<p>Financial bubbles are characterized by a large increase in the economic growth on the market as a whole or in specific industries. The change gives rise to an increase in the capital needed to finance this growth. Companies typically have a choice between equity and debt capital to finance its business and the mix of these types of capital is often referred to as the company’s capital structure. There has been a lot of research done in the field of financial bubbles and of</p><p>capital structure, as of yet no studies seem to address these two areas in combination.</p><p>The aim of this study is to examine if financial bubbles affect a company’s capital structure and through this also examine if the supposed changes in capital structure can be generalized.</p><p>The study comprise of two identical time-series which examines the changes in leverage and the choice of financing during the Swedish real estate bubble in the early nineties and the IT-crash at the end of the 2000th century. The study examines changes in leverage, price-to-book ratio and the choice between issuing convertible debt versus issuing equity, of eleven real estate companies and twelve IT-companies respectively.</p><p>This paper shows that a company’s capital structure is indeed affected by a financial bubble though the way it is affected during different financial bubbles differs. Significant changes in leverage and the choice between different types of financial instruments are identified in both time-series. The study also shows that neither the Pecking Order Hypothesis as presented by Myers (1984) nor the traditional trade-off theory can in whole explain these changes. A significant difference in leverage between the two groups can be identified which is consistent with earlier empirical studies on the difference between capital structures in different industries.</p><p>The results in this study seem to indicate that the changes in capital structure can be explained either by a supposed disturbance in the cost of different types of capital during the financial bubble or by the assumption that companies in specific industries (as the IT-industry) do not have the possibility to chose the type of financing freely.</p>

<p>Companies need capital in order to run their business, do necessary investments and grow larger. These actions are combined with high costs where both internal and external financing might be appropriate. Capital structure is the relation between debt and equity.</p><p>In this thesis we have focused on the decision behind the capital structure. We have focused on the road freight industry and we have tried to find out how management reason about their decision. The purpose of this thesis is therefore to describe and analyze SMEs’ decision of capital structure within the road freight sector in the Jönköping region. Emphasise is put on the different aspects that influence the capital structure decision and to what extent this is a strategic issue coloured by personal beliefs.</p><p>To fulfill the purpose mainly a qualitative approach with primary data from structured interviews has been used. The interviews were conducted face-to-face with six owner and/or managers. Further on, secondary data from the firms’ annual reports were used and analyzed.</p><p>The pecking order theory explains that firms, especially SMEs, prefer to finance their businesses with internally generated funds. Focus of the theoretical part are on theories of what factors that affects the capital structure decision, how this can be argued to be a strategic question for SMEs, how risk affects the capital structure decision and how this decision is made in a family business. These theories are presented to shed light on the capital structure decision making process of SMEs.</p><p>From this study it is found that the majority of the companies’ prefer internal financing i.e. reinvested earnings, and as a second alternative to use debt in form of bank loans. The study also shows that the reasons behind this preferred order are the will of being independent, previous experience and managements’ risk-taking propensity. We believe that these factors combined with beliefs about debt and realized need for debt works as a base for how a capital structure strategy is discussed, formed and developed. From this study it can also be concluded that risk indirect affects the capital structure decision and that a restrictive view on debt leads to a restrictive desire to grow since a fast growth in most cases needs to be financed by debt. Last, the study concludes that even though the studied firms prefer to finance with retained earnings they all use debt more or less.</p>

