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on Corporate Finance |
| By: | Choi, Jaewon; Hackbarth, Dirk; Zechner, Josef |
| Abstract: | We study a novel aspect of a firm's capital structure, namely the profile of its debt maturity dates. In a simple theoretical framework we show that the dispersion of debt maturities constitutes an important dimension of capital structure choice, driven by firm characteristics and debt rollover risk. Guided by these predictions we establish two main empirical results. First, using an exogenous shock to rollover risk, we document a significant increase in maturity dispersion for firms that need to roll over maturing debt. Second, we find strong support that maturities of newly issued debt are influenced by pre-existing maturity profiles. |
| Keywords: | Capital Structure; Debt Maturity; Debt Structure |
| JEL: | G13 G31 G32 G33 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12289&r=cfn |
| By: | Institute for Advanced Studies (IHS) |
| Abstract: | The Capital Markets Union project (CMU) aims to strengthen the single market by deepening the integration of investment across the European Union. Improved access to finance is a key component of this project, in particular for start-ups, SMEs, and young companies with innovative growth plans. Historically, European SMEs have been primarily dependent on bank finance. In the wake of the financial crisis, this source of funding has been restricted by refinancing capacity, risk appetite and capital adequacy of the banking sector. This has forced young, growing and innovative businesses to seek finance from different sources, such as venture capital (VC) and business angels (BA).This study investigates the part that tax incentives for can play in fostering VC and BA investment, with the intention of promoting best practice across Member States. |
| Keywords: | SME, tax incentives, venture capital, business angels |
| JEL: | G24 H21 G32 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxpap:0068&r=cfn |
| By: | Stephen P. Ferris; Jan Hanousek; Anastasiya Shamshur; Jiri Tresl |
| Abstract: | Using a large sample of U.S. firms over the period, 1984 to 2013, this study examines the relation between market and book leverage ratios. Unlike Welch (2004) who contends that changes in market leverage do not induce adjustments in book leverage, we find an asymmetric effect. That is, firms adjust their book leverage relative to market leverage only when the changes in market leverage are due to increases in the value of the firm’s equity. No adjustment is observed when firm equity values decrease. We observe a number of interesting differences between those firms that make large and small capital structure adjustments in response to changing equity prices. Our results are consistent with Barclay, Morellec and Smith (2006) who argue that the optimal level of debt decreases in the presence of corporate growth options. |
| Keywords: | market leverage; book leverage; capital structure; adjustment speed |
| JEL: | G32 C23 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp598&r=cfn |
| By: | Zha Giedt, Jenny |
| Abstract: | This paper explores why firms seek strategic alternatives, effectively putting themselves up for sale in the market for corporate control. Using a sample of firms that are observed to be exploring strategic alternatives, I model (1) the self-selection of firms to become potential takeover targets, which is distinct from (2) the selection of targets by bidders. The findings suggest that firms seek strategic alternatives because they are performing poorly and face financial constraints, yet corporate governance mechanisms prompt the disruptive attempt to maximize shareholder value. In contrast, the subset of firms that actually receive bids have relatively better growth prospects and performance, and lower market risk – which suggests that bidders do not prefer under-performing targets, contrary to conventional thought. The largely contrasting profiles of firms that are volitionally supplied by sellers versus demanded by bidders modify our conventional understanding of target firms’ motives and target selection in M&A. |
| Keywords: | strategic alternatives; mergers and acquisitions; target motives; takeover prediction; financial constraints; deal initiation; voluntary disclosure; media leaks |
| JEL: | D84 G3 G34 M2 M21 |
| Date: | 2017–08–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81014&r=cfn |
| By: | Elisa Brodi (Bank of Italy); Luca Casolaro (Bank of Italy) |
| Abstract: | The work evaluates from a legal and economic perspective a number of provisions designed to promote debtor-in-possession financing to firms involved in a composition with creditors (concordato preventivo). Since 2010, several reforms have progressively extended the scope of preferential status for such credits. The research focuses on loans granted by professional lenders to firms whose composition plans were approved by the courts between 2006 and 2014. The econometric analysis shows that the measures have reduced the credit restriction (by 2 percentage points) and lowered its cost (with interest rates falling on average by 40 basis points). This outcome is mostly due to the liquidity provided by lenders that were not previously exposed to the distressed firm. However, some legal obstacles – such as, for instance, the possibility of the preferential status being reversed if a bankruptcy proceeding is initiated – could prevent further funds from being provided. |
| Keywords: | composition with creditors, credit, public policy evaluation, business crisis, credit priority |
| JEL: | D78 G21 G33 K22 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_387_17&r=cfn |
| By: | Tomáš Pražák (Department of Finance and Accounting, School of Business Administration, Silesian University); Daniel Stavárek (Department of Finance and Accounting, School of Business Administration, Silesian University) |
| Abstract: | This study examines the effect of the main microeconomic factors on the stock prices of select energy industry companies listed and traded on the Prague Stock Exchange and Warsaw Stock Exchange. The microeconomic factors are based on the financial situation in companies. The financial ratios (debt/equity ratio, liquidity ratio, financial leverage ratio, return on equity ratio and return on investment ratio) are gained from the financial statements. The existence of relationship between stock prices and financial ratios is tested with the Generalized Method of Moments. During the period 2006 - 2015 we revealed a positive impact of financial leverage ratio on stock prices in both countries and a negative effect of liquidity ratio on stock prices in both countries. |
