nep-cfn New Economics Papers
on Corporate Finance
Issue of 2015‒02‒28
nineteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. The Impact of Credit Default Swap Trading on Loan Syndication By Streitz, Daniel
  2. A multivariate model for the prediction of stock returns in an emerging market: A comparison of parametric and non-parametric models By Bonga-Bonga, Lumengo ; Mwamba, Muteba
  3. An In-depth Analysis of New England Mutual Savings Banks, 1870-1914 By Jaremski, Matthew ; Plastaras, Brady
  4. Corporate Bonds, Bondholders and Corporate Governance By Serdar Çelik ; Gül Demirtaş ; Mats Isaksson
  5. Social Capital, Trust, and Firm Performance during the Financial Crisis By Lins, Karl ; Servaes, Henri ; Tamayo, Ane
  6. Competition, outside directors and executive turnover: Implications for corporate governance in the EU By Buchwald, Achim
  7. The Theory of Finance: A novel finance model being formed on the Internet By Magomet Yandiev
  8. Innovation strategies and stock price informativeness By Ding, Haina
  9. Compliance – some thoughts about reaching the next level By Baxter, Thomas C.
  10. Which financial stocks did short sellers target in the subprime crisis? By Hasan, Iftekhar ; Massoud , Nadia ; Saunders, Anthony ; Song, Keke
  11. Financial market reform – A new driver for China’s economic growth? By Chen, Yu-Fu ; Funke , Michael ; Tao , Kunyu
  12. Acquiring Control in Emerging Markets: Foreign Acquisitions in Eastern Europe and the Effect on Shareholder Wealth By Sharma, Abhijit ; Raat, Erwin
  13. An Intangible-Intensive Profile Of Companies: Protection During The Economic Crisis 2008-2009 By Elena Shakina ; Angel Barajas
  14. Reconsidering the rise of ‘shareholder value’ in the United States, 1960-2000 By Blake Edward Taylor
  15. Procyclical leverage and value-at-risk By Tobias Adrian ; Hyun Song Shin
  16. Size Distribution of Portuguese Firms between 2006 and 2012 By Mário Augusto ; Rui Pascoal ; Ana Margarida Monteiro
  17. Efficiencies of Small Financial Cooperatives in Japan: Comparison of Estimation Methods By Kozo Harimaya ; Kei Tomimura ; Nobuyoshi Yamori
  18. Policy initiatives and …firms access to external fi…nance: Evidence from a panel of emerging Asian economies By Udichibarna Bose ; Ronald MacDonald ; Serafeim Tsoukas
  19. Insider bank runs: community bank fragility and the financial crisis of 2007 By Henderson, Christopher ; Lang, William W. ; Jackson, William E.

  1. By: Streitz, Daniel
    Abstract: We analyze the impact of CDS trading on bank syndication activity. Theoretically,the effect of CDS trading is ambiguous: on the one hand, CDS can improve risksharing and hence be a more flexible risk management tool than loan syndication; on the other hand, CDS trading can reduce bank monitoring incentives. We document that banks are less likely to syndicate loans and retain a larger loan fraction once CDS are actively traded on the borrower’s debt. We then discern the risk management and the moral hazard channel. We find no evidence that the reduced likelihood to syndicate loans is a result of increased moral hazard problems.
    Keywords: Loan Sales; Credit Default Swaps; Syndicate Structure; Syndicated Loans
    JEL: G21 G32
    Date: 2015–02–02
  2. By: Bonga-Bonga, Lumengo ; Mwamba, Muteba
    Abstract: This paper compares the forecasting performance of three structural econometric models, namely the non-parametric, ARIMAX and the Kalman filter models, in predicting stock returns in an emerging market economy using South Africa as case study. The proposed models have different functional forms. Each of the functional forms accounts for specific characteristics and properties of stock returns in general and in a small open economy in particular. The findings of the paper indicate the importance of the US stock returns in predicting stock returns in an emerging market economy. Moreover, the results of the Diebold-Mariano statistics show that the Kalman filter and ARIMAX model both outperform the non-parametric model indicating the dominant characteristics of nonlinearity and Markov properties of stock market returns in South Africa.
