nep-cfn New Economics Papers
on Corporate Finance
Issue of 2017‒09‒24
six papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Enjoying the Quiet Life: Corporate Decision-Making by Entrenched Managers By Naoshi Ikeda,; Kotaro Inoue; Sho Watanabe
  2. Pourrions-nous utiliser l'Euribor comme taux de rendement sans risque dans la région Arabe ? By BENDOB, Ali; Benahmed-Daho, Rachida
  3. Small and Large Firms over the Business Cycle By Mehrotra, Neil; Crouzet, Nicolas
  4. The Origins of Financial Development: How the African Slave Trade Continues to Influence Modern Finance By Ross Levine; Chen Lin; Wensi Xie
  5. Understanding Precautionary Cash at Home and Abroad By Michael W. Faulkender; Kristine W. Hankins; Mitchell A. Petersen
  6. A Tourism Financial Conditions Index for Tourism Finance By Chia-Lin Chang; Hui-Kuang Hsu; Michael McAleer

  1. By: Naoshi Ikeda,; Kotaro Inoue; Sho Watanabe
    Abstract: In this study, we empirically test “quiet life hypothesis,” which predicts that managers who are subject to weak monitoring from the shareholders avoid making difficult decisions such as risky investment and business restructuring with Japanese firm data. We employ cross-shareholder and stable shareholder ownership as the proxy variables of the strength of a manager’s defense against market disciplinary power. We examine the effect of the proxy variables on manager-enacted corporate behaviors and the results indicate that entrenched managers who are insulated from disciplinary power of stock market avoid making difficult decisions such as large investments and business restructures. However, when managers are closely monitored by institutional investors and independent directors, they tend to be active in making difficult decisions. Taken together, our results are consistent with managerial quiet life hypothesis.
    JEL: G31 G32 G34
    Date: 2017–09
  2. By: BENDOB, Ali; Benahmed-Daho, Rachida
    Abstract: The analysts and evaluators in the financial market needs to risk free rate return (RFRR) to take the financing and investment decisions. This paper aims to study and analyze the causal relationship between Euribor rate and stock prices in the Arab stock exchanges, at level of nine Arab stock markets namely: Abu Dhabi, Bahrein, Morocco, Dubai, Egypt, Kuwait,Muscat, Qatar and Saudia during 2007 -2013. The results showed a strong inverse relationship between the Euribor rate and stock prices in the Arab stock exchanges, and that the Euribor rate can be used as an indicator for the pricing in Arab Stock markets.
    Keywords: EURIBOR, risk free rate return, Arab Stock market , interest rate .
    JEL: C32 G12 G21
    Date: 2017–03
  3. By: Mehrotra, Neil (Federal Reserve Bank of Minneapolis); Crouzet, Nicolas (Northwestern University)
    Abstract: Drawing from confidential firm-level data of US manufacturing firms, we provide new evidence on the cyclicality of small and large firms. We show that the cyclicality of sales and investment declines with firm size. The effect is primarily driven by differences between the top 0.5% of firms and the rest. Moreover, we show that, due to the skewness of sales and investment, the higher cyclicality of small firms has a negligible influence on the behavior of aggregates. We argue that the size asymmetry is unlikely to be driven by financial frictions given 1) the absence of statistically significant differences in the behavior of production inputs or debt in recessions, 2) the survival of the size effect after directly controlling for proxies of financial strength, and 3) the predictions of a simple financial frictions model, in which unconstrained (large) firms contract more in recessions than constrained (small) firms.
    Keywords: Firm size; Business cycles; Financial accelerator
    JEL: E23 E32 G30
    Date: 2017–09–05
  4. By: Ross Levine; Chen Lin; Wensi Xie
    Abstract: We assess how the African slave trade—which had enduring effects on social cohesion—continues to influence financial systems. After showing that the intensity with which people were enslaved and exported from Africa during the 1400 – 1900 period helps account for overall financial development, household access to credit, and firm access to finance, we evaluate three potential mechanisms linking the slave trade to modern finance—information sharing institutions, trust in financial institutions, and the quality of legal institutions. We discover that the slave trade is strongly, negatively related to the information sharing and trust mechanisms but not to the legal mechanism.
    JEL: G21 N27 O16 O55
    Date: 2017–09
  5. By: Michael W. Faulkender; Kristine W. Hankins; Mitchell A. Petersen
    Abstract: Has the need for precautionary savings driven the dramatic increase in U.S. corporate cash? We show that the run-up in cash is concentrated in foreign subsidiaries of multinational corporations. Precautionary motives explain variation in the level of cash held domestically, but not the level or growth of foreign cash. Multinational firms’ foreign cash balances are instead explained by low foreign tax rates and the ability to transfer profits within the firm through among related subsidiaries. The firms with the greatest incentive and ability to transfer income to low tax jurisdictions do, causing cash to accumulate in their foreign subsidiaries.
    JEL: G31 G32 G35
    Date: 2017–09
  6. By: Chia-Lin Chang (Department of Applied Economics Department of Finance National Chung Hsing University, Taiwan.); Hui-Kuang Hsu (Department of Finance National Pingtung University, Taiwan.); Michael McAleer (Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute Erasmus School of Economics Erasmus University Rotterdam, The Netherlands and Department of Quantitative Economics Complutense University of Madrid, Spain And Institute of Advanced Sciences Yokohama National University, Japan.)
    Abstract: The paper uses monthly data on tourism related factors from April 2005 - June 2016 for Taiwan that applies factor analysis and Chang’s (2015) novel approach for constructing a tourism financial indicator, namely the Tourism Financial Conditions Index (TFCI). The TFCI is an adaptation and extension of the widely-used Monetary Conditions Index (MCI) and Financial Conditions Index (FCI) to tourism stock data. However, the method of calculation of the TFCI is different from existing methods of constructing the MCI and FCI in that the weights are estimated empirically. The empirical findings show that TFCI is statistically significant using the estimated conditional mean of the tourism stock index returns (RTS). Granger Causality tests show that TFCI shows strong feedback on RTS. An interesting insight is that the empirical results show a significant negative correlation between F1_visistors and RTS, implying that tourism authorities might promote travel by the “rich”, and not only on inbound visitor growth. The use of market returns on the tourism stock sub-index as the sole indicator of the tourism sector, as compared with the general activity of economic variables on tourism stocks, is shown to provide an exaggerated and excessively volatile explanation of tourism financial conditions.
    Keywords: Monetary Conditions Index; Financial Conditions Index; Model-based Tourism Financial Conditions Index; Unbiased Estimation.
    JEL: B41 E44 E47 G32
    Date: 2017–07

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