determinants of capital structure in irish smes this paper presents an empirical examination of determinants of the capital structure of a sample of 299 irish small and medium sized enterprises smes results suggest that age size level of intangible activity ownership structure and the provision of collateral are important determinants of the capital structure in smes a generalisation of zellner s journal of the american statistical association57 348 368 1962 seemingly unrelated regression sur approach is used to examine industry effects and to test the stability of parameter estimates across sectors we find that the influence of age size ownership structure and provision of collateral is similar across industry sectors indicating the universal effect of information asymmetries firms overcome the lack of adequate collateralisable firm assets in two ways by providing personal assets as collateral for business debt and by employing additional external equity to finance research and development projects

depreciation policy changes tax earnings management and investment opportunity incentives abstract contrary to previous studies we find managers change depreciation policies in predictable ways we identify three dimensions of depreciation policy changes whether it is a method change or an estimate revision whether it is income increasing or decreasing and whether it applies to new assets only or both new and existing assets this disaggregation leads to three findings first a 1981 tax law altered the frequency of estimate revisions and method changes second firms adopting income increasing method changes for all assets experience worse performance than those adopting such changes only for new assets finally non income increasing policy changes are associated with changes in investment opportunities

how does financial distress affect small firms financial structure this paper provides new evidence on the financial structure of small firms by emphasizing the role played by financial distress we specify a model of debt adjustments that allows us to investigate the specific nature of the adjustment process towards target debt levels in small firms which is then extended to account for the effect of financial distress on financial structure decisions our models were estimated by the generalized method of moments on a data panel of small portuguese firms during a period of recession in which a substantial proportion of the companies analyzed faced a financial distress situation we find that small firms do adjust their debt ratios towards target levels the speed of adjustment being faster in the shorter term our results also indicate that there are major differences in the determinants of long term and short term debt highlighting the role played by debt maturity in explaining a firm s financial structure finally random behavior is observed in financially distressed firms who seem to be disoriented when making their financial structure decisions

research in accounting for income taxes abstract this paper comprehensively reviews the accounting for income taxes afit literature we begin by identifying four distinctive aspects of afit and briefly covering the rules surrounding afit we then review the existing studies in detail and offer suggestions for future research we emphasize the research questions that have been addressed most of which relate to whether the tax accounts are used to manage earnings and whether the tax accounts are priced by equity market participants we also highlight areas that have not received much research attention and that warrant future analysis

small firm growth access to capital markets and financial structure review of issues and an empirical investigation this article investigates the financial structure of small firms with an emphasis on growth and access to capital markets neo classical economic life cycle pecking order and agency theory perspectives are reviewed in order to formulate testable propositions concerning levels of long term short term and total debt and liquidity up to date financial data were collected from the u k private database for a large sample comprising of both listed and unlisted small firms regression results indicate significant relationships between financial structure and profitability asset structure size age and stock market flotation but not growth except when rapid and combined with lack of stock market flotation analysis of stock market flotation as an interactive dummy reveals major differences between listed and unlisted small firms the results indicate that the variety of financial structures observed in practice may reflect rational trade offs of various costs on the part of small firm owner managers but that the over reliance on internally available funds and the importance of collateral in the case of unlisted small firms are likely to be major constraints on economic growth

evidence on the effect of bond covenants and management compensation contracts on the choice of accounting techniques the case of the depreciation switch back abstract provisions of bond indenture agreements and management compensation contracts are examined to derive testable implications concerning management s incentives to choose among alternative accounting techniques the hypotheses are subjected to empirical examination by investigating the voluntary change from accelerated to straight line depreciation for financial reporting purposes only the methodology utilized incorporates an expectations model of accounting earnings in an attempt to separate out of the effects of earnings announcements from accounting change announcements which are often concurrent the evidence from both price and non price data is not consistent with the general hypothesis that bond covenants and management compensation contracts are important determinants of the decision to change depreciation techniques five potential explanations for the results are offered

