What do we know about Capital Structure? Some Evidence from International Data

Transcription

1 What do we know about Capital Structure? Some Evidence from International Data Raghuran G. Rajan Luigi Zingales Objective of the Study To establish whether capital structure in other countries is related to factors similar to those appearing to influence the capital Structure of U.S firms Analysing the differences between countries Accounting practices, legal and institutional environments To see if leveraging is similar across the countries 1

2 Data Description Database of International corporations Global Vantage Data: period of non-financial corporations of G-7 countries (USA, Japan, Germany, France, Italy, UK, Canada) Sample selection bias: Largest listed companies Homogeneity of Sample: Companies were sort into deciles according to the market value of their assets at the end of 1981 Data Description 2

3 Measures of Leverage: Definition of Leverage: Stock leverage: Total liabilities to total assets Financial Leverage: Debt to Total Assets Total Debt to net assets, Debt to Capital, Interest coverage ratio and Non equity liabilities to total assets Results German nor Japanese companies are very highly levered by US standards UK and Germany turns out to be the lowest levered relatively Extent of Leverage and Adjusted Leverage in Different countries 3

4 Adjusting Leverage for differences in account Deferred taxes were consider as a component of shareholder s equity to see the impact of adding it to the value of equity To reduce the exaggeration of value of US assets from other countries, intangibles value has bee subtracted form book value of equity of all countries Results: Except for UK & Germany others have similar leverage Adjusted Leverage for different in accounting 4

5 Summarising the preliminary results Using different measures of leverage and correcting for major differences in accounting: UK and Germany have the lowest leverage among the G-7 countries All other countries have approximately the same amount of leverage, with just some changes of ranking US, UK, Canada external financing is smaller than internal finance Germany, France & Italy raise less from external financing than UK or Canada There is no clear distinction between Anglo-American economies and others Institutional differences and leverage Why firms in countries such as Japan & US with diverse institutions have similar amount of leverage Why firms in countries such as UK & US with similar capital markets and financial institutions have such different level of debt 5

6 Institutional differences and leverage Banks vs. market based countries The author do not find any systematic difference between level of leverage between the bank-oriented countries and the marketoriented countries. There are major difference in bankruptcy procedures and the power of banks across the G-7 countries. Germany US Institutional differences and leverage Banks vs. market based countries 6

7 Institutional differences and leverage Banks vs. market based countries These results can be explained as: The difference between bank and market oriented countries is reflected more in the choice between public (stocks and bonds) and private financing (bank loans) than in amount of leverage Banks in these countries provide both debt and equity finance to firm so the greater availability of financing does not reflect the leverage rat Institutional differences and leverage Ownership and control. US, UK and Canada have firms with diffused ownership but an active takeover market Continental Europe and Japan have the ownership highly concentrated. What is the effect of ownership concentration on capital structure? 7

8 Institutional differences and leverage What is the effect of ownership concentration on capital? structure?. The presence of large shareholders reduce the agency costs and also these shareholders are undiversified, which may increase their aversion to debt On the other hand, if some of these large shareholders are banks they minimize the use of outside founds of their clients forcing them to borrow from their banks What is the relationship between ownership concentration and aggregate leverage? Cross Sectional Evidence Stages: Check the correlations between capital structure and certain factors found in previous studies for US Examine if these correlations hold in other countries Establish why each factor has the correlation with leverage 8

9 Cross Sectional Evidence Factors correlated with leverage Tangibility of assets: Ratio of fixed to total assets Market to book ratio Size: logarithm of net sales Profitability Cross Sectional Evidence Factors correlated with debt to book and Market Capital 9

10 Cross Sectional Evidence Factors correlated with debt to book and Market Capital Cross Sectional Evidence Factors correlated with debt to book and Market Capital Tangibility: Tangible assets are easy to collateralize and thus they reduce agency costs of debt. So on market basis, firms with a lot of fixed assets are no highly levered. Market to book: Firms with high market to book ratios have higher cost of financial distress Size: Proxy for the inverse probability of default. In countries where cost of financing distress are low, it should not be strongly positively related with leverage Profitability: If in the short run, dividends and investments are fixed, and if debt financing is the dominant mode of external financing, then changes in profitability, will be negatively correlated with change in leverage 10

11 Conclusions At aggregate level, firm leverage is quite similar across the G-7 countries. The difference among these countries are not easily explained by institutional differences. The factors identified by previous crosssectional studies in the US to be related to leverage seem similarly related in the rest of G-7 countries. Futures lines of research It is necessary to strengthen the relationship between theoretical models and empirical specifications It is necessary a deeper understanding of the effects of institutional differences. 11