nep-cfn New Economics Papers
on Corporate Finance
Issue of 2017‒11‒12
fourteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Personal Bankruptcy Law and Entrepreneurship By Geraldo Cerqueiro; María Fabiana Penas; Robert Seamans
  2. Factors determining capital structure of Pakistani non-financial firms. By Shah, Mumtaz Hussain; Khan, Atta Ullah
  3. Determinants of bank closures : Do changes of CAMEL variables matter? By Mäkinen, Mikko; Solanko, Laura
  4. Common Ownership, Competition, and Top Management Incentives By Miguel Antón; Florian Ederer; Mireia Giné; Martin Schmalz
  5. Investor behaviour and reaching for yield: evidence from the sterling corporate bond market By Czech, Robert; Roberts-Sklar, Matt
  6. Does Credit Composition Have Asymmetric Effects on Income Inequality? By Seven, Unal; Kilinc, Dilara; Coskun, Yener
  7. Financialisation Risks and Econmic Performance By Jérôme Creel; Paul Hubert; Fabien Labondance
  8. Private Equity and Financial Fragility During the Crisis By Bernstein, Shai; Lerner, Josh; Mezzanotti, Filippo
  10. Asymmetric Information and Imperfect Competition in Lending Markets By Gregory S. Crawford; Nicola Pavanini; Fabiano Schivardi
  11. Winning a Deal in Private Equity: Do Educational Networks Matter? By Fuchs, Florian; Fuess, Roland; Jenkinson, Tim; Morkoetter, Stefan
  12. Debt Collateralization, Structured Finance, and the CDS Basis By Gong Feixue; Gregory Phelan
  13. Financial development in Africa - a critical examination By Asongu, Simplice
  14. A Simple Model of Mergers and Innovation By Giulio Federico; Gregor Langus; Tommaso M. Valletti

  1. By: Geraldo Cerqueiro; María Fabiana Penas; Robert Seamans
    Abstract: We study the effect of debtor protection on firm entry and exit dynamics. We find that more lenient personal bankruptcy laws lead to higher firm entry, especially in sectors with low entry barriers. We also find that debtor protection increases firm exit rates and that this effect is independent of firm age. Our results overall indicate that changes in debtor protection affect firm dynamics.
    Keywords: Debtor Protection, Personal Bankruptcy, Entrepreneurship
    Date: 2017–01
  2. By: Shah, Mumtaz Hussain; Khan, Atta Ullah
    Abstract: This study is undertaken to discover the factors determining the capital structure decision of non-financial Pakistani firms. The capital structure irrelevance theory, trade off theory and pecking order theory stipulates different factors affecting a firm’s optimal debt/equity choice. However, the literature is still inconclusive about which factors and theories best defines the ideal capital structure mix. Thus, making it an unanswered, open empirical question, that, needs to be explored especially for sectors not previously studied. The effect of firm’s profitability, liquidity, size, tangibility and non-debt tax shield on capital structure decision of ten non-financial firms operating at Pakistan Stock Exchange is investigated for a period of ten years i-e from 2005-2014. By using fixed effects panel estimation method it is found that leverage ratio is inversely affected by profitability and current ratio of a firm. While, firm size, tangibility and non-debt tax shield positively effects leverage ratio. The influence of profitability is weakly significant whereas that of liquidity, size, tangibility and non-debt tax shield are strongly significant. The study also shows that results for profitability and liquidity are in accordance with the Pecking Order Theory and the result for size; tangibility and non-debt tax shield are in line with the Trade-Off Theory.
    Keywords: Capital Structure, Profitability, Tangibility, Size, Liquidity, Non Debt Tax Shield and Panel Data.
    JEL: G31 G32 G33
    Date: 2017–06–30
  3. By: Mäkinen, Mikko; Solanko, Laura
    Abstract: This study examines whether changes in CAMEL variables matter in explaining bank closure. Using a unique set of monthly bank-specific balance sheet data from Russia, we estimate determinants of bank license withdrawals during 2013m7-2017m7. We make two key findings. First, changes in CAMEL indicators are always significantly correlated with probability of bank closure, and the magnitude of parameter estimates decreases with the lag length. Second, while the one-month lagged levels of capital, earnings, and liquidity are significantly associated with the probability of bank closure in the subsequent month, the level of liquidity is the only significant indicator for longer lags. Our key contribution that changes in CAMEL variables matter more than levels is robust to various robustness checks.
