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on Corporate Finance |
| By: | Harendt, Christoph |
| Abstract: | In this paper, I investigate the influence of tax incentives on the financial structures of mergers and acquisitions (M&A) conducted by multinational entities (MNE). Previous research has already found evidence for tax avoidance by debt shifting. I analyze the importance of locating debt at holdings which own the operating firm. Placing debt at the level of the holding is more advantageous since it allows inter alia for debt financing up to the purchase price. Accordingly, by using firm-level data provided by the German Central Bank I show empirically that the probability that a firm is held by a holding in the same country increases with the tax rate in that country (though the effect is rather small). As a limitation, I find this effect only for a sample of all firms and no additional effect in case of M&As (denoted as M&A firms). Since this way of debt financing requires that interest payments of holdings are used to offset profits of the operating firms, I consolidate financial structures of holdings and the operating firms. I discuss theoretically and show with descriptive statistics that this consolidation - the major contribution of my paper - leads to a higher total debt ratio compared to the unconsolidated case. However, this effect can only be observed in particular for the subsample of those M&A firms which actually belong to such structures of holdings and operating firms and does not lead to an increase of the debt ratio in the sample of all M&A firms. Finally, I show that the tax sensitivity of external debt financing increases with the consolidation (though again with no additional effect in case of M&A firms). I conclude that those findings may be one explanation why previous studies have found relatively low effects of taxes on debt financing. |
| Keywords: | Corporate Taxation,Multinational Firms,Foreign Direct Investment,Capital structure,Mergers and acquisitions,Empirical Analysis,Firm-level data |
| JEL: | F23 G32 G34 H25 H26 H32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:18004&r=cfn |
| By: | Ferrando, Annalisa; Preuss, Carsten |
| Abstract: | We examine the link between corporate financing and investment decisions of European firms by using a novel firm-level survey of the European Investment Bank (EIBIS). The survey provides rich quantitative information of a wide range of financing sources and tangible and intangible investment types for a representative sample of EU28 firms in 2016. We provide new evidence and contribute to previous research in the following ways: first we consider the heterogeneous effect of internal and external finance on different tangible and intangible investment types. Second, our analysis focuses on a broad spectrum of nonfinancial corporations across size classes from different countries. By using a multinomial fractional response model to estimate the finance-investment link, we find that SMEs and large enterprises show a different financing behaviour for their investment activity. The results suggest that SMEs' tangible asset investment is positively related to the use of bank finance, whereas internal finance is preferred for intangible asset investments. |
| Keywords: | tangible and intangible investment,internal and external finance,R&D investment,SME finance,multivariate fractional response model |
| JEL: | D22 E22 G32 L25 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:201801&r=cfn |
| By: | Craig Doidge; Kathleen M. Kahle; G. Andrew Karolyi; René M. Stulz |
| Abstract: | Since reaching a peak in 1997, the number of listed firms in the U.S. has fallen in every year but one. During this same period, public firms have been net purchasers of $3.6 trillion of equity (in 2015 dollars) rather than net issuers. The propensity to be listed is lower across all firm size groups, but more so among firms with less than 5,000 employees. Relative to other countries, the U.S. now has abnormally few listed firms. Because markets have become unattractive to small firms, existing listed firms are larger and older. We argue that the importance of intangible investment has grown but that public markets are not well-suited for young, R&D-intensive companies. Since there is abundant capital available to such firms without going public, they have little incentive to do so until they reach the point in their lifecycle where they focus more on payouts than on raising capital. |
| JEL: | G18 G24 G28 G32 G35 K22 L26 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24265&r=cfn |
| By: | Pattanaik, Arpita (Indira Gandhi Institute of Development Research); Rajeswari Sengupta (Indira Gandhi Institute of Development Research) |
| Abstract: | In this paper we analyse the effect of business cycle fluctuations on firms' capital structure using a large panel of non-financial firms in India. In particular, we explore the dynamics of firm leverage across business cycle expansions and recessions for financially constrained and unconstrained firms. We find that the leverage of unconstrained firms exhibits counter-cyclical dynamics. Leverage of financially constrained firms does not show any cyclical pattern. These results are robust across different empirical methods of estimation. A healthy financial system is one where all firms are able to access the external debt market especially in a downturn. Our analysis shows that in the Indian financial system, external capital goes only to a certain category of firms. This has important policy implications for further developing the domestic financial markets and institutions. |
| Keywords: | Capital structure, Firm leverage, Financial constraints, Business cycle, Leverage determinants, Indian firms |
