nep-cfn New Economics Papers
on Corporate Finance
Issue of 2017‒08‒06
ten papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Share Repurchases and CEO Ownership By Ingmar Nyman; Devra L. Golbe
  2. Corporate Venture Capital and the Nature of Innovation By Maxin, Hannes
  3. Are some owners better than others in Czech privatized firms? Even meta-analysis can’t make us perfectly sure By Ichiro Iwasaki; Evžen Kočenda
  4. Financial Repression in the European Sovereign Debt Crisis By Becker, Bo; Ivashina, Victoria
  5. Private Equity and Financial Fragility during the Crisis By Shai Bernstein; Josh Lerner; Filippo Mezzanotti
  6. Companies Should Maximize Shareholder Welfare Not Market Value By Hart, Oliver; Zingales, Luigi
  7. The Price of Taste for Socially Responsible Investment By Rocco Ciciretti; Ambrogio Dalò; Lammertjan Dam
  8. Multiple lending, credit lines and financial contagion By Cappelletti, Giuseppe; Mistrulli, Paolo Emilio
  9. Stock market participation in the aftermath of an accounting scandal By Renuka Sane
  10. The Debt-Equity Choice of Japanese Firms By Chong, Terence Tai Leung; Law, Daniel Tak Yan; Yao, Feng

  1. By: Ingmar Nyman (Hunter College); Devra L. Golbe (Hunter College)
    Abstract: When a firm repurchases shares, does the equity stake of its CEO change? To answer this question, we study a sample of 1200 publicly-traded US firms between 2006 and 2014. Because of the distribution of CEO ownership, we employ a multinomial logit model. We address the potential endogeneity of share repurchases in the model with a control-function approach. The analysis suggests that CEOs tend not to change their equity holdings in a share repurchase, but that the decrease in shares outstanding increases the fraction of the firm that they own. This, in turn, is likely to influence the firm’s decision-making and efficiency. Market undervaluation does not appear to induce the CEO to buy shares herself, but there is evidence that it does induce the firm to repurchase more shares.
    Keywords: Share repurchases, Inside ownership, corporate governance, informed trading
    JEL: G30 G32 G35
    Date: 2017
  2. By: Maxin, Hannes
    Abstract: This paper investigates a model where two corporate venture capital firms (CVCs) decide whether to finance a new venture stand-alone or together, called syndication. The CVCs obtain a cash flow if the venture succeeds. In addition, the venture has a positive or negative effect on an asset of the CVCs parental companies. This effect may differ among the parental companies. I show that the CVC faced with the weaker positive effect becomes the stand-alone investor only if the expected cash flow is low. Otherwise, in equilibrium, there are only syndicates or stand-alone investments of the CVC with the stronger positive effect. However, if one CVC faces a positive effect on its parental company's asset whereby the opponent faces a negative effect, then a syndicate is still possible. The model generates empirical predictions for syndicates consisting of several CVCs.
    Keywords: Corporate Venture Capital, Venture Capital, Nonmonetary Support, Nature of Innovation
    JEL: G24 M13
    Date: 2017–08
  3. By: Ichiro Iwasaki (Institute of Economic Research, Hitotsubashi University); Evžen Kočenda
    Abstract: We use a total of 1171 estimates extracted from 34 previous studies and perform a meta-analysis to examine the relationship between ownership structures and firm performance in the Czech mass-privatized firms. We find that, in contrast to the remarkable effect of foreign ownership on firm performance and restructuring activities, domestic private entities were incapable of outperforming the state as owners of Czech companies. Our assessment of publication selection bias, however, indicates that the collected estimates do not contain genuine evidence for many types of corporate ownership. Further development and improvement in this study area are necessary to capture the true effect. Finally, we also point at the importance to draw (metaanalysis) inferences based on studies that employ adequate methodology.
    Keywords: voucher privatization, ownership structure, firm performance and restructuring, meta-analysis, publication selection bias, Czech Republic
    JEL: D22 G32 H32 O16 P31
    Date: 2017–07
  4. By: Becker, Bo; Ivashina, Victoria
    Abstract: At the end of 2013, the share of government debt held by the domestic banking sectors of Eurozone countries was more than twice the amount held in 2007. We show that increased domestic government bond holdings generated a crowding out of corporate lending. We find that loan supply was depressed by these domestic sovereign bonds only during the crisis period (2010-11). The pattern also holds across firms with different relationship banks within a given countries. These findings suggest that sovereign bond holdings negatively impact private capital formation. We show that direct government ownership, as well as government influence through banks' boards of directors, are among the channels used to influence banks.
