Browsing by Person "Michelsen, Marc"

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Corporate financing choices : new ideas and revisited common themes
(2011) Michelsen, Marc; Hachmeister, Dirk
Observed industry-specific leverage ratios in and across financial systems imply the relevance of capital market imperfections. This severely questions the validity of the irrelevance of capital structure decisions for firm value. Moreover, survey studies of CFOs suggest that managers have some target debt ratio or range, which also refutes the irrelevance of capital structure. The number of studies on capital structure is enormous, but to date no universal theory has been formulated for capital structure. It has even been argued that there might not be any reason to expect a universal theory of capital structure. Instead, different theories apply to firms under different circumstances. For that reason, this dissertation on empirical capital structure research aims to discuss and investigate two specific ?firm circumstances? that influence corporate financing choices and seem promising for future research. First, I investigate a determinant of capital structure that has so far received little attention in literature ? credit ratings by the external agencies Standard & Poor?s and Moody?s. Rating agencies play an eminent role in today?s capital markets. It is likely that firms under the scrutiny of such strong external supervisors may follow a different leverage policy to non-rated firms. However, rating agencies? renowned importance is so far not reflected in the capital structure research. Therefore, I thoroughly investigate the financing choices of externally rated firms for managers? rating considerations. Chapter 2 shows that managers follow a more conservative leverage policy if their firm?s credit rating is about to be upgraded or downgraded. While retained earnings are cross-sectional the dominant source of funding, the economics of security offerings has generated considerable empirical research interest over the past two decades. Survey evidence and stock price dynamics around seasoned equity offerings indicate that managers exploit temporary overvaluations of the firm?s stock and therefore time the equity offering. These efforts are possible because of the information asymmetry between managers and investors and the associated incentives for managers to exploit this informational advantage. Externally rated firms, on the other hand, reduce adverse selection problems with the information gathering process of the rating agencies. Therefore, it is questionable if the market timing hypothesis still holds for externally rated firms? seasoned equity offerings. The results of Chapter 3 imply that rating concerns are an important consideration for equity issuing firms. As a second ?firm circumstance? that may alter the composition of the balance sheet, I examine managers? weighting of public versus private equity in the decision to opt out of the public markets and go private. Such a public-to-private transaction (PTP) is an important step in the corporate life cycle, and modifies the capital structure of the firm significantly. However, consensus has not been reached in the literature on the underlying motives, and accordingly the relevant financial theories. Therefore, in Chapter 3 I investigate the characteristics of German firms that opted out of the public equity markets. Studying the public-to-private decision in Germany is of particular interest, because Germany can still be regarded as a prime example of an insider-controlled and relationship-based financial system. Therefore, the transferability of findings from Anglo-Saxon countries is difficult, as the structure of the financial and legal system is known to have a strong influence on corporate decisions. On the whole, I find no evidence of the free cash flow problem in the German corporate governance system. In respect of the respective PTP companies, the PTP phenomenon can be accounted for by a changing corporate life cycle status and a malfunctioning of the public capital markets.