ques -> Country specific risk on Capital structure

The maturity structure for corporate debt is typically shorter in countries that have: A) low rates of GDP growth. B) lower rates of inflation. C) more liquid stock and bond markets. D) strong legal systems. Financial leverage ratios tend to be to low in countries that have: A) a high reliance on the banking system for raising debt capital. B) inefficient legal systems. C) a large institutional investor presence. D) few analysts and auditors working in the country.

1A 2C

I am goign with mcpass. 1.A 2.C


I just read the reading and hence got the questions correct, else there was no way I could remember that table to correctly nail this. Any tricks to remember the table on page-78 Schweser-Book-3??? Your answer: A was correct! Firms operating in countries with higher GDP growth tend to use longer maturity debt, so firms with weaker economic growth will tend to use shorter maturity debt, all else equal. Note that low inflation means that longer maturity debt will do a better job holding its value, and that countries with highly liquid stock and bond markets and strong legal systems will tend to use long maturity debt. Your answer: C was correct! Firms operating in countries with an active, large institutional investor presence tend to have less financial leverage. Large institutional investors tend to have greater resources to analyze companies and reduce information asymmetries, which reduces the use of debt. By contrast, companies with weak legal systems, few analysts and auditors to reduce information asymmetries, and a high reliance on the banking system will all tend to have higher debt ratios.

50%. That is about my long run average. I am dead on this exam.

good questions, dinesh.

this is SS 10, right?

SS8, Reading 32

I’m trying not to remember any tables but answer the questions from common sense. Hence… I’m very busing creating that common sense. For this topic, I remembered that (1) strong economies want longer maturities and more leverage. So low GDP growth will result in shorter maturities. For (2) institutional investor presence - and I’m cheating because I work for an institutional investor - it is likely that companies want to take that money on and not debt. So lower leverage makes sense.

it means Corporate Finance, Right?

Thanks mcpass- that helps to build up some intuition around that table. cfaboston28 - it’s CorfFin!