nep-cfn New Economics Papers
on Corporate Finance
Issue of 2011‒10‒15
seven papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. The determinants of board compensation in SOEs: An application to Italian public utilities By Fabrizio Erbetta; Giovanni Fraquelli; Anna menozzi; Davide Vannoni
  2. How Does Personal Bankruptcy Law Affect Start-ups? By Cerqueiro, G.M.; Penas, M.F.
  3. Mandatory Disclosure of Blockholders and Related Party Transactions: Stringent Versus Flexible Rules By McCahery, J.A.; Vermeulen, E.P.M.
  4. Local versus aggregate lending channels: the effects of securitization on corporate credit supply By Gabriel Jiménez; Atif Mian; José-Luis Peydró; Jesús Saurina
  5. Basel 3, Pillar 2: the role of banks’ internal governance and control function By Elisabetta Gualandri
  6. Underpricing, wealth loss for pre-existing shareholders and the cost of going public: the role of private equity backing in Italian IPOs. By Riccardo Ferretti; Antonio Meles
  7. Measuring the environmental performance of microfinance By Marion Allet

  1. By: Fabrizio Erbetta (Department of Business Management and Environment, University of Eastern Piedmont); Giovanni Fraquelli (Department of Business Management and Environment, University of Eastern Piedmont); Anna menozzi (Department of Business Management and Environment,, University of Eastern Piedmont); Davide Vannoni (Department of Economics and Public Finance "G. Prato", University of Torino)
    Abstract: This paper investigates the determinants of board compensation for a sample of Italian State Owned Enterprises (SOEs). To that purpose, we use a newly collected panel data of 106 local public utilities observed for the years 1994-2004, which includes detailed information on the boards of directors. During this period, the deregulation process inspired institutional interventions that forced utilities, traditionally owned by local municipalities, to change their juridical form and ownership structure, thereby facilitating the entrance of private investors. The corporate governance literature shows that such changes may exacerbate the agency conflicts between shareholders, top executives and the board. However, board compensation could reduce the agency costs by aligning the incentives of managers with the interests of shareholders. This paper addresses this issue by investigating the impact that board composition, firm characteristics and performance have on board compensation. We find that the average board pay is negatively related to board size and positively related to firm dimension. The public or private nature of the major shareholder does not influence board compensation but the juridical form does. Finally, while the proportion of politically connected directors is found to negatively influence the level of per capita compensation, the impact of firm performance is uncertain.
    Keywords: board compensation, board composition, politicians, local public utilities
    JEL: G34 J33 L97
    Date: 2011–10
  2. By: Cerqueiro, G.M.; Penas, M.F. (Tilburg University, Center for Economic Research)
    Abstract: We analyze the effect of changes in U.S. state personal exemptions on the financing structure and performance of a representative sample of start-ups. An increase in the amount of borrower’s personal wealth protected in bankruptcy reduces the availability of bank credit to all start-ups. Owners of unlimited liability businesses, who benefit from the increase in wealth insurance, offset the reduction in bank credit by investing more money in the firm. We find no such response for start-ups whose entrepreneurs’ personal wealth is already protected by limited liability. Consequently, corporations experience lower growth rates and higher failure rates, while proprietorships performance is not negatively affected.
    Keywords: Debtor protection;bankruptcy;start-ups;credit availability;agency problems.
    JEL: G32 G33 K35 M13
    Date: 2011
  3. By: McCahery, J.A.; Vermeulen, E.P.M. (Tilburg University, Center for Economic Research)
    Abstract: Investor confidence in financial markets depends in large part on the existence of an accurate disclosure and reporting regime that provides transparency in the beneficial ownership and control structures of publicly listed companies. Today, a common post-financial crisis regulatory reform theme is to tighten the disclosure and reporting rules that apply to large blockholders. We examine the implications of this trend, analyzing whether detailed, stringent and mandatory reporting rules could have a counterproductive effect on the financial markets. A central idea of this paper is the evolution of a well-balanced regime that is flexible and proportional and allows for a case-by-case determination of a beneficial owner. In the current era of information-based technology, the most obvious challenge for regulators is to design a legal framework that is adaptable to technological change and its impact on financial instruments.
    Keywords: beneficial ownership;control enhancing mechanisms;corporate.
