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on Corporate Finance |
| By: | Miguel García-Posada (Banco de España-Eurosystem); Juan S. Mora-Sanguinetti (Banco de España-Eurosystem) |
| Abstract: | Small businesses, the majority of Spanish fi rms, rarely fi le for formal bankruptcy, and this has been the case even during the current economic crisis. This suggests that bankruptcy law has a limited role to play in the distress of small fi rms. We propose an explanation based on two premises: (i) bankruptcy procedures are more costly and drawn out than the main alternative procedure, the mortgage foreclosure; (ii) personal bankruptcy law is unattractive to the individual debtor. Empirical analyses on a large micro data sample of Spanish, French and UK fi rms corroborate our hypothesis. It is important to note that these results are based on data that do not yet capture the impact of recent reforms of the Spanish insolvency framework. |
| Keywords: | bankruptcy, mortgage, insolvency |
| JEL: | G33 G21 K0 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1315&r=cfn |
| By: | Ahn, J-H.; Breton, R. |
| Abstract: | We analyze the impact of loan securitization on competition in the loan market. Using a dynamic loan market competition model where borrowers face both exogenous and endogenous costs to switch between banks, we uncover a competition softening effect of securitization that allows banks to extract rents in the primary loan market. By reducing monitoring incentives, securitization mitigates winner’s curse effects in future stages of competition thereby decreasing ex ante competition for initial market share. Due to this competition softening effect, securitization can adversely affect loan market efficiency while leading to higher equilibrium profits for banks. This effect is driven by primary loan market competition, not by the exploitation of informational asymmetries in the secondary market for loans. We also argue that banks can use securitization as a strategic response to an increase in competition, as a tool to signal a reduction in monitoring intensity for the sole purpose of softening ex ante competition. Our result suggests that securitization reforms focusing exclusively on informational asymmetries in markets for securitized products may overlook competitive conditions in the primary market. |
| Keywords: | securitization, loan sales, banking competition, monitoring, rent extraction. |
| JEL: | G21 L12 L13 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:457&r=cfn |
| By: | Ravanel, M. |
| Abstract: | In this paper, I study how the CEO's election can be biased if some directors in the board belong to the same network. I use a static Bayesian game. Directors want to elect the best candidate but they also want to vote for the winner. In that context, results show that, when no candidate is part of the network, boards with a network perform better in electing the right candidate. On the other hand, it becomes detrimental for stockholders if one candidate is part of the network. Indeed, compared to a situation where there are no interconnections between directors, the directors who are members of a network vote more often for the candidate they think is best, rather than for the one they think might win. The ones who are not part of the network follow their lead. Thus the network has power on the result of the election and therefore limits the power of the future CEO. |
| Keywords: | Networks, corporate governance. |
| JEL: | D71 G34 Z13 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:459&r=cfn |
| By: | Kurt A. Desender; Mircea Epure |
| Abstract: | By integrating the agency and stakeholder perspectives, this study aims to provide a systematic understanding of the firm- and institutional-level corporate governance factors that affect corporate social performance (CSP). We analyze a large global panel dataset and reveal that CSP is positively associated with board independence, but negatively with ownership concentration. These results underscore the idea that the benefits of CSP do not flow to shareholders to the same extent as the costs and that the allocation of resources to CSP is lower when shareholders are powerful. Furthermore, these findings indicate that independent directors should be understood as agents in their own right, not only focused on defending shareholder interests. We also find that CSP is negatively related to investor protection and shareholder-oriented environments, while it is positively related to egalitarian environments. Finally, we jointly analyze firm-level drivers and institutional contexts. |
| Keywords: | corporate social performance, corporate governance, agency theory, stakeholder theory |
| JEL: | A13 G3 M0 M1 M14 M4 M41 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:730&r=cfn |
| By: | Anginer, D.; Demirgüc-Kunt, A.; Huizinga, H.P.; Ma, K. (Tilburg University, Center for Economic Research) |
| Abstract: | JEF Classification: G21, M21. |
| Keywords: | Bank capital;Dividend payouts;Corporate governance;Executive compensation |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2013054&r=cfn |
| By: | Brun , Matthieu; Fraisse , Henri; Thesmar , David |
