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on Corporate Finance |
| By: | Olivier, Jacques; Tay, Anthony |
| Abstract: | This paper re-examines the incentives of mutual fund managers arising from investor flows. We provide evidence that the convexity of the flow-performance relationship varies with economic activity. We show that the effect is economically large and is not driven by abnormal years. We test two possible channels through which this pattern may arise. We investigate implications of the time-varying convexity for the incentives of managers to alter strategically the risk of their portfolios. We provide evidence that poor mid-year performers increase the risk of the portfolio only when economic activity is strong. Finally, we briefly discuss some methodological implications. |
| Keywords: | Business Cycle; Convexity; Flow-performance Relationship; Incentives; Mutual Funds |
| JEL: | G11 G23 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6893&r=cfn |
| By: | García-Herrero, Alicia (BOFIT); Santabárbara, Daniel (BOFIT) |
| Abstract: | We find empirical evidence that the Chinese banking system has benefited from the entry of foreign investors through higher profitability and increased efficiency of the banking system. Foreign participation, which consists of a minority stake in a Chinese bank (in contrast to the typical pattern in emerging countries), appears to be most effective when the foreign bank acts as a strategic investor. Purely financial investors contribute little, if anything, to bank performance. |
| Keywords: | China; banking system; foreign participation |
| JEL: | G21 G28 |
| Date: | 2008–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2008_011&r=cfn |
| By: | Carola Frydman; Raven E. Saks |
| Abstract: | We analyze the long-run trends in executive compensation using a new panel dataset of top executives in large publicly-held firms from 1936 to 2005, collected from corporate reports. This historic perspective reveals several surprising new facts that conflict with inferences based only on data from the recent decades. First, the median real value of compensation was remarkably flat from the end of World War II to the mid-1970s, even during times of rapid economic expansion and aggregate firm growth. This finding contrasts sharply with the steep upward trajectory of pay over the past thirty years, which coincided with a period of similarly large increases in aggregate firm size. A second surprising finding is that the sensitivity of an executive's wealth to firm performance was not inconsequentially small for most of our sample period. Thus, recent years were not the first time when compensation arrangements served to align managerial incentives with those of shareholders. Taken together, the long-run trends in the level and structure of compensation pose a challenge to several common explanations for the widely-debated surge in executive pay of the past several decades, including changes in firms' size, rent extraction by CEOs, and increases in managerial incentives. |
| JEL: | G30 J33 M52 N82 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14145&r=cfn |
| By: | Michael Graff (KOF Swiss Economic Institute, ETH Zurich) |
| Abstract: | The "law and finance theory" predicts that the common law system provides the best basis for financial development and economic growth, followed by Scandinavian and German origin civil law and finally French origin civil law. This paper summarises the key points of the theory as well as a number of sceptical views. Moreover, it argues that the theory faces an identification problem, since the majority of common law countries have a market-based financial system, whereas the majority of civil law countries have a bank-based financial system. Furthermore, it is shown that one of the corner stones of the law and finance theory, its proposition that a common legal tradition implies a similar set of legal rules and procedure to protect financial investors, does not hold empirically. Last but not least, it is shown that recent additions to the theory's creditor right indicators data pool are eliminating the (weak) correspondence between business law and legal family that could be found in the original data set. Accordingly, the theory's claim that creditor protection is largely determined by the legal tradition of a particular country has to be reconsidered. |
| Keywords: | Legal Tradition, Creditor Rights |
| JEL: | K22 G20 P00 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:08-197&r=cfn |
| By: | Tatom, John / A. |
| Abstract: | In 1991, Congress passed the Federal Deposit Insurance Corporation Improvement Act (FDICIA). The Act provided for risk-based deposit insurance premiums, put explicit limits on the application of a “too big to fail” principle for banks and required that examiners implement “prompt corrective action” (PCA) standards for banks. Essentially these steps were to improve the functioning of the FDIC, especially removing discretion of the examiners in the process of addressing the risk of failure of banks and providing explicit requirements of managing the deteriorating risk of failure and providing for rising insurance premiums for such banks. In particular, PCA established a set of capital benchmarks and required regulator actions that removed privileges for banks to manage their capital and payments of income to share holders and bank creditors as the capital position of the bank deteriorated and the risk of failure rose. In effect regulators could take preemptive action to keep banks from depleting their capital as their capital positions deteriorate. These provisions have drawn increasing public attention in the past year for very different reasons. First, Senate Bill 40, The National Insurance Act (NIA), which provides new opportunities for insurance companies to obtain their charters and to be regulated by a federal government entity instead of only the state governments, also requires that the new federal regulator develop and apply prompt corrective action provisions to the supervision of federally chartered insurance companies. The second reason that these provisions have drawn attention recently is the near failure and sale of Bear Stearns. The Federal Reserve helped arrange the sale of Bear Stearns in March 2008, with the sale to be completed shortly, to preempt its failure and consequent effects on other financial institutions. At about the same time the U.S. Department of Treasury released it long awaited “Blueprint for a Modernized Federal Financial Regulatory Structure,” that called for the Board of Governors of the Federal Reserve System to have broad regulatory power over all financial institutions on issues related to financial market stability. These actions call attention to the absence of regulatory oversight powers by the Fed, in particular, enabling legislation that would allow the Fed to close investment banks or other failed or failing institutions in the same way that they can or must close such banks. PCA is on the horizon for insurance companies, investment banks and other financial institutions subject to regulation. |
| Keywords: | Prompt corrective action; capital requirements; financial regulatory reform; Basel II |
| JEL: | G22 G28 G21 |
| Date: | 2008–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:9327&r=cfn |
| By: | Godlewski, Christophe J. |
| Abstract: | What is the influence of syndicate structure on the duration of loan arrangement? I answer this question using survival analysis methodology on a sample of loans from 59 countries over the 1992-2006 period. I find that syndicate size, concentration, reputation, and national diversity clearly matters for the duration of loan arrangement. A syndicate structure adapted to specific agency problems of syndication, with numerous, reputable, and experienced arrangers retaining a larger portion of the loan reduces the duration. The latter is also reduced when the syndicate has numerous lenders acting as syndicate ``managers'' from the same country as the borrower. Furthermore, more same-country ``managers'' and participants allow to shorten the duration of loan arrangement. |
| Keywords: | Syndicated loan, syndication process, duration of loan arrangement, agency costs, reputation, experience, nationality, survival analysis |
| JEL: | F30 C41 G15 G32 G21 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:9362&r=cfn |
| By: | Anaïs Hamelin (Laboratoire de Recherche en Gestion et Economie, Institut d'Etudes Politiques, Strasbourg) |
| Abstract: | Dans cet article nous analysons l’impact de l’appartenance à un groupe de PME sur la rentabilité et le risque individuel des entreprises. Nous observons que, contrairement aux grands groupes familiaux dans le monde, les groupes de PME à contrôle familial en France, ont majoritairement une structure simple et ne sont pas caractérisés par l’existence d’une divergence entre droit de vote et droit aux dividendes. Par ailleurs, nous observons que les entreprises appartenant à un groupe de PME ont une meilleure rentabilité opérationnelle que les entreprises indépendantes. Ces résultats semblent indiquer que la constitution de groupes de PME permet une meilleure allocation du capital. Enfin, il apparaît que l’appartenance à un groupe de PME a un impact ambigu sur le risque des entreprises. |
| Keywords: | Groupes de PME, Performance, Risque, Structure Pyramidale, Contrôle familial. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2008-14&r=cfn |