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on Corporate Finance |
| By: | He, Qing; Huang, Jiyuan; Li, Dongxu; Lu, Liping |
| Abstract: | This paper examines the governance role of banks in replacement of underperforming CEOs in firms listed on Chinese stock exchanges. Under most circumstances, the findings suggest that the presence of outstanding loans does not increase the probability that a poorly performing CEO will be forced out and replaced. However, there is a positive and significant effect if the under-performing firm relies heavily on secured and short-term bank lending. Bank loans increase the likelihood of a forced CEO turnover in private firms, especially where joint-equity banks serve as the main lenders to the firm. There is no similar increase in the probability of a CEO turnover for state-owned firms or firms that borrow mainly from state-owned banks. Thus, where state ownership of banks and listed firms implies inefficiency or reluctance on monitoring borrower performance, there is an opportunity to improve loan contract arrangements to improve the mon-itoring role of lending banks. |
| JEL: | G21 G30 G32 G38 K22 |
| Date: | 2016–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2016_019&r=cfn |
| By: | Mamatzakis, Emmanuel; Xu, Bingrun |
| Abstract: | This study investigates the effectiveness of the contractual governance of Chinese fund management companies by using comprehensive governance data over the period from 2005 to 2015. The study finds that board size a negative impact on its performance and market share. The findings are consistent with the ‘agency cost’ hypothesis. This paper also finds a positive association between the percentage of independent directors and market share and a negative correlation between the percentage of independent directors and the expense ratio. Moreover, a fund management company with a higher level of managerial ownership and a higher proportion of institutional investors results in more effective fund governance; however, a larger institutional investor holding may lead to a higher expense ratio. |
| Keywords: | Contractual governance, governance effectiveness, board size, board structure, managerial ownership, institutional investors’ holding |
| JEL: | G20 G23 G30 G34 |
| Date: | 2017–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76138&r=cfn |
| By: | Karwowski, Ewa (Kingston University London); Shabani, Mimoza (University of East London and School of Oriental and African Studies); Stockhammer, Engelbert (Kingston University London) |
| 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: | 2017–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:ris:kngedp:2017_001&r=cfn |
| By: | Mamatzakis, Emmanuel; Zhang, Xiaoxiang; Wang, Chaoke |
| Abstract: | A bank generally hold more equity capital than required by their regulators. We hypothesize that stock market has a disciplining role vis-à-vis bank managers that forces them to increase their capital level. For market discipline to be effective, market factors such as changes in firm equity values and returns, would influence bank decision making. We apply the model to annual panel data for publicly traded bank holding companies in three stock markets over a sample period from 2006 to 2015. Using OLS and fixed effect, we find a significantly positive relationship between market discipline and bank capital structure. In addition, we find that market discipline is a more effective to enhance bank capital when bank perform efficiently. Robust tests based on instrumental variable and dynamic GMM evidence of a causal link between market discipline and bank capital structure. The results have certain policy implications for understanding the role of stock market in affecting bank operation that in turn could improve bank prudency and assist the design of an enhanced regulation framework. |
| Keywords: | Market discipline, Informed trading, PIN, Bank capital |
| JEL: | C61 G14 G21 |
| Date: | 2016–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76215&r=cfn |
| By: | Valentina Peruzzi (Università Politecnica delle Marche) |
| Abstract: | The aim of this paper is to investigate whether family control, family management and family ownership concentration affect the investment-cash flow sensitivity of small- and medium-sized enterprises. By analysing a sample of Italian SMEs for the period 2004-2013, I find that family-owned businesses are significantly associated with higher investment-cash flow dependence. This relation, however, is found to be driven by two distinct factors: (i) the presence of a highly concentrated family ownership (ownership concentration channel) and (ii) the active involvement of the family in the business (family management channel). |
| Keywords: | family firms, investment-cash flow sensitivity, financing constraints, family CEO, ownership concentration. |
| JEL: | G31 G32 |
| URL: | http://d.repec.org/n?u=RePEc:lsa:wpaper:wpc16&r=cfn |
| By: | Sokolov, Vladimir; Solanko, Laura |
