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

  1. The Influence of Institutionally Embedded Ownership on Anglo-American Corporate Governance Migration into Emerging Economy IPO Firms By Hearn, Bruce; Oxelheim, Lars; Randøy, Trond
  2. Venture Capital Investments and Merger and Acquisition Activity Around the World By Gordon M. Phillips; Alexei Zhdanov
  3. Is There a Relationship between Shareholder Protection and Stock Market Development? By Simon Deakin; Prabirjit Sarkar; Mathias Siems
  4. Response of firms to listing: Evidence from SME exchanges By Aggarwal, Nidhi; Susan Thomas
  5. Acquirers and Financial Constraints: Theory and Evidence from Emerging Markets By Rahul Mukherjee; Christian Proebsting;
  6. Credit Rationing and the Relationship Between Family Businesses and Banks in Italy By Giovanni Ferri; Pierluigi Murro; Marco Pini
  7. Does corporate control matter to financial volatility? By Laura Gianfagna; Armando Rungi
  8. Portfolio Homogenization and Systemic Risk of Financial Network By Huang, Yajing; Liu, Taoxiong; Lien, Donald
  9. Banks' Capital Surplus and the Impact of Additional Capital Requirements By Simona Malovana
  10. Mutual Funds as Venture Capitalists? Evidence from Unicorns By Sergey Chernenko; Josh Lerner; Yao Zeng
  11. The Impact of Bank Credit on Labor Reallocation and Aggregate Industry Productivity By John (Jianqiu) Bai; Daniel Carvalho; Gordon M. Phillips
  12. Investment Horizon and Corporate Social Performance: The Virtuous Circle of Long-Term Institutional Ownership and Responsible Firm Conduct By Ioannis Oikonomou Author-X-Name-First: IoannisAuthor-X-Name-Last: Oikonomou Author-Email: Author-Workplace-Name: ICMA Centre, Henley Business School, University of Reading; Chao Yin; Lei Zhao
  13. What twenty years of regulations have to say about M&As of U.S. banks? By Leledakis, George; Mamatzakis, Emmanuel; Pirgiotakis, Manos; Travlos, Nikolaos
  14. Capital requirements for government bonds: Implications for bank behaviour and financial stability By Neyer, Ulrike; Sterzel, André
  15. Founding family ownership,stock market returns, and agency problems By Eugster, Nicolas; Isakov, Dusan

  1. By: Hearn, Bruce (School of Business, Management and Economics,); Oxelheim, Lars (School of Business and Law, University of Agder, Norway); Randøy, Trond (School of Business and Law, University of Agder, Norway)
    Abstract: We argue that the corporate governance of emerging economy IPO firms is influenced by firm-specific institutionally embedded block ownership groups. Applying an extended institutional logic perspective and using a mixed-effects ordered probit model, our findings from 190 IPO-firms from 22 African countries 2000–2016, support the notion that five major block owner categories (corporate, private equity, non-executive, business group, state) exerts very different influence on African firms’ degree of adoption of Anglo-American corporate governance measures. We find that the influence from the various block owner groups is significantly moderated by institutional quality and tribalism, but to different degrees and directions across block owner groups. Our contextually embedded firm-specific results support the criticism of a one-hat-fits-all global and uniform corporate governance model.
    Keywords: IPO; Corporate Governance Practice; Institutional Theory; Africa; Emerging Economies
    JEL: G23 G38 M12 M14 M16
    Date: 2017–11–20
  2. By: Gordon M. Phillips; Alexei Zhdanov
    Abstract: We examine the relation between venture capital (VC) investments and mergers and acquisitions (M&A) activity around the world. We find evidence of a strong positive association between VC investments and lagged M&A activity, consistent with the hypothesis that an active M&A market provides viable exit opportunities for VC companies and therefore incentivizes them to engage in more deals. We also explore the effects of country-level pro-takeover legislation passed internationally (positive shocks), and US state-level antitakeover business combination laws (negative shocks), on VC activity. We find significant post-law changes in VC activity. VC activity intensifies after enactment of country-level takeover friendly legislation and decreases following passage of state antitakeover laws in the U.S.
