nep-cfn New Economics Papers
on Corporate Finance
Issue of 2008‒04‒15
seventeen papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Ownership, Economic Entrenchment and Allocation of Capital By Eklund, Johan; Desai, Sameeksha
  2. Corporate Debt Maturity Choice in Transition Financial Markets By Stephan, Andreas; Talavera, Oleksandr; Tsapin, Andriy
  3. Evolution of Capital Structure in East Asia: Corporate Inertia or Endeavours? By Driffield, Nigel; Pal, Sarmistha
  4. Innocents Abroad: The Hazards of International Joint Ventures with Pyramidal Group Firms By Susan Perkins; Randall Morck; Bernard Yeung
  5. Tax Policy for Venture Capital Backed Entrepreneurship By Christian Keuschnigg
  6. Application of ARCH-GARCH , CAPM models for estimating the volatility of share prices in A case study to technology-software sector in Athens stock exchange market By Giovanis, Eleftherios
  7. Calendar anomalies in Athens Exchange Stock Market By Giovanis, Eleftherios
  8. Nucleus accumbens activation mediates the influence of reward cues on financial risk-taking By Knutson, Brian; Wimmer, G. Elliott; Kuhnen, Camelia; Winkielman, Piotr
  9. Credit scoring with boosted decision trees By Bastos, Joao
  10. What do we know about the capital structure of privately held firms? Evidence from the Surveys of Small Business Finance By Cole, Rebel
  11. Political connections and minority-shareholder protection: Evidence from securities-market regulation in China By Berkman, Henk; Cole, Rebel; Fu, Lawrence
  12. Improving corporate governance where the State is the controlling block holder: Evidence from China By Berkman, Henk; Cole, Rebel; Fu , Lawrence
  13. Italian Open End Mutual Fund Costs By Anolli, Mario; Del Giudice, Alfonso
  14. Mergers and Acquisitions in the Indian Pharmaceutical Industry: Nature, Structure and Performance By Beena, S
  15. Mergers, acquisitions and technological regimes: the European experience over the period 2002- 2005 By Damiani, Mirella; Pompei, Fabrizio
  16. Risky Decisions in the Large and in the Small: Theory and Experiment By James C. Cox; Vjollca Sadiraj
  17. Stock Market Event Studies and Competition Commission Inquiries By Lucy Beverley

  1. By: Eklund, Johan (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Desai, Sameeksha (University of Missouri and Max Planck Institute of Economics)
    Abstract: In an efficient economy, capital should be quickly (re)allocated from declining firms and sectors to more profitable investment opportunities. This process is affected by the concentration of corporate control, which in turn is affected by market institutions. We employ a panel of 12,000 firms across 44 countries to estimate the functional efficiency of capital markets. We adapt a measure for the efficiency of capital allocation using the accelerator principle. Our empirical results show weak property rights and highly concentrated ownership reduce the functional efficiency of capital markets. Findings support the economic entrenchment hypothesis but not the legal origins hypothesis.
    Keywords: Allocation of capital; accelerator principle; ownership; functional efficiency; economic entrenchment
    JEL: G32 L20 P00
    Date: 2008–04–02
  2. By: Stephan, Andreas (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Talavera, Oleksandr (Aberdeen Business School); Tsapin, Andriy (European University Viadrina)
    Abstract: This paper investigates the determinants of liability maturity choice in transition markets. We formulate a model of ¯rm value maximization that describes managers' choice of optimal debt structure. The theoretical predictions are tested using a unique panel of 4,300 Ukrainian firms during the period 2000-2005. Our estimates confirm the importance of liquidity, signaling, maturity matching, and agency costs for the liability term structure of firm operating in a transition economy. In addition, we find that companies do not react uniformly to determinants of debt maturity. Firms that mainly rely on external funds are sensitive to signaling and they consider the variability of firm value an important determinant of their debt maturity choice. For less constrained companies that rely more on internal funding, asset maturity is an essential determinant of debt structure.
