Dynamics of Capital Structure: The Case of Korean Listed Manufacturing Companies

firms is developed in this paper and results compared with the classical static model. This paper specifies and estimates the unobservable optimal capital structure using a wide range of observable determinants. Uunbalanced panel data of Korean listed firms for the period 1985 to 2002 is used in this study. In addition to identification and estimation of the effects of the determinants of capital structure and capital structure optimality, some Korea-specific features such as the structural break before and after the financial crisis, as well as affiliation to a chaebol business groups, are taken into account to verify whether the optimal capital structure was affected by the financial crisis or whether belonging to a chaebol has any effect, and if so, to what extent.Capital structure; debt; firm; panel data; adjustment; Korea

Enterprise Restructuring in Belarus

We explore the impact of privatization and the entry of new firms on enterprise performance in Belarus, a transition economy in which reform and market-orientated institutional development has been limited. We hypothesize that private ownership will enhance company performance, measured in a variety of ways including profitability and capacity to export to the West, and that newly created firms will perform better than state-owned ones. Our work is based on a large enterprise level survey which includes state-owned firms, privatized companies and newly created enterprises. The data refute both hypotheses. We conclude that this is probably because the institutional environment has not evolved sufficiently from the socialist era to permit free competition and effective governance by new owners.http://deepblue.lib.umich.edu/bitstream/2027.42/57203/1/wp823 .pd

Ethics and taxation : a cross-national comparison of UK and Turkish firms

This paper investigates responses to tax related ethical issues facing busines

Corporate profitability and the dynamics of competition in emerging markets: a time series analysis

The paper presents time-series analyses of corporate profitability in seven leading developing countries (DCs) using the common methodology of the persistence of profitability (PP) studies and systematically compares the results with those for advanced countries (ACs). Surprisingly, both short- and long-term persistence of profitability for DCs are found to be lower than those for ACs. The paper concentrates on economic explanations for these findings. It also reports the results on the persistence of the two components of profitability - capital-output ratios and profit margins. These too raise important general issues of economic interpretation for PP studies which are outlinedCompetition, profitability, persistence, emerging markets

Private Equity, Investment and Financial Constraints – Firm-Level Evidence for France and the United Kingdom

The welfare effects of private equity transactions are debated controversially. We analyze the impact of expansion financing and buyouts by private equity investors on investment of portfolio firms in the UK and France – two countries with different financial systems. Unobserved heterogeneity and the endogeneity of private equity transactions financed by venture capital companies are addressed using dynamic panel data techniques. In both countries we find that portfolio firms display higher investment levels and a lower dependence on internal funds after expansion financing. Buyouts financed by venture capital companies are neither associated with a decrease in investment spending nor with an increase in the dependence on internal finance. In contrary, private equity based buyouts in the UK outperform non-private equity backed British firms in terms of both indicators. Contrasting the notion of several policy makers,we cannot detect that private equity based buyout financing yields higher financial constraints on average.Investment, financial constraints, private equity employer-to-employer, linked employer-employee

Влияние корпоративного налога на прибыль и уровня маркетизации на структуру капитала публичных компаний Китая

В статье анализируются данные об изменении структуры капитала компаний в связи с реформой корпоративного налога на прибыль, акции которых обращаются на бирже. Изучается влияние степени маркетизации экономики в регионах на структуру капитала компаний, расположенных в них. Реформа налога на прибыль проводилась в 2008 г., ее результатом должно было стать постепенное (в течение 5 лет) снижение налога для большинства компаний с 33 до 25 %, а также повышение налога для части компаний с 15 до 25 %. Анализ изменения структуры капитала компаний вследствие повышения (понижения) налога на прибыль позволил подтвердить применимость теоремы Модильяни-Миллера и развить теорию структуры капитала применительно к условиям Китая. Для анализа использовались данные о структуре капитала 206 компаний, акции которых обращались на бирже в 2002-2006 и 2008-2011 гг. В выборку попали 75 компаний, у которых эффективная ставка налогов увеличилась, и 131 компания, у которых она снизилась. Информация о их финансовых результатах была получена из баз данных Xenophon и Guotai. Результаты анализа подтвердили гипотезу о том, что степень рыночности экономики и изменение налога на прибыль влияют на структуру капитала, что позволило сделать следующие выводы: во-первых, повышение степени маркетизации, увеличивает экономию на налоговых выплатах, возникающую при реструктуризации капитала компании; во-вторых, рост степени маркетизации региона, увеличивая экономию на налоговых выплатах приводит к росту радикальных вариантов налогового планирования, используемых публичными компаниями; в-третьих, по сравнению с изменением ставки налога на прибыль, степень маркетизации оказывает более существенное влияние на структуру корпоративного капитала; в-четвертых, из-за долгосрочного существования налоговых льгот, экономия на налоговых выплатах не имеет большого значения в отраслях производства потребительских товаров, здравоохранении и информационных технологиях. Отношение активов к пассивам китайских публичных компаний имеет тенденцию к увеличению, что, с одной стороны, отражает рост эффективности использования финансовых рычагов, а с другой - повышает операционные риски. Следовательно, в целях контроля финансовых рисков компаний необходимо стимулировать рыночные реформы и по возможности использовать льготы по налогу на прибыль.Using the 2008 corporate income tax reform as an opportunity, this paper constructs a Panel DID model to study the effect of corporate income tax and the degree of marketization on capital structure. Based on the 2008 Enterprise Income Tax Reform in China, accompanying with both rise and fall in the tax rate, the paper tests the adaptability of the Modigliani & Miller theory, and develops a capital structure theory in the context of China. Author’s used the financial data of 206 Chinese listed companies from 2002 to 2012. The financial data of listed companies were mainly taken from Xenophon database and GuoTaian database. The marketization index data were obtained from The Marketization Index in China: 2011 Report for the Relative Marketization Process in Various Regions. Industries was classified according to the Global Industry Classification Standard (GICS) and test the sensitivity of the capital structure to exogenous corporate tax rate change in different industries. The empirical results show that: firstly, the higher the degree of marketization is, the more significant the tax shield effect is; secondly, compared to the corporate income tax, differences in the degree of marketization exert a more significant effect on the corporate capital structure; thirdly, because of the long existence of tax incentives, debt tax shield is not significant in people’s livelihood industries and information technology industry; Fourthly, given the upward trend in the overall asset-liability ratio of Chinese companies, in order to control companies’ financial risk, we recommend to foster market reform and the use corporate income tax incentives where necessary. The results of research will provide a reference for future marketization reform and tax policies in different industries in China

