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on Corporate Finance |
| By: | Mariana Spatareanu; Vlad Manole; Ali Kabiri |
| Abstract: | Using a unique matched bank-firm-innovation data for the UK, this paper finds that bank shocks negatively affected firms’ innovations during the recent crises. After carefully controlling for several potential biases in estimation we find that firms whose relationship banks were distressed patented less, and those patents were of lower technological value, less original and of lower quality. The impact is larger in the case of small and medium enterprises (SMEs). We also show that banks’ specialization in financing innovation mitigates the impact of bank distress on firms’ innovation. The results highlight the significantly negative impact of distress in the banking sector on firm’s innovation and potential future economic growth. |
| Keywords: | innovation, bank distress, crisis, UK |
| JEL: | G21 G34 O16 O30 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:run:wpaper:2017-003&r=cfn |
| By: | Brunnermeier, Markus K; Rother, Simon; Schnabel, Isabel |
| Abstract: | This paper empirically analyzes the effects of asset price bubbles on systemic risk. Based on a broad sample of banks from 17 OECD countries between 1987 and 2015, we show that asset price bubbles in stock and real estate markets raise systemic risk at the bank level. The strength of the effect depends strongly on bank characteristics (bank size, loan growth, leverage, and maturity mismatch) as well as bubble characteristics (length and size). These findings suggest that the adverse effects of bubbles can be mitigated substantially by strengthening the resilience of financial institutions. |
| Keywords: | Asset price bubbles; CoVaR; Credit Booms; Financial crises; systemic risk |
| JEL: | E32 G01 G12 G20 G32 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12362&r=cfn |
| By: | Wosser, Michael (Central Bank of Ireland) |
| Abstract: | Since the 2008 global financial crisis (GFC) several systemic risk measures (SRMs) have gained traction in the literature. This paper examines whether Delta-CoVaR (?CoVaR) is relevant in the context of European banks and compares risk rankings against those found using marginal expected shortfall (MES). The analysis reveals that a cluster of large banks, operating in one particular country, is the principal contributor to financial system risk, if measured by ?CoVaR. When the direction of risk flow is reversed, i.e. from the system to the institution (via MES), a second cluster of banks, headquartered in a different jurisdiction, would be most affected by a large and systemic financial shock. The analysis reveals that future realisations of systemic risk is strongly associated with institution size, maturity mismatch, non-performing loans and non-interest-to-interest-income ratios. However, in certain cases, the relationship depends upon the systemic risk measure used. For example, forward bank leverage appears correlated with MES but not with ?CoVaR. |
| Keywords: | Systemic banking crisis, Systemic risk measurement, ?CoVaR, MES, Bank Balance Sheet, Macroprudential policy |
| JEL: | G01 G21 G28 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:08/rt/17&r=cfn |
| By: | Ibrahim Bostan; Mariana Spatareanu |
| Abstract: | This study unveils the financing role of minority equity purchases on innovation activities of US target firms. We provide evidence of increased innovation following minority acquisitions accompanied by cash flows to financially constrained target firms, and to firms with relatively small patent portfolios prior to acquisition. To address endogeneity concerns we create matched control groups of firms that were targets of minority acquisitions without cash transfers, and show that the positive effects of minority equity purchases on target firms’ innovation are nonexistent if minority acquisitions are not accompanied by cash flow transfer to target firms. We also create a sample of similar firms which were targets of failed minority acquisitions, and find that those targets experience no change in their innovation activity. |
| Keywords: | acquisitions, finance, innovation |
| JEL: | G34 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:run:wpaper:2016-002&r=cfn |
| By: | Wößner, Nicole; Stiebale, Joel |
| Abstract: | We use a panel data set of European firms to analyze the effects of domestic and international M&As on target firms' investment and financial constraints. Combining propensity score matching with a difference-in-differences estimator, our results show that upon acquisition, target firms obtain better access to external finance, are characterized by higher levels of tangible and intangible assets, and display lower dependence of investments and cash savings to the availability of internal funds. |
| JEL: | G34 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168064&r=cfn |
| By: | Pierluigi Murro (LUMSA University); Valentina Peruzzi (Università Politecnica delle Marche) |
| Abstract: | This paper investigates the effect of family ownership on credit rationing using a rich sample of Italian manufacturing firms. We find that family ownership increases the probability of credit rationing. Conflicts between large and minority shareholders, family firms’ lack of competencies and conservatism appear to be the main determinants of this result. By contrast, family owners’ long-termism, risk aversion, and relationship lending mitigate the adverse impact of family ownership on firms’ credit availability. Finally, we find that family businesses are more likely to be rationed in provinces with high level of social capital and judicial efficiency, suggesting that delegation problems are mitigated by personal relationships in areas where cooperation mechanisms are weaker. |
