Universität zu Köln

Stöter, Alwin (2013). Capital Structure Decisions and the Use of Factoring. PhD thesis, Universität zu Köln.

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Abstract

This thesis analyzes three research questions that belong to the field of corporate finance. The first and the second parts of this thesis examine predictions of the trade-off theory of capital structure. This theory postulates that firms balance the benefits and costs of debt versus equity and as a result, choose target capital structures. The third research question analyzes the determinants of the decision of a firm to sell its accounts receivable to a factor. According to the trade-off theory, the tax advantage of debt at the corporate level encourages firms with high marginal tax rates to bear more debt whereas the tax advantage of equity at the investor level leads to a lower debt ratio for firms with high personal tax rates. This thesis provides new evidence that taxes affect the capital structure choice of firms. Following the Graham methodology to simulate marginal tax rates, we find a statistically and economically significant positive relationship between the marginal tax benefit of debt (net and gross of investor taxes) and the debt ratio. A 10% increase in the net (gross) marginal tax benefit of debt causes a 1.5% (1.6%) increase in the debt ratio, ceteris paribus. Firms that face transaction costs may not adjust to their target capital structures immediately but instead the adjustment takes a period of time. The speed of adjustment to target capital structure has important implications for the relevance of the target capital structure for the firms’ choice of financing. Recent studies show that a standard partial adjustment model with the debt ratio as the dependent variable cannot distinguish between mechanical mean reversion and adjustment to target capital structure. We propose a new approach that uses the net increase of debt as the dependent variable and uses only ex-post information to estimate the target capital structure. Simulation experiments show that this approach is mainly unaffected by mechanical mean reversion and hence able to provide a meaningful test for the target adjustment hypothesis. We estimate a speed of adjustment to target capital structure of 28% per year. The third part of this thesis analyzes a firm’s decision of whether to accounts receivable internally, use full-service factoring or enter into an in-house factoring contract. Our model is primarily based on a theory of the firm that stresses a supplier’s need for financing, risk and financial flexibility. We find that high-risk firms with a strong need for short-term financing and restricted access to bank credit are more likely to use factoring. Larger firms typically prefer in-house factoring, whereas smaller firms tend to rely on full-service factoring. The firm’s desire to attain independence from banks plays an important role in decisions regarding factoring.

Item Type:	Thesis (PhD thesis)
Creators:	Creators Email ORCID ORCID Put Code Stöter, Alwin stoeter6@aol.com UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-51659
Date:	5 June 2013
Language:	English
Faculty:	Faculty of Management, Economy and Social Sciences
Divisions:	Faculty of Management, Economics and Social Sciences > Business Administration > Finance > Professorship for Business Administration and Bank Management
Subjects:	Management and auxiliary services
Uncontrolled Keywords:	Keywords Language debt, capital structure, marginal tax rate, corporate taxes, personal taxes, trade-off theory, target, speed of adjustment, factoring, accounts receivable, trade credit English UNSPECIFIED English UNSPECIFIED English
Date of oral exam:	5 June 2013
Referee:	Name Academic Title Hartmann-Wendels, Thomas Prof. Dr. Hess, Dieter Prof. Dr.
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/5165