nep-cfn New Economics Papers
on Corporate Finance
Issue of 2017‒09‒10
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Credit Growth and the Financial Crisis: A New Narrative By Stefania Albanesi; Giacomo DeGiorgi; Jaromir Nosal
  2. Empirical Examination for Operational and Credit Risk Perspective – A Case of Commercial Banks of Pakistan By Mehmood, Mian Saqib; Sheraz, Iram; Mehmood, Asif; G. Mujtaba, Bahaudin
  3. Capital Requirements and Bailouts By Perri, Fabrizio; Stefanidis, Georgios
  4. Global ownership and corporate control networks By Armando Rungi; Gregory Morrison; Fabio Pammolli
  5. Financial versus strategic bidders: Evidence from unsuccessful takeover bids By Magnus Blomkvist; Timo Korkeamäki
  6. Boosting firm dynamism and performance in China By Margit Molnar
  7. Finance and Inequality : The Distributional Impacts of Bank Credit Rationing By M. Ali Choudhary; Anil K. Jain

  1. By: Stefania Albanesi (University of Pittsburgh); Giacomo DeGiorgi (GSEM-University of Geneva); Jaromir Nosal (Boston College)
    Abstract: A broadly accepted view contends that the 2007-09 financial crisis in the U.S. was caused by an expansion in the supply of credit to subprime borrowers during the 2001-2006 credit boom, leading to the spike in defaults and foreclosures that sparked the crisis. We use a large administrative panel of credit file data to examine the evolution of household debt and defaults between 1999 and 2013. Our findings suggest an alternative narrative that challenges the large role of subprime credit in the crisis. We show that credit growth between 2001 and 2007 was concentrated in the prime segment, and debt to high risk borrowers was virtually constant for all debt categories during this period. The rise in mortgage defaults during the crisis was concentrated in the middle of the credit score distribution, and mostly attributable to real estate investors. We argue that previous analyses confounded life cycle debt demand of borrowers who were young at the start of the boom with an expansion in credit supply over that period.
    Keywords: subprime debt, housing boom, housing crisis
    JEL: D14 E21 G21
    Date: 2017–08
  2. By: Mehmood, Mian Saqib; Sheraz, Iram; Mehmood, Asif; G. Mujtaba, Bahaudin
    Abstract: The objective of this study is to evaluate the factors that influence credit and operational risk in commercial banks. Financial data was collected from 11 commercial banks of Pakistan listed in Karachi Stock Exchange (KSE) over the period of 2009-2014. Different statistical tools and techniques are applied to find the cause and effect relationship for the underconsideration issue.The banking sector have faced the rivalry with other financial institutions to grab the attention of the customers and having a considerable competition with other banks. The result has shown that operational risk had significant but negative relation with NPL and operating efficiency but positive and highly significant relationship with bank size. Credit risk had significant and positive regression values with gearing ratio. NPL, operating efficiency and bank size had negative and insignificant relation with credit risk. There was no relationship between gearing ratio and operational risk. However the bottomline of this research suggests that banks play an important role in providing the finance for many of the businesses. Moreover these institutions need more managerial grip and vigilant attitude towards the risk management.
    Keywords: Operational Risk, Credit Risk, KSE, Commercial Banks, Pakistan
    JEL: F36 G0 M1
    Date: 2017–06–22
  3. By: Perri, Fabrizio (Federal Reserve Bank of Minneapolis); Stefanidis, Georgios (Federal Reserve Bank of Minneapolis)
    Abstract: We use balance sheet data and stock market data for the major U.S. banking institutions during and after the 2007-8 financial crisis to estimate the magnitude of the losses experienced by these institutions because of the crisis. We then use these estimates to assess the impact of the crisis under alternative, and higher, capital requirements. We find that substantially higher capital requirements (in the 20% to 30% range) would have substantially reduced the vulnerability of these financial institutions, and consequently they would have significantly reduced the need of a public bailout.
