创业书籍外文文献
The Important Of Financial Risk
Sohnke M. Bartram Gregory W. Brown and Murat Atamer
Abstract:This paper examines the determinants of equity price risk for a largesample of non-financial corporations in the United States from 1964 to 2008. Weestimate both structural and reduced form models to examine the endogenous natureof corporate financial characteristics such as total debt debt maturity cash holdingsand dividend policy. We find that the obrved levels of equity price risk areexplained primarily by operating and ast characteristics such as firm age size asttangibility as well as operating cash flow levels and volatility. In contrast impliedmeasures of financial risk are generally low and more stable than debt-to-equity measures of financial risk have declined over the last 30 years even as measuresof equity volatility . idiosyncratic risk have tended to increa. Conquentlydocumented trends in equity price risk are more than fully accounted for by trends inthe riskiness of firms’ asts. Taken together the results suggest that the typical substantially reduces financial risk by carefully managing financial policies. As aresult residual financial risk now appears negligible relative to underlying economicrisk for a typical non-financial firm.
圣诞活动Keywords：Capital structure； financial risk； risk management；corporate finance1
1.Introduction
The financial crisis of 2008 has brought significant attention to the effects offinancial leverage. There is no doubt that the high levels of debt financing by financialinstitutions and houholds significantly contributed to the crisis. Indeed evidenceindicates that excessive leverage orchestrated by major global banks . through themortgage lending and collateralized debt obligations and the so-called “shadowbanking system”may be the underlying cau of the recent economic and financialdislocation. Less obvious is the role of financial leverage among nonfinancial date problems in the . non-financial ctor have been minor compared to thedistress in the financial ctor despite the izing of capital markets during the example non-financial bankruptcies have been limited given that the economicdecline is the largest since the great depression of the 1930s. In fact bankruptcyfilings of non-financial firms have occurred mostly in . industries manufacturing newspapers and real estate that faced fundamentaleconomic pressures prior to the financial crisis. This surprising fact begs the question“How important is financial risk for non-financial firms” At the heart of this issue isthe uncertainty
about the determinants of total firm risk as well as components of firmrisk.
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Recent academic rearch in both ast pricing and corporate finance hasrekindled an interest in analyzing equity price risk. A current strand of the astpricing literature examines the finding of Campbell et al. 2001 that firm-specificidiosyncratic risk has tended to increa over the last 40 years. Other work suggeststhat idiosyncratic risk may be a priced risk factor e Goyal and Santa-Clara 2003among others. Also related to the studies is work by Pástor and Veronesi 2003showing how investor uncertainty about firm profitability is an important determinantof idiosyncratic risk and firm value. Other rearch has examined the role of equityvolatility in bond pricing . Dichev 1998 Campbell Hilscher and Szilagyi2008.
However much of the empirical work examining equity price risk takes the riskof asts as given or tries to explain the trend in idiosyncratic risk. In contrast thispaper takes a different tack in the investigation of equity price risk. First we ek tounderstand the determinants of equity price risk at the firm level by considering totalrisk as the product of risks inherent in the firms operations . economic or businessrisks and risks associated with financing the firms operations . financial we attempt to asss the relative importance of economic and financial risksand the implications for financial policy.
春天的小报>吹硬币Early rearch by Modigliani and Miller 1958 suggests that financial policymay be largely irrelevant f
or firm value becau investors can replicate manyfinancial decisions by the firm at a low cost . via homemade leverage andwell-functioning capital markets should be able to distinguish between financial andeconomic distress. Nonetheless financial policies such as adding debt to the capitalstructure can magnify the risk of equity. In contrast recent rearch on corporate riskmanagement suggests that firms may also be able to reduce risks and increa valuewith financial policies such as hedging with financial derivatives. However thisrearch is often motivated by substantial deadweight costs associated with financialdistress or other market imperfections associated with financial leverage. Empiricalrearch provides conflicting accounts of how costly financial distress can be for atypical publicly traded firm.
