nep-cfn New Economics Papers
on Corporate Finance
Issue of 2016‒04‒30
nine papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. A European Nevada? Bad Enforcement As an Edge in State Competition for Incorporations By Andrea Zorzi
  2. Major Challenges Facing Small and Medium-sized Enterprises in Asia and Solutions for Mitigating Them By Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad
  3. What determines how banks respond to changes in capital requirements? By Bahaj, Saleem; Bridges, Jonathan; Malherbe, Frederic; O’Neill, Cian
  4. Is uncertainty over Brexit damaging the UK and European equities? By Bouoiyour, Jamal; Selmi, Refk
  5. Can Weather Conditions in New York Predict South African Stock Returns? By Nicholas Apergis; Rangan Gupta
  6. The Real Effects of Bank-Driven Termination of Relationships: Evidence from Loan-level Matched Data By Nakashima, Kiyotaka; Takahashi, Koji
  7. Multiple Lenders, Temporary Debt Restructuring, and Firm Performance: Evidence from contract-level data By MIYAKAWA Daisuke; OHASHI Kazuhiko
  9. Bank opacity and financial crises By Jungherr, Joachim

  1. By: Andrea Zorzi (Department of Economics, University Of Venice Cà Foscari)
    Abstract: Although now possible, no European state is competing for incorporations and this is unlikely to happen in a general fashion. In this paper I argue that, however, the possibility that one state competes for one specific segment of the market for incorporations should not be ruled out altogether. As has happened with Nevada in the U.S., a state could seek to attract companies that are looking for a very protective legal environment for their directors, officers and shareholders. Given the importance of enforcement, I argue that states could compete by capitalising on the inefficiency of their courts, rather than by changing the law on the books. The fact that no investment is necessary would change the perspective on incentives of states to compete: a very small incentive is needed, if the costs are negligible. I also take into account the possible drawbacks of such competition and the reaction other states could have.
    Keywords: Corporate Law, European Union, State competition, Regulatory competition, Delaware, Nevada, Harmonization, Race to the bottom
    JEL: G30 G32 G34 K20 K22 K41 K42 D72
    Date: 2016
  2. By: Yoshino, Naoyuki (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute)
    Abstract: Small and medium-sized enterprises (SMEs) are the backbone of the Asian economy. They make up more than 98% of all Asian businesses that provide two out of three private sector jobs in the region. Therefore, it is vitally important for Asia’s economic success to have fully functioning support measures for SMEs. However, SMEs face challenges from limited access to finance, lack of databases, low R&D expenditures, undeveloped sales channels, and low levels of financial inclusion, which are some of the reasons behind the slow growth of SMEs. This paper focuses on four major reasons that slowed the SME growth in Asia including i) lack of finance, ii) lack of comprehensive databases, iii) low level of R&D expenditures, and iv) insufficient use of information technology and provides remedies for mitigating them.
    Keywords: SME databases; financial inclusion; SME investment; R&D expenditure
    JEL: G21 G24 G32
    Date: 2016–04–18
  3. By: Bahaj, Saleem (Bank of England); Bridges, Jonathan (Bank of England); Malherbe, Frederic (London Business School and CEPR); O’Neill, Cian (Bank of England)
    Abstract: Legacy asset overhang and incentive to shift risk due to government guarantees can both affect bank capital issuance and lending decisions. We show that such frictions lead to ambiguous predictions on how one should expect a bank to react to a change in capital requirements. One sustained prediction is that lending is less sensitive to a change in capital requirements when lending prospects are good and legacy assets are healthy. Using UK bank regulatory data from 1989 to 2007, we find strong empirical support for this prediction.
    Keywords: Debt overhang; risk-shifting; bank capital; local projections
    JEL: G21 G32
    Date: 2016–04–15
  4. By: Bouoiyour, Jamal; Selmi, Refk
    Abstract: The possibility the UK might leave the European Union –also known as Brexit– is a major source of concern. This article seeks to assess the costs of uncertainty over Brexit by delving into the impacts of the attention given to this event (via Google Trends and Twitter) on UK, German and French equities, while controlling for the effects of global financial and economic factors. We use different econometric tools enable to measure the strength of Brexit’ effect as alternative to tail distributions (quantile regression approach) and spectral components (frequency domain causality test). Despite a heaviest awareness that it is difficult to properly quantify the costs of uncertainty over Brexit, this study provides evidence that the severity of Brexit’ impact was not uniform across the investigated equities. Germany suffered most if the British exit from Europe happens, followed by France and UK. These results are fairly robust among the different methods and the internet proxies used.