    Keywords: debt maturity; capital structure; transition period; Ukraine
    JEL: D24 G30 G32
    Date: 2008–04–02
  3. By: Driffield, Nigel (Aston University); Pal, Sarmistha (Brunel University)
    Abstract: The present paper examines the capital structure adjustment dynamics of listed non-financial corporations in seven East Asian countries during 1994-2002. Compared to firms in the least affected countries, average leverages were much higher among firms in the worst affected countries while the average speeds of adjustment were lower. This general ranking is robust to various alternative specifications and sample selections. We argue that this pattern is closely linked to weaknesses in regulatory environment and lack of access to alternative sources of finance in the worst affected countries.
    Keywords: capital structure dynamics, partial adjustment models, firm- and time-varying speed, generalised methods of moments, inertia and endeavours
    JEL: G32 O16
    Date: 2008–04
  4. By: Susan Perkins; Randall Morck; Bernard Yeung
    Abstract: The fundamental unit of production in microeconomics is the firm, and this mirrors reality in the United States and United Kingdom. But elsewhere, business groups can be the more important unit, for business strategy is often formulated at the business group level, not the firm level. In many countries, this is legally enshrined in corporate governance codes that assign officers and directors a duty to act for their business group, not their firm or its shareholders. Even where a duty to individual firms' shareholders exists, business groups often have pyramidal structures of intercorporate blockholdings that entrench controlling shareholders, usually wealthy families, who run their groups to maximize their utility. This can impose exacerbated agency problems. In either case, foreign joint venture partners who expect domestic firms to maximize shareholder value can be sorely disappointed. We explain agency behavior in business groups and how controlling insiders can divert resources between firms they control, including joint ventures, to enrich themselves; and highlight differences between this behavior and agency problems in freestanding firms. We then examine the telecoms industry in Brazil, a country in which most large businesses belong to pyramidal business groups controlled by wealthy families. We find that joint ventures between Brazilian telecoms firms and partners from countries where business groups are rarer have significantly elevated failure rates; while joint ventures with foreign partners from countries where pyramidal groups are more common are more likely to succeed. We then present clinical examples illustrating the mechanisms that drive such divergent performance in joint venture partnerships. While our results are based on a single industry in a single country, we believe they highlight a previously unexamined important issue in international business strategy.
    JEL: G3 G34 L96 O54
    Date: 2008–04
  5. By: Christian Keuschnigg
    Abstract: Venture capital has become an important source of financing young entrepreneurial firms. Venture capital backed firms are often perceived as more innovative and as creating more value than others. Perhaps for this reason, policy makers are keen to create a good institutional framework to facilitate the development of an active venture capital industry. We explore the role of tax policy in determining the incentives of individuals to start up new firms and of venture capitalists to finance and advise them. In particular, we examine how business taxation at the company and investor level together with start-up capital subsidies affect the volume and quality of venture capital backed entrepreneurship.
    Keywords: Entrepreneurship, venture capital, taxes, subsidies
    JEL: D82 G24 H24 H25
    Date: 2008–03
  6. By: Giovanis, Eleftherios
    Abstract: This paper examines the estimating performance of the different and various GARCH’s models in relation to CAPM model. We apply the CAPM model to investigate if an ARCH (Autoregressive Conditional Heteroscedasticity) is presented and we are trying to decide and to analyze which Garch model is the most appropriate and the best fitted for the financial time series that we have chosen. We apply CAPM model in the financial time series of the share prices of Technology-Software Sector in Athens Exchange stock market for the period January 1st of 2002 to October 30th of 2007 for the enterprises “Unibrain” “MLS Informatics” and “Dionic” respectively , from April 2nd of 2002 to 30th October of 2007 for the enterprise “Compucon”, from August 2nd of 2002 to 30th October of 2007 for the enterprise “Centric”, and finally from February 2nd of 2004 to 30th October of 2007 for the enterprise “Ilyda”.
    Keywords: ARCH; GARCH ; CAPM; leptokurtosis; unit root ; rolling regression
    JEL: C10 G12 G32
    Date: 2008–01–10
  7. By: Giovanis, Eleftherios
    Abstract: The purpose of this paper is to examine if there are calendar anomalies in the Greek Stock market and to confirm the findings of other researches . Specifically two models are presented, one for the day of the week effect test and other for the month of the year effect.
