nep-cfn New Economics Papers
on Corporate Finance
Issue of 2017‒10‒15
fifteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. The information content of short selling and put option trading: When are they substitutes? By Deng, Xiaohu; Gao, Lei; Kemme, David
  2. Liquidity risk in markets with trading frictions: What can swing pricing achieve? By Ulf Lewrick; Jochen Schanz
  3. Corporate governance and firm performance in China By Margit Molnar; Baolin Wang; Wenhao Chen
  4. Dynamics of Access to Credit and Perceptions of Lending Policy: Evidence from a Firm Survey By Fidrmuc, Jarko; Hainz, Christa; Hölzl, Werner
  5. Bankruptcy and the Cost of Organized Labor: Evidence from Union Elections By Murillo Campello; Janet Gao; Jiaping Qiu; Yue Zhang
  6. Foreign Ownership and the Export and Import Propensities of Developing-Country Firms By Boddin, Dominik; Raff, Horst; Trofimenko, Natalia
  7. Fraud on Mobile Financial Markets: Evidence from A Pilot Audit Study By Francis Annan
  8. Foreign Ownership and Skill-biased Technological Change By Koch, Michael; Smolka, Marcel
  9. From Val d’Orbieu to InVivo Wine: the emergence of new ways of strategic partnership and governance in French wine industry By Saïsset, L.A.
  10. Remarks on the German Regulation of Crowdfunding By Tröger, Tobias H.
  11. German Model or German Models? The spatial distribution of capital and labour in the corporate governance of stock listed companies By Scholz, Robert
  12. Minority share acquisitions and collusion: Evidence from the introduction of national leniency programs By Heim, Sven; Hüschelrath, Kai; Laitenberger, Ulrich; Spiegel, Yossi
  13. Busy Directors: Strategic Interaction and Monitoring Synergies By Alexander Ljungqvist; Konrad Raff
  14. Contingent Convertibles: Can The Market Handle Them? By Sweder (S.J.G.) van Wijnbergen; Gera Kiewiet; Iman (I.P.P.) van Lelyveld
  15. Does Financial Literacy Improve Financial Inclusion? Cross Country Evidence By Klühs, Theres; Grohmann, Antonia; Menkhoff, Lukas

  1. By: Deng, Xiaohu (Tasmanian School of Business & Economics, University of Tasmania); Gao, Lei (Iowa State University, USA); Kemme, David (Iowa State University, USA)
    Abstract: Using January 2005 – June 2007 trading data for all NYSE stocks we identify the informational patterns and impact of exogenous shocks in short sales and option trades upon stock price changes. We find that short sales have more predictive power than put option trades. However, if short selling volume is low put options trading does have predictive power and thus may be a substitute used by informed investors.
    Keywords: Short selling; Put option trades; Informational patterns; Price discovery
    JEL: G12 G14
    Date: 2017
  2. By: Ulf Lewrick; Jochen Schanz
    Abstract: Open-end mutual funds expose themselves to liquidity risk by granting their investors the right to daily redemptions at the fund's net asset value. We assess how swing pricing can dampen such risks by allowing the fund to settle investor orders at a price below the fund's net asset value. This reduces investors' incentive to redeem shares and mitigates the risk of large destabilising outflows.Optimal swing pricing balances this risk with the benefit of providing liquidity to cash-constrained investors. We derive bounds, depending on trading costs and the share of liquidity-constrained investors, within which a fund chooses to swing the settlement price. We also show how the optimal settlement price responds to unanticipated shocks. Finally, we discuss whether swing pricing can help mitigate the risk of self-fulfilling runs on funds.
