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on Corporate Finance |
| By: | Jayati Sarkar (Indira Gandhi Institute of Development Research); Ekta Selarka (Madras School of Economics) |
| Abstract: | This paper provides evidence on the effect of women directors on the performance of family firms with a case study of India. Existing literature on the subject has primarily focused on widely held firms, notably in the US. Given that ownership structure and governance environment of family firms are distinctly different from those of non-family firms, the evidence on the relationship between women on board and firm performance in the context of widely held firms may not apply in the context of family firms. India provides an ideal setting for analyzing this question as the presence of family firms is pervasive and since 2013 India has instituted gender quotas on corporate boards. Using a data-set of 10218 firm year observations over a ten year period from 2005 to 2014 which spans the pre-quota and post-quota years, we find robust evidence that women directors on corporate boards positively impact firm value and that this effect increases with the number of women directors on board. However, we find that the positive effect of gender diversity on firm performance weakens with the extent to which the family exerts control through occupying key management positions on the board. In addition, women directors affiliated to the family have no significant effect on firm value, whereas independent women directors do. Our results with respect to profitability are somewhat different; while as in the case of market value, women directors positively impact profitability with the positive effect driven by independent women directors, the effect does not vary with the extent of family control. Taken together, our results suggest that though gender diversity on corporate boards may positively impact firm performance in family firms in general, the extent of family control can have a significant bearing on this relationship. The findings from this study could be instructive for emerging economies like India in promoting gender-based quotas on corporate boards. |
| Keywords: | board of directors, gender diversity, family ownership and control, gender-quota |
| JEL: | G32 G34 G38 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2015-026&r=cfn |
| By: | Michael Ewens (California Institute of Technology,); Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit); Matthew Rhodes-Kropf (Harvard Business School, Entrepreneurial Management Unit) |
| Abstract: | We study adaptation by financial intermediaries as a response to technological change in the context venture-capital finance. Using a theoretical model and rich data, we are able to both document and provide a framework to understand the changes in the investment strategy of VCs in recent years - an increased prevalence of investors who "spray and pray" - providing a little funding and limited governance to an increased number of startups that they are more likely to abandon, but where early experiments significantly inform beliefs about the future potential of the venture. We also highlight how this adaptation by financial intermediaries has altered the trajectory of aggregate innovation away from complex technologies where initial experiments cost more towards those where information on future prospects is revealed quickly and cheaply. |
| Keywords: | Innovation, Venture Capital, Investing, Abandonment Option, Failure Tolerance |
| JEL: | G24 O31 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:15-070&r=cfn |
| By: | Albuquerque, Rui; Brandão-Marques, Luis; Ferreira, Miguel; Matos, Pedro Pinto |
| Abstract: | We test the hypothesis that foreign direct investment promotes corporate governance spillovers in the host country non-target firms. Using firm-level data from 22 countries, we find that cross-border M&A activity is associated with subsequent improvements in the governance of target firms’ rivals. The spillover is more pronounced when the acquirer’s country has stronger investor protection than the target’s country, and when the target operates in a competitive industry. Cross-border M&As also lead to increases in valuation and reductions in overinvestment of non-target firms. Our results suggest that the international market for corporate control promotes functional convergence in corporate governance. |
| Keywords: | Corporate governance; Cross-border mergers and acquisitions; Foreign direct investment; Spillovers |
| JEL: | G32 G34 G38 |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10917&r=cfn |
| By: | Lim, Kian-Ping; Thian, Tze-Chung; Hooy, Chee-Wooi |
