nep-cfn New Economics Papers
on Corporate Finance
Issue of 2017‒06‒11
nine papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Corporate Governance and Capital Structure: Stock, Bonds and Substitution By Ripamonti, Alexandre; Kayo, Eduardo
  2. Internal Capital Markets in Times of Crisis: The Benefit of Group Affiliation in Italy By Raffaele Santioni; Fabio Schiantarelli; Philip E. Strahan
  3. Leverage and Capital Structure Determinants of Chinese Listed Companies By Ferrarini , Benno; Hinojales , Marthe; Scaramozzino , Pasquale
  4. Speed of Adjustment and Financial Constraints: Evidence from the UK By Iqbal Hussain, Hafezali; Mohd Farid, Shamsudin; Noor H, Jabarullah; Milad Abdelnabi, Salem; Fekri Ali, Shawtari
  5. Complex Asset Markets By Andrea L. Eisfeldt; Hanno Lustig; Lei Zhang
  6. Are U.S. Companies Too Short-Term Oriented? Some Thoughts By Steven N. Kaplan
  7. Acquiring Banking Networks By Ross Levine; Chen Lin; Zigan Wang
  8. Assessing News Contagion in Finance By Paola Cerchiello; Giancarlo Nicola
  9. Corporate Investment in Hungary – Stylised Facts on Micro Data By Péter Bauer; Marianna Endrész

  1. By: Ripamonti, Alexandre; Kayo, Eduardo
    Abstract: Purpose: To study the Brazilian bond and stock markets for testing the stock market development theory of Demirgüc-Kunt & Maksimovic (1996). Originality/Gap/Relevance/Implications: This paper tests the substitution hypothesis of stock market development, from debt to stocks, in a context of improved corporate governance, by analysing the data with cointegration techniques. The findings show that the substitution hypothesis is rejected, as the bond market has a positive and significant association with stock market improvements. The findings also show that improving the quality of corporate governance could lead own and borrower capital sources to be complementary and not substitutes, suggesting that Brazilian stock market reform has created a virtuous development cycle. Key methodological aspects: Positivist research using quantitative methodology. Data from a sample of 171 firms during 20 years´ analysed with cointegration. The null was a negative association between bond and stock markets. Summary of key results: Null rejection, non-consistent to theoretical framework. The results have shown a positive and significant association between stock and debt in an improved corporate governance context. Key considerations/conclusions: Improving the quality of corporate governance could lead own and borrower capital sources to be complementary and not substitutes, suggesting that Brazilian stock market reform has created a virtuous development cycle.
    Keywords: Stock market development. Bond market development. Capital structure. Corporate governance. Bond and stock complementarity hypothesis
    JEL: G15 G34
    Date: 2016
  2. By: Raffaele Santioni (Bank of Italy); Fabio Schiantarelli (Boston College; IZA); Philip E. Strahan (Boston College; NBER)
    Abstract: Italy’s economic and banking systems have been under stress in the wake of the Global Financial Crisis and Euro Crisis. Firms in business groups have been more likely to survive this challenging environment, compared to unaffiliated firms. Better performance stems from access to an internal capital market, and the survival value of groups increases, inter alia, with group-wide cash flow. We show that actual internal capital transfers increase during the crisis, and these transfers move funds from cash-rich to cash-poor firms and also to those with more favorable investment opportunities. The ability to borrow externally provides additional funds that are shared across group affiliated firms. Our results highlight the benefits of internal capital markets when external capital markets are tight or distressed.
    Keywords: Business groups, internal capital markets, financial crisis
    JEL: G01 G21 G31 G33
    Date: 2017–05–31
  3. By: Ferrarini , Benno (Asian Development Bank); Hinojales , Marthe (Asian Development Bank); Scaramozzino , Pasquale (SOAS, University of London)
    Abstract: Total debt in the People’s Republic of China has increased significantly in recent years, mostly on account of nonfinancial corporate debt. Earning and the financial performance of corporate firms have weakened, and so has the asset quality of the financial sector. This paper assesses the financial fragility of the Chinese economy by looking at risk factors in the nonfinancial sector. We apply quantile regressions to a rich dataset of Chinese listed companies contained in Standard & Poor’s IQ Capital database. We find higher sensitivity over time of corporate leverage to some of its key determinants, particularly for firms at the upper margin of the distribution. In particular, profitability increasingly acts as a curb on corporate leverage. At a time of falling profitability across the Chinese nonfinancial corporate sector, this eases the brake on leverage and may contribute to its continuing increase.
