nep-cfn New Economics Papers
on Corporate Finance
Issue of 2015‒07‒04
ten papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Does Financing of Chinese Mergers and Acquisitions Have “Chinese Characteristics”? By Lulu Gu; W. Robert Reed
  2. Pricing the Value of Cash Flow Rights in Crowdinvesting: An Analysis of Innovestment Backers By Lars Hornuf; Matthias Neuenkirch
  3. Public Bank Guarantees and Allocative Efficiency By Reint E. Gropp; A. Guettler; Vahid Saadi
  4. Risk, capital and financial crisis By Ghosh, Saibal
  5. Financial Performance And Corporate Governance In Microfinance: Who Drives Who? An Evidence From Asia. By Nawaz, Ahmad; Iqbal, Sana
  6. Do banks' overnight borrowing rates lead their CDS Price? evidence from the Eurosystem By Jokivuolle, Esa; Tölö, Eero; Virén, Matti
  7. Index Option Returns from an Anchoring Perspective By Hammad, Siddiqi
  8. Does Social Performance Drives Corporate Governance Mechanism in MFIs? An Issue of Endogeneity By Nawaz, Ahmad; Iqbal, Sana
  9. Discontinuity of earnings and earnings changes distribution after J-SOX implementation: Empirical evidence from Japan By Masahiro Enomoto; Tomoyasu Yamaguchi
  10. Luxembourg - addressing new challenges in a major financial sector By Eckhard Wurzel; Damien Azzopardi

  1. By: Lulu Gu; W. Robert Reed (University of Canterbury)
    Abstract: This paper investigates two hypotheses about Chinese financing of mergers and acquisitions (M&As). The first hypothesis is that foreign ownership restrictions by the government cause Chinese acquirers to rely more on cash to finance their overseas M&A deals. The second hypothesis is that state-owned enterprizes (SOEs) will rely more on cash to finance their M&A deals because they are able to secure better borrowing terms. We collate data from four databases to obtain a sample of over 6000 M&A deals that were completed during the 1997-2014 period. We find strong evidence to support the first hypothesis but not the second.
    Keywords: Mergers and acquisitions (M&As), foreign ownership restrictions, state owned enterprises (SOEs), M&A financing, Chinese firms
    JEL: G34 G28 N20
    Date: 2015–06–22
  2. By: Lars Hornuf; Matthias Neuenkirch
    Abstract: In this paper, we analyze the pricing of cash flow rights in startup companies based on a unique dataset of crowdinvesting backers. Our sample consists of 44 campaigns and includes 1,450 bids made by 499 backers during the period from November 6, 2011 to March 25, 2014 on the German crowdinvesting portal Innovestment. In contrast to all other European crowdinvesting portals, Innovestment is running a multiunit sealed bid second price auction where backers can specify the price they are willing to pay for an investment ticket with the portal and startup specifying a lower threshold. We exploit this unique auction mechanism to analyze backers’ willingness to pay for cash flow rights in a startup company. We find that campaign characteristics, investor sophistication, progress in funding, herding, and stock market volatility influence backers’ willingness to pay in an economically meaningful fashion, whereas we do not find any evidence for a local bias or sniping at the end of an auction. Our findings indicate that portal design and self-regulation might well trump government rules in the pursuit to protect investors.
    Keywords: Auction, Crowdinvesting, Innovestment, Regulation, Willingness to Pay
    JEL: D44 G11 K20 M13
    Date: 2015
  3. By: Reint E. Gropp; A. Guettler; Vahid Saadi
    Abstract: In the wake of the recent financial crisis, many governments extended public guarantees to banks. We take advantage of a natural experiment, in which long-standing public guarantees were removed for a set of German banks following a lawsuit, to identify the real effects of these guarantees on the allocation of credit (“allocative efficiency”). Using matched bank/firm data, we find that public guarantees reduce allocative efficiency. With guarantees in place, poorly performing firms invest more and maintain higher rates of sales growth. Moreover, firms produce less efficiently in the presence of public guarantees. Consistently, we show that guarantees reduce the likelihood that firms exit the market. These findings suggest that public guarantees hinder restructuring activities and prevent resources to flow to the most productive uses.
    Keywords: banking, public guarantees, allocative efficiency
    JEL: D22 D61 G21 G28 G31 G32
    Date: 2015–06
  4. By: Ghosh, Saibal
    Abstract: Employing data on over 100 banks for Gulf Cooperation Council (GCC) countries during 1996-2011, we test the relation between risk and capital. The findings indicate that banks generally increase capital in response to an increase in risk, and not vice versa. Second, there is an uneven impact of regulatory pressure and market discipline on banks attitude towards risk and capital. Additionally, Islamic banks increased their capital as compared to conventional banks.
