nep-cfn New Economics Papers
on Corporate Finance
Issue of 2018‒08‒13
eight papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Tapping into Financial Synergies : Alleviating Financial Constraints Through Acquisitions By Rohan Williamson; Jie Yang
  2. Financing Ventures By Jeremy Greenwood; Pengfei Han; Juan M. Sanchez
  3. Analysis of Corporate Social Responsibility, Default Risk and Conservatism Effect to Earning Management with Good Corporate Governance as Moderating Variable in Manufacturing Company Whose Shares Incorporated in Indonesia Sharia Stock Index By Siregar, Budi Gautama; Lubis, Ade Fatma; Maksum, Azhar; Fachrudin, Fachrudin
  4. Financial Intermediation, Capital Accumulation and Crisis Recovery By Hans Gersbach; Jean-Charles Rochet; Martin Scheffel
  5. Effect of corporate governance on cost of equity before and after international financial reporting standard implementation By Chandra, Situmeang; Erlina, Erlina; Maksum, Azhar; Supriana, Tavi
  6. Financial liberalization and the development of stock markets in Sub-Saharan Africa By Atsin, Jessica A.L.; Ocran, Matthew K.
  7. Measuring risks to UK financial stability By Aikman, David; Bridges, Jonathan; Burgess, Stephen; Galletly, Richard; Levina, Iren; O'Neill, Cian; Varadi, Alexandra
  8. How does finance influence labour market outcomes?: A review of empirical studies By Mark Heil

  1. By: Rohan Williamson; Jie Yang
    Abstract: The paper examines whether financially constrained firms are able to use acquisitions to ease their constraints. The results show that acquisitions do ease financing constraints for constrained acquirers. Relative to unconstrained acquires, financially constrained firms are more likely to use undervalued equity to fund acquisitions and to target unconstrained and more liquid firms. Using a propensity score matched sample in a difference-in-difference framework, the results show that constrained acquirers become less constrained post-acquisition and relative to matched non-acquiring firms. This improvement is more pronounced for diversifying acquisitions and constrained firms that acquire rather than issue equity and retain the proceeds. Following acquisition, constrained acquirers raise more debt and increase investments, consistent with experiencing reductions in financing constraints relative to matched non-acquirers. These improvements are not seen for unconstrained acquirers. Finally, the familiar diversification discount is non- existent for financially constrained acquirers.
    Keywords: Diversification ; Financing constraints ; Firm structure ; Mergers & acquisitions
    JEL: G30 G32 G34 L25
    Date: 2018–08–03
  2. By: Jeremy Greenwood; Pengfei Han; Juan M. Sanchez
    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, venture capitalists 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 rates, failure rates, investment rates, equity shares, and IPO values. Raising capital gains taxation reduces growth and welfare.
    JEL: E13 E22 G24 L26 O16 O31 O40
    Date: 2018–07
  3. By: Siregar, Budi Gautama; Lubis, Ade Fatma; Maksum, Azhar; Fachrudin, Fachrudin
    Abstract: The purpose of this research is to examine and analyze Good Corporate Governance in moderating the relationship between Corporate Social Responsibility (as measured by economic, environmental and social), Default Risk (as measured by debt to equity ratio and debt to assets ratio) and Conservatism (as measured by earning / stock return relation, accruals and net assets) Earnings Management. The sample used is a manufacturing company during the period 2011-2015. The total sample used is 170 samples. Sampling technique used is saturated sample method. The analytical model used in this research with Structural Equation Modeling. The results showed that Corporate Social Responsibility, as measured by the economy and environment, has a positive and significant effect on earning management, while Corporate Social Responsibility measured by social have negative and significant effect to earning management. Default risk, as measured by debt to equity ratio and debt to asset ratio, has positive and significant effect on Earnings Management. Also, conservatism measured by earning / stock return relation and accrual has adverse and insignificant effect on earning management. Good Corporate Governance moderates weakening the effect of Corporate Social Responsibility as measured by economic, environmental to Earnings Management. Meanwhile, the interaction of Corporate Social Responsibility proxy by social with good corporate governance has a positive and significant effect. Good Corporate Governance moderates weakening the effect of default risk measured by debt to equity ratio on Earnings Management, while the interaction between default risk measured by debt to asset ratio with good corporate governance has positive and insignificant effect, so GCG does not moderate the effect of default risk as measured by debt to asset ratio to Earnings Management. Another result was that good Corporate governance does not moderate Conservatism effect measured by Earning Stock Return and accrual to Earnings Management on manufacturing companies registered in ISSI on the Indonesia Stock Exchange
    Keywords: Corporate Social Responsibility; Default Risk; Conservatism; Earning Management; Moderation; Good Corporate Governance
    JEL: G30 M14 O16
    Date: 2018–02
  4. By: Hans Gersbach (ETH Zurich, IZA Institute of Labor Economics, CESifo (Center for Economic Studies and Ifo Institute), and Centre for Economic Policy Research (CEPR)); Jean-Charles Rochet (University of Zurich, University of Toulouse I, and Swiss Finance Institute); Martin Scheffel (University of Cologne)
    Abstract: This paper integrates banks into a two-sector neoclassical growth model to account for the fact that a fraction of firms relies on banks to finance their investments. There are four major contributions to the literature. First, although banks’ leverage amplifies shocks, the endogenous response of leverage to shocks is an automatic stabilizer that improves the resilience of the economy. In particular, financial and labor market institutions are essential factors that determine the strength of this automatic stabilization. Second, there is a mix of publicly financed bank re-capitalization, dividend payout restrictions, and consumption taxes that stimulates a Pareto-improving rapid build-up of bank equity and accelerates economic recovery after a slump in the banking sector. Third, the model replicates typical patterns of financing over the business cycle: procyclical bank leverage, procyclical bank lending, and countercyclical bond financing. Fourth, the framework preserves its analytical tractability wherefore it can serve as a macro-banking module that can be easily integrated into more complex economic environments.
