nep-cfn New Economics Papers
on Corporate Finance
Issue of 2017‒03‒12
five papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Moral hazard in VC finance: More expensive than you thought By Tennert, Julius; Lambert, Marie; Burghof, Hans-Peter
  2. Dynamic Impact of Credit Risk on the Real Economy in European Countries By Shota Kai; Yoichi Matsubayashi
  3. Micro-Level Evidences of Moral Hazard in the European Financial Institutions By Janda, Karel; Kravtsov, Oleg
  4. Post-Privatization Ownership and Firm Performance: A Large Meta-Analysis of the Transition Literature By Ichiro Iwasaki; Satoshi Mizobata
  5. Risk-sharing benefits and the capital structure of insurance companies By Degryse, Hans; Smedts, Kristien; Van Hulle, Cynthia

  1. By: Tennert, Julius; Lambert, Marie; Burghof, Hans-Peter
    Abstract: Venture projects are fraught with exogenous market risk and endogenous agency risk. We apply a real options perspective to analyze the investment decision of the venture capitalist (VC) in this set-up. The solutions presented are conflictive: the VC reduces his exposure to exogenous risk by delaying investments to wait for informational updates (delay option), but he mitigates endogenous risk by advancing investments to discover entrepreneur's effort. So far, papers focus on the optimal timing of investments considering independence of exogenous and endogenous risk. We show that interdependence of exogenous risk and endogenous risk exists. We find that endogenous risk prompts the VC to accelerate the discovery process when exogenous risk is high, and to abandon the delay option when it is most valuable.
    Keywords: Venture Capital,Real Option,Agency Cost,Moral Hazard
    JEL: G11 G12 G24 D53
    Date: 2017
  2. By: Shota Kai (Graduate School of Economics, Kobe University); Yoichi Matsubayashi (Graduate School of Economics, Kobe University)
    Abstract: Using local projection, this study investigates the dynamic effect of credit risk on the real economy in European countries. We obtain credit spread shocks of nancial and non- nancial institutions in four major eurozone countries by controlling their endogenous changes caused by fear of the global nancial market, the European Central Bank's monetary policy and the anxiety of national government debt. Our rst nding is that industrial production responses to the non- nancial institution credit spread shock are earlier than that for the nancial institution shock. Second, in the case of rising credit risk, Germany, France and Finland increase bank lending to domestic companies. Finally, we nd that these two tendencies were mainly due to the European common factor by verifying the impulse response functions to idiosyncratic credit spread shocks. We conclude that credit risks in each country are largely common in the eurozone.
    Keywords: Credit Risk, Local Projection, Financial Crisis, Euro Area
    JEL: C32 E44 E47 G32
  3. By: Janda, Karel; Kravtsov, Oleg
    Abstract: This article examines the evidences of moral hazard in the risk taking behavior of the 500 banks in Central Europe, the Baltics and Balkan region. We test the evidences of moral hazard in empirical relationships between shareholders, bank managers and regulatory restraints. The results generally support the theoretical arguments, though we cannot find explicit evidences of moral hazard in risk taking behavior of the bank managers of the region. Our findings suggest that the capital requirements and regulatory concerns along with performance efficiency exhibit the strongest impact on the level of risk taking.
    Keywords: Moral hazard, risk taking, non-performing loans
    JEL: G21 G32
    Date: 2017–03–01
  4. By: Ichiro Iwasaki (Institute of Economic Research, Hitotsubashi University); Satoshi Mizobata (Institute of Economic Research, Kyoto University)
    Abstract: This paper aims to perform a meta-analysis of the relationship between post-privatization ownership and firm performance using a large database of the transition literature. Baseline estimation of a meta-regression model that employs a total of 2894 estimates drawn from 121 previous studies indicated the superior impact of foreign ownership on firm performance in comparison with state and domestic private entities. However, it did not go as far as to comprehensively verify the series of hypotheses concerning the interrelationship between different ownership types. The estimation of an extended meta-regression model that explicitly controls for the idiosyncrasies of transition economies and privatization policies strongly suggested that differences between countries in terms of location, privatization method, and policy implementation speed are the cause of the opaqueness seen in the empirical results of the previous literature. The definite evidence of the harmfulness of the voucher privatization for ex-post firm performance is one of the most noteworthy empirical findings obtained from the meta-analysis in this paper.
    Keywords: post-privatization ownership, firm performance, transition economies, meta-analysis, publication selection bias, Central and Eastern Europe, former Soviet Union
    JEL: D22 G32 G34 L25 P21 P31
    Date: 2017–03
  5. By: Degryse, Hans; Smedts, Kristien; Van Hulle, Cynthia
    Abstract: Providing risk-sharing benefits to risk-averse policy holders is a primary function of insurance companies. We model that policy holders are paying a fee over the present value of indemnifications (i.e., technical provisions) to enjoy these risk-sharing benefits. This fee implies that a capital structure largely consisting of technical provisions is optimal for insurance firms, making the traditional Modigliani-Miller logic inappropriate for them. To support the issuance of technical provisions with socially desirable properties, insurance firms choose a solvency risk target vis-à-vis policy holders and maintain a minimal surplus consistent with this risk choice to absorb losses. We show that the Modigliani-Miller logic applies to the composition of this loss-absorption capacity. This explains why insurance companies may use, next to equity and technical provisions, financial debt in supporting their activities.
    JEL: G22 G32
    Date: 2017–02

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