    Keywords: stock returns, emerging markets, ARIMAX, Kalman-filter, Non-parametric
    JEL: C14 C53 C58 G1 G17
    Date: 2015–02–09
  3. By: Jaremski, Matthew (Department of Economics, Colgate University ); Plastaras, Brady (Department of Economics, Colgate University )
    Abstract: Scholars have studied the U.S. banking systems of the late 19th century, but the presence and influence of mutual savings banks has largely gone unexamined. A new annual database of New England banks shows that mutual savings banks had a significant presence in the postbellum banking system. Mutual savings banks accounted for about 75 percent of the region's total bank deposits and largely avoided financial panics. The banks seemed to have complemented rather than competed with national banks. Mutual savings bank growth was correlated with agriculture and urbanization, whereas national bank growth was correlated with manufacturing. Mutual savings banks also channeled significant funds to national banks through the interbank network.
    Keywords: Mutual Savings Banks, Bank Stability, National Banking Era, Bank Competition
    JEL: N21 G21 G32
    Date: 2015–04–01
  4. By: Serdar Çelik ; Gül Demirtaş ; Mats Isaksson
    Abstract: Worldwide, primary corporate bond markets have become an increasingly important source of financing for non-financial companies. This trend is coupled with a relative decrease in traditional bank lending to non-financial companies and low levels of bond interest rates. Just as shareholders, bondholders can play an important role in corporate governance. They can use both exit and voice. This report provides a comprehensive global overview of all corporate bond issues since 2000 and experiences of governance engagement by bondholders. The report builds on issue level data for more than 100,000 individual bond issues in 108 jurisdictions between 2000 and 2013. Data is provided with respect to the type of issues and numerous bond characteristics, such as country of origin, investment grade, maturity, covenants and conditions for redemption. The report also analyses trends in secondary bond markets, including market liquidity, the role of market makers and the relatively slow introduction of electronic trading systems. In order to analyse trends over time with respect to governance, we provide detailed time series data on the use and relative importance of 15 different categories of covenants. By constructing an overall “covenant protection index” we suggest that bond investors in their search for yield have overall traded governance rights for higher expected returns. This shift also seems to be associated with higher risk-taking. We also conclude that the degree of governance engagement primarily is linked to the business model of the bond investor. We end the report with a discussion about the scope for institutional changes that may build a larger community of truly informed and motivated bond investors.
    Keywords: liquidity, enforcement, corporate governance, corporate bonds, disclosure, bondholders, covenants, bond contracts, institutional investors, secondary markets, primary markets
    JEL: G30 G32 G34 G38
    Date: 2015–02–12
  5. By: Lins, Karl ; Servaes, Henri ; Tamayo, Ane
    Abstract: We study the extent to which a firm’s social capital, as measured by the intensity of a firm’s corporate social responsibility (CSR) activities, affects firm performance during the 2008-2009 financial crisis. We find that high-CSR firms have crisis-period stock returns that are four to five percentage points higher than low-CSR firms, all else equal. In contrast, we find no difference in returns between high- and low-CSR firms either before or after the crisis. During the crisis, high-CSR firms also experience higher profitability, sales growth, and sales per employee and a decline in their accounts receivable relative to low-CSR firms. This evidence is consistent with the view that the trust between the firm and its stakeholders and investors, built through investments in social capital, pays off when the overall level of trust in corporations and markets suffers a negative shock.
    Keywords: corporate social responsibility; financial crisis; social capital; trust
    JEL: G30
    Date: 2015–02
  6. By: Buchwald, Achim
    Abstract: This study contributes to the ongoing debate on the relevance of non-executive outside directors for corporate governance building on a large panel of European listed firms in the period 2003 to 2011. Focusing on executive turnover as an indicator for effective monitoring, the findings reveal that outside directors and product market competition are substitutes. Outsiders increase the performance-turnover sensitivity of executives exclusively if competition in the industry is relatively weak. In an environment with effective competition, outsiders do not significantly influence the decision to replace underperforming managers. In fiercely competitive markets, the higher threat of bankruptcy or hostile takeover seems to effectively limit managerial discretion for opportunistic behavior.
