nep-cfn New Economics Papers
on Corporate Finance
Issue of 2013‒01‒12
five papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. The effect of debt on corporate profitability : Evidence from French service sector By Mazen Kebewar; Syed Muhammad Noaman Ahmed Shah
  2. The Determinants of Indebtedness in Unlisted Manufacturing Firms in India: A Panel Data Analysis By Majumdar, Raju
  3. Enforcement actions and bank behavior By Delis, Manthos D; Staikouras, Panagiotis; Tsoumas, Chris
  4. Bank size and lending specialization By Diana Bonfim; Qinglei Dai
  5. A new measure of equity duration: The duration-based explanation of the value premium revisited By Schröder, David; Esterer, Florian

  1. By: Mazen Kebewar; Syed Muhammad Noaman Ahmed Shah
    Abstract: Current study aims to provide new empirical evidence on the impact of debt on corporate profitability. This impact can be explained by three essential theories: signaling theory, tax theory and the agency cost theory. Using panel data sample of 2240 French non listed companies of service sector during 1999-2006. By utilizing generalized method of moments (GMM) econometric technique on three measures of profitability ratio (PROF1, PROF2 and ROA), we show that debt ratio has no effect on corporate profitability, regardless of the size of company (VSEs, SMEs or LEs)
    Date: 2013–01
  2. By: Majumdar, Raju
    Abstract: This research examined the borrowing behavior of unlisted private stand-alone manufacturing firms in India over the period 2006-07 to 2009-10 using balance sheet data. Findings suggest that total indebtedness is lower in unlisted manufacturing firms compared to their listed counterparts, and the difference is more pronounced in long-term borrowing ratio compared to short-term borrowing ratio. Unlisted manufacturing firms depend predominantly on banks for financing purposes in order to circumvent their inability to tap financial resources from capital markets, and they borrow predominantly on a secured basis. It seems collateralized borrowings enables these firms to overcome the problem of information opacity; asset tangibility enhances debt capacity in general and secured debt capacity in particular as the agency theory would suggest. This research does not provide any evidence to suggest that a close bank-firm relationship ease collateral requirements for unlisted firms, nor is there any evidence of the monitoring role of secured debt enhancing firm performance and hence profits. The ‘pecking order’ of financing as the asymmetric information theory of capital structure suggests, does not seem valid for unlisted firms; internal resource generating capacity only influences reliance on short-term funding, with no bearing on long term fund need.
    Keywords: Indebtedness; unlisted firm; debt ratio
    JEL: G32
    Date: 2012–10–02
  3. By: Delis, Manthos D; Staikouras, Panagiotis; Tsoumas, Chris
    Abstract: Employing a unique data set for the period 2000-2010, this paper examines the impact of enforcement actions (sanctions) on bank capital, risk, and performance. We find that high risk weighted asset ratios tend to attract supervisory intervention. Sanctions whose cause lies at the core of bank safety and soundness curtail the risk-weighted asset ratio, but amplify the risk of insolvency and returns volatility, which implies that these sanctions do not improve the risk profile of the involved banks, possibly because they come too late. Sanctions targeting internal control and risk management weaknesses appear to be well-timed and to restrain further increases in the risk-weighted assets ratio without impairing bank fundamentals. Sanctions against institution-affiliated parties do not seem to affect bank behavior. We suggest that supervisory attention should be placed on the timely uncovering of internal control and risk management deficiencies as this would allow the early tackling of the origins of financial distress.
    Keywords: Enforcement actions; banking supervision; capital; bank risk; bank performance
    JEL: G28 G21 G01
    Date: 2013–01–04
  4. By: Diana Bonfim; Qinglei Dai
    Abstract: <div align="left">Using micro-level data on the entire population of business loans of a bank-based economy, we empirically test some of the core predictions of the SME financing literature, examining banks’ lending specializations in firm size and lending technologies. Rejecting the conventional belief that smaller banks focus more on relationship loans than do larger banks, we find that banks of different sizes dedicate similar proportions of loans to relationship lending. However, supporting the SME finance theories on the organizational advantages of small banks, we find that smaller banks provide more access to relationship loans to small firms, though such loans are usually more expensive.
    JEL: G21 G30
    Date: 2012
  5. By: Schröder, David; Esterer, Florian
    Abstract: This paper uses analysts' forecasts to estimate a share's equity duration, a measure of a company's average cash-flow maturity. We find that short duration equity is associated with high expected and realized returns, which cannot be attributed to the shares' systematic risk exposure as implied by the market beta. Instead, we show that equity duration is a priced risk factor with similar properties as the Fama-French value factor B/M ratio. Our analysis suggests that the value premium might be a compensation for the value firms' higher exposure to cash-flow risk. --
    JEL: G12 M41 G15
    Date: 2012

This nep-cfn issue is ©2013 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.
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