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PurposeThis research aims to investigate the relationship between banks’ financial leverage and economic financial stability, and as a result, the research will discuss the role of earnings management (EM) in this relationship, since managers normally manipulate their financial reports when they show higher financial leverage. It is important to control the financial leverage in Jordanian banks based on the research results. The main objective is to mitigate the bank’s financial leverage risk as much as its relationship with financial stability. Results may be important for investors, managers, regulatory bodies and auditors in Jordan since they help strengthen financial stability in Jordan. Finally, the main objective of this study is to find a solution to maintain stable and real financial economy by finding the effect of higher financial leverage in Jordanian banks of managers’ cosmetic practices. This will be discussed through testing the role of EM of the relationship between firm’s financial leverage and financial stability.Design/methodology/approachIn order for the researchers to analyze data, quantitative methods are processed statistically. Also, the researcher tests research conceptual framework according to the mediation model that was developed by Preacher and Hayes (2004). In Figure (1) of which panel A: determines a direct effect, while panel B: illustrates a mediating design. To construct the sample, the researcher used information extracted from Jordanian annual financial reports that is extracted from Amman Stock Exchange. The population of the study includes all Jordanian banks which are 26 banks, additionally, the period from 2008 to 2018 was used to illustrate data. The reason behind using this period is that to examine the variables relationships for and after 2008 financial crisis and its consequences. The researcher chose 2018 as the end period, that is because it is the year before COVID-19 period which covers 2019–2022, and this period is considered not normal. In comparison with past studies, the researcher used modified Jones Model to measure EM (Valášková et al., 2021; Nopiana and Salvi, 2022; Riahi, 2020; Quddoos et al., 2020; Cho et al., 2012), while financial stability and financial leverage was calculated using total debt/total equity (Nopiana and Salvi, 2022). Finally, financial stability is measured using the financial stability model for banking sector, but not for all economy that is because the banking sector represents 96% of the economy, also this study applied for banking sector. Missing values were replaced using the mean on SPSS. Finally, regression model and F-score, correlation have been examined in the research analysis.FindingsIncreased risk on enterprises has an impact on economic financial stability. And the interest rate result shows that Jordan’s central bank boosts interest rates during inflationary periods, increasing the risk to the economy’s financial stability. Furthermore, size has a minimal impact when compared to other variables, and greater business sizes signal more sophisticated transactions and higher leverage, reducing the economy’s financial soundness. Finally, ROA indicates increased bank performance, which contributes to the economy’s financial stability. While EM has a direct negative impact on financial stability, this conclusion is consistent with the researcher’s expectations. Because EM refers to the manipulation of financial report information, including information about financial leverage, manipulation also lowers investor confidence in bank share prices, affecting the stability of the economy’s financial system. It has little influence on the relationship between leverage and economic financial stability.Practical implicationsThe implications of this research have been discussed through the research, for example, to maintain economic financial stability, auditors must take care through their role specially when there is higher financial leverage of Jordanian banks. Further, managers must pay attention before manipulating financial information if there is high financial leverage, because this will affect the economic financial stability. Lastly, the most important implication is that the maintenance of economic financial stability, and EM if not discovered for a period of time may show false signaling of economic financial stablity, and suddenly face financial crises.Originality/valueUnderstanding the role of EM in the relationship between banks’ financial leverage the economic financial stability, may control many issues like the role of external auditor of reporting about the reliability of financial information (when there is high bank financial leverage, the auditor must exercise professional care and increase his sample to ensure that there are no cosmetic accounting), and when EM is in control, the economy will work smoothly and react normally to the effect of financial leverage of Jordanian banks. And the situation of 2008 crisis will not be repeated (because of the cosmetic practices by American firms for many years since 2008 with hidden cosmetic practices, suddenly, the 2008 crises happened). In conclusion, this discussion is original, since no literature theoretically discussed this issue before which (EM when financial leverage is high) may be applied in practice.

This paper aims to investigate the relationship between governance structure, ownership structure, and financial leverage of corporations in the UK, with a special emphasis on the boardroom gender diversity. The study sample includes 484 UK firms from the FTSE All-Share Index for the period (2015–2023), with 4356 firm-year observations. The results show that CEO duality, gender diversity, managerial ownership, institutional ownership, and government shareholding are all positively associated with financial leverage, thus confirming the importance of these governance and ownership characteristics in determining capital structure policies. On the other hand, board size and the proportion of non-executive directors are not found to have a significant impact on financial leverage, which points to some room for improvement in UK board practices. In this regard, the study contributes to the governance-sustainability-finance nexus discussion by focusing on these dimensions in the UK corporate sector. As such, the findings of this study are important in providing policy recommendations for policymakers and corporate leaders and contribute to the ongoing wave of global corporate governance reforms and practical insights into enhancing governance frameworks at the firm level.

