nep-cfn New Economics Papers
on Corporate Finance
Issue of 2009‒02‒22
seven papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Ownership Structure, Board Composition and Investment Performance By Eklund, Johan; Palmberg, Johanna; Wiberg, Daniel
  2. The European venture capital and private equity country attractiveness index(es) By Groh, Alexander P.; Liechtenstein, Heinrich; Lieser, Karsten
  3. Compulsory or Voluntary Pre-merger Notification? Theory and Some Evidence By Chongwoo, Choe; Shekhar, Chander
  4. "The End of the Golden Age" - The Developments of the Venture Capital and Private Equity Industry in Central and Eastern Europe By Judit Karsai
  5. Corporate Taxation, Debt Financing and Foreign Plant Ownership By Christian Keuschnigg; Peter Egger; Wolfgang Eggert; Hannes Winner
  6. Do Target CEOs Sell Out Their Shareholders to Keep Their Job in a Merger? By Leonce L. Bargeron; Frederik P. Schlingemann; René M. Stulz; Chad J. Zutter
  7. A Note on Liquidity Risk Management By Markus K. Brunnermeier; Motohiro Yogo

  1. By: Eklund, Johan (RATIO and Jönköping International Business School); Palmberg, Johanna (Jönköping International Business School); Wiberg, Daniel (Jönköping International Business School and CESIS Royal Institute of Technology)
    Abstract: In this paper the relation between ownership structure, board composition and firm performance is explored. A panel of Swedish listed firms is used to investigate how board composition affects firm performance. Board heterogeneity is measured as board size, age and gender diversity. The results show that Swedish board of directors have become more diversified in terms of gender. Also, fewer firms have the CEO on the board which can be interpreted as a sign of increased independency. The regression analysis shows that gender diversity has a small but negative effect on investment performance, and the same holds for CEO being on the board. The analysis also show that board size has a significant negative effect on investment performance. When incorporating all the explanatory variables into one equation however, the negative effect of larger boards dilutes the effect of gender diversity and having the CEO on the board.
    Keywords: Corporate governance; board composition; investments performance; marginal q
    JEL: G30 L20 L21 L22 L25
    Date: 2009–02–13
  2. By: Groh, Alexander P. (IESE Business School); Liechtenstein, Heinrich (IESE Business School); Lieser, Karsten (IESE Business School)
    Abstract: We calculate composite indexes to compare the attractiveness of 25 European countries for institutional investments into the Venture Capital and Private Equity asset class. To achieve this we use 42 different criteria and propose an aggregation structure that allows for benchmarking on more granular levels. The United Kingdom leads our ranking, followed by Ireland, Denmark, Sweden and Norway. While Germany is slightly above the average European attractiveness level, the scores for France, Italy, Spain, and Greece are rather disappointing. Our analyses reveal that while the United Kingdom is similar to the other European countries with respect to many criteria, there are two major differences which ultimately affect its attractiveness: its investor protection and corporate governance rules; and the size and liquidity of its capital market. The state of the capital market is likewise a proxy for the professionalism of the financial community, deal flow and exit opportunities. We determine a reasonable correlation between our attractiveness index scores and actual Venture Capital and Private Equity fundraising activities and prove the robustness of our calculations. Our findings across all the European countries suggest that while investor protection and capital markets are in fact very important determinants of attractiveness, there are numerous other criteria to consider.
    Keywords: Venture Capital; Private Equity; Alternative Asset; International Asset Allocation;
    JEL: G11 G23 G24 O16 P52
    Date: 2008–11–07
  3. By: Chongwoo, Choe; Shekhar, Chander
    Abstract: We compare the prevailing system of compulsory pre-merger notification with the Australian system of voluntary pre-merger notification. It is shown that, for a non-trivial set of parameter values, a perfect Bayesian equilibrium exists in mixed strategies in which the regulator investigates un-notified mergers with probability less than one and the parties choose notification with probability less than one. Thanks to the signaling opportunity that arises when notification is voluntary, voluntary notification leads to lower enforcement costs for the regulator and lower notification costs for the merging parties. Some of the theoretical predictions are supported by exploratory empirical tests using merger data from Australia. Overall, our results suggest that voluntary merger notification may achieve objectives similar to those achieved by compulsory systems at lower costs to the merging parties as well as to the regulator.
