nep-cfn New Economics Papers
on Corporate Finance
Issue of 2009‒04‒05
eleven papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Bank Ownership, Firm Value and Firm Capital Structure in Europe By Lieven Baert; Rudi Vander Vennet
  2. Private equity and venture capital in Italy By Chiara Bentivogli; Amanda Carmignani; Diana Marina Del Colle; Roberto Del Giudice; Massimo Gallo; Andrea Generale; Anna Gervasoni; Massimiliano Rigon; Paola Rossi; Enrico Sette; Bruna Szegö
  3. Risk Attitude and Investment Decisions across European Countries : Are Women More Risk Averse Investors Than Men? By Oleg Badunenko; Nataliya Barasinska; Dorothea Schäfer
  4. Not So Lucky Any More: CEO Compensation in Financially Distressed Firms By Oscar Mitnik; Qiang Kang
  5. Cross-Border Exposures and Financial Contagion By Degryse, H.A.; Elahi, M.A.; Penas, M.F.
  6. Ownership Structure, Board Composition and Investment Performance By Eklund, Johan; Palmberg, Johanna; Wiberg, Daniel
  7. The Impact of Firm and Industry Characteristics on Small Firms' Capital Structure: Evidence from Dutch Panel Data By Degryse, H.A.; Goeij, P. C. de; Kappert, P.
  8. Small businesses in south Africa : who outsources tax compliance work and why ? By Coolidge, Jacqueline; Ilic, Domagoj; Kisunko, Gregory
  9. Managerial Entrenchment and Corporate Bond Financing: Evidence from Japan By Takanori Tanaka
  10. Actual context of fight against the money laundring by means of credit institutions By Troaca, Victor
  11. Corporate Governance and Value Creation: Evidence from Private Equity By Acharya, Viral V; Hahn, Moritz; Kehoe, Conor

  1. By: Lieven Baert; Rudi Vander Vennet
    Abstract: We investigate whether or not banks play a positive role in the ownership structure of European listed firms. We distinguish between banks and other institutional investors as shareholders and examine empirically the relationship between financial institution ownership and the performance of the firms in which they hold equity. Our main finding is that after controlling for the capital structure decision of the firms and the ownership decision of financial institutions in a simultaneous equations model, we find that there is a negative relationship between financial institution ownership and the market value of firms, measured as the Tobin's Q. This is in contradiction with the monitoring hypothesis.
    Keywords: Financial institution ownership, Firm value, Capital structure
    JEL: G32 G20
    Date: 2009
  2. By: Chiara Bentivogli (Bank of Italy); Amanda Carmignani (Bank of Italy); Diana Marina Del Colle (Bank of Italy); Roberto Del Giudice (AIFI); Massimo Gallo (Bank of Italy); Andrea Generale (Bank of Italy); Anna Gervasoni (AIFI); Massimiliano Rigon (Bank of Italy); Paola Rossi (Bank of Italy); Enrico Sette (Bank of Italy); Bruna Szegö (Bank of Italy)
    Abstract: This paper examines private equity and venture capital in Italy. The first part looks at the main features of the Italian market and its recent evolution; the second part considers the results of a survey of firms and intermediaries designed to gather information regarding contract features and the characteristics of investee firms and investing intermediaries. Finally, the paper discusses the main obstacles to the development of the sector using information from the survey of intermediaries.
    Keywords: private equity, venture capital
    JEL: G24 G32
    Date: 2009–02
  3. By: Oleg Badunenko; Nataliya Barasinska; Dorothea Schäfer
    Abstract: This study questions the popular stereotype that women are more risk averse than men in their investment decisions. The analysis is based on micro-level data from large-scale surveys of private households in five European countries. We enrich the conventional approach to examination of gender differences by explicitly controlling for investors' self-perceived risk aversion. Our results confirm the gender stereotype only partially. We find that women are less likely to hold risky assets. However, female owners of risky assets allocate an equal or even a higher share of their wealth to these assets than men. Our findings suggest that especially in case of women, the declared attitude toward financial risks may be misleading as it does not necessarily reflect the actual willingness to bear risks.