    Keywords: Z-score; capital; 2SLS; banks; Gulf Cooperation Council
    JEL: G21 G28
    Date: 2014–03–10
  5. By: Nawaz, Ahmad; Iqbal, Sana
    Abstract: This paper models the two-way relationship between corporate governance and financial performance of microfinance institutions of Asia. Unlike previous studies, the phenomena of better corporate governance mechanisms present in more financially oriented microfinance institutions is worth investigating. Using a panel of 173 microfinance institutions in 18 Asian countries between 2007 and 2011, a comprehensive corporate governance index (CGI) based on seven corporate governance variables is being constructed as a proxy for the overall corporate governance mechanism of MFIs. Our results suggest that corporate governance has no significant impact on financial stability of MFIs of Asia. However, financial performance to some extent does drives corporate governance mechanisms in MFIs after controlling for MFI related characteristics. We find greater operating expenses and higher portfolio yield to be associated with improved governance practices in microfinance institutions. Study opens new avenues of research in corporate governance and financial performance literature for the academia. Given the revealing results of financial performance as a determinant of better corporate governance practices, policy makers and regulators in Asia should devise corporate governance policies and guidelines in a way not undermining the financial objectives of microfinance.
    Keywords: Microfinance; Corporate Governance; Financial Performance; Endogeneity; Asia
    JEL: G21 G3
    Date: 2015–06–01
  6. By: Jokivuolle, Esa; Tölö, Eero; Virén, Matti
    Abstract: We construct a measure of a bank’s relative creditworthiness from Eurosystem’s proprietary overnight loan data: the bank’s “average overnight borrowing rate spread, relative to overnight rate index” (AOR). We investigate the dynamic relationship between the AOR and the credit default swap spread (CDS) of 60 banks in years 2008 - 2013. We find that in daily differences the AOR leads the CDS at least by one day. The lead is concentrated on days of market stress for banks which mainly borrow from “relationship” lender banks. Such borrower banks are typically smaller, have weak ratings, and likely reside in crisis countries. In longer differences, up to several weeks, both the AOR and the CDS have some predictive power over one another. In sum, overnight borrowing rates may provide additional early-warning indications on certain banks’ deteriorating financial health over and above bank CDS spreads. JEL Classification: G01, G14, G21
    Keywords: credit default swaps (CDS), early-warning indicators, Eurosystem, leadlag relationship, money markets, overnight borrowing rates, TARGET2
    Date: 2015–06
  7. By: Hammad, Siddiqi
    Abstract: Using leverage adjusted index option data, a novel prediction of the anchoring adjusted option pricing model is tested. The anchoring model is based on the idea that the risk of the underlying stock is used as a starting point that gets adjusted upwards to estimate call option risk. The anchoring heuristic implies that such adjustments are insufficient leading to underestimation of option risk. The prediction of the anchoring model is strongly supported in the data spanning nearly 26 years. Furthermore, the anchoring model is shown to be consistent with the key features observed in the data.
    Keywords: Anchoring, Option Pricing, Leverage Adjusted Returns, Option Mispricing, Behavioral Finance
    JEL: G02 G13
    Date: 2015–06–01
  8. By: Nawaz, Ahmad; Iqbal, Sana
    Abstract: Microfinance institutions of Asia work exclusively with the mission of social welfare hence play an important role in the economic and financial development of a region.Endogeneity poses a serious threat to the authenticity of corporate governance and performance studies because of the endogenous nature of many governance and performance variables. This paper addresses this issue in the context of microfinance sector in Asia by answering the question whether social performance determines the corporate governance mechanism of MFIs. Using a panel of 173 MFIs in 18 Asian countries for the period of five years, a comprehensive corporate governance index (CGI)based on of seven internal governance mechanism variables in constructed as an indicator of the overall corporate governance mechanism of MFIs. By employing GLS model, our results indicate insignificant impact of corporate governance on many social performance variables which are attributed to the endogenous nature of this relationship as the significance of results improved by studying relationship in reverse direction by employing ordered logit model. Our results indicate that social performance is an important determinant of corporate governance mechanism of MFIs even after controlling for MFI related characteristics.
