Profits, financial leverage and corporate governance

© 2019, Emerald Publishing Limited. Purpose: The purpose of this paper is to identify the impact of governance structures in defining the relationship between profits and leverage. Design/methodology/approach: The paper uses the standard design used by Fama and French (2002) and employs it under different governance structures. It is the first to identify the endogenous nature of the relationship between profits and leverage, compounded by the endogeneity of governance. The paper uses the instrumental variable (IV) technique to control for endogeneity and recommends a novel approach to control for multiple endogenous regressors. Findings: The results demonstrate that firms operating under good governance verify the predictions of the trade-off theory of capital structure and that the evidence of negative relation in the literature is a subset of management inefficiency. The results are consistent after controlling for endogeneity and are robust to alternative iteration of governance. The activity in debt issuance and retirement supports the conclusion that firms with good governance structures actively seek an optimal capital structure corresponding to profits. Originality/value: This study adds value to existing literature. It is the first to identify the importance of governance in defining the relationship between profits and leverage. It recognizes unaccounted endogeneity concerns and employs an inspired IV approach to control for feedback from multiple endogenous regressors. Evidence for capital structure adjustment by firms with good governance is also substantiated. Lastly, the first unqualified evidence for the trade-off model is provided

Testing the Static Trade-Off Theory of Capital Structure: A Corporate Governance Perspective

In this paper we explore the static trade-off theory of capital structure under different governance structures. We find that good governance firms have leverage ratios that are higher (forty-seven percent) than poor governance firms per unit of profit. Evidence also suggests that while the leverage ratio for good governance firms has a narrower range and adjusts with changes in profit, the same is not true for poor governance firms. Direct test of the theory finds that good governance firms exhibit a positive relationship between profits and leverage, while poor governance firms show an inverse relationship. Further tests provide evidence for the varying use of tangible assets and size in leverage increasing activities for the two classifications of firms. The results of the paper demonstrate that the mixed results of prior studies notwithstanding, leverage is increasing in profits when controlled for agency problems, and shareholder-controlled firms exhibit the results predicted by the theory

Debt covenant violation, competition and cost of new debt

© The Author(s) 2018. This article empirically shows that the cost of new debt is higher for firms that commit covenant violations. Using a proxy for product market competition to capture exogenous changes to a firm’s competitive environment, I find that the cost is systematically higher for firms that operate in competitive markets. Moreover, I identify channels through which violations can increase the cost of new debt, namely, the incidence, timing and frequency effects, and I document these effects to be more acute for competitive markets. Overall, the study finds that the market prices financial contracts by taking into account the information content of the violation and the risk arising from market competition. JEL Classification: G12, G30

Blockholdings, Dividend Policy, Stock Returns and Return Volatility: Evidence from the UAE

This paper examines the relationship between the presence of blockholdings and stock returns and return volatility in the United Arab Emirates. Earlier studies report mixed results for the direction of the relationships across both developed and emerging markets. This study focuses specifically on these relationships in a dividend policy framework. This study further investigates the role of blockholder type by distinguishing between government, individual and corporate blockholders. Our results indicate that blockholder ownership reduces stock return volatility for both non-dividend-paying and dividend-paying stocks, does not impact returns and is not perceived as expropriating the wealth of other investors. We also conclude that the blockholders do not exhibit rent-seeking behavior through the extraction of dividends and investors in UAE firms embrace the role of blockholders and the reinvestment of profits

Accruals and Real Earnings Management: Testing the Debt Covenant Hypothesis

This paper examines earnings management activities around debt covenant violations. We focus on accruals management and real activities manipulation behavior of managers in the quarters around the covenant violation. We expect covenant restrictions to influence these activities in the quarters surrounding and the quarter of the violation. The evidence is consistent with managers manipulating earnings using accrual-based and real earnings management activities and provides evidence for the debt covenant hypothesis. Cross-sectional analyses reveal that managers appear to manipulate accruals in successive quarters in order to increase reported earnings. The evidence on the use of real activities suggests that while managers increase reported earnings in the violation quarter, they have limited discretion over the use of real earnings management techniques in the quarters surrounding the violation

Penetrating Abdominal Injuries: Management Controversies

Penetrating abdominal injuries have been traditionally managed by routine laparotomy. New understanding of trajectories, potential for organ injury, and correlation with advanced radiographic imaging has allowed a shift towards non-operative management of appropriate cases. Although a selective approach has been established for stab wounds, the management of abdominal gunshot wounds remains a matter of controversy. In this chapter we describe the rationale and methodology of selecting patients for non-operative management. We also discuss additional controversial issues, as related to antibiotic prophylaxis, management of asymptomatic thoracoabdominal injuries, and the use of colostomy vs. primary repair for colon injuries

Future Time Perspective and Frustration Intolerance in Medical students

Background: The future perception of students is affected by a series of events happening throughout their course of studies. The objective of this study is to measure the Future time perspective (FTP) and Future intolerance (FI) among medical students during the COVID-19 lockdown.Materials and Methods: It was a descriptive cross-sectional study done from January 15, 2020 to July 20, 2020 among MBBS students of Rawalpindi Medical University. The questionnaire consisted of 1) Socio-demographic details, 2) Future Time Perspective scale, and 3) Frustration Discomfort scale. An online survey was done using Google Forms. An ANOVA was run to check for differences in FTP and FI between the classes. Bivariate analysis for continuous variables was applied. The data were analysed using the Statistical Package for Social Sciences (SPSS) v.23.0 (IBM, Armonk, US). Results: Mean age of participants was 21.8 (SD=1.66) with majority females 331(58.4%). The mean FTP score and mean FI scores were 50.8(SD=19.43) and 91.46(SD=17.65) respectively. Final-year students had the highest mean score (Mean=57.94(SD=7.72)) for FI. On the other hand, mean scores for FDS were highest in first-year students (Mean=102.89 (SD=13.52)) while lowest in fourth-year students (Mean=81.73(SD=17.49)) with P=.005. There was a significant difference in the dimensions of Emotional Intolerance and achievement among females and males. Bivariate analysis showed a significant negative correlation was found between FTP and the dimension of discomfort intolerance (r = -0.158, p < 0.001), while a significant positive correlation was found between FTP and the dimension of achievement (r = 0.225, p < 0.001). Conclusion: Our study concludes that final-year students have a much higher tolerance level for adversities. Furthermore, they also have a much more positive perspective and a clearer vision regarding their future

SEVERAL NEW INTEGRAL INEQUALITIES VIA K-RIEMANN–LIOUVILLE FRACTIONAL INTEGRALS OPERATORS

The main objective of this paper is to establish several new integral inequalities including k-Riemann – Liouville fractional integrals for convex, s-Godunova – Levin convex functions, quasiconvex, η-quasi-convex. In order to obtain our results, we have used classical inequalities as H¨older inequality, Power mean inequality and Weighted H¨older inequality. We also give some applications