nep-cfn New Economics Papers
on Corporate Finance
Issue of 2009‒02‒14
nine papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Regional Financial System and the Financial Structure of Small Firms By Prashanth Mahagaonkar; Swayan Chaudhuri
  2. Financial Signaling by Innovative Nascent Entrepreneurs By David B. Audretsch; Werner Bönte; Prashanth Mahagaonkar
  3. One Share – One Vote: new evidence from the Nordic countries By Eklund, Johan E
  4. The Impact of Market Timing on Canadian and U.S. Firms' Capital Structure By Zhaoxia Xu
  5. Drivers and Obstacles to Banking SMEs: The Role of Competition and the Institutional Framework By de la Torre, Augusto; Soledad Martinez Peria, Maria; Schmukler, Sergio L.
  6. Bank Size or Distance: What Hampers Innovation Adoption by SMEs? By Pietro Alessandrini; Andrea Filippo Presbitero; Alberto Zazzaro
  7. Spanning with Zero-Price Investment Assets By Galvani, Valentina; Plourde, Andre
  8. RELATIONSHIP LENDING - EMPIRICAL EVIDENCE FOR GERMANY By Memmel, Christoph; Schmieder, Christian; Stein, Ingrid
  9. Debt & equity costs determinants in small enterprise. JEREMIE fund influence on financial situation of SME By Michalski, Grzegorz

  1. By: Prashanth Mahagaonkar (Max Planck Institute of Economics, Jena, Germany); Swayan Chaudhuri (Newcastle University)
    Abstract: The capital structure of firms is known to be different not only due to firm characteristics but also to the sources of capital. Therefore, there is a need to understand the supply side effects on a firm´s capital structure. A small firm´s choice of financing sources may be limited by the supply-side financial endowment of the region. Small firms are known to be heavily reliant on internal finance and the quantity and price channels are expected to drive usage of debt. Our findings on 2000 small firms in England show that the quantity and price channels might work only for supply of very local capitals. Firms tend to prefer internal finance when semi-local or national institutions show higher commercial operational distance in their region. These results point out that semi-local and national institutions tend to drive away usage of debt due to monitoring costs or credit rationing, while very local institutions increase the usage of debt through quantity or price channels.
    Keywords: capital structure, regional financial system, information asymmetries, geography
    JEL: G24 G32 E5 N2 O18
    Date: 2009–02–01
  2. By: David B. Audretsch (Indiana University and Max Planck Institute of Economics, Jena, Germany); Werner Bönte (Bergische Universität Wuppertal and Max Planck Institute of Economics, Jena, Germany); Prashanth Mahagaonkar (Max Planck Institute of Economics, Jena, Germany)
    Abstract: External finance is central for nascent entrepreneurs, people in the process of starting new ventures. We argue that nascent entrepreneurs use patents and prototypes in order to signal their ability to appropriate the returns from their innovation as well as the project's feasibility. Our analysis of 900 nascent entrepreneurs finds that patents and prototypes increase the likelihood of obtaining equity finance. Thus, if signals are credible, innovation positively impacts external financing. Interestingly, entrepreneurs in planning versus early start-up stage portray different signaling effects, indicating that the relation between finance and innovation depends on the stage of a start-up lifecycle.
    Keywords: Innovation, Entrepreneurship, Finance, Information Asymmetries
    JEL: L26 M13 G14 G24 G32 O34
    Date: 2009–02–01
  3. By: Eklund, Johan E (Ratio Institute, CESIS and JIBS)
    Abstract: This paper examines how ownership concentration affects investment performance, and in particular how deviations from the one share-one vote principle affect this ownership-performance relationship. Using a unique panel from the Nordic countries the so-called incentive and managerial entrenchment effects are isolated. To this end a measure of marginal q is used to evaluate performance. This is a theoretically and empirically more appropriate measure of performance as compared to Tobin’s q. The main finding is that ownership concentration improves performance, whereas dual-class shares reduce the incentive effect and enhance the managerial entrenchment effect. On average, firms with dual-class shares over-invest.
    Keywords: investment; marginal q; ownership concentration; one share-one vote
    JEL: C23 G30 L25
    Date: 2009–01–28
  4. By: Zhaoxia Xu
    Abstract: This paper studies the impact of market timing on Canadian firms' capital structure and makes a comparison with U.S. firms. There is no evidence that market timing affects Canadian firms' capital structure in the same manner as it affects their U.S. counterparts. The effect of past equity issues on Canadian firms' capital structure is transitory. Canadian firms adjust at a faster rate toward the leverage target than U.S. firms. These results challenge the generality of the market-timing theory of capital structure.