    Keywords: Merger regulation; pre-merger notification; abnormal returns
    JEL: D21 G34 K21 L40
    Date: 2009–02
  4. By: Judit Karsai (Institute of Economics - Hungarian Academy of Sciences)
    Abstract: The current downturn in the American and Western European economies, combined with increasing regulatory pressure on private equity throughout the developed world, made emerging markets an attractive destination for private equity. As part of the emerging markets, Central and Eastern Europe's (CEE) private equity industry was an accidental beneficiary of this development. The attractiveness of the CEE markets was also boosted by the fact that value added resulted from the organic growth of the companies, rather than from leverage utilisation. As a result of the crisis in autumn 2008, the growth financed by loans itself became a synonym of the risk. Consequently the CEE countries as parts of emerging markets were handicapped, irrespective of the already applied greatest cautiousness of investors and the relatively deteriorated availability and higher interest rates of provided loans in the region. Since the majority of high volume capital raised recently by private equity funds in the CEE region still expected to be invested, it is not likely that the cutback of private equity financing in the CEE countries will be as radical as it was in the developed markets. The Golden Age of the private equity investments in the CEE region, however, ended in the autumn of 2008. The paper forecasts the future developments of the private equity industry in the CEE region, based on a detailed analysis of the five years' tendencies. The paper reviews within an international surrounding the changes in the volume and structure of raised regional funds, as well as the actual investment trends by the related countries and sectors. The study provides several examples for the applied individual corporate level investments strategies of private equity investors in the CEE region. The chosen exit routes and returns received by regional private equity investors are also illustrated with actual examples. The final part of the analysis speculates on the future effects of the global financial crisis and recession on the private equity industry of the CEE region.
    Keywords: Venture Capital, Private Equity, Central Eastern Europe (CEE), International Asset Allocation, Institutional Investors, Merger & Acquisition, Corporate Restructuring
    JEL: G23 G24 G34 M13
    Date: 2009–01
  5. By: Christian Keuschnigg; Peter Egger; Wolfgang Eggert; Hannes Winner
    Abstract: This paper compares domestically and foreign-owned plants with respect to their debt-toassets ratio and analyzes to which extent the difference is systematically affected by corporate taxation. To derive hypotheses about influence of corporate taxation on a firm's debt financing we adapt a standard model of taxation and financing decisions of firms for the case of international debt shifting activities of foreign-owned firms. We estimate the average difference between a foreign-owned and a domestically-owned firm's debt ratio, treating the mode of ownership as endogenous. Using data from 32,067 European firms, we find that foreign-owned firms on average exhibit a significantly higher debt ratio than their domestically-owned counterparts in the host country. Moreover, this gap in the debt ratio increases with the host country's statutory corporate tax rate.
    Keywords: Corporate taxation, Multinational firms, Financial structure, Debt shifting; Propensity score matching
    JEL: H25 G32 F23 C21
    Date: 2009–02
  6. By: Leonce L. Bargeron; Frederik P. Schlingemann; René M. Stulz; Chad J. Zutter
    Abstract: CEOs have a potential conflict of interest when their company is acquired: they can bargain to be retained by the acquirer and for private benefits rather than for a higher premium to be paid to the shareholders. We investigate the determinants of target CEO retention by the acquirer and whether target CEO retention affects the premium paid by the acquirer. The probability that a CEO is retained increases with a private bidder, the performance of the target, and with the fraction of target shares held by insiders. Regardless of the bidder type, we find no evidence that the premium paid is lower when the CEO is retained by the acquirer. Strikingly, the target stock price increases more at the announcement of an acquisition by a private firm when the CEO is retained than when she is not. This result holds whether the private acquirer is a private equity firm or an operating company and for management buyouts.
    JEL: G30 G34
    Date: 2009–02
  7. By: Markus K. Brunnermeier; Motohiro Yogo
    Abstract: When a firm is unable to rollover its debt, it may have to seek more expensive sources of financing or even liquidate its assets. This paper provides a normative analysis of minimizing such rollover risk, through the optimal dynamic choice of the maturity structure of debt. The objective of a firm with long-term assets is to maximize the effective maturity of its liabilities across several refinancing cycles, rather than to maximize the maturity of the current bonds outstanding. An advantage of short-term financing is that a firm, while in good financial health, can readjust its maturity structure more quickly in response to changes in its asset value.
    JEL: G32 G33
    Date: 2009–02

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