nep-cfn New Economics Papers
on Corporate Finance
Issue of 2018‒02‒19
thirteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Relational Capital in Lending Relationships. Evidence from European Family Firms By Marco Cucculelli; Valentina Peruzzi; Alberto Zazzaro
  2. Unexpected Corporate Outcomes from Hedge Find Activism in Japan By John Buchanan; Dominic H. Chai; Simon Deakin
  3. Financial constraints, institutions, and foreign ownership By Alquist, Ron; Berman, Nicolas; Mukherjee, Rahul; Tesar, Linda
  4. Financing Ventures By Jeremy Greenwood; Pengfei Han; Juan M Sanchez
  5. Risk and competitiveness in the Italian banking sector By Francesco Marchionne; Alberto Zazzaro
  6. Shadow Funding Costs: Measuring the Cost of Balance Sheet Constraints By Matthias Fleckenstein; Francis A. Longstaff
  7. The effects of bank loan renegotiation on corporate policies and performance By Christophe GODLEWSKI
  8. Big data, computational science, economics, finance, marketing, management, and psychology: connections By Chia-Lin Chang; Wing-Keung Wong; Michael McAleer
  9. Corporate Credit Risk Premia By Antje Berndt; Rohan Douglas; Darrell Duffie; Mark Ferguson
  10. Trade Creditors’ Information Advantage By Victoria Ivashina; Benjamin Iverson
  11. Perception of capital, profit and dividends affect the stock purchase intention in Indonesia public company By Muda, Iskandar
  12. Do Individual Investors Trade Differently in Different Markets? By Margarida Abreu; Victor Mendes
  13. Strategic Default in Financial Networks By Nizar Allouch; Maya Jalloul

  1. By: Marco Cucculelli; Valentina Peruzzi (Università Politecnica delle Marche); Alberto Zazzaro (University of Naples Federico II, CSEF and MoFiR.)
    Abstract: We investigate the role of a family CEO’s relational capital and a non-family CEO’s managerial abilities in the context of bank relationships for a large sample of small- and medium-sized European firms. We begin by examining whether the relational capital embodied in the family leadership of the company influences the lending relationship with the bank in terms of information sensitivity and duration. Next, we test how banks value in their credit decisions the leadership of professionals and their managerial skills with respect to the relational capital of family CEOs. The results indicate that family businesses appointing managers from within the family are significantly more likely to maintain soft-information-based and longer-lasting lending relationships. However, family executives do not have a negative impact on the firm’s access to credit, while the creation of soft-information-based and long-lasting lending relationships significantly reduce the likelihood of experiencing credit restrictions. In view of these findings, family relational capital appears to have a univocal beneficial impact on the bank–firm relationship in our sample.
    Keywords: Family firm, family CEO, soft information, relational capital, relationship lending, credit rationing
    JEL: D22 G21 G22
    Date: 2018–02–01
  2. By: John Buchanan; Dominic H. Chai; Simon Deakin
    Abstract: Hedge fund activism has been identified in the USA as a driver of enduring corporate governance change and market perception. We investigate this claim in an empirical study to see whether activism produced similar results in Japan in four representative areas: management effectiveness, managerial decisions, labour management, and market perception. Experience from the USA would predict positive changes at Japanese target companies in these four areas. However, analysis of financial data shows that no enduring changes were apparent in the first three areas, and that market perception was consistently unfavourable. Our findings demonstrate that the same pressures need not produce the same results in different markets. Moreover, while the effects of the global financial crisis should not be ignored, we conclude that the country-level differences in corporate governance identified in the varieties of capitalism literature are robust, at least in the short term.
    Keywords: Corporate Governance, Japan, Institutions, Finance
    JEL: G23 K22 P52
    Date: 2018–03
  3. By: Alquist, Ron; Berman, Nicolas; Mukherjee, Rahul; Tesar, Linda
    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 key 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 underdeveloped/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 brownfield FDI.
    Keywords: Foreign direct investment; foreign ownership; cross-border mergers and acquisitions; financial development; external finance dependence; institutional quality; emerging markets.