    Keywords: gender, risk aversion, financial behavior
    JEL: G11 J16
    Date: 2009
  4. By: Oscar Mitnik (Department of Economics, University of Miami); Qiang Kang (Department of Finance, University of Miami)
    Abstract: There is a debate on whether executive pay reflects rent extraction due to “managerial power†or is the result of arms-length bargaining in a principal-agent framework. In this paper we offer a test of the managerial power hypothesis by empirically examining the CEO compensation of U.S. public companies that were ever in financial distress between 1992 and 2005. Using a bias-corrected matching estimator that estimates the causal effects of financial distress, we find that, for the distressed firms, CEO turnover rates increase markedly and their CEOs, both incumbents and successors, experience significant reductions in total compensation. The bulk of the reduction in total compensation derives from the decline in value of stock option grants, which we argue is due to a change in the opportunistic timing of option grants. We define “lucky†grants as those with grant prices below or at the lowest stock price of the grant month, and we find that the proportion of lucky grants for financially distressed firms is higher before insolvency and lower upon and after insolvency, while the proportion for similar but solvent firms remains stable throughout the period. We interpret this evidence as consistent with a decrease in managerial power induced by a tightening in the “outrage†constraint due to the episode of financial distress.
    Keywords: CEO compensation, CEO turnover, financial distress, lucky grants, bias-corrected matching estimators
    JEL: G30 J33 M52
    Date: 2008–11
  5. By: Degryse, H.A.; Elahi, M.A.; Penas, M.F. (Tilburg University, Center for Economic Research)
    Abstract: Integrated financial markets provide opportunities for expansion and improved risk sharing, but also pose threats of contagion risk through cross-border exposures. This paper examines cross-border contagion risk over the period 1999-2006. To that purpose we use aggregate cross-border exposures of seventeen countries as reported in the BIS Consolidated Banking Statistics. We find that a shock which affects the liabilities of one country may undermine the stability of the entire financial system. Particularly, a shock wiping out 25% (35%) of US (UK) cross-border liabilities against non-US (non-UK) banks could lead to bank contagion eroding at least 94% (45%) of the recipient countries’ banking assets. We also find that since 2006 a shock to Eastern Europe, Turkey and Russia affects most countries. Our simulations also reveal that the “speed of propagation of contagion†has increased in recent years resulting in a higher number of directly exposed banking systems. Finally we find that contagion is more widespread in geographical proximities.
    Keywords: Cross-border contagion;financial integration;financial stability.
    JEL: G15 G20 G29
    Date: 2009
  6. By: Eklund, Johan (Ratio Institute and JIBS, CESIS); Palmberg, Johanna (JIBS, CESIS); Wiberg, Daniel (JIBS, CESIS)
    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: 2009–03–25
  7. By: Degryse, H.A.; Goeij, P. C. de; Kappert, P. (Tilburg University, Center for Economic Research)
    Abstract: We investigate small firms’ capital structure, employing a proprietary database containing financial statements of Dutch small and medium-sized enterprises (SMEs) from 2003 to 2005. We find that the capital structure decision of Dutch SMEs is consistent with the pecking order theory: SMEs use profits to reduce their debt level, and growing firms increase their debt position since they need more funds. Furthermore, we document that profits reduce in particular short term debt, whereas growth increases long term debt. This implies that when internal funds are depleted, long term debt is next in the pecking order. We also find evidence for the maturity matching principle in SME capital structure: long term assets are financed with long term debt, while short term assets are financed with short tem debt. This implies that the maturity structure of debt is an instrument for lenders to deal with problems of asymmetric information. Finally, we find that SME capital structure varies across industries but firm characteristics are more important than industry characteristics.