| JEL: | E32 G32 G1 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2018-001&r=cfn |
| By: | Chibani Ltaief, Faten; Henchiri, jamel E. |
| Abstract: | This paper aims to analyze whether pecking order theory has a relevant application for family businesses. For this purpose, we compared two series of family and non-family unlisted firms in the French context. Our results indicate that generally the financial behavior of family businesses differs from non-family enterprises. Family business prefer internal financing to external financing and, in the case of external financing, debt is preferred to the capital increase. The Pecking order theory is more appropriate for family businesses than for non-family businesses. |
| Keywords: | Family business - pecking order theory - internal financing gap - france |
| JEL: | G32 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76784&r=cfn |
| By: | Xu, Bing |
| Abstract: | By allowing large classes of movable assets to be used as collateral, the Property Law reform trans-formed the secured transactions in China. Difference-in-differences tests show firms operating with ex-ante more movable assets expand access to bank credit and prolong debt maturity. However, the reform does not seem to improve the efficiency of credit allocation, as debt capacity of ex-ante low quality firms expands the most following the reform. Credit expansion also does not lead to better firm performance. These findings are not driven by confounding factors such as improvements in creditor and property rights protection. Our results also cannot be explained by other important reforms which were introduced around the same time as the introduction of the Property Law. These include anti-tunneling and split-share reforms and amendments to the corporate tax structure in China. We conduct explicit robustness tests for these other reforms and amendments to the corporate tax structure in China. We conduct explicit robustness tests for these other reforms and hence contribute to the empirical literature on the reform process in China with new findings. |
| JEL: | G21 G28 G32 K22 |
| Date: | 2018–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2018_003&r=cfn |
| By: | Ron Alquist; Nicolas Berman; Rahul Mukherjee; Linda Tesar |
| Abstract: | This paper examines how external finance dependence, financial development, and institutions influence brownfield foreign direct investment (FDI). We develop a model of cross-border acquisitions in which the foreign acquirer's choice of ownership structure reflects a trade-off between easing target credit constraints and the costs of operating in an environment of low institutional quality. Using a dataset of cross-border acquisitions in emerging markets, we find evidence supporting the central predictions of the model that: (i) a foreign firm is more likely to fully acquire a target firm in sectors that are more reliant on external finance, or in countries with lower financial development/higher institutional quality; (ii) the level of foreign ownership in partially foreign-owned firms is insensitive to institutional factors and depends weakly on financial factors; (iii) the share of foreign acquisitions in all acquisition activity is also higher in external finance dependent sectors, or financially under-developed/high institutional quality countries; and (iv) sectoral external finance dependence accentuates the effect of country-level financial development and institutional quality. The theory and empirical evidence provide insight into the interaction between the financial, institutional and technological determinants of North-South brown field FDI. |
| JEL: | F21 F23 F36 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24241&r=cfn |
| By: | Ferrando, Annalisa; Lekpek, Senad |
| Abstract: | The way firms finance their investments can potentially explain the heterogeneity of firms in terms of their innovation. We use a novel firm-level survey of the European Investment Bank (EIBIS) which provides information about a wide range of financing sources that firms use to fund their investment activities. The aforementioned survey also reveals a firms' degree of innovativeness. By applying a cluster analysis to group firms using information on their financing decisions, we investigate the link between finance and innovation of EU firms. We identify seven financing clusters to show that the degree of innovativeness (defined in terms of R&D or software investment, R&D and software turnover ratios, and the introduction of new products) increases with the diversification of financial instruments. Firms that use several financing instruments are more likely to invest in R&D and software activities and develop new products compared to firms that use a more limited number of financing instruments. |
| Keywords: | innovation,R&D,internal and external finance,cluster analysis |
| JEL: | D22 G32 O31 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:201802&r=cfn |
| By: | Gareeva Yuliya (National Research University Higher School of Economics); Dranev Yury (National Research University Higher School of Economics); Kucherov Alexander (National Research University Higher School of Economics) |
| Abstract: | The current worldwide tendency to transform the global economy into a knowledge economy indicates that there is a need to analyze intellectual capital and approaches to its measurement, management and influence on company value. Taking into account the intangible nature of intellectual capital its measurement is an unconventional task for researchers with tough choices of adequate proxies. In this paper, we differentiate between components of intellectual capital and focus on innovation capital. We propose a methodology to measure intellectual capital and we analyze how intellectual capital influences company value in emerging markets. For this purpose, we investigate the relation between intellectual capital and the cost of equity influencing a company’s value through a discount rate |