debt and the marginal tax rate abstract do taxes affect corporate debt policy this paper tests whether the incremental use of debt is positively related to simulated firm specific marginal tax rates that account for net operating losses investment tax credits and the alternative minimum tax the simulated marginal tax rates exhibit substantial variation due to the dynamics of the tax code tax regime shifts business cycle effects and the progressive nature of the statutory tax schedule using annual data from more than 10 000 firms for the years 1980 1992 i provide evidence which indicates that high tax rate firms issue more debt than their low tax rate counterparts

the investment opportunity set and accounting procedure choice abstract this paper provides evidence on the cross sectional relation between firms investment opportunities their debt and compensation contracts their size and financial leverage and their accounting procedure choices this evidence is important because previous studies hypothesize that the link between firms investment opportunities and their accounting choices helps explain extant results on the size debt equity and bonus plan hypotheses however while i find that firms investment opportunities do affect the nature of their contracts i also find that the traditional explanations for accounting choice are important after controlling for the effects of the investment opportunity set

firm heterogeneity internal finance and credit rationing this paper assesses the role of internal net worth holding constant investment opportunities in the allocation of credit in the presence of asymmetric information in the capital market the authors consider an economy in which both symmetric information and information intensive entrepreneurs seek funds from the capital market and they develop a simple general equilibrium model of credit allocation their emphasis is on shocks to borrower net worth depending on levels of net worth the symmetric information allocation a credit collapse or intermediate allocations are possible the model yields predictions corresponding to accelerator effects on investment and output as well as real effects of collateral redistributions copyright 1990 by royal economic society

asymmetric information financing constraints and investment the results of a number of theoretical papers lead to the hypothesis that financial variables affect capital sp ending because of asymmetric information in capital markets the auth ors review the relevant theory and test this hypothesis with a large sample of firm data the results show that financial variables such a s cash flow and interest expense add significant explanatory power to investment equations based on dale jorgenson s neoclassical model w ith a capm specification for the firm s cost of capital and a sales accelerator model the analysis therefore links recent theoretical work on capital markets to long standing empirical debates in the inv estment literature copyright 1987 by mit press

debt covenant violations and managers accounting responses abstract this paper examines accounting changes costs of default and accounting based covenants violated by 130 firms reporting violations in annual reports i find that managers of firms approaching default respond with income increasing accounting changes and that the default costs imposed by lenders and the accounting flexibility available to managers are important determinants of managers accounting responses i also document that private lending agreements are the first violated that net worth and working capital restrictions are the most frequently violated restrictions and that in 52 percent of the cases lenders require concessions from borrowers to resolve default

business starters and credit rationing this paper investigates which business starters experience credit rationing by simultaneously analyzing which business founders apply for credit and which are refused we argue that credit denial depends largely on the entrepreneurs commitment and signals regarding the repayment of the loan and the success chances of the proposed business our empirical analysis is based on a sample of 1140 potential business starters in the dutch county south limburg our findings show that commitments drive the credit application and approval while the effects of signals are mixed the findings also suggest that business founders have a pretty good idea regarding whether their applications will be honored or not

capital structure decisions during a firm s life cycle the study reported here examines the financing choices of small and medium sized firms i e those most vulnerable to information and incentive problems through the lens of the business life cycle we argue that the controversy in the empirical literature regarding the determinants of capital structure decisions is based on a failure to take into account the different degrees of information opacity and consequently firms characteristics and needs at specific stages of their life cycles the results show that in a bank oriented country firms tend to adopt specific financing strategies and a different hierarchy of financial decision making as they progress through the phases of their business life cycle contrary to conventional wisdom debt is shown to be fundamental to business activities in the early stages representing the first choice by contrast in the maturity stage firms re balance their capital structure gradually substituting debt for internal capital and for firms that have consolidated their business the pecking order theory shows a high degree of application this financial life cycle pattern seems to be homogeneous for different industries and consistent over time