    Keywords: Financial stability, mutual funds, regulation, liquidity insurance, trading frictions
    JEL: G01 G23 G28 C72
    Date: 2017–10
  3. By: Margit Molnar; Baolin Wang; Wenhao Chen
    Abstract: A key priority in China’s “new normal” period -- where returns on investment are slackening -- is corporate governance, which could lead to enhanced productivity by a better management of resources at the firm level. Corporate governance principles for listed firms follow global best practices, though their history is relatively short and the Chinese stock market has a number of features, which make the investigation of the impact of various corporate governance practices on firm performance of particular interest. Productivity is considered as a major measure of firm performance, but for comparison accounting indicators are also used to check the impact of selected corporate governance practices using firm-level data of listed firms between 1999-2015. The results are broadly in line with the existing literature: once controlling for endogeneity, there is no evidence that a greater share of independent directors boosts firm performance in general. At the time when the requirement that at least one third of directors must be independent was introduced in 2002, however, profitability improved. A greater salary gap between executives and staff hurts productivity, but boosts ROA and ROE, which are often among the objectives of executives and thus encourage them to seek short-term returns, even at the expense of productivity. While volume-based growth may lead to higher performance by the accounting ratios, it does not necessarily guarantee higher productivity. If such an expansion is debt financed, it can even harm productivity. Excessive ownership concentration appears harmful, but a certain degree of concentration may improve performance. Institutional investors, even though may own only a tiny fraction of shares, are found to boost firm performance. This Working Paper relates to the 2017 OECD Economic Survey of China ( y-china.htm).
    Keywords: board structure, executive compensation, independent directors, institutional investors, ownership concentration, productivity
    JEL: G34 G38 P31
    Date: 2017–10–11
  4. By: Fidrmuc, Jarko; Hainz, Christa; Hölzl, Werner
    Abstract: We analyze the perceived bank lending policy using the Austrian Business Survey for 2011 to 2014, which depend on their individual credit market experience. Negative experience has strongly negative, persistent and surprisingly similar effects on lending policy perceptions. Moreover, firms are more likely to revise their perceptions during the period in which they need a loan. This is in line with theories on sticky information rational inattention, and pessimism bias.
    JEL: G21 E51 D03
    Date: 2017
  5. By: Murillo Campello; Janet Gao; Jiaping Qiu; Yue Zhang
    Abstract: Unionized workers are entitled to special treatment in bankruptcy court. This can be detrimental to other corporate stakeholders in default states, with unsecured creditors standing to lose the most. Using data on union elections covering several decades, we employ a regression discontinuity design to identify the effect of worker unionization on bondholders in bankruptcy states. Closely won union elections lead to significant bond value losses, especially when firms approach bankruptcy, have underfunded pension plans, and operate in non-RTW law states. Unionization is associated with longer, more convoluted, and costlier bankruptcy court proceedings. Unions further depress bondholders' recovery values as they are assigned seats on unsecured creditors' committees.
    JEL: G32 G33 J51
    Date: 2017–09
  6. By: Boddin, Dominik; Raff, Horst; Trofimenko, Natalia
    Abstract: This paper uses micro-data from the World Bank Enterprise Surveys to investigate how foreign ownership affects the likelihood of manufacturers in developing countries to export and/or import both directly and in- directly. Applying propensity score matching to control for differences across firms, we find that foreign ownership raises the propensity of a firm to export by over 17 and the propensity to import by more than 13 percentage points.
    JEL: F12 F14 F23 O19
    Date: 2017
  7. By: Francis Annan (Columbia University, School of International and Public Affairs, 420 West 118th Street, New York, NY 10027, USA)
    Abstract: Potential fraud can limit the promise of innovative mobile financial markets like Mobile Money, yet little is known about its existence, especially among the poor. In a randomized control trial across 6 low-income communities in Ghana, I evaluate the extent of fraud—overcharged transactions—on Mobile Money and explore the mechanisms underlying the results. Trained auditors visited vendor points, seeking to make actual Mobile Money transactions: either send or receive cash. Approximately 22% of transactions go fraudulent. Additional experiments indicate that fraud is higher for large amount transactions. Consumers who are financially sophisticated are less likely to suffer fraud, but market competition appears to have no effect on this.
