nep-cfn New Economics Papers
on Corporate Finance
Issue of 2016‒06‒14
three papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. How Does Hedge Fund Activism Reshape Corporate Innovation? By Alon Brav; Wei Jiang; Song Ma; Xuan Tian
  2. Management science, economics and finance: A connection By Chia-Lin Chang; Michael McAleer; Wing-Keung Wong
  3. Who gains from credit granted between firms? Evidence from inter-corporate loan announcements made in China By He, Qing; Lu, Liping; Ongena, Steven

  1. By: Alon Brav; Wei Jiang; Song Ma; Xuan Tian
    Abstract: This paper studies how hedge fund activism reshapes corporate innovation. Firms targeted by hedge fund activists experience an improvement in innovation efficiency during the five-year period following the intervention. Despite a tightening in R&D expenditures, target firms experience increases in innovation output, measured by both patent counts and citations, with stronger effects seen among firms with more diversified innovation portfolios. We also find that the reallocation of innovative resources and the redeployment of human capital contribute to the refocusing of the scope of innovation. Finally, additional tests refute alternative explanations attributing the improvement to mean reversion, sample attrition, management’s voluntary reforms, or activists’ stock-picking abilities.
    JEL: G23 G3 G34 O31
    Date: 2016–05
  2. By: Chia-Lin Chang (Department of Applied Economics Department of Finance National Chung Hsing University Taichung, Taiwan.); Michael McAleer (Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute, Erasmus School of Economics Erasmus University Rotterdam and Tinbergen Institute, The Netherlands and Department of Quantitative Economics Complutense University of Madrid, Spain.); Wing-Keung Wong (Department of Economics Hong Kong Baptist University Hong Kong, China and Department of Finance Asia University Taiwan.)
    Abstract: This paper provides a brief review of the connecting literature in management science, economics and finance, and discusses some research that is related to the three disciplines. Academics could develop theoretical models and subsequent econometric models to estimate the parameters in the associated models, and analyze some interesting issues in the three disciplines.
    Keywords: Management science, Economics, Finance, Theoretical models, Econometric models.
    JEL: A10 G00 G31 O32
    Date: 2016–05
  3. By: He, Qing; Lu, Liping; Ongena, Steven
    Abstract: ​Who gains from inter-corporate credit? To answer this question we investigate the reactions of the stock prices of both the issuing and receiving firms to the announcements of 719 inter-corporate loans that took place between 2005 and 2012 in China. We find that the average abnormal return for the issuers of inter-corporate loans is significantly negative, whereas the corresponding return for those firms receiving credit is positive. Investors may worry that issuing firms may have run out of other worthwhile projects to finance, while at the same time they may view credit-receiving firms as being certified as worthy borrowers. The issuance of intra-group loans, especially those with higher interest rates, is associated with lower returns overall since such loans may signal a spreading of financial distress to the rest of the group. After issuing inter-corporate loans, firms are also found to have lower accounting performance, which confirms the aforementioned signaling interpretation.
    Keywords: entrusted loan, inter-corporate loan, credit misallocation, certification
    JEL: G30 G14 G21
    Date: 2015–01–17

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