    Keywords: Brexit; uncertainty; social media; equities; UK; Europe.
    JEL: G0 G15
    Date: 2016–04–21
  5. By: Nicholas Apergis (Department of Banking and Financial Management, University of Piraeus); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: This paper investigates the explanatory power of certain weather variables, measured as deviations from their monthly averages, in a leading international financial trading centre, i.e., New York, for South African stock returns, over the daily period January 2nd, 1973 to December, 31, 2015. The empirical results highlight that these unusual deviations of weather variables have a statistically significant negative effect on the stock returns in South Africa, indicating that unusual weather conditions in New York can be used to predict South African stock returns, which otherwise seems to be highly unpredictable.
    Keywords: Unusual weather conditions, New York weather, South African stock market
    JEL: C22 G10 G15
    Date: 2016–04
  6. By: Nakashima, Kiyotaka; Takahashi, Koji
    Abstract: We examine the effects of bank-driven terminations of bank-borrower relationships on the investments of borrowing firms by exploiting a matched dataset of Japanese banks and listed firms from 1991 to 2010. We find that while bank-driven terminations do not always affect investment, they do when the firms facing termination have difficulty in either establishing a new relationship or increasing borrowings within their existing relationship. Our findings coincide with the prediction of existing theoretical models whereby financial frictions in a matching process in credit markets play an important role in firm investment.
    Keywords: matched lender-borrower data, relationship termination, switching of relationships, establishment of new relationships.
    JEL: G01 G21 G28
    Date: 2016–01–16
  7. By: MIYAKAWA Daisuke; OHASHI Kazuhiko
    Abstract: This paper empirically examines the cause and consequence of private debt restructurings out of court. Using unique contract-level data accounting for Japanese bank loans, we employ probit and multinomial logit estimations to study how demand and approval of debt restructuring are determined, as well as under what conditions one specific form of debt restructuring--temporary debt restructuring--is utilized. The results of our estimations show, first, that the demand of debt restructuring is systematically associated with firm characteristics and the relation-specific characteristics. Second, debt restructurings are more likely to take a "temporary" form when the number of lender banks is larger. Using propensity score matching difference-in-difference estimation, we further find that the performance of firms experiencing temporary debt restructuring significantly deteriorates in comparison with that of firms experiencing non-temporary debt restructuring. Furthermore, such pattern is more likely to be observed when lender banks have weaker balance sheet conditions. These results imply that temporary debt restructuring during our sample period was mainly used as de facto evergreening lending, which ended up deteriorating borrower creditworthiness.
    Date: 2016–03
  8. By: Péter Bauer (Magyar Nemzeti Bank (Central Bank of Hungary)); Marianna Endrész (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: The ultimate aim of this paper is to generate micro-level risk measures, which can provide a useful input for further research. To this end, this paper estimates bankruptcy probabilities for Hungarian firms using probit estimation. The estimated models show reasonable performance in distinguishing surviving and failing firms. We combine macro and micro information, as the addition of macro variables is needed to capture the aggregate dynamics and level of risk, especially during the crisis period. Controlling for the non-linear impact of firm characteristics and allowing heterogeneity by firm size improves the model’s performance significantly. The distributional characteristics of the micro-level risk indicators provide some interesting insights regarding the development of risk dispersion and the risktaking of the banking sector.
    Keywords: bankruptcy risk modelling, probit, micro data
    JEL: C23 G33
    Date: 2016
  9. By: Jungherr, Joachim
    Abstract: This paper studies a model of endogenous bank opacity. In the model, bank opacity is costly for society because it reduces market discipline and encourages banks to take on too much risk. This is true even in the absence of agency problems between banks and the ultimate bearers of the risk. Banks choose to be inefficiently opaque if the composition of a bank’s balance sheet is proprietary information. Strategic behavior reduces transparency and increases the risk of a banking crisis. The model can explain why empirically a higher degree of bank competition leads to increased transparency. Optimal public disclosure requirements may make banks more vulnerable to a run for a given investment policy, but they reduce the risk of a run through an improvement in market discipline. The option of public stress tests is beneficial if the policy maker has access to public information only. This option can be harmful if the policy maker has access to banks’ private information.
    Keywords: bank opacity, bank runs, market discipline, bank competition, stress tests
    JEL: E44 G14 G21 G28
    Date: 2016

This nep-cfn issue is ©2016 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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