title: Determinants of corporate leverage adjustments: A cross-country analysis

authors: Ho, Thi Hai Ly

subjects: dynamic capital structure

abstract: Capital structure literature suggests that firms are very likely to consider target leverage ratios when they issue new capital (Graham & Harvey, 2001). Albeit the dynamic trade-off theory predicts that firms have incentives to move toward target debt ratios by reducing any deviation from those targets (Frank & Goyal, 2009), due to substantial financing frictions, i.e. issuance costs or intermediation costs, firms may decide to temporarily deviate from their target levels. A recent strand of research has investigated significant factors that affect such adjustment costs or firms’ leverage SOA. This thesis consists of three essays that investigate crucial determinants of corporate leverage adjustments: equity liquidity, corporate sustainability performance (CSP), and employment protection laws (EPL). 
Chapter 1 examines the impact of liquidity on the speed of adjustment (SOA) of corporate leverage at the individual company level. Using a sample of UK firms and data from 35 countries, respectively, over the period from 1996 to 2016, the chapter finds that high-liquidity firms have a significantly faster SOA than less liquid firms. This result survives a series of robustness checks and holds after addressing the endogeneity concern using exogenous shocks and additional control variables. Further analyses imply that the positive effect of liquidity on the SOA exists only for over-levered firms, and this impact is moderated in countries with bankruptcy codes. In the cross-section, the chapter suggests that the positive relationship between liquidity and SOA is more pronounced for firms whose current position is relatively close to its target leverage ratio and whose target ratio is relatively stable. The chapter further shows that the positive equity liquidity-SOA association is less (more) pronounced for firms in strong (weak) institutional environments. The results provide new insights into the role of liquidity in firms’ capital structure decisions and the determinants of capital structure dynamics.
Chapter 2 investigates the impact of corporate sustainability performance (CSP) on the speed at which firms adjust their leverage to the target ratios. Using a large sample of 31 countries from 2002 to 2018 with two proxies of CSP, the chapter suggests that firms that invest more in CSP move faster toward their target leverage. In exploring the potential underlying economic mechanisms through which CSP affects leverage adjustments, the chapter shows that superior CSP plays an important role in easing information asymmetry, enhancing stakeholder engagements, pushing up stock prices in the stock market, and improving competitive advantages in the product market of firms. In further analyses, the positive association between CSP and leverage SOA is shown to be less pronounced in countries with high-quality institutions. The results remain statistically and quantitatively unchanged from numerous robustness tests and IV estimates. Overall, this chapter enlightens the crucial role of CSP in shaping the firm’s decisions on dynamic capital structure and provides implications for strategic planning of firms on the optimal choices of CSP investments.
Finally, chapter 3 highlights the impact of employment protection laws (EPLs) on the speed of corporate leverage adjustments. By exploiting within-country changes in EPLs across 19 OECD countries, the chapter suggests that firms operating in countries with more stringent EPLs have significantly low leverage adjustment speeds. This association is consistent with the view that stringent EPLs raise firms’ costs of adjustment on target leverage. The result survives several tests addressing the endogeneity concern by instrument variable approach, Rajan and Zingales (1998)’s method, and additional control variables and is robust to a battery of robustness checks. The chapter further demonstrates that the response of leverage adjustment to changes in EPLs is more pronounced in countries with effective legal enforcement. Generally, results of the chapter are consistent with the dynamic trade-off theory of capital structure.

