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on Corporate Finance |
| By: | Giovanna Nicodano (University of Turin); Luca Regis (IMT Lucca Institute for Advanced Studies) |
| Abstract: | This paper determines ownership and leverage of two units facing a tax-bankruptcy trade-off. Connected units have higher leverage and lower tax burden, because of internal support through both bailouts and corporate dividends. Ownership adjusts to additional tax provisions. A hierarchical group with a wholly-owned subsidiary results from Thin Capitalization rules. The presence of corporate dividend taxes generates horizontal groups, or a Special Purpose Vehicle, or a private equity fund. Combinations of tax provisions contain tax savings, debt and default in connected units. No bailout provisions, such as the Volcker rule, succeed in reducing leverage and default. |
| Keywords: | Ownership structure, Capital structure, Dividend taxes, Thin Capitalization, Groups, Securitization, Private equity |
| JEL: | G32 H25 H32 L22 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:ial:wpaper:7/2015&r=cfn |
| By: | Matej Kuc (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic); Petr Teply (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic) |
| Abstract: | Czech credit unions have been yet criticized by both academics and regulatory representatives for its business based on moral hazard and excessive risk taking. This paper empirically assesses financial performance of Czech credit unions in relation with other European cooperative banks in terms of profitability and stability. To do that, we created a unique dataset of 283 cooperative banks from 15 European countries in the 2006–2013 period. System GMM method is employed as a main instrument of our empirical analysis and alternative panel data methods are used as supplementary techniques. Results revealed poor performance of Czech credit unions in terms of both profitability and stability. Moreover, adverse trends in stability measures of Czech credit unions are in sharp contrast to the tendencies in the rest of cooperative banks in our sample. To conclude, we argue that bigger Czech credit unions will face serious financial problems in coming years. |
| Keywords: | credit union, cooperative banking, financial statements, moral hazard, credit risk, system GMM, Z-score |
| JEL: | C23 G21 L25 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2015_18&r=cfn |
| By: | Demary, Markus; Diermeier, Matthias; Haas, Heide |
| Abstract: | The establishment of a Capital Markets Union (CMU) is a high-priority project of the European Commission. CMU should foster additional non-bank sources of finance, mobilize private savings more efficiently and enhance capital market integration. Although more integration is needed, the Commission's proposal misses the role of systemic functions in a CMU. First, banks are important intermediaries specialized in credit relationships and small and medium-sized companies gain from long-term relationships with banks. Second, overcoming financial fragmentation needs sound sovereign debt markets with stable sovereign finances. In a CMU sovereign risks have to be treated adequately in bank regulation. Third, it should be assessed in advance which sources of non-bank finance will be demanded by companies and will become systemic. We recommend an integrated financial supervision for the CMU. Therefore, the European Banking Union should cover all European Union members' systemic relevant banks. In order to mobilize private savings while coping with the CMU's complexity, the EU should foster financial literacy. |
| Abstract: | Nachdem die europäische Bankenunion 2014 beschlossen wurde, hat Kommissionspräsident Jean-Claude Juncker nun ein neues Projekt vorgeschlagen, das die Finanzmarktintegration in Europa weiter vorantreiben soll: die Kapitalmarktunion. Während sich die Bankenunion auf die Schaffung eines einheitlichen Regelwerks sowie einer zentralen Bankenaufsicht und -abwicklung für den Bankensektor in der Eurozone beschränkt, soll die Kapitalmarktunion Barrieren aus dem Weg räumen, die den Kapitalfluss in der gesamten Europäischen Union bremsen. Im internationalen Vergleich sind Banken in der EU höchst relevant für die Unternehmensfinanzierung. Im Gegensatz dazu finanzieren sich Unternehmen in den USA stärker direkt über Kapitalmärkte und weniger über Banken. Auch wenn die USA kein explizites Vorbild für die Kapitalmarktunion ist, so zeigt sich doch deutlich, dass eine stärkere Rolle der Kapitalmärkte von der Politik favorisiert wird. [...] |
| Keywords: | financial aspects of economic integration,financial regulation,investment and savings,relationship-banking,sme finance,Banking and Insurance,European Central Bank,European Monetary Union,Banken und Versicherungen,Europäische Währungsunion,Europäische Zentralbank |
| JEL: | F02 F33 F36 G21 G28 G30 G38 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkpps:182015&r=cfn |
