nep-cfn New Economics Papers
on Corporate Finance
Issue of 2016‒11‒13
eleven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Changes in the relationship between the financial and the real sector and the present financial crisis in the European Union By Amaia Altuzarra; Patricia Peinado; Carlos Rodriguez; Felipe Serrano
  2. Does credit scoring improve the selection of borrowers and credit quality? By Giorgio Albareto; Roberto Felici; Enrico Sette
  3. Tracking Changes in the Intensity of Financial Sector's Systemic Risk By Xisong Jin; Francisco Nadal De Simone
  4. Debt Financing and Post-Privatization Performance of Firms: The Case of Nigerian Listed Firms By Usman, Ojonugwa; Uwadiegwu, Ihedioha O.; Olorunmolu, Joseph O.
  5. Effect of Family Control on Corporate Financing Decisions: A Case of Pakistan By Imran Yousaf; Arshad Hassan
  6. Recent development in Venture Capital and Private Equity Investment in the Czech Republic By Bozena Kaderabkova; Ondrej Ptacek
  7. Should I stay or should I go? Firms’ mobility across banks in the aftermath of financial turmoil By Davide Arnaudo; Giacinto Micucci; Massimiliano Rigon; Paola Rossi
  8. The (Self-)Funding of Intangibles By Robin Döttling; Tomislav Ladika; Enrico Perotti
  9. Information Asymmetry Reduction in Opaque Contexts: Evidence From Debt and Outside Equity Financing in Early Stage Firms By Mircea Epure; Martí Guasch
  10. Foreign ownership and performance: evidence from a panel of Italian firms By Chiara Bentivogli; Litterio Mirenda

  1. By: Amaia Altuzarra (Department of Applied Economics V, University of the Basque Country UPV/EHU); Patricia Peinado (Department of Applied Economics V, University of the Basque Country UPV/EHU); Carlos Rodriguez (Department of Applied Economics V, University of the Basque Country UPV/EHU); Felipe Serrano (Department of Applied Economics V, University of the Basque Country UPV/EHU)
    Abstract: In the first part of the paper we confirm the existence of a financial “vanishing effect” for the Eurozone countries since the 90s. In the 70s and 80s -when credit over GDP was still moderate- credit growth still had a positive effect on real growth, but thereafter during the financialization heydays when credit reached a high level, that link broke apart. In the second part we put forward that a main reason explaining why increasing financial deepening stopped to have a positive effect on growth might be due to NFCs having used an important part of their external resources for the acquisition of securities instead of financing real investment. This process of NFC finacialization and the observed increase in their selffinancing ability are two key reassuring indicators showing the disconnection of NFC financial behaviour with their investment decisions
    Keywords: bank credit, economic growth, NFC financing gap, NFC investment
    JEL: O47 G01 G21 C33
    Date: 2016–06–30
  2. By: Giorgio Albareto (Bank of Italy); Roberto Felici (Bank of Italy); Enrico Sette (Bank of Italy)
    Abstract: This paper studies the effect of credit scoring by banks on bank lending to small businesses by addressing the following questions: does credit scoring increase or decrease the propensity of banks to grant credit? Does it improve the selection of borrowers? Does credit scoring improve or reduce the likelihood that a borrower defaults on its loan? We answer these questions using a unique dataset that collects data from both a targeted survey on credit scoring models and the Central Credit Register. We rely on instrumental variables to control for the potential endogeneity of credit scoring. We find that credit scoring does not change the propensity of banks to grant loans to the generality of borrowers but helps them select borrowers. We also find that credit scoring reduces the likelihood that a borrower defaults, in particular for smaller borrowers and for banks that declare to use credit scoring mainly as a tool to monitor borrowers. These results are homogeneous across bank characteristics such as size, capital, and profitability. Overall our results suggest that credit scoring has a positive effect on the selection of borrowers and on credit performance.
