nep-cfn New Economics Papers
on Corporate Finance
Issue of 2008‒10‒21
ten papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. CEO compensations in a stakeholders' regime : an empirical investigation with French listed companies By Cazavan-Jeny, Anne; Margaine, Julien; Missonier-Piera, Franck
  2. Poor performance of mutual funds in Spain. 1991-2007 By Fernandez, Pablo; Bermejo, Vicente J.; Bilan, Andrada
  3. Expected returns and liquidity risk: Does entrepreneurial income matter? By Saffi, Pedro
  4. The equity premium in finance and valuation textbooks By Fernandez, Pablo
  5. Free Cash-Flow, Issuance Costs and Shock Price Volatility By DÉCAMPS, Jean-Paul; MARIOTTI, Thomas; ROCHET, Jean-Charles; VILLENEUVE, Stéphane
  6. On the Modeling of Debt Maturity and Endogenous Default: A Caveat By DÉCAMPS, Jean-Paul; VILLENEUVE, Stéphane
  7. Swedish Listed Family Firms and Entrepreneurial Spirit By Bjuggren, Per-Olof; Palmberg, Johanna
  8. Cash Breeds Success : The Role of Financing Constraints in Patent Races By Schroth, Enrique; Szalay, Dezsö
  9. Production and financial decisions under uncertainty By Bejan, Camelia
  10. Corporate governance in developing and emerging countries. The case of Romania By Giurca Vasilescu, Laura

  1. By: Cazavan-Jeny, Anne (ESSEC Business School); Margaine, Julien (ESSEC Business School); Missonier-Piera, Franck (EM-Lyon Business School)
    Abstract: Ces dernières années, la publication du niveau de rémunération des dirigeants a soulevé d’intenses controverses. Un certain nombre d’études ont mis en évidence une relation positive entre le salaire des dirigeants et la performance de la société, aux Etats-Unis et en Grande- Bretagne. La rémunération des dirigeants est également proche de la structure du gouvernement d’entreprise. Or la structure française de gouvernement d’entreprise est différente de celle observée aux États-Unis ou en Grande-Bretagne. En France, la tradition voulait que l’on ne divulgue pas ou peu d’information sur le niveau de rémunération des dirigeants. Cependant depuis 2002, les sociétés cotées doivent indiquer dans leurs rapports annuels le montant des rémunérations des dirigeants et des membres du conseil d’administration. (loi NRE, 15 mai 2001). A partir d’un échantillon de 110 sociétés cotées françaises sur la période 2002-2004 (indice SBF 120), l’objet de cette recherche est d’apporter des éclairages sur la rémunération des dirigeants dans un pays connu pour être plutôt conservateur sur le sujet. Pour étudier les déterminants de la rémunération des dirigeants, nous avons utilisé trois mesures de cette rémunération : la partie fixe du salaire, le bonus annuel et la rémunération globale. Les premiers résultats montrent que les trois mesures de la rémunération des dirigeants peuvent être expliquées par la taille de la société, et la partie variable (bonus) par la performance boursière. Les résultats sur le risque sont plus mitigés et indiquent que le risque spécifique de la firme est négativement associé à la rémunération des dirigeants, ce qui confirme les résultats de Gray et Cannela (1997). Enfin, les variables de gouvernance ont un impact significatif sur le niveau de rémunération des dirigeants.
    Keywords: CEO compensation; Corporate governance; Performance
    JEL: G35 M41
    Date: 2008–07
  2. By: Fernandez, Pablo (IESE Business School); Bermejo, Vicente J. (IESE Business School); Bilan, Andrada (IESE Business School)
    Abstract: Over the past 10 and 16 years, the average return on mutual funds in Spain was lower than the average return on government bonds at any term. Over the past 10 years, the average return on the funds was lower than inflation. In spite of these results, on December 31, 2007, 8,264,240 investors held 238.7 billion euros in the 2,907 mutual funds then in existence. During 2007, the number of shareholders fell by 555,569 and the value of their assets, by 6.1%. Only 30 of the 935 mutual funds with a 10-year history outperformed the benchmark and only two of them outperformed the overall index of the Madrid Stock Exchange (ITBM). If in the past 16 years every mutual fund had achieved the benchmark return for its category, the gain in value would have been 180 billion euros, instead of the actual figure of 80 billion euros. Total fees and other expenses for the period amounted to 34 billion euros.
    Keywords: mutual funds; return to shareholders; benchmark; appreciation of the funds:
    JEL: G12 G31 M21
    Date: 2008–04–23
  3. By: Saffi, Pedro (IESE Business School)
    Abstract: This paper studies the effects of jointly incorporating liquidity risk and non-tradeable wealth in a single asset pricing equation. First, I propose an overlapping-generations model with random endowment shocks and liquidity risk, evaluating their joint impact on expected returns. The model presents a single-factor asset pricing equation, with a new term capturing the covariance between assets' liquidities and non-tradeable wealth. In this economy, assets with higher liquidity or returns when non-tradeable wealth is low command lower expected returns. Second, I investigate whether risks associated with liquidity are priced after including non-tradeable wealth due to entrepreneurial income. I test the model on equally weighted and value-weighted portfolios, sorted by illiquidity levels, illiquidity variation and size, using US stock data from January 1962 to December 2004. The extra terms due to entrepreneurial income reduce liquidity risk premium by almost 40%, with an impact of -0.45% per year on expected returns of value-weighted illiquidity-sorted portfolios. Overall, liquidity risk as a whole has a yearly premium equal to 1.06%. However, liquidity levels are much more important and have a premium of 6.14% per year, contributing to most of the explanatory gains of the model.
