nep-cfn New Economics Papers
on Corporate Finance
Issue of 2009‒04‒25
three papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Complex Ownership and Capital Structure By Teodora Paligorova; Zhaoxia Xu
  2. Incorporating the Dynamics of Leverage into Default Prediction By Gunter Löffler; Alina Maurer
  3. Shareholder Protection and Stock Market Development: An Empirical Test of the Legal Origins Hypothesis By John Armour; Simon Deakin; Prabirjit Sarkar; Mathias Siems; Ajit Singh

  1. By: Teodora Paligorova; Zhaoxia Xu
    Abstract: This paper investigates the impact of pyramid ownership structure and multiple controlling shareholders on firm leverage. Pyramids, having at least one controlling shareholder and a subsidiary, rely significantly more on debt financing than non-pyramid firms. Moreover, higher leverage is observed in pyramids where the second controlling shareholders have more voting rights. We also find that the disparity between the voting rights of the first two controlling shareholders is negatively related to firm leverage. Interestingly, the influence of the second controlling shareholder is only present in non-family controlled pyramids. Overall, the results are consistent with the view that controlling shareholders in pyramids use debt to secure their private benefits.
    Keywords: Financial markets; International topics
    JEL: G31 G32
    Date: 2009
  2. By: Gunter Löffler; Alina Maurer
    Abstract: A firm’s current leverage ratio is one of the core characteristics of credit quality used in statistical default prediction models. Based on the capital structure literature, which shows that leverage is mean-reverting to a target leverage, we forecast future leverage ratios and include them in the set of default risk drivers. The analysis is done with a discrete duration model. Out-of-sample analysis of default events two to five years ahead reveals that the discriminating power of the duration model increases substantially when leverage forecasts are included. We further document that credit ratings contain information beyond the one contained in standard variables but that this information is unrelated to forecasts of leverage ratios.
    Keywords: default prediction, discrete duration model, leverage targeting, mean reversion, credit rating
    JEL: G32 G33
    Date: 2009–04
  3. By: John Armour (University of Oxford); Simon Deakin (University of Cambridge); Prabirjit Sarkar (Jadavpur University, Kolkata); Mathias Siems (University of Edinburgh); Ajit Singh (University of Cambridge)
    Abstract: Using a panel dataset covering a range of developed and developing countries, we show that common law systems were more protective of shareholder interests than civil law ones in the period 1995-2005. However, civilian systems were catching up, suggesting that civil law origin was not much of an obstacle to convergence. We find no evidence of a long-run impact of legal change on stock market development. Possible explanations are that laws have been overly protective of shareholders; transplanted laws have not worked as expected; and, more generally, the exogenous legal origin effect is not as strong as widely supposed.
    Keywords: law and finance, shareholder rights, shareholder protection, corporate governance, corporate finance, legal origins, comparative law, comparative economics
    Date: 2008–05

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