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on Corporate Finance |
| By: | Francis, Bill B.; Hasan, Iftekhar; Kostova, Gergana L. |
| Abstract: | We assess the importance of industry peers for a firm’s own decision making strategy, using a rich sample of data covering 47 countries and 87 different industries between 1990 and 2011. Following the instrumental variable approach suggested by Leary and Roberts (2014), we find that, similar to U.S. firms, foreign firms do follow their peers when they make financial policy decisions. A standard deviation increase in peer firms’ average leverage leads to about 5 percentage points increase in a firm’s own leverage. We also find evidence that firms are more likely to follow their peers when investor protection laws including information disclosure and minority shareholder protection are weak, when creditor rights laws are strong, and when equity markets are more developed, suggesting that peers matter the most when firms have the greatest need to learn and to demonstrate their quality. These results hold even when we perform the analysis on a matched sample of firms. |
| Keywords: | peers, international capital structure, financial policy, information environment, legal environment, financial market development |
| JEL: | G2 G32 |
| Date: | 2016–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2016_008&r=cfn |
| By: | Hasan, Iftekhar; Johnc, Kose; Kadiyalad, Padma |
| Abstract: | We augment the LLSV creditor rights index with a new “restructuring index” that measures the incentives provided to creditors to grant concessions outside formal bankruptcy. We study the joint impact of the two indexes on a firm’s leverage policy. We show that the two indexes have at most a statistically weak effect on the level of long-term debt. Instead, the two indexes affect the distribution of long-term debt into bank debt, public debt and private placements. Bank debt increases when the values of both indexes are high. Public debt increases when the creditor rights index is high, but the restructuring index is low, and private placements increase when the restructuring index is high, but the creditor rights index is low. Smaller firms with fewer tangible assets borrow more from banks when both the creditor rights and restructuring indexes are high. When aggregated at the country level, these firm-level results suggest that bankruptcy law can influence the relative importance of credit and equity markets as sources of financing GDP growth. |
| Keywords: | bankruptcy law, debt structure, restructuring, bank debt, creditor right |
| JEL: | G32 G33 G38 |
| Date: | 2016–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2016_013&r=cfn |
| By: | Amberg, Niklas (Department of Economics); Jacobson, Tor (Research Department, Central Bank of Sweden); von Schedvin, Erik (Research Department, Central Bank of Sweden); Townsend, Robert (Department of Economics) |
| Abstract: | Using data on exogenous liquidity losses generated by the fraud and failure of a cash-intransit firm, we demonstrate a causal impact on firms’ trade credit usage. We find that firms manage liquidity shortfalls by increasing the amount of drawn credit from suppliers and decreasing the amount issued to customers. The compounded trade credit adjustments are at least as great, if not greater than corresponding adjustments in cash holdings, suggesting that trade credit positions are economically important sources of reserve liquidity. The underlying mechanism in trade credit adjustments is in part due to shifts in credit durations—both upstream and downstream. |
| Keywords: | Liquidity management; Trade credit; Risk sharing |
| JEL: | D22 G30 |
| Date: | 2016–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0320&r=cfn |
| By: | Kenjiro Hori (Department of Economics, Mathematics & Statistics, Birkbeck); Jorge Martin Ceron (Department of Economics, Mathematics & Statistics, Birkbeck) |
| Abstract: | The convex payoffs for equityholders in a corporate structure results in agency costs and moral hazard problems. The implicit government guarantee for banks accentuates these. We believe that the Basel III related bail-in contingent convertible (CoCo) structures do only not solve these problems, but may even aggravate them. In this paper we suggest solutions. The first is to replace the currently issued writedown/off and equity-conversion CoCo structures with a market-price equity-conversion CoCo bonds. This mirrors the full dilution effect of an ordinary equity raise in a distressed situation to reduce incentives for high risk-taking by equityholders. The second is to establish a Contingent Equity Base that replaces the incumbent shareholders once the CoCo is triggered. This will finally remove the perverse risk-taking incentives. The valuation of the CEB is then suggested. |
| Keywords: | CoCo bond, agency costs, moral hazard, bail-in, cost of equity. |
| JEL: | D82 G21 G28 G32 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1603&r=cfn |
| By: | Cici, Gjergji; Gibson, Scott; Rosenfeld, Claire |
| Abstract: | This paper investigates investment strategies that exploit the low-beta anomaly. Although the notion of buying low-beta stocks and selling high-beta stocks is natural, a choice is necessary with respect to the relative weighting of high-beta stocks and low-beta stocks in the investment portfolio. Our empirical results for US large-cap stocks show that this choice is very important for the risk-return characteristics of the resulting portfolios and their sensitivities to common risk factors. We also show that investment strategies based on betas have a natural-hedge component and a market-timing component due to the stochastic variation of betas. We construct indicators to exploit the market-timing component and show that they have substantial predictive power for future market returns. Corresponding market-timing strategies deliver large positive excess returns and high Sharpe ratios. |
| Keywords: | cross-ownership,institutional ownership,active investment,credit market interactions,syndicated lending |
| JEL: | D22 G21 G23 G30 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:1601&r=cfn |
| By: | Westman, Hanna |
| Abstract: | Failure in bank corporate governance has been seen as a contributing factor to excessive risk-taking pre-crisis with devastating implications as risks realised during the financial crisis. Unfortunately, the empirical evidence on the impact of managerial incentives on bank crisis performance is scarce. Moreover, bank strategy has not previously been accounted for. Hence, this paper presents novel findings on drivers for risk-taking and crisis performance. Specifically, I find a positive impact of management ownership in small diversified banks and non-traditional banks, the monitoring of which is challenging due to their opacity. The impact is negative in traditional banks and large diversified banks, indicating that shareholders induce managers to take risk where the safety net creates incentives for risk-shifting to debt holders and taxpayers. These findings have implications for both academic research as well as policy making particularly in the domain of corporate governance. Keywords: banks crisis performance, management ownership, traditional vs. nontraditional banking, diversification, safety net, bank opacity and complexity |
| JEL: | G01 G21 G28 G32 L25 |
| Date: | 2014–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2014_028&r=cfn |