|
on Corporate Finance |
| By: | Paul Borochin; Jie Yang |
| Abstract: | We use exchange-traded options to identify risks relevant to capital structure adjustments in firms. These forward-looking market-based risk measures provide significant explanatory power in predicting net leverage changes in excess of accounting data. They matter most during contractionary periods and for growth firms. We form market-based indices that capture firms' magnitudes of, and propensity for, net leverage increases. Firms with larger predicted leverage increases outperform firms with lower predicted increases by 3.1% to 3.9% per year in buy-and-hold abnormal returns. Finally, consistent with the quality, leverage, and distress risk puzzles, firms with lower predicted leverage increases are riskier but earn lower abnormal returns. |
| Keywords: | Capital Structure ; Financial Leverage ; Options ; Implied Volatility |
| JEL: | G30 G32 G12 G14 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2016-97&r=cfn |
| By: | Hanspal, Tobin |
| Abstract: | I show that disruptions to personal sources of financing, aside from commercial lending supply shocks, impair the survival and growth of small businesses. Entrepreneurs holding deposit accounts at retail banking institutions that defaulted following the financial crisis reduce personal borrowing and are consequently more likely to exit their firm. Exposure to the corresponding investment losses from delisted publicly traded bank stocks strongly reduces the rate of firm survival, particularly for early-stage ventures. At the intensive margin, owners who remain in business reduce employees after personal wealth losses. My results suggest that personal finance is an important component of firm financing. |
| Keywords: | Entrepreneurship,Small business,Personal finance,Financial crisis,Bank defaults |
| JEL: | L26 D14 G01 G11 G21 G33 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:161&r=cfn |
| By: | Limbach, Peter; Schmid, Markus M.; Scholz-Daneshgari, Meik |
| Abstract: | We examine how CEOs' impact on firm value varies over time. We document a hump-shaped relation between CEO tenure and firm value which is subject to meaningful variation depending on industry dynamics, the business cycle, and CEOs' adaptability to changes. Semi-parametric estimations, stock returns to sudden deaths and to takeover announcements, as well as tests for extrapolation, survivor-ship, and endogenous CEO-firm matching and turnover confirm our results. They suggest that a considerable fraction of high-tenure CEOs is no longer the optimal match for their firms which seem to have difficulties, due to governance rather than labor market frictions, replacing incumbent CEOs. |
| Keywords: | CEO adaptability,(within-)CEO heterogeneity,CEO tenure,CEO term limits,environmental dynamics,firm value,investments |
| JEL: | G30 G34 J24 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:1611&r=cfn |
| By: | Mikel Bedayo (Banco de España) |
| Abstract: | Firms’ incentives to join other firms to collectively apply for a unique loan is empirically studied in this paper. When several firms jointly apply for a unique loan an association of firms is created. We identify the associations that had access to credit in Belgium over the period 2001-2011 and the firms that created each association, observing the amount of credit both the firms and the associations obtained from each financial institution they used. We analyze the amount of credit obtained by firms depending on whether they belonged to any association, firms’ likelihood to form associations, the impact of belonging to an association on the amount of credit firms’ receive from banks, as well as the effect of not obtaining any credit directly on the amount the associations these firms create get. Further, we analyze whether associations formed by common-ownership firms have access to higher amount of credit than the rest of associations. We find that big and old firms are more likely to join other firms to mutually apply for credit and that associations get more credit if all its members use the same bank the association uses to get credit from. Furthermore, the lower firms’ credit over the last year the more likely they are to form associations to obtain credit, and we show that associations composed of small firms with no credit history are specially credit constrained. |
| Keywords: | Associations, Finance, Access to credit, Relationship banking, Belgium |
| JEL: | G21 G30 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:201611-315&r=cfn |
| By: | Cambrea, Domenico Rocco; Colonnello, Stefano; Curatola, Giuliano; Fantini, Giulia |
| Abstract: | We develop a model that endogenizes the manager's choice of firm risk and of inside debt investment strategy. Our model delivers two predictions. First, managers have an incentive to reduce the correlation between inside debt and company stock in bad times. Second, managers that reduce such a correlation take on more risk in bad times. Using a sample of U.S. public firms, we provide evidence consistent with the model's predictions. Our results suggest that the weaker link between inside debt and company stock in bad times does not translate into a mitigation of debt-equity conflicts. |
| Keywords: | Inside Debt,Executive Compensation,Corporate Distress |
| JEL: | G32 G34 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:160&r=cfn |
| By: | Pinto, João M.; Alves, Paulo P. |
