nep-cfn New Economics Papers
on Corporate Finance
Issue of 2016‒07‒09
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Measuring Agency Costs and the Value of Investment Opportunities of U.S. Bank Holding Companies with Stochastic Frontier Estimation By Joseph P. Hughes; Loretta J. Mester; Choon-Geol Moon
  2. Internal Sources of Financing Companies on the Basis of Static and Dynamic Indicators: Comparative Analysis By Pavlović, Radica; Bukvić, Rajko; Gajić, Aleksandar
  3. Spill over effects of executive incentives on corporate cash holdings: Evidene from Australia By Muhammad Atif; Benjamin Liu; Allen Huang
  4. Evolution of the insolvency framework for non-financial firms in India By Rajeswari Sengupta; Anjali Sharma; Susan Thomas
  5. The Impact of Finance on the Performance of Thai Manufacturing Small and Medium-Sized Enterprises By Amornkitvikai, Yot; Harvie, Charles
  6. Firm investment and financial conditions in the euro area: evidence from firm-level data By Hiona Balfoussia; Heather D. Gibson
  7. Policy instruments to improve MSMEs access to external financing in developing countries: A survey By Modeste Dayé; Romain Houssa; Paul Reding

  1. By: Joseph P. Hughes (Rutgers University); Loretta J. Mester (Federal Reserve Bank of Cleveland); Choon-Geol Moon (Hanyang University)
    Abstract: By eliminating the influence of statistical noise, stochastic frontier techniques permit the estimation of the best-practice value of a firm’s investment opportunities and the magnitude of a firm’s systematic failure to achieve its best-practice market value – a gauge of the magnitude of agency costs. These frontiers are estimated from the performance of all firms in the industry and, thus, capture best-practice performance that is, unlike Tobin’s q ratio, independent of the managerial decisions of any particular firm. Using the frontier measure of performance applied to 2007 data on top-tier, publicly traded U. S. bank holding companies, we obtain evidence on market discipline: we find that higher managerial ownership at most banks tends to align the interests of insiders with those of outside owners and to be associated with improved financial performance; at most banks, higher blockholder ownership is associated with improved financial performance obtained from blockholders’ monitoring; and, at most banks, higher product-market concentration is associated with poorer financial performance and the so-called managerial quiet life. Using the frontier measure of investment opportunities, we find evidence that banks with relatively higher-valued investment opportunities achieve less of their potential market value, while banks with lower-valued opportunities achieve more of their potential value. In spite of their lower-valued opportunities, these banks, on average, achieve the same Tobin’s q ratio and, thus, appear better able to exploit their less valuable investment opportunities. Our results suggest that higher-valued opportunities may reduce managers’ performance pressure and provide a stronger incentive to consume agency goods.
    Keywords: banking, efficiency, ownership structure, competition
    JEL: C58 G21 G28
    Date: 2016–06–24
  2. By: Pavlović, Radica; Bukvić, Rajko; Gajić, Aleksandar
    Abstract: The Republic of Serbia is characterized by unsatisfactory macroeconomic environment (high degree of illiquidity, high inflation rate, rising unemployment, decline in the level of capacity utilization, followed by the process of globalization, deregulation and liberalization of the market with all its negative connotations to the growth and development of our country). Under such conditions where there is a shortage of liquid assets the financial capital has moved from the real to the financial sector, which led companies to over-indebtedness and shutdown of their own capacities. Therefore, capital investments largely depend on internal sources of financing and the ability of companies to internally generate funds for investments. In this regard emphasis is placed on the difference in the assessment of the investment ability of companies based on internal sources of financing measured using static and dynamic indicators in order to prove the necessity of applying dynamic coefficients which unfortunately are not present in our domestic practice.