how did the notional interest deduction affect belgian smes capital structure the recently introduced risk capital allowance in belgium which allows a notional interest deduction to be denoted nid hereafter on a firm s adjusted equity for tax purposes has mitigated the tax discrepancy between equity and debt financing to our knowledge we provide the first empirical study of the extent to which this regulation has resulted in a strengthening of small and medium sized enterprises to be denoted smes hereafter solvency which was one of its most prominent objectives results from logit regressions reveal that the probability of adopting the nid is higher for lowly leveraged smes smes without experience with the tax exempt investment reserve and smes with a sound knowledge of the notional interest deduction regulation results on the impact of the nid on the capital structure of smes based on panel and first differences regressions reveal that this measure did not result in a significant change of smes leverage in view of the discussion regarding the optimal tax and legislative framework that governments should put in place poutziouris et al j small bus enterp dev 6 1 7 25 1999 these results cast doubt on the risk capital allowance as it stands now being the right government instrument to contribute at least in the short term to creating a pro enterprising tax and legislative climate for smes we conclude by providing some general suggestions for improving the effectiveness of the risk capital allowance

financial innovations and the interest elasticity of money demand some historical evidence note 1 lntroduction a number of investigations into the difficulties of estimating short run money demand functions recently have suggested that the trouble is linked to changes in the financial market e g see garcia and pak 1979 goldfeld 1976 and simpson and porter 1980 it is argued that these financial innovations have led to a deterioration in the marginal relationship between real money balances and interest rates arguments that financial innovations affect the link between interest rates and money demand are not new indeed this contention is the cornerstone of the much debated theories of gurley and shaw 1960 where a proliferation of money substitutes is hypothesized to increase the interest elasticity of money demand the consequence is a lessening of the fed s ability to affect economic conditions through open market operations since the most dramatic changes in the payments mechanism have occurred during the past twenty years the interest elasticities estimated from recent data should be larger relative to earlier sample period estimates l this finding would support the gurley shaw hypothesis and buttress recent claims that financial innovations have produced a much more interest elastic money demand function unfortunately little empirical work has been done to specifically examine the temporal nature of money demand s interest elasticity the purpose of this paper therefore is to provide empirical evidence on this question 2 we compare the shortand longrun interest elasticities from a money demand equation estimated across the l915 i 1979 iv period 3 our results indicate that the interest elasticity of money

trajectories of small business financial structure a dynamic theory of the small firm is expounded assuming entrepreneurs maximise business value over a finite time horizon predicted trajectories for key financial variables are seen to depend on whether debt or equity are cheaper the predicted trajectories are compared with actual trajectories using empirical evidence from three years of detailed primary source data on one hundred and fifty new business startups in scotland evidence largely confirms predictions of the model for the cheap equity case for this case as capital and sales rise steadily debt is retired rapidly except when interest rates on long term debt are low this finding is supported by explicit empirical trajectories of key financial variables

firms off balance sheet and hybrid debt financing evidence from their book tax reporting differences we match large u s corporations tax returns during 1989 2001 to their financial statements to construct a firm level proxy of firms use of off balance sheet and hybrid debt financing we find that firms with less favorable prior period standard poor s s p bond ratings or higher leverage ratios in comparison to their industry report greater amounts of interest expense on their tax returns than to investors and creditors on their financial statements these between firm results are consistent with credit constrained firms using more structured financing arrangements our within firm tests also suggest that firms use more structured financing arrangements when they enter into contractual loan agreements that provide incentives to manage debt ratings specifically we find that after controlling for s p bond rating and industry adjusted leverage our sample firms report greater amounts of interest expenses for tax than for financial statement purposes when they enter into performance pricing contracts that use senior debt rating covenants to set interest rates furthermore we find that the greatest book tax reporting changes occur when firms become closer to violating these debt rating covenants these latter findings are consistent with firms contractual debt covenants influencing their use of off balance sheet and hybrid debt financing

empirical tax research in accounting this paper traces the development of archival microeconomic based empirical income tax research in accounting over the last 15 years the paper details three major areas of research i the coordination of tax and non tax factors ii the effects of taxes on asset prices and iii the taxation of multijurisdictional international and interstate commerce methodological concerns of particular interest to this field also are discussed the paper concludes with a discussion of possible directions for future research r 2001 elsevier science b v all rights reserved jel classification m41 h25 k34 g32 f23

