nep-cfn New Economics Papers
on Corporate Finance
Issue of 2017‒03‒26
nine papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Firm Selection and Corporate Cash Holdings By Juliane Begenau; Berardino Palazzo
  2. Initial conditions and the private debt renegotiation process By Christophe J. GODLEWSKI
  3. Creditor Rights, Claims Enforcement, and Bond Performance in Mergers and Acquisitions By Renneboog, Luc; Szilagyi, Peter; Vansteenkiste, Cara
  4. The Transmission of Monetary Policy through Bank Lending : The Floating Rate Channel By Filippo Ippolito; Ali K. Ozdagli; Ander Perez
  5. The financialisation-offshoring nexus and the capital accumulation of U.S. nonfinancial firms By Tristant Auvray; Joel Rabinovich
  6. Institutional Investment and Internationalization: Ownership and Board Characteristics as Moderators By Vidya Sukumara Panicker; Sumit Mitra; Rajesh Srinivas Upadhyayula
  7. Corporate Donations and Shareholder Value By Liang, H.; Renneboog, Luc
  8. Testing for Competitive Effects of Common Ownership By Jacob P. Gramlich; Serafin J. Grundl
  9. Debt crisis and 10-year sovereign yields in Ireland and in Portugal By António Afonso; Jorge Silva

  1. By: Juliane Begenau; Berardino Palazzo
    Abstract: Among stock market entrants, more firms over time are R&D–intensive with initially lower profitability but higher growth potential. This sample-selection effect determines the secular trend in U.S. public firms’ cash holdings. A stylized firm industry model allows us to analyze two competing changes to the selection mechanism: a change in industry composition and a shift toward less profitable R&D–firms. The latter is key to generating higher cash ratios at IPO, necessary for the secular increase, whereas the former mechanism amplifies this effect. The data confirm the prominent role played by selection, and corroborate the model’s predictions.
    JEL: E3 G1 G3
    Date: 2017–03
  2. By: Christophe J. GODLEWSKI (LaRGE Research Center, Université de Strasbourg)
    Abstract: I investigate whether and how initial conditions around loan origination influence private debt renegotiation process. I model the renegotiation likelihood, and the conditional probability of multiple renegotiation rounds or multiple amended terms using a sequential logit model. I use a large sample of 15,000 loans on the European credit market. I find that contractual (covenants and collateral) and organizational (lenders pool size, reputation and relationship) mechanisms mitigating adverse selection and moral hazard risks have the largest and positive economic impacts. Lenders financial conditions (capitalization and credit portfolio exposure) and institutional arrangement aiming at creditors protection significantly impact the renegotiation process.
    Keywords: financial contracts, private debt, renegotiation, sequential logit, Europe.
    JEL: G21 G24 G32 G34
    Date: 2017
  3. By: Renneboog, Luc (Tilburg University, Center For Economic Research); Szilagyi, Peter (Tilburg University, Center For Economic Research); Vansteenkiste, Cara (Tilburg University, Center For Economic Research)
    Abstract: This paper shows that country-level differences in creditor protection affect bond performance around cross-border M&A announcements. Using Eurobonds and a global sample of 1,100 cross-border M&As, we find that the bondholders of bidding firms respond more positively to deals that expose their firm to a jurisdiction with stronger creditor rights and more efficient claims enforcement through courts. Positive creditor protection spillovers are enhanced by now-global jurisdictional cooperation in multinational insolvencies and creditors’ ability to do insolvency arbitrage. The spillover effects we observe are stronger for firms with higher asset risk, longer maturity bonds, and a higher likelihood of financial distress.
    Keywords: bondholder value; cross-border mergers and acquisitions (M&As); creditor rights; legal enforcement; eurobonds
    JEL: G34 G32 G12 G14
    Date: 2017
  4. By: Filippo Ippolito; Ali K. Ozdagli; Ander Perez
    Abstract: We describe and test a mechanism through which outstanding bank loans affect the firm balance sheet channel of monetary policy transmission. Unlike other debt, most bank loans have floating rates mechanically tied to monetary policy rates. Hence, monetary policy-induced changes to floating rates affect the liquidity, balance sheet strength, and investment of financially constrained firms that use bank debt. We show that firms---especially financially constrained firms---with more unhedged bank debt display stronger sensitivity of their stock price, cash holdings, sales, inventory, and fixed capital investment to monetary policy. This effect disappears when policy rates are at the zero lower bound, which further supports the floating rate mechanism and reveals a new limitation of unconventional monetary policy. We argue that the floating rate channel can have a significant macroeconomic effect due to the large size of the aggregate stock of unhedged floating-rate business debt, an effect at least as important as the bank lending channel through new loans.
