University of Twente Student Theses
The efect of financial leverage on firm value: evidence from the Netherlands
Korotkikh, Konstantin (2012) The efect of financial leverage on firm value: evidence from the Netherlands.
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| Abstract: | In this master thesis author examines how financial leverage affects firm value of 78 Dutch companies listed on Amsterdam Euronext Stock Exchange in the period of 2007-2011, taking into account reciprocal relationship between these variables and involvement of corporate governance into the key relationship. The empirical results, provided by different estimation techniques, demonstrate a negative relationship between leverage and value, suggesting that by increasing total debt to capital ratio, companies damage their performance measured by Tobin’s Q. Overinvestment, when company has substantial amount of cash and low growth potential - is a relevant problem for Dutch listed companies that influences value negatively. As known from prior studies, debt may alleviate it due to its disciplinary effect thereby increasing value. However, such an effect of debt on value of overinvesting companies was not evidenced. Another effect of debt – negative on value of underinvestment companies (those with high growth potential, but with few cash) was discovered in the results. However, underinvestment problem by itself occurred to be irrelevant for Dutch listed companies. These findings correspond to evidence from the Netherlands provided in prior literature. It was assumed that disciplinary effect of debt on overinvestors vanishes due to the presence of value-maximizing corporate governance mechanisms (among them are ownership by insiders, financial institutions and largest blockholders, and size of the board). However, neither value-maximizing role of such mechanisms, nor their influence on leverage were observed. In addition, mediatory role of corporate governance was tested regardless of investment behavior. The obtained empirical results did not allow author to conclude whether considered corporate governance variables had an impact on leverage-value relationship. |
| Item Type: | Essay (Master) |
| Faculty: | BMS: Behavioural, Management and Social Sciences |
| Subject: | 85 business administration, organizational science |
| Programme: | Business Administration MSc (60644) |
| Link to this item: | https://purl.utwente.nl/essays/62635 |
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