The Value of Financial Flexibility: Equilibrium Liquidation Values and Endogenous Capital Structure Heterogeneity

2016 ◽  
Author(s):  
Antonio E. Bernardo ◽  
Alex Fabisiak ◽  
Ivo Welch
Keyword(s):  
Capital Structure ◽  
Financial Flexibility ◽  
Structure Heterogeneity

Valuing firm’s financial flexibility under default risk and bankruptcy costs: a WACC based approach

2019 ◽  
Vol 15 (5) ◽  
pp. 688-699
Author(s):  
Carlo Mari ◽  
Marcella Marra
Keyword(s):  
Capital Structure ◽  
Default Risk ◽  
Weighted Average ◽  
Debt Management ◽  
Costs And Benefits ◽  
Debt Structure ◽  
Financial Flexibility ◽  
Content Type ◽  
Bankruptcy Costs ◽  
Debt Capacity

PurposeThe purpose of this paper is to present a model to value leveraged firms in the presence of default risk and bankruptcy costs under a flexible firm’s debt structure.Design/methodology/approachThe authors assume that the total debt of the firm is a combination of two debt components. The first component is an active debt component which is assumed to be proportional to the firm’s value. The second one is a passive predetermined risk-free debt component. The combination of the two debt categories makes the firm’s capital structure more realistic and allows us to include flexibility into the firm’s debt structure management. The firm’s valuation is performed using the discounted cash flow technique based on the weighted average cost of capital (WACC) method.FindingsThe model can be used to define active debt management strategies that can induce the firm to deviate from its capital structure target in order to preserve debt capacity for future funding needs. The firm’s valuation is performed by using the WACC method and a closed form valuation formula is provided. Such a formula can be used to value costs and benefits of financial flexibility.Research limitations/implicationsThe proposed approach provides a good compromise between mathematical complexity and model capability of interpreting the various economic and financial aspects involved in the firm’s debt structure puzzle.Practical implicationsThis model offers a realistic approach to practical applications where real financing decisions are characterized by a simultaneous use of these two debt categories. By comparing costs and benefits deriving from using unused debt capacity for future funding needs, the model provides a quantitative support to investigate if financial flexibility can add value to firms.Originality/valueTo the authors knowledge, the approach the authors propose is the first attempt to build a valuation scheme that accounts for firm’s financial flexibility under default risky debt and bankruptcy costs. Including financial flexibility, this model fills an important gap in the literature on this topic.

scholarly journals What Determines The Capital Structure of Property, Real Estate and Building Construction Companies? Evidence from Indonesian Listed Companies

2020 ◽  
Vol 9 (4) ◽  
pp. 370-382
Author(s):  
Sari Fitri Fatimah ◽  
Rini Setyo Witiastuti
Keyword(s):  
Real Estate ◽  
Capital Structure ◽  
Firm Size ◽  
Stock Exchange ◽  
Building Construction ◽  
Business Risk ◽  
Financial Flexibility ◽  
Significant Negative Effect ◽  
Negative Effect ◽  
The Capital Structure

This research is intended to prove the influence of financial flexibility, asset structure, firm size, profitability and business risk on the capital structure. The population on this study are property, real estate and building construction sector that are listed on the Indonesia Stock Exchange in 2009-2018. The number of samples used were 28 companies with a purposive sampling method. The data studied was obtained from the Indonesia Stock Exchange (IDX). Methods of data analysis used in this study is multiple linear regression. The results showed that financial flexibility has not significant  negative effect on capital structure. Asset structure and firm size have a significant positive effect on capital structure. The profitability and business risk have a significant negative effect on capital structure. Further research is needed to use another proxies such as ROE for profitability variables or standard deviations from ROE for business risk on capital structure and add another sectors or the number of observation periods.

scholarly journals Capital structure and corporate performance in late Imperial Russia

2018 ◽  
Vol 23 (4) ◽  
pp. 446-481
Author(s):  
Amanda Gregg ◽  
Steven Nafziger
Keyword(s):  
Capital Structure ◽  
Corporate Finance ◽  
Market Power ◽  
Corporate Performance ◽  
Balance Sheet ◽  
Financial Flexibility ◽  
Late Imperial ◽  
Imperial Russia ◽  
Russian Economy ◽  
Accounts Payable

Abstract This article investigates the financing of corporations in industrialization’s early stages by examining new balance sheet data describing all Imperial Russian corporations in 1914. We emphasize differences between two Russian corporation types: share partnerships and A-corporations. Share partnerships issued greater dividends, were less likely to issue bonds, and had larger accounts payable. We find that capital structures varied with age, size, and sector according to modern corporate finance theories and that scaled profits did not demonstrate differential market power across corporation types. Thus, Russian corporations exhibited considerable financial flexibility, and reducing incorporation costs could have benefited the Imperial Russian economy.

scholarly journals Capital Structure and Financial Flexibility: Expectations of Future Shocks

2014 ◽  
Author(s):  
Costas Lambrinoudakis ◽  
Michael Neumann ◽  
George S. Skiadopoulos
Keyword(s):  
Capital Structure ◽  
Financial Flexibility

scholarly journals The Relationship between Financial Flexibility and Capital Structure Decisions

2013 ◽  
Vol 5 (14) ◽  
pp. 3843-3850 ◽  
Author(s):  
Roya Darabi ◽  
Salah Mohamadi ◽  
Ahmad GHasemi ◽  
Shanaz Forozan
Keyword(s):  
Capital Structure ◽  
Financial Flexibility ◽  
The Relationship

scholarly journals FAKTOR-FAKTOR YANG MEMPENGARUHI STRUKTUR MODAL PADA PERUSAHAAN MANUFAKTUR YANG TERDAFTAR DI BURSA EFEK INDONESIA TAHUN 2011-2015

2017 ◽  
Vol 1 (2) ◽  
pp. 164-178
Author(s):  
Riska Urip Lestari ◽  
Danar Irianto
Keyword(s):  
Capital Structure ◽  
Firm Size ◽  
Stock Exchange ◽  
Control Variable ◽  
Secondary Data ◽  
Research Literature ◽  
Business Risk ◽  
Financial Flexibility ◽  
Sale Growth ◽  
Negative Effect

This study aimed to examine the effect of firm size, liquidity, financial flexibility, share growth, sale growth, business risk and profitability to capital structure. This study used secondary data from the company’s financial statements and determinan of the sample using techniques proposive sampling. The population in this study are manufacture companies listed on the Indonesian Stock Exchange (BEI) in the period  2011-2015 with a sample 55 companies. The result showed firm size has a positive effect to capital structure. Liquidity has a no effect to capital structure. Financial flexibility has a negative effect to capital structure. Sale growth has a positive effe ct to capital structure. Profitabilitas has a negatife effect to capital structure. Other result showed share growth and risk business has no effect to capital stucture. The result of the study are expected to add to the research literature that discuss the factors that effect of capital structure on manufacture companies. Further research can add control variable. Key Words:  Capital structure, Firm size, Liquidity, Financial flexibility, share growth, sale growth, business risk, Profitability

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