| Keywords: | innovation capital; intellectual capital; cost of equity; asset pricing; emerging markets |
| JEL: | G32 O3 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:79sti2018&r=cfn |
| By: | Anastasia Stepanova (National Research University Higher School of Economics); Vladislav Savelyev (National Research University Higher School of Economics); Malika Shaikhutdinova (National Research University Higher School of Economics) |
| Abstract: | This article examines the presence of the reference price effect in mergers and acquisitions in Russia, which can act as a distortion in investor perception of the influence a deal has on a company. In this study we use the Russian market as a laboratory for the investigation of behavioral effects in a relatively inefficient market. We find a relationship between the acquirer’s announcement period return and the proximity of its pre-announcement share price to the 52-week high. The 52-week high serves as a salient anchor even though it is economically irrelevant for valuation purposes. This effect appears to be stronger for deals associated with higher levels of uncertainty. The findings confirm the presence of the anchoring bias in evaluating the effect of a merger or acquisition announcement by Russian investors. We demonstrate a significant anchoring effect even for deals with a blocking (>10%) or a controlling stake (>25%) in an emerging market with a highly concentrated ownership. |
| Keywords: | Mergers; Acquisitions; Anchoring; Reference point; Behavioral corporate finance |
| JEL: | G34 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:63/fe/2018&r=cfn |
| By: | Décamps, Jean-Paul; Villeneuve, Stéphane |
| Abstract: | We study a corporate finance dynamic contracting model in which the firm's growth rate fluctuates and is impacted by the unobservable effort exercised by the manager. We show that the principal's problem takes the form of a two-dimensional Markovian control problem. We prove regularity properties of the value function that are instrumental in the construction of the optimal contract that implements full effort, which we derive explicitly. These regularity results appear in some recent economic studies but with heuristic proofs that do not clarify the importance of the regularity of the value function at the boundaries. |
| Keywords: | Principal-agent problem; two-dimensional control problem; regularity properties |
| JEL: | G30 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:32396&r=cfn |
| By: | Stefanescu, Răzvan; Dumitriu, Ramona |
| Abstract: | The product profitability analysis playes a major roles in the decisions on entrepreneurship. In this paper we approach some simple techniques used in the costs forecasting, in the analysis of the products efficiency and in the assessment of the demand impact on profits. |
| Keywords: | Financial planning, Entrepreneurship, Costs, Profitability |
| JEL: | G30 L26 M13 M19 |
| Date: | 2017–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82185&r=cfn |
| By: | Hosung Jung (Economic Research Institution, The Bank of Korea) |
| Abstract: | This paper analyzes changes in home mortgage loan delinquencies related to the interest rate factor and the risk factor, using the personal mortgage lending and delinquency panel data held by the Bank of Korea. It finds that changes in the probability of mortgage loan default have been affected mainly by the interest rate factor since 2012. It finds in addition that the affects of the interest rate and risk factors in determining the default probability differ depending upon borrowers' ages and their income-to-loan ratios. Specifically, while the probabilities of home mortgage loan default due to the interest rate factor have dropped regardless of personal characteristics since 2012, for borrowers in their 20s to 30s and with low income-to-loan ratios the probability of default caused by the risk factor is found to have risen compared to June 2012. This is the first study to estimate the factors causing default based on personal borrower characteristics through use of personal lending and delinquency panel data. It is believed that our study may provide important information about the sources of mortgage loan risk and accordingly help in the putting forward of policy response alternatives. |
| Keywords: | Home mortgage loan, Default probability, Deliquencies |
| JEL: | G30 G34 |
| Date: | 2017–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:bok:wpaper:1706&r=cfn |
| By: | Scheuplein, Christoph; Kahl, Julian |
| Abstract: | Over the past decade, new types of business incubation have been developed. One particularly prominent example is company builders, which use their own resources to build up companies, establishing numerous companies in a series. In doing so, this investor type facilitates internal and external business ideas. It offers a new organizational solution that combines both the innovative capacity of founders and the financial re-sources of a large company with the desire for long-term employment and corporate affiliation. This article examines the economic impact of company builders in Germany compared with other venture capital (VC) investor types on the basis of employment trends in the portfolio companies from 2011 to 2015. It is shown that company builders promote more dynamic employment growth than do other types of investors. This finding suggests that this type of investor is particularly well positioned to take advantage of the institutional deficiency in the German VC market. The results are also discussed in the context of the growth of the Berlin-based VC and start-up ecosystem. |