    Keywords: Bank debt ; Financial constraints ; Firm balance sheet channel ; Floating interest rates ; Hedging ; Monetary policy transmission
    JEL: G21 G32 E52
    Date: 2017–03
  5. By: Tristant Auvray (Centre d'Economie de l'Université de Paris Nord (CEPN)); Joel Rabinovich (Centre d'Economie de l'Université de Paris Nord (CEPN))
    Abstract: The financialisation of the nonfinancial corporation has drawn the attention of many scholars who have identified two channels by which financialisation happens: a higher proportion of financial assets compared to nonfinancial ones and a higher amount of resources distributed to financial markets. One of the consequences of this is the decrease in investment. Parallel to financialisation, many nonfinancial corporations have also engaged in an internationalization of their productive activities, organizing them under global value chains. Surprisingly, the intersections between the literature on financialisation and the literature on global value chain are still underdeveloped, although, for example, offshoring may also explain the decrease in investment of nonfinancial firms. This paper fills this gap using panel regressions for U.S. nonfinancial corporations between 1995 and 2011. We find evidence that both offshoring and financialisation are determinants to the decrease in investment and that financialisation occurs mainly for firms belonging to high offshoring sectors.
    Keywords: Financialisation of the non-financial corporation, Global value chain, Offshoring, Investment
    JEL: F61 G32
    Date: 2017–01
  6. By: Vidya Sukumara Panicker (Indian Institute of Management Kozhikode); Sumit Mitra (Indian Institute of Management Kozhikode); Rajesh Srinivas Upadhyayula (Indian Institute of Management Kozhikode)
    Abstract: Even while studies have explored the influence of institutional investors on strategic decisions of a firm, the interaction between a firm’s ownership and board has not been sufficiently explored in the literature. We argue that owing to the unique institutional context of an emerging economy, corporate governance characteristics of a firm such as promoter ownership and board characteristics would influence the interest of institutional investors on strategic decisions of a firm. We employ a large sample study to evaluate the influence of institutional investors on a single firm strategy- internationalization. We find that promoter ownership and the presence of an institutional nominee member on board of directors positively moderate the relation between institutional investors and internationalization whereas board independence is insignificant as a moderator. Our findings emphasize the influence of ownership and certain board characteristics on the preferences of institutional investors.
    Keywords: promoter ownership, board nominee, board independence, institutional investors, internationalization,
    Date: 2016–12
  7. By: Liang, H.; Renneboog, Luc (Tilburg University, Center For Economic Research)
    Abstract: Do corporate donations enhance shareholder wealth or reflect agency problems? We address this question for a global sample of firms whereby we distinguish between charitable and political donations, as well as between donations in cash and in kind. We find that charitable donations are positively related to financial performance and firm value, which is consistent with the value-enhancement hypothesis. This positive effect on firm value is stronger for cash than in-kind donations. In contrast, political donations do not appear to enhance shareholder value, but rather tend to reflect agency problems, as they are higher for firms with poor internal corporate governance and strong managerial entrenchment. We address endogeneity concerns by using peer firms’ donations as an instrument in a two-stage least squares (2SLS) setting and by conducting a difference-in-difference analysis around a general election.
    Keywords: Corporate social responsibility; corporate philanthropy; charitable donations; political donations; corporate foundation; corporate governance; firm value
    JEL: G3 I3
    Date: 2017
  8. By: Jacob P. Gramlich; Serafin J. Grundl
    Abstract: We propose an alternative approach for analyzing the competitive effects of common ownership: to directly analyze the weights that firms place on each others' profits rather than using measures of industry concentration (MHHI and GHHI). Analyzing weights has at least three advantages: it places fewer restrictions on the nature of competition, it requires less data to test, and it circumvents endogeneity concerns with concentration measures. We apply our approach to data from the banking industry, and our preliminary results mixed and overall rather muted. The sign of the competitive effect is sensitive to specification, and the effects we estimate are economically quite small. Firms upon which significant weight is placed - either by themselves or competitors - move very little in price or quantity distributions.
    Keywords: Banking Competition ; Common Ownership ; GHHI ; MHHI
    JEL: L40 L20 L10 G34 G21
    Date: 2017–02–19
  9. By: António Afonso; Jorge Silva
    Abstract: We assess the determinants of the 10-year sovereign yield for the period 2000-2015, in Portugal and in Ireland. Results show that the long-term Portuguese sovereign yield increased with the rise of the 10-year Bund yield and during the Securities Markets Programme, but decreased due to financial integration. Additionally, during the period of the economic and financial adjustment programme, there was evidence of additional rises (decreases) due to increases (decreases) in the 3-month Euribor rate, and the level of public debt. EU/IMF funding reduced sovereign yield. Key Words : 10-year sovereign yield, economic and financial adjustment programme, Portugal, Ireland.
    JEL: C20 E44 E62 G01
    Date: 2017–03

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