Thesis (Ph. D.)--University of Chicago, 1994. / Includes bibliographical references (leaves 148-152).

Master-Arbeit Univ. St. Gallen, 2006.

Modigliani and Miller's (1958) irrelevance theory established the foundations of capital structure theory. They showed that, in a capital market free of taxes, transaction costs, asymmetric information, and other frictions, the value of the firm is independent of its capital structure choice. Most of the capital structure theory development that followed tested the irrelevance theory with more realistic assumptions regarding market frictions and information asymmetries. The vast amount of empirical research into the extent and effects of bankruptcy costs and taxes on capital structure, as well as cross-industry and cross-country examination of observed capital structure, led to the mainstream view that firms act as if there is a unique, optimal capital structure that results from the tradeoff between tax and agency cost benefits of increased debt use and the increased bankruptcy and agency costs that higher levels of debt entail. As an alternative to the trade-off model, Myers (1977) put forward the Pecking Order hypothesis of capital gearing. This states that because of information asymmetry and different stock market reactions to debt and equity issues, firms follow a "pecking order" in their financing decisions, i.e. they would first prefer to use internal funds rather than issuing securities. If forced to resort to external financing they would use debt before equity. Section one of this study undertakes a comprehensive review of the theoretical literature on capital structure to date, emphasising those theories that are more pertinent to the empirical study carried out in section two. Another school of thought which tries to explain the use of debt is transaction cost economics (Williamson, 1975, 1996), which sees debt and equity as two governance mechanisms, the choice between which is strongly dependent on asset specificity. Empirical tests are carried out in this study using regression analysis to try to establish whether the capital structure of firms in the UK hotel and retail industries is better explained by a pecking order model or by a target adjustment model. The last chapter presents an empirical analysis of different variables that are likely to influence the observed capital structure patterns. This panel data analysis assesses the role of size, earnings volatility, profitability, asset structure, non-debt tax shields, leasing and management contract (this latter is specific to the hotel industry) variables on gearing ratios. The conclusions of the empirical study are that the industry data analysed are much better explained by the target adjustment model than the pecking order model. However, a number of independent variables appear to contribute to the "target adjustment effect" and the debt tax shield is just one of them.

<p.South Africa lacks an efficient regulatory environment that promotes business rescue. The fact that the introduction of a regulatory environment with modern business rescue principles will be a step forward in making South Africa more competitive and bringing it in line with the modern global economy makes the topic pertinent from both a political and business perspective.At the core of the current discourse regarding business rescue is a fundamental shift in the approach to insolvency, namely that a debtor-friendly approach will encourage early intervention in the affairs of a distressed company. Initiating a state of business rescue without a court order and entering into a moratorium with the resulting impact on the rights of creditors introduces a move towards a debtor-friendly approach. This move in turn presents the problem: What form should the local regulatory environment pertaining to entering a state of business rescue and the automatic take? This report examined international practices and local developments, and includes local research. It puts forward a proposal as to what the minimum requirements for initiating a state of business rescue and the moratorium in a new regulatory environment should be. A summary of the status quo in South Africa, with recommendations, is also presented. It also identifies areas for further research. / Dissertation (MBA)--University of Pretoria, 2010. / Gordon Institute of Business Science (GIBS) / unrestricted

No abstract available Copyright / Dissertation (LLM)--University of Pretoria, 2012. / Mercantile Law / unrestricted

