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on Corporate Finance |
| By: | FRENCH, Joseph; YAN, Juxin; YASUDA, Yukihiro |
| Abstract: | We dissect the influence of bank-firm relationships on mergers and acquisitions in Japan. Using a comprehensive data set spanning fifteen years, we show that stronger bank-firm relationships generally increase the likelihood and size of M&A. Contrary to conventional wisdom of the adverse effects of bank-firm relationships in Japan, such as ‘zombie lending', our results indicate that Japanese banks facilitate restructuring in the 2000's. However, in cases where a bank plays a dual role as a lender and shareholder to a firm, the likelihood and size of M&A declines. This result stems from a bank's desire to maintain existing corporate governance mechanisms and control rights. |
| Keywords: | Mergers and Acquisitions, Relationship Banking, Japan |
| JEL: | G01 G21 G34 |
| Date: | 2016–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hcfrwp:g-1-15&r=cfn |
| By: | Bedendo, Mascia; Garcia-Appendini, Emilia; Siming, Linus |
| Abstract: | This paper documents significant differences in the financing structure of small firms with managers of diverse cultural backgrounds. To separate the effect of culture from other factors that affect the financing structure of firms, we exploit cultural heterogeneity within a geographical area with shared regulations, institutions, and macroeconomic cycles. Our findings suggest that there exist significant differences in the culturally embedded preferences towards the use of formal and informal sources of financing (bank loans and trade credit). Our results are robust to alternative explanations based on potential differences in credit constraints and in the distribution of cultural origins across industrial sectors, trading partners, and headquarters location. |
| Keywords: | Managerial cultural origin, Informal financing, Trade credit, Small firm financing |
| JEL: | Z10 G32 M14 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2017:07&r=cfn |
| By: | KIM, Hyonok; YASUDA, Yukihiro |
| Abstract: | We empirically examine the economic effects of disclosure by focusing on mandatory textual business risk disclosures in Japan. A unique feature of this study is the construction of a new risk measure, which enables us to isolate economic disclosure effects (i.e., information risk) from fundamental value effects (i.e., fundamental risk). We find that there is a positive association between the number of items within business risk disclosures and information risk. We also find that the results are more pronounced for firm-level disclosure that deviates from that of other firms in the same industry and year. This indicates that business risk disclosures affect investors' risk perceptions and thus increase the information component in the cost of capital. |
| Keywords: | textual business risk disclosure, information risk, boilerplate, real effects |
| JEL: | G14 M41 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hcfrwp:g-1-13&r=cfn |
| By: | YASUDA, Yukihiro |
| Abstract: | This paper shows theoretically that if bank supervision is weak, capital adequacy requirements provide an incentive for troubled banks with their non-performing loans to refinance their client distressed firms, even those with poor prospects. We also argue that in some cases rollover is desirable because the bank can resolve the debt overhang problem of its clients. Therefore, results such as these indicate that loan rollovers need to be assessed more carefully. |
| Keywords: | Rollover, Capital adequacy requirements, Debt overhang |
| JEL: | G21 G28 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hcfrwp:g-1-11&r=cfn |
| By: | Inderst, Georg |
| Abstract: | This study provides an overview of UK infrastructure investment and finance in an international context, yielding interesting facts and insights for both investors and policy makers worldwide. The UK is one of the leading countries in terms of private sector involvement in infrastructure, with several decades’ experience in regulating privatized utilities and in developing public-private partnerships (PPP). It has attracted substantial European and global capital, and London is a major market place for the infrastructure and green business. However, the UK has also seen decades of weak spending by the state (and taxpayers) on infrastructure. The country needs more investment when public budgets are already stretched. The question is whether private capital will be so easily available in future, especially from institutional and foreign investors. |
| Keywords: | infrastructure investment, infrastructure finance, project finance, public-private partnerships, institutional investors, pension funds, infrastructure policy |
| JEL: | E22 F21 G15 G18 G22 G23 G28 H54 L9 O16 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79621&r=cfn |
| By: | Ye, Dezhu (Jinan University); Deng, Jie (Jinan University); Zeng, Fanqing (Jinan University) |
| Abstract: | New Structural Economics suggests that there is no universally optimal financial structure for all countries,only when the financial structure match well with the technical level, it can effectively promote economic growth. Following corporate finance literatures, we try to discuss the measurement of regression residual on the abnormal level of the explained variables, regard the residual after the regression of each country’s financial structure on technical level as the main substitute variable, and then test the issue. The empirical results show that the matching degree between financial structure and technical level is significantly positively correlated to economic development, and the effect tends to be more obvious in developing countries. This paper also uses the alternative measure financial structure, the sociology’s hierarchical matching method to measure the matching degree between financial structure and technical level,and the instrumental variables method to deal with the possible endogenous problems, all empirical results supportthe same conclusions. To make a comparison, we add the gap variables of the optimal financial structure which regards OECD countries as the optimal criterion into our regression equation, the results indicate that our coordination variables are more significant and have stronger explanatory power on economic growth.Further research finds that promoting the growth of TFP is the mechanism through which the matching relationship affects economic development. |
| Keywords: | New Structural Economics, the Optimal Financial Structure, the Matching Degree of Financial Structure—Technical Level, Economic Development |
| JEL: | E44 G00 O16 |
| Date: | 2017–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:xjt:rieiwp:2017-09&r=cfn |
| By: | Daniele Tori (Open University); Özlem Onaran |