本研究以2001至2006年台灣上市、上櫃公司為研究對象，探討信用評等與資本結構的關係。參考Kisgen (2006)，以融資順位理論和靜態抵換理論為基礎，本研究探討：(1) 面臨信用評等調等之公司，是否會減少其負債水準，以避免(促使)信用評等調降(調升)，(2) 面臨信用評等調等之公司，是否會背離融資順位理論及靜態抵換理論，而減少長期債務水準。 分析信用評等調等與負債水準關聯性之實證結果顯示，信用評等為影響資本結構之重要因素。企業會因信用評等面臨調等，而減少其負債。此外，企業利用資本結構的改變以避免信用評等調降的動機較促使信用評等調升之動機強，而此種現象又以規模較大之公司較為顯著。 分析信用評等調等對資本結構理論之影響之實證結果顯示，在納入信用評等變數後，面臨信用評等調等之公司有較高傾向背離融資順位理論和靜態抵換理論，進一步減少其長期債務之水準。 / Based on a sample of listed companies in Taiwan over the period of 2001 to 2006, this research investigates the relationship between credit ratings and capital structure. Refers to Kisgen (2006), and result on the Pecking order theory and the Static trade-off theory, this research examines:(1) whether firms near a credit ratings upgrade or downgrade would issue less debt relative to equity. (2) whether firms near a credit ratings upgrade or downgrade would issue less long-term debts and thus depart from the Pecking order theory and the Static trade-off theory. The findings reveals that credit ratings is an important factor to determination of capital structure. The results show that firms near a credit ratings upgrade or downgrade would issue less debt relative to equity. The findings also indicates that firms are more inclined to avoid the downgrade of their credit ratings than to instigate the upgrade of their credit ratings. Such phenomena is more obviously for larger firms. In addition, this research also finds that firms near a credit rating upgrade or downgrade would issue less long-term debts and thus depart from the Pecking order theory and the Static trade-off theory, after taking their credit ratings into consideration.

By use of traditional regression analysis, this study investigates the explanatory power of several factors on the capital structure of the three biggest telecom companies in Taiwan. The study extends empirical work on capital structure through Granger causality to determine whether it is, for instance, the firm size that affects the choice of capital structure or a firm's choice of capital structure that affect its firm size. In the traditional regression analysis, confirming the pecking order model, more profitable firms have lower debt ratio. Consistent with most literatures, collateral value of tangible assets has a positive effect on debt ratio. The effect of firm size is ambiguous. Results of Granger causality between variables have different implications for the selected companies. Overall this study provides some useful information of capital structure of the telecom industry in Taiwan.

In this thesis, we explore the hidden risks in a firm’s real operating process and the financial adjustments made as the risk changes. We investigate the risks associated with a firm’s vertical channel (chapter 2 and 3) and geographic location (chapter 4), and analyze what financial consequences these risks bring. We firstly show strong evidence that a firm’s cost of equity decreases as supplier immobility translates into a decrease in operating leverage and systematic risk. Next, we show that as the specificity of customers induces more cash flow instability, the firm’s idiosyncratic risk increases with customer specificity. As a result, firms with more specific customers choose more conservative dividend payout policies to adjust for the risk changes. In the third essay, we examine the information risk from firm’s geographic location. We find that this information risk affects a firm’s capital structure choice and that centrally located firms have lower leverage ratios than do remotely located ones. / Thesis (Ph.D, Management) -- Queen's University, 2013-04-29 22:12:43.675

Abstract: There is an ongoing debate on whether risk-taking incentives align risk-averse managers’ interests with those of shareholders or whether such incentives lead to excessively risky firm and leverage policies. In this study, we shed light on this debate by using CEO risk-taking incentives, measured by the sensitivity of CEO wealth to changes in stock return volatility (Vega), and explain how Vega affects firms’ security issuance and repurchase activities. In general, we find that a higher Vega increases (decreases) the likelihood of debt issuance (share issuance) and it decreases (increases) the propensity of debt retirement (share repurchase). However, in high-levered firms, the positive effect of Vega on debt issuance and the negative influence of Vega on debt retirement are diminished. One the other hand, for equity issuance and repurchases, high leverage does not seem to alter the impact of Vega. These findings have three main implications: 1) in general, CEO risk-taking incentives (Vega) do affect the financing decisions of firms by increasing firms’ degree of leverage, (2) when existing leverage is high, CEO risk-taking incentives do not seem to induce CEOs to take excessive financial risks through debt issuance, but such incentives encourage them to continue repurchasing shares that would lead to even higher debt ratios and non-operational risks, and (3) firms with high Vega do not seem to adopt target debt ratios. JEL Classification: G30, G32, J33

