nep-cfn New Economics Papers
on Corporate Finance
Issue of 2016‒12‒18
three papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Financing Innovation: A Complex Nexus of Risk & Reward By Dutta, Sourish
  2. Equity Option-Implied Probability of Default and Equity Recovery Rate By Bo Young Chang; Greg Orosi
  3. CEO Entrenchment and Performance: New Evidence Using Nonlinear Principal Component Analysis. By Ammari, Aymen; Bouteska, Ahmed; Regaieg, Boutheina

  1. By: Dutta, Sourish
    Abstract: The crucial and growing role performed by different financial intermediaries such as venture capitalists and angel investors as well as more traditional intermediaries such as commercial banks in developing entrepreneurial or innovative firms and boosting product market innovations has led to great research interest in the economics of innovation and entrepreneurial finance. Besides this, there are some important factors or developments which have affected the entrepreneurial finance in general as well as its influence upon different entrepreneurial or innovative firms. Indeed, it is also true that the financial and ownership structures of the different entrepreneurial firms and the legal as well as institutional environment, in which they operate, itself affects the product market innovations (Chemmanur and Fulghieri, 2014). .Therefore, in this paper I want to target a broad theme i.e. analysis of the mechanisms behind this scenario, especially, in the context of Indian market system.
    Keywords: Innovation, Financing Frictions, Entrepreneurial Finance
    JEL: G11 G24 O31 O32
    Date: 2015–04
  2. By: Bo Young Chang; Greg Orosi
    Abstract: There is a close link between prices of equity options and the default probability of a firm. We show that in the presence of positive expected equity recovery, standard methods that assume zero equity recovery at default misestimate the option-implied default probability. We introduce a simple method to detect stocks with positive expected equity recovery by examining option prices and propose a method to extract the default probability from option prices that allows for positive equity recovery. We demonstrate possible applications of our methodology with examples that include large financial institutions in the United States during the 2007–09 subprime crisis.
    Keywords: Asset Pricing, Financial markets, Market structure and pricing
    JEL: G13 G33
    Date: 2016
  3. By: Ammari, Aymen; Bouteska, Ahmed; Regaieg, Boutheina
    Abstract: This study revisits the link between CEO Entrenchment and performance from a sample of 1.040 annual observations concerning 138 CEOs of French-listed firms for the 2000-2013 period. The effect of entrenchment, which seems to represent an illustration of the effectiveness of control mechanisms that CEOs are supposed to undergo within firms, reveals ambiguous findings. The financial woes, suffered by some firms such as France Telecom, Vivendi Universal and Eurotunnel testify to the magnitude of this inefficiency and usefulness to discuss corporate governance principles. The VIENOT reports 1 and 2 and the Bouton report have come forward presenting recommendations aimed at implement a system of corporate governance where moral ethics of different actors, confidence, transparency and respect for the interests of stakeholders are consistent. The purpose of this paper is thus to understand the impact of entrenchment on French firm performance. A key aspect of our study is the use of Nonlinear Principal Component Analysis (NLPCA), which is preferred to standard principal component analysis as a more effective method to distill the complex dimensions of CEO Entrenchment into reliable summary scores. Using fixed/random effect models which control of different source of heterogeneity, we find that CEO Entrenchment has a modest association with operating measures of performance (i.e. ratio of earnings to total assets, ROA) and with market-based measures of performance (i.e. Tobin’s Q). The empirical findings also indicate that the magnitude of the economic significance of the entrenchment proxies in the performance models depends on the method utilized to measure CEO Entrenchment.
    Keywords: Entrenchment; Performance; Nonlinear Principal Component Analysis.
    JEL: G02 G3 G32
    Date: 2016–07–16

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.