nep-cfn New Economics Papers
on Corporate Finance
Issue of 2007‒08‒18
eight papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Agency Conflicts, Financial Distress, and Syndicate Structure: Evidence from Japanese Borrowers By Sang Whi Lee; Seung-Woog Kwang; Donald J. Mullineaux; Kwangwoo Park
  2. Corporate Governance and Investment in East Asian Firms -Empirical Analysis of Family-Controlled Firms- By Masaharu Hanazaki; Qun Liu
  3. Measuring Financial Market Contagion Using Dually-Traded Stocks of Asian Firms By Kentaro Iwatsubo; Kazuyuki Inagaki
  4. Cross-Border Acquisitons and Target Firms' Performance: Evidence from Japanese Firm-Level Data By Kyoji Fukao; Keiko Ito; Hyeg Ug Kwon; Miho Takizawa
  5. The Role of Trade Credit for Small Firms: An Implication from Japan's Banking Crisis Failures in Japan By Shin-ichi Fukuda; Munehisa Kasuya; Kentaro Akashi
  6. Incremental financing decisions in high growth companies: pecking order and debt capacity considerations By Vanacker, T.; Manigart, S.
  7. Does graph disclosure bias reduce the cost of equity capital? By Flora Muiño Vázquez; Marco Trombetta
  8. Public-private Partnerships in Micro-finance: Should NGO Involvement be Restricted? By Roy Chowdhury, Prabal; Roy, Jaideep

  1. By: Sang Whi Lee; Seung-Woog Kwang; Donald J. Mullineaux; Kwangwoo Park
    Abstract: We examine how borrower firm characteristics affect the size structure in the Japanese syndicated loan market for the 1999-2003 period. Consistent with the view by Lee and Mullineaux (2004), we find that syndicates are smaller when borrowers have higher credit risk, while firms with greater information asymmetry are associated with larger syndicates in Japan. These results are primarily driven by non-keiretsu (non-business group) firms. This suggests that the role of enhanced monitoring and facilitated renegotiation is especially useful for banks participating in Japanese syndicated loan for non-keiretsu firms. On the other hand, information problems seem to be less severe for keiretsu (business group) firms which tend to have easier access to syndicated loan via the intermediation of in-house banks in the relevant syndicate. Finally, we find that keiretsu (non-keiretsu) firms have less (more) fraction of loan by their agent banks as the maturity rises. It appears that main banks of keiretsu firms with informational advantage are likely to retain less of the loan and form a more dispersed syndicate to "signal' that the loan is of high quality with increased maturity. This further confirms the view that information problems are less severe in the keiretsu firms.
    Date: 2006–10
  2. By: Masaharu Hanazaki; Qun Liu
    Abstract: This paper investigates the mechanisms that ?firms use to get state favors. We focus on a less well studied but common mechanism: business owners seeking election to top office. Using Thailand as a research setting, we fi?nd that business owners who rely on government concessions or are wealthier are more likely to run for top office. Once in power the market valuation of their ?firms increases dramatically. Surprisingly, the owners' political power does not change their fi?rms' fi?nancing strategies. Instead, we show that business owners in top office use their policy decision powers to implement regulations and public policies favorable to their fi?rms. Such policies hinder not only domestic competitors but also foreign investors. As a result, connected fi?rms are able to seize more market share.
    Keywords: Trade credit, Bank-firm relationship, Unlisted firms
    JEL: G32 E22 O53
    Date: 2006–10
  3. By: Kentaro Iwatsubo; Kazuyuki Inagaki
    Abstract: This paper investigates stock market contagion between U.S. and Asian markets. To distinguish between contagion and fundamentals-based stock price comovement, we use NYSE-traded stocks issued by Asian firms. Among the results, first we find that the empirical results show significant bilateral contagion effects in returns and return volatility. Second, contagion effects from U.S. market to Asian markets are stronger than in the reverse direction, indicating that the U.S. market plays a major role in the transmission of information to foreign markets. Third, the intensity of contagion was significantly greater during the Asian financial crisis than after the crisis.