| By: | Hirofumi Uchida (Kobe University); Daisuke Miyakawa (Hitotsubashi University); Kaoru Hosono (Gakushuin University); Arito Ono (Chuo University); Taisuke Uchino (Daito Bunka University / RIETI)); Ichiro Uesugi (Hitotsubashi University / RIETI) |
| Abstract: | In this paper, we investigate whether financial shocks to firms affect their probability of bankruptcy. We also examine whether these shocks affect the natural selection of the firms, whereby more efficient firms are less likely to go bankrupt. By using the data on the bankruptcy of firms after the Great Tohoku Earthquake, we examine the impact of the damage to lender banks on the firms' probability of bankruptcy. To extract the impact of purely exogenous financial shocks on bankruptcy, we focus on firms located outside the earthquake-affected area but that transact with banks located inside the area. Our findings somewhat counterintuitively suggest that a damaged bank reduces the probability of bankruptcy and weakens the natural selection of firms. We further examine the impact of the injection of public capital into damaged banks and obtain some evidence that the injection reduces the probability of the bankruptcy of their borrowers and weakens the natural selection. |
| Keywords: | capital injection, financial constraint, firm bankruptcy, natural disaster, natural selection |
| JEL: | G21 L10 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:110&r=cfn |
| By: | Paresh K Narayan (Deakin University); Susan S Sharma (Deakin University); Kannan Thuraisamy (Deakin University) |
| Abstract: | We develop country-level governance indices using governance risk factors and examine whether country-level governance can predict stock market returns. We find that country-level governance predicts stock market returns only in countries where governance quality is poor. For countries with well-developed governance, there is no evidence that governance predicts returns. Our findings also confirm that investors in countries with weak governance can utilise information contained in country-level governance indicators to devise profitable portfolio strategies. |
| Keywords: | Predictability; Returns; Governance; Country characteristics. |
| URL: | http://d.repec.org/n?u=RePEc:dkn:ecomet:fe_2015_04&r=cfn |
| By: | Guillaume Arnould (Centre d'Economie de la Sorbonne - Labex Régulation Financière (Réfi)); Salim Dehmej (Centre d'Economie de la Sorbonne - Labex Régulation Financière (Réfi)) |
| Abstract: | The results of the Comprehensive Assessment (CA) conducted by the ECB seem to attest the soundness of the European banking system since only 8 of 130 assessed banks still need to raise €6 billion. However it would be a mistake to conclude that non failing banks are completely healthy. Using data provided by the ECB and the ECB and the EBA after the CA, we assess the capital shortfalls for each banks by considering the transitional arrangements, an implementation of Basel III sovereign debt requirements and an enhancement of the leverage ratio. In addition we show, that if the CA has been a very complex exercise, it is not the best lens through which the soundness of the eurozone banking system should be evaluated. The assumptions used for the Asset Quality Review (AQR) and the stress-tests lead to week scenarios and requirements that undermine the reliability of the results. Finally we show that the low profitability, the massive dividend distribution and the incurred fines, give rise to concern on the ability of eurozone banks to meet the incoming capital requirements |
| Keywords: | financial stability; stress tests; banking; financial regulation; Basel III |
| JEL: | G21 G28 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:15061&r=cfn |
| By: | Erin L. Scott (National University of Singapore Business School); Pian Shu (Harvard Business School, Technology and Operations Management Unit); Roman M. Lubynsky (Massachusetts Institute of Technology) |
| Abstract: | Entrepreneurs face high uncertainty, and often make costly investments in new business ideas without knowing the expected payoff. This paper empirically examines whether ex-ante assessment of early-stage startup ideas can predict their subsequent commercialization. We leverage an entrepreneurship program at the Massachusetts Institute of Technology in which early-stage venture ideas, presented in the form of succinct standardized summaries, elicit subjective evaluations from a large set of experienced entrepreneurs and executives. Using data on 652 ventures in multiple industry sectors, evaluated over an 8-year period, we find that ideas that elicit more positive evaluations are significantly more likely to ultimately reach commercialization. We further show that these results are driven by venture ideas with documented intellectual capital in research-and-development-intensive sectors, such as life sciences and medical devices. We find no evidence, by contrast, that experts can effectively assess the commercial potential of venture ideas in non-R&D-intensive sectors such as consumer web and enterprise software. Finally, we find that industry-specific and scientific expertise is not critical to experts' collective ability to predict ventures' commercial viability. |
