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Corporate Deleveraging and Financial Flexibility
| Content Provider | Semantic Scholar |
|---|---|
| Author | Dreher, Daniel |
| Copyright Year | 2019 |
| Abstract | Most firms naturally tend to deleverage from their historical peak market-leverage (ML) ratios to near-zero ML while also insisting on growing and maintaining high cash balances. Among 424 publicly traded non-United States companies based in developed countries with five or more years post peak ML data, the median ML at the historical peak is 0.369 and 0.021 at the subsequent trough. The median cash/total assets ratio rises from 0.046 to 0.080, respectively, during the corresponding period. These findings universally support prevailing theories in which firms deleverage from peak ML to restore ample financial flexibility and rebuild cash balances to assure reliable and cost-efficient access to capital. There are only two considerable differences between developed and emerging market economy firms. ML ratios at the peak and trough are 9.1% and 7.6% higher, respectively, in the emerging markets when compared to the developed markets. Book leverage (BL) ratios at the peak and trough are 6.4% and 5.7% higher, respectively, in the emerging markets when compared to the developed markets. Net debt ratios (NDR) at the peak and trough are 11% and 6.6% higher, respectively, in the emerging markets when compared to the developed markets. The average annual changes of ML in the developed sample from the peak to trough are just about -7% while the changes are only -4% in the emerging markets sample. In addition, during the deleveraging period, the change in the NDR from ML peak to trough is 28% higher in developed countries than in emerging markets. These findings support theories in which there are key differences in the capital structure decisions of companies in developed countries and that of those in emerging market countries. Corporate Deleveraging and Financial Flexibility 3 |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://scholarsarchive.library.albany.edu/cgi/viewcontent.cgi?article=1044&context=curce |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
