nep-cfn New Economics Papers
on Corporate Finance
Issue of 2017‒07‒16
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Takeover Law to Protect Shareholders: Increasing Efficiency or Merely Redistributing Gains? By Ying Wang; Henry Lahr
  2. Ownership, Institutions & Firm Value: Cross-Provincial Evidence from China By Boya Wang
  3. The performance effects of gender diversity on bank boards By Owen, Ann L.; Temesvary, Judit
  4. The Economics of Value Investing By Kewei Hou; Haitao Mo; Chen Xue; Lu Zhang
  5. M&As, investment and financing constraints By Stiebale, Joel; Wößner, Nicole
  6. Mid-Sized Italian manufacturing firms: a panel data analysis on profitability By Migliardo, Carlo; Schilirò, Daniele
  7. Credit Market Development and Firm Innovation: Evidence from the People’s Republic of China By Shang, Hua; Song, Quanyun; Wu, Yu

  1. By: Ying Wang; Henry Lahr
    Abstract: We construct a dynamic takeover law index using hand-collected data on legal provisions and empirically examine the effect of takeover regulation to protect shareholders on shareholder wealth for bidders and targets in a multi-country setting. We find that a stricter takeover law increases combined wealth for bidders and targets, which suggests that stronger shareholder protection in the takeover bid process increases the efficiency of the takeover market. Contrary to our hypothesis, results show that stricter takeover law does not hurt bidders. Its effect on target announcement returns and takeover premiums is significantly positive and economically large. Our findings suggest that the mandatory bid rule and ownership disclosure increase synergistic gains in takeovers, whilst the fair-price rule and squeeze-out rights may reduce combined gains. Further results show that increased overall gains can be explained by greater competition in the market for corporate control and a shorter time to successful completion of a takeover under stricter takeover law.
    Keywords: Takeover laws, Mergers and acquisitions, Shareholder protection, Announcement returns, EU takeover directive
    JEL: G32 G34 G38 K22 O16
    Date: 2016–12
  2. By: Boya Wang
    Abstract: The distinctive political-economic setups of emerging economies engender special corporate governance issues that warrant added attention to the broader institutional environments. Using a unique provincial firm-level dataset, we investigate how control natures, ownership concentration, and provincial differences in government quality and financial deregulation jointly affect the market value of Chinese listed companies. Firstly, the presence of a central government controller is generally associated with higher Tobin's Q, while a negative premium is found for firms ultimately controlled by local governments. We then use alternative concentration measures and an instrumental variable approach to confirm a nonlinear relationship between blockholder ownership and Tobin's Q, implying that firm value first decreases and then increases as blockholders own more shares. Further analysis reveals that government quality has a significant, positive moderating effect on the relationship between different control natures and firm value, while the valuation effect of ownership concentration also depends on regional financial development.
    Keywords: Control natures, ownership concentration, government quality, financial development, firm value
    JEL: G31 H77 P30 P48 H77
    Date: 2016–12
  3. By: Owen, Ann L.; Temesvary, Judit
    Abstract: Previous literature has shown mixed results on the role of female participation on bank boards and bank performance: some find that more women on boards enhance financial performance, while others find negative or no effects. Applying Instrumental Variables methods to data on approximately 90 US bank holding companies over the 1999-2015 period, we argue that these inconclusive results are due to the fact that there is a non-linear, U-shaped relationship between gender diversity on boards and various measures of bank performance: female participation has a positive effect once a threshold level of gender diversity is achieved. Furthermore, this positive effect is only observed in better capitalized banks. Our results suggest that continuing the voluntary expansion of gender diversity on bank boards will be value-enhancing, provided that they are well capitalized.
    Keywords: Bank performance; Gender Diversity; Instrumental Variables Estimation
    JEL: G21 G34 J16
    Date: 2017–07–07
  4. By: Kewei Hou; Haitao Mo; Chen Xue; Lu Zhang
    Abstract: The investment CAPM provides an economic foundation for Graham and Dodd’s (1934) Security Analysis. Expected returns vary cross-sectionally, depending on firms’ investment, profitability, and expected investment growth. Empirically, many anomaly variables predict future changes in investment-to-assets, in the same direction in which these variables predict future returns. However, the expected investment growth effect in sorts is weak. The investment CAPM has different theoretical properties from Miller and Modigliani’s (1961) valuation model and Penman, Reggiani, Richardson, and Tuna’s (2017) characteristic model. In all, value investing is consistent with efficient markets.
    JEL: G12 G14 G31
    Date: 2017–06
  5. By: Stiebale, Joel; Wößner, Nicole
    Abstract: We use a panel data set of European firms to analyse the effects of domestic and international M&As on target firms' investment, growth and financial constraints. Combining propensity score matching with a difference-in-differences estimator, our results indicate that upon acquisition, target firms obtain better access to external finance, are characterized by higher levels of tangible and intangible assets, and display lower dependence of investments and cash savings to the availability of internal funds. We also provide evidence that these effects are concentrated among acquisitions during the 2007-2009 financial crisis, relatively small target firms, and domestic rather than foreign acquisitions.
    Keywords: Mergers and Acquisitions,Financial Constraints,Investment,Firm Growth,Financial Crisis,Foreign Ownership
    JEL: F61 F23 G01 G34 L25 D22 D24
    Date: 2017
  6. By: Migliardo, Carlo; Schilirò, Daniele
    Abstract: This paper aims to provide an empirical analysis concerning the different aspects of profitability of the Italian manufacturing firms of intermediate size, namely medium and medium-large size companies, for the period 2004-2010. It analyzes various aspects of firm profitability relating corporate structures, that is, capital structure, risk component, asset composition, and growth opportunities. The study investigates firm profitability by using econometric panel-data techniques, such as the system dynamic GMM estimator that assures the robustness of our empirical analysis. One of the main results of our investigation is that we find a significant and negative impact of capital structure (i.e. leverage and tangibility) and risk component on firm profitability.
    Keywords: Mid-sized Italian firms; profitability: panel data; GMM
    JEL: C23 G32 L2 L25 L6 L60
    Date: 2016–10
  7. By: Shang, Hua (Asian Development Bank Institute); Song, Quanyun (Asian Development Bank Institute); Wu, Yu (Asian Development Bank Institute)
    Abstract: From the perspective of credit allocation, this paper analyzes the effects of credit market development on the innovative capacities of industrial firms in the People’s Republic of China. Using a large dataset of industrial firms in 31 provinces in the People’s Republic of China, we find that credit market development enhances firms’ product innovation incentives and outcomes. We further show that firms’ credit constraints and firms’ performances are two channels through which credit market development affects innovative capacities of firms. Our results are neither driven by the increase in the quantity of credit, nor by the increase in the number of firms in a province. The results are robust to different samples, different estimation methods, and alternative measures of credit market development.
    Keywords: credit market development; credit allocation; firm innovation; product innovation; innovation incentives; innovation outcomes
    JEL: G15 O31 R11
    Date: 2017–01–27

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