    Keywords: mobile money; financial fraud; audit study
    JEL: O16 G21 G23 D14 G28
    Date: 2017–10
  8. By: Koch, Michael; Smolka, Marcel
    Abstract: This paper investigates theoretically and empirically firm-internal skill adjustments upon acquisition by a foreign investor and adresses the following questions: i) Does a acquired firm change its demand for skill and how (via hiring or training)? ii) Why would acquired firms engage in skill upgrading? Is it driven by by a greater market scale granted by the foreign parent? iii) How do technology and skill upgrading jointly affect the productivity of acquired firms?
    JEL: D22 D24 F23 G34
    Date: 2017
  9. By: Saïsset, L.A.
    Abstract: Whereas wine sector is permanently restructuring to be more competitive, this research proposes to analyze the new forms of vertical and horizontal co-operation that are emerging in the French wine industry thanks to the Vinadéis case study. Focusing on strategy and governance, our theoretical framework points out that partnership is rarely precisely defined. Between strategic alliances and mergers, strategic partnerships are new forms of inter-firms co-operation that can be vertical or horizontal. Regarding co-ops governance, it appears to be complex and multi dimensionnal with a great partnership facet. Involving stakehoders in the decision making process is a specificity of certain types of co-ops. This research highlights three key elements regarding the strategic partnerships that are emerging in the French wine industry: the usefulness of analysing strategy and governance from a resource and a path dependence sides, the key role of “opened governance” in managing the inter-firms relationships and a realistic understanding of the intricacies and dynamics of partnering in practice. ....French Abstract: Alors que le secteur viti-vinicole est en permanente restructuration pour gagner en compétitivité, ces travaux analysent, grâce à l’étude de cas portant sur Vinadéis, les nouvelles formes de coopération verticale et horizontale qui se font jour dans la filière. Axé sur la stratégie et la gouvernance, notre cadre théorique souligne l'absence de définition précise du partenariat. A la croisée des chemins entre alliance stratégique et fusions, les partenariats stratégiques constituent une nouvelle forme de coopération inter-entreprises qui peut aussi bien être verticale qu'horizontale. La gouvernance coopérative apparaît complexe et multidimensionnelle, avec une composante partenariale importante. L'implication des parties prenantes dans le processus de prise de décision est une particularité de certains types de coopérative. Cette recherche permet de mettre en évidence trois éléments-clés relatifs aux partenariats stratégiques qui montent en puissance dans le secteur vin français : la pertinence d’analyser la stratégie et la gouvernance sous l’angle des ressources et de la dépendance de sentier, le rôle central d’une « gouvernance ouverte » en matière de gestion des relations interentreprises et enfin la compréhension concrète des subtilités et des dynamiques des relations partenariales.
    JEL: Q13 G34 Q3 L1
    Date: 2017
  10. By: Tröger, Tobias H.
    Abstract: Crowdfunding is a buzzword that signifies a sub-set in the new forms of finance facilitated by advances in information technology usually categorized as fintech. Concerns for financial stability, investor and consumer protection, or the prevention of money laundering or funding of terrorism hinge incrementally on including the new techniques to initiate financing relationships adequately in the regulatory framework. This paper analyzes the German regulation of crowdinvesting and finds that it does not fully live up to the regulatory challenges posed by this novel form of digitized matching of supply and demand on capital markets. It should better reflect the key importance of crowdinvesting platforms, which may become critical providers of market infrastructure in the not too distant future. Moreover, platforms can play an important role in investor protection that cannot be performed by traditional disclosure regimes geared towards more seasoned issuers. Against this background, the creation of an exemption from the traditional prospectus regime seems to be a plausible policy choice. However, it needs to be complemented by an adequate regulatory stimulation of platforms' role as gatekeepers.