    Keywords: Financial crises; Too big to fail
    JEL: G01 G21
    Date: 2017–08–31
  4. By: Armando Rungi (IMT School for advanced studies); Gregory Morrison (University of Houston); Fabio Pammolli (Politecnico di Milano)
    Abstract: In this contribution, at first, we introduce a basic network framework to study pyramidal structures and wedges between ownership and control of companies. Then, we apply it to a dataset of 53.5 million of companies operating in 208 countries. Among others, we detect a strong concentra- tion of corporate power, as less than 1% of parent companies collect more than 100 subsidiaries, but they are responsible for more than 50% of global sales. Therefore, we show that the role of indirect control, i.e., through middlemen subsidiaries, is relevant in 15% of domestic and 54% of foreign subsidiaries. Among foreign companies, cases emerge of blurring nationality, when control paths cross more than one national border, in the presence of multiple passports (19.1%), indirectly for- eign (24.5%), and round-tripping subsidiaries (1.33%). Finally, we relate indirect control strategies to country indicators of the institutional environment. We find that pyramidal structures arise less likely in the presence of good financial and contractual institutions in the parent's country, as these foster more transparent forms of corporate governance. Instead, parent companies choose indirect control through countries of subsidiaries that have better financial institutions, possibly because it is easier to coordinate decisions from remote. Finally, we find that offshore financial centers are preferred jurisdictions for middlemen subsidiaries, probably due to a lower taxation and a lack of financial disclosure.
    Keywords: ownership, corporate control, multinational enterprises, financial networks, financial institutions, offshore, economic entrenchment
    JEL: G32 G34 F23 F36 C63 C71 L14
    Date: 2017–09
  5. By: Magnus Blomkvist (Audencia Business School); Timo Korkeamäki (Hanken School of Economics - Hanken School of Economics)
    Abstract: Even failed takeovers can identify undervalued target firms. We find that compared to financial bidders, strategic buyers have a greater lasting valuation effect on the targets. Strategic bidders thus appear to be superior in identifying undervalued targets. JEL Classification: G30, G32, G34
    Keywords: Mergers and Acquisitions,Corporate Investments
    Date: 2017
  6. By: Margit Molnar
    Abstract: With persisting slower growth worldwide and in China, over-capacity in some heavy industry sectors, declining profitability, and intensifying competition from other, lower-cost emerging economies, corporate behaviour in China needs to change and focus more on efficiency and sustainability. This need is further intensified by mounting environmental pressures and China’s ambition for greener and more sustainable growth. A larger proportion of firms, including state-owned enterprises, should step up innovation efforts and improve corporate governance practices. To this end, supportive policies are needed, fostering an environment that is more conducive to innovation and entrepreneurship, and facilitating resource reallocation through the exit of unviable firms. At the same time, fraudulent corporate practices must be halted and State assets need to be better managed. Reforms are under way or envisaged that will help improve corporate performance and, more broadly, deliver more resilient and environmentally sustainable growth and continuing progress in living standards. This Working Paper relates to the 2017 OECD Economic Survey of China ( y-china.htm).
    Keywords: bankruptcy, business environment, corporate debt, corporate governance, entrepreneurship, industrial policy, Innovation, intellectual property rights, overcapacity, research and development, state-owned entreprise reform, zombie firms
    JEL: G34 G38 L26 L52 O3 P31
    Date: 2017–09–11
  7. By: M. Ali Choudhary; Anil K. Jain
    Abstract: We analyze reductions in bank credit using a natural experiment where unprecedented flooding differentially affected banks that were more exposed to flooded regions in Pakistan. Using a unique dataset that covers the universe of consumer loans in Pakistan and this exogenous shock to bank funding, we find two key results. First, banks disproportionately reduce credit to new and less-educated borrowers, following an increase in their funding costs. Second, the credit reduction is not compensated by relatively more lending by less-affected banks. The empirical evidence suggests that adverse selection is the primary cause for banks disproportionately reducing credit to new borrowers.
    Keywords: Credit markets ; Capital ; Liquidity ; Financial stability ; Inequality ; Adverse selection ; Relationships
    JEL: G21 G28 O16
    Date: 2017–08–31

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