|
on Corporate Finance |
| By: | Bernstein, Shai (Stanford University); Lerner, Josh (Harvard University); Mezzanotti, Filippo (Northwestern University) |
| Abstract: | Does private equity (PE) contribute to financial fragility during economic crises? Academics and regulators have worried that the proliferation of poorly structured transactions during booms may increase the vulnerability of the economy to downturns. During the 2008 financial crisis, we find PE-backed companies decreased investments less than their peers, while experiencing greater equity and debt inflows. The effects are stronger among financially constrained companies and those whose PE investors had more resources at the onset of the crisis. PE-backed companies consequentially experienced higher asset growth and increased market share during the crisis. In a large-scale survey, we find that private equity firms were active investors during the crisis, spending more time with their portfolio companies to address operational and financial considerations. |
| JEL: | G01 G30 G34 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:repec:ecl:stabus:3563&r=cfn |
| By: | Colonnello, Stefano; Efing, Matthias; Zucchi, Francesca |
| Abstract: | Credit default swaps (CDSs) can create empty creditors who potentially force borrowers into inefficient bankruptcy but also reduce shareholders' incentives to default strategically. We show theoretically and empirically that the presence and the effects of empty creditors on firm outcomes depend on the distribution of bargaining power among claimholders. Firms are more likely to have empty creditors if these would face powerful shareholders in debt renegotiation. The empirical evidence confirms that more CDS insurance is written on firms with strong shareholders and that CDSs increase the bankruptcy risk of these same firms. The ensuing effect on firm value is negative. |
| Keywords: | empty creditors,credit default swaps,bargaining power,real effects |
| JEL: | G32 G33 G34 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:161622&r=cfn |
| By: | Pietro A. Bianchi; Antonio Marra; Donato Masciandaro; Nicola Pecchiari |
| Abstract: | We examine the corporate consequences of having board directors connected with the organized crime. Given that in principle such as connections can trigger both pros and cons, the question is genuinely empirical: using an original data base of Italian corporations (108,332 observations for the period 2006-2013) we offer two results. On the one side, we find that firms with at least one director, whose criminal record displays potential involvement with criminal organizations (i.e., tainted director), show lower levels of cash holdings and lower profitability. Two alternative explanations can be offered: the firms are likely to use financial policies to lower cash holdings, thereby reducing the risk of being expropriated by tainted directors; the firms are completely captured by such as directors, that use the corporations for money laundering purposes, and therefore manage the cash holdings in order to minimize the risk of detection. On the other side, the firm profitability is inversely associated with the presence of tainted directors, suggesting that the tainted directors can use firm resources for their own private benefits, which harms the firm profitability. Results from this study are informative to regulators, policy makers and politicians, interested in preventing the pollution of criminal organizations in the legal economy. |
| Keywords: | Corporate Governance, Organized Crime, Firm Performance |
| JEL: | G30 G34 G38 K42 K49 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp1759&r=cfn |
| By: | Bai, Yiyi; Dang, Vi Tri; He, Qing; Lu, Liping |
| Abstract: | We examine China’s June 2013 liquidity crunch as a negative shock to banks and analyze the wealth effects on exchange-listed firms. Our findings suggest that liquidity shocks to financial institutions negatively impact borrower performance, particularly borrowers reporting outstanding loans at the end of 2012. Stock valuations of firms with long-term bank relationships, however, outperform the market and experience smaller subsequent declines in investment than peers lacking solid banking relationships. This effect is the strongest for firms that enjoy good relations with China’s large state-owned banks or foreign banks, and weakest for firms whose connections are solely with local banks. We document a positive correlation between the stock performances of firms and the stock performances of lender banks and the likelihood of lender banks operating as net lenders in the interbank market. These results suggest that banks transmit liquidity shocks to their borrowing firms and that a long-term bank-firm relationship may mitigate the negative effects of a liquidity shock. |
| JEL: | G30 G14 G21 |
| Date: | 2018–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2018_013&r=cfn |
| By: | Douglas, Rohan (Quantifi, Inc); Berndt, Antje (Australian National University); Duffie, Darrell (Stanford University); Ferguson, Mark (?) |
| Abstract: | We measure credit risk premia, meaning the price 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. These risk premia comove with economic 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: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:repec:ecl:stabus:3617&r=cfn |
| By: | Li, Jun (Asian Development Bank Institute); Wang, Huijun (Asian Development Bank Institute); Yu, Jianfeng (Asian Development Bank Institute) |