proxies for the corporate marginal tax rate abstract this paper focuses on how best to measure the corporate marginal tax rate which is an important input into financial analysis of the cost of capital financing policy corporate hedging and corporate reorganizations the results indicate that the simulated tax rate used by shevlin 1990 and graham 1996 although difficult to calculate is the best available proxy for the true marginal tax rate if the simulated rate is unavailable an easy to calculate trichotomous variable or the statutory marginal tax rate which captures the progressivity in the tax schedule are reasonable alternatives better than most commonly used tax variables

an empirical approach to the financial behaviour of small and medium sized companies this paper shows how the financial behaviour of small and medium sized companies is influenced by size and business sector this idea underlies two research approaches to capital structure i credit rationing and ii the pecking order theory both approaches are based on asymmetric information and have been widely developed over the past two decades an analysis has been carried out on 1000 valencian companies that were randomly selected from the state company registry these companies were divided by size before analysis as an innovation the investigation implements a multivariate manova model that takes into account two key variables in the financing of small and medium firms our results show that size influences company self financing strategies and that business sector influences short term financial policy

a probit analysis of the changes in the financial characteristics of newly quoted small firms 1970 73 and 1980 83 an important reason for the establishment of the uk unlisted securities market was to provide capital for promising small firms this paper makes two comparisons a between selected financial characteristics of a sample of small firms that took advantage of this opportunity and a sample of firms that did not and b between any differences in these characteristics and those between a sample of small firms that were floated on the stock market between 1970 73 and a sample of small firms that remained unfloated probit was employed the results suggest floated firms were on average more profitable and faster growing though with the latter relationship not particularly strong there was little significant difference in gearing or liquidity the owners of floated firms were prepared to take less remuneration than average during the 1970s but not during the 1980s

accounting discretion in fair value estimates an examination of sfas 142 goodwill impairments this study examines statement of financial accounting standards 142 adoption decisions focusing on the trade off between recording certain current goodwill impairment charges below the line and uncertain future impairment charges included in income from continuing operations we examine several potentially important economic incentives that firms face when making this accounting choice we find evidence suggesting that firms equity market concerns affect their preference for above the line vs below the line accounting treatment and firms debt contracting bonus turnover and exchange delisting incentives affect their decisions to accelerate or delay expense recognition our study contributes to the accounting choice literature by examining managers use of discretion when adopting a mandatory accounting change and by developing and testing explicit cross sectional hypotheses of the determinants of firms preferences for immediate below the line versus delayed above the line expense recognition

price inertia and policy ineffectiveness in the united states 1890 1980 this paper introduces a new approach to the empirical testing of the lucas sargent wallace lsw policy ineffectiveness proposition which compares the lsw hypothesis with an alternative that states that prices respond fully in the long run but only gradually in the short run to nominal aggregate demand disturbances the empirical equations estimated for a new set of quarterly data extending back to 1890 exhibit uniformly high responses of real output and low responses of price changes to anticipated changes in nominal gnp the paper compares and tests three alternative methods of introducing persistence effects into the lsw framework

a behavioral understanding of investment horizon and firm performance observers have argued that firms overly emphasize short term results at the expense of long run value using a behavioral perspective we analyze three hypotheses related to this general argument first we examine the association of investment time horizons with firm performance contributing new theory that argues for a quadratic rather than linear association second because the tendency toward immediate results could reflect stock market pressures we consider how the interaction of investor patience and firm horizon relates to firm performance third we examine the argument s implication that most firms have investment horizons at a level where marginal increases in horizon associate positively with firm performance measuring horizon as the expected useful lives of capital expenditures we find empirical support for the hypothesized quadratic relation in a large scale multiyear sample of u s publicly held manufacturing firms and confirm that a majority of firms have horizons in the region where our models predict increases in horizon positively influence performance we also find that the most positive returns occur when long horizon investments are aligned with investor patience