    Keywords: corporate debt; debt sustainability; panel quantile regression; People’s Republic of China
    JEL: G01 G21 H30 H60
    Date: 2017–01–26
  4. By: Iqbal Hussain, Hafezali; Mohd Farid, Shamsudin; Noor H, Jabarullah; Milad Abdelnabi, Salem; Fekri Ali, Shawtari
    Abstract: Our paper estimates the speed of moment adjustment based on the first difference of the lead (t+1) leverage levels (actual lead) and lag (t-1) leverage levels (actual lag) to the first difference of simulated lead (target) leverage levels and lag levels (actual lag leverage) for firm level data. We introduce an intrinsic limitation (financial constraints) to the model to test the impact on speed of adjustment and distance reduction. We find that financial constraints have a statistically and economically significant impact on rate of adjustment and distance reduction to target leverage levels.
    Keywords: Capital Structure, Financial Constraints, Financial Econometrics, Speed of Adjustment, UK Firms
    JEL: G3 G32
    Date: 2016–10
  5. By: Andrea L. Eisfeldt; Hanno Lustig; Lei Zhang
    Abstract: We develop a dynamic equilibrium model of complex asset markets with endogenous entry and exit in which the investment technology of investors with more expertise is subject to less asset-specific risk. The joint equilibrium distribution of financial expertise and wealth then determines risk bearing capacity. Higher expert demand lowers equilibrium required returns, reducing overall participation. In equilibrium, investor participation in more complex asset markets with more asset-specific risk is lower, despite higher market- level Sharpe ratios, provided that asset complexity and expertise are complementary. We analyze how asset complexity affects the stationary wealth distribution of complex asset investors. Because of selection, increased asset complexity reduces wealth concentration, even though the wealth distribution for more expert investors has fatter tails.
    JEL: G12 J42
    Date: 2017–06
  6. By: Steven N. Kaplan
    Abstract: U.S. companies are often criticized for being overly short-term oriented. This paper documents that those criticisms have a long history, going back at least thirty-five years. The paper then considers the implications of sustained short-termism for corporate profits, venture capital investments and returns, private equity investments and returns, and corporate valuations. The paper finds little long-term evidence that is consistent with the predictions of the short-term critics.
    JEL: G3 L25
    Date: 2017–06
  7. By: Ross Levine; Chen Lin; Zigan Wang
    Abstract: Does the pre-deal geographic overlap of the subsidiaries and branches of two banks affect the probability that they merge and post-merger value creation and synergies? We compile comprehensive information on U.S. bank acquisitions from 1986 through 2014, construct several measures of network overlap, and design and implement a new identification strategy. We find that greater pre-deal network overlap (1) increases the likelihood that two banks merge, (2) boosts the cumulative abnormal returns of the acquirer, target, and combined banks, and (3) is associated with larger labor cost reductions, managerial turnover, loan quality improvements, and revenue enhancements at target banks.
    JEL: G21 G28 G34
    Date: 2017–06
  8. By: Paola Cerchiello (Department of Economics and Management, University of Pavia); Giancarlo Nicola (Department of Economics and Management, University of Pavia)
    Abstract: The analysis of news data in the financial context has gained a prominent interest in the last years. This because of the possible predictive power of such content especially in terms of associated sentiment/mood. In this paper we focus on a specific aspect of financial news analysis: how the covered topics modify according to space and time dimensions. To this purpose, we employ a modified version of topic model LDA, the so called Structural Topic Model (STM), that takes into account covariates as well. Our aim is to study the possible evolution of topics extracted from two well known news archive - Reuters and Bloomberg - and to investigate a causal effect in the diffusion of the news by means of a Granger causality test. Our results show that both the temporal dynamics and the spatial differentiation matter in the news contagion.
    Keywords: behavioural finance, financial news, structural topic model, Granger causality.
    JEL: C83 C12 E58 E61 G02 G14
    Date: 2017–05
  9. By: Péter Bauer (Magyar Nemzeti Bank (Central Bank of Hungary)); Marianna Endrész (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: This paper investigates corporate fixed investment in Hungary between 2001 and 2014 using firm-level data. We analyse the composition, heterogeneity and the drivers of corporate investment. Investments in Hungary are highly concentrated and dominated by large and foreign-owned companies. The period investigated can be split into three parts: the 2000s with moderate performance, the crisis period, and the period of weak recovery in 2013-2014. We find that structural problems were already seen before the crisis: the investment rate was stagnant and investment activity declined. However, the performance of firms was heterogeneous, as smaller and middle-aged firms became less active and dynamic. During the crisis, investment performance markedly deteriorated. Signs of recovery were seen in 2013 and 2014, but the investment rate remained subdued. We show that the ageing of the group of smaller firms played an important role in their weak investment performance, while the lack of new entrants contributed to the sluggishness of the recovery. We did not find any evidence that changes in individual sectors’ weight in the economy contributed to the low corporate investment rate or the weakening activity.
    Keywords: corporate investment, micro data
    JEL: D22 E22 G31
    Date: 2017

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