    Keywords: Asset Pricing; Liquidity Risk; Human Capital; Labor Income;
    Date: 2008–04–29
  4. By: Fernandez, Pablo (IESE Business School)
    Abstract: This paper is a review of the recommendations about the equity premium found in the main finance and valuation textbooks. We review several editions of books written by authors such as Brealey and Myers; Copeland, Koller and Murrin (McKinsey); Ross, Westerfield and Jaffe; Bodie, Kane and Marcus; Damodaran; Copeland and Weston; Van Horne; Bodie and Merton; Stowe et al.; Pratt; Penman; Bruner; Weston & Brigham; and Arzac. We highlight the confusing message of the textbooks regarding the equity premium and its evolution. The main confusion arises from not distinguishing among the four concepts that the word equity premium designates: historical equity premium (hep), expected equity premium, required equity premium (rep) and implied equity premium (IEP). Some confusion also arises from not recognizing that although the HEP is the same for all investors, the REP, the EEP and the IEP are different for different investors. A unique IEP requires assuming homogeneous expectations for expected growth (g), but there are several pairs (IEP, g) that satisfy current prices. We claim that different investors have different REPs and that it is impossible to determine the REP for the market as a whole, because it does not exist.
    Keywords: equity premium; equity premium puzzle; required market risk premium; historical market risk premium; expected market risk premium; risk premium; market risk premium; market premium;
    JEL: G12 G31 G32
    Date: 2008–04–20
  5. By: DÉCAMPS, Jean-Paul; MARIOTTI, Thomas; ROCHET, Jean-Charles; VILLENEUVE, Stéphane
    JEL: G12 G35
    Date: 2008–09
  6. By: DÉCAMPS, Jean-Paul; VILLENEUVE, Stéphane
    JEL: C61 G33
    Date: 2008–08
  7. By: Bjuggren, Per-Olof (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Palmberg, Johanna (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper investigates the entrepreneurial spirit in Swedish listed family firms. We associate family firms with entrepreneurship in the sense that there is an identifiable person that takes the uninsurable risk in the sense of Knight. This paper analysis two questions: Do entrepreneurial family firms have a higher rate of growth and do they invest in a more profit maximizing fashion than other listed firms? The analysis shows that entrepreneurial family firms in general are smaller in terms of market value and investments than non-family firms. Moreover, the entrepreneurial family firms are the ones that makes the most efficient investments.
    Keywords: Entrepreneurship; Corporate Governance; Family Firms; Investments; Firm Performance
    JEL: C23 G30 L25 L26
    Date: 2008–10–13
  8. By: Schroth, Enrique (Faculty of Economics and Business, University of Amsterdam); Szalay, Dezsö (Department of Economics, University of Warwick)
    Abstract: This paper studies the impact of financing constraints on the equilibrium of a patent race. We develop a model where firms finance their R&D expenditures with an investor who cannot verify their effort. We solve for the optimal financial contract of any firm along its best-response function. In equilibrium, any firm in the race is more likely to win the more cash and assets it holds prior to the race, and the less cash and assets its rivals hold prior to the race. We use NBER evidence from pharmaceutical patents awarded between 1975 and 1999 in the US, patent citations, and COMPUSTAT to measure the effect of all the racing firms' cash holdings on the equilibrium winning probabilities. The empirical findings support our theoretical predictions.
    Keywords: Patent Race ; optimal contract ; innovation ; financial constraints
    JEL: G24 G32 L13
    Date: 2008
  9. By: Bejan, Camelia
    Abstract: This paper proposes a model of an incomplete markets economy with pro- duction, in which the firm acts as financial innovator by issuing claims against its stock. The firm’s objective is to maximize its adjusted value, which is the sum of the market value and the shareholders’ surplus from their trades in the stock markets. If a firm maximizes its adjusted value, then its financial policy is relevant (i.e., Modigliani-Miller theorem does not hold), equilibrium outcomes are stable to shareholders’ renegotiation and endogenously incomplete markets typically arise at the equilibrium. If the firm is competitive in the financial markets, the adjusted value coincides with the Grossman-Hart objective.
    Keywords: firm’s objective; incomplete markets; shareholder preferences
    JEL: D21 L21 D52 G20
    Date: 2008–01–03
  10. By: Giurca Vasilescu, Laura
    Abstract: The experiences of the developed countries reveals that a good corporate governance could reduces risk, stimulates performance, improves access to capital markets, enhances the marketability of goods and services, improves leadership, increases the value of the corporations, enables the corporation to acquire external finances more easily and at a lower cost. In the case of developing and emerging economies the need for corporate governance extends beyond resolving problems resulting from the separation of ownership and control. Developing and emerging economies are constantly confronted with issues such as the lack of property rights, the abuse of minority shareholders or contract violations. But in order that corporate governance measures have a strong impact in the economy, a set of democratic, market institutions and legal system should be settled up. The Romanian governance system follows the patterns of the Continental European model based on the internal control of the employees and the management but with some particularities in function of the specific economic, political, cultural conditions.
    Keywords: corporate governance; developing countries; principles; models; firm; performance
    JEL: P2 G34 G30
    Date: 2008–10–12

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