Yilmaz Guney

The Determinants of Capital Structure: Capital Market Oriented Versus Bank Oriented Institutions

The paper investigates how firms operating in capital market-oriented economies (the U.K. and the U.S.) and bank-oriented economies (France, Germany, and Japan) determine their capital structure. Using panel data and a two-step system-GMM procedure, the paper finds that the leverage ratio is positively affected by the tangibility of assets and the size of the firm, but declines with an increase in firm profitability, growth opportunities, and share price performance in both types of economies. The leverage ratio is also affected by the market conditions in which the firm operates. The degree and effectiveness of these determinants are dependent on the countrys legal and financial traditions. The results also confirm that firms have target leverage ratioswith French firms being the fastest in adjusting their capital structure toward their target level and Japanese firms the slowest. Overall, the capital structure of a firm is heavily influenced by the economic environment and its institutions, corporate governance practices, tax systems, the borrower-lender relation, exposure to capital markets, and the level of investor protection in the country in which the firm operates.

A Panel Data Analysis of Locational Determinants of Chinese and Indian Outward Foreign Direct Investment

The upsurge of Chinese and Indian outward foreign direct investment (FDI) raises an unanswered question about locational determinants of direct investment from the two countries. Using an unbalanced bilateral FDI database, we find that Chinese and Indian FDI are attracted to countries with large market size, low GDP growth, high volumes of imports from China or India, and low corporate tax rates. We also find important differences between China and India. While Chinese FDI is drawn to countries with open economic regimes, depreciated host currencies, better institutional environments, and English speaking status, none of these factors are important for Indian FDI. Chinese FDI is also deterred by geographic distance and OCED membership. However, neither of these has any impact on Indian FDI.

The Determinants of Corporate Debt Ownership Structure: Evidence from Market-Based and Bank-Based Economies

We compare the determinants of the corporate debt ownership structure in a bank-oriented economy (Germany) and market-oriented economy (UK). The results, that are controlled for endogeneity, simultaneity and measurement errors, show that the firms in both countries adjust their debt ownership structure towards their target levels – British firms being the swifter. The evidence supports the predictions of the liquidation and renegotiation, and the flotation cost hypotheses in both countries. However, the moral hazard and adverse selection hypothesis receives support only in the UK. Moreover, the influence of market related factors on the choice of the lender is country dependent. Overall, the debt ownership structure of a firm is influenced by both the firm-specific factors and the financial traditions in which the firm operates.

New insights on the importance of agency costs for corporate debt maturity decisions

This study provides new insights on the relationship between corporate debt maturity and agency costs by investigating empirically the impact of managerial ownership and the divergence between control and cash-flow rights on debt maturity. A significant negative effect of managerial ownership on debt maturity is observed. Moreover, the results reveal that the wedge between control and cash-flow rights also exerts a negative influence. The analysis further suggests that the negative effect of managerial ownership decreases in widely-held firms and increases with the discrepancy between control and cash-flow rights.

The determinants of corporate debt ownership structure

Purpose – This paper aims to investigate the determinants of choice between private and public debt for British and German listed companies.Design/methodology/approach – The paper is based on three strands of theories: the “liquidation and renegotiation” hypothesis; the “moral hazard and adverse selection” hypothesis; the “flotation cost” hypothesis. The regression analysis was adopted to test these hypotheses. The specific econometric method used for panel data is generalised method of moments (GMM).Findings – The evidence records a few similarities in debt‐mix structure of German and UK firms but it also detects some important differences. Therefore, the paper concludes that the relation between dependent and explanatory variables is country‐dependent. This can be attributed to the differences in corporate governance mechanisms and institutional features of the countries.Research limitations/implications – The limitation mainly has come from data unavailability for public debt. Future research could be ...

Do IPOs Performance Signal Future Stock Issuance

This study empirically examines the effect of initial public offering (IPO) issuance on seasoned equity offering (SEO) decisions and the impact of state-owned enterprises (SOEs) in China. Results indicate that specific IPO characteristics, corporate governance issues, and firm-specific factors determine the timing and size of an SEO. Findings reveal that a higher level of IPO underpricing leads firms to issue SEOs sooner with larger proceeds. The connections between IPOs and SEOs become less apparent in state-controlled firms. There are two major implications. First, firms can use IPO underpricing to obtain larger SEOs sooner in the presence of asymmetric information. Second, state control interferes with the pattern of firms raising capital from the Chinese stock markets.

R&D Investment and Revolving Credit

Using data for 939 publicly listed firms from 17 European countries over the period from 2004 to 2013, we investigate the effect of used credit lines on R&D investments, controlling for other determinants of R&D investments, i.e., cash flows, cash holdings, sales growth, equity financing, and Tobin’s Q. Our estimation results, based on the system-GMM method, show that used credit lines have a positive and significant impact on R&D investments. In addition, we find that this impact is more pronounced for small and young firms than for large and mature firms. These results show that firms use credit lines as part of their liquidity management tools for supporting their R&D investments. Finally, we provide evidence that European firms in bank-based countries increased their use of credit lines for financing their R&D investments during the financial crisis of 2007-2009, while the link between R&D investments and used credit lines became weaker during the European sovereign debt crisis of 2010-2013..Using data for 938 publicly listed firms from 17 European countries over the period 2004-2013, we investigate the effect of revolving credit on R&D investments. We find that revolving credit has a positive and significant impact on R&D investments, while term loans do not influence R&D investments. Further, we observe that small and young firms rely on revolving credit as a source of financing for their R&D investments while we do not observe any significant effect for mature and large firms. Our findings show that the significant and positive impact of revolving credit on R&D investment persists during the financial crisis of 2007-2009. Overall, our results are consistent with the view that firms rely on credit lines as part of their liquidity management tools.

Testing for the Weak-Form Market Efficiency of the Dar Es Salaam Stock Exchange

This paper investigates into the weak-form efficiency of the Dar es Salaam stock exchange (DSE), a frontier market, in Tanzania. The study covers the period from January 2007 to December 2014. To establish the consistency and robustness of the obtained conclusions, we employ different tests (i.e., Augmented Dickey-Fuller test, Variance-ratio test, and Ranks and Sign test) to examine the hypothesis that the returns based on the price and return indices follow a random walk process. The results provide convincing evidence that returns series based on price indices indeed follow a random walk. However, when the same tests are performed for the returns based on the return indices, the findings reveal that these series are not weak-form efficient, suggesting that investors might be able to predict future returns based on the current and past data.