    JEL: G3 G34 L12 O3 O31 O34
    Date: 2017–11
  3. By: Simon Deakin; Prabirjit Sarkar; Mathias Siems
    Abstract: We use recently created datasets measuring legal change over time in a sample of 28 developed and emerging economies to test whether the strengthening of shareholder rights in the course of the mid-1990s and 2000s promoted stock market development in those countries. We find only weak and equivocal evidence of a positive effect of shareholder protection on market capitalisation, the value of stock trading, and the turnover ratio, and a negative impact on the number of listed companies. There is stronger evidence of reverse causality, in the sense of stock market development at country level generating changes in shareholder protection law. We conclude, firstly, that legal reforms were at least in part an endogenous response to stock market development and not simply a reaction to the generation of global standards; but, secondly, that the laws passed in response to the demand for shareholder empowerment did not consistently have the expected impact on financial markets, and may have had some negative and perverse results.
    Keywords: corporate governance, shareholder protection, financial development, stock market development
    JEL: G33 G34 K22 O16
    Date: 2017–09
  4. By: Aggarwal, Nidhi (Indian Institute of Management, Udaipur); Susan Thomas (Indira Gandhi Institute of Development Research)
    Abstract: Public equity markets have increasingly become accessible to small and medium firms with the introduction of dedicated exchange that lower listing criteria to allow such firms to list their equity. We exploit the introduction of such a dedicated exchange in India to ask how listing impacts the financial constraints and growth prospects of small and medium firms. The causal impact is assessed using a difference-in-differences estimation based on a sample of firms that listed on these exchanges over a three year period, where we also observe matched firms that are not listed. We find that listing improves the asset size and capital structure of listed firms relative to firms that do not list. But we find no evidence that these firms are subsequently able to access higher debt finance from formal institutions, nor evidence of improvement in the performance of these firms, after listing.
    Keywords: Public equity, IPO, reduced listing requirement, small and medium enterprises, transparency, access to finance, firm performance
    JEL: G15 G24 G28
    Date: 2017–11
  5. By: Rahul Mukherjee (IHEID, Graduate Institute of International and Development Studies, Geneva); Christian Proebsting (École Polytechnique Fédérale de Lausanne);
    Abstract: How do financial frictions shape the set of acquirers, how much they acquire, and how long they keep ownership? To address these questions, we develop a tractable model of M&As whereby acquirers and targets emerge endogenously due to differences in liquidity. Financial crises lead to selection effects among acquirers that result in larger acquired stakes and more persistent ownership. We present evidence consistent with the predictions of the model in a dataset of domestic and cross-border M&As from emerging markets. Financially constrained domestic firms in crisis-hit countries acquire 11-15% more ownership. The survival rate of these acquisitions is 19-24% higher.
    Keywords: domestic mergers and acquisitions; cross-border mergers and acquisitions; financial crisis; financial constraints; capital reallocation
    JEL: F21 G01 G34
    Date: 2017–11–15
  6. By: Giovanni Ferri (LUMSA University); Pierluigi Murro (LUMSA University); Marco Pini (Unioncamere)
    Abstract: We investigate whether family businesses (FBs) suffer stiffer credit rationing in the post-crisis Italian economy. FBs are, in fact, typically more opaque than other firms, possibly deterring bank lending to them. Moreover, regulatory changes may lead many banks to abandon relationship lending, weakening their ability to evaluate opaque firms. Using detailed firm data, our estimates reach nuanced conclusions. First, credit rationing is not more intense at FBs. However, it systematically intensifies if FBs engage in firm-bank arrangements less able to overcome information asymmetries either coupling with a main bank that uses transactional lending or diluting relationships across various banking partners.
