Topic: Determinants of Corporate Leverage
Inflexibility and Leverage
Index Creation, Information, and External Finance
Keeping Secrets from Creditors: Evidence from The Uniform Trade Secrets Act
It's Not So Bad: Director Bankruptcy Experience and Corporate Risk Taking
1. Inflexibility and Leverage
American Finance Association 2021 Annual Meeting
Olivia Lifeng Gu, University of Hong Kong
Dirk Hackbarth, Boston University
Tong Li, University of Hong Kong
Firms' inflexibility to adjust their scale persistently explains capital structure variations in a comprehensive sample and randomly-selected sub-samples. Higher inflexibility leads to lower financial leverage, potentially due to higher default risk and lower value of tax shields. Contraction inflexibility determines leverage more than expansion inflexibility. Moreover, inflexibility explains financial leverage on top of operating leverage variability and cash flow variability. Interestingly, the substitution effect between financial and operating leverage is much weaker among flexible firms. In addition, inflexible firms increase leverage more than flexible firms following a positive credit supply shock, which supports our main findings.
原文連結：
https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=AFA2021&paper_id=957
2. Index Creation, Information, and External Finance
American Finance Association 2021 Annual Meeting
Vidhan Goyal, Hong Kong University of Science and Technology
Daniel Urban, Erasmus University Rotterdam
Wenting Zhao, Technical University of Munich
How do firms added to an equity index change their financing strategies? We use the formation of new equity indexes and changes to index methodology as a setting to examine how shocks to a firm's information environment affect the debt supply and financing of firms. Firms added to an index are covered by more equity analysts and have greater news coverage, resulting in higher information production. Consequently, bond liquidity improves and firms benefit from lower yield spreads on newly issued debt. Treatment firms increase their leverage by about two percentage points relative to control firms. The response is primarily in the more information-sensitive public debt market, with firms issuing more public debt.
原文連結：
https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=AFA2021&paper_id=1154
3. Keeping Secrets from Creditors: Evidence from The Uniform Trade Secrets Act
American Finance Association 2021 Annual Meeting
Scott Guernsey, University of Tennessee
Kose John, New York University
Lubomir Litov, University of Oklahoma
This paper examines the impact of trade secrecy on corporate financing decisions, exploiting U.S. states』 adoption of the Uniform Trade Secrets Act (UTSA) as a positive 「shock」 in incentives to use trade secrets. We find that firms reduce debt levels following the laws』 passage, especially for firms more ex-ante secrecy reliant. As an explanation, we show that the UTSA increases firm-level investments in intangibles, and overall intangibility, magnifying contracting problems with creditors and resulting in higher debt costs and more equity issuances. Our evidence suggests that the UTSA renders debt a less prominent source of funding for trade secrets-intangible firms.
原文連結：
https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=AFA2021&paper_id=1147
4. It's Not So Bad: Director Bankruptcy Experience and Corporate Risk Taking
American Finance Association 2021 Annual Meeting
Radhakrishnan Gopalan, Washington University in St. Louis
Todd Gormley, Washington University in St. Louis
Ankit Kalda, Indiana University
We show that firms take more (but not necessarily excessive) risks when one of their directors experiences a corporate bankruptcy at another firm where they concurrently serve as a director. This increase in risk-taking is concentrated among firms where the director experiences a shorter, less-costly bankruptcy and where the affected director likely exerts greater influence and serves in an advisory role. The findings show that individual directors, not just CEOs, can influence a wide range of corporate outcomes. The findings also suggest that individuals actively learn from their experiences and that directors tend to lower their estimate of distress costs after participating in a bankruptcy firsthand.
原文連結：
https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=AFA2021&paper_id=669
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