Determinants of the Issuance of Put/Call Convertibles in the Non-Financial Sector of the US Market

The aim of this article is to characterize and show the differences between issuers of ordinary convertibles and convertibles with attached put/call provisions (put/call convertibles). The research was carried out on a sample of 379 firms in the US market, outside the financial sector, between 2002 and 2011. It turns out that the issuers of put/call convertibles are the companies with a higher risk exposure, associated with, inter alia, a higher level of indebtedness and worse ratio between the issue value to the fixed assets value. Adding the put/call provisions is aimed at decreasing issuers’ risk exposure, which may increase the market demand for this type of convertible securitiesCelem artykułu jest scharakteryzowanie i wykazanie różnic między emitentami zwykłych obligacji zamiennych i obligacji zamiennych z dołączoną opcją put/call. Badanie zostało przeprowadzone na podstawie 379 emitentów tych instrumentów na rynku amerykańskim w latach 2002-2011 spoza sektora finansowego. Okazuje się, że decyzje o emisji put/call convertibles podejmują spółki obarczone wyższym ryzykiem inwestycyjnym, o czym świadczy m.in. wyższy poziom zadłużenia czy gorsza relacja wartości emisji to wartości aktywów trwałych. Dołączenie opcji call/put do zwykłych obligacji zamiennych ma na celu obniżenie ryzyka inwestycyjnego emitenta, co może spowodować zwiększenie popytu na ten rodzaj papierów wartościowych ze strony inwestorów

What Determines the Structure of Corporate Debt Issues?

Publicly-traded debt securities differ on a number of dimensions, including quality, maturity, seniority, security, and convertibility. Finance research has provided a number of theories as to why firms should issue debt with different features; yet, there is very little empirical work testing these theories. We consider a sample of 14,867 debt issues in the U.S. between 1971 and 2004. Our goal is to test the implications of these theories, and, more generally, to establish a set of stylized facts regarding the circumstances under which firms issue different types of debt. Our results suggest that there are three main types of factors that affect the structure of debt issues: First, firm-specific factors such as leverage, growth opportunities and cash holdings are related with the convertibility, maturity and security structure of issued bonds. Second, economy-wide factors, in particular the state of the macroeconomy, affect the quality distribution of securities offered; in particular, during recessions, firms issue fewer poor quality bonds than in good times but similar numbers of high-quality bonds. Finally, controlling for firm characteristics and economy-wide factors, project specific factors appear to influence the types of securities that are issued. Consistent with commonly stated 'maturity-matching' arguments, long-term, nonconvertible bonds are more likely to be issued by firms investing in fixed assets, while convertible and short-term bonds are more likely to finance investment in R&D.

Debt Structure and Future Financing and Investment

abstract: I study the relation between firm debt structure and future external financing and investment. I find that greater reliance on long-term debt is associated with increased access to external financing and ability to undertake profitable investments. This contrasts with previous empirical results and theoretical predictions from the agency cost literature, but it is consistent with predictions regarding rollover risk. Furthermore, I find that firms with lower total debt (high debt capacity) have greater access to new financing and investment. Lower leverage increases future debt issues and capital expenditures, and firms do not fully rebalance by reducing the use of external financing sources such as equity. Finally, my results support the view that greater reliance on unsecured debt can increase future debt financing. Overall, my paper offers new insights into how aspects of debt structure, in particular maturity, are related ex-post to firms' ability to raise new financing and invest.Dissertation/ThesisDoctoral Dissertation Business Administration 201

