the debt restructuring. Effectively, Unexpected Snow provides lending banks with the counterfactual of what would have been the skihotel's operating performance in the absence of strategic default, thus allowing to distinguish between ski hotels that are in distress due to negative demand shocks ("liquidity defaulters") and ski hotels that are in distress due to debt overhang ("strategic defaulters").

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Leverage, investment, and firm growth

Cited by 1,027 publications

References 17 publications

A survey on the relationship between ownership structure, debt policy and dividend policy in Tunisian stock exchange : Three stage least square simultaneous model approach

A survey on the relationship between ownership structure, debt policy and dividend policy in Tunisian stock exchange : Three stage least square simultaneous model approach

Snow and Leverage

Snow and Leverage

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