nep-cfn New Economics Papers
on Corporate Finance
Issue of 2018‒06‒11
twelve papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Equity Incentives, Disclosure Quality, and Stock Liquidity Risk By Wruck, Karen H.; Wu, YiLin
  2. Assessing Managerial Ability: Implications for Corporate Governance By Hermalin, Benjamin E.; Weisbach, Michael S.
  3. The Impact of Institutional Ownership and a Firm's Size on Firm Value: Tax Avoidance as a Moderating Variable By Vince Ratnawati
  4. Does Public Debt Crowd Out Corporate Investment? International Evidence By Huang, Yi; Panizza, Ugo; Varghese, Richard
  5. Funding Value Adjustments By Duffie, Darrell; Andersen, Leif; Song, Yang
  6. Cash, Financial Flexibility, and Product Prices: Evidence from a Natural Experiment in the Airline Industry By Kim, Sehoon
  7. The Influence of Corporate Governance to the Firm Performance in Logistics Industry By Tan, Yi Lin
  8. Investment, Tobin's q, and Interest Rates By Lin, Xiaoji; Wang, Chong; Wang, Neng; Yang, Jinqiang
  9. Corporate Governance and Performance of Hotel Industry (Ihi) By Abdullah, Nur Shahila
  10. Going Public in China: Reverse Mergers versus IPOs By Lee, Charles M. C.; Qu, Yuanyu; Shen, Tao
  11. Systemic Risk and Financial Fragility in the Chinese Economy: A Dynamic Factor Model Approach By Alexey Vasilenko
  12. "Liquidity Risk And Its Determinants': A Study On Oil And Gas Industry In Tatneft" By Awin, Ejin

  1. By: Wruck, Karen H. (Ohio State University); Wu, YiLin (National Taiwan University)
    Abstract: We provide evidence that CEO equity incentives, especially stock options, influence stock liquidity risk via information disclosure quality. We document a negative association between CEO options and the quality of future managerial disclosure policy. Contributing to the literature on CEO risk-taking, we document a positive association between CEO options and future systematic stock liquidity risk. Controlling for endogeneity, we show that information disclosure quality is an important channel through which CEO options influence stock liquidity risk. Results are robust to various controls for endogeneity and to the use of numerous disclosure quality and stock liquidity risk measures.
    JEL: D22 G12 G32 G34 J33 J41 O31
    Date: 2017–02
  2. By: Hermalin, Benjamin E. (University of California, Berkeley); Weisbach, Michael S. (Ohio State University)
    Abstract: A manager's current and potential future employers are continually assessing her or his ability. Such assessment is a crucial component of corporate governance and this chapter provides an overview of the research on that aspect of governance. In particular, we review how assessment generates incentives (both good and bad), generates risks that must be faced by both managers and firms, and affects the contractual relationships between those parties in important ways. Assessment (or learning) proves a key perspective from which to study, evaluate, and possibly even regulate corporate governance. Moreover, because learning is a behavior notoriously subject to systematic biases, this perspective is a natural avenue through which to introduce behavioral and psychological insights into the study of corporate governance.