Motives for the use of equity-warrants by Dutch companies

Financing;Share Options;finance

Debt Issuances, Capital Structure Changes and Stock Return Performance

Debt financing is a major source of corporate financing in many emerging countries including Malaysia. However, the knowledge on shareholders wealth created from debt financing decision and sources of the wealth creation is scant and inconclusive. The scarcity of literature is more noticeable in emerging market environment and market where Islamic debt securities coexist with conventional debt securities. In response to this knowledge gap, this study attempts to examine the short and long run stock return performance of debt security issuers as well as the determinants of the long run stock return performance. Samples of 136, 165, 145, and 126 bond issues during January 2001 to October 2009 are used for analyzing short run announcement effects, as well as one, two, and three year performance, respectively. Using event study method, this study finds that the shareholders of bond-issuing firm experience significantly positive wealth creation around the announcement of the issues. Value weighted average of cumulative abnormal return and buy and hold abnormal return of the portfolio of debt issuers as well as the intercept of Fama-French three factor model is used for estimating the long run performance. The significance of buy and hold return is tested by implementing bootstrapped skewness adjusted, and heteroscedasticity and serial correlation consistent t-statistics. Results show that the shareholders of bond issuing firms experience significant long run performance in three-year period after the issue. Among the significant determinants, capital structure change, growth opportunity, and ownership concentration influence long run performance positively. The effects of growth opportunity and ownership concentration are significantly moderated by capital structure changes. Some variables only affect the long run performance when the debt issuance is associated with capital structure change. Among them, choice of Islamic debt, debt tax shield. and free cash flow which influence the long run performance negatively, while firm size influences positively. As a whole, this study finds evidence for partial applicability of trade off and agency costs theory in explaining long run wealth creation by the debt financing decision in Malaysia. The results of this study indicate that large companies and high ownership concentration companies should issue debts for meeting their financial requirement. Large companies can enjoy the benefits of issuing debts, such as interest tax saving, without facing severe financial distress costs, while high ownership concentration companies that issue debts can retain control on the companies' activities and overcome usage of free cash flows for private benefits

Firm’s Capital Structure Decisions: Theory and Empirical Evidence from Portuguese Banks

Doutoramento em Gestão IndustrialA dissertação analisa, teórica e empiricamente, a problemática das decisões (voluntárias) de estrutura de capital da empresa bancária, com o propósito depromover o alargamento do conhecimento sobre o comportamento das empresasquando definem e reajustam a sua estrutura de financiamento estratégico. Partindo da teoria geral da estrutura de capital, tipicamente associada com asempresas não-financeiras, desenvolve-se um quadro teórico de referência que suporta a formulação das hipóteses que se submetem a teste empírico.Este estudo foi desenvolvido com base na metodologia de survey por entrevista pessoal orientadapor questionário estruturado. A investigação dos determinantes das decisões de estrutura de capital incidiu sobre apopulação de os Presidentes (executivos) do Conselho de Administração de bancosPortugueses em funções no período compreendido entre 1989 e 1998. Os resultados obtidos sugerem que a tomada de decisão de estrutura de capital pelos responsáveis das equipas de gestão dos bancos portugueses, durante o período em análise, é consistente com alguns dos determinantes teóricos tipicamente associados com a escolha da relação capital próprio / endividamento das empresas não-financeiras, uma vez levadas em consideração as especificidades inerentes à suacondição de intermediário financeiro. A evidência empírica produzida dá suporte àshipóteses da fiscalidade ao nível dos bancos, dos conflitos de agência e degovernação e dos problemas de assimetria de informação como determinantesrelevantes na tomada de decisões de estrutura de capital dos bancos Portugueses no período 1989-1998. A dissertação está organizada como segue: No capítulo 1é introduzido e formuladoo problema da estrutura de capital ao nível da empresa. No capítulo 2 discute-se a teoria geral da estrutura de capital analisando os seus fundamentos teóricos e as suas principais proposições. Em seguida aborda-se a questão da estrutura de capital da empresa bancária desenvolvendo o quadroconceptual de suporte à elaboração do questionário utilizado no estudo empírico. O capítulo 4 contextualiza a selecção da amostra e dos dados bem como caracteriza odesempenho financeiro recente de uma amostra de bancos Portugueses. No capítulo5 abordam-se alguns dos problemas metodológicos e de método relacionados com ainvestigação empírica neste domínio. Descreve-se em seguida o desenho da investigação e apresentam-se e discutem-se os resultados obtidos no surveyrealizado. O capítulo 6 apresenta um sumário dos resultados, as conclusões dotrabalho e as pistas para investigação futura.The dissertation examines, at both the theoretical and empirical level, the problem ofthe banking firm’s capital structure (voluntary) decisions aiming at broadening ourunderstanding about firms’ behavior when deciding about their strategic financing. We build on the general theory of capital structure, typically associated with the non-financial firm, to develop a theoretical framework able to support the formulation oftestable hypotheses. Such hypotheses framed the theoretical underpinnings of theempirical inquiry instrument. To perform the empirical study of the determinants of such decisions, acomprehensive survey of Chief Executive Officers (CEOs) of Portuguese banks inoffice during the 1989-1998 period, was undertaken. The findings indicate that Portuguese banks’ capital structure decisions are consistent with a number of theoretical propositions typically associated with the debt-equity choice of non-financial firms once we account, among other factors, for theidiosyncrasy of their financial intermediary nature. Specifically, we provide empirical evidence supporting that taxation at the bank level, agency and governance conflictsand asymmetric information considerations are relevant factors influencing capitalstructure decision-making of Portuguese banks during the 1989-1998 time period. These results are consistent with the notion that the design of firm’s financial structuremay The dissertation is organized as follows: Chapter 1 introduces and formulates the capital structure problem at the firm level.Chapter 2 provides a comprehensive discussion of the general theory of capitalstructure. Chapter 3 discusses the capital structure problem at the banking firm levelproviding the basis for the development of the theoretical model that underlies thesurvey instrument. Chapter 4 contains a brief characterization of the recent financialperformance of a sample of Portuguese banks and describes sample selection anddata. Chapter 5 examines some methodological issues related to our empirical study,describes our survey design and reports the results of our survey. Chapter 6summarizes and concludes the dissertation

