The impact of COVID-19 economic crisis on the speed of adjustment toward target leverage ratio: An international analysis

Vo, Thi Thuy Anh; Mazur, Mieszko; Thai, An

doi:10.1016/j.frl.2021.102157

Cited by 52 publications

(57 citation statements)

References 16 publications

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“…Literature during the pandemic years have focused on the challenges faced by organizations in maintaining the target leverage ratio (Vo et al, 2022), impact of the capital structure on firm survival during crisis (Arianpoor and Tajdar, 2022) and the capital structure and its impact on firm recovery strategies (Yost et al, 2021). As organizations stayed away from debt, researchers also explored non-conventional sources of capital such as crowdfunding to raise capital during crisis years.…”

Section: Ajar 83mentioning

confidence: 99%

The impact of Covid-19 on the capital structure in emerging economies: evidence from India

Prakash

Maheshwari

Hawaldar

2022

AJAR

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PurposeCapital structure is an important corporate financing decision, particularly for companies in emerging economies. This paper attempts to understand whether the pandemic had any significant impact on the capital structure of companies in emerging economies. India being a prominent emerging economy is an ideal candidate for the analysis.Design/methodology/approachThe study utilizes three leverage ratios in an extended market index, BSE500, for the period 2015–2021. The ratios considered are short-term leverage ratio (STLR), long-term leverage ratio (LTLR) and total leverage ratio (TLR). A dummy variable differentiates the pre-epidemic (2015–2019) and pandemic (2020–2021) period. Control variables are used to represent firm characteristics such as growth, tangibility, profit, size and liquidity. Dynamic panel data regression is employed to address endogeneity.FindingsThe findings point out that Covid-19 has had a significant, negative effect on LTLR, while the impact on STLR and TLR was insignificant. The findings indicate that companies based in a culturally risk-averse environment, such as India, would reduce the long-term debt to avoid bankruptcy in times of uncertainty.Research limitations/implicationsThe study covers the impact of the pandemic on Indian companies. Hence, generalization of the findings to global context might not be valid.Practical implicationsTo maintain economic growth in the post-crisis period, Indian policymakers should ensure accessibility to low-cost capital. The findings provide impetus to deepen the insignificant corporate bond market in India for future economic revival.Originality/valueDeveloping countries are struggling to revive the economies postpandemic. This is particularly true for Asian economies which are heavily reliant on banks for survival. This research finds evidence to utilize bond market as a source of raising capital for economic revival.

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Section: Ajar 83mentioning

confidence: 99%

The impact of Covid-19 on the capital structure in emerging economies: evidence from India

Prakash

Maheshwari

Hawaldar

2022

AJAR

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“…The 2020 COVID-19 crisis stimulated emerging literature on the impact the pandemic has had on corporate financing decisions (e.g. Fahlenbrach et al, 2021;Vo et al, 2021), especially for SMEs (Belitski et al, 2022;. Our second further test provides new evidence for this stream of research.…”

Section: The Role Of the Covid-19 Crisismentioning

confidence: 70%

Does the bank-firm human relationship still matter for SMEs? The game-changing role of digitalization

Fasano

Rocca

2023

Small Bus Econ

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Noteworthy contributions have highlighted that human contact is a considerable factor in bank-firm relationships. It allows the acquisition of soft information, which alleviates information asymmetries and increases the use of bank debt. The advent of digital technologies in the information collection process open new horizons and change the role of personal contacts in bank-firm interactions, as entrepreneurs visit bank branches less frequently. This study uses a large sample of Italian SMEs from 2011 to 2020 and finds that the rapid increase and use of digital instruments have reduced the positive influence of physical closeness between banks and SMEs on the indebtedness levels. Interestingly, our study has also found that the COVID-19 crisis did not amplify this moderating effect. Results support theories that human contact is an important factor in bank-firm relationships because it allows the acquisition of soft information, which alleviates information asymmetries and increases the use of bank debt. Our study suggests that close human ties are still extremely relevant and digitalization should be exploited to support the collection of the kind of qualitative soft information that is crucial in debt negotiations.

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“…Though similar in the stand, these two theories differ largely in their application. The prominence of these words in the network indicates the researchers' inclination towards proving this theory with the existence of target leverage (Vo et al , 2021) and adjustment costs (Etudaiye-Muhtar and Ahmad, 2015).…”

Section: Resultsmentioning

confidence: 99%

What we know and what we should know about speed of capital structure adjustment: a retrospective using bibliometric and system thinking approach

Hegde

Venkateshwarlu

Panda

et al. 2022

QRFM

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Purpose This paper aims to conduct bibliometric analysis on the studies dealing with capital structure’s speed of adjustment (SoA) and identify the prominent themes while suggesting future research directions in the area. The existing reviews broadly focus on the capital structure, which provides the scope for conducting a review on this sub-aspect of capital structure. Design/methodology/approach This study uses a three-stage process to conduct this review: identification of academic journals, selection and analysis of target papers. This study uses a combination of bibliometric tools and a system thinking approach to assess the current status of publications and emerging themes within the literature. Findings This study has found a progressive evolution of SoA in capital structure research from 1984 to 2021. Studies largely focus on implementing the dynamic models to analyse the impact of adjustment costs, dynamic economic conditions, corporate governance practices and other variables on the firms’ adjustment speed and financial decisions. The network analysis of citations, keywords and clusters gives further knowledge on the intellectual structure of the data. Research limitations/implications This study is highly dependent on the papers available within the SCOPUS database. Studies not included herein are not part of this analysis, which may or may not bear an effect on the study’s findings. Originality/value To the best of the authors’ knowledge, the application of systems engineering concept of “system thinking approach” to identify literature gap and suggest directions for forthcoming research is the first of its kind, thus adding a novel and multidisciplinary aspect to this study.

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The impact of COVID-19 economic crisis on the speed of adjustment toward target leverage ratio: An international analysis

Cited by 52 publications

References 16 publications

The impact of Covid-19 on the capital structure in emerging economies: evidence from India

The impact of Covid-19 on the capital structure in emerging economies: evidence from India

Does the bank-firm human relationship still matter for SMEs? The game-changing role of digitalization

What we know and what we should know about speed of capital structure adjustment: a retrospective using bibliometric and system thinking approach

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