| Abstract: | This paper examines the pricing of project finance (PF) and non-project finance (non-PF) loans and examines the factors that influence the borrower's choice between project financing and corporate financing. Using a sample of 210,273 syndicated loans closed between 2000 and 2014, we find that PF and Non-PF loans are influenced differently by common pricing characteristics and that PF loans in the U.S. and W.E. are priced in segmented markets. Borrowers choose PF when they seek long-term financing and funding cost reduction. We find that transaction cost considerations, the financial crisis and country risk affect the financing choice. Our results document that publicly traded sponsors who prefer project financing to corporate financing are larger, less profitable, more financially distressed and have a higher asset tangibility. Finally, privately held firms that choose off-balance sheet financing are smaller and less profitable and use PF to raise relatively larger amounts of debt. |
| Keywords: | project finance,syndicated loans,loan pricing,debt financing choice |
| JEL: | F34 G01 G21 G24 G32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:201604&r=cfn |
| By: | Adrian, Tobias (Federal Reserve Bank of New York); Boyarchenko, Nina (Federal Reserve Bank of New York); Shachar, Or (Federal Reserve Bank of New York) |
| Abstract: | Do regulations decrease dealer incentives to intermediate trades? Using a unique data set of dealer-bond-level transactions, we construct the dealer-specific market liquidity metrics for the U. S. corporate bond market. Unlike prior studies, the transactions that we observe are uncapped in size and include the identity of dealer counterparties to the transaction. The granular nature of our data allows us to link changes in liquidity of individual corporate bonds to dealer transaction activity. We show that, in the full sample, bond-level liquidity is higher when institutions that are active traders in the bond are more levered, have higher trading revenue, have higher liquidity mismatch, are more vulnerable, have lower risk-weighted assets, are less reliant on repo funding, and hold fewer illiquid assets. In the rule implementation period (post January 2014), bonds traded by more vulnerable institutions and institutions with greater liquidity mismatch are less liquid, suggesting that prudential regulations may be having an effect on bond market liquidity. |
| Keywords: | bond liquidity; regulation; dealer constraints |
| JEL: | G12 G18 G21 |
| Date: | 2016–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:803&r=cfn |
| By: | Hassan, Fadi; Di Mauro, Filippo; Ottaviano, Gianmarco I. P. |
| Abstract: | Financial institutions are key to allocate capital to its most productive uses. In order to examine the relationship between bank credit and firm-level productivity in the context of different financial markets set-ups, we introduce a model of overlapping generations of entrepreneurs under complete and incomplete credit markets. Then, we exploit firm-level data for a group of European countries to explore the relation between bank credit and productivity following the main predictions of the model. We estimate an extended set of elasticities of bank credit with respect to a series of productivity measures of firms. We focus not only on the elasticity between bank credit and productivity during the same year, but also on the elasticity between credit and future realised productivity. Our estimates show a clear Euro-zone core-periphery divide, for instance the elasticities between credit and productivity estimated in France and Germany are consistent with complete markets, whereas in Italy they are consistent with incomplete markets. The implication is that in countries that are consistent with an incomplete market setting, firms turn to be constrained in their long-term investments and bank credit is allocated less efficiently than in other countries. Hence capital misallocation by banks can be a key driver of the long-standing slow productivity growth that characterises periphery countries. |
| Keywords: | Bank Credit,Capital Allocation,Productivity,Credit Constraints |
| JEL: | G10 G21 G31 D92 O16 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:201605&r=cfn |
| By: | Ádám Banai (Magyar Nemzeti Bank (Central Bank of Hungary)); Gyöngyi Körmendi (Magyar Nemzeti Bank (Central Bank of Hungary)); Péter Lang (Magyar Nemzeti Bank (Central Bank of Hungary)); Nikolett Vágó (Magyar Nemzeti Bank (Central Bank of Hungary)) |
| Abstract: | In banking practice, quantifying the probability of default is one of the most important elements of the lending decision, therefore it is also vital from a financial stability perspective. The aim of our research was to model the probability of default as precisely as possible in the case of micro, small and medium-sized enterprises. By linking the data from the Central Credit Information System (KHR) and companies’ financial statements, a database was created that covers all the SMEs with loan contract, thus we were able to examine credit risk based on a uniquely large group of enterprises. In our research, we created models that enabled us to produce estimates based on certain corporate features about the probability of default of micro, small and medium-sized enterprises. Our analysis revealed that modelling these size categories separately and managing non-linear effects in the case of several variables are especially important. In addition, the impact of the macroeconomic environment on credit risk also proved to be important in the fitting of our estimates. |
| Keywords: | SME, credit risk, credit register, logit model, probability of default |
| JEL: | C25 G20 G21 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:opaper:2016/123&r=cfn |
| By: | Betzer, André; Ibel, Maximilian; Lee, Hye Seung; Limbach, Peter; Salas, Jesus M. |
