nep-cfn New Economics Papers
on Corporate Finance
Issue of 2016‒04‒04
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Debt Concentration of European Firms By Giannetti, Caterina
  2. Firms that went out of business during the crisis By Sabrina Ferretti; Andrea Filippone; Giacinto Micucci
  3. Stock exchange integration and price jump risks - The case of the OMX Nordic exchange mergers By Liu, Yuna
  4. My Credit but Your Problem: The Real Effects of Credit Risk Trading By Stefano Colonnello; M. Eng; F. Zucchi
  5. Does gender-balancing the board reduce firm value? By Eckbo, B Espen; Nygaard, Knut; Thorburn, Karin S
  6. How Management Risk Affects Corporate Debt By Yihui Pan; Tracy Yue Wang; Michael S. Weisbach
  7. CEO Dismissal, Compensation and Topics of Board Meetings: The Case of China By Ji, Jiao; Talavera, Oleksandr; Yin, Shuxing

  1. By: Giannetti, Caterina (LUISS School of European Political Economy)
    Abstract: This paper investigates the level of debt specialization across European firms relying on a cross-country comparable sample of manufacturing firms. We find that a number of firm characteristics – such as firm size and age – help predict the firm composition of the various types of debts (i.e. debt specialization) but not the level of each debt share. In particular, we observe that small and young firms have a more concentrated debt structure (i.e. they rely on few types of debt). However, these relationships are not linear and seem to be U-shaped. We also find that Spanish firms have the most diversified debt structure, and that diversified firms are less likely to experience a severe reduction in turnover.
    Keywords: Debt specialization; European firms; Firm financing
    JEL: F20 G32
    Date: 2015–03–18
  2. By: Sabrina Ferretti (Bank of Italy); Andrea Filippone (Bank of Italy); Giacinto Micucci (Bank of Italy)
    Abstract: This paper analyzes the Italian companies that filed for bankruptcy or underwent voluntary liquidation between 2008 and 2012 and identifies the main characteristics of this phenomenon. The econometric analysis based on firms’ balance sheet data suggests that the probability of going out of business was greater for smaller and younger companies. Other characteristics being equal, such as size, sector and geographical location, the likelihood of a firm initiating bankruptcy proceedings was more strongly correlated with imbalances in its financial structure such as a high leverage ratio, while a firm’s likelihood of opting for voluntary liquidation was influenced to a greater extent by low profitability.
    Keywords: bankruptcies, liquidations, financial structure
    JEL: G33 L25 K20
    Date: 2016–03
  3. By: Liu, Yuna (Department of Economics, Umeå University)
    Abstract: The impact of the stock market mergers that took place in the Nordic countries during 2000 – 2007 on the probabilities for stock price jumps, i.e. for relatively extreme price movements, are studied. The main finding is that stock market mergers, on average, reduce the likelihood of observing stock price jumps. The effects are asymmetric in the sense that the probability of sudden price jumps is reduced for large and medium size firms whereas the effect is ambiguous for small size firms. The results also indicate that the market risk has been reduced after the stock market consolidations took place.
    Keywords: Tests for jumps; International financial markets; Market structure; Integration; Common trading platform; Mergers; Acquisitions
    JEL: C22 C51 C58 G15 G34 L10
    Date: 2016–03–16
  4. By: Stefano Colonnello; M. Eng; F. Zucchi
    Abstract: Creditors are increasingly transferring debt cash flow rights to other market participants while retaining control rights. We use the market for credit default swaps (CDSs) as a laboratory to show that such debt decoupling causes large adverse effects on firms whose shareholders have high bargaining power. After the start of CDS trading, the distance-to-default, investment, and market value of firms with powerful shareholders drop by 7.9%, 7%, and 8.8% compared to other firms. These findings are consistent with an “empty creditor problem“ where creditors overinsure to strengthen their position in negotiations with powerful shareholders.
    Keywords: debt decoupling, empty creditors, credit default swaps, shareholder bargaining power, real effects
    JEL: G32 G33 G34
    Date: 2016–03
  5. By: Eckbo, B Espen; Nygaard, Knut; Thorburn, Karin S
    Abstract: A board gender quota reduces firm value if it forces the appointment of under-qualified female directors. We examine this costly constraint hypothesis using the natural experiment created by Norway's 2005 board gender-quota law. This law drove the average fraction of female directors from 5% in 2001 to 40% by 2008, producing a large exogenous shock to director experience and independence. However, statistically robust analyses of quota-induced shareholder announcement returns, and of long-run stock and accounting performance, fail to reject the hypothesis of a zero valuation effect of this shock to board composition. Moreover, firms did not expand board size, nor is there significant evidence of quota-induced corporate conversions to a (non-public) legal form exempted from the quota law. Finally, our evidence on female director turnover and a novel network-based measure of director gender-power gap also fails to suggest that qualified female directors were in short supply.
    Keywords: busy directors; corporate conversion; director independence; director network power; Gender quota; long-run performance; valuation effect
    JEL: G34 G35
    Date: 2016–03
  6. By: Yihui Pan; Tracy Yue Wang; Michael S. Weisbach
    Abstract: Management risk occurs when uncertainty about future managerial decisions increases a firm’s overall risk. This paper argues that management risk is an important yet unexplored determinant of a firm’s default risk and the pricing of its debt. CDS spreads, loan spreads and bond yield spreads all increase at the time of CEO turnover, when management risk is highest, and decline over the first three years of CEO tenure, regardless of the reason for the turnover. A similar pattern but of smaller magnitude occurs around CFO turnovers. The increase in the CDS spread at the time of the CEO departure announcement, the change in the spread when the incoming CEO takes office, as well as the sensitivity of the spread to the new CEO’s tenure, all depend on the amount of prior uncertainty about the new management.
    JEL: G32 G34 M12 M51
    Date: 2016–03
  7. By: Ji, Jiao; Talavera, Oleksandr; Yin, Shuxing
    Abstract: Our paper examines the relationship between the frequency of board meetings on particular topics, and CEO dismissal/compensation and performance sensitivities. We utilize a unique dataset of specific topics discussed at board meetings, drawn from the reports of independent directors of listed firms in China over the period of 2003 to 2010. Our results show that turnover-performance sensitivity is weaker when there is a higher frequency of board meetings discussing the nomination of directors and top management. Moreover, the link between CEO compensation and firm performance is enhanced only when directors meet more often to discuss growth strategies for the use of IPO proceeds, investment and acquisitions. The paper provides support for agency theories on the effectiveness of board monitoring. It sheds lights on what makes boards more effective, and how board monitoring of different decisions at board meetings modifies the connection between CEO interests and firm performance.
    Keywords: Board Effectiveness, Board Meeting Topics, Agency Costs, CEO Compensation, CEO Dismissal
    JEL: G30 G34
    Date: 2016–03–23

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