nep-cfn New Economics Papers
on Corporate Finance
Issue of 2013‒11‒14
six papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Incentive compensation for risk managers when effort is unobservable By Paul H. Kupiec
  2. Banking in Africa By Thorsten Beck; Robert Cull
  3. Debt Decisions in Deregulated Industries By Ovtchinnikov , Alexei V.
  4. Do Empty Creditors Matter? Evidence from Distressed Exchange Offers By Andras Danis
  5. Synergies or overpayment in European corporate M&A By Díaz Díaz, Belén; Sanfilippo Azofra, Sergio; López Gutiérrez, Carlos
  6. Reassess of capital structure theories By Datta, Rajib; Chowdhury, Tasnim; Mohajan, Haradhan

  1. By: Paul H. Kupiec (American Enterprise Institute)
    Abstract: In a financial intermediary, risk managers can expend effort to reduce loan probability of default and loss given default, but effort is unobservable. Incentive compensation (IC) can induce manager effort. When deposit insurance is subsidized, the demand for risk management declines. Regulatory policy should then reinforce incentives to offer risk mangers appropriate IC contracts.
    Keywords: AEI Economic Policy Working Paper Series
    JEL: A G
    Date: 2013–10
  2. By: Thorsten Beck; Robert Cull
    Abstract: This chapter takes stock of the current state of banking systems across Sub-Saharan Africa and discusses recent developments including innovations that might help Africa leapfrog more traditional banking models. Using an array of different data, we document that African banking systems are shallow but stable. African banks are well capitalized and over-liquid, but lend less to the private sector than banks in non-African developing countries. African enterprises and households are less likely to use financial services than their peers in other developing countries. We also describe a number of financial innovations across the continent that can help overcome different barriers to financial inclusion and have helped to expand the bankable and the banked population.
    Keywords: Sub-Saharan Africa; Banking; Financial Inclusion; Financial Innovation
    JEL: G2 G3
    Date: 2013
  3. By: Ovtchinnikov , Alexei V.
    Abstract: Regulation and subsequent deregulation significantly affect firms’ debt decisions. Prior to deregulation, regulated firms depend significantly more on long-term and public debt but reduce this dependence considerably during deregulation. Cross-sectional analysis shows that the reduction in the use of long-term and public debt results from changing firm sensitivities to determinants of debt decisions triggered by deregulation. Consistent with credit and liquidity risk theories of debt maturity, the concave relation between firm quality and debt maturity is significantly attenuated among regulated firms. Inconsistent with these theories, the convex relation between firm quality and the preference for public debt exists only among regulated firms. I find limited support for other theories.
    Keywords: Debt decisions; debt maturity; public and private debt issues; deregulation
    JEL: G32 G38
    Date: 2013–08–22
  4. By: Andras Danis (Georgia Institute of Technology)
    Abstract: I examine the effect of credit default swaps (CDSs) on the restructuring of distressed firms. Theoretically, I show that if bondholders are insured with CDSs, the participation rate in a restructuring decreases. Using a sample of distressed exchange offers, I estimate that the participation rate is 29% lower if the firm has CDSs traded on its debt, compared to an unconditional mean of 54%. I use the introduction of the Big Bang protocol as a natural experiment. The results suggest that firms with CDSs find it difficult to reduce debt out-of-court, which is inefficient because it increases the likelihood of future bankruptcy.
    Keywords: credit default swaps, CDS, empty creditor, restructuring, bankruptcy
    JEL: G33 G34
    Date: 2013–10
  5. By: Díaz Díaz, Belén; Sanfilippo Azofra, Sergio; López Gutiérrez, Carlos
    Abstract: The purpose of this research is to test whether the price paid for corporate takeovers in Europe is related to the synergies expected or whether bidders are overpaying for acquisitions. We analyzed the relationship between the premium paid in 147 mergers and acquisitions, and the bidders’ abnormal returns around the date of the transaction from 1995 to 2004. A quadratic relationship between the premiums and returns was found. When the amount paid in a transaction does not exceed the value of the target organization by more than 39.69–40.03%, the premium becomes a sign of the future synergy and will have a positive effect on the bidders’ returns. However, when the premium exceeds these values, the relationship between premiums and returns become negative and therefore the market considers bidders are overpaying. This paper show the importance of the correct valuation of the targets and of the premiums paid to ensure value creation in M&A.
    Keywords: Corporate takeovers; premium; overpayment hypothesis; synergy hypothesis
    JEL: G34
    Date: 2013
  6. By: Datta, Rajib; Chowdhury, Tasnim; Mohajan, Haradhan
    Abstract: This study presents a review of major capital structure fiction. Capital structure decision is important for companies because it helps to increase firm value by ensuring that the company has enough resources to carry out planned investments using as much as possible the cheapest cost of capital. It therefore involves choices between the different sources of capital such as debt, equity and hybrid capital. The different sources of finance available to companies are also influenced by the quality and maturity of the financial system and the overall risk of operating in that environment. The paper identified a host of capital structure theories that are key contemplation in the financing structure of firms around the world. This review will help companies in emerging and underdeveloped economies identify the peculiarities in the choosing the appropriate blend of capital.
    Keywords: Capital structure, Cash flows, Financial risk, Principles, Theories.
    JEL: G15
    Date: 2013–06–15

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