| Keywords: | venture capital,company builder,incubation,employment,Germany |
| JEL: | G24 M13 L22 R12 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iatdps:1701&r=cfn |
| By: | Dessaint, Olivier; Olivier, Jacques; Otto, Clemens; Thesmar, David |
| Abstract: | There is a discrepancy between CAPM-implied and realized returns. As a result, using the CAPM in capital budgeting decisions - as is recommended in finance textbooks should have valuation effects. For instance, low beta projects are expected to be valued more by CAPM-using managers than by the market. This paper empirically tests this hypothesis using publicly announced M&A decisions. We show that takeovers of lower beta targets are accompanied by lower CARs for the bidder. Consistent with our hypothesis, the effect is more pronounced for larger acquisitions, higher growth targets, and private targets. Furthermore, low beta bidders are more likely to use their own stock to finance the deal. More generally, low beta firms are less likely to issue equity, and more likely to repurchase shares. These effects are not reversed in the long-run, suggesting that CAPM-using managers may be irrational, though this last test lacks power. |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12526&r=cfn |
| By: | Lof, Matthijs; Bommel, Jos van |
| Abstract: | We propose the Volume Coefficient of Variation (VCV), the ratio of the standard deviation to the mean of trading volume, as a new and easily computable measure of information asymmetry in security markets. We use a simple microstructure model to demonstrate that VCV is strictly increasing in the proportion of informed trade. Empirically, we find that firm-year observations of VCV, computed from daily trading volumes, are correlated with extant firm-level measures of asymmetric information in the cross-section of US stocks. Moreover, VCV increases following exogenous reductions in analyst coverage induced by brokerage closures, and steeply decreases around earnings announcements. |
| JEL: | D82 G12 G14 |
| Date: | 2018–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:001&r=cfn |
| By: | Carpenter, Jennifer N.; Lu, Fangzhou; Whitelaw, Robert F. |
| Abstract: | This paper shows that, counter to common perception, stock prices in China are strongly linked to firm fundamentals. Since the reforms of the early 2000s, stock prices are as informative about future profits as they are in the US. Although the market is segmented from international equity markets, Chinese investors price individual stock characteristics like other global investors: they pay up for size, growth, liquidity, and long shots, while they discount for systematic risk. Price informativeness is significantly correlated with corporate investment e ciency. For international investors, China's stock market offers high average returns and low correlation with other equity markets. |
| JEL: | E44 F30 G12 G14 G15 O16 O53 P21 P34 |
| Date: | 2018–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:002&r=cfn |
| By: | Renata Lemos; Daniela Scur |
| Abstract: | Family firms are the most prevalent firm type in the world, particularly in emerging economies. Dynastic family firms tend to have lower productivity, though what explains their underperformance is still an open question. We collect new data on CEO successions for over 800 firms in Latin America and Europe to document their corporate governance choices and, crucially, provide causal evidence on the effect of dynastic CEO successions on the adoption of managerial best practices tied to improved productivity. Specifically, we establish two key results. First, there is a preference for male heirs: when the founding CEO steps down they are 30pp more likely to keep control within the family when they have a son. Second, instrumenting with the gender of the founder's children, we estimate dynastic CEO successions lead to 0.8 standard deviations lower adoption of managerial best practices, suggesting an implied productivity decrease of 5 to 10%. To guide our discussion on mechanisms, we build a model with two types of CEOs (family and professional) who decide whether to invest in better management practices. Family CEOs cannot credibly commit to firing employees without incurring reputation costs. This induces lower worker effort and reduces the returns to investing in better management. We find empirical evidence that, controlling for lower skill levels of managers, reputational costs constrain investment in better management. |
| Keywords: | CEO, family firms, organisation, emerging economies |
| JEL: | M11 L2 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1528&r=cfn |
| By: | Carlo Drago (Department of Economics (University of Verona)); Roberto Ricciuti (Department of Economics (University of Verona)) |
| Abstract: | Many variables in governance are measured with uncertainty. This paper addresses this problem, showing that interval variables are a suitable way to handle it, providing an application in corporate governance. We build two constructs, one for Investor protection and the other for Constraints on shareholders based on the original dataset by La Porta et al. (1998) and we find that for very low levels of investor protection, constraints are a suitable way to provide some form of safeguard. We also provide evidence for the theoretical claim that investor protection and constraints on shareholders work as substitutes under specific circumstances. |
| Keywords: | Corporate Governance, Measurement, Interval Data, Latent Variables |
| JEL: | G34 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:02/2018&r=cfn |