Does privatisation affect industries and firms’ capital structure in Europe?

Over the past decades, there has been a trend towards privatisation in Europe. However, surprisingly little has been published in the finance literature on the industry effects of privatisation on non-financial firms’ capital structure. Talberg, Winge, Frydenberg, and Westgaard (2008) demonstrate that capital structures are industry-specific, and the literature on privatisation and leverage claims both a positive and a negative effect. Using a large sample of privatised firms in Europe, this paper analyses the impact of privatisation on firms’ capital structure. Our results provide no evidence that privatisation impacts firms’ capital structure. Instead, the level of leverage remains largely the same a few years after privatisation. These results remain unchanged even after controlling for certain characteristics, such as the type (asset sale or share issue) of privatisation and the percentage of privatisation. However, additional tests reveal that industry specificities are relevant in explaining capital structure variations following privatisation. When considering industry-specific characteristics, we found substantial statistical evidence that firms in capital-intensive industries experience a greater leverage level after being privatised. Our findings also suggest that governments may optimise privatisation processes after considering what capital-intensive firms may require in terms of funding long-term assets.

FACTORS AFFECTING REAL EARNINGS MANAGEMENT

The purpose of this research is to identify the influence of earnings change, debt/equity ratio, liquidity effect, growth effect, size effect, asset sale level, return on asset, market to book ratio, and board size to real earnings management. The other purpose of this research was to compare with the results of the previous research. This research used non-financial companies listed in Indonesia Stock Exchange (IDX) during the research period 2014 until 2017. Samples were collected using purposive sampling method, where 93 companies fulfill the criteria. Multiple linear regressions and hypothesis testing are used as the data analysis method in this research. The results of this research show that four variables: earnings change, debt/equity ratio, return on asset and market to book ratio statistically have effect on real earnings management, while the other five variables: liquidity effect, growth effect, size effect, asset sale level and board size statistically do not have effect on real earnings management of listed non-financial firms in Indonesia.

Systematic Transfer Plan (STP): An Alternative Investment Strategy to reduce Risk of Market Timing

Systematic Transfer Plan (STP) is a plan where an investor moves from one scheme to another a fixed amount of money, typically from debt funds to equity funds. STP is similar to SIPs or systematic investment plans, where money is moved from bank account to mutual equity funds. In STP, money is transferred in a few installments from a debt mutual fund to a mutual equity fund, so that the total purchase price is weighted suppose investor have earned 20 lakh from an asset sale and want to invest over 24 months in an equity fund through STP. Investor must first pick a debt fund that gives STP choice to invest in an equity fund. Then, choose an equity fund. Invest Rs 20 lakh in the debt fund and then determine the balance from the debt fund to the equity fund and the duration. In the alternative investment plan, the Systematic Transfer Plan (STP) has emerged for a large number of investors interested in high returns but less risk with lump sum investments. The purpose of the study is to know how to put money into STP reduces the risk of market timing and also helps investors to gain more from their source corpus by investing in debt funds. Results of the study found that awareness and operational framework, on the other hand, is one of the key barriers that investors face. The strategy of rupee cost average is an approach that motivates the investor to invest in a systematic transfer plan to gain from market timing risk. This research is also beneficial. The present study also allows investors to analyze the decisions and determine whether or not to invest in them and provides advice to protect their financial goals.

Rescue Plan Issues: Procedure and Structure; Distributional Issues

A business rescue in insolvency can be achieved in two ways: by either selling the business (usually an asset sale transferring the business as a going concern) or restructuring the business. Both options require cooperation—often within the parties of proceedings (creditors, debtor, management), but also with outsiders (investors, customers). Here, the need for cooperation in case of a sale is fairly limited in most jurisdictions because selling the business is simply a way to liquidate the debtor’s assets which may only require a qualified purchaser and a confirmation by a court or even by an administrator (usually an insolvency practitioner; see Chapter 7 for more details). Much more cooperation is usually required where a business must be restructured. If a plan does not only provide for the adjustment of old debt and security rights (financial restructuring), but also for an adjustment of vital credit lines, supply or employment contracts (operational restructuring), a larger number of stakeholders must be brought together.