    Keywords: Competition,Corporate Governance,Executive Turnover,Outside Directors
    JEL: G34 J24 J63 L40 M00
    Date: 2015
  7. By: Magomet Yandiev (Department of Economics, Lomonosov Moscow State University )
    Abstract: The present paper argues that the present Internet conditions favour an entirely new finance model. Understood to soon supplement the existing ones (classical finance, corporate finance, and Islamic finance), it is argued that the new model will be defined by the destructive effect it is to have on the contemporary financial infrastructure of most countries, and the advent of the ‘future money value exceeds its present one’ principle.
    Keywords: theory, finance, model, new, development, future, Internet
    JEL: G1 G2 G3 F3 E4 E6
    Date: 2015–02
  8. By: Ding, Haina
    Abstract: This paper models the interactions among technological innovation, product market competition and information leakage via the stock market. There are two firms who compete in a product market and have an opportunity to invest in a risky technology either early on as a leader or later once stock prices reveal the value of the technology. Information leakage thus introduces an option of waiting, which enhances production efficiency. A potential leader may nevertheless be discouraged from investing upfront, when anticipating its competitor to invest later in response to good news. I show that an increase in product market competition increases the option value of waiting but has an ambiguous effect on information production. It may thus be the case that intense competition leads to more leakage such that no firm would invest, especially so in a smaller market. Given a moderate level of competition, price informativeness may also improve investment outcome when investment profitability and the market size are relatively large. The model predicts that, under these conditions, the investment of a follower firm is more sensitive to share price movements.
    Keywords: Price efficiency; Information leakage; Innovation; Feedback
    JEL: G14 G31 D43
    Date: 2015
  9. By: Baxter, Thomas C. (Federal Reserve Bank of New York )
    Abstract: Remarks at the Fordham Journal of Corporate Counsel & Financial Law Symposium, Fordham Law School, New York City.
    Keywords: compliance officer; ethics; Program Effectiveness Index (PEI); culture; values; rules; regulation; law; chief ethics and compliance officer (CECO); legal risk; de-risking; repeatable processes; boards of directors
    JEL: G18 G28 G38 K20
    Date: 2015–02–09
  10. By: Hasan, Iftekhar (Fordham University and Bank of Finland ); Massoud , Nadia (Melbourne Business School, University of Melbourne ); Saunders, Anthony (Stern School of Business, New York University ); Song, Keke (Rowe School of Business, Dalhousie University )
    Abstract: Tracing the SEC ban on the short selling of financial stocks in September 2008, this paper investigates whether such selling activity before the 2008 short ban reflected financial companies’ risk exposures in the subprime crisis. The evidence suggests that short sellers sold short stocks that had the greatest asset and insolvency risk exposures, and that the short selling of financial firms’ stocks was not significantly greater than that of non-financial firms. When the short ban was in effect, the market quality of financial stocks without subprime asset exposure had deteriorated to a larger degree than that of financial companies with subprime asset exposure. The findings imply that such a regulation may mute the market disciplining effects of investors and may also serve as a counterweight to any perceived macro or systemic risk reduction benefits resulting from such a ban.
    Keywords: short selling; subprime assets; financial crisis; short-sale ban; CDS spread
    JEL: G01 G14 G18 G28 G33
    Date: 2015–02–13
  11. By: Chen, Yu-Fu (BOFIT ); Funke , Michael (BOFIT ); Tao , Kunyu (BOFIT )
    Abstract: This paper analyses the financial distortions – growth nexus in China using a tractable general equilibrium modelling approach in which heterogeneous private and state-owned firms interact. The focal points of the model are financial frictions and reallocations of factors of production across firms. The calibrated version of the model elicits the important message that the adoption of a comprehensive financial market reform package abolishing financial distortions will lead to substantial output gains. Thus, structural policies leading to more efficient allocation of factors of production will remain a key policy challenge in China in the years to come.
