nep-cfn New Economics Papers
on Corporate Finance
Issue of 2016‒10‒16
eight papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Impact of Corporate Governance on Peruvian Banks' Financial Strength By Derry Quintana Aguilar
  2. Bureaucrats as successor CEOs By Dang, Tri Vi; He, Qing
  3. Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism By Ian R. Appel; Todd A. Gormley; Donald B. Keim
  4. The Influence of Dividend Payments, Profitability, Liquidity and Firm Size for Cash Holdings – Case of Indonesian Manufacturing Companies By Heru Fahlevi; Muhammad Arfan; Hafidah Hafidah
  5. Theories of Risk: Testing Investor Behaviour on the Taiwan Stock and Stock Index Futures Markets By Clark, Ephraim; Qiao, Zhuo; Wong, Wing-Keung
  6. DISRUPTIONS OF THE FLOW OF INFORMATION IN BUSINESS MANAGEMENT By Małgorzata Šęgowik-Małolepsza; Robert Sałek; Dagmara Bubel; Nicoletta Baskiewicz
  7. Incentive-based capital requirements By Eufinger, Christian; Gill, Andrej
  8. Corporate Governance, Shareholder Proposal, and Corporate Performance –Evidence from Taiwan By Mei-Hung Huang; Yih Jeng; So-De Shyu

  1. By: Derry Quintana Aguilar (Central Reserve Bank of Peru)
    Abstract: International evidence has shown how the lack of proper corporate governance in banks increases risk management, thereby reducing their financial strength. This paper addresses how corporate governance in Peruvian banks is related to their financial strength. The measure of corporate governance includes variables such as Board`s compensations, shares concentration, transparency and market discipline. In turn, a measure of financial strength is built, including indicators of capital adequacy, asset quality, management, earnings, and liquidity. Most importantly, our results indicate that banks with higher corporate governance indices exhibit higher financial strength.
    Keywords: Corporate Governance, Bank Performance, Government Policy.
    JEL: G21 G28 G32 G34
    Date: 2016–05
  2. By: Dang, Tri Vi; He, Qing
    Abstract: Chinese companies sometimes appoint a government official (bureaucrat) as CEO on the expectation of benefiting from the political connections of the new hire. Based on a sample of 2,454 CEO transitions our empirical findings are consistent with the implications of a simple contract model in oligopolistic markets. Firms that appoint a bureaucrat as CEO obtain more credit and subsidies. They have positive abnormal announcement returns, negative abnormal long-run returns and larger variance of long-run returns. Furthermore, they experience a deterioration in operating performances, increased rent-seeking behavior of the management and weakening of corporate governance. The results from the split share structure reform in 2005 corroborate the supportive findings for the preferential treatment hypothesis.
    Keywords: bureaucrat, corporate political connections, CEO successions in China, governance
    JEL: G32 G34 M13
    Date: 2016–09–28
  3. By: Ian R. Appel; Todd A. Gormley; Donald B. Keim
    Abstract: We analyze whether the growing importance of passive investors has influenced the campaigns, tactics, and successes of activists. We find activists are more likely to pursue changes to corporate control or influence (e.g., via board representation) and to forego more incremental changes to corporate policies when a larger share of the target company’s stock is held by passively managed mutual funds. Furthermore, higher passive ownership is associated with increased use of proxy fights and a higher likelihood the activist obtains board representation or the sale of the targeted company. Overall, our findings suggest that the increasingly large ownership stakes of passive institutional investors mitigate free-rider problems associated with certain forms of intervention and ultimately increase the likelihood of success by activists.
    JEL: D22 G23 G30 G34
    Date: 2016–09
  4. By: Heru Fahlevi (Syiah Kuala University); Muhammad Arfan (Syiah Kuala University); Hafidah Hafidah (Syiah Kuala University)
    Abstract: This study is aimed at examining the influence of dividend payments, profitability, liquidity, and firm size for cash holdings in manufacturing companies. The population of this study was manufacturing companies listed in Indonesia Stock Exchange between 2010 and 2014. The population of this study was manufacturing companies that listed in Indonesia Stock Exchange which published financial statements by December 31st and paying dividend payments respectively during the observation period (2010-2014). This study used census method and collected cross-sections data. Thus, 32 companies were selected or 160 observation data were analysed. The data was collected from published financial statements. The analysis method used in this study was multiple linear regression. This study found that dividend payments, profitability, liquidity, and firm size both collectively and individually have an effect on cash holdings in the manufacturing companies. Therefore, the results are consistent with previous research findings, although it was carry out in a single industry and in a developing country.
