nep-cfn New Economics Papers
on Corporate Finance
Issue of 2017‒11‒26
six papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Bank Restructuring, Competition, and Lending Supply: Evidence from the Spanish Banking Sector By P. Giannoccolo; J. M. Mansilla-Fernández
  2. Social capital, trust, and firm performance: the value of corporate social responsibility during the financial crisis By Lins, Karl V.; Servaes, Henri; Tamayo, Ane
  3. Interest rates, R&D investment and the distortionary effects of R&D incentives By Uluc Aysun; Zeynep Kabukcuoglu
  5. International expansion and riskiness of Banks By Faia, Ester; Ottaviano, Gianmarco I. P.; Sanchez Arjona, Irene
  6. Mortgage debt and entrepreneurship By Bracke, Philippe; Hilber, Christian A. L.; Silva, Olmo

  1. By: P. Giannoccolo; J. M. Mansilla-Fernández
    Abstract: This article analyses the effects of the bank restructuring process performed in Spain between 2010 and 2016. First, we create a unique dataset by combining information from Bankscope and the Table of Public Financial Assistance released by the Bank of Spain. Second, we investigate whether these reforms affected (i) the stability, (ii) the degree of competition, and (iii) lending and liquidity supply of the Spanish banking industry. The main results suggest that the restructuring process reduced the degree of competition but increased financial stability in the Spanish banking industry. In particular, we find that two divergent forces affected the Spanish financial stability. On the one hand, the bail out dampened financial instability. On the other hand, the increasing bank market power fostered financial stability (i.e., lower risk-taking behaviour). Furthermore, we demonstrate that the restructuring process: (i) increased the Lerner index, (ii) did not increase the collusion among banks (iii) diminished the gap in cost efficiency between weak and healthy banks. Finally, we find that there are not improvements in lending and liquidity supply.
    JEL: G21 G28 G32 G34
    Date: 2017–11
  2. By: Lins, Karl V.; Servaes, Henri; Tamayo, Ane
    Abstract: During the 2008-2009 financial crisis, firms with high social capital, measured as corporate social responsibility (CSR) intensity, had stock returns that were four to seven percentage points higher than firms with low social capital. High-CSR firms also experienced higher profitability, growth, and sales per employee relative to low-CSR firms, and they raised more debt. This evidence suggests that the trust between the firm and both its stakeholders and investors, built through investments in social capital, pays off when the overall level of trust in corporations and markets suffers a negative shock.
    Keywords: trust; social capital; corporate social responsibility; financial crisis; stock returns
    JEL: D64 G30 M14
    Date: 2017–08–14
  3. By: Uluc Aysun (University of Central Florida, Orlando, FL); Zeynep Kabukcuoglu (Villanova School of Business)
    Abstract: This paper conducts the first analysis of how interest rates are related to firms' allocation of investment between R&D and non-R&D activities and how R&D incentives alter this relationship. It theoretically predicts that if firms receive incentives mostly in the form of grants and subsidies that reduce their dependence on external nance, their share of R&D spending increases (decreases) during a credit tightening (easing). Conversely, if tax credits are the primary incentive, firms' decrease (increase) their share of R&D spending during a credit tightening (easing). The paper demonstrates empirical support for these predictions by using firm-level financial and sector-level R&D incentives data and a unique methodology that focuses on the within firm allocation of investment.
    Keywords: R&D, finance, grants, tax credits, COMPUSTAT
    JEL: D22 G31 G32 O31 O38
    Date: 2017–11
  4. By: GÜNE? TOPÇU (Çanakkale Onsekiz Mart University); Ahmet Burak Emel (Tekfen Holding); Tu?çe Özbey Gürkan (Vak?fbank)
    Abstract: This study aims at financial failure prediction. The data consist of financial ratios and bankrupt information of the randomly selected 39 real sector companies listed in Borsa ?stanbul over the period 2012 to 2014 and 15 real sector companies for the following year, i.e. 2015. As real-life bankruptcy is rarely observed for publicly traded companies, a proxy is used for failure behavior. The proxy used is ?being transferred to Watchlist Companies Market of Borsa ?stanbul (BIST)?. Multiple discriminant analysis (MDA) was used in analyzing data. To validate identification ability of the MDA model, 4 scenarios are created. To assess the prediction ability of the MDA model, z-scores of the companies are calculated for the year 2015. The discriminant function achieved a 100% classification success for the model data and 73.3% for the forthcoming year failure behavior prediction.
    Keywords: Bankruptcy prediction, Borsa ?stanbul, watchlist market, MDA, credit risk, Altman's z-score
    JEL: C51 G17 G33
    Date: 2017–10
  5. By: Faia, Ester; Ottaviano, Gianmarco I. P.; Sanchez Arjona, Irene
    Abstract: We exploit an original dataset on European G-SIBs to assess how expansion in foreign markets affects their riskiness. We find a robust negative correlation between foreign expansion and bank risk (proxied by various individual and systemic risk metrics). Given individual bank riskiness, banks’expansion reduces the average riskiness of the banks’ pool (between effect). Moreover, foreign expansion of any given bank reduces its own risk (within effect). Diversification, competition and regulation channels are all important. Expansion in destination countries with different business cycle co-movement, stricter regulations and higher competition than the origin country decreases a bank’s riskiness.
    Keywords: banks' risk; systemic risk; global expansion; competition; diversification; regulation
    JEL: G32 F3 G3
    Date: 2017–04
  6. By: Bracke, Philippe; Hilber, Christian A. L.; Silva, Olmo
    Abstract: We study the link between mortgage debt and entrepreneurship using a model of occupational choice and housing tenure in a setting where loans are recourse|like in the UK and several US states. Our model shows that as long as the mortgage interest rate exceeds the risk-free rate: (i) mortgage debt diminishes the likelihood of entrepreneurship by amplifying risk aversion; and (ii) the negative relation between mortgage debt and entrepreneurship increases with income volatility. Our model also shows that the link between housing equity and entrepreneurship is ambiguously signed because of competing portfolio and wealth effects. We use the British Household Panel Survey to test and confirm the model predictions, and deal with unobservable heterogeneity employing three research designs | individual fixed effects, housing-spell fixed effects, and instrumental variables. A one standard deviation increase in leverage reduces the probability of entrepreneurship by 10-20 percent
    JEL: N0 G32 F3 G3
    Date: 2017–10–26

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