Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Causal Relationship between Capital Structure and Cost of Capital: Evidence from ICT Companies Listed at NASDAQ

Contents:

Author Info

  • Aoun, Dany

    ()
    (Seoul National University)

  • Heshmati, Almas

    ()
    (Ratio)

Abstract

In this study, we intend to examine the Information and Communication Technology (ICT) firms, from a financial perspective. The causal relationship between capital structure and cost of capital is investigated in a simultaneous equation framework. On the one hand, we relate international diversification to the firm’s capital structure, and on the other, we test their individual and collective inferences on the combined debt and equity cost of capital. Even though ICT companies are subject to the same market forces as other firms, the rapid development of the industry, complexity of their technologies and presence of the network effect may have valuable implications in determining their financing patterns. Using information pertaining to ICT and non-ICT firms listed on the NASDAQ stock exchange, we expect a negative correlation between international diversification and higher total and long-term debt ratios, and a reduction in the overall cost of capital. Results suggest significant heterogeneity among ICT and non-ICT firms and within each group by a number of firm characteristics.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.ratio.se/pdf/wp/ah_cost.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Martin Korpi)
Download Restriction: no

Bibliographic Info

Paper provided by The Ratio Institute in its series Ratio Working Papers with number 87.

as in new window
Length: 26 pages
Date of creation: 25 Apr 2006
Date of revision:
Handle: RePEc:hhs:ratioi:0087

Contact details of provider:
Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden
Phone: 08-441 59 00
Fax: 08-441 59 29
Email:
Web page: http://www.ratio.se/
More information through EDIRC