    Keywords: Credit cycles; financial repression; Sovereign debt
    JEL: G21 G28 G30
    Date: 2017–07
  5. By: Shai Bernstein; Josh Lerner; Filippo Mezzanotti
    Abstract: Do private equity firms contribute to financial fragility during economic crises? We find that during the 2008 financial crisis, PE-backed companies increased investments relative to their peers, while also experiencing greater equity and debt inflows. The effects are stronger among financially constrained companies and those whose private equity investors had more resources at the onset of the crisis. PE-backed companies consequentially experienced higher asset growth and increased market share during the crisis.
    JEL: E32 G24
    Date: 2017–07
  6. By: Hart, Oliver; Zingales, Luigi
    Abstract: What is the appropriate objective function for a firm? We analyze this question for the case where shareholders are prosocial and externalities are not perfectly separable from production decisions. We argue that maximization of shareholder welfare is not the same as maximization of market value. We propose that company and asset managers should pursue policies consistent with the preferences of their investors. Voting by shareholders on corporate policy is one way to achieve this.
    Keywords: firm objective; Friedman; prosocial; shareholder value
    JEL: G30 K22 L21
    Date: 2017–07
  7. By: Rocco Ciciretti (CEIS & DEF, University of Rome "Tor Vergata"); Ambrogio Dalò (University of Rome "Tor Vergata"); Lammertjan Dam (University of Groningen)
    Abstract: The demand for socially responsible investment (SRI) might be driven by: i) the risk characteristics of “responsible” assets, and/or ii) investors’ taste for such assets. The former driver positions SRI in the conventional risk-return framework, the latter entails that investors screen stocks out of their portfolios based purely on their taste for such assets, uncorrelated to risk and return considerations. Theoretically, the screening of certain assets based on investors’ taste should lead to a return premium on the screened assets in equilibrium. In this paper, we disentangle the different contributions of risk and taste in generating risk-adjusted returns for socially responsible assets. By ruling out both systematic and residual risk components, we try to quantify whether and to what extent investors pay a price, in terms of lower returns, due to their taste for responsible assets. Using a sample of 1000 firms from the U.S., Europe, and Asia, between 2005 and 2014, we find evidence for the taste effect and estimate the associated under performance at 4.8% annually. Our results are robust against different model specifications and test assets.
    Keywords: Socially Responsible Investment, Corporate Social Responsibility, Mutual Fund Performance, Price of Taste
    JEL: G11 C58
    Date: 2017–07–28
  8. By: Cappelletti, Giuseppe; Mistrulli, Paolo Emilio
    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. JEL Classification: G21, G28
    Keywords: credit lines, financial contagion, interbank market, multiple lending, systemic risk
    Date: 2017–07
  9. By: Renuka Sane (National Institute of Public Finance and Policy; Institute of Economic Growth)
    Abstract: In this paper we study the impact on investor behaviour of fraud revelation. We ask if investors with direct exposure to stock market fraud (treated investors) are more likely to decrease their participation in the stock market than investors with no direct exposure to fraud (control investors)? Using daily investor account holdings data from the National Stock Depository Limited (NSDL), the largest depository in India, we find that treated investors cash out almost 10.6 percentage points of their overall portfolio relative to control investors post the crisis. The cashing out is largely restricted to the bad stock's. Over the period of a month,there is no difference in the trading behaviour of the treated and control investors. These results are contrary to those found in mature economies.
    Keywords: corporate fraud; household stock market participation; India
    JEL: D12 D14 G30
    Date: 2017–07
  10. By: Chong, Terence Tai Leung; Law, Daniel Tak Yan; Yao, Feng
    Abstract: Prior studies on the debt-equity choice of firms focus on capital market oriented economies. This paper examines whether firms in Japan, the world’s largest bank-oriented economy, adjust their debt-equity choice towards the target. We find that the leverage ratios of Japanese firms do adjust slowly towards their target levels. The adjustment speed has dwindled after the Asian Financial Crisis. In contrast to existing literature, we show that an increase in tangible assets reduces the leverage ratio of firms in Japan. It is also found that the effect of financial deficit is persistent while the market timing effect is not.
    Keywords: Debt-equity choice; Pecking Order Theory; Market Timing Theory; Trade-Off Theory.
    JEL: G3
    Date: 2016–04–13

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