    Keywords: Dividend Payments, Profitability, Liquidity, Firm Size, Cash Holdings
    JEL: G21
  5. By: Clark, Ephraim; Qiao, Zhuo; Wong, Wing-Keung
    Abstract: Investor behavior towards risk lies at the heart of economic decision making in general and modern investment theory and practice in particular. This paper uses both the mean-variance (MV) criterion and stochastic dominance (SD) procedures to analyze the preferences for four of the most widely studied investor types in the Taiwan stock and stock index futures market. We find that risk averters (concave utility function) prefer spot to futures, whereas risk seekers (convex utility function) prefer futures to spot. Our findings also show that investors with S-shaped utility functions prefer spot (futures) to futures (spot) when markets move upward (downward). Finally, our results imply that investors with reverse S-shaped utility functions prefer futures (spot) to spot (futures) when markets move upward (downward). These results are robust with respect to sub-periods, spot returns including dividends and diversification. Although we do not check whether risk averters, risk seekers, and investors with S-shaped and reverse S-shaped utility functions actually exist in the market, we do show that their existence is plausible. The implications of our findings on market efficiency and the existence of arbitrage opportunities are also discussed in this study.
    Keywords: stochastic dominance; risk aversion; risk seeking; prospect theory; behavioral economics; stock index futures
    JEL: C14 C15 G12
    Date: 2016–04–18
  6. By: Małgorzata Šęgowik-Małolepsza (Politechnika Częstochowska); Robert Sałek (Politechnika Częstochowska); Dagmara Bubel (Politechnika Częstochowska); Nicoletta Baskiewicz (Politechnika Częstochowska)
    Abstract: The aim of this article is to present the disruptions of the flow of information in business management. In the first part of the article the reasons of the disruptions of the flow of information are discussed. In the second part of the article the barriers to the flow of information are shown. Information has always been the bargaining power in the efforts of entrepreneurs to best meet the needs of the society. Proper information management is closely linked to the decision-making process in the enterprise. The article underlines the role of information in the whole process of business management and also shows how different disruptions can occur in the flow of the information process.
    Keywords: information, company management, decision-making process
    JEL: M21
  7. By: Eufinger, Christian; Gill, Andrej
    Abstract: This paper proposes a new regulatory approach that implements capital requirements contingent on executive incentive schemes. We argue that excessive risk-taking in the financial sector originates from the shareholder moral hazard created by government guarantees rather than from corporate governance failures within banks. The idea behind the proposed regulatory approach is thus that the more the compensation structure decouples the interests of bank managers from those of shareholders by curbing risk-taking incentives, the higher the leverage the bank is permitted to take on. Consequently, the risk-shifting incentives caused by government guarantees and the risk-mitigating incentives created by the compensation structure offset each other such that the manager chooses the socially efficient investment policy.
    Keywords: Basel III,capital regulation,compensation,leverage,risk
    JEL: G21 G28 G30 G32 G38
    Date: 2016
  8. By: Mei-Hung Huang (Over Seas Chinese University ; National Sun Yat-sen University, Taiwan); Yih Jeng (National Sun Yat-Sen University, Taiwan.); So-De Shyu (Department of Banking and Finance, Takming University of Science and Technology, Taipei, Taiwan)
    Abstract: In this research, through taking Tobin’s q and ROE as the performance proxy variables and using panel data model for the empirical research, we mainly studied the relationship between the corporate governance and the corporate performance of the listed companies in Taiwan stock market from year 2010 to 2012 with the shareholders exercising the proposal rights. The results revealed that the shareholding proportion of the institutional investors and the salary of the board members are in the significant negative correlation with the corporate performance of the listed companies at the stock market. The corporate governance index and the corporate performance are in significant negative correlation for the listed companies at the over-the-counter market. No matter if the listed company is at the stock market or at the over-the-counter market, the board size and the corporate performance are in significant negative correlation.
    Keywords: Shareholder Proposal, Corporate Governance, Corporate Performance, Panel Data, Taiwan Stock Market
    JEL: G30 G34

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