nep-cfn New Economics Papers
on Corporate Finance
Issue of 2016‒11‒06
nine papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. The impact of financial crisis on earnings management: evidence from EU-25 By Luísa Andreia Serra Costa; António de Melo da Costa Cerqueira; Elísio Fernando Moreira Brandão
  2. Idiosyncratic Volatility and Earnings Quality: Evidence from United Kingdom By Ana Isabel Ramos Domingues; António de Melo da Costa Cerqueira; Elísio Fernando Moreira Brandão
  3. Family Ownership: Does it Matter for Funding and Success of Corporate Innovations? By Dorothea Schäfer; Andreas Stephan
  4. Managerial rents vs. shareholder value in delegated portfolio management: The case of closed-end funds By Wu, Youchang; Wermers, Russ; Zechner, Josef
  5. Information asymmetry reduction in opaque contexts: Evidence from debt and outside equity financing in early stage firms By Mircea Epure; Martí Guasch
  6. Debt maturity and the dynamics of leverage By Dangl, Thomas; Zechner, Josef
  7. The impact of exporting on SME capital structure and debt maturity choices By Elisabeth Maes; Nico Dewaelheyns; Catherine Fuss; Cynthia Van Hulle
  8. Start-Up Capital and Women's Entrepreneurship: Evidence from Swaziland By Brixiova, Zuzana; Kangoye, Thierry
  9. Option pricing in exponential L\'evy models with transaction costs By Nicola Cantarutti; Jo\~ao Guerra; Manuel Guerra; Maria do Ros\'ario Grossinho

  1. By: Luísa Andreia Serra Costa (FEP-UP, School of Economics and Management, University of Porto); António de Melo da Costa Cerqueira (FEP-UP, School of Economics and Management, University of Porto); Elísio Fernando Moreira Brandão (FEP-UP, School of Economics and Management, University of Porto)
    Abstract: This study examines the relationship between the financial crisis and earnings management of non-financial listed companies from 25 countries which belonged to the EU in 2006, over the period 2006-2014. Also, I intend to study whether the dividend distribution is motivation for companies to earnings management. In this empirical work, we use the discretionary accruals as a proxy of earnings management and the results were obtained using the OLS model. Our results suggest that earnings management by firms is lower in periods of financial crisis and firms that pay dividends have no tendency to earnings management.
    Keywords: Earnings management; Financial crisis; Dividend distribution; Accruals
    JEL: G01 M41
    Date: 2016–10
  2. By: Ana Isabel Ramos Domingues (FEP-UP, School of Economics and Management, University of Porto); António de Melo da Costa Cerqueira (FEP-UP, School of Economics and Management, University of Porto); Elísio Fernando Moreira Brandão (FEP-UP, School of Economics and Management, University of Porto)
    Abstract: Recently, the idiosyncratic volatility has captured much of the attention of the financial literature, being the idiosyncratic volatility puzzle one of the most studied. Our study aims to verify if the financial reporting quality, proxied by earnings quality, an accrual-based measure, has an impact on idiosyncratic return volatility, using as sample the firms listed on London Stock Exchange, and comprising the period between 1988 and 2015. To account for the robustness of our results, we used several control variables, such as leverage, size, ratio book-to-market, firm age and firm performance. We conclude that earnings quality has a positive impact on idiosyncratic volatility, meaning that poorer information quality implies higher idiosyncratic volatility. Posteriorly, we extend our study to a trend analysis, asking if the earnings quality behaviour is related with the idiosyncratic volatility trends. We prove that idiosyncratic volatility does not have a constant upward trend, instead it behaves like ebbs and flows. We found that earnings quality has an impact, albeit small, in the overall trend of idiosyncratic volatility, and also explains its episodic behaviour.
    Keywords: Idiosyncratic Volatility, Earnings Quality, Abnormal Accruals, Time Series Analysis
    JEL: G11 G12 G14 G32
    Date: 2016–10
  3. By: Dorothea Schäfer (German Institute for Economic Research DIW Berlin); Andreas Stephan (Jönköping International Business School)
    Abstract: Using the Mannheim innovation panel, we investigate whether family firms have higher financial need and how this affects both innovation input and innovation outcomes such as firm or market novelties, or process innovation. Applying the CDM framework, we find that family firms are more likely to have a latent financial need for innovation, which means that they have innovation ideas which they have not implemented yet. We find that family firms have a significantly lower marginal innovation productivity in particular for innovations with radical character, i.e., market novelties. We conclude from this evidence that family firms have a comparative disadvantage in innovation projects that imply high risk and require high innovation capability.
    Keywords: Innovation, Capability, Funding gaps, Financing Restrictions, Family Firms, CDM
    JEL: D21 D22 G31 O30 O31 O32
    Date: 2016–10
  4. By: Wu, Youchang; Wermers, Russ; Zechner, Josef
    Abstract: We examine the dynamics of assets under management (AUM) and management fees at the portfolio manager level in the closed-end fund industry. We find that managers capitalize on good past performance and favorable investor perception about future performance, as reflected in fund premiums, through AUM expansions and fee increases. However, the penalties for poor performance or unfavorable investor perception are either insignificant, or substantially mitigated by manager tenure. Long tenure is generally associated with poor performance and high discounts. Our findings suggest substantial managerial power in capturing CEF rents. We also document significant diseconomies of scale at the manager level.