    JEL: G30 G32 K22 K42
    Date: 2011
  4. By: Gabriel Jiménez (Banco de España); Atif Mian (University of California Berkeley); José-Luis Peydró (ECB and UPF and Barcelona GSE); Jesús Saurina (Banco de España)
    Abstract: While banks may change their credit supply due to bank balance-sheet shocks (the local lending channel), firms can react by adjusting their sources of financing in equilibrium (the aggregate lending channel). We provide a methodology to identify the aggregate (firm-level) effects of the lending channel and estimate the impact of banks’ ability to securitize realestate assets on credit supply for non real-estate firms in Spain over 2000-2010. We show that firm-level equilibrium dynamics nullify the strong local (bank-level) lending channel of securitization on credit quantity for firms with multiple banking relationships. Credit terms however become softer, but there are no real effects. Securitization implies a credit expansion on the extensive margin towards first-time bank clients, which are more likely to default. Finally, the 2008 securitization collapse reverses the local lending channel.
    Keywords: Bank lending channel, credit supply, credit demand, macroprudential, real economy effects of finance, securitization
    JEL: G21 G28 G30 E44 E50
    Date: 2011–10
  5. By: Elisabetta Gualandri
    Abstract: The analysis of the financial crisis has revealed not only major market and regulatory failures, but also shortcomings in supervisory approaches and in banks’ systems of internal and external controls. These failures and shortcomings played a significant role in the origin and evolution of the crisis. In some important cases, the crisis revealed that banks’ internal governance, and their internal control functions in particular, were ineffective or even unsuitable when faced with the demands of overseeing the growing levels of risk undertaken by intermediaries, and especially the interrelations between these exposures. So what are the implications of the crisis, the regulatory innovations now being implemented, and the changes in supervisory policies and practices, for banks’ internal control systems? Given the role of internal control functions in risk-based supervision, what is the exact relationship between supervisor and supervised as defined by Basel 3, Pillar 2, with regard to ICAAP and SREP? One important lesson to emerge from recent experience is the need to encourage a new culture amongst banks, ensuring that they appreciate the key role of internal controls as a tool for managing and monitoring risk.
    JEL: G21 G28 G32
    Date: 2011–10
  6. By: Riccardo Ferretti; Antonio Meles
    Abstract: This study analyses the role of private equity investors in solving asymmetric information problems and the relationship to underpricing, wealth loss for pre-existing shareholders and the cost of going public. According to certification theory, companies backed by private equity investors are expected to have lower underpricing at the moment of an initial public offering, as they have fewer adverse selection problems, and there is less ex-ante uncertainty. However, the relationship between private equity backing and the cost of going public to issuers is less clear. We use a data set of 66 private equity-backed and 94 non-private equity-backed companies that went public on the Milan Stock Exchange between January 1998 and June 2008. Our findings provide evidence that out of the PE-backed firms, only those backed by private equity syndication show lower initial-day returns and indirect issuance opportunity cost, while there is no difference in the certification role between bank-related and non bank-related private equity investors. We also find that the benefits persist for IPOs backed by private equity syndication, although to a lesser extent, even after adjusting for direct costs (gross spreads) the opportunity cost of issuance.
    Keywords: IPOs; underpricing; cost of going public; venture capital; private equity
    JEL: G23 G24 G32 G34
    Date: 2011–04
  7. By: Marion Allet
    Abstract: Environmental performance is becoming an increasing concern for all businesses. The microfinance sector is no exception. Today, a growing number of microfinance institutions are developing environmental management programs, and microfinance stakeholders are increasingly willing to monitor environmental improvement. However, no adapted methodology currently exists to do so. This article proposes a new tool to measure the environmental performance of microfinance institutions: the Microfinance Environmental Performance Index (MEPI). This tool is based on management performance indicators that have been adapted to the specificities of the microfinance sector. It measures MFIs’ environmental performance along five dimensions: environmental policy, ecological footprint, environmental risk assessment, green microcredit, and environmental non-financial services. MEPI can be a useful tool for research and serve as a basis for environmental strategy planning, progress monitoring, and communication in the microfinance industry.
    Keywords: Microfinance; Environmental Performance; Indicators; Green Microfinance
    JEL: G21 Q01 Q56
    Date: 2011–10

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