nep-cfn New Economics Papers
on Corporate Finance
Issue of 2015‒07‒25
nine papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Patent collateral, investor commitment and the market for venture lending By Yael V. Hochberg; Carlos J. Serrano; Rosemarie H. Ziedonis
  2. Board Size and Firm Value: Evidence from Australia By Pascal Nguyen; Nahid Rahman; Alex Tong; Ruoyun Zhao
  3. Can a Financial Transaction Tax Prevent Stock Price Booms? By Adam, Klaus; Marcet, Albert; Merkel, Sebastian; Beutel, Johannes
  4. Restoring the financial sector and corporate deleveraging in Slovenia By Urban Sila
  5. Capital Structure Dynamics and Sensitivity Analysis: A Case of Developing Country” By Muhammad Naveed
  6. Debt Management Performance Assessment Methodology By World Bank Group
  7. The Relationship Between Credit Default Swap Spreads, Equity Indices and Sector Equity Indices: An Empirical Study on Istanbul Stock Exchange By AYBEN KOY
  8. Debts should come with a serious economic health warning! By De Koning, Kees
  9. Investment Dynamics in Italy: Financing Constraints, Demand and Uncertainty By Steve Bond; Gicoamo Rodano; Nicolas Serrano-Velarde

    Abstract: This paper investigates the market for lending to technology startups (i.e. venture lending) and examines two mechanisms that facilitate trade within it: the ’saleability’ of patent collateral and financial intermediaries. We find that intensified trading in the secondary market for patent assets increases the annual rate of startup lending, particularly for startups with more re-deployable patent assets. Moreover, we show that the credibility of venture capitalist commitments to refinance and grow fledgling companies is vital for startup debt provision. Following a severe and unexpected capital supply shock for VCs, we find a striking flight to safety among lenders, who continue to finance startups whose investors are better able to credibly commit to refinancing their portfolio companies, but withdraw from otherwise promising projects that may have most needed their funds. The findings are consistent.
    Keywords: fi nancing innovation, patent collateral, venture capital, market for patents.
    JEL: L14 L26 G24 O16 O3
    Date: 2015–07
  2. By: Pascal Nguyen; Nahid Rahman (Finance Discipline Group, UTS Business School, University of Technology, Sydney); Alex Tong; Ruoyun Zhao (Finance Discipline Group, UTS Business School, University of Technology, Sydney)
    Abstract: We study the effect of board size on firm value in Australia. Using a large sample of Australian firms over the period 2001-2011, we find strong evidence of a negative relationship. We show that firms with a large board are associated with CEO compensation that is sensitive to firm size, but not to firm performance. This incentive to accumulate assets is congruent with the fact that firms with a large board also exhibit lower operating performance and higher operating costs. Furthermore, we find that the effect of board size is stronger in small firms. This result might explain why earlier studies, which focused on large Australian firms, found board size to have little impact on firm value.
    Keywords: board of directors; corporate governance; firm performance; CEO compensation
    JEL: G30 G31 G32 G34
    Date: 2015–07–01
  3. By: Adam, Klaus; Marcet, Albert; Merkel, Sebastian; Beutel, Johannes
    Abstract: We present a stock market model that quantitatively replicates the joint behavior of stock prices, trading volume and investor expectations. Stock prices in the model occasionally display belief-driven boom and bust cycles that delink asset prices from fundamentals and redistribute considerable amounts of wealth from less to more experienced investors. Although gains from trade arise only from subjective belief di¤erences, introducing financial transactions taxes (FTTs)remains undesirable. While FTTs reduce the size and length of boom-bust cycles, they increase the likelihood of such cycles, therby overall return volatility and wealth redistribution. Contingent FTTs, which are levied only above a certain price threshold, give rise to problems of equilibrium multiplicity and non-existence.
