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on Corporate Finance |
| By: | Alexander Muravyev (DIW - Berlin); Dorothea Schaefer (DIW - Berlin and Free University of Berlin); Oleksandr Talavera (Aberdeen Business School and Kyiv School of Economics) |
| Abstract: | This paper studies gender discrimination against entrepreneurs by financial institutions. Based on the cross-country Business Environment and Enterprise Performance Survey (BEEPS) our analysis suggests that, compared to male-managed counterparts, female-managed firms are less likely to obtain a bank loan. In addition, we find that female entrepreneurs are charged higher interest rates when loan applications are approved. There is also some evidence that the gender differences in access to financing vanish with the level of financial development, which is consistent with the Becker-type discrimination. The results of our analysis are robust to a number of specification checks. |
| Keywords: | Entrepreneurship, financial constraints, gender, discrimination |
| JEL: | G21 J16 L26 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:kse:dpaper:11&r=cfn |
| By: | Pamela Lenton; Paul Mosley (Department of Economics, The University of Sheffield) |
| Abstract: | Debt problems in the UK have recently become much more severe, especially for the lowest income groups, and we examine here their impact on health, using data from the national Families´ and Children´s Survey (FACS). We model the relationship between debt and health as a simultaneous two-way interaction, and find that debt levels have a negative effect on both physical and psychological health. We find that debt repayment structure, defined as the percentage of debt borrowed in high-interest categories, has an impact on health independent of the level of debt. The interaction between debt and health may aggravate the poverty trap, by pushing heavily-indebted low-income people into ill-health, which then makes it difficult for them to acquire or hold on to the steady jobs needed to ease their debt problems. We also find that worry has a negative influence on debt management capacity, and thence on health, which makes it more difficult for those caught in a debt trap to escape from it. Membership of credit unions tends to reduce worry, however, and thereby may facilitate escape from the debt-ill health spiral. |
| Keywords: | Debt, Health, Random effects ordered probit models |
| JEL: | G11 I31 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2008004&r=cfn |
| By: | Pablo Antolin |
| Abstract: | This report provides an analysis of aggregate investment performance by country on a risk adjusted basis using relatively standard investment performance measures. The report also describes privately managed pension funds around the world and the regulatory environment they face. It compares pension funds across countries according to total assets under management and asset allocation, and briefly discusses certain issues surrounding the data reported by pension funds and regulators on investment returns. <P>La Performance des Fonds de Pensions <BR>Ce rapport fournit une analyse par pays des performances d‘investissement ajustées en fonction du risque et en utilisant des mesures de performance standards. Le rapport décrit également les fonds de pensions privées dans le monde et les régulations auxquels les fonds doivent satisfaire. Il compare les fonds de pension par pays selon leurs actifs totaux et l‘allocation de ceux-ci, et examine brièvement les problèmes avec les données rapportées par les fonds de pension et les régulateurs concernant le rendement des investissements. |
| Keywords: | pension fund, fond de pension, investment performance, returns on investment, asset allocation, Sharpe ratio, Markowitz mean-variance portfolio maximization, performance des investissements, allocation des actives, Sharpe ratio, maximisation du portefeuille Markowitz mean-variance |
| JEL: | C80 G11 G23 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dafaab:20-en&r=cfn |
| By: | Fahlenbrach, Rudiger (Ohio State U) |
| Abstract: | I analyze the role of executive compensation in corporate governance. As proxies for corporate governance, I use board size, board independence, CEO-chair duality, institutional ownership concentration, CEO tenure, and an index of shareholder rights. The results from a broad cross-section of large U.S. public firms are inconsistent with recent claims that entrenched managers design their own compensation contracts. The interactions of the corporate governance mechanisms with total pay-for-performance and excess compensation can be explained by governance substitution. If a firm has generally weaker governance, the compensation contract helps better align the interests of shareholders and the CEO. |
| JEL: | G32 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2008-5&r=cfn |
| By: | Fahlenbrach, Rudiger (Ohio State U); Low, Angie (Nanyang Technological U); Stulz, Rene (Ohio State U) |
| Abstract: | We examine the determinants of appointments of outside CEOs to boards and how these appointments impact the appointing companies. We find that CEOs are most likely to join boards of large established firms that are geographically close, pursue similar financial and investment policies, and have comparable governance mechanisms to their own firms. It is also more likely that CEOs join firms with low insider ownership and firms with boards that already have other CEO directors. Except for the case of board interlocks, there is no evidence supporting the view that CEO directors have any impact on the appointing firm during their tenure, either positively or negatively. Appointments of CEO directors do not have a significant impact on the appointing firm’s operating performance, its decision-making, the compensation of its CEO, or on the monitoring of management by the board. However, operating performance drops significantly for CEO director appointments when the CEO of the appointing firm already sits on the board of the appointee’s firm. |
