nep-cfn New Economics Papers
on Corporate Finance
Issue of 2008‒08‒21
ten papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Bourse et Football By Michel Aglietta; Wladimir Andreff; Bastien Drut
  2. The Stock Market, the Market for Corporate Control and the Theory of the Firm: Legal and Economic Perspectives and Implications for Public Policy By Simon deakin; Ajit Singh
  3. The Influence of Stock Market Listing on Human Resource Managment: Evidence for France and Britain By Neil Conway; Simon Deakin; Suzzanne J. Konzelmann; Héloïse Petit; Antoine Rebérioux; Frank Wilkinson
  4. Can Insurance Companies Control their financial stability? Practical Solutions By Cristea, Mirela
  5. Non-Performing Loans and Productivity in Chinese Banks: 1997-2006 By Matthews, Kent; Guo, Jianguang; Zhang, Nina
  6. The Jump component of S&P 500 volatility and the VIX index By Ralf Becker; Adam Clements; Andrew McClelland
  7. On the Lifecycle Dynamics of Venture-Capital- and Non-Venture-Capital-Financed Firms By Manju Puri; Rebecca Zarutskie
  8. Momentum in Australian Stock Returns: An Update By A. S. Hurn; V.Pavlov
  9. Why Do Foreign Firms Leave U.S. Equity Markets? An Analysis of Deregistrations Under SEC Exchange Act Rule 12h-6 By Craig Doidge; G. Andrew Karolyi; René M. Stulz
  10. Securities Laws, Disclosure, and National Capital Markets in the Age of Financial Globalization By René M. Stulz

  1. By: Michel Aglietta (Université de Paris 10 Nanterre, EconomiX); Wladimir Andreff (University Paris 1 Panthéon Sorbonne); Bastien Drut (Ecole Nationale de la Statistique et de l’Administration Economique)
    Abstract: An empirical study of the Dow Jones Stoxx Football index exhibits a high volatility of the returns and share prices regarding a sample of floated clubs as well as an insufficient market depth (low and irregular traded volumes). The theoretical analysis of the relationship between market illiquidity and share price volatitlity does not rely on an insufficient funding by speculators who adopt “contrarian” behaviour but on the uncertainty attached to the fundamental value of football clubs. The outcome is multiple equilibria in the market for assets. From witnessing how brokers and specialised audits value three representative football clubs, it appears that it is extremely difficult to fix the actual fundamental value of a football business. The sporting performances of a club have a strong incidence on its share price all over the season (tested with English football clubs). Such result opens an avenue for further research about the fundamental value of a football club. Instead of considering – as in the Anglo-American view – that the stock market will discipline the governance and management of European football clubs, we show that it would be worth hardening the clubs’ budget constraint before their exposure to financial market evaluation. The financial crisis of European football is less harsh in France though it translates into big clubs accounting imbalances, a high volatitlity of their return on equity, and their lasting indebtedness. It is so despite the existing financial supervisory body which monitors French football (the so-called DNCG), contrarily to the situation in other European football leagues. A “weak” clubs’ governance is revealed by their reluctant account disclosure (eventually achieved) and their inability to curb wage inflation and handle player transfers. We test that the club budget constraint is softened by the television godsend which is a significant determinant of player wages. Spreading the “French model” of governance throughout European football still requires some progress, which is also a prerequisite for successful float of football club shares at the stock exchange. Ten recommendations are derived to improve football regulation.
    JEL: G12 G30 G34 Z19 L83
    Date: 2008–08
  2. By: Simon deakin; Ajit Singh
    Abstract: It is argued here that - contrary to current conventional wisdom - an active market for corporate control is not an essential ingredient of either company law reform or financial and economic development. The absence of such a market in coordinated market systems during their modern economic development was not an evolutionary deficit, but an effective and positive institutional arrangement. The economic and social costs associated with restructuring driven by hostile takeover bids, which are increasingly seen as prohibitive in the liberal market economies, would most likely harm the prospects for growth in developing and transition systems.