    Keywords: financial distortions; financial liberalisation; general equilibrium model; China
    JEL: C68 G10 G38 O10
    Date: 2015–02–23
  12. By: Sharma, Abhijit ; Raat, Erwin
    Abstract: This paper examines stock market reaction to cross-border acquisition announcements that involve Eastern European emerging-market targets. Using a unique and a manually collected dataset, we identify 125 cross-border acquisitions in which developed-market firms from France, Germany, Netherlands, and the United Kingdom acquire ownership stakes in emerging as well as developed-markets in Europe during the period January 2000 through December 2011. In line with previous findings on foreign cross-border merger and acquisitions (M&As) in emerging- markets, evidence suggests that when the target firm is located in either the Czech- Republic, Hungary, Poland, or Russia, cumulative abnormal return (CAR) to the acquiring developed-market firm shows a statistically significant increase of 1.26% over a three day event window, following the announcement. Thereby, the relative size of the acquirer to the target appears to be the only significant factor that contributes to positive acquirer returns. The result is robust to the inclusion of controls for country, industry, as well as acquirer, target, and firm specific characteristics. Moreover, cross-border M&As involving an emerging-market target result in higher value creation for the acquiring shareholders than cross-border transactions into developed-markets.
    Keywords: cross border, merger and acquisition, Eastern Europe, cumulative abnormal returns
    JEL: G34
    Date: 2014–12
  13. By: Elena Shakina (National Research University Higher School of Economics ); Angel Barajas (National Research University Higher School of Economics )
    Abstract: This study explores the successful strategies of companies during the 2008-2009 economic crisis. We investigate whether it is reasonable for companies to intensify intangibles when markets fall. This paper aims to find empirical evidence that companies with a clear intangible-intensive profile are likely to outperform those without a strategy. The results established in this study shed some light on the global economic crisis in 2008-2009. More than 1600 European companies were involved in the empirical analysis. The findings of this study demonstrate that companies with a conservative profile in intangibles outperform moderate and innovative ones. Still an innovative profile enables a faster recovery after a crisis
    Keywords: economic crisis 2008-2009, strategic profile, intangible-intensive company
    JEL: O30 G30
    Date: 2014
  14. By: Blake Edward Taylor
    Abstract: This study analyses thousands of corporate annual reports and financial data from 1960-2000 to propose an early history of the term ‘shareholder value’ in the United States. Scholarly interest in ‘shareholder value’ has burgeoned since 2000, but still little is known about the term’s origins. My findings suggest that corporate managers’ intentional and repeated use of the term did not begin until the early 1980s and was not widespread until the 1990s. Further, my analysis of General Electric Corporation, Johnson & Johnson, and The Coca-Cola Company suggests that adopting ‘shareholder value’ rhetoric likely had little impact on the performance of these case study firms.
    Keywords: corporate governance; shareholder; corporations; firm behaviour; corporate payout; corporate control; firm objectives; management
    JEL: F3 G3
    Date: 2015–02
  15. By: Tobias Adrian ; Hyun Song Shin
    Abstract: The availability of credit varies over the business cycle through shifts in the leverage of financial intermediaries. Empirically, we find that intermediary leverage is negatively aligned with the banks’ value-at-risk (VaR). Motivated by the evidence, we explore a contracting model that captures the observed features. Under general conditions on the outcome distribution given by Extreme Value Theory (EVT), intermediaries maintain a constant probability of default to shifts in the outcome distribution, implying substantial deleveraging during downturns. For some parameter values, we can solve the model explicitly, thereby endogenizing the VaR threshold probability from the contracting problem.