Asset sales, recourse and investor reactions to initial securitizations

Purpose Both accounting and regulatory treatments classify securitizations as a “sale” of assets, therefore allowing the issuer to remove the assets from their books. The purpose of this paper is to present conjectural evidence of recourse activity and bankruptcy treatment that undermine the fundamental concept of true sale. Design/methodology/approach The authors use investor reactions to firm’s first securitizations to isolate investors’ views of the potential risk transfer. Findings Investor reactions to firms’ first securitization announcements suggest that investors, themselves, think of the effects of securitizations as more like a financing than an asset sale. Firms securitizing for the first time exhibit negative short-term equity returns and negative long-term operating performance, reactions more similar to financings than asset sales. Additional analysis shows that securitization is also associated with increased systematic risk, suggesting that the rapid growth fueled by securitization is similar to increasing leverage. The effect is more pronounced for banks than non-banks. Originality/value This is the first study to have used firms' first securitizations to analyze the nature of risk transfer in securitizations. The results show that off-balance-sheet treatment for securitizations may be inappropriate, given investor perceptions of the nature of potential contingent liabilities.

Dynamic Asset Sales with a Feedback Effect

I analyze a dynamic model of over-the-counter asset sales in which the seller receives stock-sensitive compensation, and the transaction conveys information about the firm’s value. I examine how the market’s response to an asset sale feeds back to the seller’s decision on the timing and the sale price and analyze the unique pattern of stock prices before and after the sale. The implications of bargaining power, inventories, gains from synergy, and the introduction of a vesting period are discussed. The model sheds light on observed properties of corporate sell-offs and explains market dry-ups during downturn periods. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Union Concessions following Asset Sales and Takeovers

We document that the likelihood of asset sales increases with union presence and union wages. Furthermore, acquiring firms gain significant concessions from the incumbent union following asset sales. Finally, the anticipation of union concessions helps explain the excess stock returns around asset sale announcements. We find no comparable effects for takeovers. We conclude that asset sales, but not takeovers, are partially motivated by the potential to extract concessions from unions.

Harmonization of European Insolvency Law: Preventing Insolvency Law from Turning against Creditors by Upholding the Debt–Equity Divide

In essence, insolvency law is collective debt collection law. By means of a collective procedure, insolvency law seeks to ensure that the going concern value is captured for the creditors. Where the shareholders possess the dominant voice outside of insolvency, in insolvency creditors take over this position and become the economic owners of the company. In three different settings shareholders can interfere with the insolvency process and try to capture all the value in the company or at least leave the creditors with the liquidation value and usurp the going concern surplus. These three settings are (i) shareholders as secured lenders, (ii) shareholders as acquirers out of pre-packs or other asset sales and (iii) shareholders under composition plans. The proposed EU Directive on Preventive Restructuring Frameworks and Second Chance (November 2016) contains measures in the field of composition plans as part of a preventive restructuring. The proposed directive addresses the potential problem that shareholders would usurp the going concern surplus by introducing the Absolute Priority Rule. The proposed directive should be considered a first step in the right direction. It should, however, be realized that the protection offered in the proposed directive could easily be circumvented by a shareholder financing not with capital but with secured shareholder loans. Also, if pre-pack sales or other sale processes do not limit interference by shareholders, shareholders will prefer the route of an asset sale above a restructuring.

Fair value: history, assessment and financial crisis

For the last 20 years fair value accounting has considerably extended its domain. Fair value is a probabilistic market value, which is expected to be obtained on the basis of forecasting of future events, connected with an asset sale or transfer of liabilities. The purpose of fair value is to define a price of an ordinary operation of an asset sale or transfer of liabilities between the market participants, which would have taken place by the date of measurement in the present market conditions. Market value is fair only with an active market, at which prices are determined by demand and supply. This is the reason of a discussion about the use of fair value. The opponents of fair value accounting state that exactly fair value has become a cause of financial crisis and had a negative influence on companies. However, there are many supporters of fair value accounting, who state that fair value is the indicator of financial system significant difficulties and it helps in warning financial crises. The purpose of the article is to validate the economic characteristics of fair value and to analyze its` role in a financial crisis