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Article
Publication date: 1 February 1996

V. Sivarama Krishnan and R. Charles Moyer

This paper examines the determinants of capital structure of large corporations of industrialized countries (excluding financial institutions and regulated utilities), using five…

1505

Abstract

This paper examines the determinants of capital structure of large corporations of industrialized countries (excluding financial institutions and regulated utilities), using five years of data ending in 1992. The study employs variables reflecting differing theoretical arguments on capital structure. We find evidence similar to previous empirical research using data for American companies. In particular, the pecking order theory of capital structure, with past profitability being the major determinant of leverage, is supported. For U.S. firms, but not for Japanese firms, tax factors also appear to be important determinants of capital structure. In general, variables proxying for firm size and growth also appear to be significant variables in explaining capital structure variations. Corporations from Germany and Italy appear to be most different from the American companies, with the former having lower and the latter higher leverage ratios relative to the U.S. corporations. Japanese companies appear to use less long‐term leverage, a result that is consistent with the close ties between Japanese firms and their banks — a relationship that permits a greater use of short‐term financing than is true in the U.S.

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Managerial Finance, vol. 22 no. 2
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 August 1996

R. Charles Moyer, Ramesh P. Rao and Jean Francois Regnard

This paper tests the mimicking propositions from signalling theory as they relate to stated firm objectives and firm performance. We classify the corporate objectives of a large…

134

Abstract

This paper tests the mimicking propositions from signalling theory as they relate to stated firm objectives and firm performance. We classify the corporate objectives of a large sample of firms and evaluate firm performance relative to these objectives. We find that poorly performing firms more frequently cite shareholder wealth maximization as their primary objective than do better performing firms. There is no evidence that firms citing a shareholder wealth maximization objective perform any better than firms with alternative objectives. Similar evidence is found for other common corporate objectives. Overall, our results are consistent with signalling theory in that non‐enforceable signals, such as proclamations of corporate objectives, are not credible signals for investors.

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Managerial Finance, vol. 22 no. 8
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 March 1973

Charles Moyer

I This paper suggests a framework within which the notion of social responsibility may be operationalised in the enterprise. The thrust of the model which is presented is toward a…

173

Abstract

I This paper suggests a framework within which the notion of social responsibility may be operationalised in the enterprise. The thrust of the model which is presented is toward a more efficient allocation of a firm's resources, incorporating social costs and benefits into the capital budgeting decision. It may be argued that the approach which is taken considers only the economic role of the modern corporate institution. The corporation was created and supported by society because it fulfilled certain societal needs (Including economic ones). These needs or priorities are continually changing, thereby demanding that the corporation respond to new societal aspirations. Nevertheless, the business enterprise is still a predominantly economic institution, justifying the following emphasis on the efficiency with which it performs its economic function. An understanding of the rationale for the proposed model is best gained by a brief review of the foundations upon which the notion of social responsibility is based.

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Management Decision, vol. 11 no. 3
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 1 January 1990

Mohamed E. Ibrahim, Saad A. Metawae and Ibrahim M. Aly

In recent years, a sizeable amount of research in finance and accounting has been devoted to the issue of bond rating and bond rating changes. A major thrust of these research…

654

Abstract

In recent years, a sizeable amount of research in finance and accounting has been devoted to the issue of bond rating and bond rating changes. A major thrust of these research efforts was to develop and test some prediction‐based models using mainly financial ratios and their trends. This paper tests the ability of statistical decomposition analysis of financial statements to predict bond rating changes. The results show that the decomposition analysis almost does not beat the a priori probability model and is no better than multiple discriminant analysis using simple financial ratios. One important piece of information for participants in debt markets is the assessment of the relative risk associated with a particular bond issue, commonly known as bond ratings. These ratings, however, are not usually fixed for the life of the issues. From time to time, the rating agencies review their ratings of the outstanding bond issues and make changes to these ratings (either upward or downward) when needed. Over the years, researchers have attempted to develop and test some prediction based models in order to predict bond ratings or bond rating changes. These prediction models have employed some variables that are assumed to reflect the rating agency decision‐making activities. Although the rating process is complicated and based mainly on judgmental considerations, Hawkins, Brown and Campbell (1983, p. 95) reported that the academic research strongly suggests that a reliable estimate of a potential bond rating or rating change can be determined by a few key financial ratios. Information theory decomposition measures have received in recent years considerable attention as a potential tool for predicting corporate events, namely corporate bankruptcy (e.g., Lev 1970; Moyer 1977; Walker, Stowe and Moriarity 1979; Booth 1983). The underlying proposition in these studies is that corporate failure, as an event, is expected to be preceded by significant changes in the company's assets and liabilities structure. Although the event of bond rating changes is different from the bankruptcy event in terms of consequences, one can still propose that a bond rating change, as a corporate event, is also expected to be preceded by some significant changes in the company's assets and liabilities structure. Therefore, the decomposition analysis may have a predictive ability in the case of bond rating changes. The purpose of this paper is to empirically test and compare the classification and predictive accuracy of the decomposition analysis with the performance of a multiple discriminant model that uses financial ratios and their trends in the context of bond rating changes.

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Managerial Finance, vol. 16 no. 1
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 January 2000

Kavous Ardalan

It is now common for finance textbooks to discuss the concepts of the CAPM, diversification benefit, and systematic risk, as measured by beta. The purpose of this paper is to…

1069

Abstract

It is now common for finance textbooks to discuss the concepts of the CAPM, diversification benefit, and systematic risk, as measured by beta. The purpose of this paper is to clarify aspects of these concepts and make the textbooks readers aware of them. In particular, this paper seeks to: (1) clarify the notion that “diversification reduces risk,” (2) provide geometric expositions and algebraic expressions of portfolio benefits in the context of both total risk and market risk, and (3) improve the interpretation of beta.