    Keywords: Family firms, Firm-bank relationship, Bank lending technologies, Credit Rationing
    JEL: D22 G32
    Date: 2017–12
  7. By: Laura Gianfagna (IMT School for advanced studies); Armando Rungi (IMT School for advanced studies)
    Abstract: In our contribution we study how the ownership channel affects the stock price volatility of listed stock markets. In particular, we study how a linkage between a parent company and its affiliates may drive differences in stock price volatility, within and across countries. We exploit a worldwide dataset of stock-exchange listed firms, controlling for several financial dimensions, to assess whether business groups matter to financial volatility. The answer is positive and does not depend on the definition of volatility used. Our results contribute to the corporate finance literature by defining the role of multinational corporate control in financial markets, and to the financial stability literature by assessing corporate control as an undiscovered channel of transmission for financial shocks.
    Keywords: corporate control, stock price volatility, multilevel model
    JEL: F23 G32
    Date: 2017–11
  8. By: Huang, Yajing; Liu, Taoxiong; Lien, Donald
    Abstract: In this paper, we argue that systemic risk should be understood from two different perspectives, the homogeneity of portfolios (or called asset homogeneity) and the contagion mechanism. The homogenization of portfolios held by different financial institutions increases the positive correlations among them and therefore the probability of simultaneous collapses of a considerable part of the network, which are prerequisites and amplifiers of contagion. We first theoretically analyze the influence of asset homogeneity on the initial risk, fragility and systemic risk of the network. Based on the theoretical predictions, we perform simulations on regular networks and Poisson random networks to illustrate the effects of portfolio homogeneity on systemic risk. It is shown that the relationship between asset homogeneity and systemic risk is not always positively related. When the network contagion is weak, then a high asset homogeneity will lead to a high systemic risk. However, if the network contagion is considerably strong, the systemic risk is quite likely to be negative related to the asset homogeneity, so that a high homogeneity will produce a low systemic risk. Moreover, networks with strong contagion and low asset homogeneity tend to have the greatest systemic risk. Results from logistic regression analysis further clarify the relationships between systemic risk and asset homogeneity.
    Keywords: Financial network; Portfolio homogenization; Contagion; Systemic risk
    JEL: D85 G01 G15 G32 G33
    Date: 2017–10–13
  9. By: Simona Malovana
    Abstract: Banks in the Czech Republic maintain their regulatory capital ratios well above the level required by their regulator. This paper discusses the main reasons for this capital surplus and analyses the impact of additional capital requirements stemming from capital buffers and Pillar 2 add-ons on the capital ratios of banks holding such extra capital. The results provide evidence that banks shrink their capital surplus in response to higher capital requirements. A substantial portion of this adjustment seems to be delivered through changes in average risk weights. For this and other reasons, it is desirable to regularly assess whether the evolution and current level of risk weights give rise to any risk of underestimating the necessary level of capital.
    Keywords: Banks, capital requirements, capital surplus, panel data, partial adjustment model
    JEL: G21 G28 G32
    Date: 2017–11
  10. By: Sergey Chernenko; Josh Lerner; Yao Zeng
    Abstract: Using novel contract-level data, we study the recent trend in open-end mutual funds investing in unicorns—highly valued, privately held start-ups—and the consequences of these investments for corporate governance provisions. Larger funds and those with more stable funding are more likely to invest in unicorns. Compared to venture capital groups (VCs), mutual funds have weaker cash flow rights and are less involved in terms of corporate governance, being particularly underrepresented on boards of directors. Having to carefully manage their own liquidity pushes mutual funds to require stronger redemption rights, suggesting contractual choices consistent with mutual funds’ short-term capital sources.
    JEL: G23 G24
    Date: 2017–10
  11. By: John (Jianqiu) Bai; Daniel Carvalho; Gordon M. Phillips
    Abstract: We provide evidence that the deregulation of U.S. state banking markets leads to a significant increase in the relative employment and capital growth of local firms with higher productivity and that this effect is concentrated among young firms. Using financial data for a broad range of firms, our analysis suggests that this effect is driven by a shift in the composition of local bank credit supply towards more productive firms. We estimate that this effect translates into economically important gains in aggregate industry productivity and that changes in the allocation of labor play a central role in driving these gains.