    Keywords: day of the week effect, month effect, January and Monday effect, rolling regression, ARCH, GARCH
    JEL: C10 G12
    Date: 2008–01–18
  8. By: Knutson, Brian; Wimmer, G. Elliott; Kuhnen, Camelia; Winkielman, Piotr
    Abstract: In functional magnetic resonance imaging (FMRI) research, nucleus accumbens (NAcc) activation spontaneously increases prior to financial risk taking. Since anticipation of diverse rewards can increase NAcc activation, even incidental reward cues may influence financial risk-taking. Using event-related FMRI, we predicted and found that anticipation of viewing rewarding stimuli (erotic pictures for 15 heterosexual males) increased financial risk taking, and that this effect was partially mediated by increases in NAcc activation. These results are consistent with the notion that incidental reward cues influence financial risk taking by altering anticipatory affect, and so identify a neuropsychological mechanism that may underlie effective emotional appeals in financial, marketing, and political domains.
    Keywords: neuroeconomics; neurofinance; brain; financial risk taking; risk preferences; decision making; nucleus accumbens; striatum; reward cues; FMRI; brain imaging
    JEL: D81 G11 C91
    Date: 2008–03
  9. By: Bastos, Joao
    Abstract: The enormous growth experienced by the credit industry has led researchers to develop sophisticated credit scoring models that help lenders decide whether to grant or reject credit to applicants. This paper proposes a credit scoring model based on boosted decision trees, a powerful learning technique that aggregates several decision trees to form a classifier given by a weighted majority vote of classifications predicted by individual decision trees. The performance of boosted decision trees is evaluated using two publicly available credit card application datasets. The prediction accuracy of boosted decision trees is benchmarked against two alternative data mining techniques: the multilayer perceptron and support vector machines. The results show that boosted decision trees are a competitive technique for implementing credit scoring models.
    Keywords: Credit scoring; Boosting; Decision tree; neural network; support vector machine
    JEL: C44 G32
    Date: 2008–04–01
  10. By: Cole, Rebel
    Abstract: The capital-structure decision is one of the most fundamental issues in corporate finance. Numerous studies have been conducted to test the two major competing theories of capital structure (Trade-Off Theory and Pecking-Order Theory), yet none of these studies has analyzed the capital-structure decisions of small, privately held U.S. firms, which constitute the vast majority of all U.S. business enterprises. In this study, we provide the first evidence on this important issue, utilizing data from four nationally representative surveys conducted by the Federal Reserve Board: the 1987, 1993, 1998 and 2003 Surveys of Small Business Finances (SSBF). We find that firm leverage as measured by the ratios of total loans to total assets and total liabilities to total assets is negatively related to firm size, age, profitability, liquidity and credit quality and is positively related to firm tangibility and limited liability. In addition, we find that firm leverage is an increasing function of both the number of banks and the number of non-bank financial institutions with which the firm has business relationships. Finally, we find no significant variations in firm leverage by race or ethnicity, but some evidence that femaleowned firms use less leverage. In general, these results are broadly supportive of the Pecking- Order Theory and inconsistent with the Trade-Off Theory.
    Keywords: capital structure; pecking-order theory; small business; trade-off theory; SSBF
    JEL: L26 G32 G21
    Date: 2008–03–16
  11. By: Berkman, Henk; Cole, Rebel; Fu, Lawrence
    Abstract: We examine the wealth effects of three regulatory changes designed to improve minorityshareholder protection in the Chinese stock markets. Using the value of a firm’s related-party transactions as an inverse proxy for the quality of corporate governance, we find that firms with weaker governance experienced significantly larger abnormal returns around announcements of the new regulations than did firms with stronger governance. This evidence indicates that securities-market regulation can be effective in protecting minority shareholders from expropriation in a country with weak judicial enforcement. We also find that firms with strong ties to the government did not benefit from the new regulations, suggesting that minority shareholders did not expect regulators to enforce the new rules on firms where block holders have strong political connections.