| Abstract: | We measure the impact of bank capital requirements on corporate borrowing and expansion. We use French loan-level data and take advantage of the transition from Basel I to Basel II. While under Basel I the capital charge was the same for all firms, under Basel II, it depends in a predictable way on both the bank's model and the firm's risk. We exploit this two-way variation to empirically estimate the sensitivity of bank lending to capital requirement. This rich identification allows us to control for firm-level credit demand shocks and bank-level credit supply shocks. We find very large effects of capital requirements on bank lending: A 1 percentage point decrease in capital requirement leads to an increase in loan size by about 5%. At the firm level, borrowing also responds strongly although a bit less, consistent with some limited between-bank substitutability. Investment and employment also increase strongly. Overall, because the transition to Basel II led to an average reduction by 2 percentage points of capital requirements, we estimate that the new regulation led, in France, to an increase in average loan size by 10%, an increase in aggregate corporate lending by 1.5%, an increase in aggregate investment by 0.5%, and the creation or preservation of 235,000 jobs. |
| Keywords: | Bank capital ratios; Bank regulation; Credit supply |
| JEL: | E51 G21 G28 |
| Date: | 2013–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:0988&r=cfn |
| By: | Fernando Duarte; Thomas Eisenbach |
| Abstract: | We construct a new systemic risk measure that quantifies vulnerability to fire-sale spillovers using detailed regulatory balance-sheet data for U.S. commercial banks and repo market data for broker-dealers. Even for moderate shocks in normal times, fire-sale externalities can be substantial. For commercial banks, a 1 percent exogenous shock to assets in the first quarter of 2013 produces fire-sale externalities equal to 10 percent of system equity. For broker-dealers, a 0.1 percent shock to assets in August 2013 generates spillover losses equivalent to almost 6 percent of system equity. Externalities during the last financial crisis are between two and three times larger. Our systemic risk measure reaches a peak in the fall of 2008 but shows a notable increase starting in 2005, ahead of many other systemic risk indicators. Although the largest banks and broker-dealers produce—and are victims of—most of the externalities, leverage and "connectedness" of financial institutions also play important roles. |
| Keywords: | Systemic risk ; Bank holding companies ; Repurchase agreements ; Financial leverage ; Financial institutions |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:645&r=cfn |
| By: | Wagner, Joachim (Leuphana University Lüneburg and CESIS, Stockholm); Gelübcke, John P. Weche (Leuphana University Lüneburg, Germany) |
| Abstract: | In this paper we present the first evidence for a link between foreign ownership and credit constraints for Germany, one of the world's leading target countries for foreign direct investment. Furthermore, we contribute to the literature by investigating the impact of a foreign acquisition on the target firms' credit constraints for the first time. We use newly available comprehensive panel data that we constructed from information collected by the German statistical offices and from credit rating scores supplied by the leading German credit rating agency. We ind foreign owned firms in German manufacturing on average to show slightly more financing restrictions than domestically owned enterprises, but this very small difference diminishes once unobserved heterogeneity is taken into account. We further demonstrate that one reason for this finding is the preference of foreign investors for targets with relatively low credit-worthiness. Although the likelihood of a foreign acquisition appears to be correlated with credit constraints, there is no impact of foreign takeovers on the credit constraints of the target firms ex post and therefore no support for the hypothesis that foreign takeovers ease financial frictions. |
| Keywords: | credit constraints; foreign ownership; acquisitions; Germany |
| JEL: | F21 F23 G34 |
| Date: | 2013–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0329&r=cfn |
| By: | Jeong-Bon Kim (City University of Hong Kong); Li Li (University of International Business and Economics and Hong Kong Institute for Monetary Research); Mary L. Z. Ma (York University); Frank M. Song Author-Workplace-Name: University of Hong Kong |
| Abstract: | This study predicts and finds that chief executive officer (CEO) risk-taking incentives induced by stock option compensation increase a bank's contribution to systemic distress risk and systemic crash risk. We also predict and find that this CEO incentive systemic risk relation operates through three channels (i) a bank's engagement in non-interest income-generating activities, (ii) investments in innovative financial products such as collateralized debt obligations and credit default swaps, and (iii) maturity mismatch associated with on short-term debt financing. Finally, the CEO incentive-systemic risk relation is moderated by information transparency, bank size, market liquidity, and financial crisis. We also discuss relevant policy implications. |
| JEL: | G01 G21 G32 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:182013&r=cfn |
| By: | Byeong-Je An; Andrew Ang; Turan G. Bali; Nusret Cakici |
| Abstract: | Stocks with large increases in call implied volatilities over the previous month tend to have high future returns while stocks with large increases in put implied volatilities over the previous month tend to have low future returns. Sorting stocks ranked into decile portfolios by past call implied volatilities produces spreads in average returns of approximately 1% per month, and the return differences persist up to six months. The cross section of stock returns also predicts option-implied volatilities, with stocks with high past returns tending to have call and put option contracts which exhibit increases in implied volatility over the next month, but with decreasing realized volatility. These predictability patterns are consistent with rational models of informed trading. |
| JEL: | C13 G10 G11 G12 G13 G14 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19590&r=cfn |