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Humanomics, vol. 16 no. 1
Type: Research Article
ISSN: 0828-8666

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Article
Publication date: 1 November 1996

John E. Sneed

The purpose of this study is to determine if an earnings forecasting model based on factors hypothesised to result in differential profits across firms (industries) reduces model…

227

Abstract

The purpose of this study is to determine if an earnings forecasting model based on factors hypothesised to result in differential profits across firms (industries) reduces model error relative to the model developed by Ou (1990). Initial research attempting to forecast earnings found that the random walk model, where current year's earnings are the prediction for next year, provides the best forecast of annual earnings (Ball and Watts 1972; Foster 1973; Beaver, Kettler, and Scholes 1970; Albrecht, Lookabill, and McKeown 1977; Brealey 1969). Ou (1990) developed an earnings forecasting model using financial statement information beyond prior years' earnings as the explanatory variables that outperformed the random walk model in predicting annual earnings.

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Management Research News, vol. 19 no. 11
Type: Research Article
ISSN: 0140-9174

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Article
Publication date: 1 March 1984

James A. Gentry, Paul Newbold and David T. Whitford

The objectives of this study are to offer cash based funds flow components as an alternative to financial ratios for classifying the financial performance of companies; to test…

703

Abstract

The objectives of this study are to offer cash based funds flow components as an alternative to financial ratios for classifying the financial performance of companies; to test empirically the ability of funds flow components to distinguish between failed and nonfailed companies with special emphasis on working capital components; to analyse the empirical results and make recommendations for future study.

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Managerial Finance, vol. 10 no. 3
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 October 1996

John Sneed

Accounting studies have attempted to forecast future attributes of firms' financial statements, primarily earnings. These studies typically adopt a cross‐sectional approach in…

49

Abstract

Accounting studies have attempted to forecast future attributes of firms' financial statements, primarily earnings. These studies typically adopt a cross‐sectional approach in estimating forecasting models, combining firms from different industries in the same model. This cross‐sectional approach implicitly assumes the relations between earnings and the explanatory variables are consistent across industries.

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Management Research News, vol. 19 no. 10
Type: Research Article
ISSN: 0140-9174

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Article
Publication date: 10 May 2011

Tom Van Caneghem and Walter Aerts

The purpose of this paper is to study the impact of intra‐industry conformity tendencies on dividend policy among a large sample of US firms.

4209

Abstract

Purpose

The purpose of this paper is to study the impact of intra‐industry conformity tendencies on dividend policy among a large sample of US firms.

Design/methodology/approach

The paper explores mimetic influences on dividend policy. Consistent with prior institutional research, the paper measures mimetic pressures as institutional prevalence or the pervasiveness of a feature of dividend policy within a firm's relevant environment.

Findings

The results reveal a significantly positive relationship between the lagged density of firms in the industry that pay a dividend and the probability of a focal firm paying a dividend. Moreover, for firms paying a dividend, results indicate that higher similarity in dividend payout among firms in the same industry induces more conformity between a focal firm and average industry practice. Overall, results are consistent with imitation in dividend policy.

Research limitations/implications

The results support the view that future research on dividend policy should value social and behavioral factors more explicitly in order to arrive at a more overall and consistent explanation of firms' dividend policy. Moreover, the results also illustrate the relevance of alternative theories in explaining dividend policy.

Practical implications

The results show that intra‐industry benchmarking of dividend policy plays a significant role in the USA.

Originality/value

This study documents the relevance of social imitation mechanisms behind dividend payout behavior and therefore adds to the current knowledge of the impact of behavioral processes on dividend policy.

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Managerial Finance, vol. 37 no. 6
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 2 March 2022

Mehul Raithatha and Radha Ladkani

The purpose of this paper is to examine the moderating effect of the board of directors on the strategic decisions made by family firms, and to understand the board attributes…

775

Abstract

Purpose

The purpose of this paper is to examine the moderating effect of the board of directors on the strategic decisions made by family firms, and to understand the board attributes that can alleviate the aversion of family-owned firms toward mergers and acquisitions (M&A).

Design/methodology/approach

The study uses a sample of several firms listed in India from 2006 to 2019 with 19,813 firm-year observations. The empirical tests have been performed using logistic and negative binomial regressions. The study also tests for endogeneity with the help of Heckman (1979) two-step treatment effects model.

Findings

The study shows that board characteristics like smaller board-size, presence of outside directors, lower intensity of board activity, presence of busier board members and separation of board chair and CEO positions alleviate the inhibition of family firms toward M&A.

Research limitations/implications

The findings imply that investors and policymakers can encourage family firms to have smaller boards, more independent directors, passive boards and CEO nonduality to reduce their aversion toward risky activities. Family-owned firms could consider a board comprising members with multiple directorships who can bring wider knowledge and expertise which can reduce the perceived threat to socioemotional wealth (SEW) and alleviate their aversion toward M&A.

Originality/value

Ownership concentration in family firms posits a unique challenge in terms of their aversion toward M&A. This study is one of the few that highlight the relevance of the monitoring and advisory role of the board in alleviating this aversion in an emerging market like India.

Details

International Journal of Emerging Markets, vol. 18 no. 11
Type: Research Article
ISSN: 1746-8809

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