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on Corporate Finance |
| By: | José Mata; António R. Antunes; Pedro Portugal |
| Abstract: | We study the impact of financial variables upon bankruptcy and voluntary exit. Controlling for efficiency, which we find to decrease the odds of both bankruptcy and voluntary exit, characteristics of firms which correlate with the firms' access to funds, exert very different impacts upon the two modes of exit.<br>Our findings support the idea that information asymmetries create cash constraints and that financial decisions are used to signal firms' quality and reduce the degree of information asymmetries between borrowers and lenders. |
| JEL: | G33 G21 C35 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201027&r=cfn |
| By: | Nikolaos Papanikolaou (Luxembourg School of Finance, University of Luxembourg) |
| Abstract: | In this paper we construct a theoretical model of spatial banking competition that considers the differential information among banks and potential borrowers in order to investigate how market structure affects the lending behavior of banks and their incentives to invest in screening technology. Consistent with the prevailing view in the relevant literature, our results reveal that competition reduces lending cost, which, in turn, encourages the entry of new customers in the loan market. Also, that the transportation cost that potential borrowers have to pay in order to reach the bank of their interest is decreased with the degree of competitiveness. Importantly, we demonstrate that market structure exerts a considerable positive effect on banks’ incentives to screen their loan applicants since banks are found to invest more in screening as competition in the market becomes higher. This is to say, banks resort to screening that serves as a buffer mechanism against bad credit which entails higher risk and which is more likely under competitive conditions. Overall, our findings provide support to a rather close link between the degree of competition, bank lending activity, and the investment of banks in screening technology. |
| Keywords: | banking; spatial competition; screening; credit risk |
| JEL: | G21 D41 D80 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:crf:wpaper:10-11&r=cfn |
| By: | Pascal François; Georges Hübner |
| Abstract: | This paper studies the contracting choices between an entrepreneur and venture capital investors in a portfolio context. We rely on the mean-variance framework and derive the optimal choices for an entrepreneur with and without the presence of different kinds of venture capitalists. In particular, we show that the entrepreneur always has the incentive to share the risk and benefits of the venture whenever possible. On the basis of their objectives and characteristics, we distinguish the situations of the corporate, independent, and bank-sponsored venture capital funds. Our framework enables us to derive the optimal contract design for the entrepreneur, featuring the choice of investor, the entrepreneur’s investment in the venture, and her dilution in the project’s equity as a function of her bargaining power. This result allows us to characterize the choice of the investor depending on her cost of equity and debt capital. In addition to project size and risk, entrepreneur’s risk aversion turns out to be a critical determinant of VC investor choice –a finding which is strongly supported by a panel analysis of VC fund flows for 5 European countries over the 2002-2009 period. |
| Keywords: | Venture capital, Portfolio choice, Entrepreneur, Risk aversion |
| JEL: | G11 G32 G39 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:1046&r=cfn |
| By: | Anastasiya Shamshur |
| Abstract: | The paper examines the importance of financial constraints for firm capital structure decisions in transitions economies during 1996-2006 using endogenous switching regression with unknown sample separation approach. The evidence suggests that differences in financing constraints have a significant effect on a firm's capital structure. Constrained and unconstrained firms differ in capital structure determinants. Specifically, tangibility appears to be an extremely important leverage determinant for constrained firms, while macroeconomic factors (GDP and expected inflation) affect the leverage level of unconstrained firms, suggesting that those firms adjust their capital structure in response to changes in macroeconomic conditions. Moreover, financially unconstrained firms adjust their capital structures faster to the target level, which is consistent with the previous literature. |
| Keywords: | capital structure; financing decisions; credit constraints; Eastern Europe; |
| JEL: | G32 C23 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp429&r=cfn |