nep-cfn New Economics Papers
on Corporate Finance
Issue of 2015‒01‒03
eight papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Operational Risk Governance: The Basel Approach By Afanasyeva, Olga; Riabichenko, Dmitry
  2. Taxes, Earnings Payout, and Payout Channel Choice By Geiler, P.H.M.; Renneboog, L.D.R.
  3. Equity Vesting and Managerial Myopia By Edmans, Alex; Fang, Vivian; Lewellen, Katharina A.
  4. Standardization of Credit Default Swaps Market By Tommaso Colozza
  5. Sharing information on lending decisions: an empirical assessment By Ugo Albertazzi; Margherita Bottero; Gabriele Sene
  6. Informed trading and stock market efficiency By Taneli M�kinen
  7. Shall We Keep Early Diers Alive? By A. Pinna
  8. Non-bank finance for firms. The role of private equity funds in north-western Italy By Daniele Coin; Valerio Vacca

  1. By: Afanasyeva, Olga; Riabichenko, Dmitry
    Abstract: This paper analyses key documents of Basel Committee which concern operational risk governance and identifies the interconnectedness between risk source, type of the event leading to losses, loss type and its distribution by business lines. The comparative characteristic of the main operational risk governance stages is provided and the relationships between governance bodies are overviewed.
    Keywords: operational risk, corporate governance, Basel Committee on Banking Supervision, board of directors, banking
    JEL: E5 E58 G2
    Date: 2014
  2. By: Geiler, P.H.M. (Tilburg University, Center For Economic Research); Renneboog, L.D.R. (Tilburg University, Center For Economic Research)
    Abstract: We study the tax regulations in relation to dividends and capital gains over the last two decades for the UK in order to determine whether changes in tax regimes affect corporate payout policy (dividends, share repurchases, or a combination). While we can identify investors’ tax-driven preferences for a specific payout channel, we find no evidence of tax-induced clienteles. Firms do indeed not cater to the tax preferences of their shareholders (including individuals, pension funds, corporations). Other factors, such as equity-based compensation received by the CEO and investor sentiment in the form of optimism reduce the dividend payout and increase the use of share repurchases.
    Keywords: payout policy; dividends; share repurchases; taxation; regulation
    JEL: G28 G30 G35 G38
    Date: 2014
  3. By: Edmans, Alex; Fang, Vivian; Lewellen, Katharina A.
    Abstract: This paper links the CEO’s concerns for the current stock price to reductions in real investment. These concerns depend on the amount of equity he intends to sell in the short-term, but actual equity sales are an endogenous decision. We use the amount of stock and options scheduled to vest in a given year as an instrument for equity sales. Such vesting is determined by equity grants made several years prior, and thus unlikely driven by current investment opportunities. An interquartile increase in instrumented equity sales is associated with a decline of 0.25% in the growth of R&D/assets, 4.6% of the average R&D/assets ratio. Vesting-induced equity sales also increase the likelihood of meeting or marginally beating analyst earnings forecasts, and are associated with higher returns to earnings announcements. More broadly, by introducing a measure of incentives that is not driven by the current contracting environment – vesting-induced equity sales – our paper suggests that CEO contracts affect real outcomes.
    Keywords: CEO Incentives; Managerial Myopia; Short-Termism; Vesting
    JEL: G31 G34 M12 M52
    Date: 2014–09
  4. By: Tommaso Colozza
    Abstract: Standardization of credit derivatives was a necessary step towards a more transparent and better structured market, especially after recent financial turmoil. In this survey, we sum up the enhancements established by ISDA in 2009, focusing on vanilla instruments (Credit Default Swaps). New contract features include changes in the cash flow and in post-default settlement mechanisms, where auctions are now provided; an exhaustive description of such features acts as a basis for quantitative analysis of this standard market. A rigorous depiction of the conversion mechanism, the ISDA CDS Standard model, is also provided.
    Keywords: Credit Default Swaps, Standardization, ISDA CDS Model, Upfront, Auction Settlement.
    JEL: C60 G23 G28
    Date: 2014–12–01
  5. By: Ugo Albertazzi (European Central Bank, DG Economics); Margherita Bottero (Bank of Italy); Gabriele Sene (Bank of Italy)
    Abstract: We present the first empirical study of information spillover and signalling on loan search and its outcomes in a setting where a bank observes whether a loan applicant has already been rejected by other lenders. We do so by taking advantage of the fact that Italy�s Central Credit Register discloses such information. The results show that disclosing information on past rejections negatively affects the probability of continuing a loan search. At the same time, the information on former rejections is associated with a higher probability of being funded for borrowers who are not discouraged and continue the search, provided they are not opaque. With the aid of a theoretical model, we show that banks interpret the information on previous rejections as a signal of unobservable quality for the average borrower but not for more opaque borrowers, whose past rejections negatively affect the outcome of later applications. We also show that banks differ in the extent to which they rely on this information, in a way that at least partly reflects the different informational content that this signal carries for them.
    Keywords: sequential lending decisions, credit supply, winner�s curse, informational spillover.
    JEL: E51 G21 G28
    Date: 2014–10
  6. By: Taneli M�kinen (Bank of Italy)
    Abstract: The information content of stock prices is analysed without imposing strong restrictions on traders' preferences and the distribution of dividends. Noise in the information contained in equilibrium prices arises from endogenous asset supply, which offsets price movements due to informed trading. The informativeness of stock prices increases with the wealth of the informed traders and decreases with the risk-free rate, as stock prices respond more strongly to information held by informed traders when they take larger positions in stocks.
    Keywords: asset markets, asymmetric information, rational expectations equilibrium
    JEL: D53 D82 G14
    Date: 2014–10
  7. By: A. Pinna
    Abstract: Most extant explanations of financial crises emphasise the role played by negative shocks on the liability side of a bank’s balance sheet. The vast literature on bank runs induced policy makers to build up a reputation as institutions willing to do anything to support the orderly fulfillment of depositors’ and interbank claims. Nonetheless, the LTCM crisis of 1998 and the Subprime crisis of 2007 are compelling examples of how the banking industry is prone to systemic disruptions even without preference shocks or domino effect. This survey argues in favour of the still marginal literature on financial crises unfolding through the asset side of banks’ balance sheets.
    Keywords: Shadow banking, Originate to distribute, financial crises, Diabolic loop
    JEL: G32
    Date: 2014
  8. By: Daniele Coin; Valerio Vacca
    Abstract: Using fund-, firm- and bank-level data we investigate the investments of private equity (PE) funds in the north-western regions of Italy. Both the private equity fund managers and the PE investments are heavily concentrated in this most developed area of the country. The average size of the portfolios is small by international standards and their concentration by firm has been growing after the 2008 crisis. The average duration of investments is rather short (about 3.4 years) and just 10 per cent of them target firms which are both young and innovative. PE investments are more significant for north-western firms than for those in the rest of the country, relative to traditional bank credit. We find that being participated by a PE fund increases the amount of credit obtained by the target firm and (weakly) reduces its cost. However, this effect is exclusively related to the entry of the fund in the firm's capital, as it fades away as soon as the fund exits from the capital, thus suggesting a weak signalling role of PE towards banks.
    Keywords: private equity; fund portfolio;
    JEL: G23 G24 G28 G32
    Date: 2014–11

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