nep-cfn New Economics Papers
on Corporate Finance
Issue of 2016‒12‒11
six papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. SPACs: Post-merger survival By Vulanovic, Milos
  2. How working capital management affects the profitability of Afriland First Bank of Cameroon? A case study By Piabuo, Serge Mandiefe
  3. Banks Interconnectivity and Leverage By Barattieri, Alessandro; Moretti, Laura; Quadrini, Vincenzo
  4. Investment-less Growth: An Empirical Investigation By Germán Gutiérrez; Thomas Philippon
  5. Venture Capital and Underpricing: Capacity Constraints and Early Sales By Pinheiro, Roberto
  6. Bankruptcy and Delinquency in a Model of Unsecured Debt By Athreya, Kartik B.; Sanchez, Juan M.; Tam, Xuan S.; Young, Eric R.

  1. By: Vulanovic, Milos
    Abstract: This paper studies how institutional characteristics of Specified Purpose Acquisition Companies (SPACs) are related to their post-merger survival. SPACs are unique financial firms that conduct the IPO with the solely purpose to use the proceeds to acquire another private company. Paper finds that institutional characteristics of SPACs are important in determining post-merger outcomes of new company, specifically when it comes to their suvival/failure. Namely, increases in pre-merger commitment by SPAC stakeholders and initial positive market performance increase post-merger survival likelihood. On the contrary, mergers with higher transaction costs and focused on foreign companies exhibit increased failure likelihood.
    Keywords: Blank checks,Initial public offering,IPO survival,M&A,SPACs,Specified purpose acquisition companies
    JEL: G12 G14 G24 G30 G32 G34
    Date: 2016
  2. By: Piabuo, Serge Mandiefe
    Abstract: The main objective of this study is to assess the effect of working capital management on the profitability of Afriland First Bank Cameroon. Time series data from 2002 to 2013 was extracted from the financial statement of the bank. Correlation analysis and ordinary least Square regression were used to determine how working capital affects profitability. The findings of this study show that working capital management effectively influences the performance of Afriland First Bank. The analysis revealed that customer deposits, the size of the bank, outstanding expenditure and return on assets all have a positive impact on bank profitability and are statistically significant while loan portfolio has a positive impact on bank performance but is statistically insignificant. On the other hand, reserves have a negative impact on bank profitability. Thus efficient management of working capital is prerequisite for growth and profitability of commercial banks in general and Afriland first Bank in particular.
    Keywords: Profitability , Working capital management, Return on assets
    JEL: G2 G21 G22 G24 G3 G31 G32
    Date: 2016–07–09
  3. By: Barattieri, Alessandro (Collegio Carlo Alberto and ESG UQAM); Moretti, Laura (Central Bank of Ireland); Quadrini, Vincenzo (University of Southern California)
    Abstract: In the period that preceded the 2008 crisis, US financial intermediaries have become more leveraged (measured as the ratio of assets over equity) and interconnected (measured as the share of liabilities held by other financial intermediaries). This upward trend in leverage and interconnectivity sharply reversed after the crisis. To understand the factors that could have caused this dynamic, we develop a model where banks make risky investments in the non-financial sector and sell part of their investments to other banks (diversification). The model predicts a positive correlation between leverage and interconnectivity which we explore empirically using balance sheet data for over 14,000 financial intermediaries in 32 OECD countries. We enrich the theoretical model by allowing for Bayesian learning about the likelihood of a bank crisis (aggregate risk) and show that the model can capture the dynamics of leverage and interconnectivity observed in the data.
    Keywords: Interconnectivity, Leverage
    JEL: G11 G21 E21
    Date: 2016–09
  4. By: Germán Gutiérrez; Thomas Philippon
    Abstract: We analyze private fixed investment in the U.S. over the past 30 years. We show that investment is weak relative to measures of profitability and valuation – particularly Tobin’s Q, and that this weakness starts in the early 2000’s. There are two broad categories of explanations: theories that predict low investment because of low Q, and theories that predict low investment despite high Q. We argue that the data does not support the first category, and we focus on the second one. We use industry-level and firm-level data to test whether under-investment relative to Q is driven by (i) financial frictions, (ii) measurement error (due to the rise of intangibles, globalization, etc), (iii) decreased competition (due to technology or regulation), or (iv) tightened governance and/or increased short-termism. We do not find support for theories based on risk premia, financial constraints, or safe asset scarcity, and only weak support for regulatory constraints. Globalization and intangibles explain some of the trends at the industry level, but their explanatory power is quantitatively limited. On the other hand, we find fairly strong support for the competition and short-termism/governance hypotheses. Industries with less entry and more concentration invest less, even after controlling for current market conditions. Within each industry-year, the investment gap is driven by firms that are owned by quasi-indexers and located in industries with less entry/more concentration. These firms spend a disproportionate amount of free cash flows buying back their shares.
    JEL: E22 G3
    Date: 2016–12
  5. By: Pinheiro, Roberto (Federal Reserve Bank of Cleveland)
    Abstract: I present a model of the venture capital (VC) and public markets in which VCs suffer from capacity constraints, due to the shortage of skilled VC managers. Consequently, VC firms can only handle a limited number of new projects at once, having to take ongoing projects public in order to take advantage of new opportunities. This framework is able to match key features presented by the VC and initial public offer (IPO) empirical literatures: (1) VC-backed firms are younger, smaller, and less profitable at the IPO than their non-VC backed counterparts; (2) VC-backed IPOs are more underpriced than non-VC backed ones; (3) There is a positive relationship between underpricing and VC fundraising; (4) Small and young VC firms usually take portfolio firms public earlier than their large and mature counterparts; and (5) In hot IPO markets, VCs are more likely to take public both very young and small firms as well as mature and large firms, compared to cold markets. Differently, non-VC backed firms are usually smaller and younger in hot markets than in cold ones.
    Keywords: IP; Venture Capital; Underpricing; Capacity Constraints;
    JEL: G11 G24
    Date: 2016–11–14
  6. By: Athreya, Kartik B. (Federal Reserve Bank of Richmond); Sanchez, Juan M. (Federal Reserve Bank of St. Louis); Tam, Xuan S. (City University of Hong Kong); Young, Eric R. (University of Virginia)
    Abstract: This paper documents and interprets two facts central to the dynamics of informal default or "delinquency" on unsecured consumer debt. First, delinquency does not mean a persistent cessation of payment. In particular, we observe that for individuals 60 to 90 days late on payments, 85% make payments during the next quarter that allow them to avoid entering more severe delinquency. Second, many in delinquency (40%) have smaller debt obligations one quarter later. To understand these facts, we develop a theoretically and institutionally plausible model of debt delinquency and bankruptcy. Our model reproduces the dynamics of delinquency and suggests an interpretation of the data in which lenders frequently (in roughly 40% of cases) reset the terms for delinquent borrowers, typically involving partial debt forgiveness, rather than a blanket imposition of the "penalty rates" most unsecured credit contracts specify.
    JEL: E43 E44 G33
    Date: 2016–12–01

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