text: Determinants of corporate leverage adjustments: A cross-country analysis Capital structure literature suggests that firms are very likely to consider target leverage ratios when they issue new capital (Graham & Harvey, 2001). Albeit the dynamic trade-off theory predicts that firms have incentives to move toward target debt ratios by reducing any deviation from those targets (Frank & Goyal, 2009), due to substantial financing frictions, i.e. issuance costs or intermediation costs, firms may decide to temporarily deviate from their target levels. A recent strand of research has investigated significant factors that affect such adjustment costs or firms’ leverage SOA. This thesis consists of three essays that investigate crucial determinants of corporate leverage adjustments: equity liquidity, corporate sustainability performance (CSP), and employment protection laws (EPL). 
Chapter 1 examines the impact of liquidity on the speed of adjustment (SOA) of corporate leverage at the individual company level. Using a sample of UK firms and data from 35 countries, respectively, over the period from 1996 to 2016, the chapter finds that high-liquidity firms have a significantly faster SOA than less liquid firms. This result survives a series of robustness checks and holds after addressing the endogeneity concern using exogenous shocks and additional control variables. Further analyses imply that the positive effect of liquidity on the SOA exists only for over-levered firms, and this impact is moderated in countries with bankruptcy codes. In the cross-section, the chapter suggests that the positive relationship between liquidity and SOA is more pronounced for firms whose current position is relatively close to its target leverage ratio and whose target ratio is relatively stable. The chapter further shows that the positive equity liquidity-SOA association is less (more) pronounced for firms in strong (weak) institutional environments. The results provide new insights into the role of liquidity in firms’ capital structure decisions and the determinants of capital structure dynamics.
Chapter 2 investigates the impact of corporate sustainability performance (CSP) on the speed at which firms adjust their leverage to the target ratios. Using a large sample of 31 countries from 2002 to 2018 with two proxies of CSP, the chapter suggests that firms that invest more in CSP move faster toward their target leverage. In exploring the potential underlying economic mechanisms through which CSP affects leverage adjustments, the chapter shows that superior CSP plays an important role in easing information asymmetry, enhancing stakeholder engagements, pushing up stock prices in the stock market, and improving competitive advantages in the product market of firms. In further analyses, the positive association between CSP and leverage SOA is shown to be less pronounced in countries with high-quality institutions. The results remain statistically and quantitatively unchanged from numerous robustness tests and IV estimates. Overall, this chapter enlightens the crucial role of CSP in shaping the firm’s decisions on dynamic capital structure and provides implications for strategic planning of firms on the optimal choices of CSP investments.
Finally, chapter 3 highlights the impact of employment protection laws (EPLs) on the speed of corporate leverage adjustments. By exploiting within-country changes in EPLs across 19 OECD countries, the chapter suggests that firms operating in countries with more stringent EPLs have significantly low leverage adjustment speeds. This association is consistent with the view that stringent EPLs raise firms’ costs of adjustment on target leverage. The result survives several tests addressing the endogeneity concern by instrument variable approach, Rajan and Zingales (1998)’s method, and additional control variables and is robust to a battery of robustness checks. The chapter further demonstrates that the response of leverage adjustment to changes in EPLs is more pronounced in countries with effective legal enforcement. Generally, results of the chapter are consistent with the dynamic trade-off theory of capital structure.

year: 2021

title: Recent changes to welfare policy & the labour market

authors: Cochrane, William

abstract: This presentation:
- Outlines changes to the welfare system, (job seeker’s benefit).
- Discusses likely impacts on the New Zealand labour market.
- Compares the approach taken by the previous Labour Government.
- Makes concluding comments regarding the interaction of welfare and the labour market.

text: Recent changes to welfare policy & the labour market This presentation:
- Outlines changes to the welfare system, (job seeker’s benefit).
- Discusses likely impacts on the New Zealand labour market.
- Compares the approach taken by the previous Labour Government.
- Makes concluding comments regarding the interaction of welfare and the labour market.

year: 2025

title: A trans-national analysis of equitable utilisation and minimisation of environmental harm under environmental laws at international, federal and national levels

authors: Hasan, Qaraman

subjects: International Environmental Law

abstract: Due to increasing demand for various human needs and climate change issues, rivers are now under enormous pressure. With increasing pressure on these valuable natural resources, responses among state and non-state actors are insufficient in the Anthropocene. To fill the gap, International Environmental Law (IEL) provides several principles for better management of these resources. Equitable utilisation and minimisation of environmental harm are among the most important principles of the IEL. From a theoretical perspective, these principles should lead to the sustainability of these resources and promote cooperation among relevant actors.