| Abstract: | We examine how regional-level political influence affects firm financial performance and survival. Combining representative survey data on mid-sized manufacturing firms in Russia with official registry data, we find that politically influential firms exhibit higher profitability and retain larger financial investments than non-influential firms. At the same time, we find no association between regional political influence and access to bank lending. Most importantly, our empirical analysis suggests that the benefits of influence may be transient. Influential firms experienced significantly lower growth during our 2004–2010 sample period than non-influential firms. Moreover, influential firms had a significantly higher probability of going bankrupt after the 2008 global financial crisis than non-influential firms. |
| JEL: | D22 D72 G38 |
| Date: | 2016–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2016_020&r=cfn |
| By: | Berglund, Tom; Mäkinen, Mikko |
| Abstract: | To study whether banks retain their lessons from the experience of a severe financial crisis, we examine the effects of the systemic banking crisis of the early 1990s in three Nordic countries (Finland, Norway, and Sweden). While this crisis largely bypassed the rest of Europe, we hypothesize that banks in the three affected Nordic countries took their crisis experiences to heart and as a result outperformed other European banks during the 2008 global financial crisis. Based on a large panel data set of Nordic and European banks for the period 1994–2010, our findings support our main hypothesis that the Nordic banks learned from the 1990s crisis and adjusted their business models accordingly. Our descriptive analysis of Nordic banks finds evidence of “lessons learned” in such precautions as robust capital cushions, improvements in management efficiency and higher credit quality demands relative to the rest of Europe. |
| JEL: | G01 G21 G34 |
| Date: | 2016–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2016_030&r=cfn |
| By: | Hasan, Iftekhar; Jackowicz, Krzysztof; Kowalewski, Oskar; Kozlowski, Lukasz |
| Abstract: | The study analyses the economic consequences of changes in the local bank presence. Using a unique dataset of banks, firms, and counties in Poland over the period 2009-2014, we show that changes in local banking that increase the role of the relationship banking model are associated with improvements in local labour markets and easier access of SMEs to bank debt. Moreover, radical changes in the ownership structure of large commercial banks result in a more rapid new firm creation. Finally, we document that young companies’ performance is more sensitive to the instability of local banking markets. |
| Keywords: | local economic activity, SMEs, entrepreneurship, local banks |
| JEL: | G21 G32 R11 |
| Date: | 2017–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76098&r=cfn |
| By: | Buchanan, Bonnie G. |
| Abstract: | Securitization is considered to be one of the biggest financial innovations of the last century. It is also regarded as both a catalyst and solution to the 2008 financial crisis. Once a popular method of financing the mortgage and consumer credit markets, aspects of the global securitization market are now struggling to revive. In this paper I discuss the role that ethics played in securitization prior to the 2008 financial crisis and find that it is not an obvious story of moral failures, but rather that it lies in more subtle elements of the financial system. The ethics uncertainty role in the securitization story is one of flawed incentives and the shifting of responsibility for handling risk. The role of securitization and the ethics of risk transfer have rarely been discussed explicitly in the literature. The historical origins of securitization and lessons learned from previous flawed uses of the process are also provided. I also detail the various global institutional reform proposals that have taken place. Moving forward, it is crucial to understand the causes, consequences and ethical implications of securitization in the financial crisis so as to help individuals and managers better assess risk, align incentives and design appropriate policy responses. |
| JEL: | A1 F3 G1 G2 G21 G23 G24 G28 |
| Date: | 2016–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2016_031&r=cfn |
| By: | Eckley, Peter (Bank of England); Benetton, Matteo (LSE); Latsi, Georgia (Independent); Garbarino, Nicola (Bank of England); Kirwin, Liam (Bank of England) |
| Abstract: | Since Basel II was introduced in 2008, two approaches to calculating bank capital requirements have co-existed: lenders’ internal models, and a less risk-sensitive standardised approach. Using a unique dataset covering 7 million UK mortgages for 2005–15, and novel identification, we provide empirical evidence that the differences between these approaches cause lenders to specialise. This leads to systemic concentration of high-risk mortgages in lenders with less sophisticated risk management. Our results have broad implications for the design of the international bank capital framework. |
