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on Corporate Finance |
| By: | Goncalves, Andrei (Ohio State University); Xue, Chen (University of Cincinnati); Zhang, Lu (Ohio State University) |
| Abstract: | This paper provides a careful treatment of aggregation, and to a lesser extent, capital heterogeneity in the investment CAPM. Firm-level investment returns are constructed from firm-level variables, and then aggregated to the portfolio level to match with portfolio-level stock returns. Current assets form a separate production input besides physical capital. The model fits well the value, momentum, investment, and profitability premiums simultaneously, and partially explains the positive stock-investment return correlations, the procyclical and short-term dynamics of the momentum and profitability premiums, as well as the countercyclical and long-term dynamics of the value and investment premiums. However, the model fails to explain momentum crashes. |
| JEL: | D21 D92 E22 E44 G12 G14 G31 G32 G34 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2017-19&r=cfn |
| By: | Giorgio Fagiolo (Laboratory of Economics and Management (LEM)); Daniele Giachini (Scuola Superiore Sant'Anna); Andrea Roventini (Laboratory of Economics and Management (LEM)) |
| Abstract: | This paper extends the endogenous-growth agent-based model in Fagiolo and Dosi (2003) to study the financegrowth nexus. We explore industries where firms produce a homogeneous good using existing technologies, perform R&D activities to introduce new techniques, and imitate the most productive practices. Unlike the original model, we assume that both exploration and imitation require resources provided by banks, which pool agent savings and finance new projects via loans. We find that banking activity has a positive impact on growth. However, excessive financialization can hamper growth. In- deed, we find a significant and robust inverted-U shaped relation between financial depth and growth. Overall, our results stress the fundamental (and still poorly understood) role played by innovation in the finance-growth nexu |
| Keywords: | Agent based model; Innovation; Exploration vs exploitation; Endogenous Growth; Banking sector; Finance Growth Nexus |
| JEL: | C63 G21 O30 O31 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/1fai9i49vu8kfangr7lal7cks5&r=cfn |
| By: | Becht, Marco; Kamisarenka, Yuliya; Pajuste, Anete |
| Abstract: | French listed companies can issue shares that confer two votes per share after a holding period of at least two years (loyalty shares with tenure voting rights). In 2014 the default rule changed from one-share-one-vote to loyalty shares. The Coase theorem predicts that ceteris paribus shareholders rewrite the corporate charter to preserve the pre-reform structure. The theorem also predicts that the proportion of loyalty shares in initial public offerings is unchanged. The paper shows that most one-share-one-vote companies reverted to the pre-reform contract. The exception were firms with a stake held by the French state. In initial public offerings, the new default rule had an impact; the proportion of loyalty share statutes increased from about forty to fifty percent after the passage of the law. Companies that kept the same statutes have a significantly higher market to book ratio than companies forced into a different regime. The evidence is broadly consistent with the predictions of the Coase theorem, but only in the absence of conflicted parties with veto power. |
| Keywords: | Coase theorem; dual-class shares; Loyalty shares; one-share-one- vote; tenure voting; time-phased voting |
| JEL: | D23 G32 G34 K22 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12892&r=cfn |
| By: | Tirelli, Mario |
| Abstract: | In this article we propose a security-design problem in which risk neutral entrepreneurs make unobservable investment decisions while employing the investment funds of risk-neutral outside investor/creditor(s). Contracts are restricted to satisfy limited liability and monotonicity of the payment schedule. The model we present extends the classical one proposed by Innes (1990, Journal of Economic Theory 52, 47-67) along three main directions: agents' decisions may be restricted by their initial capital and outside financial opportunities; their investment decisions may also consist in hiding funds in an asset placed outside their firms; initial firms' capital, which identifies entrepreneur types, may only be imperfectly observed by creditors (i.e. types are private information). We motivate our interest in this security-design problem referring to the 'opacity' that often characterizes the financial situation and decisions of small firms, a particularly large fraction of the non-financial sector in most developed countries. |
| Keywords: | Security design; asymmetric information; moral hazard; investment decisions; firm financial structure; debt contracts, collateral. |
| JEL: | D82 D86 G11 G32 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86444&r=cfn |
| By: | Dan French; Thibaut Morillon; Andy Kern; Adam Yore |
| Abstract: | n this paper, we look at the changes in corporate governance and dividend policy of non-traded REITs’ whose managers elect to list on a stock exchange. Following their listing, we find that transitioning REITs have on average larger, more independent boards and are more likely to have an independent compensation committee and nominating committee. In addition, they have higher CEO compensation, higher board remuneration, and have more institutional owners investing in their shares post-listing. We document that several transitioning REITs complete reverse stock splits right before going public affecting initial shareholders’ wealth negatively. Finally, we find that despite having an FFO payout comparable to that of traded REITs, non-traded REITs have a lower return of capital, a higher dividend payout ratio and pay more of their dividends out of capital than do traded REITs. |
