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on Corporate Finance |
| By: | Daria Finocchiaro; Giovanni Lombardo; Caterina Mendicino; Philippe Weil |
| Abstract: | How does inflation affect the investment decisions of financially constrained firms in the presence of corporate taxation? Inflation interacts with corporate taxation via the deductibility of i) capital expenditures and ii) interest payments on debt. Through the first channel, inflation increases firms’ taxable profits and further distorts their investment decisions. Through the second, expected inflation affects the effective real interest rate and stimulates investment. When debt is collateralized, the second effect dominates. Therefore, present a tax-advantage to debt financing, positive long-run inflation enhances welfare by mitigating or even eliminating the investment distortion. |
| Keywords: | optimal monetary policy; Friedman rule; credit frictions; tax benefits of debt |
| JEL: | E31 E43 E44 E52 G32 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/262613&r=cfn |
| By: | Eugster, Nicolas |
| Abstract: | This paper examines the relationship between ownership structure, analyst coverage, and forecast error for the entire population of non-financial companies listed on the Swiss Exchange for the period 2003-2013. The results show a negative association between concentrated ownership and analyst coverage for both family firms and firms held by a nonfamily blockholder. Furthermore, forecasts of analysts are shown to be more accurate for family firms than for other firms. These results suggest that family ownership improves the quality of the firm’s information environment. This situation can be explained by a better alignment of interests between majority and minority shareholders among family firms. |
| Keywords: | Ownership structure; concentrated ownership; family firms; nonfamily blockholder; widely held firms; analyst coverage; forecast error; information environment |
| JEL: | G32 G34 |
| Date: | 2017–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:fri:fribow:fribow00491&r=cfn |
| By: | Kenjiro Hori (Birkbeck, University of London); Jorge Martin Cerón (Birkbeck, University of London) |
| Abstract: | This paper analyses two aspects of contingent convertible (CoCo) bonds. First, we establish and compare in detail the payoff structures of the following different bail-out/in schemes: no bail-out/in, government bail-out, equity-conversion CoCo bail-in and write-down / write-off CoCo bail-in. This reveals that the equityholders progressively gain extra incremental "put-spread"or "condor-like" option structures at each step of the bail-out/in schemes in the order listed. Second, we investigate two types of agency costs, namely the wealth-transfer problem and the value destruction problem. We show that these are aggravated under equity-conversion CoCo bail-ins, and are even higher under write-off CoCo bail-in for larger asset values, suggesting inherent structural incentive issues associated with these bonds. We then analyse CoCo bail-in as a non-admissible debt-to-equity swap (DES), and argue that agency costs are worse than for the admissible DES. |
| Keywords: | CoCo bond, bail-in, agency cost, incentives. |
| JEL: | D82 G21 G28 G32 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1711&r=cfn |
| By: | Jeremy Clark (University of Canterbury); John Spraggon |
| Abstract: | This paper reports the results of a micro finance lab experiment that seeks first to replicate the difference in loan repayment rates between groups composed of high vs. low risk borrowers, and then to test a mechanism we propose to make micro finance work better for high risk borrowers. The mechanism involves revenue sharing among members of a borrowing group, above and beyond usual repayment bailouts that successful members can choose to make on behalf of unsuccessful members. Revenue sharing makes repayment of the total group loan optimal under more business outcome states, and thus increases the expected benefit of repaying the current loan to qualify for future ones. We compare loan repayment rates between high and low risk borrowing groups, with and without the option of entering into binding ex ante agreements to revenue share. For high risk borrowers, we further test the effect of allowing them to renege on revenue sharing agreements once individual business outcomes are known. We are able to capture the result that loan repayment rates are lower for higher risk borrowers than for lower risk borrowers. We also find that introducing the option of binding revenue sharing agreements modestly but significantly increases loan repayment rates. Most of this gain is lost, however, when successful individuals can renege on commitments to revenue share after learning individual business outcomes. |
| Keywords: | Micro finance; Revenue sharing; Profit sharing; Risk |
| JEL: | G21 O16 O17 O43 |
| Date: | 2017–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:17/20&r=cfn |
| By: | Fischer, Marcel; Jensen, Bjarne Astrup |
| Abstract: | We study the implications of the corporate debt tax shield in a growth economy that taxes household income and firm profits and redistributes tax revenues in an attempt to harmonize the lifetime consumption opportunities of households that differ in their endowments. Our model predicts that the debt tax shield (1) increases the risk-free rate, (2) leads to a higher growth rate of the economy, and (3) increases the degree of disparity in households' lifetime consumption opportunities. We further show that the debt tax shield affects the tradeoff between the goals of achieving a high growth rate of the economy and a low degree of inequality and quantify this tradeoff. |
| Keywords: | debt tax shield,macroeconomic growth,redistributive tax system |
| JEL: | E21 E23 G11 H23 H31 H32 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:arqudp:219&r=cfn |