    JEL: G01 G21 G32 G34
    Date: 2017–10–30
  4. By: Miguel Antón (IESE Business School, Universidad de Navarra); Florian Ederer (Cowles Foundation, Yale University); Mireia Giné (IESE Business School, Universidad de Navarra); Martin Schmalz (University of Michigan)
    Abstract: We show theoretically and empirically that managers have steeper financial incentives to expend effort and reduce costs when an industry’s firms tend to be controlled by shareholders with concentrated stakes in the firm, and relatively few holdings in competitors. A side effect of steep incentives is more aggressive competition. These findings inform a debate about the objective function of the firm.
    JEL: D21 G30 G32 J31 J41
    Date: 2016–07
  5. By: Czech, Robert (Imperial College Business School); Roberts-Sklar, Matt (Bank of England)
    Abstract: We provide evidence on how corporate bond investors react to a change in yields, and how this behaviour differs in times of market-wide stress. We also investigate ‘reaching for yield’ across investor types, as well as providing insights into the structure of the corporate bond market. Using proprietary sterling corporate bond transaction data, we show that insurance companies, hedge funds and asset managers are typically net buyers when corporate bond yields rise. Dealer banks clear the market by being net sellers. However, we find evidence for this behaviour reversing in times of stress for some investors. During the 2013 ‘taper tantrum’, asset managers were net sellers of corporate bonds in response to a sharp rise in yields, potentially amplifying price changes. At the same time, dealer banks were net buyers. Finally, we provide evidence that insurers, hedge funds and asset managers tilt their portfolios towards higher risk bonds, consistent with ‘reaching for yield’ behaviour.
    Keywords: Corporate bonds; trading volume; investment decisions; banks; insurer; non-bank financial institutions; cyclicality; financial stability
    JEL: G11 G12 G15 G21 G22 G23
    Date: 2017–10–20
  6. By: Seven, Unal; Kilinc, Dilara; Coskun, Yener
    Abstract: This paper studies the effects of credit to private non-financial sectors on income inequality. In particular, we focus on the distinction between household and firm credit, and investigate whether these two types of credit have adverse effects on income inequality. Using balanced panel data for 30 developed and developing countries over the period of 1995-2013, we show that firm credit reduces income inequality whereas there is no significant impact of household credit on income inequality. We conclude that not the size of private credit but the composition of it matters for reducing income inequality due to the asymmetric effects of different types of credit.
    Keywords: Household credit; firm credit; income inequality; credit composition; mean group estimator
    JEL: D30 D60 G20 O16
    Date: 2017–06–01
  7. By: Jérôme Creel (OFCE, Sciences Po Paris, France); Paul Hubert (OFCE, Sciences Po Paris, France); Fabien Labondance (OFCE, Sciences Po Paris, France)
    Abstract: Drawing on European Union data, this paper assesses the long-standing mainstream view that financialisation improves growth. We measure financialisation with private credit to GDP and capture characteristics of banking sector fragility with the ratio of credit to deposits and the ratio of bank capital to assets. We test the impact of these variables on four measures of economic performance: the growth rates of GDP per capita, consumption per capita, investment and inequality. We observe that credit has no effect on economic performance. However, the potential riskiness of the banking sector measured by the ratio of credit to deposits decreases GDP per capita and contributes to increasing inequality whereas the ratio of capital to assets has a negative impact on GDP per capita growth through its negative effect on investment. This effect is driven by countries with low GDP per capita. We also find that the potential side effects of excessive financialisation have a negative effect on growth.
    Keywords: Private Credit, Banking Sector fragility, Non Performing loans, Bank crisis
    JEL: G10 G21 O40
    Date: 2017–10
  8. By: Bernstein, Shai (Stanford University); Lerner, Josh (Harvard University); Mezzanotti, Filippo (Northwestern University)
    Abstract: Do private equity firms contribute to financial fragility during economic crises? We find that during the 2008 financial crisis, PE-backed companies increased investments relative to their peers, while also experiencing greater equity and debt inflows. The effects are stronger among financially constrained companies and those whose private equity investors had more resources at the onset of the crisis. PE-backed companies consequentially experienced higher asset growth and increased market share during the crisis.
    Date: 2017–07
  9. By: Francesco Aiello; Lidia Mannarino; Valeria Pupo (Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF, Università della Calabria)
    Abstract: This paper estimates the impact of R&D investments on the productivity of European family firms. For the period 2007-2009, we consider a Cobb-Douglas production function augmented by R&D intensity. Specifically, we address the questions of whether the R&D returns of family firms differ from that of non-family firms. Final outcomes suggest that, on average, non-family firms conducting R&D record a productivity gain of about 5-8 % compared to non-innovative firms. Additionally, the innovative family firms are about 6% lower compared to innovative non-family firms. Finally, the rate of return to R&D of family firms is lower than non-family firms.
