Opaque Information, Deviation from Target Leverage and Speed of Adjustment

محورهای موضوعی : Financial Accounting

Abbas Aflatooni ¹ , Kefsan mansouri ²

1 - Department of Accounting, Bu-Ali Sina University, Hamedan, Iran
2 - Department of Accounting, Bu-Ali Sina University, Hamedan, Iran

تاریخ دریافت : 1397/12/04 تاریخ پذیرش : 1398/01/30 تاریخ انتشار : 1398/02/11

کلید واژه: Speed of adjustment, Deviation from target leverage, Opaque information,

چکیده مقاله :

Information opacity leads to information asymmetry. In this situation, in providing their own financial needs, firms face limitations and inevitably provide their financial needs from the debt market by signalling private information to it. In addition, information opacity affects the leverage adjustment speed. This research investigates the effect of information opacity on deviation from target leverage and its’ adjustment speed during 2003 - 2017 in 131 firms listed in Tehran Stock Exchange. To estimate the research models, we use the regression analysis with panel data approach, the approach to control the effects of years and industries and the generalized method of moments with system estimator (system GMM). The research results show that the increase in information opacity increases (decreases) the positive (negative) deviation from target leverage. Also, research findings indicate that the increase in information opacity decreases the adjustment speed.

منابع و مأخذ:

[1]    Aflatooni, A., Amirbakhtiarvand, A., The role of disclosure quality and accruals quality in reducing the deviation from the optimal capital structure, Asset Management and Financing, 2017, 5(4), P. 167-180. (In Persian) Doi:10.22108/AMF.2017.21212

[2]    Aflatooni, A., Nikbakht, Z., Investigating the effect of disclosure quality and accruals quality on capital structure adjustment speed, Financial Accounting Knowledge, 2018, 4(4), P. 85-100. (In Persian)

[3]    Akerlof, G., The market for “lemons”: Quality uncertainty and the market mechanism, Uncertainty in economics, 1978, 84(3), P. 235-251.  Doi: 10.1016/B978-0-12-214850-7.50022-X

[4]    Antão, P., Bonfim, D., The dynamics of capital structure decisions, 2014, Doi:10.2139/ssrn.2512249

[5]    Arellano, M., Bond, S., Some tests of specification for panel data: Monte-Carlo evidence and an application to employment equations, Review of Economic Studies, 1991, 58(2), P.277–297.  Doi:10.2307/22979 68

[6]    Balouei, E., Anvary Rostamy, A., Sadeghi Sharif, S., and Saeedi, A., The impacts of financial structure on financial performance of banks listed in Tehran Stock Exchange: An empirical application. Advances in Mathematical Finance and Applications, 2018, 3(3), P.11-26. Doi: 10.22034/amfa.2018.544946.

[7]    Barth, M.E., Konchitchki, Y., and Landsman, W.R., Cost of capital and earnings transparency. Journal of Accounting and Economics, 2010, 55(2-3), P. 206-224. Doi:10.1016/j.jacceco.2013.01.004

[8]    Byoun, S., How and when do firms adjust their capital structures toward targets? Journal of Finance, 2008, 63(6), P. 3069-3096. Doi:10.1111/j.1540-6261.2008.01421.x

[9]    Cassell, C. A., Huang, S. X., Manuel Sanchez, J., and Stuart, M. D., Seeking safety: The relation between CEO inside debt holdings and the riskiness of firm investment and financial policies. Journal of Financial Economics, 2012, 103(3), P. 588-610. Doi:10.1016/j.jfineco.2011.10.008

[10] Chang, X., Dasgupta, S., Hilary, G., The effect of auditor quality on financing decisions, Accounting Review, 2009, 84(4), P. 1085-1117. Doi:10.2308/accr.2009.84.4.1085

[11] Chen, W., Hribar, P., Melessa, S., Incorrect inferences when using residuals as dependent variables, Journal of Accounting Research, 2018, 56(3), P. 751-796. Doi:10.1111/1475-679X.12195

[12] Coles, J. L., Daniel, N. D., and Naveen, L., Managerial incentives and risk-taking. Journal of Financial Economics, 2006, 79(2), P. 431-468. Doi:10.1016/j.jfineco.2004.09.004

[13] Cooney, J., and Kalay, A., Positive information from equity issue announcements, Journal of Financial Economics, 1993, 33(2), P. 149-172. Doi:10.1016/0304-405X(93)90002-S

[14] Cuong Manh, N., Essays on corporate capital structure and cash holdings, working paper, 2012, University of Manchester.