    Keywords: Microfinance; Corporate Governance; Social performance; Endogeneity; Asia
    JEL: G21 G30 M14
    Date: 2015–02–08
  9. By: Masahiro Enomoto (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Tomoyasu Yamaguchi (Faculty of Business Administration, Tohoku Gakuin University, 1-3-1 Tsuchitoi, Aoba-ku, Sendai, JAPAN)
    Abstract: Prior research finds that the Sarbanes-Oxley Act (US-SOX) of 2002 affected earnings management in the U.S. Cohen, Dey, and Lys (2008) indicate that accrual-based earnings management declined after the passage of US-SOX while real earnings management increased. Gillam, Heflin, and Paterson (2014) show that zero-earnings discontinuity has disappeared after the passage of US-SOX, indicating that as a result of US-SOX, earnings management to avoid losses decreased. In Japan, the Financial Instruments and Exchange Act of 2006, the so-called Japanese version of SOX (J-SOX), was implemented from the fiscal year starting in April 2008. In a similar way to US-SOX, the purpose of J-SOX is to reinforce corporate governance of financial reporting. This study investigates whether the discontinuity in the distribution of earnings and earnings changes disappeared after J-SOX implementation. In contrast to US-SOX, the results indicate that the discontinuity in earnings distribution at zero has not disappeared after J-SOX implementation. However, the discontinuity in earnings changes distribution at zero did disappear after J-SOX implementation, indicating that earnings management to avoid earnings decreases became less prevalent. In addition, the results indicate that the discontinuity in the distribution of earnings changes before J-SOX implementation was mainly caused by habitual beaters and that earnings management by habitual beaters to avoid earnings decreases is less prevalent after J-SOX implementation.
    Keywords: Earnings distribution, Earnings management, Loss avoidance, Earnings decrease avoidance, Sarbanes-oxley act, Financial instruments and exchange act of Japan
    JEL: G38 M41 M48
    Date: 2015–06
  10. By: Eckhard Wurzel; Damien Azzopardi
    Abstract: Over the last two and a half decades, Luxembourg’s financial sector emerged as a leading international hub for asset management and investment funds and became a key contributor to growth. Diversification into new areas of financial asset management is continuing. However, changing financial market regulation in Europe, increased international transparency requirements for banking and heightened international competition pose challenges. Moreover, the financial sector has reached a size where its contribution to the economy’s overall growth might diminish. Maintaining sound framework conditions is important for further diversification in the financial sector, building on Luxembourg’s existing comparative advantage and investors’ trust in its economic stability. Regulators should ensure financial intermediaries maintain strong capital ratios to address potential financial market shocks from abroad and real estate risks in the domestic economy. Assessment of systemic risks should be based on a framework that accounts for the various linkages between the banks and the other relevant financial market actors, notably investment funds. Given that the bulk of the banks in Luxembourg are affiliates of foreign bank groups, the authorities should seek clear procedures that govern the (cross-border) resolution of large banks in bad times. Moreover, implementation of the remaining steps in upgrading the tax transparency regulations Luxembourg has committed to can increase incentives for banks to further refine their business models, benefitting Luxembourg’s financial sector in the medium term. This Working Paper relates to the 2015 OECD Economic Survey of Luxembourg (<P>Luxembourg - adresser des nouveaux défis d'un majeur secteur financier<BR>Pendant les vingt-cinq dernières années, le secteur financier luxembourgeois est devenu une plateforme internationale de premier plan pour la gestion d’actifs et les fonds de placement, ce qui a grandement contribué à la croissance. La diversification dans de nouveaux domaines de la gestion d’actifs financiers se poursuit. Toutefois, l’évolution de la réglementation des marchés financiers en Europe, les obligations accrues de transparence internationale en matière bancaire et l’intensification de la concurrence constituent des défis. En outre, le secteur financier a atteint une dimension telle que sa contribution à la croissance globale de l’économie risque de s’amenuiser. Le maintien d’un cadre sain conditionne la poursuite de la diversification du secteur financier, à partir de l’avantage comparatif actuel du Luxembourg et de la confiance des investisseurs en sa stabilité économique. Les régulateurs doivent veiller à ce que les intermédiaires financiers aient des ratios de fonds propres élevés pour qu’ils puissent faire face à l’éventualité de chocs d’origine étrangère et aux risques liés au secteur immobilier national. L’évaluation des risques systémiques doit prendre en compte les divers liens qui existent entre les banques et les autres acteurs des marchés financiers, notamment les fonds de placement. La plupart des banques opérant au Luxembourg étant liées à des groupes étrangers, il incombe aux autorités de chercher à établir des procédures claires pour organiser la résolution (transfrontalière) de grandes banques en période de crise. En outre, l’application des dernières mesures d’amélioration de la transparence fiscale auxquelles le Luxembourg s’est engagé peut inciter les banques à affiner encore leurs modèles économiques, ce qui favorisera à moyen terme le secteur financier luxembourgeois. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de Luxembourg, 2015 ( ique-luxembourg.htm).
    Keywords: taxation, financial markets, risk, bank, financial regulation, insurance, assurance, marchés financiers, taxation, banques, risque, réglementation financière
    JEL: G15 G18 G21 G22 G23 G28 H24 H25
    Date: 2015–06–30

This nep-cfn issue is ©2015 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.
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