Related research

Keywords: International diversification; Capital structure; Cost of capital; Debt; ICT; NASDAQ;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Comment, Robert & Jarrell, Gregg A., 1995. "Corporate focus and stock returns," Journal of Financial Economics, Elsevier, vol. 37(1), pages 67-87, January.
  2. Sattar A. Mansi & David M. Reeb, 2002. "Corporate Diversification: What Gets Discounted?," Journal of Finance, American Finance Association, vol. 57(5), pages 2167-2183, October.
  3. Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February.
  4. Smith, C.W. & Watts, R.L., 1992. "The Investment Oppotunity set and Corporate Financing, Dividend and Compensation Policies," Papers 92-02, Rochester, Business - Financial Research and Policy Studies.
  5. Ethier, Wilfred J. & Horn, Henrik, 1990. "Managerial control of international firms and patterns of direct investment," Journal of International Economics, Elsevier, vol. 28(1-2), pages 25-45, February.
  6. Agmon, Tamir & Lessard, Donald R, 1977. "Investor Recognition of Corporate International Diversification," Journal of Finance, American Finance Association, vol. 32(4), pages 1049-55, September.
  7. Shapiro, Alan C., 1978. "Financial Structure and Cost of Capital in the Multinational Corporation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(02), pages 211-226, June.
  8. Li, David D & Li, Shan, 1996. " A Theory of Corporate Scope and Financial Structure," Journal of Finance, American Finance Association, vol. 51(2), pages 691-709, June.
  9. Hyytinen, Ari & Pajarinen, Mika, 2002. "Financing of Technology-Intensive Small Business: Some Evidence on the Uniqueness of the ICT Industry," Discussion Papers 813, The Research Institute of the Finnish Economy.
  10. Aliber, Robert Z, 1984. "International Banking: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 661-78, November.
  11. Schoder, Detlef, 2000. "Forecasting the success of telecommunication services in the presence of network effects," Information Economics and Policy, Elsevier, vol. 12(2), pages 181-200, June.
  12. �sa Lindholm Dahlstrand & Dilek Cetindamar, 2000. "The dynamics of innovation financing in Sweden," Venture Capital, Taylor & Francis Journals, vol. 2(3), pages 203-221, July.
  13. Black, Fischer, 1990. " Equilibrium Exchange Rate Hedging," Journal of Finance, American Finance Association, vol. 45(3), pages 899-907, July.
  14. Ethier, Wilfred J, 1986. "The Multinational Firm," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 805-33, November.
  15. Shane A. Johnson, 2003. "Debt Maturity and the Effects of Growth Opportunities and Liquidity Risk on Leverage," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 209-236.
  16. Simi Kedia & Abon Mozumdar, 2003. "Foreign Currency Denominated Debt: An Empirical Examination," The Journal of Business, University of Chicago Press, vol. 76(4), pages 521-546, October.
  17. Doukas, John A. & Pantzalis, Christos, 2003. "Geographic diversification and agency costs of debt of multinational firms," Journal of Corporate Finance, Elsevier, vol. 9(1), pages 59-92, January.
  18. Ang, James S & Chua, Jess H & McConnell, John J, 1982. " The Administrative Costs of Corporate Bankruptcy: A Note," Journal of Finance, American Finance Association, vol. 37(1), pages 219-26, March.
  19. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
  20. Koski, Heli A. & Majumdar, Sumit K., 2002. "Paragons of virtue? Competitor entry and the strategies of incumbents in the U.S. local telecommunications industry," Information Economics and Policy, Elsevier, vol. 14(4), pages 453-480, December.
  21. Todd A Burgman, 1996. "An Empirical Examination of Multinational Corporate Capital Structure," Journal of International Business Studies, Palgrave Macmillan, vol. 27(3), pages 553-570, September.
  22. Fatemi, Ali M., 1988. "The effect of international diversification on corporate financing policy," Journal of Business Research, Elsevier, vol. 16(1), pages 17-30, January.
  23. David M Reeb & Chuck C Y Kwok & H Young Baek, 1998. "Systematic Risk of the Multinational Corporation," Journal of International Business Studies, Palgrave Macmillan, vol. 29(2), pages 263-279, June.
  24. Raghuram G. Rajan & Luigi Zingales, 1994. "What Do We Know About Capital Structure? Some Evidence from International Data," NBER Working Papers 4875, National Bureau of Economic Research, Inc.
  25. Reeb, David M. & Mansi, Sattar A. & Allee, John M., 2001. "Firm Internationalization and the Cost of Debt Financing: Evidence from Non-Provisional Publicly Traded Debt," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(03), pages 395-414, September.
  26. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  27. Lewellen, Wilbur G, 1971. "A Pure Financial Rationale for the Conglomerate Merger," Journal of Finance, American Finance Association, vol. 26(2), pages 521-37, May.
  28. Gordon M. Bodnar & M.H. Franco Wong, 2000. "Estimating Exchange Rate Exposures: Some "Weighty" Issues," NBER Working Papers 7497, National Bureau of Economic Research, Inc.
  29. Charles J P Chen & C S Agnes Cheng & Jia He & Jawon kim, 1997. "An Investigation of the Relationship between International Activities and Capital Structure," Journal of International Business Studies, Palgrave Macmillan, vol. 28(3), pages 563-577, September.
  30. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
  31. Singh, Manohar & Davidson, Wallace III & Suchard, Jo-Ann, 2003. "Corporate diversification strategies and capital structure," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(1), pages 147-167.
  32. Jeremy C. Stein, 1995. "Internal Capital Markets and the Competition for Corporate Resources," NBER Working Papers 5101, National Bureau of Economic Research, Inc.
  33. Chkir, Imed Eddine & Cosset, Jean-Claude, 2001. "Diversification strategy and capital structure of multinational corporations," Journal of Multinational Financial Management, Elsevier, vol. 11(1), pages 17-37, February.
  34. Kim, Yong Cheol & Stulz, ReneM., 1988. "The Eurobond market and corporate financial policy : A test of the clientele hypothesis," Journal of Financial Economics, Elsevier, vol. 22(2), pages 189-205, December.
  35. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July.
  36. Hughes, John S. & Logue, Dennis E. & Sweeney, Richard James, 1975. "Corporate International Diversification and Market Assigned Measures of Risk and Diversification," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(04), pages 627-637, November.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hhs:ratioi:0087. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martin Korpi).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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