nep-cfn New Economics Papers
on Corporate Finance
Issue of 2010‒05‒29
four papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Is the Leverage of European Commercial Banks Pro-Cyclical? By Angelo Baglioni; Andrea Boitani; Massimo Liberatore; Andrea Monticini
  2. Cost of Equity Estimation Techniques Used by Valuation Experts By Petra Kolouchová
  3. Recovery determinants of distressed banks: Regulators, market discipline, or the environment? By Kick, Thomas; Koetter, Michael; Poghosyan, Tigran
  4. Performance, Valuation and Capital Structure: a Survey of Family Firms By Ana Paula Matias; Jorge Galvão

  1. By: Angelo Baglioni (DISCE, Università Cattolica); Andrea Boitani (DISCE, Università Cattolica); Massimo Liberatore (DISCE, Università Cattolica); Andrea Monticini (DISCE, Università Cattolica)
    Abstract: Detecting whether banks?leverage is indeed procyclical is relevant to support the view that booms and crises may be reinforced by some sort of supply side ?nancial accelerator, whilst ?nding a plausible ex- planation of banks?behaviour is crucial to trace the road for a sensible reform of ?nancial regulation and managers? incentives. The paper shows that procyclical leverage appears to be well entrenched in the behaviour of a sample of major European banks, which are commonly labelled as mainly "commercial banks".
    Keywords: Banks, Pro-cyclicality, Financial Regulation.
    JEL: G21 E3
    Date: 2010–05
  2. By: Petra Kolouchová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: Cost of equity is crucial information that enters business valuation. Yet, even after decades of academic research, consensus has not been reached regarding the appropriate cost of equity estimation. The aim of our paper is to investigate the cost of equity estimation in practice. In other words, we aim to provide data on the popularity of individual cost of equity models and evidence on what techniques are used for the estimation of parameters entering the models. For this purpose, we use a specifically developed program and obtain a unique dataset of cost of equity values, estimation methods and parameters used by valuation experts in the Czech Republic in the period between 1997 and 2009. Our findings suggest that the most popular model for cost of equity estimation is CAPM, which is followed by the heuristic build up model. In the case of CAPM, risk premiums for unsystematic risks are often applied. Such premiums depend to large extent on expert’s own experience and as such are rather qualitative in nature. Overall, in most points of the analysis, our results are consistent with previous, survey-based research on the US and the Western European data.
    Keywords: business valuation, cost of equity, CAPM
    JEL: G12 G34
    Date: 2010–05
  3. By: Kick, Thomas; Koetter, Michael; Poghosyan, Tigran
    Abstract: Based on detailed regulatory intervention data among German banks during 1994-2008, we test if supervisory measures affect the likelihood and the timing of bank recovery. Severe regulatory measures increase both the likelihood of recovery and its duration while weak measures are insignificant. Results seem not to be driven by regulators directing measures to particularly bad banks. That is, our results remain intact when we exclude banks that eventually exit the market due to restructuring mergers or moratoria. More transparent publication requirements of public incorporation that indicate more exposure to market discipline are barely or not at all significant. Increasing earnings and cleaning credit portfolios are consistently of importance to increase recovery likelihood, whereas earnings growth accelerates the timing of recovery. Macroeconomic conditions also matter for bank recovery. Hence, concerted micro- and macro-prudential policies are key to facilitate distressed bank recovery. --
    Keywords: Bank distress,capital support,regulation,recovery
    JEL: G28 C41 G21
    Date: 2010
  4. By: Ana Paula Matias (Departamento de Gestão e Economia, Universidade da Beira Interior); Jorge Galvão (Martifer – Inovação e Gestão)
    Abstract: Most countries often have public companies with large controlling owners, typically a family or a private person (La Porta et al., 1999, 2002). This empirical evidence contrasts with the classical view of the largest dispersed firm presented by Berle and Means (1932). This picture challenges the findings by Bhattacharya and Ravikumar (2001), who predict that the shares held by families will decrease if an efficient financial market is put in place. Therefore, family firms represent an important group in the stock market today and motivate a thorough investigation of the effect of the family as a controlling owner on the firms’ performance, valuation and capital structure. The objective of this paper is three fold: first, we discuss whether family firms do really behave differently from non-family firms, and if so, how and why they are different; second, we review current literature related to how family (taking in account specific governance characteristics such as family ownership, family control and family management) affects the firms’ performance and value; third, we focus on how ownership/governance structure influences capital structure, as a proxy for risk aversion. The literature review allows us to conclude that the founder’s family control and professional (outside) management increase performance, whereas excess control via control enhancing mechanisms (such as dual class shares and pyramidal structures) and descendent management produce both lower valuation and performance. This evidence means that families have the incentives and the power to systematically expropriate the wealth from minority shareholders. Furthermore, the low debt level of family firms is considered as an external manifestation of a firm’s control risk aversion.
    Keywords: Family Firms, Ownership Structure, Firm Value, Firm Performance, Capital Structure, Risk Aversion.
    JEL: G31 G32 L25
    Date: 2010

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