This dissertation looks at how African countries can mitigate the effects of external debt burden. African countries are enmeshed in unsustainable external debts that have led to debt overhang problems, declining output, escalating current account deficits and worsening human welfare indicators. These external debt burdens are further worsened by the structural weaknesses of these economies. The World Bank and the International Monetary Fund have initiated strategies aimed at trying to arrest the escalating debt burden such as rescheduling, structural adjustment programs and the highly indebted poor countries initiative. However, African countries continue to experience difficulties in servicing external debts. The objective of this study is to find ways by which African countries can effectively manage their debt burden and possibly come up with self pre-qualification schemes that would forestall future external debt problems. The questions the study seeks to answer are: how can African countries effectively manage their current debt burden? What can African countries do to forestall the pervasive external debt accumulation in the future? To address these questions, I develop a dynamic stochastic general equilibrium model of external debt burden for Africa. The model is estimated using the maximum likelihood method by applying the Kalman filter to the state space representation of the model. Empirical results of the model suggest that African countries need to refine their basket of imports and mainly import inputs that can be used in the production sector as opposed to importing consumption goods. Most importantly, these countries must re-think their export products and markets, and perhaps endeavor to export final goods as opposed to exporting primary commodities. Furthermore, simulations of the model show that an expansionary monetary shock and a favourable world commodity price shock leads to an increase in external debt. On the other hand, the world interest rate shock leads to a fall in external debt. An interesting result worth highlighting is that a favourable commodity price shock leads to an increase in imported investments but the increase in imported investments does not translate into increased output. On the other hand, an unfavourable world interest rate shock leads to a fall in imported investments. Generally, these findings suggest that African countries are vulnerable to external shocks. In pursuit of the second objective – possible ways of sourcing external debt and managing it sustainably – I find that the appropriate threshold level for debt sustainability is a ratio of external debt to gross domestic product of between 40%-60% for Africa compared to 120%-150% for Latin America. Surprisingly, East Asia has the lowest significant debt sustainability threshold of the three emerging market regions. On liquidity, which is captured by the short-term debt to reserves ratio, the threshold is 60%-80% for all the three regions. On governance, a stable political environment plays a crucial role in determining the external debt burden of African countries. An improvement in the legal system and a stable political environment leads to an increase in exports and a fall in consumption imports. These in turn reduce foreign debt. These findings suggest that African countries must pursue proper governance practices if they are to appropriately and effectively manage their external debt in ways that enhance economic progress instead of economic retardation.

There has been a proliferation of student loan debt over the past decade. The indebtedness that students incur while attending college reduces their discretionary income once they enter repayment after graduation. For graduates, there is an opportunity cost along with personal and professional life decisions being made based on this debt. For example, some students are choosing the enter the workforce after obtaining their undergraduate degree instead of pursuing a graduate degree. The purpose of this study was to examine the decisions that currently enrolled undergraduate students are making about obtaining student loans based on information supplied to them about their current indebtedness. This study utilized a quantitative, cross sectional research design that looked at students who were given a letter that detailed their current outstanding loan debt. The study then reviewed what decisions the student made about securing future federal subsidized and unsubsidized student loan amounts, and if they decided to decrease their borrowing amounts. A paired sample t-test was used to determine if there was a statistical difference between what students borrowed. The results of this study concluded that students borrowed less as a percentage of their total available loan funds after receiving the informational debt letter. Furthermore, this study showed the importance of educating students about their current level of indebtedness before they secure future student loans.

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This dissertation examines two different topics related to the issuance of a convertible debt security. The first essay addresses the question of how managers set the equity value in a convertible debt issue. A convertible debt security has value derived from an equity component and a debt component. As a result, managers must decide how much of the convertible debt's value will be derived from equity at issuance. I examine three hypotheses in addressing this question. Empirical evidence is provided supporting the assertion that managers issue more equity-like debt when the firm will have lower future operating performance and a greater potential for underinvestment. Empirical support is not found for managers take into consideration asset substitution concerns when setting the equity value in a convertible debt issue. The second essay examines why are abnormal returns negative for the equity during the convertible debt's issuance period. This has been documented by Dann and Mikkelson (1984), Mikkelson and Partch (1986, 1988), and also by this dissertation. I furnish evidence that is consistent with a bid-ask spread bias not causing the negative equity abnormal returns during the issuance period of a convertible debt security. Tests are also performed that provide results that are consistent with the issue period returns being partially due to a resolution of uncertainty. / Ph. D.