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on Corporate Finance |
| By: | Tomasz Sosnowski (University of Lodz, Poland) |
| Abstract: | Prior studies suggest that companies which go public manage earnings in order to inflate the issue price. However, for PE funds the use of such activity can be costly in terms of the reputation capital as they are repetitive stock market players. The main aim of the study is to empirically investigate the use of pre-IPO earnings management by private equity funds in the process of divestment conducted on a stock exchange. I provide comparisons between PE-backed companies and firms with a similar initial market value and growth potential, using the method of single-linkage clustering to build the study sample. In order to assess the pre-IPO earnings management I apply the discretionary accruals model of Larcker and Richardson [2004]. I do not find evidence that the presence of PE fund among the shareholders of the company in the period preceding first listing of shares on a stock market constrains the use of earnings management prior to the IPO. The difference between the discretionary accruals in PE-backed and matched companies, when controlling for the market value and book-to-market ratio, is statistically insignificant. |
| Keywords: | Initial public offering, IPO, Private equity, Earnings management |
| JEL: | G24 G32 G34 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no118&r=cfn |
| By: | Aleksandra Pieloch-Babiarz (University of Lodz, Poland) |
| Abstract: | Making decisions concerning the payout policy depends on many diversified neoclassical and behavioral determinants. Although these factors are well-described in the literature, there is still a research gap concerning the lack of a comprehensive impact model of payout policy determinants on the investment attractiveness of shares. The aim of this paper is to present the diverse nature of relationships between different forms of cash transfer to the shareholders and investments attractiveness of public companies in the context of determinants of payout policy. The possibility to achieve this objective was conditioned by empirical verification of research hypothesis stating that the diversify of payout forms is accompanied by the different determinants of payout policy which condition an effective investment of stock investors capital. The empirical research was conducted on the electromechanical companies which were listed on the Warsaw Stock Exchange in years 2006-2015. The data for analysis were mainly collected from database Notoria Service SA and Stock Exchange Yearbooks. The calculations were carried out using the methodology of taxonomic measure of investment attractiveness, as well as dividend premium and share repurchase premium. The final conclusion of our research is that the companies conducting the payout policy in different forms of cash transfer differ in terms of many characteristics, such as: financial standing, market value, ownership structure, company’s size and age. Moreover, their investment attractiveness differs according to regularity of payment, stock exchange situation and shareholders preferences. The value added of this paper is a new approach to the evaluation of capital investment with a special emphasis on the determinants of payout policy. |
| Keywords: | determinants of payout policy; investment attractiveness; dividend; share repurchase |
| JEL: | G02 G10 G35 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no91&r=cfn |
| By: | David Hirshleifer; Po-Hsuan Hsu; Dongmei Li |
| Abstract: | We propose that innovative originality (InnOrig) is a valuable organizational resource, and that owing to limited investor attention and skepticism of complexity, firms with greater InnOrig are undervalued. We find that firms’ InnOrig strongly predicts higher, more persistent, and less volatile profitability; and higher abnormal stock returns—findings that are robust to extensive controls. The return predictive power of InnOrig is stronger for firms with higher valuation uncertainty, lower investor attention, and greater sensitivity of future profitability to InnOrig. This evidence suggests that innovative originality acts as a ‘competitive moat,’ and that the market undervalues InnOrig. |
| JEL: | G12 G14 G3 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23432&r=cfn |
| By: | Pandey, Ashish |
| Abstract: | This short perspective article discusses the effect of a start-up firm's capital structure on the nature and degree of competition in the marketplace. Specifically, the article argues that the nature of financing availed by the start-up firms expose them to the risk of predatory price-based competition from a well-capitalized competitor. The staged model of capital infusion works best when tangible progress can be demonstrated at every new round of financing. Indian start-up firms need to acknowledge this fact, pursue innovations that complement the local realities and develop a distinct local model that justifies the need for additional capital. |
| Keywords: | Venture Financing, Start-Up Firms, Predatory Competition, Capital Dumping |
| JEL: | D43 G32 G38 K42 M13 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79399&r=cfn |
| By: | Paul A. Gompers (Harvard Business School, Finance Unit); Sophie Q. Wang (Harvard University) |
| Abstract: | With an overall lack of gender and ethnic diversity in the innovation sector documented in Gompers and Wang (2017), we ask the natural next question: Does increased diversity lead to better firm performances? In this paper, we attempt to answer this question using a unique dataset of the gender of venture capital partners' children. First, we find strong evidence that parenting more daughters leads to an increased propensity to hire female partners by venture capital firms. Second, using an instrumental variable set-up, we also show that improved gender diversity, induced by parenting more daughters, improves deal and fund performances. These effects concentrate overwhelmingly on the daughters of senior partners than junior partners. Taken together, our findings have profound implications on how the capital markets could function better with improved diversity. |
| JEL: | G02 G24 G30 L14 L20 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:17-103&r=cfn |
| By: | Iqbal Hussain, Hafezali; Mohd Farid, Shamsudin; Noor H, Jabarullah |
