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on Corporate Finance |
| By: | Silvia Del Prete (Bank of Italy); Stefano Federico (Bank of Italy) |
| Abstract: | Using unique matched bank-firm data on export, import and ordinary loans for a large sample of Italian manufacturing exporters for the years 2007-2010, this paper investigates the role of trade finance in a credit shock. We find that the credit shock faced by exporters in the aftermath of the Lehman Brothers' collapse was due more to a diminished availability of ordinary loans than to specific constraints in trade finance. We also show that the credit shock had a negative impact on exports: firms, especially financially distressed ones, that borrowed from banks which were more exposed to a negative funding shock exported less compared with firms that borrowed from less exposed intermediaries. |
| Keywords: | trade finance, trade collapse, credit shocks, export loans |
| JEL: | G21 F14 F30 G30 L20 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_948_14&r=cfn |
| By: | Hong, Suting (Federal Reserve Bank of Philadelphia) |
| Abstract: | There are two ways for a venture capital (VC) firm to enter a new market: initiate a new deal or form a syndicate with an incumbent. Both types of entry are extensively observed in the data. In this paper, I examine (i) the causes of syndication between entrant and incumbent VC firms, (ii) the impact of entry on VC contract terms and survival rates of VC-backed start-up companies, and (iii) the effect of syndication between entrant and incumbent VC firms on the competition in the VC market and the outcomes of incumbent-backed ventures. By developing a theoretical model featuring endogenous matching and coalition formation in the VC market, I show that an incumbent VC firm may strategically form syndicates with entrants to maintain its bargaining power. Furthermore, an incumbent VC firm is less likely to syndicate with entrants as the incumbent’s expertise increases. I find that entry increases the likelihood of survival for incumbent-backed start-up companies while syndication between entrants and incumbents dampens the competitive effect of entry. Using a data set of VC-backed investments in the U.S. between year 1990 and 2006, I find empirical evidence that is consistent with the theoretical predictions. The estimation results remain robust after I control for the endogeneity of entry and syndication. |
| Keywords: | Entrepreneurship; Externalities (Economics); Venture capital; Entry; Contracts; Exernality; Efficiency; Coalition |
| JEL: | C78 D86 G24 L26 M13 |
| Date: | 2013–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:13-49&r=cfn |
| By: | Balduzzi, Pierluigi (Boston College); Brancati, Emanuele (University of Rome Tor Vergata); Schiantarelli, Fabio (Boston College) |
| Abstract: | We test whether financial fluctuations affect firms' decisions, through their impact on banks' cost of funding. We exploit two shocks to Italian bank CDS spreads and equity valuations: the 2007-2009 financial crisis and the 2010-2012 sovereign debt crisis. Using newly available data linking over 3,000, mostly privately-held, non-financial firms to their bank(s), we find that increases in Italian banks' CDS spreads and decreases in their equity valuations lead younger and smaller firms to cut investment, employment, and borrowing. We conclude that financial market fluctuations affect even private firms' real decisions by affecting the costs of funds of their banks. |
| Keywords: | financial market shocks, banks, credit-default swaps, volatility, investment, employment, lending |
| JEL: | D92 G21 J23 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7872&r=cfn |
| By: | Dalida Kadyrzhanova; Matthew Rhodes-Kropf |
| Abstract: | Equity overvaluation is thought to create the potential for managerial misbehavior, while monitoring and corporate governance curb misbehavior. We combine these two insights from the literatures on misvaluation and governance to ask 'when does governance matter?' Examining firms with standard long-run measures of corporate governance as they are shocked by plausible misvaluation, we provide consistent evidence that firm performance is impacted by governance when firms become overvalued – overvaluation causes weaker performance in poorly governed firms. Our findings imply that firm oversight is important during market booms, just when stock prices suggest all is well. |
| JEL: | G30 G32 G34 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19799&r=cfn |
| By: | Charles W. Calomiris; Mark Carlson |
| Abstract: | Managers’ incentives may conflict with those of shareholders or creditors, particularly at leveraged, opaque banks. Bankers may abuse their control rights to give themselves excessive salaries, favored access to credit, or to take excessive risks that benefit themselves at the expense of depositors. Banks must design contracting and governance structures that sufficiently resolve agency problems so that they can attract funding from outside shareholders and depositors. We examine banks from the 1890s, a period when there were no distortions from deposit insurance or government interventions to assist banks. We use national banks’ Examination Reports to link differences in managerial ownership to different corporate governance policies, risk, and methods of risk management. Formal corporate governance is lower when manager ownership shares are higher. Managerial rent seeking via salaries and insider lending is greater when managerial ownership is higher, and lower when formal governance controls are employed. Banks with higher managerial ownership target lower default risk. Higher managerial ownership and less-formal governance are associated with a greater reliance on cash rather than capital as a means of limiting risk, which we show is consistent both with higher adverse-selection costs of raising outside equity and with greater moral-hazard with respect to risk shifting. |
| JEL: | G21 G32 N21 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19806&r=cfn |
| By: | Kathy Fogel; Liping Ma; Randall Morck |
