Financing asset growth

Arbeitspapier

In this paper we provide new evidence that corporate financing decisions are associated with managerial incentives to report high equity earnings. Managers rely most heavily on debt to finance their asset growth when their future earnings prospects are poor, when they are under pressure due to past declines in earnings, negative past stock returns, and excessively optimistic analyst earnings forecasts, and when the earnings yield is high relative to bond yields so that from an accounting perspective equity is expensive. Managers of high debt issuing firms are more likely to be newly appointed and also more likely to be replaced in subsequent years. Abnormal returns on portfolios formed on the basis of asset growth and debt issuance are strongly positively associated with the contemporaneous changes in returns on assets and on equity as well as with earnings surprises. This may account for the finding that debt issuance forecasts negative abnormal returns, since debt issuance also forecasts negative changes in returns on assets and on equity and negative earnings surprises. Different mechanisms appear to be at work for firms that retire debt.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: SAFE Working Paper ; No. 26

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Information and Market Efficiency; Event Studies; Insider Trading ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Thema: Capital structure ; financing policy ; managerial incentives

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Brennan, Michael J. ; Kraft, Holger
• Ereignis: Veröffentlichung
• (wer): Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe
• (wo): Frankfurt a. M.
• (wann): 2013

Weitere Informationen

• DOI: doi:10.2139/ssrn.2308909
• Handle: http://hdl.handle.net/10419/88707
• URN: urn:nbn:de:hebis:30:3-314123
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