However, many river basins are still not allocated equitably and suffer from environmental damage. By using comparative, doctrinal, and empirical research methods, this thesis evaluates the two principles at the international level in Tigris and Euphrates River Basin, the federal level in Murray Darling Basin and at the local level in the Waikato River catchment. The research discovered major challenges for implementing the two principles. One major challenge is sovereignty, another is a lack or weakness of local voices and transparency. As the nature and status of all basins are different, the challenges are not exactly the same. For example, hearing local voices and better information transparency have significantly improved in the Waikato River.

As the challenges for implementing the two principles are not purely legal, the responses should blend legal solutions with political and socio-economic solutions. Therefore, this thesis strongly supports shared sovereignty among states at the international level as well as shared sovereignty with indigenous and minority groups at the national level. Cooperation among national and international actors in the river basins is also crucial for implementing the two principles effectively. Finally, there is the opportunity to establish basin institutions or organisations to manage river basins integrated and sustainable. This is vital in the case of TE-RB because the basin still lacks an institution. Furthermore, the basin institution in the MDB requires more robust compliance and monitoring power because the provisions of the Water Act 2007 and the basin plan still have not been implemented effectively.

Finally, the thesis concludes with two common lessons in comparing these cases. The first lesson is that equitable utilisation cannot be implemented effectively if it is not accepted by the local community in a broad and deep meaning. It means that the equitable allocation should be extended from only the riparian states to equitable allocation among the people within each state. The second lesson is that the minimisation of environmental harm cannot be implemented without determining the minimum flow of rivers, particularly transboundary rivers. Determining an environmental impact assessment for water projects and taking advantage of available solutions of nature contributes significantly in implementing the two principles and sustainable management of our rivers.

text: A trans-national analysis of equitable utilisation and minimisation of environmental harm under environmental laws at international, federal and national levels Due to increasing demand for various human needs and climate change issues, rivers are now under enormous pressure. With increasing pressure on these valuable natural resources, responses among state and non-state actors are insufficient in the Anthropocene. To fill the gap, International Environmental Law (IEL) provides several principles for better management of these resources. Equitable utilisation and minimisation of environmental harm are among the most important principles of the IEL. From a theoretical perspective, these principles should lead to the sustainability of these resources and promote cooperation among relevant actors.

However, many river basins are still not allocated equitably and suffer from environmental damage. By using comparative, doctrinal, and empirical research methods, this thesis evaluates the two principles at the international level in Tigris and Euphrates River Basin, the federal level in Murray Darling Basin and at the local level in the Waikato River catchment. The research discovered major challenges for implementing the two principles. One major challenge is sovereignty, another is a lack or weakness of local voices and transparency. As the nature and status of all basins are different, the challenges are not exactly the same. For example, hearing local voices and better information transparency have significantly improved in the Waikato River.

As the challenges for implementing the two principles are not purely legal, the responses should blend legal solutions with political and socio-economic solutions. Therefore, this thesis strongly supports shared sovereignty among states at the international level as well as shared sovereignty with indigenous and minority groups at the national level. Cooperation among national and international actors in the river basins is also crucial for implementing the two principles effectively. Finally, there is the opportunity to establish basin institutions or organisations to manage river basins integrated and sustainable. This is vital in the case of TE-RB because the basin still lacks an institution. Furthermore, the basin institution in the MDB requires more robust compliance and monitoring power because the provisions of the Water Act 2007 and the basin plan still have not been implemented effectively.

Finally, the thesis concludes with two common lessons in comparing these cases. The first lesson is that equitable utilisation cannot be implemented effectively if it is not accepted by the local community in a broad and deep meaning. It means that the equitable allocation should be extended from only the riparian states to equitable allocation among the people within each state. The second lesson is that the minimisation of environmental harm cannot be implemented without determining the minimum flow of rivers, particularly transboundary rivers. Determining an environmental impact assessment for water projects and taking advantage of available solutions of nature contributes significantly in implementing the two principles and sustainable management of our rivers.

year: 2023