    Keywords: Asian financial crisis; ADRs; EGARCH; Contagion
    JEL: F37 G15
    Date: 2006–12
  4. By: Kyoji Fukao; Keiko Ito; Hyeg Ug Kwon; Miho Takizawa
    Keywords: FDI, TFP, Acquisition, Selection bias, Propensity score matching, Average treatment effect abstract: Using Japanese firm-level data for the period from 1994-2002, this paper examines whether a firm is chosen as an acquisition target based on its productivity level, profitability and other characteristics and whether the performance of Japanese firms that were acquired by foreign firms improves after the acquisition. In our previous study for the Japanese manufacturing sector, we found that M&As by foreigners brought a larger and quicker improvement in total factor productivity (TFP) and profit rates than M&As by domestic firms. However, it may be argued that firms acquired by foreign firms showed better performance simply because foreign investors acquired more promising Japanese firms than Japanese investors did. In order to address this potential problem of selection bias problem, in this study we combine a difference-in-differences approach with propensity score matching. The basic idea of matching is that we look for firms that were not acquired by foreign firms but had similar characteristics to firms that were acquired by foreigners. Using these firms as control subjects and comparing the acquired firms and the control subjects, we examine whether firms acquired by foreigners show a greater improvement in performance than firms not acquired by foreigners. Both results from unmatched samples and matched samples show that foreign acquisitions improved target firms’ productivity and profitability significantly more and quicker than acquisitions by domestic firms. Moreover, we find that there is no positive impact on target firms’ profitability in the case of both within-group in-in acquisitions and in-in acquisitions by domestic outsiders. In fact, in the manufacturing sector, the return on assets even deteriorated one year and two years after within-group in-in acquisition, while the TFP growth rate was higher after within-group in-in acquisitions than after in-in acquisitions by outsiders. Our results imply that in the case of within-group in-in acquisitions, parent firms may be trying to quickly restructure acquired firms even at the cost of deteriorating profitability.
    JEL: C14 D24 F21 F23
    Date: 2007–02
  5. By: Shin-ichi Fukuda; Munehisa Kasuya; Kentaro Akashi
    Abstract: Trade credit is one of the most important sources of short-term external finance for small firms. Previous literature has focused mainly on the substitution of bank loans for trade credit during monetary tightening among many firms, but in this paper we investigate the role of trade credit during the banking crisis in Japan. The basic motivation is to explore whether the substitution hypothesis still holds even under serious financial turbulence. Our main results suggest that the substitution hypothesis held in Japan when the banking sector was healthy, but broke down during the banking crisis. More precisely, both bank loans and trade credit contracted simultaneously during the crisis. Deteriorated bank health might have been primarily responsible for the widespread declines of credit to small and medium size firms in Japan during the banking crisis.
    Keywords: Trade credit, Bank-firm relationship, Unlisted firms
    JEL: G21 G33 G32
    Date: 2006–10
  6. By: Vanacker, T.; Manigart, S. (Vlerick Leuven Gent Management School)
    Abstract: This paper researches the determinants of incremental financing decisions made by high growth companies. For this purpose, we use a longitudinal dataset, free of survivorship bias, covering the financing events of high growth companies for up to eight years. Results are generally consistent with the extended pecking order theory controlling for constraints imposed by debt capacity. Profitable companies have a preference for internal finance, even if they have unused debt capacity. External equity is particularly important for unprofitable companies with high debt levels, limited cash flows, high risk of failure and significant investments in intangible assets. As a result, findings suggest that high growth companies do not deliberately issue external equity, but rather are pushed towards external equity when there are no alternatives, such as retained earnings and financial debt.
    Keywords: financing decisions, pecking order theory, debt capacity, growth
    JEL: G32
    Date: 2007–08–10
  7. By: Flora Muiño Vázquez (Universidad Carlos III de Madrid); Marco Trombetta (Universidad Carlos III de Madrid)
    Abstract: Research on disclosure and capital markets focuses primarily on the amount of information provided but pays little attention to the presentation format of this information. This paper examines the impact of graph utilization and graph quality (distortion) on the cost of equity capital, controlling for the interaction between disclosure and graph distortion. Despite the advantages of graphs in communicating information, our results show that graphutilization does not have a significant impact on users’ decisions. However we observe a significant (negative) association between graph distortion and the ex-ante cost of equity. This effect though, disappears if we use realised returns as a measure of ex-post cost of equity. Moreover, we find that disclosure and graph distortion interact so that the impact of disclosure on the cost of capital depends on graph integrity. For low level of overall disclosure, graph distortion reduces the ex-ante cost of equity. However for high level of disclosure graph distortion increases the ex-ante cost of equity.
    Keywords: equity capital, graphs
    JEL: M41 G14
    Date: 2007–04
  8. By: Roy Chowdhury, Prabal; Roy, Jaideep
    Abstract: This paper examines public-private partnerships in micro-finance, whereby NGOs can help in channelizing credit to the poor, both in borrower selection, as well as in project implementation. We argue that a distortion may arise out of the fact that the private partner, i.e. the NGO, is a motivated agent. We find that whenever the project is neither too productive, nor too unproductive, reducing such distortion requires unbundling borrower selection and project implementation, with the NGO being involved in borrower selection only.
    Keywords: Public-private partnerships; micro-finance; motivated agent; NGO.
    JEL: O17 H5 G28 G21 E62
    Date: 2007–08–14

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