    JEL: D81 D83 G34 M12
    Date: 2017–01
  3. By: Vince Ratnawati (Economic Faculty, Universitas Riau, Pekanbaru, Indonesia Author-2-Name: Azhari.S Author-2-Workplace-Name: Economic Faculty, Universitas Riau, Pekanbaru, Indonesia Author-3-Name: Desmond Freddy Author-3-Workplace-Name: Economic Faculty, Universitas Riau, Pekanbaru, Indonesia Author-4-Name: Nita Wahyuni Author-4-Workplace-Name: Economic Faculty, Universitas Riau, Pekanbaru, Indonesia)
    Abstract: "Objective –The objective of this study is to investigate how institutional ownership and firm size affect firm value. The study also investigates the moderating effect of tax avoidance on the relationship between institutional ownership and the size of a firm on its value. Methodology/Technique –A model was developed and tested using a sample of 66 manufacturing companies listed on the Indonesian Stock Exchange between 2012 and 2014. Findings –The data was collected and analysed using a least square regression and moderated regression analysis. The analysis shows that institutional ownership and firm size affect firm value. The results also indicate that tax avoidance moderates the effect of institutional ownership and that of a firm's size on its value"
    Keywords: "Institutional Ownership, Firm Size, Tax Avoidance, Firm Value"
    JEL: G30 G32 G39
    Date: 2018–03–21
  4. By: Huang, Yi; Panizza, Ugo; Varghese, Richard
    Abstract: Using data for advanced and emerging economies, we show that there is a negative correlation between public debt and corporate investment. Industry-level regressions show that high levels of government debt are particularly damaging for industries that need more external financial resources. Firm-level regressions show that government debt increases the sensitivity of corporate investment to cash flow. These results indicate that the relationship between public debt and investment is likely to be causal and that public debt crowds out corporate investment by tightening credit constraints.
    Keywords: Credit Constraints.; Crowding out; investment; public debt
    JEL: E22 E62 H63
    Date: 2018–05
  5. By: Duffie, Darrell (Stanford University); Andersen, Leif (Bank of America Merrill Lynch); Song, Yang (Stanford University)
    Abstract: We demonstrate that the funding value adjustments (FVAs) of major dealers are debt-overhang costs to their shareholders. In order to maximize shareholder value, dealer quotations therefore adjust for FVAs. Our case examples include interest-rate swap FVAs and violations of covered interest parity. Contrary to current valuation practice, FVAs are not themselves components of the market values of the positions being financed. Current dealer practice does, however, align incentives between trading desks and shareholders. We also establish a pecking order for preferred asset financing strategies and provide a new interpretation of the standard debit value adjustment (DVA).
    JEL: G12 G23 G24 G32
    Date: 2018–03
  6. By: Kim, Sehoon (University of Florida)
    Abstract: Corporate cash holdings impact firms' product pricing strategies. Exploiting the Aviation Investment and Reform Act of the 21st Century as a quasi-natural experiment to identify exogenous shocks to competition in the airline industry, I find that firms with more cash than their rivals respond to intensified competition by pricing more aggressively, especially when there is less concern of rival retaliation. Financially flexible firms based on alternative measures respond similarly. Moreover, cash-rich firms experience greater market share gains and long-term profitability growth. The results highlight the importance of strategic interdependencies across firms in the effective use of flexibility provided by cash.
    JEL: G30 G32 G35 L10
    Date: 2017–02
  7. By: Tan, Yi Lin
    Abstract: The transportation and logistics industry believe to be one of important sector that may influence the economy in United Kingdom. Due to the question for the growth in the industry, the paper was conducted to study the internal/external factors that influence the performance of the company. The paper would answer the objective question i.) To identify the variable that influence the performance; ii.) To analyze the performance which influenced by the risk. The quantitative method of research would analyze the 5 years annual report from 2013-2017 for Easy Jet plc. The stock price changes within the 5 years would be collected as well. The analysis would be carry out by using SPSS Stepwise regression method. The correlation results showed the credit risk had the negative relationship with the company performance while the coefficient showed the operating margin give the impact to the profitability ratio.
    Keywords: Profitability, Credit Risk, Liquidity, Macroeconomic, Corporate Governance
    JEL: G3 G32
    Date: 2018–04–20
  8. By: Lin, Xiaoji (Ohio State University); Wang, Chong (Naval Postgraduate School, Monterey); Wang, Neng (Columbia University); Yang, Jinqiang (Shanghai University of Finance and Economics)
    Abstract: To study the impact of stochastic interest rates and capital illiquidity on investment and firm value, we incorporate a widely-used arbitrage-free term structure model of interest rates into a standard q-theoretic framework. Our generalized q model informs us to use corporate credit-risk information to predict investments when empirical measurement issues of Tobin's average q are significant (e.g., equity is much more likely to be mis-priced than debt) as in Philippon (2009). Consistent with our theory, we find that credit spreads and bond q have significant predictive powers on micro-level and aggregate investments corroborating the recent empirical work of Gilchrist and Zakrajšek (2012). We also show that the quantitative effects of the stochastic interest rates and capital illiquidity on investment, Tobin's average q, the duration and user cost of capital, as well as the value of growth opportunities are substantial. These findings are particularly important in today's low interest-rate environment.
