nep-cfn New Economics Papers
on Corporate Finance
Issue of 2014‒08‒09
five papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Derivatives and Non-Financial Companies: Lessons from the Financial Crisis By Rodrigo M. Zeidan
  2. The Impact of Monetary Policy on Financing of Czech Firms By Ruslan Aliyev; Dana Hajkova; Ivana Kubicova
  3. Corporate governance and transaction cost economics: A study of the equity governance structure By Jimmy A. Saravia; Silvia Saravia-Matus
  4. Differential Effects of Law, Culture and Political Risk on Fees, Performance and Risk-taking Behavior of Mutual Fund Managers By Mehri, Meryem
  5. Urban Vibrancy and Corporate Growth By Casey Dougal; Christopher A. Parsons; Sheridan Titman

  1. By: Rodrigo M. Zeidan (Fundação Dom Cabral)
    Abstract: The paper identifies failures of corporate governance that allow non-financial companies around the world to develop hedging strategies that lead to hefty losses in the aftermath of the financial crisis. The sample is comprised of 346 companies from 10 international markets, of which 49 companies (and a subsample of 13 distressed companies) lose a combined US$18.9 billion. An event study shows that most companies that present losses in derivatives experience negative abnormal returns, including a number of companies in which the effect is persistent after a year. The results of a probit model indicate that the lack of a formal hedging policy, no monitoring to the CFOs, and considerations of hubris and remuneration contribute to the mismanagement of hedging policies.
    Keywords: Risk Management; Hedging; Derivatives; Corporate Governance; Event Study
    JEL: G32 G34 G01
    Date: 2014–07
  2. By: Ruslan Aliyev; Dana Hajkova; Ivana Kubicova
    Abstract: This paper uses firm-level financial data for Czech firms and tests for the role of companies’ financial structure in the transmission of monetary policy. Our results indicate that higher short-term interest rates coincide with lower shares of total debt, short-term bank loans, and long-term debt. We find that firm-specific characteristics, such as size, age, collateral, and profit, affect the way in which monetary policy changes are reflected in the external financing decisions of firms. These findings indicate the presence of informational frictions in credit markets and hence provide some empirical evidence of the existence of broad credit and relationship lending channels in the Czech Republic.
    Keywords: Credit channel, Czech Republic, external finance, monetary policy transmission
    JEL: E44 E51 E52 G21 G32
    Date: 2014–06
  3. By: Jimmy A. Saravia; Silvia Saravia-Matus
    Abstract: This paper examines the Transaction Cost Economics (TCE) theory of capital structure and finds that for the case of equity the usual TCE logic is not fully worked out. In particular, an analysis of the key issue of bilateral dependency between the firm and its shareholders is absent. To fill this gap in the literature, the paper further develops the theory of the equity governance structure by taking account of the concept of bilateral dependency over the lifecycle of the firm. The paper finds that, both theoretically and empirically, contractual hazards are indeed mitigated for the case of fast growing young firms which are dependent on shareholders to finance future growth. In contrast, for the case of mature firms, which in virtue of their large free cash flows are independent from shareholders, contractual safeguards are altered to the disadvantage of shareholders and consequently managerial discretion costs increase.
    Keywords: Corporate Governance, Transaction Cost Economics, Free Cash flows, Firm Valuation
    JEL: D23 G31 G32 G34
    Date: 2014–05–12
  4. By: Mehri, Meryem
    Abstract: This paper considers an international sample of conventional and Islamic mutual funds to assess whether law, culture, and political risk affect the performance and risk-taking behavior of mutual funds. Overall, the results show strongly that legal conditions, culture, and political risk have robust differential effects on performance and risk-taking behavior of Islamic and conventional funds. We find that Islamic and conventional funds in developing countries with lower legal conditions, higher corruption and political risk have higher performance. Likewise, in such conditions, both of Islamic and conventional funds have lower return volatility and systematic risk. Overall, Hoefsted culture's values affect significantly the performance and risk-taking behavior of fund managers with robust differential effects between Islamic and conventional funds. The components of country legality and political risk Index have significant differential effects between Islamic and conventional funds. Overall, the data show the fund manager characteristics (experience, qualifications, etc) and specific fund features matter for the performance and risk-taking behavior of fund managers.
    Keywords: Risque; Sociétés d'investissement; Risque politique; Contrats incitatifs; Performance; Risk; Managerial Compensation; Incentive Contracts; Mutual funds; Law and finance; Political risk;
    JEL: K29 G23 G24
    Date: 2014–06
  5. By: Casey Dougal; Christopher A. Parsons; Sheridan Titman
    Abstract: We find that a firm's investment is highly sensitive to the investments of other firms headquartered nearby, even those in very different industries. It also responds to fluctuations in the cash flows and stock prices (q) of local firms outside its sector. These patterns do not appear to reflect exogenous area shocks such as local shocks to labor or real estate values, but rather suggest that local agglomeration economies are important determinants of firm investment and growth.
    JEL: G3 G31 R10 R12
    Date: 2014–07

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