Measuring Growth Opportunities

Danbolt, Jo; Hirst, Ian Rodney Carr; Jones, Edward

doi:10.2139/ssrn.244371

Cited by 10 publications

(7 citation statements)

References 15 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This is in common with most studies which tend to apply proxies, rather than valuation models to estimate growth opportunities (Danbolt et al (2000)). Rajan and Zingales suggest that, a priori, one would expect a negative relation between growth opportunities and the level of gearing.…”

Section: Theory and Practice Of Capital Structurementioning

confidence: 74%

Capital structure and its determinants in the UK - a decompositional analysis

Bevan

Danbolt²

2002

Applied Financial Economics

Self Cite

291

181

View full text Add to dashboard Cite

Prior research on capital structure by Rajan and Zingales (1995) suggests that the level of gearing in UK companies is positively related to size and tangibility, and negatively correlated with profitability and the level of growth opportunities. However, as argued by Harris and Raviv (1991), "The interpretation of results must be tempered by an awareness of the difficulties involved in measuring both leverage and the explanatory variables of interest". In this paper we focus on the difficulties of measuring gearing, and the sensitivity of Rajan and Zingales' results to variations in gearing measures.Based on an analysis of the capital structure of 822 UK companies, we find Rajan and Zingales' results to be highly definitional-dependent. The determinants of gearing appear to vary significantly, depending upon which component of debt is being analysed. In particular, we find significant differences in the determinants of long and short-term forms of debt. Given that trade credit and equivalent, on average, accounts for more than 62 percent of total debt, the results are particularly sensitive to whether such debt is included in the gearing measure. We argue, therefore, that analysis of capital structure is incomplete without a detailed examination of all forms of corporate debt.Running Title:Capital Structure and its Determinants in the UK

show abstract

Section: Theory and Practice Of Capital Structurementioning

confidence: 74%

Capital structure and its determinants in the UK - a decompositional analysis

Bevan

Danbolt²

2002

Applied Financial Economics

Self Cite

291

181

View full text Add to dashboard Cite

show abstract

“…The market-to-book ratio is a usual approximation to Tobin's Q which uses the cost of the reposition of assets instead of market values. This ratio (Q) is defined as the market value of assets divided by the book value of assets, where the market value of assets is the book value of assets less common equity plus the stock market capitalisation (Andrés et al, 2005;Danbolt et al, 2002;Johnson, 1997aJohnson, , 1997bLang et al, 1996;Miguel and Pindado, 2001;Ozkan, 2002;Ozkan and Ozkan, 2004;Rajan and Zingales, 1995). 5 The descriptive statistics of Table 1, Panel A, reveal that for our sample, the average firm has growth opportunities because Q is higher than 1: 1.2793.…”

Section: Data Variables and Statisticsmentioning

confidence: 92%

An integrated model of capital structure to study the differences in the speed of adjustment to target corporate debt maturity among developed countries

González

Saona

2011

IJBAAF

View full text Add to dashboard Cite

Abstract:In this paper, we propose an integrated model of capital structure to study the partial adjustment process to the optimal long term debt ratio. In our analysis, we consider the characteristics of the institutional environment as a factor that influences such adjustment. We use a sample of quoted firms from Germany, Denmark, Spain, Italy, USA, Australia, Belgium, UK and France for the period 1996-2008. The key findings are that the firms follow optimal long-term debt ratios. Such optimal ratios are determined by firm characteristics identified in the trade-off, pecking order and market timing theories and by the country institutional environment. We observe that in those countries with lower cost of adjustment, essentially in those where banks are the main source of funds, firms can reach their target debt ratio in half the time needed by those countries with higher adjustment costs.

show abstract

“…A key aspect of this study is identifying and measuring growth opportunities, given the close relation between firm value and growth opportunities (Adam and Goyal 2008;Berger and Ofek 1995;Danbolt et al 2002;Gordon and Myers 1998). Although a number of different measures can proxy growth opportunities, including the price-to-earnings ratios and market-to-book (MBA) ratios, Adam and Goyal (2008) show that the MBA ratio has the highest information content with respect to investment opportunities.…”

Section: Sample and Variablesmentioning

confidence: 99%

Do Leverage, Dividend Payout, and Ownership Concentration Influence Firms' Value Creation? An Analysis of Brazilian Firms

López‐Iturriaga

Crisóstomo

2010

Emerging Markets Finance and Trade

View full text Add to dashboard Cite

This study uses a sample of 213 Brazilian firms listed between 1995 and 2004 to examine the effect of the presence or absence of growth opportunities on the subsequent effect of leverage, dividend payout, and ownership concentration on firm value. First, we find that leverage plays a dual role: whereas it negatively affects the value of firms with growth opportunities (i.e., underinvestment theory), it positively affects the value of firms without growth opportunities (i.e., overinvestment theory). Second, we find that dividends play a disciplinary role in firms with fewer growth opportunities by reducing free cash flow under managerial control. Finally, the results show that ownership structure has a nonlinear effect-that is, ownership concentration initially improves the value of most firms. However, after a certain threshold, in firms with growth opportunities, the risk increases that large shareholders expropriate wealth at the expense of minority shareholders.

show abstract

Measuring Growth Opportunities

Cited by 10 publications

References 15 publications

Capital structure and its determinants in the UK - a decompositional analysis

Capital structure and its determinants in the UK - a decompositional analysis

An integrated model of capital structure to study the differences in the speed of adjustment to target corporate debt maturity among developed countries

Do Leverage, Dividend Payout, and Ownership Concentration Influence Firms' Value Creation? An Analysis of Brazilian Firms

Contact Info

Product

Resources

About