| Abstract: | Shareholder valuations are economically and statistically positively correlated with more powerful independent directors, their power gauged by social network power centrality measures. Sudden deaths of powerful independent directors significantly reduce shareholder value, consistent with independent director power “causing” higher shareholder value. Further empirical tests associate more powerful independent directors with fewer value-destroying M&A bids, more high-powered CEO compensation and accountability for poor performance, and less earnings management. We posit that more powerful independent directors can better detect and counter managerial missteps because of their better access to information, their greater credibility in challenging errant top managers, or both. |
| JEL: | D85 G02 G3 G34 G38 K22 L2 Z13 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19809&r=cfn |
| By: | Bryan Kelly; Lubos Pastor; Pietro Veronesi |
| Abstract: | We empirically analyze the pricing of political uncertainty, guided by a theoretical model of government policy choice. After deriving the model's predictions for option prices, we test those predictions in an international sample of national elections and global summits. We find that political uncertainty is priced in the option market in ways predicted by the theory. Options whose lives span political events tend to be more expensive. Such options provide valuable protection against the risk associated with political events, including not only price risk but also variance and tail risks. This protection is more valuable in a weaker economy as well as amid higher political uncertainty. |
| JEL: | G12 G15 G18 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19812&r=cfn |
| By: | Daniel L. Greenwald; Martin Lettau; Sydney C. Ludvigson |
| Abstract: | Three mutually uncorrelated economic shocks that we measure empirically explain 85% of the quarterly variation in real stock market wealth since 1952. We use a model to show that they are the observable empirical counterparts to three latent primitive shocks: a total factor productivity shock, a risk aversion shock that is unrelated to aggregate consumption and labor income, and a factors share shock that shifts the rewards of production between workers and shareholders. On a quarterly basis, risk aversion shocks explain roughly 75% of variation in the log difference of stock market wealth, but the near-permanent factors share shocks plays an increasingly important role as the time horizon extends. We find that more than 100% of the increase since 1980 in the deterministically detrended log real value of the stock market, or a rise of 65%, is attributable to the cumulative effects of the factors share shock, which persistently redistributed rewards away from workers and toward shareholders over this period. Indeed, without these shocks, today's stock market would be about 10% lower than it was in 1980. By contrast, technological progress that rewards both workers and shareholders plays a smaller role in historical stock market fluctuations at all horizons. Finally, the risk aversion shocks we identify, which are uncorrelated with consumption or its second moments, largely explain the long-horizon predictability of excess stock market returns found in data. These findings are hard to reconcile with models in which time-varying risk premia arise from habits or stochastic consumption volatility. |
| JEL: | G0 G12 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19818&r=cfn |
| By: | Sara Sultan Balbuena |
| Abstract: | This report is the first known stocktaking of its kind to provide a regional overview of state-owned enterprise (SOE) governance reforms and challenges across the Southern African Development Community (SADC) region. Part One summarises the challenges and governance practices related to state-ownership across SADC economies; it draws conclusions on how to address common regional priorities. Part Two of the report is organised around country profiles providing a fact-based assessment of SOE reform policies and practices in 14 economies. The report was prepared at the request of the Southern Africa Network on Governance of State-Owned Enterprises – a regional cooperation initiative aimed at improving the corporate governance of SOEs, and mainly covering the member economies of the SADC region. The stocktaking was prepared based on information self-reported by authorities in participating economies and supplemented by desk research. |
| Keywords: | government policy and regulation, restructuring, merger and acquisition, financial economics, corporate governance |
| JEL: | G3 G30 G34 G38 G39 |
| Date: | 2014–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dafaae:13-en&r=cfn |
| By: | Kerstin Lopatta (University of Oldenburg - Accounting and Corporate Governance & ZenTra); Frerich Buchholz (University of Oldenburg - Accounting and Corporate Governance); Thomas Kaspereit (University of Oldenburg - Accounting and Corporate Governance) |
| Abstract: | We investigate the relation between asymmetric information of insider trades and international corporate social responsibility for U.S. firms listed in the MSCI world index during the period 2004 to 2010. In comparison to current studies, which focus on measuring the interrelation between the cost of capital or firm value and corporate sustainability, our analysis entails the direct relationship between international corporate sustainability and information asymmetry. We measure information asymmetry by the abnormal returns that occur when insiders trade in the stock of their firms. Hence, our investigation is based on a micro level and helps to explain the results at the more aggregated level of cost of capital, and at the fully aggregated level of firm value. In our cross-sectional analysis we found evidence that firms with a higher degree of corporate sustainability spend more efforts in reducing information asymmetry. |
| Keywords: | Asymmetric Information, Corporate Governance, International Corporate Social Responsibility, Cross-Sectional Analysis, Event Study, Insider Trading |
| JEL: | D53 D82 G14 D21 G34 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:zen:wpaper:29&r=cfn |