| JEL: | L26 M13 O31 J24 G32 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:16-013&r=cfn |
| By: | Patrick Gaule |
| Abstract: | I study how patents affect firm success (initial public offering or acquisition at a high price) in a sample of 2,191 U.S. startups applying for patent protection in the 24 months following their first round of venture capital funding. I observe both successful and unsuccessful patent applications and use a measure of patent exam- iner leniency as an instrument for getting patents. I find a positive effect of patents on firm success for life science firms but not for information technology firms. |
| Keywords: | patents; entrepreneurship; venture capital; patent examiners; acquisition; initial public offering; |
| JEL: | O34 G24 L26 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp546&r=cfn |
| By: | Jorge Galán; Sofía B. Ramos; Helena Veiga |
| Abstract: | This paper studies the efficiency of a sample of mutual funds that invest in the United States. Estimating a production function using Bayesian stochastic frontier analysis, we find evidence that the underlying technology presents economies of scale both at the fund and firm level. We also find evidence that informational asymmetries affect efficiency. Funds that invest domestically are likely to be more efficient than foreign funds investing in the US. Moreover, an inspection at the distribution process shows that funds sold directly to investors rather than by financial intermediaries are more efficient. The level of inefficiency persistence is overall high.Persistency of inefficiency is particularly higher for ethical funds, funds oriented to large firm sand lower in funds oriented to growth firms. The analysis done in two separate periods also shows that the efficiency of the funds changes. In particular, funds oriented to non-ethical, small and growth firms become more efficient over the period. Finally, funds' efficiency decreases during global financial crisis, but at the end of the sample period some funds recover and their efficiency levels are higher than those registered before the financial crisis. Our results have implications for investors' decisions in mutual funds. |
| Keywords: | Economies of Scale , Efficiency , Mutual Funds , Persistence , Stochastic Frontier Analysis |
| JEL: | C11 C23 C51 G11 G14 G15 G24 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wsrepe:ws1517&r=cfn |
| By: | Madácsi, Roland |
| Abstract: | The research analyses the former and the current status of the small gas-motor power plant investments in the Hungarian energy sector. It discusses the development of project financing in the segment and the major changes and effects of new regulations and subsidy-policy implemented in 2010. The objective of this paper is to present the results of an empirical research of the so called GCHP projects, and to draw conclusion concerning how classic project financing conditions were present and changed during the last decade, and how regulation affected the current and future financial status of these projects. |
| Keywords: | project financing, corporate financing, energy sector |
| JEL: | G32 G38 L94 |
| Date: | 2015–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:cvh:coecwp:2015/15&r=cfn |
| By: | Iwasaki, Ichiro |
| Abstract: | In this paper, using panel data of industrial firms obtained from unique questionnaire surveys conducted all over the Russian Federation in 2005 and 2009, we trace structural change in corporate governance systems before and after the global financial crisis and empirically examine their determinants. We found that, during this period, Russian firms improved the quality of corporate governance across the entire industrial sector. Furthermore, our empirical evidence strongly supports a hypothesis regarding the relationship between outside ownership and board composition as well as that concerning the impact of outside directorship on the audit system. Meanwhile, our estimation results also indicate the possibility that the global financial crisis has brought about asymmetric changes, in the sense that it enhanced the independence of corporate boards, while it deteriorated the independence of the audit system, thus, partially rejecting our prediction with respect to the disciplinary effect of the crisis on the corporate governance system. |
| Keywords: | global financial crisis, ownership change, evolution of corporate governance, board composition, audit system, Russia |
| JEL: | D22 G01 G34 M42 P34 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:hit:rrcwps:52&r=cfn |