| Abstract: | This study documents a positive, economically meaningful impact of executives' general managerial skills on shareholder value. Examining 171 sudden executive deaths over thirty years, we find that a one-standard-deviation increase in the general ability index corresponds to at least a 1.5 percentage point decrease in abnormal stock returns to death announcements. Generalists are found to be significantly more valuable for firms with fewer growth prospects where difficult tasks (e.g., restructurings) need to be performed and adaptations to changing business environments become necessary. Our results provide a market-based explanation for the documented generalist hiring premium and the increasing share of generalists. |
| Keywords: | executive heterogeneity,managerial work experience,firm value |
| JEL: | G30 G34 J24 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:1612&r=cfn |
| By: | Ewa Karwowski (Kingston University); Mimoza Shabani; Engelbert Stockhammer |
| Abstract: | The financialisation literature has grown over the past two decades. While there is a generally accepted definition, effectively financialisation has been used to describe very different phenomena. This paper proposes a multi-faceted notion of financialisation by distinguishing between financialisation of non-financial companies, households and the financial sector and using activity as well as vulnerability measures of financialisation. We identify seven financialisation hypotheses in the literature and empirically investigate them in a cross-country analysis for 17 OECD countries for the 1997-2007 period. We find that different financialisation measures are only weakly correlated, which suggests the existence of distinct financialisation processes. There is strong evidence across all sectors that financialisation is closely linked to asset price inflation and correlated with a debt-driven demand regime. Financial deregulation encourages financialisation, especially in the financial and household sector. By contrast, there is limited evidence that market-based financial systems tend to be more financialised, meaning financialisation can occur with large banks. Foreign financial inflows do not seem to be a main driver. We do not find indication that a secular investment slowdown precedes financialisation. Overall, our findings suggest that financialisation should be understood as variegated process, playing out differently across economic sectors in different countries. |
| Keywords: | financialisation, cross country analysis, financial deregulation, property prices |
| JEL: | B50 B51 G10 G20 G30 P51 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp1619&r=cfn |
| By: | Teodora Paligorova; João Santos |
| Abstract: | We document that the structure of syndicates affects loan renegotiations. Lead banks with large retained shares have positive effects on renegotiations. In contrast, more diverse syndicates deter renegotiations, but only for credit lines. The former result can be explained with coordination theories. The puzzling effect of syndicate diversity in term loan renegotiations derives from the growth of collateralized loan obligations (CLOs) in the syndicated loan market and the coordination between these vehicles and lead banks. CLOs that have a relationship with the lead bank of the renegotiated loan are strong supporters of amount-increase renegotiations, arguably because this gives them access to attractive investments. Related CLOs fund not only their portion of the loan increase, but also the portion that was supposed to be funded by the lead bank. Our findings highlight the previously unrecognized role of the growing presence of non-bank lenders in corporate lending. |
| Keywords: | Financial Institutions, Financial system regulation and policies |
| JEL: | G21 G23 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:16-60&r=cfn |
| By: | Paul S. Calem; Ricardo Correa; Seung Jung Lee |
| Abstract: | We analyze how two types of recently used prudential policies affected the supply of credit in the United States. First, we test whether the U.S. bank stress tests had any impact on the supply of mortgage credit. We find that the first Comprehensive Capital Analysis and Review (CCAR) stress test in 2011 had a negative effect on the share of jumbo mortgage originations and approval rates at stress-tested banks—banks with worse capital positions were impacted more negatively. Second, we analyze the impact of the 2013 Supervisory Guidance on Leveraged Lending and subsequent 2014 FAQ notice, which clarified expectations on the Guidance. We find that the share of speculative-grade term-loan originations decreased notably at regulated banks after the FAQ notice. |
| Keywords: | Bank stress tests ; CCAR ; Home Mortgage Disclosure Act (HMDA) data ; Jumbo mortgages ; Leveraged lending ; Macroprudential policy ; Shared National Credit (SNC) data ; Interagency Guidance on Leveraged Lending ; Syndicated loan market |
| JEL: | G21 G23 G28 |
| Date: | 2016–12–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1186&r=cfn |
| By: | Paul Glasserman; H. Peyton Young |
| Abstract: | The recent financial crisis has prompted much new research on the interconnectedness of the modern financial system and the extent to which it contributes to systemic fragility. Network connections diversify firms' risk exposures, but they also create channels through which shocks can spread by contagion. We review the extensive literature on this issue, with the focus on how network structure interacts with other key variables such as leverage, size, common exposures, and short-term funding. We discuss various metrics that have been proposed for evaluating the susceptibility of the system to contagion and suggest directions for future research. |
| JEL: | D85 E44 G21 G22 G23 G28 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:68681&r=cfn |