Nico Dewaelheyns

Internal Capital Markets and Capital Structure: Bank Versus Internal Debt

We argue that domestic business groups are able to actively optimise the internal/external debt mix across their subsidiaries. Novel to the literature, we use bi-level data (i.e. data from both individual subsidiary financial statements and consolidated group level financial statements) to model the bank and internal debt concentration of non-financial Belgian private business group affiliates. As a benchmark, we construct a size and industry matched sample of non-group affiliated (stand-alone) companies. We find support for a pecking order of internal debt over bank debt at the subsidiary level which leads to a substantially lower bank debt concentration for group affiliates as compared to stand-alone companies. The internal debt concentration of a subsidiary is mainly driven by the characteristics of the groups internal capital market. The larger its available resources, the more intra-group debt is used while bank debt financing at the subsidiary level decreases. However, as the groups overall debt level mounts, groups increasingly locate bank borrowing in subsidiaries with low costs of external financing (i.e. large subsidiaries with important collateral assets) to limit moral hazard and dissipative costs. Overall, our results are consistent with the existence of a complex group wide optimisation process of financing costs.

Do Non-Profit Nursing Homes Separate Governance Roles? The Impact of Size and Ownership Characteristics

Separation between operational responsibilities and those of oversight is an important point of discussion in governance. Novel to the literature, this paper not only offers direct evidence on the degree of separation, but also shows its relationship with size (ceteris paribus efficiency prescribes that large organizations implement more separation) and ownership characteristics of non-profit institutions. Using a sample of Belgian (Flemish) nursing homes, we find that in private nursing homes this separation increases with size while this is not the case in public homes. We document that this lack in flexibility in governance practices explains the micro-monitoring in public institutions. We formulate policy implications and suggest solutions to create more flexibility and likely also better governance.

Aggregate Bankruptcy Rates and the Macroeconomic Environment: Forecasting Systematic Probabilities of Default

Recent empirical research has stressed the importance of economy wide factors in the assessment of default risk, for instance for bond portfolios or portfolios of bank loans. Macroeconomic risk is essentially systematic, as it is difficult to reduce through diversification. Adequate forecasts of the links between macroeconomic factors and default risk, often defined as aggregate credit risk, are therefore important in a large number of risk management applications. This paper considers eleven alternative ways to model the aggregate bankruptcy rate, which is a proxy for aggregate credit risk, on Belgian data for the period 1986- 2002. Based on these models, forecasts of the bankruptcy rates for 2003-2006 are made and compared. Four or five-variable Almon lag models result in the best in-sample fit and have the best forecast performance, but much more straightforward alternatives – such as an ARMA model or a one-variable model based on real GDP growth – do almost equally well. Four or five-variable vector error correction models are shown to have good in-sample fit, but very poor out-of-sample forecasting power. Overall we find that the prediction power of simple models is hard to beat.

Employment protection legislation and SME performance

This article examines the effect of employment protection legislation (EPL) on small and medium-sized enterprise (SME) performance. Rather than relying on country-specific proxies for EPL, as is common in the literature, we compute firm-specific measures of a firm’s exposure to EPL by using a panel dataset of 13,112 Belgian SMEs for the period between 2000 and 2009. The empirical results show that firms perform better when faced with lower hiring and firing costs through the use of more blue-collar labour contracts. The evidence showing improved performance by firms that attempt to achieve greater flexibility by hiring more temporary workers is limited.

Capital Structure Adjustments in Private Business Group Companies

The literature on capital structure dynamics assumes that companies trade-off the advantages of a leverage adjustment and its costs. In general, private companies are assumed to face relatively large adjustment costs, and should have lower financing flexibility. However, we argue that an important class of private companies -- business group affiliates -- may face relatively low adjustment costs because of their access to both internal and external capital markets and the beneficial reputation effects of belonging to a group. Our empirical results show significant differences in the composition of the capital structure and the leverage adjustment process between affiliates of private Belgian business groups and comparable stand‐alone companies. Group affiliates have higher levels of leverage, and adjust their capital structure more frequently than stand‐alones. Our evidence suggests that the flexibility in group companies’ capital structure is not solely driven by the use of internal leverage: group affiliates more frequently adjust their external leverage as well, unless the group is in poor financial health, in which case the affiliates’ probability of attracting external leverage is severely reduced.

Employment Protection and SME Capital Structure Decisions: JOURNAL OF SMALL BUSINESS MANAGEMENT

This study examines the effect of employment protection (EP) on the capital structure of SMEs. We argue that EP is linked to both the level of leverage and leverage adjustments because of its impact on financial distress costs and a firms operational leverage. Data on employment contract types allow us to compose company specific measures of exposure to EP using a panel data set of 14,858 Belgian SMEs between 2000 and 2012. Our results show that the leverage ratio of firms is higher and that firms are more likely to adjust leverage levels when they are subject to fewer EP obligations.

Affiliates’ Bank Debt Policy: Does Parent Firm Nationality Matter?

This paper examines whether and how bank debt is affected by foreign group affiliation. Ceteris paribus, affiliates of foreign business groups only use about half as much bank debt compared to affiliates of domestic groups. Further, the results indicate that geographical and cultural distance between parent and affiliate countries raise barriers when accessing bank financing. The bank debt usage decreases even further if affiliates and parent firms depend on different legal systems or the degree of legal enforcement in the parent firms country is low.

Why Do Private Non-Profit Organizations Provide Information on the Internet?

Purpose – This research measures information provision on the internet by private non-profit organizations (NPOs) and provides insight in underlying drivers.Design/methodology/approach – This research involves scoring websites of Belgian NPOs on the basis of their information dissemination and applies univariate and multivariate statistical methods. It also provides two illustrating case studies.Findings – The drivers of internet information provision in our sample organizations show many similarities to those found for for-profit corporations. However, contrary to the latter, NPOs include little financial information and focus on their goals. Furthermore, in line with the notion that insiders-workers may capture the organization, we find that the degree of professionalization has a significantly negative impact on disclosure. Overall, outside pressures as predicted by neo-institutional theory and agency issues are important in shaping communication of information. In fact the two cases indicate that the pressures as predicted by neo-institutional theory may easily lead NPOs to cater to key stakeholders in much the same way as for-profit corporations cater to customers.Research limitations/implications – The results are indicative of general forces driving NPO behaviour. Of interest would be a more in depth analysis to link the prevalence of certain forces to specific governance models and to contextual factors.Practical implications – These findings may give users/visitors of websites better insight into the forces shaping information communication policies of an NPO.Originality/Value – This paper adds to the scant evidence on internet information provision by private non-profit organizations and its drivers. As such it offers an opportunity to study the forces that are likely shaping decision making within NPOs.

Legitimacy, trustee incentives, and board processes: the case of public and private non-profit nursing homes

Using a unique data set, this study explores how type of ownership (government/private) is related to processes of governance. The findings suggest that the neo-institutional perspective and the self-interest rationale of the agency perspective are helpful in explaining processes of governance in both government- and privately owned non-profit organizations. Due to adverse incentives and the quest for legitimacy, supervising governance bodies within local government-owned non-profit institutions pay relatively less attention to the development of high quality supervising bodies and delegate little to management. Our findings also indicate that governance processes in private institutions are more aligned with the business model and that this alignment is likely driven by a concern to improve decision making. By contrast, our data also suggest that in local government-owned institutions re-election concerns of politicians-trustees are an important force in the governance processes of these institutions. In view of these adverse incentives - in contrast to the case of private organizations - a governance code is unlikely to entail much improvement in government-owned organizations.