title: Four essays on capital structure dynamics: special reference to level of leverage, state ownership, corporate governance and climate risk

authors: Nguyen Huu, Thao

subjects: Capital structure

abstract: My thesis consists of four essays that investigate the issues regarding speed of adjustment of capital structure (SOA). Since any deviation in the observed leverage from the optimal level will reduce a firm’s value, the questions pertaining to the existence of target capital structure and how fast firms adjust their leverage draw the attention of researchers and practitioners. To this end, two major approaches have been adopted to address the SOA issues. While some researchers discuss the best method to estimate the speed of leverage adjustment, others explore the determinants of SOA. In contrast to prior studies which focus on developed markets, we explore both a developed market (United States) and a developing market (Vietnam). Two of the four essays here focus on the U.S. market when examining the method of calculating SOA and the new determinant (drought) of SOA. The remaining two essays concentrate on Vietnam, an emerging market and a transitional economy. Nguyen, Locke, and Reddy (2015), after considering the relationship between corporate governance and firm performance in Vietnam, reveal that the legal system, the rule of law, and investor protection in developing countries are not as effective as in developed countries. As such, corporate governance in developing countries plays a more important role in mitigating the agency problem and severe information asymmetry. Hence, the impact of corporate governance on SOA in developing countries can be different from developed countries (Buvanendra, Sridharan, & Thiyagarajan, 2017). Additionally, the role of state ownership is essential in transitional countries where the economy moves from a centrally-planned system to a market-oriented one. Hence, it is important to understand the impact of state ownership on SOA in transitional economies. 
The first essay introduces a new approach to estimate SOA and investigates the relationship between the level of leverage and SOA of capital structure. Instead of applying a blanket total leverage measurement, we consider three leverage settings: total leverage, long-term leverage, and short-term leverage to review other sources of debt. The drawbacks of different approaches, such as a sub-sampling model, applying optimal leverage as a criterion to measure the degree of leverage, or penalized quantile regression, are disclosed. Moreover, we prove that our framework, of employing the quantile regression model and excluding zero-leverage firms, is the best way to investigate the influences of the level of leverage on SOA. For the total and long-term leverage setting, our findings support Leary and Roberts (2005) who contend that the high- and low-levered firms are likely to make leverage adjustments quicker than mid-levered firms. Moreover, we extend the literature to reveal the asymmetry dynamics derived from low-versus high-levered firms. That is, the low-levered firms have a higher SOA than highly levered firms. While the existence of optimal short-term debt and the ways in which firms adjust their short-term debt are sources of controversy among researchers, our findings show that SOA becomes smaller and changes from positive to negative to positive across quantile levels, indicating that the existence of optimal short-term leverage is for firms with low short-term debt. 
The second essay discusses the impact of state ownership on SOA by using a quantile regression approach in Vietnam – a transitional economy. This relationship has been only recently explored in China, and Vietnam, as an important transitional emerging market in Asia, warrants attention. Since privatisation is still ongoing, state-owned enterprises, which contribute 29% to the country’s GDP, play a crucial role in the Vietnamese economy. The linkage between state ownership and SOA in the literature has produced mixed results thus far and we obtain new evidence that the effect of state ownership on SOA is conditional on the level of leverage. Specifically, the effect is significant where there are extreme leverage values, both very high and very low, but it is not significant in the central area of leverage distribution. This effect is adverse for low-leveraged firms but positive for high-leveraged firms. Moreover, the magnitude of adverse effects on SOA is greater than those of favourable effects, implying an average negative effect of state ownership on SOA.
The third study investigates the impact of corporate governance in Vietnam. First, we disclose the effect of fundamental corporate governance mechanisms, namely gender diversity, foreign ownership and managerial ownership on SOA, which are left unexplored by the literature. Second, we are the first attempt to demonstrate the linkage between corporate governance and SOA in Vietnam. While most studies on capital structure dynamics and corporate governance concentrate on the United States (Chang, Chou, & Huang, 2015, 2014), minimal attention has been paid to the relationship between corporate governance and SOA in a developing country. The corporate governance system in Vietnam is in its initial stage of development and remains underdeveloped. Applying the GMM (Generalized Method of Moment) two step framework, we find the significant impact on SOA of six corporate governance mechanisms: board size, board independence, CEO duality, gender diversity, managerial ownership and foreign ownership. Our evidence indicates that board size, board independence, gender diversity, and managerial ownership positively affect SOA while CEO duality and foreign ownership have adverse influences. These findings have important policy implications for firms and Vietnamese authorities.
The fourth study demonstrates how firm respond, in terms of SOA of capital structure, to climate-change risk, namely, drought. Using a fractional dependent estimator (DPF) approach and 130,511 U.S. firm-year observations over the period 1970-2015, we document an adverse and significant influence of drought on capital structure and the speed of leverage adjustment. Our study makes four significant contributions to the extant literature in climate finance. First, while there is virtually no disagreement among researchers that climate change poses substantial costs to the economy (e.g., Burke, Hsiang, & Miguel, 2015; Dietz, Bowen, Dixon, & Gradwell, 2016; Lesk et al., 2016), the impact of climate change in the form of drought on individual firms has yet to be well researched. Second, while the extant literature documents the impact of drought, mostly in food and agriculture industries (Blackhurst, Hendrickson, & Sels, 2010; Hong et al., 2019; Lesk et al., 2016), we report evidence of the spill over effect of drought on nonfood industry firms. Third, our firm–level examination takes advantage of the heterogeneity in corporate policies and allows us to draw implications for managers as to how firms can palpably address climate risks in general and drought risk in particular. Last, we find that the role of cash flow and financial unconstrained factors are effective in mitigating the negative impact of drought on capital structure and the speed of leverage adjustment.