| JEL: | G30 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2008-10&r=cfn |
| By: | Karolyi, G. Andrew (Ohio State U); Lee, Kuan Hui (Rutgers U); van Dijk, Mathijs A. (RSM Erasmus U) |
| Abstract: | We uncover similar cross-country and time-series patterns in co-movement or “commonality” in stock returns, liquidity, and trading activity across 40 developed and emerging countries. The extent to which the liquidity and turnover of individual stocks within a country move together is related to the same institutional characteristics as is comovement in stock returns. Commonality is greater in countries with weaker investor protection and a more opaque information environment. Monthly variation in commonality in returns, liquidity, and turnover is also driven by common determinants. Commonality increases during times of high market volatility, large market declines, and high interest rates, and is negatively related to capital market openness. Our results are consistent with theoretical models in which changes in the wealth and collateral value of traders and financial intermediaries endogenously affect liquidity, trading, and pricing. |
| JEL: | G12 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2007-16&r=cfn |
| By: | Fahlenbrach, Rudiger (Ohio State U); Stulz, Rene |
| Abstract: | From 1988 to 2003, the average change in managerial ownership is significantly negative every year for American firms. We find that managers are more likely to significantly decrease their ownership when their firms are performing well, but not more likely to increase their ownership when their firms have poor performance. Because investors learn about the total change in managerial ownership with a lag, changes in Tobin’s q in a period can be affected by changes in managerial ownership in the previous period. In an efficient market, it is unlikely that changes in managerial ownership in one period are caused by future changes in q. When controlling for past stock returns, we find that large increases in managerial ownership increase q. This result is driven by increases in shares held by officers, while increases in shares held by directors appear unrelated to changes in firm value. There is no evidence that large decreases in ownership have an adverse impact on firm value. We argue that our evidence cannot be wholly explained by existing theories and propose a managerial discretion theory of ownership consistent with our evidence. |
| JEL: | G30 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2007-12&r=cfn |
| By: | Cronqvist, Henrik (Ohio State U); Fahlenbrach, Rudiger |
| Abstract: | We develop an empirical framework that allows us to analyze the effects of heterogeneity across large shareholders, and we construct a new blockholder-firm panel data set in which we can track all unique blockholders among large U.S. public firms. We find statistically significant and economically important blockholder fixed effects in investment, financial, and executive compensation policies. This evidence suggests that blockholders vary in their beliefs, skills, or preferences. Different large shareholders have distinct investment and governance styles: they differ in their approaches to corporate investment and growth, their appetites for financial leverage, and their attitudes towards CEO pay. We also find blockholder fixed effects in firm performance measures, and differences in style are systematically related to firm performance differences. Our results are consistent with influence for activist, pension fund, corporate, individual, and private equity blockholders, but consistent with systematic selection for mutual funds. Finally, we analyze sources of the heterogeneity, and find that blockholders with a larger block size, board membership, direct management involvement as officers, or with a single decision maker are associated with larger effects on corporate policies and firm performance. |
| JEL: | G31 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2006-14&r=cfn |
| By: | Loh, Roger (Ohio State U) |
| Abstract: | Investors’ reaction to stock recommendations is often incomplete so that there is a predictable post-recommendation drift. I investigate whether investor inattention contributes to this drift by using turnover as a proxy for investor attention. I find that the recommendation drift of firms with low prior turnover is more than double in magnitude compared to that of firms with high prior turnover. Additional proxies for attention, such as analyst coverage, institutional ownership, the amount of distracting news in a day, or a measure of residual turnover that controls for liquidity and uncertainty, produce similar results. Volume reactions around the recommendation event show that investors fail to react promptly to recommendations on low attention stocks. Together, the evidence suggests that investor inattention is a plausible explanation for investors’ underreaction to stock recommendations. |
| JEL: | G12 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2008-2&r=cfn |
| By: | Taillard, Jerome Ph. A. (Ohio State U) |
