Firm Size and Financial-Leverage Choice. Evidence from an Emerging Economy

This paper intends to study the effect of firm size on financial leverage choice while controlling for determinats like profitability and performance.Fixed effect regression model has been employed over an unbalanced panel data of non-financial firms of Pakistan from 2005-2014.Results report negative relation between firm size and leverage ratios; implying less dependence of firms on debt.Profitability shows negative significant association with short term debt and total debt while performance reports insignificant relation.The study reveals that in case of emerging country like Pakistan which is politically and economically instable; results tend to affirm a high influence of pecking order theory in firms financing patterns

Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia

In emerging markets, the concentration of corporate ownership has created agency conflicts between controlling owners and minority shareholders. Conventional corporate control mechanisms such as boards of directors and takeovers are typically weak in containing the agency problem. This study examines whether external independent auditors could be employed as monitors and as bonding mechanisms to alleviate the agency conflict. Using a broad sample of firms from eight East Asian economies, we document that firms are more likely to employ Big Five auditors when they are more subject to the agency problem imbedded in their ultimate ownership structure. One possible reason that this documented relation between auditor choice and the agency problem is more evident than the inconsistent results using U.S. and U.K. data is that alternative governance mechanisms are limited in East Asia. In addition, among East Asian auditees subject to the agency problem, Big Five auditors charge a higher fee and set a lower audit modification threshold while non-Big Five auditors do not. Taken together, the evidence suggests that Big Five auditors in emerging markets do have a corporate governance role.http://deepblue.lib.umich.edu/bitstream/2027.42/39784/3/wp400.pd

Disclosure and Cross-listing: Evidence from Asia-Pacific Firms

Purpose – The purpose of this paper is to examine whether both country disclosure environment and firm-level disclosures are associated with cross-listing in the USA or London or otherwise. Design/methodology/approach – The authors test the association using a sample of Asia-Pacific firms covered in the Standard and Poor\u27s, 2001/2002 disclosure survey, capturing the country-level disclosure using the Center for International Financial Analysis and Research (CIFAR) score. The firm-level disclosure is measured using the S&P disclosure score. The authors conduct a logistic regression analysis and a two-stage least squares analysis to examine whether the outcome, cross-listing or not, is associated with the country disclosure environment and firm-level disclosures. Findings – The authors find that Asia-Pacific firms from weak disclosure environments and having higher firm-level disclosure scores are more likely to seek listing in the USA. Further, the paper provides initial evidence that these Asia-Pacific firms are as likely to seek listing in London as in the USA. No significant difference was found in S&P scores between US and London cross-listings after controlling for the effects of other variables. This suggests that firms that cross-list in London present similar disclosure levels to firms that cross-list in the USA. Originality/value – The paper\u27s findings contribute to the cross-listing literature on disclosure by showing that the interaction between firm-level disclosure and country-level disclosure has an impact on whether a firm cross-lists in the USA/London or not. The authors\u27 comparison of US cross-listings versus London cross-listings provides the first evidence that disclosures of US and London cross-listings are not significantly different

Debt financing and firm performance: The moderating role of board independence

This article investigates the moderating role of board independence in the relationship between debt financing and performance of emerging market firms. We have used an empirical model in which the firm’s accounting profitability is a dependent variable and the independent variables are debt financing, board independence, the interaction variable made of debt financing and board independence as well as various control variables. Our analysis is based on a panel data set of 300 listed firms in Vietnam between 2013 and 2017. Our study finds that debt financing has a significantly negative effect and that board independence reduces the adverse impact of debt financing on accounting profitability. Our results are consistent across different estimation models and methods

Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia

In emerging markets, the concentration of corporate ownership has created agency conflicts between controlling owners and minority shareholders. Conventional corporate control mechanisms such as boards of directors and takeovers are typically weak in containing the agency problem. This study examines whether external independent auditors could be employed as monitors and as bonding mechanisms to alleviate the agency conflict. Using a broad sample of firms from eight East Asian economies, we document that firms are more likely to employ Big Five auditors when they are more subject to the agency problem imbedded in their ultimate ownership structure. One possible reason that this documented relation between auditor choice and the agency problem is more evident than the inconsistent results using U.S. and U.K. data is that alternative governance mechanisms are limited in East Asia. In addition, among East Asian auditees subject to the agency problem, Big Five auditors charge a higher fee and set a lower audit modification threshold while non-Big Five auditors do not. Taken together, the evidence suggests that Big Five auditors in emerging markets do have a corporate governance role.corporate governance, auditor, ownership concentration, East Asia

The effects of corporate governance mechanisms on the financial leverage–profitability relation

Purpose This paper aims to investigate the moderating effects of corporate governance mechanisms on the financial leverage–profitability relation in emerging market firms. Design/methodology/approach The paper examines the impacts by estimating the empirical model in which a firm’s accounting profitability is a dependent variable, while financial leverage, board size, board independence, CEO duality, CEO ownership, state ownership and the interaction variables are predictors. The paper uses the panel data set of 295 listed firms in Vietnam in the period 2011-2015 and two key econometric methods for panel data, namely, the two-stage least square instrumental variable and general moments method. Findings The paper finds the evidence for the significant and positive effect of board size, board independence and state ownership on the financial leverage–profitability relation. The effect of CEO duality on the financial leverage–profitability relation tends to be negative, and the impact CEO ownership inclines to be positive, although both of them are statistically insignificant. The results are consistent across different estimation methods. Originality/value This paper is the first investigating the moderating effect of various corporate governance mechanisms on the financial leverage–profitability relationship in emerging market firms

Leverage and productivity growth in emerging economies: Is there a threshold effect?

While credit is essential for investment, innovation and economic growth, there are risks to unfettered credit booms. The present paper provides an innovative micro-economic approach to identify the threshold leverage beyond which corporate indebtedness becomes “excessive”. In particular, the paper hypothesizes a non-linear relationship in that moderate leverage could boost growth while very high leverage could restrict total factor productivity growth, through increased likelihood of financial distress and bankruptcy. Estimates of a threshold model for a group of emerging CEE countries confirm the non-linear relationship, after controlling for various firm, industry and financial market characteristics.Financial support from ESRC grant RES-062-23-0986 is gratefully acknowledge

Impact of M & A on firm performance in India: Implications for concentration of ownership and insider entrenchment

performance. On the one hand, concentration of ownership that, in turn, concentrates management control in the hands of a strategic investor, eliminates agency problems associated with dispersed ownership. On the other hand, it may lead to entrenchment of upper management which may be inconsistent with the objective of profit (or value) maximisation. This paper examines the impact of M & A on profitability of firms in India, where the corporate landscape is dominated by family-owned and group-affiliated businesses, such that alignment of management and ownership coexists with management entrenchment, and draws conclusions about the impact of concentrated ownership and entrenchment of ownermanagers on firm performance. Our results indicate that, during the 1995-2002 period, M & A in India led to deterioration in firm performance. We also find that neither the investors in the equity market nor the debt holders can be relied upon to discipline errant (and entrenched) management. In other words, on balance, negative effects of entrenchment of ownermanagers trumps the positive effects of reduction in owner-vs.-manager agency problems. Our findings are consistent with bulk of the existing literature on family-owned and group affiliated firms in India.http://deepblue.lib.umich.edu/bitstream/2027.42/64396/1/wp907.pd

Excess Leverage and Productivity Growth in Emerging Economies: Is There A Threshold Effect?

The paper examines the relationship between leverage and growth in a group of emerging central and eastern European countries, who are at different levels of financial market development. We hypothesize a non-linear relationship in that moderate leverage could boost growth while very high leverage could lower it by increasing the likelihood of financial distress and bankruptcy. Estimates of a Threshold model confirm the non-linear relationship in our sample, after controlling for various firm, industry and financial market characteristics. We also endogenously determine a threshold level of leverage beyond which further increases in leverage could lower TFP growth.excess leverage, bank efficiency, market capitalization, TFP growth, Threshold model, non-linear relationship, transition experience