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The theoretical model developed in this paper implies that equity value does not always increase with a firm's external growth opportunities, as suggested by the Gordon dividend growth model. There is a positive (negative) relation when the coefficient of constant relative risk aversion of a...
Persistent link: https://www.econbiz.de/10013000767
We study whether corporate income taxation affects the long-term growth of newly incorporated companies through its effect on their choice of leverage at entry. We find that a decrease in corporate income taxation leads to a sizeable decrease in leverage at entry, and that the distribution of...
Persistent link: https://www.econbiz.de/10012895712
We analyze how relationship finance, such as venture capital and relationship lending, affects growth firms' capital structure choices. We show that relationship investors that obtain a strong bargaining position due to their privileged information about the firm, optimally cash in on their...
Persistent link: https://www.econbiz.de/10012940495
The decision on capital structure makes an impact on the overall cost of capital and consequently value of the firm. The capital structure decision of growth companies is even more important as the companies require fresh fund to finance growth. In this study, the sales of software companies in...
Persistent link: https://www.econbiz.de/10013048627
We calibrate a dynamic model of credit risk and analyze the relation between growth options and credit spreads. Our model features real and financing frictions, a technology with decreasing returns to scale, and endogenous investment options driven by both systematic and idiosyncratic shocks. We...
Persistent link: https://www.econbiz.de/10011659495
This paper is concerned with the profitable external growth and proposes an empirical model outlining the major determinants of its success. The results of analysis of the unique sample of strategic growth acquisitions completed from 2000 to 2010 suggest that the success of transaction is...
Persistent link: https://www.econbiz.de/10012947975
I use a negative exogenous shock to the ability to file shareholder initiated class action lawsuits, the passage of the 1995 Private Securities Litigation Reform Act, to test the effect of the probability of being sued on a firm's capital structure. After the Act's passage, firms with the...
Persistent link: https://www.econbiz.de/10013043138
When predicting future leverage ratios, the explanatory power of initial residual leverage falls quickly over time, while initial standard leverage determinants retain much of their explanatory power. To make sense of this fundamental persistence, we show that growth-type (identified by a...
Persistent link: https://www.econbiz.de/10013146615
This study examines the impact of approximately pure capital structure change announcements on security prices (specifically on common stock, straight preferred stock, convertible preferred stock, straight debt and convertible debt). Statistically significant price adjustments in firms' common...
Persistent link: https://www.econbiz.de/10013148595
This paper examines how deviation from firms' target leverage influences their decisions on undertaking foreign acquisitions. Using a sample of 5,746 completed bids by UK acquirers from 1987 to 2012, we observe that over-deviated firms are more likely to acquire foreign targets. Consistent with...
Persistent link: https://www.econbiz.de/10012915675