nep-cfn New Economics Papers
on Corporate Finance
Issue of 2017‒04‒16
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Post-Privatization Ownership and Firm Performance: A Large Meta-Analysis of the Transition Literature By Iwasaki, Ichiro; Mizobata, Satoshi
  2. The Long-Term Performance of IPO’s, Revisited By Hoechle, Daniel; Karthaus, Larissa; Schmid, Markus
  3. Illiquidity Component of Credit Risk By Stephen Morris; Hyun Song Shin
  4. Reputation and Investor Activism By Travis L. Johnson; Nathan Swem
  5. Lending-based crowdfunding: opportunities and risks By Marcello Bofondi
  6. Measuring the M&A Value of Control and Synergy in Central and Eastern European Transition Economies with the Case of Avast -AVG Acquisition By Moreira, David; Janda, Karel
  7. Does exchange rate depreciation have contractionary effects on firm-level investment? By José María Serena; Ricardo Sousa

  1. By: Iwasaki, Ichiro; Mizobata, Satoshi
    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
  2. By: Hoechle, Daniel; Karthaus, Larissa; Schmid, Markus
    Abstract: The literature on IPO long-term performance generally focuses on three- to five-year post-issue time horizons. Research published in the 2000s shows that the apparent underperformance of IPOs docu-mented in the 1990s disappears when the different risk exposures between IPO and mature firms are accounted for by using a Carhart (1997) factor model. In this paper, we show that a sample of 7,487 U.S. IPOs between 1975 and 2014 continues to significantly underperform mature firms in terms of Carhart-alphas over two years, with underperformance peaking one year after going public. We apply a regression-based portfolio sorts approach (RPS), which allows to decompose the Carhart-alpha into firm-specific characteristics, to explain one-year IPO underperformance using a multitude of market and firm characteristics in a statistically robust setting. In fact, our RPS-model that augments the Carhart factors by a set of firm characteristics related to investments, internationality, liquidity, and leverage can explain IPO underperformance. We find similar results when using the Fama-French three-factor model or an augmented version of the Carhart model. We challenge our RPS-model by applying it to the most severely underperforming sub-samples in terms of firm size, time period, venture capital involvement, and IPO underpricing, and find it to explain IPO underperformance across all sub-samples.
    Keywords: IPO Underperformance, Long-Term Performance Evaluation, Time Horizon, Firm Characteristics
    JEL: G14 G24 G32
    Date: 2017–03
  3. By: Stephen Morris (Princeton University); Hyun Song Shin (Bank for International Settlements; Princeton University)
    Abstract: We provide a theoretical decomposition of bank credit risk into insolvency risk and illiquidity risk, defining illiquidity risk to be the counterfactual probability of failure due to a run when the bank would have survived in the absence of a run. We show that illiquidity risk is (i) decreasing in the "liquidity ratio"--the ratio of realizable cash on the balance sheet to short-term liabilities; (ii) decreasing in the excess return of debt; and (iii) increasing in the solvency uncertainty--a measure of the variance of the asset portfolio.
    JEL: G21 G32 G33
    Date: 2016–05
  4. By: Travis L. Johnson; Nathan Swem
    Abstract: We show that an activist's reputation is a critical determinant of the success of their campaigns. We model reputation as target managers' belief about the activist's willingness to initiate a proxy fight. Our model indicates reputation, rather than stake size, induces managers to settle without a proxy fight. We present empirical evidence supporting our model's predictions: target companies more-frequently increase payouts, change management or board composition, engage in a merger or acquisition, or otherwise reorganize in response to high reputation activist campaigns, while target actions are not sensitive to the activist's stake size.
    Keywords: Corporate Governance ; Hedge Funds ; Investor Activism ; Reputation
    JEL: G23 G34 G35
    Date: 2017–02
  5. By: Marcello Bofondi (Banca d'Italia)
    Abstract: Lending-based crowdfunding (LBC) is an alternative funding channel to that represented by credit intermediaries. LBC allows households and small businesses to be financed directly by a multitude of investors. Supply meets demand online platforms. This paper first describes how LBC platforms operate, identifying the potential risks and benefits of their operations and then attempts to indicate if and how LBC will contribute to the evolution of the financial system. Although it is unlikely that LBC will pose a significant threat to the banking system and its profitability, it has nevertheless the potential to stimulate traditional intermediaries to review their business models and to create an alternative source of financing for households and small and medium-sized enterprises. The risks to financial stability posed by LBC can be mitigated by establishing rules that limit the expansion of credit to riskier borrowers and by ensuring investors’ capacity to absorb any losses.
    Keywords: FinTech, lending-based crowdfunding, financial innovation
    JEL: G21 G23 G28
    Date: 2017–03
  6. By: Moreira, David; Janda, Karel
    Abstract: We examine the valuation of synergies and control in mergers and acquisitions (M&A) in Central and Eastern European (CEE) transition economies. We determine this value based on comprehensive contemporaneous financial findings extracted from the Thomson Reuters database. Worldwide the market of mergers and acquisitions (M&A) is increasing, reaching in 2016 a value of 6.000 billion EUR globally. Among the CEE transition economies, the M&A total value in the same period was 50 billion EUR. It is widely accepted that between 60% and 80% of M&As are unsuccessful in value creation, so we further research evidences about an alternative framework to value the M&A also qualitatively. We develop a valuation model for prediction of the value of control and synergy in M&A deals. We suggest further directions for analysis in the field of M&A value creation, and recommend an alternative to the most used earning per share metric to enhance the predictability and transparency of valuation worldwide.
    Keywords: Mergers, Acquisitions, Synergy, Control, Corporate Governance
    JEL: G24 G34 P23
    Date: 2017–03–30
  7. By: José María Serena; Ricardo Sousa
    Abstract: We assess the conditions under which exchange rate fluctuations are contractionary for firm-level investment. To address this question, we match firm-level balance sheet data with a large dataset of firm-level bonds for about 1,000 firms from 36 emerging market economies over the period 1998-2014. We augment a standard firm-level investment model to control for (country-specific) macroeconomic variables, and interact the effect of an exchange rate depreciation with several dimensions of bond composition, namely: 1) currency of issuance; 2) maturity structure of bonds; and 3) market of issuance. We find that, conditional on the amount of debt issued in foreign currency, an exchange rate depreciation can have a contractionary impact on a firm's investment spending. We also find that the market of issuance and maturity structure, in particular, when coupled with foreign currency-denominated debt can influence this impact.
    Keywords: investment, exchange rate, balance sheet, bonds, firm-level data, debt
    Date: 2017–04

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