    Keywords: financial transactions tax , Tobin tax , asset price booms
    JEL: G12 D84
    Date: 2015
  4. By: Urban Sila
    Abstract: Excessive credit growth, poor risk assessment and lax lending standards in the run up to the 2008 global crisis led to unsustainable debt build-up in banks and related corporates. A weak framework for the governance of largely state-owned banks is likely to have contributed to the misallocation of credit. Furthermore, there were weaknesses in the banks' risk management systems and banks often didn’t properly adhere to regulations and guidance given by the supervisor. Following the results of the stress tests and the Asset Quality Review, in December 2013, the major state-owned banks were recapitalised at a cost of around 11% of GDP, and part of their non-performing loans (NPLs) transferred to the Bank Asset Management Company (BAMC). Banks nevertheless remain weak, with still high NPLs, and corporations are highly leveraged. For successful restructuring and liquidation of assets, BAMC needs to act independently, transparently, with corporate governance of highest standards. Privatisation can improve corporate governance and closer supervision can ensure better compliance by banks. Insolvency legislation was thoroughly reformed in 2013 and should be implemented effectively to help return the healthy parts of the economy to invest and grow again. This Working Paper relates to the 2015 OECD Economic Survey of Slovenia (<P>Restaurer le secteur financier et le désendettement des entreprises en Slovénie<BR>Une croissance excessive du crédit, une mauvaise évaluation des risques et des normes de crédit laxistes pendant la crise mondiale de 2008 ont conduit à un endettement insoutenable dans les banques et les entreprises connexes. Une faible gouvernance des banques quasi-nationalisées a contribué à la mauvaise allocation du crédit. En outre, il y avait des faiblesses chez les banques dans les systèmes de gestion des risques, ils n'étaient pas souvent en conformité avec la réglementation et les directives données par le superviseur. Suite aux résultats des tests de résistance et l'examen de la qualité des actifs, en Décembre 2013, les grandes banques appartenant à l'État ont été recapitalisées à un coût d'environ 11% du PIB, et une partie de leurs prêts non performants (PNP) transférés à la Banque Asset Management Company (BAMC). Les banques restent néanmoins faibles, avec des créances improductives élevées, et les entreprises sont fortement endettées. À fin de réaliser une restructuration et une liquidation des actifs, BAMC doit agir de façon indépendante et transparente, avec une gouvernance des normes d'entreprise plus important. La privatisation peut améliorer la gouvernance d'entreprise et une surveillance plus étroite peut assurer un meilleur respect par les banques. La législation de l'insolvabilité a été réformée en profondeur en 2013 et devrait être mise en oeuvre pour aider à retrouver les parties saines de l'économie à investir et croître à nouveau. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Slovénie, 2015 ( ique-slovenie.htm).
    Keywords: deleveraging, insolvency, banking system, insolvabilité, système bancaire, désendettement
    JEL: G2 G3
    Date: 2015–07–15
  5. By: Muhammad Naveed (Riphah International University)
    Abstract: Key questions that policymakers facing today are how to mitigate the risk of global financial instability and how the firms’ financial behavior to comply with different economic conditions. In this purview, this study contributes to the corporate finance literature by investigating the effects of different economic periods on financial behavior of listed companies across developing countries. By employing panel estimations over the period 2003-2011, our analysis incorporates the Global Financial Crisis (GFC) shock which appears to have affected the leverage mechanism of Pakistani listed firms. The study with specific focus on stable and crises period finds that the leverage mechanism distorted to a certain degree. Consequently, the notion of prevailing capital structure theories also become distorted whereby changes to capital structure come about because of the primary goal to survive, rather than managerial speculation. Based on sensitivity analysis, the association between firm characteristics and capital structure during both economic periods is mainly influenced by firm size, profitability, non-debt tax shield and tangibility. The sign and magnitude of coefficients clearly confirms the impact of different economic inferences on financial behavior of Pakistani listed firms across sugar and cement sectors. Taking altogether, the study evident that sectors’ are unequivocally responsive to the effects of different economic periods in Pakistan. The study gained important measures that how Pakistani companies achieve financial flexibility during financial crises, and provides valuable intuitions for banking and corporate sector to develop lending and borrowing mechanism based on different economic conditions.
