nep-cfn New Economics Papers
on Corporate Finance
Issue of 2017‒07‒30
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Firms’ Innovation Strategy under the Shadow of Analyst Coverage By Bing Guo; David Pérez-Castrillo; Anna Toldrà-Simats
  2. Corporate monitoring mechanism and corporate governance influence CEO compensation level: Evidence from non-financial firms of Pakistan By Anam Tasawar
  4. Changes in Executive Remuneration after Technology Bubble By Suwina Cheng
  5. On the determinants of speculation - a case for extended disclosures in corporate risk management By Hecht, Andreas
  6. Guest Editorial: Institutional role, the Market for corporate control and Firm performance By Narendar V., Rao; K.S., Reddy
  7. Capital Structure Under Collusion By Ferrés, Daniel; Ormazabal, Gaizka; Povel, Paul; Sertsios, Giorgio

  1. By: Bing Guo; David Pérez-Castrillo; Anna Toldrà-Simats
    Abstract: We study the effect of analyst coverage on firms’ innovation strategy and outcome. By considering three different channels that allow firms to innovate: internal R&D, acquisitions of other innovative firms, and investments in corporate venture capital (CVC), we are able to distinguish between the pressure and information effect of analysts. Using the data of US firms from 1990 to 2012, we find evidence that: i) an increase in financial analysts leads firms to cut R&D expenses, and ii) more analyst coverage leads firms to acquire more innovative firms and invest in CVC. We attribute the first result to the effect of analyst pressure, and the second to the informational role of analysts. In line with the previous literature, we also find that analyst coverage has a negative effect on firms’ future patents and citations; however, this negative effect becomes not significant when firms’ in-house R&D spending and external innovation channels are taken into account. We find that more financial analysts encourage firms to make more efficient investments related to innovation, which increase their future patents and citations. We address endogeneity with an instrumental variables approach and a difference-in-differences strategy where exogenous variation in analyst coverage comes from brokerage house mergers.
    Keywords: financial analysts, innovation, corporate venture capital, acquisition
    JEL: G34 G24 O31
    Date: 2017–07
  2. By: Anam Tasawar (University of Gujrat)
    Abstract: Managerial compensation is strategically pivotal and practically interesting to manage as it has long-lasting ties with firm?s performance. It is regarded as most crucial tool to attract and retain the top-notched professionals to achieve the firm?s strategic and long term objectives. The executives tends to support their comparatively higher level of compensation sometimes, may be at the cost of priority to firm?s value and interest of principles. In corporate finance literature, this phenomenon of opportunistic behavior has been controlled by various monitoring mechanisms. The new spectacle is apposite in Pakistani financial institutions that have no more strict application of compensation regulation. The current study empirically evaluates the impact of different corporate governance attributes such as institutional shareholders? activism, independence of audit committee and board structure and block holding on the level of compensation paid to CEO of Pakistani listed firms for a period of 2007-2013. All these personas worked as monitoring mechanism for CEOs is scrutiny through stepwise regression. The results found that independent audit committee and board of director along with dual CEO structure and greater family ownership are helpful in mitigating the higher level of CEO compensation with is in align with the agency cost hypothesis. Moreover, higher financial institutional ownership found positively related to CEO compensation which is in accordance with the strategic alliance hypothesis. However, the role of institutions in deciding CEO compensation becomes negative in case of family firms as compared to non-family firms.
    Keywords: Managerial Compensation, Corporate Governance, monitoring mechanism
    JEL: G30 G39
    Date: 2017–07
  3. By: Bogna Ka?mierska-Jó?wiak (University of Lodz, Faculty of Management); Elzbieta Wro?ska-Bukalska (Maria Curie-Sklodowska University Lublin)
    Abstract: In recent years open-market share repurchase programs have become an important payout policy not only for U.S. firms, but also European. Vast literature has examined the effect of share repurchase announcement on developed countries, especially the U.S. Relatively little research has yet been published examining the emerging markets reaction on share repurchase programs. This study attempts to extend the knowledge with the information content of buy back announcements in Poland. The main aim of the study is to test the informational con-tent of share repurchase announcements on the Polish alternative stock market us-ing event study methodology. Our sample was formed by identifying share repur-chase announcements reported by companies listed on the NewConnect Stock Ex-change over the period 2007-2016. Due to the results of prior studies which give support for positive market reaction on share repurchase announcements (i.a. Ikenberry, Lakonishok and Vermaelen, 1995; Grullon and Michaely, 2002; Chan, Ikenberry, Lee, Wang, 2010) we hypothesize that firms announcing share repurchases on NewConnect experience positive valuation effects.
