nep-cfn New Economics Papers
on Corporate Finance
Issue of 2015‒08‒07
four papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. The Effect of Mergers, Divestitures, and Board Composition on CEO Compensation Before and After the Financial Crisis By Ralph Sonenshine; Nathan Larson; Michael Cauvel
  2. Cross-Shareholdings and Information Environment By Katsuhiko Muramiya; Tomomi Takada
  3. Changes in funding patterns by Latin American banking systems:how large? how risky? By Liliana Rojas-Suárez; José María Serena
  4. The influence of risk-taking on bank efficiency : Evidence from Colombia By Sarmiento, M.; Galán, Jorge E.

  1. By: Ralph Sonenshine; Nathan Larson; Michael Cauvel
    Abstract: This paper revisits the determinants of CEO compensation using recent data (covering 125 firms from 2003 to 2012) spanning the 2008 financial crisis. Overall, consistent with earlier studies, we find firm size and board composition to be the most consistent indicators of CEO pay. However, pay becomes more performance-oriented in the years after the financial crisis, which may reflect tighter governance. We give particular attention to the role played by changes in the CEO’s scope due to mergers and divestitures – the latter has seldom been considered before. We also investigate how these factors differ by industry.
    JEL: G34 G3 M12 M41
    Date: 2015
  2. By: Katsuhiko Muramiya (Graduate School of Economics, Osaka University); Tomomi Takada (the Carroll School of Management, Boston College and the Graduate School of Business Administration, Kobe University)
    Abstract: We examine the relationship between cross-shareholdings and the information environment. This issue is important because the separation of ownership and control al- lows managers to act exclusively in their own interests. Despite numerous studies on the influences of other types of ownership structures, including family, institutional investor, and block ownership structures, little is known about how cross-shareholdings influence management incentives. We highlight the Japanese market, where cross-shareholding is historically one of the prominent ownership structures. Using a unique database detail- ing the level of cross-shareholdings, we find that higher cross-shareholdings relate to (1) greater information asymmetry in the market, (2) higher earnings quality, and (3) lower firm value. The results are consistent with the quiet life hypothesis, which predicts man- agement avoids difficult decisions and costly actions when isolated from market pressures.
    Keywords: Corporate governance, cross-shareholding, information asymmetry, earnings quality, firm value
    JEL: G21 O16 O41
    Date: 2015–07
  3. By: Liliana Rojas-Suárez (Centre for global development); José María Serena (Banco de España)
    Abstract: This paper investigates the shifts in Latin American banks’ funding patterns in the postglobal financial crisis period. To this end we introduce a new measure of exposure of local banking systems to international debt markets that we term: International Debt Issuances by Locally Supervised Institutions. In contrast to well-known BIS measures, our new metric includes all entities that fall under the supervisory purview of the local authority. This is especially important in Latin America, where the participation of foreign banks that are established as independent, fully-capitalized entities is most substantial. Using this metric we found that all types of Latin American banking groups increased significantly and sharply their issuance of external debt securities. Owing to the low ratios of banks’ external debt to total liabilities in the pre-crisis period, solid solvency ratios and improved supervisory capacity, the recent increase in banks’ external indebtedness has not resulted in financial difficulties and banking systems remain strong. However, a preliminary analysis of risks based on this new trend reveals the emergence of several signs of increased vulnerability. First, in some banking groups (particularly in Brazilian banks, domestic and foreign alike) the increased issuance of external debt has been accompanied by a greater reliance on wholesale funding. In contrast, reliance on wholesale funding by Colombian banks has remained low and stable. Second, rollover risks have significantly increased for Latin American banking groups. Maturing debt, which increased significantly in 2013-14, will continue at high levels in 2015-16 in the context of major uncertainties in international capital markets. This risk is especially noticeable in Brazil and Chile, whose ratios of maturing debt to total debt are high. Third, in spite of a sizeable accumulation of international reserves, the large increase in banks’ external debt might have contributed to reducing the resilience of central banks to deal with a severe adverse shock.
    Keywords: emerging economies´ banks, locally supervised institutions, international debt, wholesale funding, Latin America and financial fragilities
    JEL: G15 G21 F36
    Date: 2015–07
  4. By: Sarmiento, M.; Galán, Jorge E.
    Abstract: We present a stochastic frontier model with random inefficiency parameters<br/>which is able to capture the influence of risk-taking on bank efficiency and that<br/>distingues those effects among banks with different characteristics. Cost and profit efficiency are found to be over- and underestimated when risk measures are not accurately modeled. We find that more capitalized banks are more cost and profit efficient, while banks assuming more credit risk are less cost efficient but more profit efficient. The magnitude of these effects vary with bank's size and affiliation. Liquidity is found to affect cost efficiency only for domestic banks. Large and foreign banks benefit more from higher credit and market risk exposures, while small and domestic banks find more advantageous to be more capitalized. We identify some channels that explain these differences and provide insights for macroprudential regulation.
    Keywords: bank efficiency; Bayesian inference; Heterogeneity; random parameters; risk-taking; stochastic frontier models
    JEL: C11 C23 C51 D24 D21 G32
    Date: 2015

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