Investment opportunities and leverage: some Australian evidence on the role of board monitoring and director equity ownership

This paper tests the hypothesis that the negative relationship between investment opportunity set (IOS) and debt is moderated by board monitoring and director equity ownership. According to contracting theory, firms with high growth opportunities (high IOS) are associated with lower levels of debt as a result of the asset substitution and the under-investment problem. However, our hypotheses test the conjecture that the negative debt / IOS relationship will be moderated by the proportion of non-executive directors (NEDs) on the board and director equity ownership. NEDs provide higher monitoring which reduces management discretion while director equity ownership provides incentives for managers to maximize the value of the firm. More specifically, we expect that high growth firms with a higher proportion of non-executive directors and director equity ownership are less likely to be associated with asset substitution and under investment. Thus, the negative investment opportunity set / debt relationship will be weaker for firms with higher levels of non-executive directors and high director equity ownership. Data collected from Australian companies support both these two hypotheses. Results have significant implications for corporate finance theory.

Leveraging leverage : how strategies can really work for you

The theme of the new Strategic Plan 2008-12 for Deakin University is the delivery of effective partnerships with a key focus on enhancing student experience. The Library has a key role in seeking new and improved ways to support the university’s teaching, learning, scholarship and research activities. Investigations of Web 2.0 technologies have pinpointed suitable applications to enhance student engagement with the Library and with information resources. Along with digital initiatives, the Library is creating intelligent collaborative and contemporary spaces to support and enhance students’ informal learning. Spaces will accommodate student-centred problem-based pedagogy and offer options for interactive group learning, quiet study and reflective zones.

This paper outlines a holistic approach adopted by Deakin University Library and reports on successes and challenges in meeting strategic outcomes to enhance student experience and learning discovery.

Helping business leverage web 2.0 to generate social capital

Businesses large and small are keen to leverage Web 2.0 applications to interact with customers, suppliers and other stakeholders. Whilst some have achieved success, others are still struggling to understand the opportunities and threats associated with using Web 2.0 in business. This paper discusses the development of a conceptual framework to help businesses understand how they could leverage Web 2.0 applications to generate social capital. The proposed framework helps businesses (i) identify opportunities to leverage the strengths and features of various Web 2.0 applications, and (ii) develop business strategies for Web 2.0. As a positional paper, it contributes to theory by proposing a systematic and structured approach for understanding how social capital is created, captured, distributed, and consumed online.

Controlling shareholder, expropriations and firm’s leverage decision: Evidence from Chinese Non-tradable share reform

This paper examines the effect of excess control rights on the leverage decisions made by Chinese non-SOEs before and after the Non-tradable share reform (NTS reform). We find that firms with excess control rights have more excess leverage and their controlling shareholders use the resources for tunneling rather than investing in positive NPV projects. We also find that excess leverage in firms with excess control rights decreases and the market reaction to announcements of related party transactions are more positive after NTS reform. This confirms that tunneling by the controlling shareholders actually reduced. We argue that in emerging markets where legal protection for creditors and shareholders is weak, controlling shareholders borrow excess debt to tunnel through inter-corporate loans and related party transactions. Furthermore the privatization of these economies can reduce the controlling shareholders' tunneling activities and associated excess leverage which destroys firm value.

The effect of ownership structure on leverage decision: new evidence from Chinese listed firms

This paper examines the effect of state control and ownership structure on the leverage decision of firms listed in the Chinese stock market. Our results show that state-owned enterprises (SOEs) have higher leverage ratios than non-SOEs, and SOEs in regions with a poorer institutional environment have higher leverage ratios than SOEs in better regions. We also show that the largest shareholding (the percentage of shares held by the largest shareholder) in the SOEs has a negative relationship with the leverage ratio, while the largest shareholding in non-SOEs has a non-linear relationship with the short-term and long-term debt ratios. Finally, this study also shows that the share split reform and the improvement of institutional environment both weaken the negative relationship and strengthen the positive relationship between largest shareholding and leverage of SOEs and non-SOEs to some extent. This paper documents how the financing behaviour of SOEs is more influenced by government intervention, while the financing behaviour of non-SOEs is more market oriented.

Political connection and leverage: Some Malaysian evidence

This paper extends prior work on the linkage between politically connected (PCON) firms and capital structure in developing countries. Specifically, this paper focuses on the association between Malaysian PCON firms and leverage, and is motivated by the results of Fraser et al. (2006) who report a positive association between leverage and political patronage. Controlling for a potential misspecification in that paper, this study documents that a significant proportion (almost 12%) of the Malaysian PCON firms have negative equity, and builds on the previous paper by providing fresh evidence that market to book ratio is positively associated with leverage, and that borrowing PCON firms have significantly lower ROA compared to non-PCON firms. © 2012.

