Leveraged buyout booms and busts: can Islamic finance help prevent and mitigate such market distortions?
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Author(s)Mouad El HalouiLink to ORCID Index: https://orcid.org/0000-0002-4241-6341
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Rajae AboulaichLink to ORCID Index: https://orcid.org/0000-0001-8003-4080
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DOIhttp://dx.doi.org/10.21511/imfi.16(1).2019.24
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Article InfoVolume 16 2019, Issue #1, pp. 299-318
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- 1559 Views
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398 Downloads
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Creative Commons Attribution 4.0 International License
The industry of private equity and leveraged buyout has been, since its beginnings, subject to several chapters of bubbles and busts, the majority of whom are initiated under similar circumstances (excess of liquidity, junk debt and mimetic behavior).
The Islamic finance is a financial system that complies with the rules of the Sharia Law, and which naturally allows the achievements of purposes of Sharia, such as protection of property and capital, fair wealth distribution, reduction of uncertainty and speculation, to name a few.
From this perspective, this paper discusses the capacity of Islamic finance to help prevent some factors that trigger financial crises in the leveraged buyout market and to accomplish the intended purposes through this asset class.
In the first part of this paper, the authors try to break down some of these common factors that trigger or catalyze the economic booms of the leverage buyout industry, and propose a framework to visualize their effects through an agent-based Simulation program. The second part of the paper describes how Islamic economic principles constitute brakes to some distortions and excesses in the market, in such a way that the probability of occurrence of a boom decreases drastically. Finally, these Islamic features are added up to the simulation to provide a comprehensive benchmark.
- Keywords
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JEL Classification (Paper profile tab)G010, G400, G100
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References22
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Tables2
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Figures17
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- Figure 1. A simple illustration of an LBO deal structure
- Figure 2. Value of leveraged buyouts in the US in $ billions
- Figure 3. Debt to Ebitda ratios for leveraged buyouts in the US
- Figure 4. Flow chart of the main program ’Go’
- Figure 5. Flow chart of the bidding function
- Figure 6. Flow chart of the auction function
- Figure 7. Flow chart of the aging function
- Figure 8. Market ebitda multiple evolution in a conventional LBO market
- Figure 9. Evolution of Leverage ratio (Debt/Enterprise value) in conventional LBO market
- Figure 10. Evolution of average companies’ equity in a conventional LBO market
- Figure 11. Lorentz curve of companies’ equity after 40 periods in a conventional LBO market
- Figure 12. Evolution of the number of bankruptcies in a conventional LBO market (out of 500 companies)
- Figure 13. Market Ebitda multiple evolution in an Islamic LBO market
- Figure 14. Evolution of Leverage ratio (Debt/Enterprise value) in Islamic LBO market
- Figure 15. Evolution of average companies’ equity in Islamic LBO market
- Figure 16. Lorentz curve of companies’ equity after 40 periods in Islamic LBO market
- Figure 17. Evolution of the number of bankruptcies in Islamic LBO market (out of 500 companies)
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- Table 1. Model assumptions [conventional market case]
- Table 2. Model assumptions [Islamic market case]
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Modelling of capital structure in relation to business performance maximization
Jarmila Horvathova 
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Martina Mokrisova ,
Lucia Dancisinova
doi: http://dx.doi.org/10.21511/imfi.15(2).2018.26
Investment Management and Financial Innovations Volume 15, 2018 Issue #2 pp. 292-304 Views: 2350 Downloads: 384 TO CITE АНОТАЦІЯThe aim of the article was to find out the optimal capital structure of the companies in relation to their maximum performance. To reach this aim, the data of the companies operating in the field of heat industry of the Slovak Republic were used. As the first method, a correlation matrix was applied. It was found out that there is statistically significant relationship between capital structure indicators and performance of the companies. Due to the lack of data in time series, the authors were not able to apply multiple regression model to assess the impact of these indicators on performance. Therefore, a method of modelling was used to analyze the impact of the change in capital structure on performance. Modelling was based on the principle of a gradual change in the capital structure in favor of debt. By the increase in debt, it was confirmed that there was a change in the values of selected indicators. In the course of analysis, it was confirmed that the value of EVA equity increased with the rising indebtedness by which the proposition I of the modified MM theory was supported. The performance expressed by EVA entity indicator is at its minimum when the capital structure is 90:10 in favor of equity. By increasing the debt, EVA entity rises. Based on these results, it can be stated that the performance of selected companies increases when the share of debt also rises, even when taking into account the rising financial risks.
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State debt assessment and forecasting: time series analysis
Fedir Zhuravka ,
Hanna Filatova ,
Petr Šuleř ,
Tomasz Wołowiec
doi: http://dx.doi.org/10.21511/imfi.18(1).2021.06
Investment Management and Financial Innovations Volume 18, 2021 Issue #1 pp. 65-75 Views: 2082 Downloads: 718 TO CITE АНОТАЦІЯOne of the pressing problems in the modern development of the world financial system is an excessive increase in state debt, which has many negative consequences for the financial system of any country. At the same time, special attention should be paid to developing an effective state debt management system based on its forecast values. The paper is aimed at determining the level of persistence and forecasting future values of state debt in the short term using time series analysis, i.e., an ARIMA model. The study covers the time series of Ukraine’s state debt data for the period from December 2004 to November 2020. A visual analysis of the dynamics of state debt led to the conclusion about the unstable debt situation in Ukraine and a significant increase in debt over the past six years. Using the Hurst exponent, the paper provides the calculated value of the level of persistence in time series data. Based on the obtained indicator, a conclusion was made on the confirmation of expediency to use autoregressive models for predicting future dynamics of Ukraine’s state debt. Using the EViews software, the procedure for forecasting Ukraine’s state debt by utilizing the ARIMA model was illustrated, i.e., the series was tested for stationarity, the time series of monthly state debt data were converted to stationary, the model parameters were determined and, as a result, the most optimal specification of the ARIMA model was selected.
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State’s debt sustainability management: case of Ukraine
Fedir Zhuravka ,
Hanna Filatova ,
Oleksandr Podmarov ,
Khaled Aldiwani ,
Fathi Shukairi
doi: http://dx.doi.org/10.21511/pmf.07(4).2018.01
Public and Municipal Finance Volume 7, 2018 issue #4 pp. 1-7 Views: 1533 Downloads: 128 TO CITE АНОТАЦІЯNowadays one of the relevant problems of economic development of Ukraine is the excessive increasing of the public debt that has a number of negative consequences for the financial system of the country. The article is devoted to the research of state’s debt sustainability concept. Special attention is paid to the development of an effective system of debt sustainability management. The aim of the article is to study the theoretical bases of the state’s debt sustainability, investigate scientific and methodological approaches to its management, analyze the public debt and debt sustainability of Ukraine. In order to achieve that goal, the following scientific methods were used: analysis and generalization, decomposition analysis, comparison and compilation. The authors analyzed the structure of the debt sustainability management system: objects, subjects, key principles, objectives, methods, instruments, etc. The list of key indicators of debt sustainability was substantiated and the authors compared their normative values in Ukraine and in world practice. Besides, the state and structure of public debt and the ratio of government debt to GDP were scrutinized. The obtained results proved the debt crisis deepening in Ukraine.