text: Four essays on capital structure dynamics: special reference to level of leverage, state ownership, corporate governance and climate risk My thesis consists of four essays that investigate the issues regarding speed of adjustment of capital structure (SOA). Since any deviation in the observed leverage from the optimal level will reduce a firm’s value, the questions pertaining to the existence of target capital structure and how fast firms adjust their leverage draw the attention of researchers and practitioners. To this end, two major approaches have been adopted to address the SOA issues. While some researchers discuss the best method to estimate the speed of leverage adjustment, others explore the determinants of SOA. In contrast to prior studies which focus on developed markets, we explore both a developed market (United States) and a developing market (Vietnam). Two of the four essays here focus on the U.S. market when examining the method of calculating SOA and the new determinant (drought) of SOA. The remaining two essays concentrate on Vietnam, an emerging market and a transitional economy. Nguyen, Locke, and Reddy (2015), after considering the relationship between corporate governance and firm performance in Vietnam, reveal that the legal system, the rule of law, and investor protection in developing countries are not as effective as in developed countries. As such, corporate governance in developing countries plays a more important role in mitigating the agency problem and severe information asymmetry. Hence, the impact of corporate governance on SOA in developing countries can be different from developed countries (Buvanendra, Sridharan, & Thiyagarajan, 2017). Additionally, the role of state ownership is essential in transitional countries where the economy moves from a centrally-planned system to a market-oriented one. Hence, it is important to understand the impact of state ownership on SOA in transitional economies. 
The first essay introduces a new approach to estimate SOA and investigates the relationship between the level of leverage and SOA of capital structure. Instead of applying a blanket total leverage measurement, we consider three leverage settings: total leverage, long-term leverage, and short-term leverage to review other sources of debt. The drawbacks of different approaches, such as a sub-sampling model, applying optimal leverage as a criterion to measure the degree of leverage, or penalized quantile regression, are disclosed. Moreover, we prove that our framework, of employing the quantile regression model and excluding zero-leverage firms, is the best way to investigate the influences of the level of leverage on SOA. For the total and long-term leverage setting, our findings support Leary and Roberts (2005) who contend that the high- and low-levered firms are likely to make leverage adjustments quicker than mid-levered firms. Moreover, we extend the literature to reveal the asymmetry dynamics derived from low-versus high-levered firms. That is, the low-levered firms have a higher SOA than highly levered firms. While the existence of optimal short-term debt and the ways in which firms adjust their short-term debt are sources of controversy among researchers, our findings show that SOA becomes smaller and changes from positive to negative to positive across quantile levels, indicating that the existence of optimal short-term leverage is for firms with low short-term debt. 
The second essay discusses the impact of state ownership on SOA by using a quantile regression approach in Vietnam – a transitional economy. This relationship has been only recently explored in China, and Vietnam, as an important transitional emerging market in Asia, warrants attention. Since privatisation is still ongoing, state-owned enterprises, which contribute 29% to the country’s GDP, play a crucial role in the Vietnamese economy. The linkage between state ownership and SOA in the literature has produced mixed results thus far and we obtain new evidence that the effect of state ownership on SOA is conditional on the level of leverage. Specifically, the effect is significant where there are extreme leverage values, both very high and very low, but it is not significant in the central area of leverage distribution. This effect is adverse for low-leveraged firms but positive for high-leveraged firms. Moreover, the magnitude of adverse effects on SOA is greater than those of favourable effects, implying an average negative effect of state ownership on SOA.
The third study investigates the impact of corporate governance in Vietnam. First, we disclose the effect of fundamental corporate governance mechanisms, namely gender diversity, foreign ownership and managerial ownership on SOA, which are left unexplored by the literature. Second, we are the first attempt to demonstrate the linkage between corporate governance and SOA in Vietnam. While most studies on capital structure dynamics and corporate governance concentrate on the United States (Chang, Chou, & Huang, 2015, 2014), minimal attention has been paid to the relationship between corporate governance and SOA in a developing country. The corporate governance system in Vietnam is in its initial stage of development and remains underdeveloped. Applying the GMM (Generalized Method of Moment) two step framework, we find the significant impact on SOA of six corporate governance mechanisms: board size, board independence, CEO duality, gender diversity, managerial ownership and foreign ownership. Our evidence indicates that board size, board independence, gender diversity, and managerial ownership positively affect SOA while CEO duality and foreign ownership have adverse influences. These findings have important policy implications for firms and Vietnamese authorities.
The fourth study demonstrates how firm respond, in terms of SOA of capital structure, to climate-change risk, namely, drought. Using a fractional dependent estimator (DPF) approach and 130,511 U.S. firm-year observations over the period 1970-2015, we document an adverse and significant influence of drought on capital structure and the speed of leverage adjustment. Our study makes four significant contributions to the extant literature in climate finance. First, while there is virtually no disagreement among researchers that climate change poses substantial costs to the economy (e.g., Burke, Hsiang, & Miguel, 2015; Dietz, Bowen, Dixon, & Gradwell, 2016; Lesk et al., 2016), the impact of climate change in the form of drought on individual firms has yet to be well researched. Second, while the extant literature documents the impact of drought, mostly in food and agriculture industries (Blackhurst, Hendrickson, & Sels, 2010; Hong et al., 2019; Lesk et al., 2016), we report evidence of the spill over effect of drought on nonfood industry firms. Third, our firm–level examination takes advantage of the heterogeneity in corporate policies and allows us to draw implications for managers as to how firms can palpably address climate risks in general and drought risk in particular. Last, we find that the role of cash flow and financial unconstrained factors are effective in mitigating the negative impact of drought on capital structure and the speed of leverage adjustment.