| Keywords: | Corporate Governance; dividend policy; listing; non-traded REITS; traded REITS |
| JEL: | R3 |
| Date: | 2017–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:arz:wpaper:eres2017_185&r=cfn |
| By: | Carlos J. Serrano; Rosemarie Ziedonis |
| Abstract: | Entrepreneurial firms are important sources of patented inventions. Yet little is known about what happens to patents “released” to the market when startups fail. This study provides a first look at the frequency and speed with which patents originating from failed startups are redeployed to new owners, and whether the value of patents is tied to the original venture and team. The evidence is based on 1,766 U.S. patents issued to 285 venture capital-backed startups that disband between 1988 and 2008 in three innovation-intensive sectors: medical devices, semiconductors, and software. At odds with the view that the resale market for patented inventions is illiquid, we find that most patents from these startups are sold, are sold quickly, and remain “alive” through renewal fee payment long after the startups are shuttered. The patents tend to be purchased by other operating companies in the same sector and retain value beyond the original venture and team. We do find, however, that the patents and people sometimes move jointly to a new organization following the dissolution of the original venture, and explore the conditions under which such co-movement is more likely. The study provides new evidence on a phenomenon—of active markets for buying and selling patents—underexplored in the literature and consequential for both entrepreneurial and established firms. |
| JEL: | G24 G33 L14 L26 O16 O3 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24526&r=cfn |
| By: | Alexey Zhukovskiy; Heidi Falkenbach; Ranoua Bouchouicha |
| Abstract: | Following the tradition in general finance literature, research on public real estate companies’ capital structure has focused on testing whether established capital structure theories (i.e. the trade-off theory, the pecking order theory, and the market timing theory) can explain the observed leverage ratios and their variation. However, due to ignoring the heterogeneity of leverage, the reported results are mixed Recent financial literature on industrial firms suggests that in addition to the level ratios, the type of debt is also of significance. In this paper, we analyse the debt structures and level of debt diversification in the Public Real Estate Companies as well as their impacts on company performance. We study the degree of debt diversification across different subsamples of Public Real Estate Companies, i.e. whether they tend to borrow with one type of debt or they choose to diversify across multiple sources. Further, we investigate the persistence of such diversification and look at the phenomena through the prism of capital structure theories, in particular, by addressing the question of how Public Real Estate Companies’ choice of debt type varies with firm characteristics. Finally, we investigate the implications of debt diversification for the cost of capital and growth. |
| Keywords: | Capital Structure; debt diversification; Public real estate investment; Real Estate Finance |
| JEL: | R3 |
| Date: | 2017–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:arz:wpaper:eres2017_300&r=cfn |
| By: | Martijn Boermans; Viacheslav Keshkov |
| Abstract: | This study investigates the impact of the Eurosystem's Public Sector Purchase Programme (PSPP) on the micro market structure of sovereign bonds. In particular, we analyze how the PSPP affected the ownership concentration of PSPP-eligible bonds. In line with portfolio rebalancing models we hypothesize that the entry of relatively new and dominant investor will unevenly displace certain investors who are willing to rebalance their portfolios, thus reducing the dispersion of holdings in the market. Using detailed security-by-security holdings data, we estimate a difference-in-differences model with a matched control group. We find that the announcement of the PSPP did not affect the ownership concentration of sovereign bonds. However, during the implementation phase the asset purchases increased the ownership concentration of the eligible sovereign bonds relative to the control group, potentially due to asymmetric portfolio rebalancing. We argue that quantitative easing had market distortionary effects and our results may explain the growing concerns for bond scarcity, market liquidity dry-ups and price spikes in the European sovereign bond market. |
| Keywords: | quantitative easing; portfolio rebalancing; market concentration; ECB; PSPP; securities holdings statistics; unconventional monetary policy |
| JEL: | G11 E52 E58 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:590&r=cfn |
| By: | Rosu, Ioanid; Sojli, Elvira; Tham, Wing Wah |
| Abstract: | We study the quoting activity of market makers in relation with trading, liquidity, and expected returns. Empirically, we find larger quote-to-trade (QT) ratios in small, illiquid or neglected firms, yet large QT ratios are associated with low expected returns. The last result is driven by quotes, not by trades. We propose a model of quoting activity consistent with these facts. In equilibrium, market makers monitor the market faster (and thus increase the QT ratio) in neglected, difficult-to-understand stocks. They also monitor faster when their clients are less risk averse, which reduces mispricing and lowers expected returns. |
| Keywords: | Liquidity; price discovery; volatility; trading volume; monitoring; neglected stocks; risk aversion; inventory; high frequency trading |
| JEL: | G12 G14 |
| Date: | 2017–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:1231&r=cfn |