| Abstract: | Consistent with neoclassical models with investment lags, we find that a bottom-up measure of aggregate investment plans, namely, aggregate expected investment growth, negatively predicts future stock market returns. with an adjusted in-sample R2 of 18.5% and an out-of-sample R2 of 16.3% at the 1-year horizon. The return predictive power is robust after controlling for popular macroeconomic return predictors, in subsample periods, as well as in other G7 countries. Further analyses suggest that the predictive ability of aggregate expected investment growth is more likely to be driven by the time-varying risk premium than by behavioral biases such as extrapolative expectations. |
| Keywords: | aggregate investment plans; market return predictability |
| JEL: | G12 |
| Date: | 2018–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0808&r=cfn |
| By: | Owen, Ann L.; Temesvary, Judit |
| Abstract: | Greater gender diversity on bank board of directors is associated with higher compensation inequality because CEOs at these banks have higher base salary. This effect disappears during the financial crisis, largely due to adjustment of non-salary compensation. |
| Keywords: | CEO compensation; gender diversity, board of directors |
| JEL: | G21 G34 J33 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87007&r=cfn |
| By: | Oxana Babecka Kucharcukova; Renata Pasalicova |
| Abstract: | This project investigates the effect of financial constraints and monetary policy on firms' investment behaviour using Czech firm-level data. The empirical specification is based on the dynamic neoclassical investment model, which explains investment by sales and cash flow. In addition, it includes financial constraints and other factors. We differentiate firms according to their size and type of economic activity. We find that indebtedness and availability of liquidity have significant effects on investment. In the post-crisis period firms obtained less additional credit due to greater riskiness and tended to accumulate more liquidity. Expectations about future GDP growth and business sentiment are positively related to investment. At the same time, we observe considerable heterogeneity of the results across sectors. The impact of the short-term real interest rate is highly significant for firms of all sizes and in all important sectors of the Czech economy, reflecting monetary policy effectiveness. |
| Keywords: | Financial constraints, firms, indebtedness, investment, liquidity, monetary policy |
| JEL: | D22 E5 E22 G3 G32 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2017/16&r=cfn |
| By: | Bernardo Bortolotti; Veljko Fotak; Brian Wolfe |
| Abstract: | We investigate the impact of state ownership on the innovativeness of firms, as measured by the number, quality, and value of the patents produced. In a sample of listed European firms, we find that minority government ownership increases investment in research and development, especially for financially constrained firms and during “normal” macroeconomic conditions. Yet, government control leads to the opposite effect, by imposing myopic goals and complicating access to private equity markets. Overall, state owned enterprises (SOEs) produce fewer patents per dollar invested and about 10% fewer patents in absolute terms. When comparing SOE patents to private-sector patents, we find no difference in patent quality as measured by the number of citations received per patent or by the market reaction at patent publication. Furthermore, we find no increase in the number of patents focused on sustainable technologies, suggesting that SOEs do not emphasize innovation that produces public goods or social spillovers. |
| Keywords: | Innovation, state ownership |
| JEL: | G32 G15 G38 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp1872&r=cfn |
| By: | Cipriano, Nur Alisha Arfiffy; Zulkeflee, Nur Nabila; Amran, Fasihah; Shahudin, Haziah Aishah |
| Abstract: | Operational risk management is an important aspect in an organization to manage operational risk efficiently. Hence, this study intended to investigate the effects of internal and external factor in manufacturing industry towards operational risk. This study employs time series regression analysis of manufacturing industry in Germany from 2012 to 2016. The analysis shows that firm specific factors (average current ratio and average collection period) and macroeconomic factors (the company’s beta) influence the operational risk of the company. This study suggests the company to manage their average collection period by managing their account receivable efficiently through establishing clear credit policies and incorporate more corporate governance elements such as accountability, fairness, independence and transparency. |
| Keywords: | Operational risk, Average collection period, corporate governance |
| JEL: | G3 G32 |
| Date: | 2018–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87013&r=cfn |
| By: | Sarah Auster; Nicola Pavoni |
| Abstract: | We study the delegation problem between an investor and a nancial intermediary, who not only has better information about the performance of the di erent investments but also has superior awareness of the available investment opportunities. The intermediary decides which of the feasible investments to reveal and which ones to hide. We show that the intermediary nds it optimal to make the investor aware of investment opportunities at the extremes, e.g. very risky and very safe projects, but leaves the investor unaware of intermediate options. We further study the role of competition between intermediaries and allow for investors with di erent levels of awareness to coexist in the same market. Self-reported data from customers in the Italian retail investment sector support the key predictions of the model: more knowledgable investors receive richer menus that are nevertheless perceived to have less products at the extremes. |
| JEL: | D82 D83 G24 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp1869&r=cfn |