[15] Davallou, M., Rezaeian, A., Deviation from target debt ratio, cash flow imbalance and capital structure adjustment, Financial Research Journal, 2016, 18(2), P. 287-306. (In Persian) Doi:10.22059/JFR.2016. 60219

[16] Drobetz, W., Wanzenried, G., What determines the speed of adjustment to the target capital structure?, Applied Financial Economics, 2006, 16(13), P. 941-958. Doi:10.1080/09603100500426358

[17] Faulkender, M., Flannery, M.J., Hankins, K.W., and Smith, J.M., Cash flows and leverage adjustments,Journal of Financial Economics, 2012, 103(3), P. 632-646. Doi:10.1016/j.jfineco.2011.10.013

[18] Flannery, M.J., Rangan, K.P., Partial adjustment toward target capital structures, Journal of Financial Economics, 2006, 79(3), P. 469-506. Doi:10.1016/j.jfineco.2005.03.004

[19] Gorji, A., Raei, R., Identification of capital structure adjustment speed using a dynamic model of optimal capital structure; Emphasis on product market competition factor, Financial Knowledge and Securities Analysis, 2015, 2(1), P. 129-149. (In Persian)

[20] Graham, J.R., Leary, M.T., A review of empirical capital structure research and directions the future, Annual Review of Financial Economics, 2011, 3, P. 309-345. Doi:10.1146/annurev-financial-102710-144821

[21] Hashemi, S., Keshavarzmehr, D., Investigating the asymmetry in capital structure adjustment speed: A threshold dynamic model, Financial Engineering and Securities Management, 2015, 6(23), P. 59-78. (In Persian)

[22] Hashemi, S., Keshavarz Mehr, D., Shahriyari, M., Capital structure adjustment: Generalized methods of moments, Fiscal and Economic Policies, 2017, 5(18), P. 77-102. (In Persian)

[23] Hirshleifer, D., Thakor, A. V., Managerial conservatism, project choice, and debt. The Review of Financial Studies, 1992, 5(3), P. 437-470. Doi:10.1093/rfs/5.3.437

[24] Holmström, B., Managerial incentive problems: A dynamic perspective. The Review of Economic Studies, 1999, 66(1), P. 169-182. Doi:10.1111/1467-937X.00083

[25] Hutton, A.P., Marcus, A.J., Tehranian. H., Opaque financial reports, R², and crash risk, Journal of Financial Economics, 2009, 94, P. 67-86. Doi:10.1016/j.jfineco.2008.10.003

[26] Jabbarzade kangarlouei, S., Monfared, M., Motavassel, M., The Impact of Operating Cash Flows on Financial Leverage Adjustments in Firms listed on Tehran Stock Exchange (TSE), Financial Management Strategy, 2014, 2(1), P. 73-95. (In Persian). Doi:10.22051/JFM.2015.977

[27] Jensen, M. C., Meckling, W. H., Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 1976, 3(4), P. 305-360. Doi:10.1016/0304-405X(76)90026-X

[28] Khalili Iraqi, M., Behroozizad, S., Effects of financial information transparency on investor behavior in Tehran stock market, Financial Knowledge and Securities Analysis, 2009, 2(1), P. 129-149. (In Persian)

[29] Kini, O., Williams, R., Tournament incentives, firm risk, and corporate policies. Journal of Financial Economics, 2012, 103(2), P. 350-376. Doi:10.1016/j.jfineco.2011.09.005

[30] Kothari, S., Leone, A., Wasley, C., Performance matched discretionary ‎accrual measures, Journal of Accounting and Economics, 2005, 39(1), P. 35ـ50.‎ Doi:10.1016/j.jacceco.2004.11.002

[31] Lambert, R.A., Leuz, C., Verrecchia, R.E., Accounting information, disclosure, and the cost of capital, Journal of Accounting Research, 2007, 45(2), P. 385-420. Doi:10.1111/j.1475-679X.2007.00238.x

[32] Lewellen, K., Financing decisions when managers are risk averse. Journal of Financial Economics, 2006, 82(3), P. 551-589. Doi:10.1016/j.jfineco.2005.06.009

[33] Modigliani, F., Miller, M., The cost of capital, corporation finance and the theory of investment, American Economic Review, 1958, 49(4), P. 261-275. Retrieved from http://www.jstor.org/stable/1809766

[34] Myers, S.G., Majluf, N.S., Corporate financing and investment decisions when firms have information those investors do not have, Journal of Financial Economics, 1984, 13(2), P. 187-221.

[35] Nachman, D., Noe, T., Optimal design of securities under asymmetric information, Review of Financial Studies, 1994, 7(1), P. 1-44.