    Keywords: Financial markets; International topics
    JEL: G32
    Date: 2009
  5. By: de la Torre, Augusto (The World Bank); Soledad Martinez Peria, Maria (The World Bank); Schmukler, Sergio L. (The World Bank)
    Abstract: This paper studies the factors banks perceive as drivers and obstacles to financing small and medium enterprises (SMEs), focusing on the role of competition and the institutional framework. Using a survey of banks in Argentina and Chile, the paper shows that, despite alleged differences in the countries' environments regarding rules, regulations, and ease of doing business, SMEs have become a strategic segment for most banks in both countries. In particular, banks have begun to target SMEs due to the significant competition in the corporate and retail sectors. They perceive the SMEs market as highly profitable, large, and with good prospects. Moreover, banks are developing coping mechanisms to overcome the particular institutional obstacles present in each country and to compete for SMEs. Banks' interest in SMEs is not based on government programs, yet policy action might help reduce the cost of providing financing, especially long-term lending.
    Keywords: small and medium enterprises; bank finance; financial constraints; banking market structure; institutional factors; regulation; competition
    JEL: G21 G28 L25 O12 O16
    Date: 2008–12–01
  6. By: Pietro Alessandrini (Universit… Politecnica delle Marche, Department of Economics, MoFiR); Andrea Filippo Presbitero (Universit… Politecnica delle Marche, Department of Economics, MoFiR); Alberto Zazzaro (Universit… Politecnica delle Marche, Department of Economics, MoFiR)
    Abstract: A growing body of research is focusing on banking organizational issues, emphasizing the difficulties encountered by hierarchically organized banks in lending to informationally opaque borrowers. While the two extreme cases of hierarchical and non{hierarchical organizations are typically contrasted, what shapes the degree of hierarchy and how to measure it remain fairly vague. In this paper we compare bank size and distance between a bank's branches and headquarter as possible sources of organizational frictions, by studying their impact on small rms' likelihood of introducing innovations. Results show that SMEs located in provinces where the local banking system is functionally distant are less inclined to introduce innovations, while the market share of large banks is only slightly correlated with rms' propensity to innovate.
    Keywords: Bank size, Functional distance, Innovation, SMEs
    JEL: G21 G34 O31 R51
    Date: 2008–09
  7. By: Galvani, Valentina (University of Alberta, Department of Economics); Plourde, Andre (University of Alberta, Department of Economics)
    Abstract: Regression-based testing techniques has long been used to quantify whether the efficient frontier of a set of assets spans the frontier of a larger collection of investments. This work derives regression-based spanning tests for the case in which the investment possibilities set contains, or is constituted by, zero-investment assets. An empirical example illustrates that ignoring the zero-cost qualification of these assets might lead to wrong spanning propositions.
    Keywords: mean-variance spanning; diversification benefits; portfolio choice; futures markets
    JEL: G10 G11 G32 M21
    Date: 2009–01–31
  8. By: Memmel, Christoph (Deutsche Bundesbank); Schmieder, Christian (European Investment Bank); Stein, Ingrid (Deutsche Bundesbank)
    Abstract: Relationship lending is a common practice in credit financing all over the world, notably also in the European Union, which has been assumed to be particularly beneficial for Small and Medium-Sized Enterprises (SMEs). During recent years, there has been the impression that relationship lending loses ground due to a change of the banks' business models, which could ultimately yield to a worsening of the business environment for corporates and SMEs. In this study, we investigate the determinants of relationship lending for Germany, where relationship lending traditionally plays an important role. Compared to previous studies, we refer to much more comprehensive data with information on more than 16,000 firm-bank relationships. Our findings confirm the assumption that relationship lending seems to be an important pillar for economic growth and employment: We find that the firms that are most likely to contribute to (future) economic growth, namely small and R&D-intensive firms, tend to choose a relationship lender. The same is observed for firms of high credit quality, independent of their size or R&D intensity. Furthermore, we also observe that the importance of relationship lending did not decrease since the mid 1990s.
    Keywords: Relationship banking; German banking system; SME
    JEL: G21 G32
    Date: 2008–05–20
  9. By: Michalski, Grzegorz
    Abstract: From financial perspective, the JEREMIE fund initiative is profitable and enhances the functioning of micro and small enterprises. Particularly profitable are aspects connected with providing these enterprises with equity capital (i.e. Business Angels, Venture Capital) as well as with the theoretical possibilities connected with reducing the financial risk by over regional institution guarantees (less vulnerable to potential risks occurring in the native region of the micro enterprises engaged in JEREMIE).
    Keywords: capital cost; target capital structure; micro and small enterprises
    JEL: G00 G24
    Date: 2008–08–01

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