    Keywords: credit scoring, credit supply, bank risk-taking, loan defaults
    JEL: G21
    Date: 2016–10
  3. By: Xisong Jin; Francisco Nadal De Simone
    Abstract: This study provides the first available estimates of systemic risk in the financial sector comprising the banking and investment fund industries during 2009Q4­2015Q4. Systemic risk is measured in three forms: as risk common to the financial sector; as contagion within the financial sector and; as the build­up of financial sector's vulnerabilities over time, which may unravel in a disorderly manner. The methodology models the financial sector components' default dependence statistically and captures the time­varying non-linearities and feedback effects typical of financial markets. In addition, the study estimates the common components of the financial sector's default measures and by identifying the macro-financial variables most closely associated with them, it provides useful input into the formulation of macro­prudential policy. The main results suggest that: (1) interdependence in the financial sector decreased in the first three years of the sample, but rose again later coinciding with ECB's references to increased search for yield in the financial sector. (2) Investment funds are a more important source of contagion to banks than the other way round, and this is more the case for European banking groups than for Luxembourg banks. (3) For tracking the growth of vulnerabilities over time, it is better to monitor the most vulnerable part of the financial sector because the common components of systemic risk measures tend to lead these measures.
    Keywords: financial stability? macro-prudential policy? banking sector; investment funds; default probability? non-linearities? generalized dynamic factor model? dynamic copulas
    JEL: C1 E5 F3 G1
    Date: 2016–10
  4. By: Usman, Ojonugwa; Uwadiegwu, Ihedioha O.; Olorunmolu, Joseph O.
    Abstract: This study examines the impact of debt financing on the performance of privatized-firms in Nigeria. The study uses a panel data obtained from the Nigerian Stock Exchange and Securities and Exchange Commission during the period 2002-2009. Our Ordinary Least Square (OLS) results suggest that corporate financing through debt tends to increase post-privatization performance of firms up to a given level, after which any addition to the proportion of debt in the capital (assets) of firms reduces their performance. The result also finds that the optimum debt financing to capital (assets) of privatized firms are 34.3%, 32.4% and 38.3%. Therefore, the study recommends among others the need for the firms to maintain optimum ratio of debt financing to capital of the privatized firms in Nigeria.
    Keywords: Debt financing, Firm performance, Capital Structure, Post-privatization, Nigeria
    JEL: G38
    Date: 2015–12
  5. By: Imran Yousaf (Pakistan Institute of Development Economics, Islamabad); Arshad Hassan (Capital University of Science and Technology, Islamabad)
    Abstract: This study aims to examine the effect of family control on the corporate financing decision of firms in Pakistan. This sample of study comprises of 100 non financial firms that are listed on Karachi Stock Exchange. This study uses the annual financial data from 2005 to 2012. The study findings of univariate analysis show that a significant difference exists between family and non family firms on the basis of many characteristics of firms. The results of multivariate analysis demonstrate that family firms maintain significantly high “total debt ratio” and “short term debt ratio” as compare to non family firms. There are two reasons of maintaining high debt ratio by family firms as compare to non family firms. First, Family firms don’t want to dilute their ownership and that’s why family firms fulfil their major financing need from debt instead of issuing new share to extract financing from market. Second, family firms in Pakistan use extra cash flows for their private benefits. In result of this, family firm need more external finance (as compare to non family firms) in form of debt to fulfil the financing needs of the firm.
    Keywords: Capital Structure, Family Ownership, Family Firm, Leverage, Dilute Ownership
    Date: 2016
  6. By: Bozena Kaderabkova (Faculty of Economics, University of Economics, Prague); Ondrej Ptacek (Faculty of Economics, University of Economics, Prague)
    Abstract: The paper analyses venture capital (VC) and private equity (PE) investment activity in the Czech Republic. Our earlier research has shown the development and comparison of Czech and European private equity and venture capital markets in 2007-2012 or 2007-2013 respectively. The aim of this paper is to enhance the time line with the 2014 and 2015 data and find out the differences in market development trends (if any). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
    Keywords: venture capital, asset management, private equity, financial markets, market failure, government failure
    JEL: G24
  7. By: Davide Arnaudo (Bank of Italy); Giacinto Micucci (Bank of Italy); Massimiliano Rigon (Bank of Italy); Paola Rossi (Bank of Italy)
    Abstract: We study the mobility of Italian firms across different lending banks in the aftermath of Lehman Brothers’ collapse, when 40 per cent of the firms analysed changed their pool of lending banks. Using a unique dataset on a sample of about 3,000 Italian firms that encompasses financial and economic records, information on the existence of credit constraints and data on lending relationships with banks, we provide evidence that mobility within the credit market helped to ease credit constraints. Firms that started new banking relationships were able to maintain or even increase their outstanding loans. These firms were generally large and credit-rationed. At the same time, access to new credit lines was more difficult for small and more opaque firms, for which a long-term relationship with their main bank has been the most effective way of overcoming financial constraints. Geographical proximity is also important in affecting credit constraints: the closer the firms are to the lending banks, the lower is the probability of their closing an existing credit relationship and start a new one.