This thesis examines capital structure theories and debt level determinants to develop a better understanding, and to establish the most appropriate theory to explain the behaviour of firms‟ debt and equity choices. It tests three major capital structure theories (e.g. the trade-off, pecking order and market timing theories) using static and dynamic statistical models and 13 capital structure determinants, based on three major capital structure theories. The study uses 4,598 sample companies from 11 countries and 27 industries over a 20 year period. This method provides a clear insight into firms‟ debt and equity choice behaviours. The static trade-off theory is tested by first searching for similarities and differences between industries, countries and time periods and, second, by observing whether firms change their capital structures towards optimal levels and whether the coefficient signs are the same as the predictions. The "stock price effect‟ on debt levels is used to examine the pecking order and market timing theories. The pecking order theory is likewise tested by confirming whether firms issue debt when they face a financial deficit. Furthermore, these theories are tested using cluster analyses. The sample examines 11 different characteristics, which include firm size, debt level, and bankruptcy probability. As each characteristic is related to one or more capital structure theories, the most appropriate theory can be derived, based on such characteristics. There are five main findings. First, firms which are financial stable issue relatively more debt. Second, they have a preference for moderate debt levels and thus limit their bankruptcy probability. They also try to exploit opportunities from overestimated stock price by issuing stocks to increase cash inflows. Third, the effects from bankruptcy costs are greater than transaction costs in terms of capital structure adjustment. Fourth, during the sample period, firms continuously decrease leverage levels. Fifth, firms‟ characteristics and macro-economic factors affect their capital structure. There are three main conclusions. First, the behaviour of firms appears generally aligned with the trade-off theory, although the pecking order and market timing theories also partially explain the equity issuance condition. Second, the "equity and debt choice modes‟ can likewise be explained by the use of a theoretically combined approach, using the three major capital structure theories. In this approach, firms increase their value by both increasing debt for tax benefits and low adverse selection costs, and by issuing equity when the stock price is high. Third, this second conclusion implies that the trade-off, pecking order and market timing theories can be combined on the assumption that firms maximise their values under conditions of the existence of asymmetric information, tax shields and bankruptcy probability.

This dissertation consists of two empirical studies in corporate finance. The first study, The Impact of Acquisitions on the Short-Run Returns to Shareholders and Bondholders, investigates shareholder and bondholder wealth with respect to 310 acquisitions in the UK market between 1994 and 2006. It tests the 3-day and 41-day excess security returns with an event study. The results show positive returns for target shareholders and bondholders, and negative returns for acquirer shareholders and bondholders. Moreover, the tests on value-weighted combined security returns show that stockholders lose, bondholders gain, target firms gain, acquirer firms lose, and shareholders/bondholders of target and acquiring firms as a whole lose. These results support the co-insurance hypothesis, wealth transfer hypothesis, hubris hypothesis, and bond return based on hubris hypothesis, and reject the synergy hypothesis. The univariate and multivariate analyses on the deal characteristics find that target and acquirer stock returns are higher with cash payment, acquirer stock returns are higher in friendly and industry unrelated takeovers, acquirer bond returns are higher in industry related takeovers, target firm share returns are higher when target size is smaller than the acquirer size, target and acquirer stock returns are higher in bull market period, and acquirer bond returns are higher in the bear market period. The second study, A Test of the Partial Adjustment Theory of Leverage Using Leverage Changes Arising from Takeovers, investigates firms’ capital structures by the event of takeovers. It examines 659 US acquiring firms which involved in acquisitions between 1962 and 2001. These acquiring firms’ book leverage ratio deviations are tested in an 11-year window. This result shows that takeovers have significant impact on firms’ book leverage ratios in the announcement year. The trend that firms gradually reverse their actual leverage ratios towards their optimism in the five years after the takeovers supports the dynamic trade-off theory. The partial adjustment models on the speed of adjustment further support the dynamic trade-off theory and reject the alternative capital structure theories. The tests on method of payment and source of fund demonstrate that cash payment and raise of funds are likely to increase firms’ leverage ratios at announcement and to maintain these ratios at a high level in the years after the merger.