| Abstract: | This paper examines the relationship between shareholdings of various investor groups and stock liquidity for Malaysian public listed firms over the 2002-2009 sample period. Using the Amihud illiquidity ratio, we extend the literature by addressing the issues of investor heterogeneity, trading account types and the interactions of competing liquidity channels. The analysis reveals that only local institutions and local individual investors who trade through the direct accounts are significantly associated with the liquidity of domestic firms. In contrast, the significant liquidity effect for foreign investors operates through the nominee accounts. While institutional ownership exhibits a linear negative relationship, our findings on local individuals and foreign nominees differ greatly from previous studies in that their relationship with stock liquidity is non-monotonic. Apart from the widely researched information asymmetry and trading effects, we find that liquidity is also driven by the largely ignored information competition channel. An important insight from our findings is that the large shareholdings by any particular investor group is detrimental to stock liquidity as they exacerbate information asymmetry, reduce the degree of competition and lower the level of trading activity. |
| Keywords: | Investor groups; Stock liquidity; Information asymmetry; Information competition; Trading; Malaysia |
| JEL: | G12 G32 |
| Date: | 2015–07–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:67602&r=cfn |
| By: | Maxin, Hannes |
| Abstract: | Digitization of society has a strong effect on the banking sector. This circumstance is shown by the increasing success of young FinTech firms and the pressure to innovate for traditional banks. Therefore Commerzbank AG found an own corporate venture Capital firm (CVC firm), the Main Incubator GmbH, in March 2014. This CVC firm supports its parent company to cooperate with FinTech firms and to implement synergy potential for the own core business. In the research literature CVC activities are primarily assigned to the industrial and service sectors and not to the banking sector. Due to this fact Main Incubator is an unusual case, which is analyzed in a case study. The aim of this project is to show specific characteristics of a CVC firm of the banking sector. |
| Keywords: | Corporate venture capital, Banks, Case study, Principal-agent, FinTech firms |
| JEL: | G24 M13 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-566&r=cfn |
| By: | Rahul Mukherjee (IHEID, The Graduate Institute of International and Development Studies, Geneva); Christian Proebsting (Department of Economics, University of Michigan) |
| Abstract: | How does the market for corporate control reallocate firm ownership in response to adverse aggregate financial shocks? To answer this question, we develop a tractable model of mergers and acquisitions (M&As) where firms facing different degrees of financial constraints acquire ownership of illiquid domestic firms. We show that acquisitions by financially constrained acquirers, on average, involve higher ownership stakes and post-acquisition survival rates when faced with adverse aggregate financial shocks, in comparison to acquisitions by unconstrained firms. This effect operates through two margins: An intensive margin (dominant for constrained acquirers) that works through a higher average productivity of acquirer-target matches, and an extensive margin (dominant for unconstrained acquirers) that operates thorough an increase in the proportion of re-sale acquisitions in the economy. We provide evidence supportive of the predictions of the model in a large data set of M&As in emerging market economies. Our theoretical results provide insight into our novel empirical findings of a change in the degree of control acquired by and a convergence of survival rates between domestic and foreign acquisitions during financial crises, and point to the existence of a "cleansing effect" in the market for corporate assets. |
| Keywords: | cleansing effect; financial crisis; financial shocks; cross-border mergers and acquisitions; capital reallocation |
| JEL: | F21 G01 G34 |
| Date: | 2015–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp20-2015&r=cfn |
| By: | Dooruj McRambaccussing |
| Abstract: | The constrained Vector Autoregression and the fairly recent state space approach are commonly used in the asset pricing literature to estimate present value models. They are used to model time series dynamics of discount rates and expected dividend growth, with the objective of understanding predictability and stock market movements. This paper shows that an ARMA(1,1) structure of price-dividend ratio and realized dividend growth nests an AR(1) specication for expected returns and expected dividend growth. A simpler model is proposed which involves estimating realized dividend growth and the price-dividend ratio as an ARMA(1,1), and matching the variance and autocorrelation of the estimated models to those of the present value to estimate parameters. Monte Carlo results show that the state space model has larger standard errors. Expected returns is persistent in both models, unlike expected dividend growth in the ARMA(1,1). A modest application of the model to the predictability literature shows stronger evidence towards dividend growth predictability. |
| Keywords: | Present Value, VAR, State Space, Moment Matching |