The role of leverage in cross-border mergers and acquisitions

We examine the relationship between leverage and cross-border mergers and acquisitions. Using a sample of 85,560 cross-border mergers and acquisitions in 57 countries over the period 1990 to 2010, we find that firms with higher leverage are less likely to acquire foreign targets, whereas firms with lower leverage tend to be targets acquired by foreign firms. These effects are more pronounced in Asian countries than North America. Acquisition premium, the likelihood of all-cash offer and the percentage of cash in the acquisition offer decrease with leverage in cross-border mergers and acquisitions. Foreign targets gain positive abnormal returns in the both short run and long run, while acquirers earn positive abnormal returns in the short-run, but negative returns in the long run. We also find that firms adjust their capital structure after the acquisition by issuing more equity if they were overleveraged, or issuing more debt if they were underleveraged before the acquisition. Our results provide international evidence on how leverage affects managerial decision to acquire foreign targets, payment method and acquisition premium in cross-border mergers and acquisitions. This study shows that the interdependent relationship between investment decision and financing decision exists worldwide.

Dividends, leverage, and family ownership in the emerging Indonesian market

We examine the roles of dividends and leverage to mitigate agency problems within familyfirms in Indonesia. Using simultaneous equations, we find a significant negative associationbetween family ownership and dividend payout and a two-way negative relation betweendividend payout and leverage. Our analysis reveals that, compared to non-family firms,family firms tend to maintain a lower dividend pay-out and higher leverage. The presenceof large non-family ownership appears to have an impact on determining levels of privatebenefit control. During the Asian and global financial crisis, family firms changed theirdividend pay-out more than non-family firms did.

The political economy of cross-border relations : the TNI and East Timor

Within a framework of formally increasingly cordial bilateral relations, the Indonesian military, the TNI, was engaging in and allowing extensive cross-border trade and smuggling while pursuing a policy of limited cross-border destabilization of East Timor. This seemingly contradictory policy, run from the TNI's 'strategic command centre' in Atambua, West Timor, met the TNI's continuing need to fund its own activities (and those of its proxies) through both legal and illegal means, to provide leverage for the coming talks about the formal demarcation of the border, and to provide a foothold to longer-term irredentist claims to the former occupied province and now independent state.

On the determinants of derivative usage by Australian companies

This paper provides an examination of the determinants of derivative use by Australian corporations. We analysed the characteristics of a sample of 469 firm/year observations drawn from the largest Australian publicly listed companies in 1999 and 2000 to address two issues: the decision to use financial derivatives and the extent to which they are used. Logit analysis suggests that a firm's leverage (distress proxy), size (financial distress and setup costs) and liquidity (financial constraints proxy) are important factors associated with the decision to use derivatives. These findings support the financial distress hypothesis while the evidence on the underinvestment hypothesis is mixed. Additionally, setup costs appear to be important, as larger firms are more likely to use derivatives. Tobit results, on the other hand, show that once the decision to use derivatives has been made, a firm uses more derivatives as its leverage increases and as it pays out more dividends (hedging substitute proxy). The overall results indicate that Australian companies use derivatives with a view to enhancing the firms' value rather than to maximizing managerial wealth. In particular, corporations' derivative policies are mostly concerned with reducing the expected cost of financial distress and managing cash flows. Our inability to identify managerial influences behind the derivative decision suggests a competitive Australian managerial labor market.

Online banking vs. bricks & mortar - or a hybrid model? A preliminary investigation of Australian and Indian banks

Deregulation, innovations in mobile and wireless technologies and media convergence, together with the rapid diffusion of the Internet, have opened up strategic business opportunities in the financial sector. With deregulation removing entry barriers, an increasing number of online banks are threatening the market share of ‘bricks and mortar’ banks. To survive this competition, and to leverage the new opportunities of online and mobile banking facilitated by the Internet, many banks have adapted a hybrid, ‘clicks and mortar’ model, to increase their profitability while reducing transaction costs. In this paper, we report the results of a preliminary analysis based on a few major banks in Australia and India, two diverse economies, to reveal some interesting insights.

End-user control in web-based electronic services : a case study

This paper reports a case study of end-user control in delivery of Web-based electronic services. The case study concentrates the adoption of a Web-based electronic system being implemented in processing student’s admission applications on a Web site. The end-user’s control interface provides information on the detail existing in the Web-based electronic service. This insight into end-user synthesis in developing effective control in Web service environment relates to ease of use in doing the task. To assume the leverage of end-user control strictly on the basis of the Web service usage would limit the purpose of understanding. Rather it is suggested that it would be better to develop an approach to study the end-user ease of use interface in doing the task with the user’s perception towards Web-based interactivity.

B2B electronic markets: a conceptual model for analyzing the sources of business value

This paper describes research supporting the development of a conceptual model for understanding the sources of business value of Business-to-Business (B2B) Electronic Markets. Based on six case studies and an analysis of current literature, Aggregation, Matching, and Integration emerged as the three key sources of business value. The framework provides a structured and systematic approach for understanding various B2B Electronic Market models, and helps develop strategies to leverage these sources of business value.