Contingent Debt and Performance Pricing in an Optimal Capital Structure Model with Financial Distress and Reorganization

2018 ◽  
Vol 18 (17) ◽  
pp. 1-26
Author(s):  
Borys Grochulski ◽  
◽  
Russell Wong ◽  
Keyword(s):  
Capital Structure ◽  
Financial Distress ◽  
Structure Model ◽  
Optimal Capital Structure ◽  
Performance Pricing ◽  
Optimal Capital ◽  
And Performance

Financing Decisions and Performance of Italian SMEs in the Hotel Industry

2018 ◽  
Vol 60 (4) ◽  
pp. 335-354 ◽  
Author(s):  
Marco Botta
Keyword(s):  
Capital Structure ◽  
Financial Performance ◽  
Optimal Level ◽  
Pecking Order ◽  
Optimal Capital Structure ◽  
Financing Decisions ◽  
Medium Enterprise ◽  
Optimal Capital ◽  
And Performance ◽  
The Relationship

This study investigates the existence of an optimal capital structure for small and medium enterprise (SME) hotels through the analysis of the relationship between financing decisions and financial performance in a large sample of Italian hotel SMEs. The results show that hotel SMEs face an optimal capital structure that allows them to maximize returns to investors, while instead having both too little and too much debt reduces their financial performance. This notwithstanding, we show that hotel SMEs are not particularly concerned with optimizing their capital structure, and their funding behavior is deeply connected with the availability of internally available funds, a typical pecking order behavior, and they result extremely slow in converging toward their optimal level of leverage so that they could improve their performance by adopting a more sophisticated financial strategy.

scholarly journals Dividend Policy, Personal Taxes and Optimal Capital Structure

2020 ◽  
Vol 9 (2) ◽  
pp. 1
Author(s):  
Sheen Liu ◽  
Yan Alice Xie
Keyword(s):  
Capital Structure ◽  
Real World ◽  
Dividend Policy ◽  
Credit Spreads ◽  
Structure Model ◽  
Optimal Capital Structure ◽  
Personal Taxes ◽  
Wide Range ◽  
Optimal Capital ◽  
Tax Benefits

<p>This paper puts forward a capital structure model that incorporates the impacts of dividend policy and personal taxes that are commonly ignored by the existing capital structure models. The results show that paying dividends can reduce the tax benefits from issuing debts, which explains why existing capital structure models commonly overestimate leverage ratios. The results further show that as dividend payout increases, leverage ratios and credit spreads increase too. By incorporating the impacts of dividend policy and personal taxes, the capital structure model established in this paper can generate wide range of leverage ratios and credit spreads, which are consistent with what are observed in the real world.</p>

scholarly journals OPTIMAL CAPITAL STRUCTURE WITH SCALE EFFECTS UNDER SPECTRALLY NEGATIVE LÉVY MODELS

2014 ◽  
Vol 17 (02) ◽  
pp. 1450013 ◽  
Author(s):  
BUDHI ARTA SURYA ◽  
KAZUTOSHI YAMAZAKI
Keyword(s):  
Capital Structure ◽  
Scale Effects ◽  
Scale Function ◽  
Structure Model ◽  
Optimal Capital Structure ◽  
Bankruptcy Costs ◽  
Numerical Studies ◽  
Asset Value ◽  
Optimal Capital ◽  
Tax Benefits

The optimal capital structure model with endogenous bankruptcy was first studied by Leland (1994) and Leland & Toft (1996), and was later extended to the spectrally negative Lévy model by Hilberink Rogers (2002) and Kyprianou Surya (2007). This paper incorporates scale effects by allowing the values of bankruptcy costs and tax benefits to be dependent on the firm's asset value. By using the fluctuation identities for the spectrally negative Lévy process, we obtain a candidate bankruptcy level as well as a sufficient condition for optimality. The optimality holds in particular when, monotonically in the asset value, the value of tax benefits is increasing, the loss amount at bankruptcy is increasing, and its proportion relative to the asset value is decreasing. The solution admits a semi-explicit form in terms of the scale function. A series of numerical studies are given to analyze the impacts of scale effects on the bankruptcy strategy and the optimal capital structure.

scholarly journals The Leland-Toft Optimal Capital Structure Model Under Poisson Observations

2019 ◽  
Author(s):  
Zbigniew Palmowski ◽  
José-Luis Pérez ◽  
Budhi Surya ◽  
Kazutoshi Yamazaki
Keyword(s):  
Capital Structure ◽  
Structure Model ◽  
Optimal Capital Structure ◽  
Optimal Capital

scholarly journals Customer Satisfaction, Efficiency, and Capital Structure as Determinants of Performance Transportation Companies in Indonesia