    JEL: G2 G21 G3 G31 G32 J01 J21 J24 L22 L23 L25 O11 O12
    Date: 2017–11
  12. By: Ioannis Oikonomou Author-X-Name-First: IoannisAuthor-X-Name-Last: Oikonomou Author-Email: Author-Workplace-Name: ICMA Centre, Henley Business School, University of Reading; Chao Yin (ICMA Centre, Henley Business School, University of Reading); Lei Zhao (ESCP Europe Business School, Paris)
    Abstract: We investigate the relationship between corporate social performance and institutional ownership. We distinguish between long-term and short-term institutional investors using holdings-based measures which directly capture the investment horizon of each institution. Our analysis shows that long term institutional investment is positively related to corporate social performance (mainly by an avoidance of investing in firms with significant controversies) whereas short-term institutional investment is negatively related to corporate social performance. Further investigation reveals that increased holdings of a firm by long-term investors are positively associated with its future corporate social performance. Hence, we provide evidence of a ‘virtuous circle’ between long term investment and social responsibility.
    Keywords: corporate social responsibility; CSR; CSP; sustainability; institutional investors; investment horizon
    JEL: G23 G31 M14
    Date: 2017–10
  13. By: Leledakis, George; Mamatzakis, Emmanuel; Pirgiotakis, Manos; Travlos, Nikolaos
    Abstract: We extend the U.S. bank M&As literature by examining announcement returns for acquisitions of both listed and unlisted targets by U.S. banking firms for a long period of time from the eighties till to date. Over these decades there have been implemented several regulation changes, notably the Dodd-Frank Act that would be of interest to examine whether they have any impact, and if indeed they have to which direction, on value creation in M&As in the U.S. banking industry. Contrary to the conventional wisdom that bidding banks lose upon the announcement of a merger, we find positive abnormal returns for these firms that choose to acquire privately-held targets. Further, returns for acquirers in private offers do not depend on the method of payment, legislative changes, size, or geographical scope. However, we find that the use of a financial advisor on the part of the bidder can better explain the variation in abnormal returns for such offers. Our results are not influenced by any unobserved bidder-specific component or sample selection issues.
    Keywords: Mergers and Acquisitions; Regulations, Banks; Value Creation
    JEL: G2 G3 G34
    Date: 2017–11–27
  14. By: Neyer, Ulrike; Sterzel, André
    Abstract: This paper analyses whether the introduction of capital requirements for bank government bond holdings increases financial stability by making the banking sector more resilient to sovereign debt crises. Using a theoretical model, we show that a sudden increase in sovereign default risk may lead to liquidity issues in the banking sector. Our model reveals that in combination with a central bank acting as a lender of last resort, capital requirements for government bonds increase the shock-absorbing capacity of the banking sector and thus the financial stability. The driving force is a regulation-induced change in bank investment behaviour.
    Keywords: bank capital regulation,government bonds,sovereign risk,financial contagion,lender of last resort.
    JEL: G28 G21 G01
    Date: 2017
  15. By: Eugster, Nicolas; Isakov, Dusan
    Abstract: This paper explores the relationship between founding family ownership and stock market returns. Using the entire population of non-financial firms listed on the Swiss stock market for 2003–2013, we find that the stock returns of family firms are significantly higher than those of non-family firms after adjusting the returns for different risk factors and firm characteristics. Family firms generate an annual abnormal return of 2.8% to 7.1%. Moreover, family firms potentially having more agency problems earn higher abnormal returns than other firms and markets participants are regularly positively surprised by the economic outcomes produced by these firms around earnings announcements. The evidence suggests that outside investors earn a premium for bearing the high expropriation risk of family firms.
    Keywords: Family firm; ownership structure; earnings surprise; market efficiency
    JEL: G31 G14
    Date: 2017–11–23

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