    Keywords: crowdinvesting,crowdfunding,fintech,financial stability,market infrastructure,investor protection
    JEL: G23 G28 G38 K22 K23
    Date: 2017
  11. By: Scholz, Robert
    Abstract: In the varieties of capitalism literature, Germany is understood as a monolithic model of a coordinated market economy. This analysis shows how institutions for configuring capital and labour at the national level are implemented at state and regional level. By focussing on the labour side this article gives a contribution to the investor dominated shareholder value discussion. It identifies a spatial distinction between capital and labour and concludes a variation of German Models instead of one German Model.
    Keywords: Corporate Governance,Labour-Management Relations,Political Economy,Size and Spatial Distributions of Regional Economic Activity,Unternehmensführung,Arbeitgeber-Arbeitnehmer-Beziehungen,Politische Ökonomie,Räumliche Verteilung regionalökonomischer Aktivitäten
    JEL: G34 J53 P16 R12
    Date: 2017
  12. By: Heim, Sven; Hüschelrath, Kai; Laitenberger, Ulrich; Spiegel, Yossi
    Abstract: There is a growing concern that minority shareholding (MS) in rival firms may facilitate collusion. To examine this concern, we exploit the fact that leniency programs (LPs) are generally recognized as a shock that destabilizes collusive agreements and study the effect that the introduction of an LP has on horizontal MS acquisitions. Using data from 63 countries over the period 1990-2013, we find a large increase in horizontal MS acquisitions in the year in which an LP is introduced, especially in large rivals. The effect is present however only in countries with an effective antitrust enforcement and low levels of corruption and only when the acquisitions involve stakes of 10%-20%. These results suggest that MS acquisitions may stabilize collusive agreements that were destabilized by the introduction of the LP.
    Keywords: minority shareholdings,collusion,leniency programs,cartel stability
    JEL: G34 K21 L41
    Date: 2017
  13. By: Alexander Ljungqvist; Konrad Raff
    Abstract: We derive conditions for when having a "busy" director on the board is harmful to shareholders and when it is beneficial. Our model allows directors to condition their monitoring choices on their co-directors' choices and to experience positive or negative monitoring synergies across firms. Whether busyness benefits or harms shareholders depends on whether directors' effort choices are strategic substitutes or complements and on the sign of the cross-firm synergies. Our empirical analysis exploits plausibly exogenous shocks that make directors busier on one board and examines how this spills over to other boards. Our results suggest that monitoring efforts typically are strategic complements, except when a firm finds itself facing a crisis. Consistent with the model, we find that busy directors increase monitoring at spillover firms when synergies are positive (which we show increases expected firm value) and reduce monitoring at spillover firms when synergies are negative (which we show reduces expected firm value).
    JEL: G34
    Date: 2017–09
  14. By: Sweder (S.J.G.) van Wijnbergen (UvA, DNB; Tinbergen Institute, The Netherlands); Gera Kiewiet (DNB); Iman (I.P.P.) van Lelyveld (DNB)
    Abstract: The recent financial crisis has led to the introduction of contingent convertible instruments (CoCos) in the capital framework for banks. Although CoCos can provide benefits, such as automatic recapitalization of troubled banks, their inherent risks raise questions about whether they increase the safety of the banking system. We show that concerns about CoCos in just a single bank can result in the decline of an entire market, with investors apparently unable to distinguish safe from risky bonds. In times of market-panic, investors tend to rely on credit ratings instead of estimating the real risks of missing coupon payments. We provide several recommendations to improve the capital requirements regime for banks.
    Keywords: Contagion; Contingent Convertible Capital; Systemic Risk
    JEL: G01 G21 G32
    Date: 2017–10–06
  15. By: Klühs, Theres; Grohmann, Antonia; Menkhoff, Lukas
    Abstract: We study the effect of financial literacy on financial inclusion at the cross country level. Financial literacy is strongly related to higher financial inclusion (i.e. access and use of fin. services) and IV-regressions support a causal interpretation.Studying heterogeneous effects of financial literacy across countries shows that the marginal effect of financial literacy on financial inclusion is largest in countries with lower income, a less developed financial sector, and fewer bank branches.
    JEL: G21 O1 E44
    Date: 2017

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