    Keywords: dynamic analysis, investments, financing
    JEL: G17 G31 G32 M40
    Date: 2015
  3. By: Muhammad Atif; Benjamin Liu; Allen Huang
    Keywords: Cash holding, Australia, compensation, corporate governance
    JEL: G30 G32 G34 G38
    Date: 2016–06
  4. By: Rajeswari Sengupta (Indira Gandhi Institute of Development Research); Anjali Sharma (Indira Gandhi Institute of Development Research); Susan Thomas (Indira Gandhi Institute of Development Research)
    Abstract: The current Indian framework for corporate insolvency resolution, is fraught with deficiencies in the laws, their procedures, their implementation as well as in the capacity of the institutions supporting them. The absence of a coherent and effective mechanism for resolving corporate insolvency has resulted in poor economic outcomes. The origin of the complex framework characterised by multiple, fragmented laws, can be traced back to the history of its evolution. In this paper, we describe the evolution of the corporate insolvency resolution framework, with the objective of linking it back to the policy directive of the time. We conclude that when policy adopts a piecemeal approach focusing on solving only a part of the complex problem, one at a time, it most often leads to inefficient outcomes on the overall objective. We end with a brief description of the Insolvency and Bankruptcy Code (IBC), 2016 which is most recent policy initiative in this field. The IBC is a clean, modern law that offers a simple, coherent answer to the insolvency resolution problems under current Indian conditions. Once implemented, the law will potentially change not only the manner in which insolvency is resolved in India but also the entire credit landscape of the country.
    Keywords: Indian insolvency law, Restructuring, Winding up, Secured creditors, Debt recovery, Insolvency and Bankruptcy Code
    JEL: G33 G34 K2
    Date: 2016–06
  5. By: Amornkitvikai, Yot (Asian Development Bank Institute); Harvie, Charles (Asian Development Bank Institute)
    Abstract: This study sheds light on small and medium-sized enterprise (SME) financing and its performance in Thailand. It elaborates on the key sources of finance existing for Thai manufacturing SMEs and their importance for SME performance as measured by technical efficiency, export performance, and technological innovation. This study also examines the key factors enhancing SME access to external finance. Our results confirm that retained earnings are crucial to increase SME technical efficiency, but loans from unlicensed moneylenders deteriorate their export performance. For external finance, government-owned specialized financial institutions (SFIs) play a leading role in enhancing SME technical efficiency and export performance, but the results from the survey reveal that few Thai manufacturing SMEs actively seek external finance from these institutions. Foreign commercial banks also help enhance SME technical efficiency. The results show that larger SMEs have superior performance as measured by export performance and technological innovation performance. The results also reveal that financial institutions in Thailand still rely on collateral-based lending and SME financial transparency through audited financial statements to reduce asymmetric information and adverse selection costs.
    Keywords: Thailand; manufacturing; SME; specialized financial institution; exports; export performance; technical efficiency; technology; innovation; market access; human resources; credit; financing; banks; business loans; collateral; interest rate
    JEL: D22 D24 G20 L25 L60
    Date: 2016–06–23
  6. By: Hiona Balfoussia (Bank of Greece); Heather D. Gibson (Bank of Greece)
    Abstract: We explore whether the sensitivity of firm-level investment to cash-flow, typically associated with an external financing premium, is time-varying and in particular whether it varies with overall financial conditions. We find that financial conditions have indeed played a significant role in corporate investment decisions over recent years, rendering financing constraints even more binding. This finding appears to be robust to a number of control variables and robustness tests. Moreover, the impact of credit conditions is not uniform across firms, but rather it varies depending on firm size and leverage, with constrained firms being substantially more likely to condition their investment decisions on overall credit conditions. Our results cast new light on the interplay between financial and real cycle downturns and underline the need for monetary, fiscal and macroprudential policy to be countercyclical with respect to financial conditions.
    Keywords: investment;financial conditions; euro area firms
    JEL: E22 E44 E50
    Date: 2016–06
  7. By: Modeste Dayé (CRED, University of Namur); Romain Houssa (CRED, University of Namur); Paul Reding (CRED, University of Namur)
    Abstract: This paper presents the salient factors that characterize important aspects of firms’ access to external finance in developing countries. Cross-country data show that micro, small and medium-sized enterprises (MSMEs) face more external financing constraints in Low Income Countries than in their rich counterparts. To explain this fact we distinguish both demand and supply factors underlying external financing constraints. We then argue for a catalytic role that development cooperation can play in alleviating these constraints. We present an illustration based on the policy instruments that have been used by development cooperation. Our particular interest is to document how well the Belgium Development Cooperation support of MSMEs compares to that provided by four other European countries: France, Germany, The Netherlands, and Sweden. We conclude with a discussion on the critical policy issues as regards the effectiveness of these interventions.
    Keywords: MSME, external finance, DFI, information asymmetry
    JEL: G23 O16 Y10
    Date: 2015–06

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