Australian multinational and domestic corporations capital structure determinants

This study investigates the significance of the determinants of capital structure on a sample of Australian multinational corporations and Australian domestic corporations over the period 1992 to 2001. The determinants of capital structure have captured academic thought for many decades, particularly since Modigliani and Miller (1958). If optimal capital structures do exist and that these structures maximise firm value, obtaining an understanding of the determinants of capital structure is important in obtaining an understanding of the way firms maximise value. Multinational corporations control considerable assets and some multinationals control more assets than that which is controlled by some countries. Decisions about capital structure may have important implications in regards to shareholder wealth effects. Therefore, obtaining an understanding of the determinants of capital structure and the differences between domestic and multinational capital structure is of interest to academics, politicians, shareholders and financiers. The results show that the level of leverage does not differ significantly between multinational and domestic corporations. Using cross-sectional Tobit regression analysis the results show substantial variation in capital structure determinants between multinational and domestic corporations. For both types of organisations growth, profitability and size are significant determinants of leverage. For domestic corporations collateral value of assets is also a significant determinant of leverage. For multinationals, bankruptcy costs and the number of overseas subsidiaries is a significant determinant of leverage. Surprisingly, bankruptcy costs are not significant for domestic corporations. In relation to interaction effects, bankruptcy costs and profitability are significant in explaining multinational leverage relative to domestic leverage. When industry effects are considered the significance of the original determinants remained constant however, some industries became significant. The industry effect was not consistent across domestic and multinational corporations. In relation to time variation in leverage and the determinants of capital structure, both varied across domestic and multinationals over the sample period

Capital structure and business cycles

This study investigates the relationship between business cycles and capital structure. Specifically, it extends the work of Lemmon (2008), by incorporating the effect of four different stages of the business cycle - peak, contraction, trough and expansion - on the relative importance of the unobserved permanent component of the capital structure. Results indicate that business cycles play an important role in explaining the unobserved permanent component of leverage ratios after controlling for firm fixed effects. In particular, the model becomes much stronger in explaining the variation in leverage ratios after accounting for business cycle phases

Determinants of Capital Structure for Japanese Multinational and Domestic Corporations-super-

Our study examines whether there are systematic differences in standard leverage determinants for a sample of Japanese multinational (MNCs) and domestic corporations (DCs). We find that on a univariate basis Japanese MNCs differ significantly on most variables relative to Japanese DCs. These variables include leverage, age, collateral value of assets, free cash flows, foreign exchange risks, growth, non-debt tax shields, political risks, profitability and size. Business risks are not found to be significantly different between the two groups of organizations. When modeling capital structure and the determinants of capital structure we find that Japanese multinationals have significantly less leverage than Japanese DCs, and that multinationality is an important aspect of leverage for Japanese firms. We find that business risks are not significant for modeling capital structure of domestic firms but they are for multinationals and foreign exchange risks are not significant for multinationals but are significant for domestic firms. Business risks are negatively related to leverage for multinationals and we document that significant positive leverage effects of foreign exchange risks and size are subsumed by the negative effect of business risks to explain the lower leverage experienced by Japanese multinationals relative to Japanese DCs. The lack of significance of foreign exchange risks for DCs can be explained by economies of scale in risk management, such as derivatives. Domestic firms seem to manage increased foreign exchange risks through lower leverage rather than derivative use. On the other hand, the larger multinationals can take advantage of economies of scale in risk management. Consequently, foreign exchange risks of multinationals can be managed through derivatives and other risk management operations and not reduced leverage. Copyright (c) 2009 The Authors. Journal compilation (c) International Review of Finance Ltd. 2009.

Influence of institutional shareholders and corporate governance on issuance and proceeds

This paper investigates the effect of institutional shareholding and corporate gover-nance on two aspects of financial decision-making – debt and equity issuance andthe utilization of proceeds from the issuance. We develop a new governance measureand find that well-governed firms are more likely to issue debt rather than equity.Further, strong governance has a significant positive effect on dividend paymentsafter debt issuance, indicating good alignment of managers’ and shareholder’ interest.Also, cash holdings for discretionary motives are not affected by the joint effectof debt/equity security issuance and corporate governance. Finally, institutionalshareholding plays a critical role for firms dividend payment and cash management

Intensity of volatility linkages in Islamic and conventional markets

Characteristics of Islamic finance, such as a smaller set of shared information and a lower degree of cross-market hedging, reduce volatility linkages (correlations) between Islamic and conventional stocks, bonds and bills. We use a stochastic volatility model in a Generalized Methods of Moments framework as well as other volatility proxies to estimate volatility linkages. We are the first to document that including at least one Islamic asset lowers volatility linkages by up to 7.17 percentage points, after controlling for country and asset-specific characteristics. Results are stronger during financial crises and are not driven by the oil sector.This research was funded by the ARC DECRA and ARC Discover

The asymmetric impact of consumer sentiment announcements on Australian foreign exchange rates

We examine the effect of consumer sentiment announcements on changes in 13 of the more common foreign exchange rates against the Australian dollar using a consumer sentiment index (CSI). Generally, we find that the CSI possesses information that influences the foreign exchange market. However, we observe an asymmetric effect - when a lower than previous month CSI is announced, the Australian dollar experiences a significant depreciation on the announcement day, but there is no matching appreciation when positive CSI news occurs. This supports the negativity effect documented in the psychology literature and in the Australian stock market. There is no evidence that the effect is non-linear