nep-cfn New Economics Papers
on Corporate Finance
Issue of 2016‒08‒21
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Interfund lending in mutual fund families: Role of internal capital markets By Agarwal, Vikas; Zhao, Haibei
  2. Are Euro-Area Corporate Bond Markets Irrelevant? The Effect of Bond Market Access on Investment By von Beschwitz, Bastian; Howells, Conor T.
  3. Women on boards in finance and STEM industries By Renée B. Adams; Thomas Kirchmaier
  4. Venture Capital Data: Opportunities and Challenges By Steven N. Kaplan; Josh Lerner
  5. Cultural proximity and loan outcomes By Raymond Fisman; Daniel Paravisini; Vikrant Vig
  6. Bond finance, bank credit, and aggregate fluctuations in an open economy By Chang, Roberto; Fernández, Andrés; Gulan, Adam
  7. Why does idiosyncratic risk increase with market risk? By Bartram, Söhnke M.; Brown, Gregory W.; Stulz, René M.

  1. By: Agarwal, Vikas; Zhao, Haibei
    Abstract: Although the 1940 Act restricts interfund lending within a mutual fund family, families can apply for exemptions from the regulator to participate in interfund lending. We find that heterogeneity in portfolio liquidity and investor flows across funds, funds' investment restrictions, and governance mechanisms determine the applications for interfund lending. We document several costs and benefits of interfund lending after the application. Costs include lower sensitivity of managers' turnover to past performance and greater investor withdrawal for poorly governed funds. Benefits include funds holding more illiquid and concentrated portfolios, and being less susceptible to runs. Finally, well-governed funds perform better.
    Keywords: funding liquidity,fund families,internal capital markets,fund performance
    JEL: G18 G23 G32
    Date: 2016
  2. By: von Beschwitz, Bastian; Howells, Conor T.
    Abstract: We compare how bond market access affects firms’ investment decisions in the United States and the euro area. Having a bond rating enables US corporations to invest more and undertake more acquisitions. In contrast, in the euro area, bond ratings have no effect on investment decisions. Similarly, firms with bond ratings have higher leverage in the United States, but not in the euro area. This difference may be due to euro-area firms getting sufficient financing from banks. Consistent with this explanation, euro-area bond ratings became more relevant for investment after the banking crisis of 2008, when banks reduced their lending to firms.
    Keywords: Mergers and acquisitions ; Bond ratings ; Investment ; Financing constraints
    JEL: G31 G32 G34
    Date: 2016–06–30
  3. By: Renée B. Adams; Thomas Kirchmaier
    Abstract: We document that women are less represented on corporate boards in Finance and more traditional STEM industry sectors. Even after controlling for differences in firm and country characteristics, average diversity in these sectors is 24% lower than the mean. Our findings suggest that well-documented gender differences in STEM university enrolments and occupations have long-term consequences for female business leadership. The leadership gap in Finance and STEM may be difficult to eliminate using blanket boardroom diversity policies. Diversity policies are also likely to have a different impact on firms in these sectors than in non-STEM sectors.
    JEL: G34 G38 I23 J16
    Date: 2016–05–01
  4. By: Steven N. Kaplan; Josh Lerner
    Abstract: This paper describes the available data and research on venture capital investments and performance. We comment on the challenges inherent in those data and research as well as possible opportunities to do better.
    JEL: G24 L26
    Date: 2016–08
  5. By: Raymond Fisman; Daniel Paravisini; Vikrant Vig
    Abstract: We present evidence that cultural proximity (shared codes, beliefs, ethnicity) between lenders and borrowers increases the quantity of credit and reduces default. We identify in-group lending using dyadic data on religion and caste for officers and borrowers from an Indian bank, and a rotation policy that induces exogenous matching between them. Having an in-group officer increases credit access and loan size dispersion, reduces collateral requirements, and induces better repayment even after the in-group officer leaves. We consider a range of explanations and suggest that the findings are most easily explained by cultural proximity serving to mitigate information frictions in lending.
    JEL: F3 G3
    Date: 2016
  6. By: Chang, Roberto; Fernández, Andrés; Gulan, Adam
    Abstract: Corporate sectors in emerging markets have noticeably increased their reliance on foreign financing, presumably reflecting low global interest rates. The evidence also shows a rebalancing from bank loans towards bonds. To study these developments, we develop a dynamic open economy model where these modes of finance are determined endogenously. The model replicates the stylized facts following a drop in world interest rates; in particular, rebalancing towards bonds occurs because bank credit becomes relatively more expensive, reflecting the scarcity of bank equity. More generally, the model is suitable for studying interactions between modes of finance and the macroeconomy.
    Keywords: emerging markets, corporate debt, bonds, bank credit
    JEL: E32 E44 F41 G31
    Date: 2016–08–05
  7. By: Bartram, Söhnke M.; Brown, Gregory W.; Stulz, René M.
    Abstract: From 1963 through 2015, idiosyncratic risk (IR) is high when market risk (MR) is high. We show that the positive relation between IR and MR is highly stable through time and is robust across exchanges, firm size, liquidity, and market-to-book groupings. Though stock liquidity affects the strength of the relation, the relation is strong for the most liquid stocks. The relation has roots in fundamentals as higher market risk predicts greater idiosyncratic earnings volatility and as firm characteristics related to the ability of firms to adjust to higher uncertainty help explain the strength of the relation. Consistent with the view that growth options provide a hedge against macroeconomic uncertainty, we find evidence that the relation is weaker for firms with more growth options.
    Keywords: uncertainty,idiosyncratic risk,market risk,growth options,liquidity,limits to arbitrage
    JEL: G10 G11 G12
    Date: 2016

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