Management辅导、讲解R程序语言、logarithm留学生辅导、R设计讲解

日期：2019-11-23 10:41

IéSEG School of Management

2019-2020 Semester 1

Quantitative Financial Analysis with R

Case Study 2

You are a financial analyst and your role is to conduct equity research on European

companies. One of the companies you are following is developing a new line of business and

its profits are expected to increase. The company already has an important amount of debt

compared to its industry peers. You are wondering if, with this additional profit, the company

will pay back its debt and reduce its financial leverage. Or whether the increase of the quality

of the company’s financials will make the company better able handle a large debt level. Thus

the company might decide not to reduce its leverage.

You want to conduct an econometric analysis to check whether European companies tend to

reduce their leverage when their profits increase, or whether they increase leverage with

profits.

Looking into the research literature about the topic, you obtain the article by Frank and Goyal

(2009) that conducts a thorough analysis on the topic of financial leverage for US companies.

The main results of the paper are shown in Table V, Panel B (page 22). These results are the

benchmark for US companies. In your report, you should compare these results with

European companies.

You gather data from the 1000 largest European companies, excluding the financial sector,

real estate and holding companies (because in these sectors, leverage does not have the effect

as for goods or services firms). In order to analyze the issue, you run a regression analysis

similar to the one in Frank and Goyal (2009), with book leverage as dependent variable

(defined as total debt over total assets). The explanatory variables are Profits (defined as

EBITDA divided by total assets), Tangibility (fixed assets over total assets), Market-to-Book

ratio as a measure of growth opportunity (market capitalization divided by book value of

equity), Volatility, Liquidity (which is the current ratio: current assets over current liabilities),

and possibly a measure relative to dividends. To control for the size effect, there are several

possibilities (it is expected that large companies have better access to the debt market): the

logarithm of market capitalization, or the logarithm of total revenues, or the logarithm of total

assets. Since it is well known that the industry in which a company operates has an effect on

leverage, it is important to control for industry. A commonly used method is to use industry

dummies.

Instructions

Please write a full report. Work in teams of 2 or 3. Download and use the data available on

ieseg-online. The variables are defined in the Excel file. The deadline to submit the report is

Thursday November 21st, 2019, midnight. Submit the report by uploading it on the link

provided on ieseg-online.

Reference

Frank, M.Z., Goyal, V.K., 2009, Capital structure decisions: Which factors are reliably

important? Financial Management, vol. 38, pages 1–37.