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on Corporate Finance |
| By: | aus dem Moore, Nils |
| Abstract: | We contribute to the empirical literature on the relationship between corporate taxes and investment. We exploit the introduction of the so-called ACE corporate tax reform in Belgium that came into effect in January 2006 to evaluate this relationship in a quasiexperimental setting based on firm-level accounting data. To identify the causal effect of the reform on capital spending of Belgian corporations, we focus on the indirect effect of taxes on investment via their impact on free cash-flow. We use the systematic variation of the cash-flow sensitivity of investment between small and medium versus large firms to form treatment and control groups for difference-in-differences (DiD) estimations. Our benchmark results provide highly significant and robust estimates that correspond to an increase in investment activity by small and medium-sized firms of about 3 percent in response to the ACE reform. We substantiate the robustness of our results by means of triple differences estimations (DDD) that use a matched sample of French companies as an additional dimension of contrast. |
| JEL: | H25 H32 G31 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112888&r=cfn |
| By: | Barth, Andreas |
| Abstract: | This paper analyzes the role of corporate culture in the financial industry. Theoretical literature emphasizes the role of corporate culture in the sorting process of workers into firms. We take this argument to the empirics and analyze whether banks that differ in their corporate culture use different compensation schemes in order to attract a specific type of workers. In a second step, we combine the role of corporate culture with the literature on CEO compensation and risk-taking and analyze empirically the impact of corporate culture on banks' risk-taking as well as on banks' performance. More precisely, we argue that the incentives arising from CEO compensation schemes are diluted once we control for the self-sorting mechanism of CEOs in firms with different corporate cultures. We find that CEOs of banks with a strong competition-oriented corporate culture have a larger share of variable payments in their total compensation. Moreover, we find that a more competition-oriented corporate culture is associated with a higher credit risk as well as with a higher buy-and-hold stock market return. |
| JEL: | G21 G34 M14 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112922&r=cfn |
| By: | Schürg, Carolin V.; Bannier, Christina Evelies |
| Abstract: | We study the simultaneous choice of investment, debt financing and liquidity for a large sample of US corporates between 1980 and 2014. We partition the sample according to the firms' financial constraints and their needs to hedge against future shortfalls in operating income. In contrast to results derived from isolated analyses of individual corporate decisions, our joint estimation approach shows that cash flow sensitivities of investment, net debt issuance and cash holdings are much higher for unconstrained firms than for constrained firms. Companies with high hedging needs moreover manage their ability to cover future financing needs in different ways: While unconstrained firms increase their debt issues with improving investment opportunities, constrained firms drive up their cash stocks to preserve financial flexibility. Even though the financial crisis erupting in 2007 greatly reduced the size of the cash flow sensitivities of corporate investment, financing and liquidity decisions, it left these general relations intact. |
| JEL: | G31 G32 G30 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:114561&r=cfn |
| By: | Byström, Hans (Department of Economics, Lund University) |
| Abstract: | We extend the Tasche (2007) model on the asset correlation bias caused by a currency mismatch between assets and liabilities to the more realistic situation where some assets, and some, but not necessarily all, liabilities, are denominated in a foreign currency. To test the significance of the remaining bias we rely on a unique data base constructed by The Inter-American Development Bank (IADB) containing time-series of the asset- and liability currency composition of firms in a group of Latin American countries. Net currency mismatches are calculated and are found to vary from country to country. The correlation bias itself also varies significantly from country to country and has often been economically significant during the last 20 year-period. We find that the bias regularly is of the same magnitude as the correlation itself even in countries where the average firm has a fairly low degree of currency mismatch. Looking at market-wide corporate credit portfolios in four Latin American countries, we show that the credit risk, and associated Basel II capital charges, could increase by as much as a fifth, on average across our sample, if the actual currency mismatch in firms’ balance sheets is acknowledged. In some cases the currency mismatch-induced capital charge could increase much more, sometimes to levels several times (hundreds of percent) the original capital requirement. |
| Keywords: | asset correlation; bias; exchange rate; currency composition; currency mismatch |
| JEL: | F31 G10 G15 G21 G33 |
| Date: | 2016–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2016_001&r=cfn |
| By: | Ellingsen, Tore (Stockholm School of Economics); Jacobson, Tor (Research Department, Central Bank of Sweden); von Schedvin, Erik (Research Department, Central Bank of Sweden) |
| Abstract: | We study 52 million trade credit contracts, issued by 51 suppliers over 9 years to about 199,000 unique customers. The data contain information on contract size, due dates, actual time to payment, and firm characteristics. Our empirical analysis contradicts the conventional view that trade credit is an inferior source of funding. Specifically, while we replicate the usual finding that payables are negatively related to customers’ financial strength, our disaggregated data reveal that improvements in customers’ financial conditions are primarily associated with a reduced value of input purchases rather than smaller trade credit usage. In fact, customers’ financial conditions are unrelated to agreed contract duration and only modestly affect overdue payments. Moreover, the customer’s size and share of the supplier’s sales both have a positive impact on the due date. Overall, the evidence indicates that customers prefer trade credit over other available sources of funding and thus calls for a new theory of short-term finance. |
| Keywords: | Trade credit; Credit contracts; Financing constraints |
| JEL: | G32 G33 |
| Date: | 2016–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0315&r=cfn |
| By: | Hermansson, Cecilia (Department of Real Estate and Construction Management, Royal Institute of Technology) |
| Abstract: | This paper analyzes relationships between Swedish bank customers’ risk appetite and their financial assets and debt, controlling for demographic, socio-economic, financial and educational variables including financial literacy. We use subjective risk measures, i.e. risk tolerance and risk preference, as well as an objective risk measure, i.e. relating customers’ saving deposits to more risky stocks and mutual funds as a share of total financial assets. Bank customers with high risk appetite have significantly more financial assets compared with those with medium and low risk appetite. The subjective risk measures show that those with high risk appetite have significantly higher debt than those with low risk appetite. The objective risk measure shows the opposite. The paper concludes that it is important to use several measures of risk. Also, policy makers and banks need to measure bank customers’ risk appetite in a more systematic and transparent way, in order to improve both the banks’ and their customers’ risk management, and not less importantly, to decrease macroeconomic risks. |
| Keywords: | Household saving; debt; risk attitudes |
| JEL: | D12 D14 E58 G21 |
| Date: | 2016–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:kthrec:2015_012&r=cfn |
| By: | Franke, Günter; Draheim, Matthias |
| Abstract: | This paper analyzes the governance and performance of firms which, according to simplistic agency theory, should not be viable. These firms are fully or partially owned by a foundation which itself is not owned by natural or legal persons. Therefore, residual claimholders have restricted or no influence on corporate governance. The lack of owners strengthens other stakeholders, in particular employees. Relative to matching family firms, German foundation owned firms are larger in terms of employees and operating revenue, and substitute labor for material, but not for capital. Their hiring and firing policy is about the same. They follow a more conservative financing policy, their financial performance is somewhat weaker. |
| JEL: | G32 G34 L21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113217&r=cfn |