Research Handbook on the Globalization of Chinese Firms

Research Handbook on the Globalization of Chinese Firms

Elgar original reference

Edited by Craig C. Julian, Zafar U. Ahmed and Junqian Xu

This comprehensive research Handbook encompasses an expansive range of perspectives on the globalization process of Chinese firms. Eminent global scholars provide contributions on a variety of topics, including: • industrial innovation; • technological innovation and learning; • the performance of Chinese international joint ventures,; • the global consumer; • Foreign Direct Investment (FDI) including barriers to FDI and FDI in China’s hinterland areas; • the globalization of Chinese business practices in Africa; • the Human Resource Management Transfer Process; • Corporate Information Disclosure in China’s Stock Market; and • the home employment effect.

Chapter 8: The risk and return of mezzanine debt

Yun Li and Ho Kim Hin

Subjects: asian studies, asian business, business and management, asia business, international business


In determining the viability of an investment, most developers and investors would take the first step of exploring the viability of an entirely debt, equity or a debt-cum-equity funded investment. But financing an investment entirely with equity would be inefficient as the firm foregoes the possible tax benefits of debt, and may risk a firm's liquidity status. Likewise, if the investment is to be entirely financed with debt, it would increase the firm's probability of bankruptcy. Hence, an appropriate mix of debt and equity (an optimal financing point) would minimize the overall cost of borrowing and in turn maximize the returns of having the investment. Various models have been developed to compute the optimal point of financing, for example the capital asset pricing model. Regardless of the numerous arguments that surround these models and theories, real estate developers and investors have continually used them in order to possibly reach the optimal point of debt-to-equity ratio. With the limit imposed by lenders that no 100 percent of loan principal issued, investors and developers would have to make up for the shortfall in the required loan principal through secondary financing. Mezzanine debt as an alternative source of secondary financing is not a new concept. After the financial crisis, real estate capital became scarce and prompted the need for alternative capital structures.

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