nep-cfn New Economics Papers
on Corporate Finance
Issue of 2014‒12‒19
four papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Property debt overhang: the case of Irish SMEs By McCann, Fergal; McIdnoe-Calder, Tara
  2. Capital Structure and Financial Flexibility: Expectations of Future Shocks By Costas Lambrinoudakis; Michael Neumann; George Skiadopoulos
  3. Is Access to Credit a Constraint for Latin American Enterprises? An Empirical Analysis with Firm-Level Data By Andrea Filippo Presbitero; Roberta Rabellotti
  4. Growth Expectations, Dividend Yields, and Future Stock Returns By Zhi Da; Ravi Jagannathan; Jianfeng Shen

  1. By: McCann, Fergal (Central Bank of Ireland); McIdnoe-Calder, Tara (Central Bank of Ireland)
    Abstract: The detrimental impacts of credit booms, property booms and firm over-leverage are well-established in a growing literature highlighting their effects on household consump- tion, firm investment and economic growth. The link between credit-fuelled property market booms and firms' ability to service their debts has however up to this point not been studied. Using a unique data set on the property and "core" enterprise debts of Irish Small and Medium Enterprises (SMEs) at December 2013, we highlight the extent to which Irish non-real-estate SMEs have borrowed for property investment purposes. We show that the existence of such property-related debts is a crucial determinant of the probability of SME loan default, suggesting a large property-related debt overhang for these firms. We extend the analysis by showing that the intensity of firms' property- related borrowings has an additional impact on the probability of loan default. In doing so, we highlight an additional channel through which credit-driven property booms can have long-lasting harmful eects on economic growth prospects.
    Keywords: Property markets, SMEs, credit risk, firm leverage.
    Date: 2014–10
  2. By: Costas Lambrinoudakis (University of Piraeus); Michael Neumann (Queen Mary University of London); George Skiadopoulos (Queen Mary University of London University of Piraeus)
    Abstract: We test one of the main predictions of the financial flexibility paradigm that expectations about future firm-specific shocks affect the firm's leverage. We extract the expectations of small and large future shocks from the market prices of equity options. We find that expectations for future shocks decrease leverage and are statistically significant even when we control for traditional determinants. Moreover, they have a first-order effect to capital structure decisions affecting more the small and financially constrained firms. Our findings confirm the De Angelo et al. (2011) model predictions and evidence drawn from surveys that managers seek for financial flexibility.
    Keywords: Capital structure, Financial flexibility, Options, Risk-neutral volatility, Risk-neutral kurtosis
    JEL: G13 G30 G32
    Date: 2014–10
  3. By: Andrea Filippo Presbitero (International Monetary Fund, Universit… Politecnica delle Marche - MoFiR); Roberta Rabellotti (Universit… di Pavia, Department of Political and Social Sciences)
    Abstract: An intense process of deregulation and financial liberalization in Latin America has increased competitive pressures and led to bank restructuring and consolidation. This paper looks at firm access to credit in the region, focusing on the role of credit market structure. Using firm-level data from theWorld Bank Enterprise Survey, we find that access to bank credit is very heterogeneous. On average, smaller and less productive firms are less likely to apply for credit and more likely to be financially constrained. We also find that a high degree of bank penetration and competition are significantly correlated with a lower probability that borrowers are financially constrained. Foreign banks penetration has a negative effect on access to credit particularly in less developed and more concentrated markets, while it has a positive influence in more competitive and financially developed markets.
    Keywords: announcement, bank, event study, financial crisis, rescue plan
    JEL: G01 G21 N20
    Date: 2014–11
  4. By: Zhi Da; Ravi Jagannathan; Jianfeng Shen
    Abstract: According to the dynamic version of the Gordon growth model, the long-run expected return on stocks, stock yield, is the sum of the dividend yield on stocks plus some weighted average of expected future growth rates in dividends. We construct a measure of stock yield based on sell-side analysts' near-term earnings forecasts that predicts US stock index returns well, with an out-of-sample R-squared that is consistently above 2% at monthly frequency over our sample period. Stock yield also predicts future stock index returns in the US and other G7 countries and returns of US stock portfolios formed by sorting stocks based on firm characteristics, at various horizons. The findings are consistent with a single dominant factor driving expected returns on stocks over different holding periods. That single factor extracted from the cross section of stock yields using the Kelly and Pruitt (2013) partial regressions method predicts stock index returns better. The performance of the Binsbergen and Koijen (2010) latent factor model for forecasting stock returns improves significantly when stock yield is included as an imperfect observation of expected return on stocks. Consistent with folk wisdom, stock returns are more predictable coming out of a recession. Our measure performs as well in predicting stock returns as the implied cost of capital, another common stock yield measure that uses additional information.
    JEL: G0 G1 G10 G11 G12 G17
    Date: 2014–10

This nep-cfn issue is ©2014 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.