year: 2020

title: Technical note: A significance test for data-sparse zones in scatter plots

authors: Vetrova, V. V.

subjects: data-sparse zones

abstract: Data-sparse zones in scatter plots of hydrological variables can be of interest in various contexts. For example, a well-defined data-sparse zone may indicate inhibition of one variable by another. It is of interest therefore to determine whether data-sparse regions in scatter plots are of sufficient extent to be beyond random chance. We consider the specific situation of data-sparse regions defined by a linear internal boundary within a scatter plot defined over a rectangular region. An Excel VBA macro is provided for carrying out a randomisation-based significance test of the data-sparse region, taking into account both the within-region number of data points and the extent of the region. Example applications are given with respect to a rainfall time series from Israel and also to validation scatter plots from a seasonal forecasting model for lake inflows in New Zealand.

text: Technical note: A significance test for data-sparse zones in scatter plots Data-sparse zones in scatter plots of hydrological variables can be of interest in various contexts. For example, a well-defined data-sparse zone may indicate inhibition of one variable by another. It is of interest therefore to determine whether data-sparse regions in scatter plots are of sufficient extent to be beyond random chance. We consider the specific situation of data-sparse regions defined by a linear internal boundary within a scatter plot defined over a rectangular region. An Excel VBA macro is provided for carrying out a randomisation-based significance test of the data-sparse region, taking into account both the within-region number of data points and the extent of the region. Example applications are given with respect to a rainfall time series from Israel and also to validation scatter plots from a seasonal forecasting model for lake inflows in New Zealand.

year: 2012

title: The effectiveness of the silent way method in the teaching of Maori as a second language

authors: Mataira, Katerina

abstract: The socio-linguistic survey of Benton (1979) provides evidence to show that the continued existence of the Maori language is seriously threatened.

The national Department of Education is implementing a policy of Maori language and culture studies in schools, but the scale and depth of this commitment is restricted by limited resources and expertise. The schools alone cannot stem the threat to the Maori language.