    JEL: E02 G12 G31
    Date: 2016–10
  9. By: Abdullah, Nur Shahila
    Abstract: The aim of this study is to analyse the performance of hotel industry in United Arab Emirates during five years. This study was carried out using the secondary data which was obtained from the annual reports of five companies in consecutive years from 2012 until 2016. Return on asset (ROA) has been as the dependent variable to study its relationship with the independent variables such as Return on Equity (ROE), unemployment rate, exchange rate and other risk factor variables. The enter method was used to obtain the correlation and regression result to observe the significance level of the risk with the profits. The finding show that the company performance can be influenced by the risk and economic environment.
    Keywords: Profitability, ROA, ROE, Exchange rate, Unemployment rate
    JEL: G3
    Date: 2018–04–20
  10. By: Lee, Charles M. C. (Stanford University); Qu, Yuanyu (Tsinghua University); Shen, Tao (Tsinghua University)
    Abstract: We study firms' choice to go public through reverse mergers (RMs) versus initial public offerings (IPOs) in a regime with strict entry regulations. Using a manually-assembled data set from China, we show that Chinese RM firms are larger and more profitable than IPO firms prior to public listing. Chinese RM firms also have superior post-listing performance, in terms of both operations and stock returns, compared to IPOs matched on industry and size. Unlike IPOs, Chinese RM firms do not underperform the market in the long run. These results are in sharp contrast to the evidence on RMs from developed countries. We trace these differences to China's stringent IPO policies, which appear to block even high-quality firms from accessing public markets.
    JEL: G12 G18 G20 G34
    Date: 2018–03
  11. By: Alexey Vasilenko (Bank of Russia, Russian Federation;National Research University Higher School of Economics, Laboratory for Macroeconomic Analysis.)
    Abstract: This paper studies systemic risk and financial fragility in the Chinese economy, applying the dynamic factor model approach. First, we estimate a dynamic factor model to forecast systemic risk that exhibits significant out-of-sample forecasting power, taking into account the effect of several macroeconomic factors on systemic risk, such as economic growth slowdown, large corporate debt, rise of shadow banking, and real estate market slowdown. Second, we analyse the historical dynamics of financial fragility in the Chinese economy over the last ten years using factor-augmented quantile regressions. The results of the analysis demonstrate that the level of fragility in the Chinese financial system decreased after the Global Financial Crisis of 2007-2009, but has been gradually rising since 2015.
    Keywords: systemic risk, financial fragility, factor model, quantile regressions, China .
    JEL: C58 E44 G2
    Date: 2018–03
  12. By: Awin, Ejin
    Abstract: ABSTRACT Liquidity risk management is an important aspect in the organisation. In order to avoid efficiency, it is important for an organisation to manage liquidity risk. Hence, this study attempted to investigate the influence of firm-specific factors and macro-economic factors affecting liquidity risk of oil and gas industry in Tatneft. This study employs time series analysis from 2012 to 2016. The analysis shows that firm-specific factors (average collection period and corporate governance index score) and macro-economic factor (company’s beta) influence the liquidity risk of the industry. This study suggest that the firms should manage their account receivable efficiently by establishing clear credit policy and incorporate more corporate governance elements such as transparency, accountability, fairness, and independence in the firms to make the company more efficient.
    Keywords: Liquidity risk, Average collection period, Corporate governance
    JEL: G3
    Date: 2018–05–15

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