Presenter Information

Dan DreherFollow

Panel Name

Advances in Finance

Location

Lecture Center Concourse

Start Date

3-5-2019 3:00 PM

End Date

3-5-2019 5:00 PM

Presentation Type

Poster Session

Academic Major

Finance

Abstract

Most firms tend to deleverage from the historical peak market-leverage (ML) ratios to near-zero ML while also insisting on growing and maintaining high cash balances. Among 424 publicly traded non United States companies that are based in developed countries that are not financial nor industrial firms with five or more years post peak ML data, the median ML at the peak is

0.369 and 0.021 at the subsequent trough. The median cash / total assets ratio rises from 0.046 to

0.080, respectively during the same period. These findings support theories in which firms deleverage from peak ML to restore ample financial flexibility and rebuild cash balances to assure reliable and cost-efficient access to capital. For the entire sample, the average annual changes of ML in the developed sample is -7% while it’s only about 4% in the emerging markets sample. In addition, during the deleveraging period, the change in NDR (net debt ratio) which is a measure of debt, net of cash to total assets, is 28% in developed countries. The other financial metrics came back with no other major differences. These findings show that there is no key difference between developed countries and emerging market countries for firms’ proactive deleveraging from their peak ML ratios.

Select Where This Work Originated From

Departmental Honors Thesis

First Faculty Advisor

Rita Biswas

First Advisor Email

rbiswas@albany.edu

First Advisor Department

Finance

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May 3rd, 3:00 PM May 3rd, 5:00 PM

Corporate Deleveraging and Financial Flexibility

Lecture Center Concourse

Most firms tend to deleverage from the historical peak market-leverage (ML) ratios to near-zero ML while also insisting on growing and maintaining high cash balances. Among 424 publicly traded non United States companies that are based in developed countries that are not financial nor industrial firms with five or more years post peak ML data, the median ML at the peak is

0.369 and 0.021 at the subsequent trough. The median cash / total assets ratio rises from 0.046 to

0.080, respectively during the same period. These findings support theories in which firms deleverage from peak ML to restore ample financial flexibility and rebuild cash balances to assure reliable and cost-efficient access to capital. For the entire sample, the average annual changes of ML in the developed sample is -7% while it’s only about 4% in the emerging markets sample. In addition, during the deleveraging period, the change in NDR (net debt ratio) which is a measure of debt, net of cash to total assets, is 28% in developed countries. The other financial metrics came back with no other major differences. These findings show that there is no key difference between developed countries and emerging market countries for firms’ proactive deleveraging from their peak ML ratios.