Harnessing the resources within Maori communities would appear to be a necessary step toward language maintenance. The most useful of these resources are the native speakers of the Maori language.
A community-based training programme aimed at equipping such people for the teaching of Maori as a second language would provide a much needed facility for both community and school.

The only teacher training programme presently available to native speakers of the language is a one year course offered through Teachers Colleges. Since only a select few can avail themselves of this opportunity, there is a need for an alternative training programme which will cater for greater numbers and release more teachers into the community.

A community-based, on the job, periodic training programme with minimal disruptions to family life and work commitments, would probably be preferred to a long-term, institutionalised, away-from-home programme. Initially, the training programme might need to be quite specific, i.e. native speakers might be initiated into the use of a particular language teaching method and programme which has been planned, tested and found to be suitable.

Given a highly specific programme, trainees might be able to start·teaching after an initial short course of a week. Thereafter, training sessions could be paced and spaced so that teachers could continue to grow in strength and expertise as their experience increased.

The quest for a suitable method has been the focus of my studies for four years. It has brought me to investigate both the conventional and unconventional approaches to foreign language teaching, along with their linguistic, psychological and pedagogical bases. Of these a method which strikes me as having considerable potential as a teaching tool in the hands of native speakers, is Gattegno's Silent Way approach.

The experiment described in this thesis is part of the total investigation. It is an attempt to evaluate the effectiveness of the Silent Way as a teaching/learning instrument for second language acquisition. The teaching strategies of the Silent Way are measured against the opposing strategies of an eclectic approach.

Two Form I classes of randomly assigned pupils were used for the experiment. The Maori language was taught to Class S.W. using the Silent Way method, and to Class E. using an Eclectic method.

A total of 30 hours was used for the experiment, 20 hours for the language component and 10 hours for a culture component. Tests were administered to measure the achievement of subjects in the language areas of listening, speaking, writing and reading.

Significant differences between the groups were noted on all measures except on the measure for fluency. The children taught through the Silent Way method made significantly greater gains than the children taught through the Eclectic method.

text: The effectiveness of the silent way method in the teaching of Maori as a second language The socio-linguistic survey of Benton (1979) provides evidence to show that the continued existence of the Maori language is seriously threatened.

The national Department of Education is implementing a policy of Maori language and culture studies in schools, but the scale and depth of this commitment is restricted by limited resources and expertise. The schools alone cannot stem the threat to the Maori language.

Harnessing the resources within Maori communities would appear to be a necessary step toward language maintenance. The most useful of these resources are the native speakers of the Maori language.
A community-based training programme aimed at equipping such people for the teaching of Maori as a second language would provide a much needed facility for both community and school.

The only teacher training programme presently available to native speakers of the language is a one year course offered through Teachers Colleges. Since only a select few can avail themselves of this opportunity, there is a need for an alternative training programme which will cater for greater numbers and release more teachers into the community.

A community-based, on the job, periodic training programme with minimal disruptions to family life and work commitments, would probably be preferred to a long-term, institutionalised, away-from-home programme. Initially, the training programme might need to be quite specific, i.e. native speakers might be initiated into the use of a particular language teaching method and programme which has been planned, tested and found to be suitable.

Given a highly specific programme, trainees might be able to start·teaching after an initial short course of a week. Thereafter, training sessions could be paced and spaced so that teachers could continue to grow in strength and expertise as their experience increased.

The quest for a suitable method has been the focus of my studies for four years. It has brought me to investigate both the conventional and unconventional approaches to foreign language teaching, along with their linguistic, psychological and pedagogical bases. Of these a method which strikes me as having considerable potential as a teaching tool in the hands of native speakers, is Gattegno's Silent Way approach.

The experiment described in this thesis is part of the total investigation. It is an attempt to evaluate the effectiveness of the Silent Way as a teaching/learning instrument for second language acquisition. The teaching strategies of the Silent Way are measured against the opposing strategies of an eclectic approach.

Two Form I classes of randomly assigned pupils were used for the experiment. The Maori language was taught to Class S.W. using the Silent Way method, and to Class E. using an Eclectic method.

A total of 30 hours was used for the experiment, 20 hours for the language component and 10 hours for a culture component. Tests were administered to measure the achievement of subjects in the language areas of listening, speaking, writing and reading.

Significant differences between the groups were noted on all measures except on the measure for fluency. The children taught through the Silent Way method made significantly greater gains than the children taught through the Eclectic method.

year: 1980