Purpose – This paper aims to seek answers to a primary question: “How much do divergent leverage factors account for fluctuations in time-varying financial leverage in leading hospitality sub-sectors decomposed by four exclusive sub-portfolios?” In the path of seeking answers, this paper investigated the effects of both firm-specific and macroeconomic indicators to firms’ varying financial leverage in those primary sub-sectors overtime. Design/methodology/approach – In each sub-sector portfolios, firms were sorted based on market-to-book values (Mktbk it ) with median breakpoint percentiles. For hypothesis testing, this paper constructed panel regression models with firm fixed-effects to layout fluctuant financial leverage phenomenon engaged with a set of 11 leverage factors in each Mktbk it sorted sub-sector portfolios. Findings – Results exhibited assorted evidences. The bottom line was: firms with different market capitalization rates in each portfolio acted differently in regard to the magnitude of financial leverage across time. Research limitations/implications – The final sample of 415 firms in four sub-sector portfolios sufficiently embraced financial leverage composition in the hospitality industry across time. However, by reason of lack of data in the other intra-hospitality industries, such as gaming and/or cruise lines, findings did not represent the firms operated in those sub-industries. Originality/value – This paper departed from the established context of the previous literature in the manner that it expects to add to the literature by demonstrating the core drivers causing the deviations in financial structure in four exclusive, hospitality industry sub-sector portfolios with varying leverage proxies overtime.

The adjustment speed of financial leverage indicates the movement of companies towards the optimal capital structure, and clearly shows the financing policies of companies. The importance of optimal leverage is such that the growth and survival of companies depend on this factor. This study investigates the effect of managers' myopia on the adjustment speed of financial leverage toward optimal leverage. The current research is applied, and from the methodological point of view, the correlation is a causal type (retrospective). The statistical population of the research includes all the companies admitted to the Tehran Stock Exchange between 2011 and 2020, and using the systematic elimination sampling method, 124 companies were selected as the research sample. The research results showed that the myopia of managers has an opposite effect on the adjustment speed of financial leverage, so in companies with myopic managers, the adjustment speed of financial leverage decreases towards optimal leverage.

The research is conducted with the goal of determining the influence of CEO characteristics, including CEO experience, on the financial leverage of listed companies in Vietnam. Financial leverage is among the vital financial policies for any business. A review of upper echelons theory suggests direct influence of CEO characteristics on setting business policy and inevitably on firm financial leverage. To assess the effect of CEO characteristics on financial leverage, the paper conducts a generalized method of moments regression with the following dependent variables: CEO age, CEO experience, the level of education related to the economic industry of the CEO education, and CEO gender. The data studied consist of 770 observations on 110 companies listed on Vietnam's two major stock exchanges, Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX), over the period 2012-2018. We found that CEO experience, CEO education, and CEO gender are significantly positively correlated with firm leverage whereas CEO age is negatively correlated. Our results also provide additional useful information for shareholders and investors in recruiting a new CEO or balancing CEO power in the business.

The paper focuses on the acute problems of systemic financial risk in the economy of China posed by the real estate sector. In the event of collapse, the world's second-largest economy of this Asian giant, deeply integrated into the global system, can trigger spillover effects and a new global economic crisis. It is therefore important to deepen understanding of the internal mechanisms of systemic financial risk accumulation in the Chinese economy.  We research the microfinancial roots of systemic financial risk and macroeconomic mechanisms of its accumulation and materialisation after it has reached a critical level. Microfinancial roots of systemic risks are connected with excessive growth of financial leverage. We suggest a mathematical model of the optimal level of financial leverage and its safety threshold for the companies in the real sector including the construction and development sector. On the macro level, the paper presents a comprehensive dynamic scheme of non-linear relationships in the real estate industry, which unwind self-reinforcing cycles and lead to the accumulation of systemic financial risks. The main driving force of these processes is the institutional mechanism that we call collateral accelerator.  Under certain conditions, it plays the role of a powerful internal destabiliser of the economic system and provokes the unwinding of self-reinforcing cycles in the real estate market, the households’ finance, development companies, and the banking system.  The results of the research can help shape the optimal macroprudential regulatory measures to minimise systemic financial risks and ensure financial stability without suppressing economic growth.

Purpose The purpose of this paper is to provide a literature review of elasticity-based techniques for the estimation of the degree of operating leverage (DOL) and the degree of financial leverage (DFL) in empirical corporate finance research. Design/methodology/approach This paper describes the specific details of the estimation of DOL and DFL coefficients under both of the primary estimation techniques and documents the econometric properties of the estimates derived from each techniques. Findings There are tradeoffs between the two techniques, as each technique has both appealing and limiting features. Originality/value This paper indicates how each of the two techniques possesses limitations and suggests that future research should attempt to develop estimation techniques that overcome those limitations.

We characterize equilibrium leverage dynamics in a trade-off model in which the firm can continuously adjust leverage and cannot commit to a policy ex ante. While the leverage ratchet effect leads shareholders to issue debt gradually over time, asset growth and debt maturity cause leverage to mean-revert slowly toward a target. Investors anticipate future debt issuance and raise credit spreads, fully offsetting the tax benefits of new debt. Shareholders are therefore indifferent toward the debt maturity structure, even though their choice significantly affects credit spreads, leverage levels, the speed of adjustment, future investment, and growth.

I exploit the adoption of state-level labor protection laws as an exogenous increase in employee firing costs to examine how the costs associated with discharging workers affect capital structure decisions. I find that firms reduce debt ratios following the adoption of these laws, with this result stronger for firms that experience larger increases in firing costs. I also document that, following the adoption of these laws, a firm's degree of operating leverage rises, earnings variability increases, and employment becomes more rigid. Overall, these results are consistent with higher firing costs crowding out financial leverage via increasing financial distress costs.