Corporate Governance, Competition And Finance: Re-Thinking Lessons From The Asian Crisis

This paper critically examines the Greenspan-Summers-IMF thesis concerning the Asian crisis, which suggested that the fundamental causes of the Asian crisis lay in the microeconomic behavior of economic agents in these societies - in the Asian way of doing business. The paper concentrates on corporate governance and competition in emerging markets and outlines the international significance of these issues in the context of the New International Financial Architecture and the Doha Development Round at the WTO. It reviews new analyses and fresh evidence on corporate governance, corporate finance and on competition in emerging and mature markets, to suggest that the basic thesis above is not valid and the consequent policy proposals are therefore deeply flawed.Corporate governance, competition, emerging markets

Empirical Capital Structure Research: New Ideas, Recent Evidence, and Methodological Issues

Even 50 years after Modigliani/Miller’s irrelevance theorem, the basic question of how firms choose their capital structure remains unclear. This survey paper aims at summarizing and discussing corresponding recent developments in empirical capital structure research, which, in our view, are promising for future research. We first present some “stylized facts” on capital structure issues. The focus of the discussion is set on studies taking on the key idea to differentiate between competing theories by testing for firm adjustment behavior following shocks to their capital structure. In addition, we discuss empirical studies examining additional factors that may influence capital structure decisions, but have gained only recently attention in the literature (like corporate ratings or irrational managers). Since some of the available contradictory evidence on capital structure issues might be explained by econometric challenges due to the typical data structure, we also discuss methodological issues like panel data, endogeneity, and partial adjustment models in the capital structure context. Finally, we illustrate the methodological and empirical aspects discussed in this survey by providing corresponding evidence for exchange-listed German companies in the period 1987-2006

Capital structure decisions in family firms: empirical evidence from a bank-based economy

This study examines how family firm characteristics affect capital structure decisions. In our analysis we disentangle the influence of three distinct components of a family firm: ownership, supervisory and management board activities by the founding family. Thereby, we use a unique panel dataset of 660 publicly listed companies (5,135 firm years) in the broadest German stock index CDAX from 1995 to 2006. This paper is motivated by hitherto inconclusive empirical findings on capital structure decisions in family firms from Anglo-Saxon countries. We provide new evidence for a bank-based economy. In this sense, Germany provides a very fruitful research environment as it (i) traditionally has a bank-based financial system and (ii) family firms are considered to be the backbone of the economy. We find that family firms have significantly lower leverage ratios than non-family firms, independent of the definition of leverage applied. Among the three dimensions of a family firm, management board involvement by the founding family has a consistently negative influence on leverage across all our models. In contrast, the influence of ownership and supervisory board representation is insignificant in almost all of our models. In line with agency theory, we can show that the leverage level is the lowest if the founding family is simultaneously a large shareholder with monitoring incentives and involved in firm management with convergence-of-interest effects. Finally, we detect that the presence of a founder CEO in firm management has a significant negative effect on the leverage ratio. Our results prove to be stable against a battery of robustness tests including a matching estimator technique to demonstrate causal effects. --family firms,family ownership,family management,founder CEO,agency costs,capital structure,debt-equity ratio,leverage,corporate governance,risk aversion