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on Corporate Finance |
| By: | Uri Benzion (Western Galilee College, Israel); Eyal Lahav (College of Management Academic Studies, Israel); Koresh Galil (BGU) |
| Keywords: | Corporate Bonds, Debt Composition, Credit Rating, Emerging market, Institutional Investors |
| JEL: | G23 G24 G32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:bgu:wpaper:1504&r=cfn |
| By: | Pendleton, Andrew (University of Durham); Bryson, Alex (National Institute of Economic and Social Research (NIESR)); Gospel, Howard (King's College London) |
| Abstract: | Drawing on principal-agent perspectives on corporate governance, this paper examines whether employees' hourly pay is linked to ownership dispersion. Using linked workplace-worker data from the British Workplace Employment Relations Survey (WERS) 2011, we find average hourly pay is higher in dispersed ownership workplaces. The raw gap of 30 log points falls to 8 log points when we control for differences in worker and workplace characteristics. The premium is constant across most of the wage distribution, but falls a little at the 90th percentile to become statistically non-significant. This contrasts with earlier papers which indicate that higher level employees are the primary beneficiaries of higher pay from dispersed ownership. |
| Keywords: | ownership structure, corporate governance, principal agent, pay |
| JEL: | G3 G32 G31 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9223&r=cfn |
| By: | Raupach, Peter |
| Abstract: | Regulatory capital for trading book positions includes two components that cover different risks but apply to the same portfolio, one for market risk and one for credit risk. Similar approaches are common in banks' internal models for economic capital. Although it is known that joint market and credit risk of certain investments can be larger than the sum of risks, the problematic cases identified so far have been relatively exotic. I show that very common investments - corporate bond holdings or CDS portfolios - are also affected. There are realistic conditions under which credit risk (represented by ratings and default) and spread risk (represented by rating specific spread indices) combine to a total value-at-risk (VaR) 50 percent larger than the sum of spread and credit VaR; this effect is even stronger for the expected shortfall. If migration risk is segregated from default risk and incorporated into spread risk, as recently put forward by the Basel Committee, total risk is no longer underestimated. Furthermore, I improve a theoretic result of Breuer et al. (2010) that defines a sufficient condition under which risk separation is harmless. |
| Keywords: | Economic capital,Bank capital requirements,Risk measures,Risk aggregation,Trading book |
| JEL: | G32 G21 C15 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:192015&r=cfn |
| By: | Degryse, Hans; Matthews, Kent (Cardiff Business School); Zhao, Tianshu |
| Abstract: | We study the sensitivity of banks’ credit supply to small and medium size enterprises (SMEs) in the UK to banks’ financial condition before and during the financial crisis. Employing unique data on the geographical location of all bank branches in the UK, we connect firms’ access to bank credit to the financial condition (i.e., bank health and the use of core deposits) of all bank branches in the vicinity of the firm over the period 2004-2011. Before the crisis, banks’ local financial conditions did not influence credit availability irrespective of the functional distance (i.e., the distance between bank branch and bank headquarters). However, during the crisis, we find that SMEs with in their vicinity banks that have stronger financial condition face greater credit availability when the functional distance is low. Our results point to a “flight to headquarters” effect during the financial crisis. |
| Keywords: | financial crisis; credit supply; flight to headquarters; flight to quality; bank organization |
| JEL: | G21 G29 L14 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2015/5&r=cfn |
| By: | Natalya Martynova; Enrico Perotti |
| Abstract: | We study how contingent capital that converts in equity ahead of default affects bank risk-shifting. Going concern conversion restores equity value in highly levered states, thus reducing heightened risk incentives. In contrast, conversion at default for traditional bail-inable debt has no effect on endogenous risk. The main beneficial effect comes from reduced leverage at conversion. In contrast to traditional convertible debt, equity dilution under going concern conversion has the opposite effect. The negative effect of dilution is tempered by any value transfer at conversion. We find that CoCo capital may be less risky than bail-inable debt when lower priority is compensated by lower endogenous risk, which is beneficial as a lower bond yield improves incentives. The risk reduction effect of CoCo debt depends critically on the informativeness of the trigger, but is always inferior to pure equity. |
| Keywords: | Banks; Contingent Capital; Risk-shifting; Financial Leverage |
| JEL: | G13 G21 G28 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:480&r=cfn |
| By: | Marco Ceccagnoli; Matthew J. Higgins; Hyunsung D. Kang |
| Abstract: | Despite the fact that one of the main goals of corporate venture capital (CVC) investments in high-tech industries is to gain a window on future technologies, the relationship between CVC investments and strategies used to acquire technologies in the markets, such as licensing, has not been adequately explored. To address this gap, we build on the real option literature suggesting that CVC investments can be used as real options in the markets for technology. Accordingly, we formulate hypotheses about key drivers of the option value of CVC investments and the decision to exercise the option. Using a longitudinal dataset based on 604 dyads formed by a sample of global pharmaceutical firms and their external technology partners, we find that corporate investors’ scientific capabilities, technological domains, research pipelines, and the resolution of exogenous uncertainty related to partner firms’ technologies impact investors’ decisions on CVC investments and ex post technology acquisition. In our research setting, the most common way to exercise the option post-CVC investment is via technology licensing. |