| Abstract: | In this paper we estimate the effects of financialization on physical investment in selected western European countries using panel data based on the balance-sheets of publicly listed non-financial companies (NFCs) supplied by Worldscope for the period 1995-2015. We find robust evidence of an adverse effect of both financial payments (interests and dividends) and financial incomes on investment in fixed assets by the NFCs. This finding is robust for both the pool of all Western European firms and single country estimations. The negative impacts of financial incomes are non-linear with respect to the companies' size: financial incomes crowd-out investment in large companies, and have a positive effect on the investment of only small, relatively more credit-constrained companies. Furthermore, we find that a higher degree of financial development is associated with a stronger negative effect of financial incomes on companies' investment. This finding challenges the common wisdom on 'finance-growth nexus'. Our findings support the 'financialization thesis' that the increasing orientation of the non-financial sector towards financial activities is ultimately leading to lower physical investment, hence to stagnant or fragile growth, as well as long term stagnation in productivity. |
| Keywords: | financialization, financial development, firm-level data, Europe |
| JEL: | C23 D22 G31 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp1705&r=cfn |
| By: | Acharya, Viral; Anginer, Deniz; Warburton, Joe |
| Abstract: | Using unsecured bonds traded in the U.S. between 1990 and 2012, we find that bond credit spreads are sensitive to risk for most financial institutions, but not for the largest financial institutions. This “too big to fail” relation between firm size and the risk sensitivity of bond spreads is not seen in the non-financial sectors. The results are robust to using different measures of risk, controlling for bond liquidity, conducting an event study around shocks to investor expectations of government guarantees, examining explicitly and implicitly guaranteed bonds of the same firm, and using agency ratings of government support for financial institutions. |
| Keywords: | Too big to fail, Dodd-Frank, bailout, implicit guarantee, moral hazard |
| JEL: | G21 G24 G28 |
| Date: | 2016–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79700&r=cfn |
| By: | Giuseppe Cappelletti (European Central Bank); Paolo Emilio Mistrulli (Bank of Italy) |
| Abstract: | Multiple lending has been widely investigated from both an empirical and a theoretical perspective. Nevertheless, the implications of multiple lending for the stability of the banking system still need to be understood. By lending to a common set of borrowers, banks are interconnected and then exposed to financial contagion phenomena, even if not directly. In this paper, we investigate a specific type of externality that originates from those borrowers that obtain liquidity from more than one bank. In this case, contagion may occur if a bank hit by a liquidity shock calls in some loans and borrowers then pay them back by drawing money from other banks. We show that, under certain circumstances that make other sources of liquidity unavailable or too costly, multiple lending might be responsible for a large liquidity shortage. |
| Keywords: | financial contagion, multiple lending, credit lines |
| JEL: | G21 G28 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1123_17&r=cfn |
| By: | Geraldo Cerqueiro; María Fabiana Penas; Robert Seamans |
| Abstract: | We study the effect of debtor protection on firm entry and exit dynamics. We find that more lenient personal bankruptcy laws lead to higher firm entry, especially in sectors with low entry barriers. We also find that debtor protection increases firm exit rates and that this effect is independent of firm age. Our results overall indicate that the wealth insurance provided by personal bankruptcy exemptions induce individuals to embrace entrepreneurship and that this in turn fosters competition in a Schumpeterian sense. |
| Keywords: | Debtor Protection, Personal Bankruptcy, Entrepreneurship. |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:17-42&r=cfn |
| By: | Boehl, Gregor (IFMS, Goethe University Frankfurt, Germany.); Fischer, Thomas (Department of Economics, Lund University) |
| Abstract: | Using a parsimonious, analytically tractable dynamic model, we are able to explain up to 100 years of the available data on the dynamics of top-wealth shares for several countries. We build a micro-founded model of heterogeneous agents in which - in addition to stochastic returns on investment - individuals disagree marginally on their expectations of future returns and thus hold different asset positions. We show that, given a positive tax on capital gains, the distribution converges to a double Pareto distribution for which the degree of wealth inequality decreases with the tax rate. Closed-form solutions confirm that without government intervention there is infinite inequality. Moreover, transition dynamics are shown to increase with the tax rate. We discuss the model's ability to match the measured wealth inequality for the US, the UK, Sweden, and France, both in levels and transitions. The heterogeneous development in the different countries and across time can be traced back to different tax regimes. |
| Keywords: | Wealth inequality; capital taxation; stochastic simulation; heterogeneity |
| JEL: | C63 D31 G11 H23 |
| Date: | 2017–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2017_008&r=cfn |
| By: | Talat S. Genc (Department of Economics, University of Guelph, Guelph ON Canada) |
| Abstract: | We study equilibrium investment strategies of firms competing in stochastic dynamic market settings and facing two types of investment structures: investment with significant lead time (or time-to-build) and investment without (or minor) lead time. We investigate how investment behavior changes when investment is subject to time-to-build versus when it is not. We characterize equilibrium investment strategies under several information structures and compare results to the social optimum. We offer some new results. The model predicts that, controlling for demand, and production and investment costs, investments and outputs can be higher in progressive industries (which often exhibit time-to-build) than in fast-paced industries (where time-to-build is insignificant). Furthermore, for both investment types (investment with or without time-to-build) we offer a novel equilibrium in which firms incrementally invest. This behavior is driven by demand uncertainty and capacity constraints. Also, expected outputs are lower than Cournot outputs as firms face uncertainty. Moreover, the amount of uncertainty has different effects over investment types. |
| Keywords: | Capacity Investment, Capacity Constraints, Progressive Industry, Fast-paced Industry, Demand uncertainty, Time-to-build, Markov perfect Equilibrium, Open-loop Equilibrium |
| JEL: | C73 D92 E22 G31 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2017-04&r=cfn |