| Abstract: | Asbestos litigation is one of the most important mass tort litigations in the history of the United States. I analyze a comprehensive sample of 270 firms that were exposed to an unprecedented wave of asbestos litigation in the wake of U.S. Supreme Court decisions in Amchem (1997) and Ortiz (1999). Due to insurance coverage, most firms in the sample have manageable cash outflows and do not suffer materially from the litigation. Because of the long delay between exposure to asbestos and its related illnesses, the remaining firms with substantial cash outflows and liabilities offer a rare natural experiment to study financial distress unrelated to economic distress. When analyzing this sub-sample throughout the distress period, I find little evidence of indirect costs of financial distress. This surprising result can be directly related to the strategic use of Chapter 11 as it provides a safe harbor through the stay in litigation and the “channeling injunction”, which allows for a definitive solution for the legal liabilities. There is also evidence of a positive role for the disciplinary effects of financial distress as firms subject to increased bank monitoring and increased legal liabilities actively restructure and refocus on core operations. |
| JEL: | G32 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2008-12&r=cfn |
| By: | Cronqvist, Henrik (Ohio State U); Heyman, Fredrik (Research Institute of Industrial Economics); Nilsson, Mattias (U of Colorado, Boulder); Svaleryd, Helena (Research Institute of Industrial Economics); Vlachos, Jonas (Stockholm U) |
| Abstract: | Analyzing a large panel that matches public firms with worker-level data, we find that managerial entrenchment affects workers’ pay. CEOs with more control pay their workers more, but financial incentives through ownership of cash flow rights mitigate such behavior. These findings do not seem to be driven by productivity differences, and are not affected by a series of robustness tests. Moreover, we find that entrenched CEOs pay more to (i) workers associated with aggressive unions; (ii) workers closer to the CEO in the corporate hierarchy, such as CFOs, division vice-presidents and other top-executives; and (iii) workers geographically closer to the corporate headquarters. This evidence is consistent with entrenched CEOs paying higher wages to enjoy non-pecuniary private benefits such as lower effort wage bargaining and improved social relations with certain workers. More generally, our results show that managerial ownership and corporate governance can play an important role for labor market outcomes. |
| JEL: | G32 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2007-7&r=cfn |
| By: | Makhija, Anil K. (Ohio State U); Narayanan, Rajesh P. (U of Georgia) |
| Abstract: | Fairness opinions provided by investment banks advising on mergers and acquisitions have been criticized for being conflicted in aiding bankers further their goal of completing the deal as opposed to aiding boards (and shareholders) by providing an honest appraisal of deal value. We find empirical support for this criticism. We find that shareholders on both sides of the deal, aware of the conflict of interest facing advisors, rationally discount deals where advisors provide fairness opinions. The reputation of the advisor serves to mitigate this discount, while the contingent nature of advisory fees appears to have no impact. Furthermore, consistent with the criticism of fairness opinions, we find evidence suggesting that fairness opinions are sought by boards for the legal cover they provide against shareholders unhappy with the deal’s terms. Thus, altogether our findings suggest that investment bankers and boards may be complicit in using fairness opinions to further their own interests at an expense to shareholders. |
| JEL: | G24 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2007-11&r=cfn |
| By: | Evans, Richard (U of Virginia); Fahlenbrach, Rudiger (Ohio State U) |
| Abstract: | We study the roles of traditional governance (boards, sponsors, etc.) and market governance (investors voting with their feet) in mutual funds and variable annuities. We find that market governance is less pronounced for variable annuity investors. Using a matched sample of variable annuity-mutual fund twins, we find that variable annuity investors are less sensitive to poor performance and high fees than mutual fund investors. Given the weaker role played by market governance, we then examine the role played by traditional governance in variable annuities. Variable annuity boards and sponsors add alternative investment options and replace advisors on behalf of their investors after poor performance and high fees. These traditional governance mechanisms are, however, less effective when conflicts of interest exist between variable annuity sponsors and fund advisors. |
| JEL: | G22 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2007-17&r=cfn |
| By: | Jenter, Dirk (Stanford U); Kanaan, Fadi (Massachusetts Institute of Technology) |
| Abstract: | This paper examines whether CEOs are fired after bad firm performance caused by factors beyond their control. Standard economic theory predicts that corporate boards filter out exogenous industry and market shocks from firm performance before deciding on CEO retention. Using a new hand-collected sample of 1,627 CEO turnovers from 1993 to 2001, we document that CEOs are significantly more likely to be dismissed from their jobs after bad industry or bad market performance. A decline in the industry component of firm performance from its 75th to its 25th percentile increases the probability of a forced CEO turnover by approximately 50 percent. This result is at odds with the prior empirical literature, which showed that corporate boards filter exogenous shocks from CEO dismissal decisions in samples from the 1970s and 1980s. Our findings suggest that the standard CEO turnover model is too simple to capture the empirical relation between performance and forced CEO turnovers, and we evaluate several extensions to the standard model. |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:1992&r=cfn |