Private Ordering and Corporate Governance: The Case of Venture Capital

In a private company setting corporate governance institutions can be viewed as responses to the contractual challenges of moral hazard, adverse selection and incompleteness of contracts. Thereupon, the attributes of corporate governance mechanisms are structured in a way that allows the corporate constituencies to deal with contractual design exigencies. Contract theory is thus a determinant of corporate governance. VC-backed firms provide an explicit manifestation of this philosophy of design of corporate governance institutions. The financing practices that VC firms implement and the securities that they hold are carefully designed so as to allow the members of the firm to surmount the contractual obstacles. Staged investment (or staggered financing) is a screening mechanism that induces entrepreneurs to signal their intrinsic motivation to the VC firm and thus allows the latter to tackle the adverse selection problem. Convertible preferred stock, the VCs’ investing vehicle of choice, allows the establishment of an incentive-compatible income stream, as it replicates the disciplining and agency cost-mitigating effects of paradigm debt while at the same time it eliminates the foremost agency cost of paradigm debt, the “asset substitution effect”. Consequently, with the “debtlike” security of convertible preferred stock VCs can cope efficiently with the problem of moral hazard. In addition to this, the typical covenants that are embedded in convertible preferred stock help to generate an optimal state-contingent allocation of control rights between the VC and the entrepreneur that is in alignment with the basic axioms of financial contracting theory. Thereupon, convertible preferred stock serves as a corporate governance mechanism that challenges the problem of the incompleteness of contracts. Finally, given that the design of efficient corporate governance institutions in a VC setting requires a great deal of contracting flexibility, we look at the mandatory nature of European corporate laws and seek to ascertain whether they directly impede VC contracting. Although no such evidence is found, it is argued that the overall mandatory nature of European corporate laws compromises the contract innovation capacity of European lawyers, who, paralyzed by anchoring bias, do not invest in learning sophisticated VC financial and corporate governance design techniques that would let the VC industry in Europe flourish.</P