• A
  • A
  • A
  • ABC
  • ABC
  • ABC
  • А
  • А
  • А
  • А
  • А
Regular version of the site
  • HSE University
  • Research projects
  • Empirical Analysis of Corporate Financial Decisions of Companies of Emerging Capital Markets under the Pressure of Global Markets Transformation and Knowledge  Economy Development

Empirical Analysis of Corporate Financial Decisions of Companies of Emerging Capital Markets under the Pressure of Global Markets Transformation and Knowledge  Economy Development

Priority areas of development: economics
2016
The project has been carried out as part of the HSE Program of Fundamental Studies.

The goal of the research is to determine key specific features of financial decisions in Russian firms, their corporate financial architecture and its impact over performance as compared to the largest emerging markets (BRICS) and Eastern Europe as well as developed capital markets. We focus on the capital structure decisions and the role of taxation, financial architecture policies, strategic deals in the market for corporate control for large-scale firms from this group of countries. We examine the relationship between all above-mentioned types of decisions and corporate value.     

With data from 31 developed countries (62 210 cases) and 40 developing countries (41 140 cases) we perform the cross-country analysis and identify the differences in corporate tax rate impact over the capital structure in developed and developing countries.We show that corporate marginal income tax rate has higher impact over  the companies’ financial leverage as compared to the effective tax rate and this effect is much more pronounced for corporate leverage in developed capital markets than for companies from developing markets.

The impact of tax rate s differes within the the range of industries.  On the sample of 18959 Russian companies from 2010 to 2014 in 9 industries we show that the effective tax rate has a positive effect on the financial leverage of Russian companies (significant at 5% level) with  the strongest influence in the retail industry (coefficient 0.266) and lower influence - in the machinery and equipment (coefficient 0.076). On a sample of 888 companies of the BRIC countries  we show that the effective tax rate is an important variable in determining the method of financing for companies in each country’s subsample, and in general for all BRIC countries with the highest impact for Russian large companies.

Analysis of personal income tax influence on capital structure is based on a sample of 792 Chinese companies listed on the Shanghai or Shenzhen Stock Exchange. Dividend tax rate reduction in 2005 lead to the decrease in companies’ target leverage level. Moreover, firms with high corporate tax payment decrease financial leverage insignificantly while companies with low corporate tax payment and high dividend payment enhance financial leverage.

As for the effect of financial leverage over corporate performance for the sample of BRIC companies (2007-2014) we found out that unlevered and low-levered companies outperform the levered firms during economic growth periods, while this pattern of the  capital structure –performance relation is not so strong within crisis years.

The diversification-performance relationship is examined on the sample of 237 companies from Russia, China, Brazil and South Africa during the period after the 2007-2008 financial crisis. We prove that the linkage between the level of product diversification and performance is linear and does not differ for various emerging economies. Meanwhile the development of the institutional environment decreases value creation potential of diversification strategy. We demonstrate that company size, financial leverage and profitability are the key determinants of strategic performance in emerging markets.

On the sample of 295 bond issues in the BRICS countries we demonstrate the corporate governance impact over the cost of debt of large companies in 2006-2016 years. Firstly, we show that excessively large board of directors is
inefficient governance mechanism and increases the company’s cost of capital. Secondly, the higher concentration of ownership in the hands of the majority shareholder leads to the higher cost of borrowing, measured at the time of bond issue. Finally, we demonstrate that independent directors smooth the adverse impact of concentrated ownership. A detailed analysis of subsamples reveals a striking cross-country differences: for example, for Indian companies the effect of state ownership is a positive and allows to decrease the cost of capital, and for Russian companies a high concentration of ownership is not a negative driver, unlike other countries.

On the basis of 89 large-scale Russian companies we study the effect of intellectual capital of the board of directors over performance. We use an index approach to measuring the board capital and showed a nonlinear relationship between the board capital diversification and performance. There are two possible optimal levels: a large and highly diversified board and a small concentrated board. Finally, we demonstrate that the industry and managerial experience of directors contribute to value creation. At the same time when board selects a new CEO, it should focus on his or her ability to cope with the financial constraints on the market, that is, candidates with financial backgrounds are preferred.

Publications:


Kokoreva M. S., Ivanova M. The Puzzle of Zero Debt Capital Structure in Emerging Capital Markets // Journal of Corporate Finance Research. 2016. Vol. 10. No. 4. P. 9-28.