    Keywords: China; convergence; enforcement; expropriation; political connections; investor protection; minority shareholder; regulation; tunneling
    JEL: G38 G34 G32
    Date: 2008–03–31
  12. By: Berkman, Henk; Cole, Rebel; Fu , Lawrence
    Abstract: We examine changes in market values and accounting returns for a sample of publicly traded Chinese firms around announcements of block-share transfers among government agencies (“State Bureaucrats”), market-oriented State-owned enterprises (“MOSOEs”) and private investors (“Private Entities”). We provide evidence that transfers from State Bureaucrats to Private Entities result in larger increases in market value and accounting returns than transfers to MOSOEs. We also find that CEO turnover occurs more quickly when shares are transferred to Private Entities. Moreover, we find that the changes in firm value and accounting returns, as well as the likelihood of CEO turnover, are all functions of the incentives and managerial expertise of the new block holder. We conclude that corporate governance can be improved at State-controlled firms by improving the incentives and managerial expertise of controlling block holders, and that this is better accomplished by transferring ownership to private investors rather than by shuffling ownership among Statecontrolled entities.
    Keywords: block-holder identity; China; partial corporate control; partial privatization; privatization; State ownership; SOE.
    JEL: G38 G34 G32
    Date: 2007–10–17
  13. By: Anolli, Mario; Del Giudice, Alfonso
    Abstract: We investigate the costs investors incur when they hold shares of Italian open end mutual funds. The overall explicit cost can range from less than 50 to well over 250 basis points in terms of assets under management. Nevertheless, mutual funds investors seem to be almost unaware of the importance of costs and tend to focus mainly on the net return when making their investment decisions. We measure the overall costs of a large sample of mutual funds managed by Italian intermediaries in the period 2000-2003 and also evaluate the determinants of cost efficiencies for the period 2000-2003.
    Keywords: mutual fund expenses; total expense ratio; mutual fund transaction costs; economies of scale
    JEL: G23 G20
    Date: 2008–01–30
  14. By: Beena, S
    Abstract: This paper tries to address the extent, nature and impact of the recent surge in consolidation strategies especially in the form of mergers and acquisitions followed by the firms in the Indian pharmaceutical industry. The study found that many of the firms are implementing these strategies in the new context of globalisation mainly to overcome the acute competition arising out of the pro-market reforms and to strengthen their market portfolio. The study reaches the conclusion that the consolidation strategies followed by the firms enabled them to cut down the wasteful expenses to a greater extent and which resulted in better performance of the merging firms compared to the non-merging firms in this industry.
    Keywords: mergers; acquisitions; consolidation; pharmaceutical industry; performance
    JEL: L6 G34 L80
    Date: 2006–06–28
  15. By: Damiani, Mirella; Pompei, Fabrizio
    Abstract: Comparisons by countries and by sectors of mergers and acquisitions have usually been performed in separate fields of research. A first group of studies, focusing on international comparisons, has explored the role of corporate governance systems, investor protection laws and other countries’ regulatory institutions as the main determinants of takeovers around the world. A second group of contributions has attributed a central role to variations in industry composition, documenting that, in each country, mergers occur in waves and within each wave clustering by industry is observed. This paper aims to integrate both perspectives and to make comparisons by countries and by sectors, thus exploring the role of various driving forces on takeover activities. It also intends to consider the specific influence that technological regimes and their innovation patterns may exert in reallocating assets and moving capital among sectors. This will be done by examining the European experience of the last few years (2002-2005). We found that even in countries where transfer of control is a frequent phenomenon, mergers are less frequent in those sectors where innovation is a cumulative process and where takeovers may be a threat to the continuity of accumulation of innovative capabilities.
    Keywords: Mergers and Acquisitions; Corporate Governance; Technological Regimes
    JEL: O30 G34 L60
    Date: 2008–04–11
  16. By: James C. Cox; Vjollca Sadiraj
    Abstract: null
    Date: 2008–01
  17. By: Lucy Beverley (Competition Commission and Centre for Competition Policy, University of East Anglia)
    Abstract: Event study analysis is a branch of econometrics which attempts to measure the effects of economic events on the value of firms by examining stock market data. Providing that share prices reflect the underlying economic values of assets, changes in equity values will properly capture expected changes in the economic profitability of the firm. This paper considers the effect on stock prices of announcements relevant to Competition Commission references, using established event study methodology.
    Keywords: event studies, shares, share prices, Competition Commission, stock market
    JEL: G14
    Date: 2008–03

This nep-cfn issue is ©2008 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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