We attempt to directly address the roles of economic and financial risk byexamining determinants of total firm risk. In our analysis we utilize a large sample ofnon-financial firms in the United goal of identifying the most importantdeterminants of equity price risk volatility relies on viewing financial policy astransforming ast volatility into equity volatility via financial leverage. Thusthroughout the paper we consider financial leverage as the wedge between astvolatility and equity volatility. For example in a static tting
debt provides financialleverage that magnifies operating cash flow volatility. Becau financial policy
青花瓷歌isdetermined by owners and managers we are careful to examine the effects of firms’ast and operating characteristics on financial policy. Specifically we examine avariety of characteristics suggested by previous rearch and as clearly as possibledistinguish between tho associated of the company. factors determining economic risk) and tho associated with financing the firm. factors determining financial risk).We then allow economic risk to be a determinant of financial policy in the structural framework of Leland and Toft(1996),or alternatively, in a reduced form model of financial advantage of the structural model approach is that we are able to account for both the possibility of financial and operating implciations of some factors .dividends),as well as the endogenous nature of the bankruptcy decision and financial policy in general.
Our proxy for firm risk is the volantility if common stock returns derived from calculating the standard deviation of daliy equity proxies for econmic risk are designed to capture the esntial charactersitics of the firm’s operations and asts that determine the cash flow generating process for the example,firm size and age provide measures of line of –business maturity; tangible asts(plant,property,and equipment)rve as a proxy for the ‘hardness’of a firm’s asts;capital expenditures measure captial intensity as well as growth profitability and operating profit volatility rve as measures of the timeliness and riskiness of cash understand how financial factors affect fir
m risk,we examine total debt,debt maturity,dividend payouts,and holdings of cash and short-term investments.
The primary resuit or our analysis is surpriing:factors determining economic risk for a typical company exlain the vast majority of the varation in equity ,measures of implied financial leverage are much lower than obrved debt ratios. Specifically, in our sample covering 1964-2008 average actual net financial (market) leverage is compared to our estimates of between and (depending on model specification and estimation technique).This suggests that firms may undertake other financial polici to manage financial risk and thus lower effective leverage to nearly negligible policies might include dynamically adjusting financial variables such as debt levels,debt maturity,or cash holdings (e,for example , Acharya,Almeida,and Campello,2007).In addition,many firms also utilize explicit financial risk management techniques such as the u of financial dervatives,contractual arrangements with investors . lines of credit,call provisions in debt contracts ,or contingencies in supplier contracts ),spcial purpo vehicles (SPVs),or other alternative risk transfer techniques.
The effects of our ecnomic risk factors on equity volatility are
generally highly statiscally significant, with predicted size and age of the is intuitive since large and
平板支撑是什么mature firms typically have more stable lines of business,which shoule be reflected in the volatility. This suggests that companties with higher and more stable operating cash flows are less likely to go bankrupt, and therefore are potentially less risky .Among economic risk variables,the effects of firm size ,prfit volatility,and dividend policy on equity volatility stand out. Unlike some previous studies,our careful treatment of the endogeneity of financial policy confirms that leveage increas total firm risk. Otherwi,fiancial risk factors are not reliably to total risk.
Given the large literature on financial policy , it is no surpri that financial variables are , at least in part , determined by the econmic risks frims , some of the specific findings are unexpected. For example , in a simple model of capital structure ,dividend payouts should increa financial leverage since they reprent an outflow of cash from the firm.,increa net debt ).We find that dividends are associated with lower risk. This suggests that paying dividends is not as much a product of financial policy as a characteristic of a firm’s operations.,a mature company with limited growth opportunities). We also estimate how nsitivities to different risk factors have changed over result indicate that most relations are fairly stable. One exception is firm age which prior to 1983 tends to be positively related to risk and has since been consisitently negatively related to is related to findings by Brown and Kapadoa (2007) that recent trends in idiosyncratic risk are related to stock listings by younger and riskier firms.
