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Article
Publication date: 5 April 2011

Franck Bancel and Usha R. Mittoo

The purpose of this study is to gain some insights into how managers perceive and achieve financial flexibility and its value in coping with the 2008 global financial crisis. The…

15176

Abstract

Purpose

The purpose of this study is to gain some insights into how managers perceive and achieve financial flexibility and its value in coping with the 2008 global financial crisis. The study focuses on the following questions: What are the sources and measures of financial flexibility? Do financially flexible firms suffer a lower impact from the crisis? Is financial flexibility related to business flexibility? and Is financial flexibility important for the firm's capital structure decision?

Design/methodology/approach

This paper employs two methods: a questionnaire survey and interviews with chief financial officers (CFOs). The results are used to examine the relation between the firm's financial flexibility level and the impact of the global financial crisis on its liquidity, investments, capital structure and business operations. The results are used to analyze the robustness of different financial flexibility measures constructed from the survey data to identify an appropriate financial flexibility measure.

Findings

The main finding is that firms with high financial flexibility suffer lower impact from the crisis. The results show that firms with greater internal financing are likely to have lower leverage, higher cash ratios, and suffer a lower impact from the crisis on their business operations. The analysis indicates that an index based on the firm's leverage, liquidity, and operating ratios, similar to the Altman Z‐score, might be a better financial flexibility measure than long‐term debt ratio. The evidence also suggests that financial flexibility is a part of the firm's business strategy and is important for its capital structure decisions.

Originality/value

A major challenge for researchers is how to measure the firm's financial flexibility level, as it is unobservable and difficult to quantify. The innovation of this paper is to directly ask managers about the firm's financial flexibility, from both internal and external financing, construct several financial flexibility variables based on the survey data, and examine their correlations with the global financial crisis impact, to identify a robust financial flexibility measure. The research also provides unique data to investigate the value of financial flexibility during a severe credit crisis.

Details

International Journal of Managerial Finance, vol. 7 no. 2
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 11 March 2008

Hanjoon Kim and Paul D. Berger

This paper investigates the determinants of the capital structure of large corporations headquartered in the United States and Korea. We consider five explanatory variables…

1157

Abstract

This paper investigates the determinants of the capital structure of large corporations headquartered in the United States and Korea. We consider five explanatory variables: profit, company size, non‐debt tax shields, growth, and business‐risk, along with several industry indicator variables as independent variables and examine, for each country, the relationship to market value based leverage ratio. With our rigid criteria for inclusion in the study, we study the top thirteen companies (by size) in each of seven industries. The majority of our findings indicate that we can generalize to Korea what has been found for Japanese companies/industries relative to the U.S.

Details

Multinational Business Review, vol. 16 no. 1
Type: Research Article
ISSN: 1525-383X

Keywords

Available. Content available
Article
Publication date: 5 April 2011

Usha R. Mittoo

1473

Abstract

Details

International Journal of Managerial Finance, vol. 7 no. 2
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 12 October 2012

Mohammad Al Mutairi, Gary Tian, Helen Hasan and Andrew Tan

This paper aims to explore the issue of corporate governance mechanisms by including the importance of stakeholders, primary objectives of the firm and the ownership of top

3212

Abstract

Purpose

This paper aims to explore the issue of corporate governance mechanisms by including the importance of stakeholders, primary objectives of the firm and the ownership of top financial managers of listed firms in Kuwait in the survey tool. It attempts to investigate whether theory aligns with the behaviour of financial managers in practice in an emerging market case.

Design/methodology/approach

A survey was developed to focus primarily on the current corporate finance practices implemented by CFOs in listed companies in Kuwait. The target respondents are listed firms in the Kuwaiti Stock Exchange (KSE). The survey includes questions on topics that are closely related to capital budgeting, capital structure, cost of capital and dividend policy. For example, the survey asks the managers how they estimate their cost of equity (CAPM or other methods) and whether the impact of the weighted average cost of equity is taken into consideration in their capital structure choices.

Findings

A surprising number of firms are now widely using IRR for decision making. CAPM is also in use, whereas WACC remains the most popular method used. There is some support for the “bird‐in‐hand” dividend theory in the tax‐free environment. Firms in Kuwait do not have any particular source of capital structure choices when it comes to how best to finance their projects as is the case in the US market. Firms in Kuwait are consciously striving for maximizing profits and those managers are regarded as their most important stakeholders. This may indicate the existence of agency problems.

Research limitations/implications

The limitation of this study lies in the absence of empirical investigation on how corporate finance decisions may affect firms' performance in Kuwait. Hence, empirical validation will be performed by the authors in the next stage of this research, which will form the basis for further research. Empirical validation for the impact of corporate governance on performance is needed.

Practical implications

This research may benefit managers and decision makers in many aspects, including having an understanding of applying popular and the most suitable corporate finance and corporate governance techniques in the management of their companies. In this research, the authors have identified the gap between practice and academia.

Originality/value

To the best of the authors' knowledge, this is the first study to examine comprehensively major areas of financial policies and practices and corporate governance in an emerging market case, especially in the Middle East. Kuwait provides a unique institutional setting in its taxation system. Therefore, this study will make a contribution to the general literature in this field.

Details

Corporate Governance: The international journal of business in society, vol. 12 no. 5
Type: Research Article
ISSN: 1472-0701

Keywords

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