    Keywords: takeovers, market for corporate control, varieties of capitalism
    JEL: G34 G38 K22
    Date: 2008–06
  3. By: Neil Conway; Simon Deakin; Suzzanne J. Konzelmann; Héloïse Petit; Antoine Rebérioux; Frank Wilkinson
    Abstract: We use data from REPONSE 2004 and WERS 2004 to analyse whether approaches to HRM differ according to whether an establishment is part of a company with a stock exchange listing. In both countries we find that listing is positively associated with teamworking and performance-related pay, while in France, but not in Britain, it is also linked to worker autonomy and training. Our findings are inconsistent with the claim that shareholder pressure operates as a constraint on the adoption of high-performance workplace practices. The pattern is similar in the two countries, but with a slightly stronger tendency for listing to be associated with high-performance workplace practices in France.
    Keywords: corporate governance, human resource management, employment relations
    JEL: G32 G38 K22 K31 J53 J88
    Date: 2008–06
  4. By: Cristea, Mirela
    Abstract: Taking into account the actual economic situation of the world with numerous financial crisis, the insurance companies should control their financial stability in order to avoid the insolvency or even bankruptcy state. Thus, the insurers should find the adequate methods of substantiating the premium installments, the adequate ways of attracting insurances in order to achieve the right structure of the portfolio and the desired level of financial stability within the company. The present paper proposes mathematical calculation, through which different solution may be given in order to optimize insurance portfolio, determining thus its adequate structure to a certain level of stability planned by the company. The result of elaborated studies and analysis represents an useful instrument for the insured persons, being able to choose the right type of insurance, resting on its comparisons, analysis and conclusions, and for the insurance companies, being meant to improve their subscription and investment activity, as well as the financial stability. The mathematical calculation shown within this paper may be applied in practice and improved.
    Keywords: insurance; financial stability; optimize subscription portfolio; mathematical calculation
    JEL: G14 G22
    Date: 2008–08–16
  5. By: Matthews, Kent (Cardiff Business School); Guo, Jianguang; Zhang, Nina
    Abstract: This study examines the productivity growth of the nationwide banks of China over the ten years to 2006. Using a bootstrap method for the Malmquist index estimates of productivity growth are constructed with appropriate confidence intervals. The paper adjusts for the quality of the output by accounting for the non-performing loans on the balance sheets and test for the robustness of the results by examining alternative sets of outputs. The productivity growth of the state-owned banks is compared with the Joint-stock banks and it determinants evaluated. The paper finds that average productivity of the Chinese banks improved modestly over this period. Adjusting for the quality of loans, by treating NPLs as an undesirable output, the average productivity growth of the state-owned banks was zero or negative while productivity of the Joint-Stock banks was markedly higher.
    Keywords: Bank Efficiency; Productivity; Malmquist index; Bootstrapping
    JEL: D24 G21
    Date: 2007–11
  6. By: Ralf Becker; Adam Clements; Andrew McClelland
    Abstract: Much research has investigated the differences between option implied volatilities and econometric model-based forecasts in terms of forecast accuracy and relative informational content. Implied volatility is a market determined forecast, in contrast to model-based forecasts that employ some degree of smoothing to generate forecasts. Therefore, implied volatility has the potential to reflect information that a model-based forecast could not. Specifically, this paper considers two issues relating to the informational content of the S&P 500 VIX implied volatility index. First, whether it subsumes information on how historical jump activity contributed to the price volatility, followed by whether the VIX reflects any incremental information relative to model based forecasts pertaining to future jumps. It is found that the VIX index both subsumes information relating to past jump contributions to volatility and reflects incremental information pertaining to future jump activity, relative to modelbased forecasts. This is an issue that has not been examined previously in the literature and expands our understanding of how option markets form their volatility forecasts.