| Keywords: | Family firms, credit rationing, agency conflicts, relationship lending |
| JEL: | D22 G21 G32 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:lsa:wpaper:wpc23&r=cfn |
| By: | Diana Ayala; Milan Nedeljkovic; Christian Saborowski |
| Abstract: | This paper studies the determinants of shifts in debt composition among emerging market non-financial corporates. We show that the determinants of bond market access in EMs vary with global cyclical conditions and across local and foreign currency markets. We find that the role for institutions and macro fundamentals in creating an enabling environment for markets increased during the post-crisis period for local currency markets. Foreign bank linkages additionally explain why local currency bond markets increasingly substituted for banks in channeling liquidity to EMs. In the case of foreign currency markets, in turn, global cyclical factors accounted for most of the variation. Furthermore, a country’s relative sensitivity to global factors appears to vary with the size of its foreign currency bond market rather than local fundamentals. Our results highlight the risk of capital flow reversal in those EMs that benefited from the upturn in the global financial cycle mostly due to the relative size of their bond markets rather than strong fundamentals. |
| Keywords: | bond markets, capital flows, emerging markets |
| JEL: | F30 G15 G20 G30 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6376&r=cfn |
| By: | Mariana Spatareanu; Vlad Manole; Ali Kabiri |
| Abstract: | This paper investigates the impact of bank distress on firms’ performance using unique data during the Great Recession for Ireland. The results show that bank distress, measured as banks’ credit default swap spreads (CDS) has negatively and statistically significantly affected firms’ investment expenditures. Interestingly, firms with access to alternative sources of external finance are not impacted by bank distress. The results are robust to accounting for external finance dependence, demand and trade sensitivities, which affect firm performance and the demand for credit. |
| Keywords: | firm performance, bank distress, crisis |
| JEL: | E44 E50 G20 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:run:wpaper:2016-001&r=cfn |
| By: | Joachim Jungherr; Immo Schott |
| Abstract: | We introduce long-term debt (and a maturity choice) into a standard model of firm financing and investment. This allows us to study two distortions of investment: (1.) Debt dilution distorts firms’ choice of debt which has an indirect effect on investment; (2.) Debt overhang directly distorts investment. In a dynamic model of investment, leverage, and debt maturity, we show that the two frictions interact to reduce investment, increase leverage, and increase the default rate. We provide empirical evidence from U.S. firms that is consistent with the model predictions. Using our model, we isolate and quantify the effect of debt dilution and debt overhang. Debt dilution is more important for firm value than debt overhang. Debt overhang can actually increase firm value by reducing debt dilution. The negative effect of debt dilution on investment is about half as strong as that of debt overhang. Eliminating the two distortions leads to an increase in investment equivalent to a reduction in the corporate income tax of 3.5 percentage points. |
| Keywords: | investment, debt dilution, Debt Overhang |
| JEL: | E22 E44 G32 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:997&r=cfn |
| By: | Upper, Christian; Marconi, Daniela |
| Abstract: | We investigate the relationship between capital misallocation and financial development in six countries at different levels of development. We find that more developed financial systems perform better at allocating capital investment. If financial development is low, faster capital accumulation results in a worsening of allocative efficiency. This effect reverses for higher levels of financial development. Sectors with high R&D expenditures or high capital investment benefit most. |
| JEL: | O47 O16 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168205&r=cfn |
| By: | Back, Kerry E.; Collin-Dufresne, Pierre; Fos, Vyacheslav; Li, Tao; Ljungqvist, Alexander P. |
| Abstract: | We analyze dynamic trading by an activist investor who can expend costly effort to affect firm value. We obtain the equilibrium in closed form for a general activism technology, including both binary and continuous outcomes. Variation in parameters can produce either positive or negative relations between market liquidity and economic efficiency, depending on the activism technology and model parameters. Two results that contrast with the previous literature are that (a) the relation between market liquidity and economic efficiency is independent of the activist's initial stake for a broad set of activism technologies and (b) an increase in noise trading can reduce market liquidity, because it increases uncertainty about the activist's trades (the activist trades in the opposite direction of noise traders) and thereby increases information asymmetry about the activist's intentions. |
| Keywords: | activism; continuous time; economic efficiency; Kyle model; liquidity; market depth; price impact; strategic trading |
| JEL: | G14 G34 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12372&r=cfn |
| By: | Navío-Marco, Julio; Calle, Silvia Serrano; Solórzano-García, Marta |