| JEL: | G34 L24 L65 O32 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21424&r=cfn |
| By: | Kumari Ranjeeni (Deakin University); Susan S Sharma (Deakin University) |
| Abstract: | This paper investigates the impact of the news announcement of the Lehman Brothers’ (LBs’) bankruptcy on the performance of Shanghai Stock Exchange (SSE) sectors. Unlike the assumption in this literature that firms are homogenous, we address the unknown issue: does LBs’ bankruptcy have a heterogenous effect on stock returns of sectors listed on SSE? We employ an event study approach and use daily data for a total of 845 firms grouped into nine sectors, we find fresh results, previously undocumented in this literature. First, our results show that unlike the United States (see Ranjeeni 2014), Chinese Energy and Financial sectors were insignificantly affected from LBs’ bankruptcy. This implies that these sectors can provide cross-country diversification opportunities for US investors during volatile periods. Second, we find statistically insignificant effect of LBs’ bankruptcy on the performance of the financial sector while most of the other sectors suffered significantly. This implies that the Chinese market level analysis conducted by Bianconi et al. (2013) is influenced by the performance of the financial sector. Finally, our results highlight on the heterogeneous effect of LBs’ bankruptcy on different Chinese sectors and at different time intervals surrounding the event. |
| Keywords: | Lehman Brothers’ bankruptcy, Global Financial Crisis, abnormal returns, Chinese sectors, event study. |
| JEL: | G01 G11 G14 G33 |
| URL: | http://d.repec.org/n?u=RePEc:dkn:ecomet:fe_2015_15&r=cfn |
| By: | Pombo, Carlos (School of Management, Universidad de Los Andes); De la hoz, María Camila (School of Management, Universidad de Los Andes) |
| Abstract: | This article analyses how the corporate valuation of Latin American firms is affected by the presence of an institutional blockholder investor. The study uses a data set of 562 firms from six Latin American countries for the period 1997 to 2011. As in similar studies, we found that the presence of an institutional investor has a positive effect of 8% on firm value. After dividing the sample by investor type, we found that the presence of a grey investor (pension funds and insurance companies) has a negative effect on firm valuation, while independent investors (banks, investment and mutual funds) have a positive effect on firm valuation. This is one of the first studies to evaluate the relationship between investor activism and corporate valuation in Latin American economies with the most significant capital market development |
| Keywords: | Institutional investors, firm valuation, Latin America |
| JEL: | G23 G32 N16 |
| Date: | 2015–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:uac:somwps:040&r=cfn |
| By: | Daisuke Miyakawa (Hitotsubashi University); Kaoru Hosono (Gakushuin University); Taisuke Uchino (Daito Bunka University / RIETI)); Arito Ono (Chuo University); Hirofumi Uchida (Kobe University); Ichiro Uesugi (Hitotsubashi University / RIETI) |
| Abstract: | This paper investigates the effect of financial shocks on firms' exports. To circumvent endogeneity problems, we utilize the natural experiment provided by Japan's Great Hanshin-Awaji earthquake in 1995. Using a unique firm-level dataset, we single out the effect of exogenous financial shocks on firms' exports by focusing on exports of those firms that were not directly damaged by the earthquake but had main bank relationships with damaged banks. Our main findings are twofold. First, as for the extensive margins of exports, the probabilities of starting exports or of expanding export destination areas were smaller for undamaged firms transacted with a damaged main bank than for those transacted with an undamaged main bank. Second, as for the intensive margins of exports, undamaged firms transacted with a damaged main bank had a lower export-to-sales ratio than those transacted with an undamaged main bank. These findings lend support to the existence of the financial constraint on firm exports. |
| Keywords: | Bank Lending, Extensive and Intensive Margins, Firm Exports |
| JEL: | F14 G21 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:111&r=cfn |
| By: | Cuneyt Orman; Bulent Koksal (Department of Management, Ipek University) |
| Abstract: | We investigate if and when the leading theories of debt maturity are useful in understanding the maturity choices of nonnancial firms in a major developing economy, Turkey. Unlike most research, we use a dataset that provides financial information on not only large, publicly-traded firms but also small, privately-held firms across a wide variety of industries. Our strongest finding is that firms that have high leverage also have long debt maturity. Size, asset maturity, and credit quality are also important, although results depend on the type of firm group considered. The stability of the economic environment as measured by in ation and interest rate volatility also in uences debt maturity decisions. Our findings are broadly consistent with the liquidity risk theory. The agency theory is also partially useful in understanding firms' maturity decisions, particularly for medium- and largesized, publicly-traded firms. The signaling theory is most useful when the sample consists of large, publicly-traded firms. We find little evidence that taxes matter for maturity decisions. Our findings also provide some evidence that borrower-lender relationships matter for debt maturity structures. |
| Keywords: | Debt maturity structure, nonfinancial firms, Turkey |
| JEL: | G3 G32 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:ipk:wpaper:1504&r=cfn |