2017 ◽  
Vol 8 (1) ◽  
pp. 123-133
Author(s):  
◽  
Abdullah Sanusi ◽  
Hendragunawan S. Thayf ◽  
Nur Alamzah
Keyword(s):  
Customer Satisfaction ◽  
Capital Structure ◽  
Capital Market ◽  
High Performance ◽  
Secondary Data ◽  
Sales Growth ◽  
Optimal Capital Structure ◽  
Optimal Capital ◽  
And Performance ◽  
The Relationship

Abstract This study aimed to describe the influence of customer satisfaction, efficiency and optimal capital structure to the increase of the performance of transportation companies in Indonesia. The study was designed in the relationship between variables. The data used is secondary data obtained from the Indonesian Capital Market Directory (ICMD) and the website of 22 companies that were used as samples for 3 years. Data were analyzed using descriptive and inferential statistics analysis to test the hypothesis. The result showed that the efficiency affected customer satisfaction and was reflected in the sales growth of the company. However, it did not have an impact on the level of capital structure as reflected in DER and the performance which reflected in ROA. We also found that there was an indirect effect on the efficiency of the capital structure and performance through customer satisfaction. We also found that there is a significant indirect influence on the efficiency and the performance through customer satisfaction and capital structure. Customer satisfaction capital affects the structure. When customer satisfaction is high, which is reflected in higher sales growth aspect, it will have an impact on the high capital structure, which is reflected in DER. The result shows that customer satisfaction has an effect on the performance. When customer satisfaction is high, which is reflected in higher sales growth aspect, it will have an impact on the high performance, which is reflected in aspects of ROA. The result also indicates that capital structure affects the performance. When a capital structure is high, which is reflected by the high DER aspects, it will impact on the high performance, which is reflected on aspects of ROA.

scholarly journals The Leland–Toft optimal capital structure model under Poisson observations

2020 ◽  
Author(s):  
Zbigniew Palmowski ◽  
José Luis Pérez ◽  
Budhi Surya ◽  
Kazutoshi Yamazaki
Keyword(s):  
Capital Structure ◽  
Structure Model ◽  
Optimal Solutions ◽  
Standard Case ◽  
Optimal Capital Structure ◽  
Numerical Studies ◽  
Asset Value ◽  
Optimal Capital ◽  
Optimal Leverage ◽  
Independent Poisson Process

We revisit the optimal capital structure model with endogenous bankruptcy first studied by Leland \cite{Leland94} and Leland and Toft \cite{Leland96}. Differently from the standard case, where shareholders observe continuously the asset value and bankruptcy is executed instantaneously without delay, we assume that the information of the asset value is updated only at intervals, modeled by the jump times of an independent Poisson process. Under the spectrally negative L\'evy model, we obtain the optimal bankruptcy strategy and the corresponding capital structure. A series of numerical studies are given to analyze the sensitivity of observation frequency on the optimal solutions, the optimal leverage and the credit spreads.

scholarly journals MANAGING CORPORATE LIQUIDITY: STRATEGIES AND PRICING IMPLICATIONS

2011 ◽  
Vol 14 (03) ◽  
pp. 369-406 ◽  
Author(s):  
ATTAKRIT ASVANUNT ◽  
MARK BROADIE ◽  
SURESH SUNDARESAN
Keyword(s):  
Capital Structure ◽  
Financial Distress ◽  
Firm Value ◽  
Agency Costs ◽  
Equity Prices ◽  
Loan Commitments ◽  
Optimal Capital Structure ◽  
Trade Offs ◽  
Optimal Capital ◽  
The Impact

Defaults arising from illiquidity can lead to private workouts, formal bankruptcy proceedings or even liquidation. All these outcomes can result in deadweight losses. Corporate illiquidity in the presence of realistic capital market frictions can be managed by (a) equity dilution, (b) carrying positive cash balances, or (c) entering into loan commitments with a syndicate of lenders. An efficient way to manage illiquidity is to rely on mechanisms that transfer cash from "good states" into "bad states" (i.e., financial distress) without wasting liquidity in the process. In this paper, we first investigate the impact of costly equity dilution as a method to deal with illiquidity, and characterize its effects on corporate debt prices and optimal capital structure. We show that equity dilution produces lower firm value in general. Next, we consider two alternative mechanisms: cash balances and loan commitments. Abstracting from future investment opportunities and share re-purchases, which are strong reasons for corporate cash holdings, we show that carrying positive cash balances for managing illiquidity is in general inefficient relative to entering into loan commitments, since cash balances (a) may have agency costs, (b) reduce the riskiness of the firm thereby lowering the option value to default, (c) postpone or reduce dividends in good states, and (d) tend to inject liquidity in both good and bad states. Loan commitments, on the other hand, (a) reduce agency costs, and (b) permit injection of liquidity in bad states as and when needed. Then, we study the trade-offs between these alternative approaches to managing corporate illiquidity. We show that loan commitments can lead to an improvement in overall welfare and reduction in spreads on existing debt for a broad range of parameter values. We derive explicit pricing formulas for debt and equity prices. In addition, we characterize the optimal draw down strategy for loan commitments, and study its impact on optimal capital structure.

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