nep-cfn New Economics Papers
on Corporate Finance
Issue of 2017‒01‒08
four papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Does partisan conflict impact the cash holdings of firms? A sign restrictions approach By Hankins, William; Cheng, Chak; Chiu, Jeremy; Stone, Anna-Leigh
  2. Do Social Networks Encourage Risk-Taking? Evidence from Bank CEOs By Yiwei Fang; Iftekhar Hasan; LiuLing Liu; Haizhi Wang
  3. Asymmetric information and the securitization of SME loans By Ugo Albertazzi; Margherita Bottero; Leonardo Gambacorta; Steven Ongena
  4. Debt Structure and Credit Ratings By Mascia Bedendo; Linus Siming

  1. By: Hankins, William (University of Alabama); Cheng, Chak (University of South Carolina); Chiu, Jeremy (Bank of England); Stone, Anna-Leigh (Samford University)
    Abstract: This paper explores how US partisan conflict impacts the cash management decisions of US firms. Using a sign restrictions approach to identify structural shocks to partisan conflict, we find that an exogenous 10% rise in the Partisan Conflict Index above trend is associated with a 0.4 percentage point increase in average cash-to-total assets above trend. These baseline results hold for both the mean and median ratio of cash-to-total assets for all firms in our sample, across the total assets distribution, as well as for different classifications of firms. Additionally, we conduct a series of robustness checks, including a firm-level regression analysis, all of which uphold these results. Our findings reinforce the signalling effect that political dysfunction can have on corporate managers.
    Keywords: Partisan conflict; cash holdings; economic policy uncertainty; VAR; sign restrictions
    JEL: E32 G30 G32
    Date: 2016–12–29
  2. By: Yiwei Fang; Iftekhar Hasan; LiuLing Liu; Haizhi Wang
    Abstract: This paper studies how CEO social networks affect bank risk-taking. Using a sample of 481 publicly traded U.S. banks, we find that bank risk increases with CEOs’ social networks. Our results are robust with a bank fixed-effects model and a difference-in-difference approach, as well as with various alternative bank risk measures. Alternative explanations such as corporate governance, managerial ownership, compensation, or CEO ability do not drive the findings. We evaluate potential channels through which social networks affect bank risk and find that CEO social networks increase bank risk more when banks face opaque information environments, when CEO job market conditions worsen, and when there are higher odds of group-think mentality in the networks. We further find that social networks present banks with an inefficient trade-off between risk and return, showing a “dark side” of social networks.
    Keywords: Risk-taking, social networks, bank CEOs
    JEL: L14 G21 G31
    Date: 2016
  3. By: Ugo Albertazzi (Bank of Italy); Margherita Bottero (Bank of Italy); Leonardo Gambacorta (Bank for International Settlements); Steven Ongena (University of Zurich, Swiss Finance Institute, KU Leuven and CEPR)
    Abstract: Using credit register data for loans to Italian firms we test for the presence of asymmetric information in the securitization market by looking at the correlation between the securitization (risk-transfer) and the default (accident) probability. We can disentangle the adverse selection from the moral hazard component for the many firms with multiple bank relationships. We find that adverse selection is widespread but that moral hazard is confined to weak relationships, indicating that a strong relationship is a credible enough commitment to monitor after securitization. Importantly, the selection of which loans to securitize based on observables is such that it largely offsets the (negative) effects of asymmetric information, rendering the overall unconditional quality of securitized loans significantly better than that of non-securitized ones. Thus, despite the presence of asymmetric information, our results are not in line with the view that credit-risk transfer leads to lax credit standards.
    Keywords: securitization, SME loans, moral hazard, adverse selection
    JEL: D82 G21
    Date: 2016–12
  4. By: Mascia Bedendo; Linus Siming
    Abstract: We investigate whether a ?rm’s debt structure can act as a mitigating factor to the negative e?ects of a corporate rating downgrade. Speci?cally, we study how a ?rm’s relative mix of bank and non-bank ?nancing a?ects its stock market valuation and leverage adjustment following a downgrade. We document that, in the high-yield segment, companies with a larger proportion of bank debt su?er less from the distorting e?ects of rating downgrades, as they: (i) experience less negative abnormal stock returns around the event; (ii) reduce their market leverage less than peers that rely more on other sources of debt. Our ?ndings con?rm the bene?ts of bank ?nancing for risky ?rms and provide a number of new insights into how debt structure a?ects ?rm value and capital structure decisions over and above the information directly embedded in credit ratings.
    Keywords: Credit rating agencies, Market reaction, Debt structure
    JEL: G14 G24 G32
    Date: 2016

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