| Keywords: | Capital regulation; banking; mortgages; specialisation; risk-taking; Basel II |
| JEL: | G01 G21 G28 |
| Date: | 2017–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0639&r=cfn |
| By: | Roger M. Gomis (Universitat Pompeu Fabra); Sameer Khatiwada (IHEID, Graduate Institute of International and Development Studies, Geneva and ILO Regional Office Bangkok) |
| Abstract: | There are relatively few studies that use micro data to shed light on the relationship between finance and economic growth – the few that exists show that there is a positive relationship between debt and future productivity growth. Meanwhile, several new macro-econometric studies have shown that there is a threshold of financial development above which finance negatively impacts growth – our paper contributes to this literature by examining whether this finding holds when we examine firm level data. Our data covers over 100 countries, both advanced and developing & emerging and spans close to 30 years (1986-2014). Our preliminary results are the following: i) firm level leverage is positively associated with productivity; ii) the strength of this association declines in employment of the firm; iii) there is diminishing returns to leverage in terms of its impact on productivity but we don’t see a threshold beyond which the returns drop; iv) aggregate leverage in a country has a negative effect on firm productivity, controlling for strength of institutions and level of economic and financial development in the country. Furthermore, given the potential issue of endogeneity, we examine the impact of leverage on expected and unexpected components of productivity – our results show that leverage is positively associated with the unexpected component of firm productivity, thus providing evidence against reverse causality. |
| Keywords: | total factor productivity (TFP), debt, finance and growth |
| JEL: | D24 G21 G30 O16 O40 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp04-2017&r=cfn |
| By: | José Couto (Private company); Paula Brito (Faculdade de Economia & LIAAD INESC TEC, Universidade do Porto, Portugal); António Cerqueira (Faculdade de Economia, Universidade do Porto, Portugal) |
| Abstract: | The main goal of this study is to investigate, using multivariate analysis, the possibility of defining comparable firms as those with economic and financial characteristics closest to the company under evaluation, rather than adopting the "same industry" criterion, and thereby improve the estimation errors when the multiples valuation process is used to estimate the enterprise value and the market capitalization of a company. The analysis is performed running formal tests to compare mean values of the distributions of errors. The results obtained using cluster analysis reveal that considering comparable companies as those with economic and financial ratios closer to the company under evaluation generally reduces the mean of the estimation errors for almost all groups of ratios considered. For those groups for which the improvement is not significant, the results are similar to those obtained using the industry membership criterion. |
| Keywords: | Cluster Analysis; Estimation Errors; Relative Valuation; Method of Multiples; Market Multiples |
| JEL: | G32 G12 G14 C38 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:586&r=cfn |
| By: | Diogo Batista da SIlva (School of Economics and Management, University of Porto); António Cerqueira (School of Economics and Management, University of Porto); Elísio Brandão (School of Economics and Management, University of Porto) |
| Abstract: | This study examines earnings management dynamics in Portuguese listed firms. It provides evidence consistent with firms using accrual and real management as substitutes. Besides, the use of each strategy appears to depend on its relative cost. This investigation also points to the existence of a trade-off between derivatives use and the magnitude of earnings management. Furthermore, the impact of both earnings management and derivatives use on effective tax rates is examined. The results indicate that, if the tax function is convex, firms can reduce tax expenses by hedging with derivatives. This research also explores how earnings management practices are related with a set of market and financial incentives, while controlling for earnings management constraints. Meeting dividend thresholds seems to be the most relevant incentive for firms to manage earnings upward. |
| Keywords: | Earnings management; Derivatives; |
| JEL: | G32 M48 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:587&r=cfn |
| By: | Jose Felix Izquierdo; Santiago Muñoz; Ana Rubio; Camilo Ulloa |
| Abstract: | The Supporting Factor was introduced in Basel III with the aim of avoiding a reduction in the flow of new credit to SMEs, and the CRR revision published in November 2016 even proposes enlarging its scope to exposures above €1.5bn (but with a lower parameter). |
| Keywords: | Financial regulation , Spain , Working Paper |
| JEL: | G20 G21 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:17/01&r=cfn |