[36] Nasirzadeh, F., Mostagiman, A., Testing the static trade-off and pecking order theories in capital structure of TSE accepted companies, Accounting Advances, 2011, 2(2), P. 133-158. (In Persian) Doi:10.22099/JAA. 2011.3411

[37] Öztekin, Ö., Flannery, M.J., Institutional determinants of capital structure adjustment speeds, Journal of Financial Economics, 2012, 103(1), P. 88-112. Doi;10.1016/j.jfineco.2011.08.014

[38] Öztekin, Ö., Capital structure decisions around the world: which factors are reliably important? Journal of Financial and Quantitative Analysis, 2015, 50(3), P. 301-323. Doi:10.1017/S0022109014000660

[39] Petacchi, R., Information asymmetry and capital structure: evidence from Regulation FD,Journal of Accounting and Economics, 2014, 59(2-3), P. 143-162. Doi:10.1016/j.jacceco.2015.01.002

[40] Ramesheh, M., Soleimani Amiri, G., Eskandari, R., Speed of adjustment to target capital structure based on interaction between trade-off and pecking order theories in TSE, Empirical Research in Accounting, 2016, 5(4), P. 187-209. (In Persian). Doi:10.22051/JERA.2016.2290

[41] Roychowdhury, S., Earnings management through real activities manipulation, Journal of Accounting and Economics, 2006, 42(3), P. 335–370. Doi:10.1016/j.jacceco.2006.01.002

[42] Serfling, M. A., CEO age and the riskiness of corporate policies. Journal of Corporate Finance, 2014, 25, P. 251-273. Doi:10.1016/j.jcorpfin.2013.12.013

[43] Aflatooni, A., Nikbakht, Z., Investigating the effect of disclosure quality and accruals quality on capital structure adjustment speed, Financial Accounting Knowledge, 2017, 4(4), P. 85-100. (In Persian)

[44] Sheri Anaqiz, S., Rahmani, A., Bolo, G., Mohseni Maleki, B., Financial flexibility and the financial leverage adjustment speed of companies listed in Tehran Stock Exchange (TSE), Financial Accounting Knowledge, 2015, 2(2), P. 73-88. (In Persian)

[45] Smith, D.J., Chen. J., Anderson, H.D., The influence of firm financial position and industry characteristics on capital structure adjustment, Accounting and Finance, 2015, 55(4), P. 1135-1169. Doi:10.1111/acfi. 12083

[46] Spence, A., Job market signaling, Quarterly Journal of Economics, 1973, 87, P. 355-74. Doi:10.2307/1882 010

[47] Supra, B., Narender, V., Jadiyappa, N., Girish, G.P., Speed of adjustment of capital structure in emerging markets, Theoretical Economics Letters, 2016, 6(1), P. 534-538. Doi:10.4236/tel.[phone]

[48] Synn, C., Williams, C., Financial reporting quality and optimal capital structure, The 8^th CAPANA Annual Research Conference. www.capana.net /www/ conference 2015/synn Williams.pdf.

[49] Valiyan, H., Abdoli, A., Ostadhashemi, A., The effect of corporate asset restructuring sensitivity on the target leverage of companies listed in Tehran Stock Exchange, Financial Management Strategy, 2018, 6(1), P. 115-142. (In Persian) Doi: 10.22051/JFM.2018.17822.1528

[50] Valizadeh Larijani, A., Esnaashari, H., Capital structure and its adjustment speed in firm's life cycle and the role of profitability, Financial Management Strategy, 2018, 5(4), P. 69-92. (In Persian) Doi: 10.220 51/JFM.2018.13671.1263

[51] Verrecchia, R., Essays on disclosure, Journal of Accounting and Economics, 2001, 32(1-3), P. 91-180. Doi:10.1016/S0165-4101(01)00025-8

[52] Wang, K.Y., Meng, Y.W., Huang, F.S., Huang, D., Information transparency and corporate financing decision: testing the pecking order theory, African Journal of Business Management, 2011, 5(22), P. 8778-8788. Doi:10.5897/AJBM10.1252

[53] Yazdi, H., Mohammadian, M., Effect of profitability indices on the capital structure of listed companies in Tehran Stock Exchange, Advances in Mathematical Finance and Applications, 2017, 2(3), P.1-11, Doi:10.22034/amfa.2017.533085.

[54] Yosefi Asl, F., Mollanazari, M., Soleimani Amiri, G., Designing financial reporting transparency model, Empirical Research in Accounting, 2015, 4(2), P. 1-38. (In Persian) Doi:10.22051/JERA.2015.1892

[55] Zalaghi, H., Godini, M., Mansouri, K., The moderating role of firms characteristics on the relationship between working capital management and financial performance. Advances in Mathematical Finance and Applications, 2019, 4(1), P. 71-88. Doi:10.22034/amfa.2019.581878.1158

[56] Zhou, Q., Keng Tan, K.J., Faff, R., Zhu, Y., Deviation from target capital structure cost of equity and speed of adjustment, Journal of Corporate Finance, 2016, 39(1), P. 99-120. Doi:10.1016/j.jcorpfin.2016.0 6.002