21/03/2019
Marie Skłodowska-Curie Actions

Marie Skłodowska-Curie Individual Fellowship (IF) - Postdoc Position: Financial Leverage of Firms


  • OFFER DEADLINE
    25/07/2019 14:00 - Europe/Athens
  • EU RESEARCH FRAMEWORK PROGRAMME
    H2020 / Marie Skłodowska-Curie Actions
  • LOCATION
    Spain, Madrid
  • ORGANISATION/COMPANY
    CEU San Pablo University
  • DEPARTMENT
    School of Economics and Business

USP-CEU welcomes postdoctoral researchers with an excellent track record to apply jointly with a research supervisor from USP-CEU to the European Commission Marie Sklodowska-Curie Individual Fellowship Scheme (MSCA-IF). Selected candidates will be provided with devoted training and special assistance for proposal development.

The Supervisor will be Mariano González-Sánchez, Associate Professor in Accounting and Finance at the School of Business & Economics. His research field is empirical and quantitative finance and the relationship between accounting and market information. He is author of several scientific articles published in prestigious international journals such as "Journal of Finance and Quantitative Analysis", "North American Journal of Economics and Finance", "Finance Research Letters", "Australian Accounting Review", "Corporate Social Responsibility and Environmental Studies", "Advances in Accounting", or "Journal of Empirical Finance" among others. His last two publications are:

  • Corporate reputation and firms’ performance: Evidence from Spain. Corporate Responsibility and Environmental Management, 25(6): 1231-1245. July 2018.
  • Causality in the EMU sovereign bond markets. Finance Research Letters, 26: 281-290. September 2018.

González-Sanchez is responsible for the Economics and Finance research line in the PhD program of Law and Economics of the CEINDO-CEU International School. He has supervised 2 PhD students with 4 more in progress.

He has participated in competitive research projects from the "National R+D+i Plan" of the Spanish Ministry of Economy and Competitiveness. He is also the Coordinator of the Research Chair USPCEU and Mutua Madrileña, directing the line of research on financial risks.

He has frequently performed evaluation duties for international journals such as International Journal of Forecasting, North American Journal of Economics and Finance, Journal of International Money and Finance. He is a member of the Spanish Association of University Professors of Accounting (ASEPUC). He has been a founding partner and General Secretary of the professional association Risk Management Club of Spain. He is currently Academic Director of the Master's Degree in Actuarial and Financial Sciences of the USPCEU.

 

Resarch Project Description:

In a context as Modigliani and Miller (1958), the assumptions on perfect capital market are:

  1. Investors and companies can trade the same set of securities at a competitive market price equal to the present value of their future cash flows.
  2. There are no taxes or transaction costs, associated with the sell-buy of the securities.
  3. A company's financing decisions do not change the cash flows generated by its investments.

In this way, Modigliani and Miller formulated the MM propositions:

  • Proposition-I: the total value of a company is equal to the market value of the total cash flows generated by its assets, and it is not affected by the selection of its capital structure.
  • Proposition-II: the cost of leveraged equity capital is equal to the cost of unleveraged equity capital plus a risk premium that is proportional to the ratio to market value of debt to equity (WACC or Weighted Average Cost of Capital).

Thus, any variation in the ratio of debt to equity (financial leverage) does not affect the WACC since, automatically, the risk premium of the cost of capital would vary to reflect that effect.

But the economic reality shows that the markets are imperfect, and one of the causes is the so-called tax shields. Thus, Proposition I of MM can be reformulated and, the total value of a leveraged company is equal to the value of the unleveraged company plus the tax shield that depends on the marginal tax rate. Miller (1977) and Miller and Scholes (1978) demonstrate, not only corporate taxation has to be considered, but also personnel or investors (shareholders and debt holders).

In this line, Graham (2000) points out, in general, when interest expense approximates the expected EBIT, the marginal fiscal advantage of the debt decreases, which limits the amount of debt used by the company. Then, the optimal level of financial leverage from the perspective of fiscal savings, is that level of debt that generates interest equal to EBIT, therefore, a restriction arises in the problem of estimating the optimal leverage. 

However, the tax shield is not the only imperfection to consider, since as the empirical evidence shows (Graham, 2000) the companies do not use to the maximum the potential of the tax deduction for interest on the debt. The cause to explain this evidence is the cost of the bankruptcy, that is, as the company increases its level of debt it approaches the point of default, which would only increase its financial leverage while the market value of its assets is higher than your debts. This effect in a perfect market would be neutralized, since the value of the company would be the same, but the property would change from the hands of the shareholders to the creditors.

Besides, there is another imperfection to consider, the so-called agency costs resulting from the decisions of the executives, in the face of financial problems, in favor of their shareholders and that imply a reduction in the value of the debt for the creditors. Johson (2003) shows that this cost is significant as the maturity of debts increases. Jensen (1986) showed that when there is an excess of free cash flows, managers are more likely to make certain decisions that are more beneficial to them. Additionally, there is an information asymmetry on the part of executives, which may entail additional costs for shareholders (Myers and Majluf, 1984) because of adverse selection and asymmetric information.

Then, the main objective for this project is to find the optimum financial leverage, where marginal effects of tax shield, default costs and agency costs offset each other.

 

Application:

At the deadline for the submission of proposals (11/09/2019), researchers:

  • Shall be in possession of a doctoral degree, or have at least 4 years of full-time equivalent research experience.
  • Must not have resided or carried out their main activities in Spain for more than 12 months in the 3 years immediately prior totheabovementioned deadline.
  • Level B2 or higher of Spanish is required, together with strong written and oral communication skills in English.

An expression of interest shall be sent to Dr. González-Sánchez. Your file should contain the following elements:

  • A short CV: Only CVs with considerable scientific achievements will be considered. Broad experience, published articles and participation in competitive research projects is desirable. Team working abilities, flexibility and research motivation and enthusiasm are always welcome.
  • A one-page research proposal.
  • A short statement explaining why USP-CEU would be the best host institution for your research.
  • Contact details for two references.

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