    Keywords: Closed-end fund,Closed-end fund discount,Managerial rent
    JEL: G23 G34
    Date: 2016
  5. By: Mircea Epure; Martí Guasch
    Abstract: This study analyzes the relationship between debt and outside equity investments in early stage firms. The existing evidence on this relationship is scarce and inconclusive, mostly due to the pervasive opaqueness of early stage firms. We argue that outside investors who face the severe information asymmetries that exist in entrepreneurial firms may use the level of debt as a signal. In addition, personal and business debt could signal different information to outside investors. We use the Kauffman Firm Survey and develop an empirical strategy based on a Heckman selection model and a propensity score matching analysis. Our results consistently show that debt, and particularly business debt, is positively related to outside equity investments, especially in times of economic distress. We posit that start-ups with higher levels of business debt can send more credible signals to capital markets, and identify cash holdings and the firm-bank relationship as possible information channels for outside investors.
    Keywords: financing; debt; equity; entrepreneurship; information asymmetry; capital structure.
    JEL: G32 M13 M40
    Date: 2015–11
  6. By: Dangl, Thomas; Zechner, Josef
    Abstract: This paper shows that long debt maturities eliminate equityholders' incentives to reduce leverage when the firm performs poorly. By contrast, short debt maturities commit equityholders to such leverage reductions. However, shorter debt maturities also lead to higher transactions costs when maturing bonds must be refinanced. We show that this tradeoff between higher expected transactions costs against the commitment to reduce leverage when the firm is doing poorly motivates an optimal maturity structure of corporate debt. Since firms with high costs of financial distress benefit most from committing to leverage reductions, they have a stronger motive to issue short-term debt.
    Keywords: debt maturity,optimal capital structure choice
    JEL: G3 G32
    Date: 2016
  7. By: Elisabeth Maes (KULeuven, Faculty of Economics and Business, Department of Accountancy, Finance and Insurance); Nico Dewaelheyns (KULeuven, Faculty of Economics and Business, Department of Accountancy, Department of Financial Management); Catherine Fuss (Economics and Research Department, National Bank of Belgium); Cynthia Van Hulle (KULeuven, Faculty of Economics and Business, Department of Accountancy, Finance and Insurance)
    Abstract: Using a longitudinal dataset comprising of detailed financial and exporting data from Belgian small and medium-sized enterprises (SME) between 1998 and 2013, this article examines the manner in which firms manage to finance their export activities and the resulting impact on corporate capital structure. We find that exporters have to finance relatively more working capital as compared to their non-exporting peers and that they resolve this financing need by carrying more short-term debt. In addition, we evidence that the relationship between pledgeable short-term assets, such as working capital, and short-term debt financing is more pronounced for exporters. In particular, we show that the ties between pledgeable short-term assets and short-term debt financing are stronger for export-intensive firms and firms that serve distant and risky export destinations. Overall, what our empirical findings seem to suggest is that developing tools that facilitate the pledging of assets is likely to boost SME export activities by widening access to bank financing and reducing financial constraints.
    Keywords: SMEs, capital structure, debt maturity, export, collateral, working capital
    JEL: F10 F14 F42 G3 G32
    Date: 2016–10
  8. By: Brixiova, Zuzana (University of Cape Town); Kangoye, Thierry (African Development Bank)
    Abstract: This paper examines gender differences in entrepreneurial performance and their links with start-up capital utilizing a search model and empirical analysis of survey of entrepreneurs from Swaziland. The results show that entrepreneurs of both genders with higher start-up capital record better sales performance than those with smaller amounts of capital. For women entrepreneurs, formal finance sources of start-up capital are also associated with higher sales. However, as in other developing countries, women entrepreneurs in Swaziland have smaller start-up capital and are less likely to fund it from formal sources than men. Among women entrepreneurs, those with college education and confident in their skills tend to start their firms with higher amounts of capital. Professional support also matters, as women with such support are more likely to fund their start-up capital from the formal financial sector.
    Keywords: women's entrepreneurship, start-up capital, search model, multivariate analysis
    JEL: L53 O12 C61
    Date: 2016–10
  9. By: Nicola Cantarutti; Jo\~ao Guerra; Manuel Guerra; Maria do Ros\'ario Grossinho
    Abstract: We present an approach for pricing a European call option in presence of proportional transaction costs, when the stock price follows a general exponential L\'evy process. The model is a generalization of the celebrated work of Davis, Panas and Zariphopoulou (1993), where the value of the option is found using the concept of utility indifference price. This requires to solve two stochastic singular control problems in finite time, satisfying the same Hamilton-Jacobi-Bellman equation and with different terminal conditions. We solve numerically the continuous time optimization problem using the Markov chain approximation method, and consider the underlying stock following an exponential Merton jump-diffusion process. This model takes into account the possibility of portfolio bankruptcy. We show numerical results for the simpler case of an infinitely rich investor, whose probability of default can be ignored. Option prices are obtained for both the writer and the buyer.
    Date: 2016–11

This nep-cfn issue is ©2016 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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