    JEL: F21 F23 G34 L24 L60
    Date: 2018–01
  4. By: Jeremy Greenwood (University of Pennsylvania); Pengfei Han (University of Pennsylvania); Juan M Sanchez (Federal Reserve Bank of St. Louis)
    Abstract: The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of financing, venture capitalists evaluate the viability of startups. If viable, VCs provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about venture capital; viz., statistics by funding round concerning the success rate, failure rate, investment rate, equity shares, and the value of an IPO. Raising capital gains taxation reduces growth and welfare.
    Keywords: capital gains taxation, dynamic contract, endogenous growth, evaluating, funding rounds, growth regressions, IPO, monitoring, startups, research and development, venture capital
    Date: 2018–02
  5. By: Francesco Marchionne (Indiana University); Alberto Zazzaro (University of Naples Federico II; CSEF & MoFiR (Italy))
    Abstract: In this paper, we analyse the relationship between risk and competition in the Italian banking sector over the period from 2006 to 2010. We employ OLS and panel estimators to estimate the impact of the Lerner index, a measure of bank market power, on the Altman Z-score, a proxy of the insolvency probability. Our results are consistent with the traditional charter value paradigm and reject the new risk-shifting paradigm proposed by Boyd-De Nicolo' (2005). We find that the relationship between bank risk and competition becomes more tightening during the financial crisis. Our results are robust to different definitions of crisis and different specifications.
    Keywords: bank, competition, stability, financial crisis
    JEL: G01 G21 G33
    Date: 2018–02
  6. By: Matthias Fleckenstein; Francis A. Longstaff
    Abstract: Recent theory suggests that balance sheet frictions and constraints faced by financial intermediaries can have major asset pricing implications. We propose a new measure of the impact of these constraints on intermediary funding costs that is based on the implied cost of renting intermediary balance sheet space. On average, balance sheet constraints add 81 basis points to intermediary funding costs, but the impact often exceeds 200 basis points during a crisis. We find that these balance sheet costs have real effects on intermediary investment decisions and asset holdings. Increases in balance sheet costs are associated with short-term increases in the use of derivatives, but longer-term declines in risk-taking by financial institutions. Balance sheet costs introduce a wedge between on- and off-balance-sheet investments which may help resolve a number of asset pricing puzzles.
    JEL: G12 G13 G21 G23 G28
    Date: 2018–01
  7. By: Christophe GODLEWSKI (LaRGE Research Center, Université de Strasbourg)
    Abstract: I investigate the effects of bank loan renegotiation on firm’s financial and investment policies, and performances. I employ OLS and endogenous switching regime regressions using a large crosscountry sample of loans issued and amended on a long-time period. I find that bank loan renegotiation has an economically significant and causal impact on financial policy and performances. Renegotiation provides the firm with additional degrees of freedom and unlocks its economic potential, implying important effects of firm’s tangibility, growth, opportunities and cash on financial policy and performances. Bank loan renegotiation also exhibits a certification and signaling effect which can increase the effect of amendments to the credit agreement on firm’s financial policy.
    Keywords: bank loan, renegotiation, financial policy, investment policy, performance, treatment effect, Europe.
    JEL: G21 G32 C31 C34
    Date: 2018
  8. By: Chia-Lin Chang (Department of Applied economics, Department of Finance National Chung Hsing University, Taiwan.); Wing-Keung Wong (Department of Finance, Fintech Center, and Big Data Research Center, Asia University, Taiwan and Department of Medical Research, China Medical University Hospital, Taiwan And Department of Economics and Finance, Hang Seng Management College, Hong Kong, China and Department of Economics, Lingnan University, Hong Kong, China.); Michael McAleer (Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute Erasmus School of Economics Erasmus University Rotterdam, The Netherlands and Department of Quantitative Economics Complutense University of Madrid, Spain And Institute of Advanced Sciences Yokohama National University, Japan.)
    Abstract: The paper provides a review of the literature that connects Big Data, Computational Science, Economics, Finance, Marketing, Management, and Psychology, and discusses some research that is related to the seven disciplines. Academics could develop theoretical models and subsequent econometric and statistical models to estimate the parameters in the associated models, as well as conduct simulation to examine whether the estimators in their theories on estimation and hypothesis testing have good size and high power. Thereafter, academics and practitioners could apply theory to analyse some interesting issues in the seven disciplines and cognate areas.
    Keywords: Big Data, Computational science, Economics, Finance, Management, Theoretical models, Econometric and statistical models, Applications.