    Keywords: Capital Structure;SMEs;pecking order theory;trade-off theory
    JEL: G32 G30
    Date: 2009
  8. By: Coolidge, Jacqueline; Ilic, Domagoj; Kisunko, Gregory
    Abstract: The authors use firm-level survey data on 998 small and medium enterprises registered for tax in South Africa regarding tax compliance costs to investigate the use of outsourcing to complete tax compliance tasks. Overall, about 43 percent of the enterprises do all their tax compliance work in-house, 11 percent outsource all their tax compliance work, and the remaining 46 percent use a combination of both ("partial outsourcing"). The data display an inverted-U shape for outsourcing of tax compliance tasks: the smallest firms (those under R 300,000 turnover or well under US$50,000) tend not to outsource, due to a combination of relatively higher cost-burden and less complexity. Relatively larger firms (those with more than R 14 million turnover or about US$2 million) report that they have sufficient in-house capacity and therefore do not need to outsource. Those in the middle are most likely to outsource at least some of their tax compliance work, mostly because tax is a specialist field and they presumably lack sufficient capacity in-house. The survey data show that the costs of tax compliance are clearly the highest for those who engage in partial outsourcing, as it appears there is likely duplication of effort. Most such firms could reduce their tax compliance costs (and probably minimize the incidence of post-filing problems) by moving from partial to full outsourcing of all tax compliance work.
    Keywords: Taxation&Subsidies,Emerging Markets,Debt Markets,E-Business,Tax Policy and Administration
    Date: 2009–03–01
  9. By: Takanori Tanaka (Graduate School of Economics, Osaka University)
    Abstract: This paper investigates whether managerial entrenchment of controlling shareholders affects corporate bond financing. Using data on Japanese manufacturing firms, we find that firms with controlling shareholders issue less straight corporate bonds than other firms. The results show that managerial entrenchment of controlling shareholders has an influential impact on corporate bond financing.
    Keywords: Managerial entrenchment; Large corporate shareholders; Corporate bonds
    JEL: G32
    Date: 2009–03
  10. By: Troaca, Victor
    Abstract: Credit institutions, as well as the other institutions integrated into the financial system, are subject more and more to some attempts from the simpliest to the most sophisticated, with some most various means and instruments, of their perspicacity and utilization with a view of money laundering of some assets obtained from illegal activities, and also the assurance of funds necessary for terrorism financing, from the part of some groups with abstruse interests. In this context the financial community has to adopt measures meant to protect it from the implication in such actions. The more and more emphasized connection of Romanian financial to those European and international ones, brings upon that the Romanian credit institution should adopt the necessary measures, according to those adopted globally, so that to ensure their security and credibility.
    Keywords: money laundring/ clients/ clients’ knowledge/ banking control
    JEL: G29 G21 G20
    Date: 2008–10–14
  11. By: Acharya, Viral V; Hahn, Moritz; Kehoe, Conor
    Abstract: We examine deal-level data on private equity transactions in the UK initiated during the period 1996 to 2004 by mature private equity houses. We un-lever the deal-level equity return and adjust for (un-levered) return to quoted peers to extract a measure of "alpha" or abnormal performance of the deal. The alpha is significantly positive on average and robust during sector downturns. In the cross-section of deals, higher alpha is related to greater improvement in EBITDA to Sales ratio (margin) and greater growth in EBITDA multiple during the private phase, relative to that of quoted peers. In particular, deals with higher alpha either grow their margins more substantially, and/or grow multiples more substantially, whilst expanding their revenues only in line with the sector. Based on interviews with general partners involved with the deals, we find that deals with higher alpha and higher margin growth are associated with greater intensity of engagement of private equity houses during the early phase of the deal, employment of value-creation initiatives for productivity and organic growth, and complementing top management with external support. Overall, our results are consistent with mature private equity houses creating value for portfolio companies through active ownership and governance.
    Keywords: active ownership; activism; alpha; leveraged buyouts (LBO); management buyouts (MBO); management turnover
    JEL: G23 G24 G31 G32 G34
    Date: 2009–03

This nep-cfn issue is ©2009 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.
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