    Keywords: financial crisis, mobility in the credit market, relationship lending
    JEL: G01 G21 G32
    Date: 2016–10
  8. By: Robin Döttling (University of Amsterdam, The Netherlands); Tomislav Ladika (University of Amsterdam, The Netherlands); Enrico Perotti (University of Amsterdam, The Netherlands)
    Abstract: In response to technological change, U.S. corporations have been investing more in intangible capital. This transformation is empirically associated with lower leverage and greater cash holdings, and commonly explained as a precautionary response to reduced debt capacity. We model how firms' payout and cash holding policies are affected by this shift. Our insight is that the creation of intangibles is largely achieved by human capital investment and requires lower upfront outlays. Firms can self-finance the retention of human capital by granting deferred equity compensation. Interestingly, retaining cash and repurchasing shares enhances the value of unvested equity, thereby facilitating retention and reducing equity dilution. Our empirical evidence confirms that firms with higher intangible investment have lower upfront investment needs. They make similar payouts as tangible investment firms, suggesting they are not on average more financially constrained. They also tend to grant more deferred equity and prioritize repurchases over dividends in particular when their stock volatility is high, in line with our model's predictions.
    Keywords: Technological change; corporate leverage; cash holdings; human capital; intangible capital; equity grants; deferred equity; share vesting
    JEL: G32 G35 J24 J33
    Date: 2016–11–03
  9. 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: 2016–11
  10. By: Chiara Bentivogli (Bank of Italy); Litterio Mirenda (Bank of Italy)
    Abstract: The paper studies the impact of foreign ownership on a firm’s economic performance. We use a unique panel dataset to test the foreign ownership premium by comparing our sample of firms based in Italy and owned by a foreign subject with a sample of purely domestic firms that, in order to have a proper counterfactual, were selected using propensity score matching. Our difference-in-differences results show the existence of a premium for the size, profitability and financial soundness of the foreign-owned companies. The premium increases with time, is concentrated in the service sector, and disappears if the foreign investor is based in a fiscal haven.
    Keywords: multinational enterprise, ownership, foreign direct investment, firm performance
    JEL: F23 F61
    Date: 2016–10
  11. By: Muhammad Fayyaz Sheikh (GC University); Syed Zulfiqar Ali Shah (Warwich Business School)
    Abstract: This study examines how compensation of chief executive officer (CEO) is influenced by firm performance and corporate governance in an emerging market, Pakistan. Using various panel regression models, including a dynamic panel model for a sample of non-financial firms listed at Karachi Stock Exchange (KSE) for period 2005 to 2012, we find that current and previous year accounting performance has positive influence on CEO compensation. However, stock market performance does not appear to have a positive influence on CEO compensation. We further find that firm size is an important factor contributing towards CEO compensation. Ownership concentration is positively correlated with CEO compensation, indicating some kind of collusion between management and largest shareholder to get personal benefits. CEO duality appears to have a negative relationship with CEO compensation. Board size and board independence have no convincing relationship with CEO compensation, indicating board ineffectiveness in reducing CEO entrenchment. The results of dynamic panel model suggest that CEO pay is highly persistent and takes time to adjust to long-run equilibrium. Our study has implications not only for managers but also for regulators and other stakeholders.
    Keywords: Corporate Governance, Dynamic Panel, Emerging Markets, Executive Compensation, Firm Performance, Fixed Effects

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