| JEL: | G12 G17 C32 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:dun:dpaper:291&r=cfn |
| By: | Sarah Paterson |
| Abstract: | This article examines something of a puzzle: increasing access by UK issuers of high yield bonds to US investors notwithstanding substantive differences in the approach to valuation of the issuer in financial distress in US and UK restructuring law and, therefore, in anticipated return on default. It examines the development of the market in the context of existing theories on the relationship between law and finance and suggests that previous accounts have overlooked the adaptive capacity of the finance market to legal environment and the implications of such structural adaptation for the prospects of convergence in law. Three states are identified: a state in which the market is poorly adapted to the legal environment and reinforces other pressure for change, a state in which the market is adapted to the legal environment and is a neutral influence on, or even dampens, other pressure for change and a state in which both legacy and adapted structures exist, potentially pulling in different directions at the same time. |
| Keywords: | financial restructuring; convergence in law; high yield bonds; Rubin v Eurofinance SA; Chapter 15; Rule 144A and Rule 10b-5 |
| JEL: | F3 G3 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:60682&r=cfn |
| By: | Hamdani, Assaf; Kandel, Eugene; Mugerman, Yevgeny; Yafeh, Yishay |
| Abstract: | Regulators worldwide take the view that competition—and not performance-based fees—should play a dominant role in aligning the interests of retirement savings fund managers with those of their clients. We use a regulatory experiment from Israel to examine the effects of incentive fees and competition on performance. Taking advantage of a unique institutional setup, we compare three exogenously-given types of retirement savings funds operated by the same management companies: (i) funds where fees are performance-based; (ii) funds where fees are based on assets under management (AUM) operating in an environment with very weak competitive pressures; and (iii) funds where fees are AUM-based and the environment is highly competitive. We find that funds with performance-based fees exhibit high returns, high risk and high α. By contrast, when comparing the average performance of funds with AUM-based fees in competitive and less competitive environments, we find no significant differences (except that funds in a competitive environment charge lower fees). We conclude that incentives and competition are not perfect substitutes in the retirement savings industry. We also conjecture that the ubiquitous regulatory restrictions on the use of incentives in fund management may be inefficient, and should perhaps be reconsidered. |
| Keywords: | Competition; Incentives; Pension Funds; Retirement Savings |
| JEL: | G23 G28 G38 |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10911&r=cfn |
| By: | Arif Oduncu (Central Bank of the Republic of Turkey); Fatih Altunok (Central Bank of the Republic of Turkey) |
| Abstract: | We make use of a unique data set that includes loan and bank relationship information at the firm level to investigate the role of monetary policy on the loan growth of firms. We analyze how Turkish firms adjust their credit growth in response to unexpected monetary policy shocks. We use unexpected shocks instead of interest-rate changes in order to solve the possible endogeneity problem between monetary policy and credit growth. We show that unexpected monetary tightening has a significant effect on the decline of firm credit growth. This effect is larger for credit-constrained firms. We find that unexpected shocks are effective only for short term loans but are not effective for medium and longterm loans. We also show the asymmetric impact of monetary policy on loan growth. Our results are robust to firm characteristics, credit demand and firm financial performance factors as well as the firm-bank relationship. |
| Keywords: | NA |
| JEL: | G30 G32 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:eyd:cp2015:253&r=cfn |
| By: | Albuquerque, Rui; Lei, Zicheng; Rocholl, Jörg; Zhang, Chendi |
| Abstract: | The landmark decision by the U.S. Supreme Court on Citizens United v. Federal Election Commission asserts for the first time that corporations benefit from First Amendment protection regarding freedom of speech in the form of independent political expenditures, thus creating a new avenue for political activism. This paper studies how corporations adjusted their political activism in response to this ruling. The paper presents evidence consistent with the hypothesis that institutional investors have a preference for not using the new avenue for political activism, a preference not shared by other investors. |
| Keywords: | Citizens United; Corporate Governance; Institutional Investors; Political Activism |
| JEL: | G23 G30 |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10916&r=cfn |