nep-cfn New Economics Papers
on Corporate Finance
Issue of 2017‒08‒20
five papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Loan characteristics, firm preferences and investment: Evidence from a unique experiment By Brutscher, Philipp-Bastian; Heipertz, Jonas; Hols, Christopher
  2. Secrecy, information shocks, and corporate investment : Evidence from European Union countries By Mazboudi, Mohamad; Hasan, Iftekhar
  3. Capital Structure of Malaysian Firms: Financing the Deficit and Shari’ah Compliance By iqbal hussain, hafezali
  4. Do managerial risk-taking incentives influence firms’ exchange rate exposure? By Francis, Bill B.; Hasan, Iftekhar; Hunter, Delroy M.; Zhu, Yun
  5. Firm Leverage, Labor Market Size, and Employee Pay By Timothy E Dore; Rebecca Zarutskie

  1. By: Brutscher, Philipp-Bastian; Heipertz, Jonas; Hols, Christopher
    Abstract: This paper uses a unique experiment conducted as part of the Investment Survey of the European Investment Bank (EIB) to provide novel evidence on firms' preferences over loan characteristics and the relation between terms of credit and investment decisions. The design of the experiment allows revealing firm's financing preferences and willingness-to-pay in a clean and straightforward manner. The results show that firms are especially sensitive to the loan amount, the collateral requirement and the interest rate. Results are heterogeneous between sectors, size classes and types of projects.
    Keywords: firm preferences,investment decision,corporate finance
    JEL: D22 D24 G11 G21 G30
    Date: 2017
  2. By: Mazboudi, Mohamad; Hasan, Iftekhar
    Abstract: This study examines how national culture affects corporate investment. We argue that national culture affects corporate investment efficiency through the level of secrecy that national culture exhibits. Using a sample of firms from eight culturally-diverse European Union countries, we find that the level of secrecy that national culture exhibits is negatively related to corporate investment efficiency after controlling for a number of firm- and country-level factors. We also find that the negative relation between national culture and corporate investment efficiency is mitigated by an exogenous shock to the information asymmetry problem between managers and investors. Our study highlights the importance of the cultural value of secrecy/transparency as a determinant of investment efficiency at the firm-level.
    JEL: D82 G31 M41
    Date: 2017–08–08
  3. By: iqbal hussain, hafezali
    Abstract: Our paper evaluates the capital structure of Malaysian firms from a unique perspective by evaluating the impact of Shari’ah compliance on firms’ financing decision. We find that firms that are Shari’ah compliant tend to lean towards lower debt issues to finance their deficits, implying that the compliance status has an impact on their cost of equity which ultimately affects cost of capital.
    Keywords: Capital Structure, Shari’ah Compliance, Islamic Finance, Malaysian Firms
    JEL: G32 Z12
    Date: 2017–08–01
  4. By: Francis, Bill B.; Hasan, Iftekhar; Hunter, Delroy M.; Zhu, Yun
    Abstract: There is scant evidence on how risk-taking incentives impact specific firm risks. This has implications for board oversight of managerial risk taking, firms’ development of comparative advantage in taking particular risks, and compensation design. We examine this question for exchange rate risk. Using multiple identification strategies, we find that vega increases exchange rate exposure for purely domestic and globally engaged firms. Vega’s impact increases with international operations, declines post-SOX, and is robust to firm-level governance. Our results suggest that evidence that exposure reduces firm value can be viewed, in part, as a wealth transfer from shareholders and debt-holders to managers.
    JEL: G32
    Date: 2017–08–05
  5. By: Timothy E Dore; Rebecca Zarutskie
    Abstract: We provide new estimates of the wage costs of firms' debt. Our empirical approach exploits within-firm geographical variation in workers' expected unemployment costs due to variation in local labor market size and uses a large representative sample of public firms. We find that, following an increase in firm leverage, workers with higher unemployment costs experience higher wage growth relative to workers at the same firm with lower unemployment costs. Overall, our estimates suggest that a 10 percentage point increase in leverage increases wage compensation for the median worker by 1.9% and total firm wage costs by 17 basis points of firm value.
    Keywords: Capital structure ; Costs of financial distress ; Wages and compensation
    JEL: G32 J31
    Date: 2017–08–08

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