IDEAS home Printed from https://ideas.repec.org/a/eee/quaeco/v72y2019icp145-151.html
   My bibliography  Save this article

The firm value in case of deleveraging using leasing and the optimal restructuring level

Author

Listed:
  • Elsiefy, Elsayed
  • AbdElaal, Moustafa Ahmed

Abstract

When the firm falls in the financial distress it, has several difficult solutions, e.g., buy back its debt or the bankruptcy. Some firms finance purchasing its debt via issuing a new equity or selling part of its assets. In this paper, we investigated deleveraging via sell part of the firms’ assets and then lease it back. We present a model for calculating the firm’s assets value in restructure threshold and the optimal restructuring level after considering the leased assets value. We illustrated how the continuous decreasing in the firm’s assets value does not forbid the restructuring. On contrary, when a firm’s asset value decline the cost of restructuring decrease. Finally, we concluded the negative relationship between the percentages of loss due to the restructuring and the optimal firms’ assets value at the restructuring.

Suggested Citation

  • Elsiefy, Elsayed & AbdElaal, Moustafa Ahmed, 2019. "The firm value in case of deleveraging using leasing and the optimal restructuring level," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 145-151.
    • Handle: RePEc:eee:quaeco:v:72:y:2019:i:c:p:145-151
    DOI: 10.1016/j.qref.2018.11.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062976918300383
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.qref.2018.11.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Beattie, Vivien & Goodacre, Alan & Thomson, Sarah, 2000. "Operating leases and the assessment of lease-debt substitutability," Journal of Banking & Finance, Elsevier, vol. 24(3), pages 427-470, March.
    2. Leland, Hayne E, 1994. "Corporate Debt Value, Bond Covenants, and Optimal Capital Structure," Journal of Finance, American Finance Association, vol. 49(4), pages 1213-1252, September.
    3. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    4. Lewis, Craig M. & Schallheim, James S., 1992. "Are Debt and Leases Substitutes?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(4), pages 497-511, December.
    5. Black, Fischer & Cox, John C, 1976. "Valuing Corporate Securities: Some Effects of Bond Indenture Provisions," Journal of Finance, American Finance Association, vol. 31(2), pages 351-367, May.
    6. Brennan, Michael J & Schwartz, Edwardo S, 1978. "Corporate Income Taxes, Valuation, and the Problem of Optimal Capital Structure," The Journal of Business, University of Chicago Press, vol. 51(1), pages 103-114, January.
    7. Ang, James & Peterson, Pamela P, 1984. "The Leasing Puzzle," Journal of Finance, American Finance Association, vol. 39(4), pages 1055-1065, September.
    8. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    9. Yan, An, 2006. "Leasing and Debt Financing: Substitutes or Complements?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(3), pages 709-731, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Galai, Dan & Raviv, Alon & Wiener, Zvi, 2007. "Liquidation triggers and the valuation of equity and debt," Journal of Banking & Finance, Elsevier, vol. 31(12), pages 3604-3620, December.
    2. Sheen X. Liu & Howard Qi & Chunchi Wu, 2006. "Personal Taxes, Endogenous Default, and Corporate Bond Yield Spreads," Management Science, INFORMS, vol. 52(6), pages 939-954, June.
    3. Perrakis, Stylianos & Zhong, Rui, 2015. "Credit spreads and state-dependent volatility: Theory and empirical evidence," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 215-231.
    4. Hong Liu & Jianjun Miao, 2006. "Managerial Preferences, Corporate Governance, and Financial Structure," Boston University - Department of Economics - Working Papers Series WP2006-020, Boston University - Department of Economics.
    5. Martellini, Lionel & Milhau, Vincent & Tarelli, Andrea, 2018. "Capital structure decisions and the optimal design of corporate market debt prograams," Journal of Corporate Finance, Elsevier, vol. 49(C), pages 141-167.
    6. Hilscher, Jens & Raviv, Alon, 2014. "Bank stability and market discipline: The effect of contingent capital on risk taking and default probability," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 542-560.
    7. Ryoichi Ikeda & Yoske Igarashi, 2016. "Credit risk analysis with creditor’s option to extend maturities," Annals of Finance, Springer, vol. 12(3), pages 275-304, December.
    8. Ayadi, Mohamed A. & Ben-Ameur, Hatem & Fakhfakh, Tarek, 2016. "A dynamic program for valuing corporate securities," European Journal of Operational Research, Elsevier, vol. 249(2), pages 751-770.
    9. Zhijian (James) Huang & Yuchen Luo, 2016. "Revisiting Structural Modeling of Credit Risk—Evidence from the Credit Default Swap (CDS) Market," JRFM, MDPI, vol. 9(2), pages 1-20, May.
    10. Augusto Castillo, 2004. "Firm and Corporate Bond Valuation: A Simulation Dynamic Programming Approach," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 41(124), pages 345-360.
    11. Giesecke, Kay & Longstaff, Francis A. & Schaefer, Stephen & Strebulaev, Ilya, 2011. "Corporate bond default risk: A 150-year perspective," Journal of Financial Economics, Elsevier, vol. 102(2), pages 233-250.
    12. Hackbarth, Dirk & Miao, Jianjun & Morellec, Erwan, 2006. "Capital structure, credit risk, and macroeconomic conditions," Journal of Financial Economics, Elsevier, vol. 82(3), pages 519-550, December.
    13. Matsumura, Marco S. & Vicente, José Valentim Machado, 2010. "The role of macroeconomic variables in sovereign risk," Emerging Markets Review, Elsevier, vol. 11(3), pages 229-249, September.
    14. Hui Chen & Jianjun Miao & Neng Wang, 2010. "Entrepreneurial Finance and Nondiversifiable Risk," The Review of Financial Studies, Society for Financial Studies, vol. 23(12), pages 4348-4388, December.
    15. Duffie, Darrell, 2003. "Intertemporal asset pricing theory," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 11, pages 639-742, Elsevier.
    16. Episcopos, Athanasios, 2008. "Bank capital regulation in a barrier option framework," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1677-1686, August.
    17. Maria Stefanova, 2012. "Recovery Risiko in der Kreditportfoliomodellierung," Springer Books, Springer, number 978-3-8349-4226-5, November.
    18. Reisz, Alexander S. & Perlich, Claudia, 2007. "A market-based framework for bankruptcy prediction," Journal of Financial Stability, Elsevier, vol. 3(2), pages 85-131, July.
    19. Robert Elliott & Jia Shen, 2015. "Dynamic optimal capital structure with regime switching," Annals of Finance, Springer, vol. 11(2), pages 199-220, May.
    20. Dumitrescu, Ariadna, 2007. "Valuation of defaultable bonds and debt restructuring," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 94-111, March.

    More about this item

    Keywords

    Deleverage; Lease; Restructure;
    All these keywords.

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:72:y:2019:i:c:p:145-151. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620167 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.