    JEL: A10 G00 G31 O32
    Date: 2018–01
  9. By: Antje Berndt; Rohan Douglas; Darrell Duffie; Mark Ferguson
    Abstract: We measure credit risk premia - prices for bearing corporate default risk in excess of expected default losses - using Markit CDS and Moody’s Analytics EDF data. We find dramatic variation over time in credit risk premia, with peaks in 2002, during the global financial crisis of 2008-09, and in the second half of 2011. Even after normalizing these premia by expected default losses, median credit risk premia fluctuate over time by more than a factor of ten. Credit risk premia comove with macroeconomic indicators, even after controlling for variation in expected default losses, with higher premia per unit of expected loss during times of market-wide distress. Countercyclical variation of premia-to-expected-loss ratios is more pronounced for investment-grade issuers than for high-yield issuers.
    JEL: G12 G13 G22 G24
    Date: 2018–01
  10. By: Victoria Ivashina; Benjamin Iverson
    Abstract: Using information on the sales of debt claims for 132 U.S. Chapter 11 bankruptcy cases, we show that large trade creditors’ decisions to sell receivables of a distressed company in bankruptcy are predictive of lower recovery rates, and that in such cases these creditors sell ahead of less informed suppliers and other creditors. This result is especially pronounced for more opaque distressed firms, when trade creditors’ information advantage is likely largest. This evidence shows that suppliers that extend significant amounts of trade credit hold private information about their trade partners. Trade creditors who are geographically closer or in similar industries tend to lend the most, suggesting that these are two channels through which suppliers hold an information advantage.
    JEL: D22 G32 G33
    Date: 2018–01
  11. By: Muda, Iskandar
    Abstract: This study aims to investigate the influence perception of Capital Gains and Dividends on Stock Purchase Intention in Indonesian companies. Variables used in this research are the capital, profit and dividends (independent variables) and Stock Purchase Intention (dependent variable) and to show their relationship, it was used multiple linear regression. This research included Manufacturing Companies listed on the Indonesia Stock Exchange and there were taken into account a number of 38 societies Data of this research are secondary data, obtained from the financial statements of the investigated companies published in the Indonesia Stock Exchange. The results showed that simultaneous independent variables have a significant influence on the capital structure, while partially effect on the Capital Shares Purchase Intentions. It was also shown that Profit and Dividends do not affect the Stock Purchase Intention
    Keywords: Capital; Earnings; Dividend; Share Purchase Intention and Indonesian companies
    JEL: D53
    Date: 2017–05
  12. By: Margarida Abreu; Victor Mendes
    Abstract: We investigate the hypothesis that the same investors trade differently in different financial markets. We use a proprietary data base with the transaction records of 129,461 investors for a 10-year period, and select the investors holding both stocks and warrants in the portfolio. We compare the trading behavior of investors in the stock market and in the warrant market, controlling for investors’ socio-demographic characteristics (age, occupation, education, etc.) and for investors’ behavioral biases (overconfidence, the disposition effect and pursuit of the pleasure of gambling). Even though investors are the same in both markets, our results clearly show that the sociodemographic determinants of the trading activity in stocks and in warrants are not all the same, implying that the same investors trade stocks differently than warrants. More precisely, overconfident investors have a higher warrant trading activity and a lower domestic stock trading activity, and investors pursuing gambling pleasure or prone to the disposition effect trade warrants more (but do not trade stocks more).
    Keywords: Behavioral finance; Individual investor; Stocks; Warrants
    JEL: G02 G11 G12
    Date: 2018–01
  13. By: Nizar Allouch; Maya Jalloul
    Abstract: This paper investigates a model of strategic interactions in financial networks, where the decision by one agent on whether or not to default impacts the incentives of other agents to escape default. Agents’ payoffs are determined by the clearing mechanism introduced in the seminal contribution of Eisenberg and Noe (2001). We first show the existence of a Nash equilibrium of this default game. Next, we develop an algorithm to find all Nash equilibria that relies on the financial network structure. Finally, we explore some policy implications to achieve efficient coordination.
    Keywords: systemic risk; default; financial networks; coordination games; central clearing counterparty; financial regulation
    JEL: C72 D53 D85 G21 G28 G33
    Date: 2017–12

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