    Keywords: share repurchase, payout policy, event study, abnormal returns, NewConnect, Poland
    JEL: G35
    Date: 2017–07
  4. By: Suwina Cheng (Lingnan University)
    Abstract: The study examines top executive Remuneration in UK high-technology firms in an attempt to identify and understand any changes in the structure of the pay mechanism evident after the global technology market crisis at the end of the twentieth century. The results show that the relation between executive pay and market performance has weakened and that the fixed components in the pay package in those companies have increased post-crisis. These changes have likely served to compensate executives for the increased risk associated with equity-based compensation rather than to redress any perceived problems with executive incentives pre-crisis. Moreover, we also confirm a significant and negative association between executive pay and block shareholdings after the market adjustment. These findings suggest that shareholders strengthened their role of monitoring executive pay in the wake of this exogenous economic shock.
    Keywords: Corporate governance, CEO compensation, Financial crisis, High-technology firms
    JEL: G30 M12
    Date: 2017–07
  5. By: Hecht, Andreas
    Abstract: We examine the determinants of corporate speculation and challenge the extant, conflicting evidence. Separating risk management (reducing currency-specific FX exposure) from speculation (increasing or holding currency-specific FX exposure constant), we provide unprecedented evidence that speculators are smaller, have more growth opportunities and possess lower internal resources than risk-managing firms. The refined granularity of our dataset stems from a unique regulatory environment, where a regulating authority recommends additional disclosures for FX risk management in excess of governing accounting standards. Our findings enable investors, henceforth, to identify speculation from public available sources, where our results substantiate the significance of such an extended reporting. Thus, this case of optional disclosures might serve as blueprint for further regulatory refinements in other settings.
    Keywords: Foreign Exchange,Risk Management,Selective Hedging,Speculation,Disclosure,Reporting
    JEL: G32 G38 G39
    Date: 2017
  6. By: Narendar V., Rao; K.S., Reddy
    Abstract: The research theme “the market for corporate control and firm performance” has been received a great attention from economics and management scholars, especially since the UNCTAD’s report on ‘transnational corporations and investment patterns across the world’. The impact of quality of formal institutions on the market for M&A (negotiation and post-merger stages) is missing in the current literature. In a modest way, recent studies have drawn attention to economic nationalism and political environment in cross-border acquisitions representing both developed and emerging markets. Scholars argue that formal institutional characteristics such as legal framework, judicial system, and political factors have serious impacts on the success of negotiations, especially in the international setting. Motivated by these factors, the special issue aimed to study the relationship between institutional role and the performance of firms participating in local and foreign deals. The special issue call for papers has received a good response from finance and strategy researchers globally. Following double blind review system, we have accepted seven papers for the Issue in 2017.
    Keywords: Institutional role, Market for corporate control, Firm performance
    JEL: G3 G34 G38
    Date: 2017–07
  7. By: Ferrés, Daniel; Ormazabal, Gaizka; Povel, Paul; Sertsios, Giorgio
    Abstract: We study the financial leverage of firms that collude by forming a cartel. We find that cartel firms have lower leverage ratios during collusion periods, consistent with the idea that reductions in leverage help increase cartel stability. Cartel firms have a surprisingly large economic footprint (they represent more than 20% of the total market capitalization in the U.S.), so understanding their decisions is relevant. Our findings show that anti-competitive behavior has a significant effect on capital structure choices. They also shed new light on the relation between profitability and financial leverage.
    Keywords: Capital Structure; cartels; Collusion; Financial Leverage; Financial Policies; Trigger Strategies
    JEL: G32 L12
    Date: 2017–07

This nep-cfn issue is ©2017 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.