| Abstract: | This article analyses the performance and value creation of the glamorous operations of mergers and acquisitions (M&A) in the telecommunications sector, trying to understand if the glamour company´s M&A operations conduct to the stockholder wealth maximization, and the role of acquirer´s characteristics and its behaviour as glamour firm. After calculating the abnormal returns of telecommunications M&A from 2000 to 2010 and evaluating the value creation/destruction of these operations, we conclude that glamour tends to be opposite to value creation in the long run. The glamour firms show significant value destruction in certain timeframes and worse performance than non-glamour firms. From our analysis, it is evident that certain acquirers´ characteristics, such as size, are determinant in the glamour behavior. Related to this, the influence of the intangible assets (and particularly the intangible ratio) is a new contribution from this analysis. |
| Keywords: | Mergers and Acquisitions,Glamorous Acquisitions,Strategy,Value creation,Telecommunications |
| JEL: | G34 L96 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse17:169487&r=cfn |
| By: | Ljungqvist, Alexander P.; Raff, Konrad |
| 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). |
| Keywords: | Boards of directors; busy directors; Monitoring |
| JEL: | G34 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12361&r=cfn |
| By: | Robin Boadway (Queen's University, ON, Canada); Motohiro Sato (Hitotsubashi University, Japan); Jean-François Tremblay (University of Ottawa, ON, Canada) |
| Abstract: | It is well-known that cash-flow business taxes with full loss-offset, and their present-value equivalents, are neutral with respect to firms’ investment decisions when firms are risk-neutral and there are no distortions. We study the effects of cash-flow business taxation when there is bankruptcy risk, when firms are risk-averse, and when financial intermediaries face asymmetric information problems in financing heterogeneous firms. In these circumstances, investment decisions are distorted, with investment being less than in the full-information case. Cash-flow taxation corrects the distortion by inducing more investment in rent-generating projects and increasing social welfare. An ACE tax is equivalent to a cash-flow tax but is easier to implement under asymmetric information. |
| Keywords: | cash-flow tax, risk-averse firms, asymmetric information |
| JEL: | H21 H25 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ott:wpaper:1713e&r=cfn |
| By: | Marc Auboin; Alisa DiCaprio |
| Abstract: | Trade finance shortfalls now appear regularly. Does this matter for trade expansion and economic development in developing countries? Global trade finance has resumed following the 2009 global financial crisis. However, the pattern of recovery has been uneven across countries and categories of firms. The recovery has been robust for the main routes of trade and for large trading companies. By contrast, access to trade finance remains costly and scarce in countries which have the strongest potential for trade expansion. The policy response to this problem depends on whether this represents a market failure, or a new global equilibrium. We introduce new data from a global survey of firms to argue that real shortfalls are exacerbated by perception gaps in a way that has enabled market failures to persist. This has troubling implications most directly through its effect on the ability for small firms to benefit from the reallocation of production and investment within global supply chains. |
| Keywords: | international financial institutions, coherence, G-20, financial crisis, trade and development, trade finance, economic development |
| JEL: | F13 F34 F36 O19 G21 G32 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6425&r=cfn |
| By: | Petter Osmundsen; Kjell Løvås; Magne Emhjellen |
| Abstract: | The recent dramatic fall in oil prices has led to extensive capital rationing in international oil companies, and subsequent fierce competition between resource extraction countries to attract scarce investment. This situation is not adequately addressed by the large literature on international taxation and multinational companies, since it fails to take account of capital rationing in its assumption that companies sanction all projects with a positive net present value. The paper examines the effect of tax design on international capital allocation when companies ration capital. We analyse capital allocation and government take for four equal oil projects in three different fiscal regimes: the US GoM, UK upstream and Norway offshore. Implications for optimal tax design are discussed. |
| Keywords: | taxation, international companies, project metrics, project valuation, oil projects |
| JEL: | H21 H25 F23 Q40 G12 G31 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6390&r=cfn |
| By: | Forcillo, Donato |
| Abstract: | We analyse in a firm the possible choice between two systems of corporate governance: the one-tier board, a structure commonly used in the Anglo-American world, and the system of Codetermination, a two-tier board with the presence of workers' representatives in the supervisory board, a model commonly adopted by firms in Germany. The aim is to fill a gap present in the current literature, the absence of a mathematical model that explains how works the governance's system of Codetermination presents not only in the German world, but expanding in many other European countries, as a result of the recent EU directives, which emphasize the need to involve workers in company decisions. |
| Keywords: | Corporate Governance, Codetermination, Labor Representation, Workers, Human Capital, Single Board, One-Tier Board, Monitoring, Welfare |
| JEL: | G34 L22 |
| Date: | 2017–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81935&r=cfn |