    Keywords: Implied volatility, VIX, volatility forecasts, informational efficiency, jumps
    JEL: C12 C22 G00 G14
    Date: 2008–03–17
  7. By: Manju Puri; Rebecca Zarutskie
    Abstract: We use a new data set that tracks U.S. firms from their birth over two decades to understand the life cycle dynamics and outcomes (both successes and failures) of VC- and non-VC financed firms. We first ask to what market-wide and firm-level characteristics venture capitalists respond in choosing to make their investments and how this differs for firms financed solely by non-VC sources of entrepreneurial capital. We then ask what are the eventual differences in outcomes for firms that receive VC financing relative to non-VC-financed firms. Our findings suggest that VCs follow public market signals similar to other investors and typically invest largely in young firms, with potential for large scale being an important criterion. The main way that VC financed firms differ from matched non-VC financed firms, is they demonstrate remarkably larger scale both for successful and failed firms, at every point of the firms' life cycle. They grow more rapidly, but we see little difference in profitability measures at times of exit. We further examine a number of hypotheses relating to VC-financed firms' failure. We find that VC-financed firms' cumulative failure rates are lower than non-VC-financed firms but the story is nuanced. VC appears initially "patient" in that VC-financed firms are less likely to fail in the first five years but conditional on surviving past this point become more likely to fail relative to non-VC-financed firms. We perform a number of robustness checks and find that VC does not appear to have more stringent survival thresholds nor do VC-financed firm failures appear to be disguised as acquisitions nor do particular kinds of VC firms seem to be driving our results. Overall, our analysis supports the view that VC is "patient" capital relative to other non-VC sources of entrepreneurial capital in the early part of firms' lifecycles and that an important criterion for receiving VC investment is potential for large scale, rather than level of profitability, prior to exit.
    JEL: G24 G32
    Date: 2008–08
  8. By: A. S. Hurn; V.Pavlov
    Abstract: It has been documented that a momentum investment strategy based on buying past well performing stocks while selling past losing stocks, is a profitable one in the Australian context particularly in the 1990s. The aim of this short paper is to investigate whether or not this feature of Australian stock returns is still evident. The paper confirms the presence of a medium-term momentum effect, but also provides some interesting new evidence on the importance of the size effect on momentum.
    Keywords: Stock returns, Momentum portfolios, Size effect
    JEL: G11 G12
    Date: 2008–02–26
  9. By: Craig Doidge; G. Andrew Karolyi; René M. Stulz
    Abstract: On March 21, 2007, the Securities and Exchange Commission (SEC) adopted Exchange Act Rule 12h-6 which makes it easier for foreign private issuers to deregister and terminate the reporting obligations associated with a listing on a major U.S. exchange. We examine the characteristics of 59 firms that immediately announced they would deregister under the new rules, their potential motivations for doing so, as well as the economic consequences of their decisions. We find that these firms experienced significantly slower growth and lower stock returns than other U.S. exchange-listed foreign firms in the years preceding the decision. There is weak evidence that firms experience negative stock returns when they announce deregistration and stronger evidence that the stock-price reaction is worse for firms with higher growth. When we examine stock-price reactions around events associated with the passage of the Sarbanes-Oxley Act (SOX), we find negative average stock-price reactions with some specifications but not others. Further, there is no evidence that deregistering firms were affected more negatively by SOX than foreign-listed firms that did not deregister. Our evidence supports the hypothesis that foreign firms list shares in the U.S. in order to raise capital at the lowest possible cost to finance growth opportunities and that, when those opportunities disappear, a listing becomes less valuable to corporate insiders so that firms are more likely to deregister and go home.
    JEL: F30 G15 G34
    Date: 2008–08
  10. By: René M. Stulz
    Abstract: As barriers to international investment fall and technology improves, the cost advantages for a firm's securities to trade publicly in the country in which that firm is located and for that country to have a market for publicly traded securities distinct from the capital markets of other countries will progressively disappear. However, securities laws remain an important determinant of whether and where securities are issued, how they are valued, who owns them, and where they trade. The value of public firms depends on these laws, so that identical firms subject to different laws are likely to have different values. We show that mandatory disclosure through securities laws can decrease agency costs between corporate insiders and minority shareholders, but only provided the investors can act on the information disclosed and the laws cannot be weakened ex post too much through lobbying by corporate insiders. With financial globalization, national disclosure laws can have wide-ranging effects on a country's welfare, on firms and on investor portfolios, including the extent to which share holdings reveal a home bias. In equilibrium, if firms can choose the securities laws they are subject to when they go public, some firms will choose stronger securities laws than those of the country in which they are located and some firms will do the opposite. These effects of securities laws can be expected to become smaller if differences in national laws and their enforcement decrease and if the costs of private solutions to manage corporate agency conflicts that are substitutes for securities laws fall.
    JEL: F30 F36 G10 G15 G32
    Date: 2008–08

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.