Bakgrund och problemdiskussion: Företag motiverar vanligtvis centraliserad finansiering med att det leder till värdeökande effekter, något som forskningsvärlden endast teoretiskt berört vilket ger indikationer på att en centraliserad finansiering kan utgöra en värdeökande strategi. Det föreligger därmed ett intresse att undersöka detta empiriskt. Avsaknaden av ett mått för centraliseringsgraden av finansiering medför att framställande av detta mått dock måste genomföras före teorin om värdeökning kan testas empiriskt. Syfte: Studien syftar till att 1) ta fram ett mått för centraliseringsgraden av finansiering, 2) säkerställa validiteten i detta mått och 3) genom detta mått testa centraliseringsgradens effekt på företagsvärde. Metod: Första syftet uppfylls genom en explorativ studie där närliggande teorier använts tillsammans med observationer av verkligheten. Andra syftet uppfylls genom en mindre statistisk undersökning utifrån årsredovisningar samt en enkätundersökning riktad till experter inom området. Tredje syftet uppnås genom en kvantitativ studie där formulerade hypoteser testas i en statistisk undersökning på 152 svenska börsnoterade bolag.  Resultat och slutsatser: Studien säkerställer ett approximativt mått för centraliseringsgraden av finansiering. Måttets samband med företagsvärde kan dock inte säkerställas. Centraliseringsgraden har däremot ett samband med företagsvärde under vissa förhållanden vilket innebär att ett samband inte heller kan uteslutas. Vidare finner studien empiriskt stöd för Tradeoff Theory, däremot kan ingen förklarande modell för kapitalstrukturen säkerställas och därmed inte heller centraliseringsgradens betydelse för kapitalstrukturen. Slutligen har studien även påbörjat en förklarande modell till centraliseringsgraden av finansiering i och med att geografisk spridning visar sig ha positiv påverkan på centraliseringsgraden. / Background: Firms using centralized financing function usually motivates it by it’s value adding property, something today’s research only theoretically touched which indicates that centralized financing can be a value adding strategy. Therefore it exists an interest for an empirical examination. The lack of a measurement for the degree of centralized financing implies that this measurement have to carried out before the theoretical value adding strategy can be empirical tested. Purpose: The study’s purposes is 1) bring forward a measurement for the degree of centralized financing, 2) secure the measurement’s validity and 3) through this measurement test it’s value adding effect to firm value. Method: The first purpose is achieved through an explorative research design where theories close to the subject together with observations of reality were applied. The second purpose is achieved through a smaller statistical study based on financial reports in conjunction with a survey aimed towards experts within the knowledge area. The third purpose is achieved through testing hypotheses in a statistical study on 152 Swedish listed companies. Results and conclusions: The study validates an approximate measure of the degree of centralized financing. The measurement’s connection to firm value can not be established. Although, the degree of centralization has a connection to firm value given certain circumstances which implies that the connection cannot be ruled out either. Further, the study finds empirical support for Tradeoff Theory, however, there are no empirical support for the explanatory model for the capital structure and, by extension, neither for the degree of centralization’s significance on capital structure. Finally, the study has also begun an explanatory model for the degree of centralization of financing since geographical spread has a significant positive effect on the degree of centralization.

Tests of the static trade-off theory that posits that firms move towards the optimum capital structure necessitate a joint hypothesis test - whether firms adjust toward target leverage, and whether the proxy used for target leverage is the true target leverage. Prior studies use the time-series mean leverage for each firm, the industry median leverage, an estimated cross-sectional leverage, and a tobit estimated leverage using the factors suggested by the static trade-off theory as proxies for the target leverage. In this dissertation, I examine whether these proxies are equivalent and test the consistency of the proxies with the theorized behavior of the true target leverage. My results indicate that the four proxies we examine have significantly different distributions and this holds across most industries. Further, the industry median leverage is the proxy which best exhibits behavior consistent with the true target leverage. Firm value is higher for firms closer to the industry median and lower for firms away from the industry median. A robustness check using Kmeans cluster analysis confirms the superiority of the industry median leverage over the other proxies of target leverage. This study complements the previous studies on the pecking order theory and the trade-off theory. The main purpose of this study is to investigate three issues that are not considered in the previous studies. The adequacy of the specification and the assumptions of the models used in testing the trade-off and the pecking order theory. The second issue examined in this study is the validity to putting the pecking order and the trade-off theories in a horse race. The final issue examined in this study is the factors driving firms to issue (repurchase) debt or equity or combination of both and simultaneously the factors affecting the size of issue (repurchase)