    Keywords: Global financial crises, leverage mechanism, financial behavior
    JEL: C58 G01
  6. By: World Bank Group
    Keywords: Finance and Financial Sector Development - Access to Finance Finance and Financial Sector Development - Banks & Banking Reform Finance and Financial Sector Development - Debt Markets International Economics and Trade - External Debt Governance - Governance and the Financial Sector
    Date: 2015–05
    Abstract: The link between stock prices and Credit Default Swaps (CDS) spreads is important for risk managers to make an investment decision. Furthermore, the choice of sector is important in the preference of the investors. The literature have different evidences as there is a powerful relation with the country CDS and the equity indices or not. This study aims to investigate the linkages between the CDS spreads and equity indices including the scope and diversity of sector. The sample of the study consists of BIST30, BIST100, BIST Bank and BIST Industry. The data of the study included the January 2013 and April 2014 were tried with weekly data range.
    Keywords: Credit Default Swaps, Equity Index, Sector Equity Index, BIST30, BIST100, Istanbul Stock Exchange, Vector Autoregression, Impulse Response, Variance Decomposition
    JEL: F21 F30 C58
  8. By: De Koning, Kees
    Abstract: The transfer of savings from one household to another creates a financial relationship between these households. Nearly always conditions of reward and repayment are attached to such a transfer. In a world where savings have grown to a multiple of annual economic output, the chances that debts can cause economic stagnation and major unemployment situations have risen strongly. This can both be on a national as well as on an international level. Debts can help households and governments to increase their spending power, but there is always a “cost”. Future income levels are needed to repay the debts. What is surprising is that economists have had such great difficulty in predicting when debts turn from a sound base into a threat to economic growth levels. Waiting till a crash happens as in 2007-2008 does not seem to be a very sensible manner in running an economy. What is also surprising is how little power individual households have over the level of debts for which they carry the ultimate repayment responsibility, including government debt levels. Growing debt levels need to be analyzed extensively; but studying developments is not enough if brakes cannot or are not applied to stem a rapid growth in debt accumulation. Furthermore the structure of adding to debt levels has to be studied. The collective of banks rather than an individual bank in the U.S. created the home mortgage lending boom in the run up to 2007. Capital markets assisted in funding such loans. Democratically elected governments can authorize excess levels of borrowings, which can bring the economy of a whole country down. The extensive use of debt funding for company mergers and acquisitions is another example of loading more debt to the company sector, which can cause further economic disruptions. Finally the international use of especially the U.S. dollar for borrowing purposes may pose its own threat to international economic growth levels. This paper focuses on the U.S. situation, especially from 1997 to today. This paper will conclude that the “debt problem” started with U.S. individual households in taking up excessive mortgages from as early as 1998. Alarm bells should have started ringing in 2002, when the mortgage debt allocations between building new homes and pushing up home prices in excess of income growth shifted to the latter. In 2002 62% of new funds was used for funding house price increases in excess of income growth. This trend continued all the way to 2007. Another conclusion is that the U.S. government debt problems accelerated from 2009 onwards. It seems that the drop in taxes received was the main cause of the increased debt levels. Government debt problems followed the home mortgage crash. The cash injections from central banks after 2008 added to the world savings levels, which were already at high levels. The financial crisis of 2007-2008 was a finance-induced crisis. It was different from the oil price crisis of 1973, which caused savings to flow to oil-producing nations.
    Keywords: debt crisis; danger points, banking profits, lending volumes compared to income growth, U.S. case study on home mortgages 1998-2015
    JEL: E32 E41 E44 E5 E58
    Date: 2015–07–16
  9. By: Steve Bond (University of Oxford); Gicoamo Rodano (Bank of Italy); Nicolas Serrano-Velarde (Bocconi University)
    Abstract: In this paper we describe the investment behaviour of manufacturing firms in Italy between 1995 and 2013 and we investigate the most important factors leading to the decline in investment since 2008. We estimate an error correction model for investment using information on firms' demand expectations, uncertainty, and credit constraints, based on the Bank of Italy’s Survey of Industrial and Service Firms. Our results suggest that the fall in the expected growth rate of real sales played an important role in quantitative terms, and that the 2008 demand shock may explain a long period of weak investment. We also find that credit constraints have a significant impact at the firm level, but less so in aggregate terms. Finally higher uncertainty does not seem to have played a significant role in explaining investment dynamics during the crisis.
    Keywords: Investment, expected demand, credit constraints, demand uncertainty
    JEL: C23 E22 D8
    Date: 2015–07

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.
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.