    Keywords: Productivity, R&D returns, Family firms
    JEL: O30 L60 G34
    Date: 2017–11
  10. By: Gregory S. Crawford (University of Zürich, CEPR and CAGE); Nicola Pavanini (Tilburg University and CEPR); Fabiano Schivardi (LUISS University, EIEF and CEPR)
    Abstract: We study the effects of asymmetric information and imperfect competition in the market for small business lines of credit. We estimate a structural model of credit demand, loan use, pricing, and firm default using matched firm-bank data from Italy. We find evidence of adverse selection in the form of a positive correlation between the unobserved determinants of demand for credit and default. Our counterfactual experiments show that while increases in adverse selection increase prices and defaults on average, reducing credit supply, banks’ market power can mitigate these negative effects.
    Date: 2017
  11. By: Fuchs, Florian; Fuess, Roland; Jenkinson, Tim; Morkoetter, Stefan
    Abstract: Networks can establish business connections and facilitate information flows. But how valuable are they in competitive settings, such as the deal generation of private equity? We find that educational ties between acquiring partner and target firm management are frequent (around 15%) and increase the odds of winning a deal (by 79%). When competing with other funds, exclusivity rather than the school’s ranking matters. In addition, educational ties also allow mitigating prevailing home bias. Yet, the pure existence of network-based relationships does not automatically lead to better deal performance.
    Keywords: Investment Choice, Deal Sourcing, Networks, Social Ties, Buyout
    JEL: G11 G15 G24 G34
    Date: 2017–10
  12. By: Gong Feixue (MIT); Gregory Phelan (Williams College)
    Abstract: We study how the ability to use risky debt as collateral in funding markets affects the CDS basis. We use a general equilibrium model with heterogeneous agents, collateralized financial promises, and multiple states of uncertainty. We show that a positive basis emerges when risky assets and their derivative risky debt contracts can be used as collateral for additional financial promises. Additionally, because a risky asset can always serve as collateral for more promises than its derivative debt contracts can, the basis for a risky asset will always differ from the basis for its derivative risky debt.
    Keywords: collateral, securitized markets, cash-synthetic basis, credit default swaps, asset prices, credit spreads
    JEL: D52 D53 G11 G12
    Date: 2017–08
  13. By: Asongu, Simplice
    Abstract: The thesis summarises eight published articles for my doctoral degree research project. Individually the published articles coherently present a critical examination of financial development in Africa. Three main shortcomings in the literature have motivated the project: limited studies on stock market development in spite of the need for more sources of long-term finance; the absence of literature that engages the exposure of financial systems in Africa to recent global crises and a mainstream definition of the financial system that is not relevant to the continent because it fails to incorporate the informal financial sector. The highlighted gaps are addressed in three main themes. The main results of the first theme are twofold. Political, economic and institutional governance can play a positive role in the performance of African stock markets. There is urgent need for the improvement of cross-country characteristics that enhance convergence for the performance of stock markets. Findings of the second theme are as follows. There is absence of convergence among member states of the CFA franc zones. Limited financial dynamics can be used in monetary policy to exert deflationary pressures in periods of soaring consumer prices. There is very moderate evidence supporting the hypothesis of thresholds in financial development for financial globalisation benefits. A new definition of the financial system in the third theme has also led to some interesting results. Liberalisation policies have broadly promoted the informal financial sector to the detriment of the formal sector. An example of such liberalisation is the information and communication technology sector, which has led to mobile phone penetration being positively (negatively) correlated with the informal (formal) financial sector. In another example, not all financial intermediary channels are pro-poor for the effectiveness of liberalisation policies in enhancing investment for inequality mitigation. Policy implications, research limitations and future research directions are discussed.
    Keywords: Finance; Economic Development; Africa
    JEL: G20 G29 L96 O40 O55
    Date: 2015–12–18
  14. By: Giulio Federico; Gregor Langus; Tommaso M. Valletti
    Abstract: We analyze the impact of a merger on firms’ incentives to innovate. We show that the merging parties always decrease their innovation efforts post-merger while the outsiders to the merger respond by increasing their effort. A merger tends to reduce overall innovation. Consumers are always worse off after a merger. Our model calls into question the applicability of the “inverted-U†relationship between innovation and competition to a merger setting.
    Keywords: innovation, R&D, mergers
    JEL: D43 G34 L40 O30
    Date: 2017

This nep-cfn issue is ©2017 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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