nep-cfn New Economics Papers
on Corporate Finance
Issue of 2018‒07‒30
eight papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Activity Strategies, Information Asymmetry, and Bank Opacity By Viet-Dung Tran; M. Kabir Hassan; Reza Houston
  2. The Persistent Effect of Initial Success: Evidence from Venture Capital By Ramana Nanda; Sampsa Samila; Olav Sorenson
  3. All in the family? CEO choice and firm organization By Lemos, Renata; Scur, Daniela
  4. A research note on entrepreneurs' financial commitment and crowdfunding success By Löher, Jonas; Schneck, Stefan; Werner, Arndt
  5. THE IMPACT OF CORPORATE GOVERNANCE ON THE COMPANY?S PERFORMANCE By Roxana Loredana Avram; Alexandru Buglea; Alexandru Avram
  6. Financialisation and innovation in emerging economics By Halima Jibril; Annina Kaltenbrunner; Effi Kesidou
  7. Long-Term Finance and Investment with Frictional Asset Markets By Kozlowski, Julian
  8. Dividends: From Refracting to Ratcheting By Hansjoerg Albrecher; Nicole Bäuerle; Martin Bladt

  1. By: Viet-Dung Tran; M. Kabir Hassan; Reza Houston
    Abstract: Using a large panel of US bank holding companies from 2001 to 2015, we investigate the association between functional diversification and bank earnings management. We document a positive relationship between bank earnings management and bank diversification. Our findings are consistent with the hypothesis that diversification increases the asymmetric information of banks, leading to greater discretionary power by bank managers. This effect is most prevalent in smaller banks and non-dividend paying banks. The impact of diversification on earnings management is less pronounced during the crisis. Our study is of interest to regulators and other stakeholders who examine factors which affect behavior of bank managers.
    Keywords: bank earnings management; opacity; activity strategies; diversification; information asymmetry
    JEL: G21 G28 G34 G38
    Date: 2018–07
  2. By: Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit); Sampsa Samila (National University of Singapore); Olav Sorenson (Yale School of Management)
    Abstract: We use investment-level data to study performance persistence in venture capital (VC). Consistent with prior studies, we find that each additional IPO among a VC firm's first ten investments predicts as much as an 8% higher IPO rate on its subsequent investments, though this effect erodes with time. In exploring its sources, we document several additional facts: successful outcomes stem in large part from investing in the right places at the right times; VC firms do not persist in their ability to choose the right places and times to invest; but early success does lead to investing in later rounds and in larger syndicates. This pattern of results seems most consistent with the idea that initial success improves access to deal flow. That preferential access raises the quality of subsequent investments, perpetuating performance differences in initial investments.
    Keywords: venture capital, performance, monitoring, selection
    JEL: G24 M13
    Date: 2017–01
  3. By: Lemos, Renata; Scur, Daniela
    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: L2 M11
    Date: 2018–01–01
  4. By: Löher, Jonas; Schneck, Stefan; Werner, Arndt
    Abstract: Established early stage investors decide to invest in new ventures after evaluating the propensity of success and the risk of failure. Consequently, it is of considerable importance that the new business owners have substantial 'skin in the game' and are thus highly committed to business success. Despite its key role in practice, the entrepreneurs' own financial commitment has not yet been discussed in a crowdfunding context. Applying a signaling approach, our empirical findings show that entrepreneurs with comparatively more ex ante financial commitment in their project achieve significantly higher funding success. Moreover, our results suggest that financial commitment is the single most important variable determining funding success.
    Keywords: equity crowdfunding,crowdinvesting,campaign success,financial commitment,signaling,entrepreneurial finance
    JEL: G11 G19 G21 M13
    Date: 2018
    Abstract: In our paper we have developed an index for measuring the corporate governance in the Romanian economy based on the corporate governance code of Bucharest Stock Exchange. Corporate governance represents measures and policies through which a company achieves its settled objectives. In the first part of our research we have constructed the index by a questionare that was aplied to major Romanian companies, that were split into four major sectors: banking, oil & gas, automotive and agriculture. In the second part of our research we have measured our index? impact on performance taking into consideration ROA, size and liquidity, by using a panel VAR for each sector.
    Keywords: corporate governance, performance, index of corporate governance
    JEL: G34 O16
    Date: 2017–07
  6. By: Halima Jibril; Annina Kaltenbrunner; Effi Kesidou
    Abstract: This article contributes to the literature on the financial constraints of innovation in two ways. First, we examine whether financialisation has transformed the relation between finance and innovation by assessing the association between companies' financial relations, both on the liability side and the asset side of their balance sheets, and intangible assets. Second, this is the first study that examines theoretically and empirically the link between financialisation and innovation in the context of emerging markets using the population of publicly listed companies in Brazil over the period 2011-2016. We find evidence that whilst financial liabilities do not affect investments on intangibles, higher financial assets and financial profits discourage investments on intangibles. Other indicators of financialisation are not significant. Thus, our results support the crowding-out hypothesis that financialisation i.e. companies' increased tendency to hold financial assets and generate revenue from financial income rather than their underlying operations, discourages investments on innovation.
    Keywords: Financialisation, Intangible assets, Innovation-driven growth, Emerging economies
    Date: 2018
  7. By: Kozlowski, Julian (Federal Reserve Bank of St. Louis)
    Abstract: This paper develops a theory of investment and maturity choices and studies its implications for the macroeconomy. The novel ingredient is an explicit secondary market with trading frictions which leads to a liquidity spread which increases with maturity and generates an upward sloping yield curve. As a result, trading frictions induce firms to borrow and invest at shorter horizons than in a frictionless benchmark. Economies with more severe frictions exhibit a steeper yield curve which further affects maturity and investment choices of rms. A model calibrated to match cross-country moments suggests that reductions in trading frictions-a new channel of financial development-can promote economic development. A policy intervention with government-backed financial intermediaries in the secondary market can improve liquidity and reduce the cost of long-term finance which promotes investment in longer-term projects and generates substantial welfare gains.
    Keywords: Debt maturity; Over-the-counter market; Liquidity; Secondary markets
    JEL: E44 G30 O16
    Date: 2017–12–29
  8. By: Hansjoerg Albrecher (University of Lausanne and Swiss Finance Institute); Nicole Bäuerle (University of Karlsruhe); Martin Bladt (University of Lausanne)
    Abstract: In this paper we consider an alternative dividend payment strategy in risk theory, where the dividend rate can never decrease. This addresses a concern that has often been raised in connection with the practical relevance of optimal classical dividend payment strategies of barrier and threshold type. We study the case where once during the lifetime of the risk process the dividend rate can be increased and derive corresponding formulae for the resulting expected discounted dividend payments until ruin. We first consider a general spectrally-negative Lévy risk model, and then re fine the analysis for a diffusion approximation and a compound Poisson risk model. It is shown that for the diffusion approximation the optimal barrier for the ratcheting strategy is characterized by an unexpected relation to the case of refracted dividend payments. Finally, numerical illustrations for the diffusion case indicate that with such a simple ratcheting dividend strategy the expected value of discounted dividends can already get quite close to the respective value of the refracted dividend strategy, the latter being known to be optimal among all admissible dividend strategies.
    Keywords: optimal dividends, risk theory, Levy risk model, scale functions, diffusion
    JEL: G22 C61
    Date: 2018–05

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