The influence of growth opportunities on the relationship between equity ownership and leverage

Abstract

Ownership structure, Leverage, Growth opportunities, Free cash flow, G30, G32,

Non-linear relationships between growth opportunities and debt: Evidence from quoted Portuguese companies

“…Regarding the relationship between other antecedents and debt, our results corroborate those obtained in the majority of studies about company capital structure decisions (Barclay et al, 1995;Rajan and Zingales, 1995;Hovakimian et al, 2001;Bhaduri, 2002;Fama and French, 2002;Chen, 2004;Gaud et al, 2005;Moon and Tandon, 2007;Huang and Ritter, 2009).…”

“…Indeed the problem of underinvestment has been pointed out as a cause of empirical results that indicate a negative relationship between growth opportunities and debt (Kim and Sorensen, 1986;Barclay et al, 1995;Rajan and Zingales, 1995;Hovakimian et al, 2001;Fama and French, 2002;Moon and Tandon, 2007;Huang and Ritter, 2009). However, other empirical evidence points toward a positive relationship between growth opportunities and debt (Bhaduri, 2002;Chen, 2004;Gaud et al, 2005).…”

“…The Tobin's q ratio as a proxy of growth opportunities is used by several authors (Ozkan, 2001;Pandey, 2004;Gaud et al, 2005) in the context of quoted companies. Whitwell et al (2007) and Galbreath and Galvin (2008) consider intangible assets very important sources of company's growth, but the difficulty in assessing the value of intangible assets leads us to choose R&D Intensity as a proxy of company's growth opportunities, following several studies (Fama and French, 2002;Lin et al, 2006;Moon and Tandon, 2007;Huang and Ritter, 2009). Concerning the measures of the remaining capital structure explanatory variables profitability and tangibility, we consider the measures usually used in studies about companies' capital structure decisions (Fama and French, 2002;Flannery and Rangan, 2006;Kayhan and Titman, 2006).…”

Firm Size, Age, Leverage and Growth Opportunities: An initial inquiry by Pakistan

“…The study cosisted of the the questions about financial ,legal , number of employees, sales, growth and corruption issues, all these varialbles greatly affect the growth fo the firm but this all of them are not equally signinficant for all the firms in the industry, small and medium enterprises showed major impacts while large scale firms were not greatly affected by these factors. Moon and Tandon (2007) summarized the relationship between variation in leverage, equity structure, and growth opportunities, this study measured that equity structure and leverage has strong association for the firms which have few growth opportunities, and weak association for the firms which have larger growth opportunities.…”

Valuing Loss Firms: What Can Be Learned From Analysts' Forecasts?

“…Similarly Berger et al (1996) and Burgstahler and Dichev (1997) show that firms have a minimum value, the liquidation, adaptation or abandonment value, which can be proxied by the book value of equity. Therefore we assume that a firm with a large positive difference between its market and book value (positive goodwill) is perceived by investors as a business that will improve its earnings, whereas a firm with a market-to-book ratio around 1 is not supported by investors.To classify firms in the sample as either high or low with respect to support, we take the median market-to-book ratio (MTB) as a cutoff point (Moon and Tandon, 2007). 14…”