| Abstract: | The dynamic trade-off view of capital structure is based on partial adjustment models that find that firms adjust towards target levels. In this paper, we estimate the speed of adjustment based on the first difference of the lead leverage levels (actual lead) and lag leverage levels (actual lag) to the first difference of simulated lead (target) leverage levels and lag levels (actual lag leverage) for UK firms. Consistent with the literature we find that firms adjust the lag (current) leverage levels faster to lead levels when they are above lead levels relative to periods when they are below lead levels. This is due to managerial actions in minimizing present value of bankruptcy costs when firms are over-levered. Bringing in the market timing view of capital structure, we measure deviation of market prices to predicted theoretical values, and find that speed of adjustment is influenced by equity mispricing. We find that firms adjust faster to lead levels when lag levels are above lead levels and the extent of deviation above theoretical values is not excessive relative to when deviations of prices from theoretical levels are too high. Furthermore, looking at firms below lead levels, we find that firms adjust faster to lead levels when equities prices below theoretical values severely deviate; suggesting that firms increase debt issues when equity prices are acutely suppressed. This indicates managers are consistently looking at windows of opportunities when issuing or repurchasing to ensure successful timing attempts. Thus, our findings suggest that although market timing could also work within a trade-off framework where managers are timing based on the deviation from theoretical prices as well as moving towards simulated lead levels, the extent of the integration of both explanations of capital structure remains puzzling. |
| Keywords: | Non-linearity; Speed of adjustment; Timing of equity issues |
| JEL: | G32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79261&r=cfn |
| By: | Michela Altieri; Giovanna Nicodano |
| Abstract: | Our model highlights the impact of bankruptcy on (true and apparent) firm value. We show that the pricing of diversified firms suffers from a survivorship bias, due to their lower mortality relative to focused ones. This difference in mortality is able to turn a true diversification premium, deriving from saved bankruptcy costs, into an apparent diversification discount. Such apparent discount is larger the larger is the true premium due to coinsurance across diversified units. We show how this insight contributes to explain value paradoxes in diversified companies such as multi-unit groups, multi-segment conglomerates, and parent companies. |
| Keywords: | bankruptcy costs, coinsurance, contagion, limited liability, diversification discount, survivorship bias, parent company discount, cost of debt |
| JEL: | G32 D23 K19 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:465&r=cfn |
| By: | Paul A. Gompers; Sophie Q. Wang |
| Abstract: | With an overall lack of gender and ethnic diversity in the innovation sector documented in Gompers and Wang (2017), we ask the natural next question: Does increased diversity lead to better firm performances? In this paper, we attempt to answer this question using a unique dataset of the gender of venture capital partners’ children. First, we find strong evidence that parenting more daughters leads to an increased propensity to hire female partners by venture capital firms. Second, using an instrumental variable set-up, we also show that improved gender diversity, induced by parenting more daughters, improves deal and fund performances. These effects concentrate overwhelmingly on the daughters of senior partners than junior partners. Taken together, our findings have profound implications on how the capital markets could function better with improved diversity. |
| JEL: | G24 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23454&r=cfn |
| By: | Jan Dvorsky (Tomas Bata University in Zlin); Jaroslav Schonfeld (University of Economics); Eva Cipovova (Czech Technical University in Prague); Zora Petrakova (Slovak University of Technology) |
| Abstract: | Research background: One of the possibilities for entrepreneur who is trying to start-up a successful business or grow a business, is to ensure the business from an economic perspective. Entrepreneurs can use a various alternative forms of financing. Despite the wide range of programs, grants and subsidies, the most commonly used form of financing is still a loan which is provided by the bank institutions. The relationship between entrepreneurs and banking institutions is mainly connected in the area of lending and guarantees for funding. Therefore the perception and the evaluation of the credit risk by entrepreneurs contributes to a better understanding of needs of both sides. Purpose of the article: A comparison of the evaluation of factors which affect the perception and management of the credit risk by entrepreneurs. Not only socio-demographic factors (gender, level of education or age of entrepreneurs) but also the nature of corporate activities in the business environment for small and medium-sized enterprises in the Czech Republic. Methodology/methods: During data collection, method of random firm’s selection using specialized database of companies “Albertina” was used. Afterwards, the method of interview with responsible managers of the company and method of online questionnaire survey were used. Data from 1141 enterprises in 2015 from all 14 regions of the Czech Republic were collected. In the first step of our research, the descriptive statistics (pivot tables, pie charts) were conducted. Afterwards, the two-sample t-test to compare a mean values of the perceptions of credit risk factors and verify the conditions for its completion (Histogram, Q-Q plot, Goodness of Fit Test, Pearson coefficient of contingency, t- test). Findings & Value added: With an increase of the time of operating in the business environment, the amount of women as a responsible people for business management is decreasing. Entrepreneurs are united in the opinion that the importance of credit risk during the crisis increases. There are statistically significant differences between entrepreneurs by a gender and age in enterprises with a time of operating on the market between 5-10 years that the importance of credit risk during the crisis increases. |
| Keywords: | enterprise, credit risk, business environment, banks |
| JEL: | L26 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no155&r=cfn |
| By: | Mauro Pisu (OECD) |
| Abstract: | Boosting investment is key to supporting the nascent recovery and reviving stagnant productivity. Aggregate investment has declined markedly since the start of the global financial crisis, especially in services. Italy’s investment is so low that the capital stock is now declining, hurting potential output growth. Raising investment will hinge on improving insolvency procedures, enhancing business dynamism, strengthening the innovation system and targeting incentives toward start-ups and innovative SMEs, overcoming problems in the banking sector and restarting lending to firms in addition to diversifying sources of firms’ finance. |
| JEL: | E21 E22 G21 G23 G24 G28 H20 O16 |
| Date: | 2017–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1388-en&r=cfn |