| Keywords: | Financial ratios, stock prices, regression analysis, Czech Republic, Poland, energy industry |
| JEL: | C58 D24 G21 M21 |
| Date: | 2017–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:opa:wpaper:0043&r=cfn |
| By: | Khan, Dr. Muhammad Irfan; Mehar, Dr. Muhammad Ayub; Iqbal, Dr. Athar Iqbal |
| Abstract: | Purpose: This paper is based on the models derived by the researchers to explain the patterns of corporate governance, firms’ financial policies and liquidity position. Methodology: A deductive approach has been adopted to reconcile and examine the different models of corporate governance and firms’ financial policies. Findings: The study showed that corporate savings is a good predictor of the macro level investment in a country. The magnitude of national investment will increase by improvement in corporate savings. In fact the corporate savings indicate the expansion in business activities which may be an indicator of the trust and confidence of private sector. On the other hand it explains the financial health of corporate sector, which may provide the significant portion of tax revenue to the government for developing projects in public sector. The study has concluded that corporate governance is a significant variable in determining the liquidity and circularity debts. In this way corporate governance becomes a crucial determinant of the national investment. Implications:The bad corporate governance may deteriorate the investment activities at national level, which may damage the economy for a longer term. This study also indicates that capital structure and the patterns of ownership play important role in the determination of corporate governance of an institution. |
| Keywords: | Corporate Governance, Gross Fixed Capital Formation, Development Finance |
| JEL: | E60 M48 O10 |
| Date: | 2015–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80745&r=cfn |
| By: | Francesco Manaresi (Bank of Italy); Filippo Scoccianti (Bank of Italy) |
| Abstract: | We study growth dynamics of firms before and during the financial crisis. We find that firms born during the recession display lower growth overtime in capital, employment and revenue, despite being more productive at entry than those born in normal times. We show that this pattern can be explained by credit market tightening, as measured by sector-level financial dependence and pre-crisis exposure to the interbank market. We argue that there may be two non-competing mechanisms that affect newborn firms during a financial crisis: firms enter with lower capital and, thus, face tighter collateral constraints; and banks select projects that are less risky, at the expenses of their future growth potential. We provide some evidence that both channels may play a role in explaining the observed pattern of firm dynamics. |
| Keywords: | firm dynamics, cohort analysis, financial crisis |
| JEL: | D22 D24 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_390_17&r=cfn |
| By: | Belén Gill de Albornoz Noguer (Universitat Jaume I); Simona Rusanescu (Dpto. Finances i Comptabilitat) |
| Abstract: | In a sample of large private Spanish subsidiaries, we find that the magnitude ofdiscretionary accruals is significantly higher when the parent company is foreign thanwhen it is local. Our tests support the thesis of recent research on earnings management strategies within multinational corporations (MNCs), suggesting that the parent company’s incentives underlie the observed negative relation between foreignownership and financial reporting quality at the subsidiary level. In particular, weobserve that: (1) the tenure of the controlling shareholder has a negative incrementaleffect on financial reporting quality in firms under foreign control, but not insubsidiaries of local groups; and (2) the negative association between foreign ownershipand financial reporting quality is mainly driven by the subsample of subsidiaries withparent companies located in countries with higher institutional quality than Spain. |
| Keywords: | foreign ownership; private firms; subsidiaries; earnings management; |
| JEL: | F23 M41 M48 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasec:2017-02&r=cfn |
| By: | Benjamin Hermalin |
| Abstract: | An important aspect of corporate governance is the assessment of managers. When managers vary in ability, determining who is good and who is not is vital. Moreover, knowing they will be assessed can lead those being assessed to behave in ways that make them appear better. Such signal-jamming behavior can be beneficial (e.g., an executive works harder on behalf of shareholders) or harmful (e.g., the behavior is myopic, boosting short-term performance at the expense of long-term success). In standard models of assessment, it is assumed those doing the assessing behave according to Bayes Theorem. But what if the assessors suffer from one of many well-documented cognitive biases that makes them less-than-perfect Bayesians? This paper begins an exploration of that issue by considering the consequence of one such bias, the base-rate fallacy, for two of the canonical assessment models: career-concerns and optimal monitoring and replacement. Although firms can suffer due to the base-rate fallacy, they can also benefit from this bias. |
| JEL: | D81 D83 G34 M12 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23776&r=cfn |
| By: | Jenter, Dirk; Lewellen, Katharina A. |
| Abstract: | This paper revisits the relationship between firm performance and CEO turnover. We drop the distinction between forced and voluntary turnovers and introduce the concept of performance-induced turnover, defined as turnover that would not have occurred had performance been "good". We document a close link between performance and CEO turnover and estimate that between 38% and 55% of all turnovers are performance induced, with an even higher percentage early in tenure. This is significantly more than the number of forced turnovers identified in prior studies. We contrast the empirical properties of performance-induced turnovers with the predictions of Bayesian learning models of CEO turnover. Learning by boards about CEO ability appears to be slow, and boards act as if CEO ability (or match quality) was subject to frequent and sizeable shocks. |
| Keywords: | CEO turnover; CEO-firm matching; corporate governance; turnover-performance relationship |
| JEL: | D22 D23 G34 J63 M12 M51 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12274&r=cfn |