    Keywords: financial intermediary leverage; procyclicality; collateralized borrowing
    JEL: G21 G32
    Date: 2013–09–05
  16. By: Mário Augusto (Faculty of Economics, University of Coimbra, Portugal ); Rui Pascoal (Faculty of Economics, University of Coimbra, Portugal ); Ana Margarida Monteiro (Faculty of Economics, University of Coimbra and GEMF, Portugal )
    Abstract: This study aims to describe the size distribution of Portuguese firms, as measured by annual sales and total assets, between 2006 and 2012, giving an economic interpretation for the evolution of the distribution along the time. Three distributions are fitted to data: the lognormal, the Pareto (and as a particular case Zipf) and the Simplified Canonical Law (SCL). We present the main arguments found in literature to justify the use of distributions, emphasizing the interpretation of SCL coefficients and its analogy with thermodynamics. Methods of estimation include Maximum Likelihood, modified Ordinary Least Squares in log-log scale and Nonlinear Least Squares considering the Levenberg-Marquardt algorithm. We apply these approaches to Portuguese firm data. In the sales case, the evolution of estimated parameters in both lognormal and SCL reflects the existence of a recession period more pronounced after 2008.
    Keywords: Firms size, lognormal law, Zipf's law, simplified canonical law, Shannon entropy.
    JEL: C11 C13 C44 C58 C63 C87 G11 G32
    Date: 2015–02
  17. By: Kozo Harimaya (College of Business Administration, Ritsumeikan University ); Kei Tomimura (Faculty of Business Administration, Aichi University ); Nobuyoshi Yamori (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan )
    Abstract: This study investigates the efficiency of Japanese credit cooperatives using a stochastic directional distance function approach and compares the results obtained from a slack-based data envelopment analysis model (SBM). Moreover, it focuses on the differences in the four groups classified by a type of common bond in a membership and considers the validity of small financial cooperatives. The findings reveal that ethnic minority-owned cooperatives that experienced a drastic consolidation in the last two decades are more efficient than the other groups and those owned through an industry-based membership are less efficient. Although the results slightly differ among alternative measures, this paper emphasizes the potential merger effects of small financial cooperatives in Japan.
    Keywords: Efficiency, Cooperative financial institutions, Consolidation
    JEL: C67 G21 G34
    Date: 2015–02
  18. By: Udichibarna Bose ; Ronald MacDonald ; Serafeim Tsoukas
    Abstract: This paper analyses the impact of policy initiatives co-ordinated by Asian national governments on fi…rms access to external …finance, using a unique …firm-level database of eight Asian countries- Hong Kong SAR, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand over the period of 1996-2012. Using a difference-in- differences approach and controlling for …firm-level and macroeconomic factors, the results show a signi…cant impact of policy on …rmsaccess to external …nance. After splitting …firms into constrained and unconstrained, using several criteria, the results document that unconstrained …firms bene…ted signi…cantly in obtaining external …finance, compared to their constrained counterparts. Finally, we show that the increase in access to external …nance after the policy initiative helped …rms to raise their investment spending, especially for unconstrained …firms.
    Keywords: External …nance; Emerging Asia; Bond market policy initiatives; Financial constraints
    JEL: C23 E44 G15 G32 O16
    Date: 2014–01
  19. By: Henderson, Christopher (Federal Reserve Bank of Philadelphia ); Lang, William W. (Federal Reserve Bank of Philadelphia ); Jackson, William E. (University of Alabama )
    Abstract: From 2007 to 2010, more than 200 community banks in the United States failed. Many of these failed community banking organizations (CBOs) held less than $1 billion in total assets. As economic conditions worsen, banking organizations are expected to preserve capital to withstand unexpected losses. This study examines CBOs prior to failure or becoming problem institutions to understand if, on average, a run on capital by insiders via dividend payouts led to greater financial fragility at the onset of the crisis. We use a control group of similar-sized banks that did not fail or become problem institutions to compare our results and to draw statistical conclusions. We use standard control variables highlighting corporate governance and managerial ownership, such as S-corporation designation and bank complexity that might create incentives more conducive to insider enrichment than to the welfare of depositors or debtholders. Although the new Dodd-Frank legislation exempted smaller banks from many proposed requirements, our results show that capital distributions to insiders contributed to community bank weakness during the financial crisis.
    Keywords: Dividend policy; Financial crisis; Bank lending; Bank risk; Bank regulation; Risk management
    JEL: E44 G01 G21 G32 G35
    Date: 2015–01–01

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