nep-cfn New Economics Papers
on Corporate Finance
Issue of 2010‒06‒04
three papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Are Acquisition Premiums Lower because of Target CEOs' Conflicts of Interest? By Bargeron, Leonce L.; Schlingermann, Frederik P.; Stulz, Rene M.; Zutter, Chad J.
  2. Innovation, Credit Constraints, and Trade Credit: Evidence from a Cross-Country Study By Werner Bönte; Sebastian Nielen
  3. Internal Promotion and the Effect of Board Monitoring: A Comparison of Japan and the United States By Meg Sato

  1. By: Bargeron, Leonce L. (University of Pittsburgh); Schlingermann, Frederik P. (University of Pittsburgh and Erasmus University Rotterdam); Stulz, Rene M. (Ohio State University and ECGI); Zutter, Chad J. (University of Pittsburgh)
    Abstract: CEOs have a conflict of interest when their company is the target of an acquisition attempt: They can bargain for private benefits, such as retention by the acquirer, rather than for a higher premium to be paid to their shareholders. We find that target CEO retention by the bidder does not appear to be driven by the CEO bargaining for his own interests at the expense of shareholders. Retention is not associated with a lower premium. Retention is more likely when it is more valuable to the bidder in running the merged firm, in that the CEO is more likely to be retained when she has skills and knowledge that bidder executives do not have and when the incentives of target insiders are well aligned with those of target shareholders. Regardless of retention, shareholders of acquired firms whose CEO is at retirement age receive lower premiums than shareholders of acquired firms with younger CEOs. This lower premium seems to be explained by the apparent reduced acquisition value of firms led by retirement age CEOs rather than by the target CEO conflict of interest.
    Date: 2010–04
  2. By: Werner Bönte (Schumpeter School of Business and Economics, Bergische Universität Wuppertal); Sebastian Nielen (Schumpeter School of Business and Economics, Bergische Universität Wuppertal)
    Abstract: This paper studies the relationship between trade credit and innovation. While trade credit is well researched in the finance literature, its link to innovation has been neglected in prior research. We argue that innovative small and medium-sized enterprises (SMEs) are more likely to use trade credit than non-innovative SMEs because of credit constraints and that business partners may have incentives to offer trade credit especially to innovative SMEs. The relationship between innovation and trade credit is empirically examined by using a sample of SMEs from 14 European countries. The results of an econometric analysis confirm a positive relationship between innovation and trade credit. In particular, SMEs with product innovations have a higher probability of using trade credit than other SMEs. Moreover, the results suggest that the effect of product innovation is only statistically significant if SMEs report that access to financing or cost of financing are obstacles for the operation and growth of their businesses. Hence, the results point to the relevance of trade credit as a source of short-term financing for innovative SMEs which are credit constrained.
    Keywords: trade credit, innovation, credit constraints
    JEL: G32 O31 L20
    Date: 2010–05
  3. By: Meg Sato (Australia-Japan Research Centre)
    Abstract: This paper analyses two pronounced features of Japanese corporate governance: large corporate boards almost entirely composed of insiders and the tendency to appoint CEOs through internal promotions. It is often argued that Japanese boards are less effective in monitoring CEOs than U.S. boards which tends to be composed of a small number of directors, majority of which are outsiders. I show that Japanese corporate governance exhibits less inefficiencies than U.S. corporate governance. I further discuss the recent changes in Japanese corporate governance and provide theoretical explanation that they do not necessarily enhance board monitoring.
    Keywords: Board Monitoring; Distortion of Bargaining Surplus; Japanese Corporate Governance; US Corporate Governance; Board Size
    JEL: G30 K22 P51
    Date: 2010

This nep-cfn issue is ©2010 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.