    Keywords: Financial Intermediation, Capital Accumulation, Banking Crisis, Macroeconomic Shocks, Business Cycles, Bust-Boom Cycles, Managing Recoveries
    JEL: E21 E32 F44 G21 G28
    Date: 2018–01
  5. By: Chandra, Situmeang; Erlina, Erlina; Maksum, Azhar; Supriana, Tavi
    Abstract: The ability to compete between companies at the time of intercompany production efficiency is no longer a differentiator, the determinant of competitiveness includes the aspect of funding to be one of the determinants of competitiveness. One of the company's competitiveness capabilities is determined by the capital cost or the discount rate used in evaluating a project. The higher the cost of capital will be the lower the competitiveness of the company. There are many factors that determine the cost of a company's capital, but this research focuses only on the aspects of Corporate Governance (CG). Investors will assume that the risk in companies that have good CG quality will be smaller than companies that do not have good CG quality. On the other hand, IFRS implementation has a variety of purposes including improving the implementation of CG in a company, so it is theoretically suspected that IFRS implementation will increase CG's influence on CoE. The approach used is to study the capability of the linear regression model formed and to conduct a comparative analysis among regression models established by data from manufacturing companies listed on the Indonesia Stock Exchange during 2007-2011 as data prior to IFRS implementation and 2012-2015 for data after IFRS implementation. Based on the results of data processing obtained evidence that Corporate Governance negatively affect the Cost of Equity (CoE). This contradicts the theory because the better the CG value of a firm the CoE will be to decrease. When compared to the period before and after IFRS implementation, there is no evidence of a relationship between CG and CoE.
    Keywords: Corporate Governance; Cost of Equity; IFRS
    JEL: D53 E44 F34 H63
    Date: 2018–02
  6. By: Atsin, Jessica A.L.; Ocran, Matthew K.
    Abstract: This study sought to investigate the relationship between financial liberalization and stock market development in four Sub-Saharan African stock markets using quarterly data for the period 1975 - 2014. The analysis focused on three dimensions of liberalization in isolation, which are capital account liberalization, stock market liberalization and financial sector liberalization. Hence, the empirical analysis uses three Bayesian VAR models for each market studied. The results from the investigation show a positive correlation between stock market development and the liberalization of stock markets and the financial sector in all four countries, which advocates for the opening of financial markets to international investors, as well as the deepening of the sector. Additionally, a positive long-run response of stock market development to all three forms of liberalization in all the markets considered suggested that greater focus should therefore be put on increasing financial openness by removing the restrictions in the financial sectors of the respective economies, as this will promote the effectiveness of the deliverance of credit to the private sector, efficient credit evaluation and public sector surveillance, which is provided through the stock market. Finally, the analysis uncovered negative correlation between stock market development and inflation in all four markets, suggesting that policy makers in these countries should pay special attention to inflation targeting policies in order to positively contribute to enhancing these markets.
    Keywords: Financial liberalization, capital account liberalization, stock market liberalization, stock market development, Bayesian Vector Autoregressive model.
    JEL: G18 G28 G38
    Date: 2017–12
  7. By: Aikman, David (Bank of England); Bridges, Jonathan (Bank of England); Burgess, Stephen (Bank of England); Galletly, Richard (Bank of England); Levina, Iren (Bank of England); O'Neill, Cian (Bank of England); Varadi, Alexandra (Bank of England)
    Abstract: We present a framework for measuring the evolution of risks to financial stability over the financial cycle, which we apply to the United Kingdom. We identify 29 indicators of financial stability risk, drawing from the literature on early warning indicators of banking crises. We normalise and aggregate these indicators to produce three composite measures, capturing: leverage in the private nonfinancial sector, including the level and growth of household and corporate debt, as well as the United Kingdom’s external debt; asset valuations in residential and commercial property markets, and in government and corporate bond and equity markets; and credit terms facing household and corporate borrowers. We assess these composite measures relative to their historical distributions. And we present preliminary evidence for how they influence downside risks to economic growth and different horizons. The measures provide an intuitive description of the evolution of the financial cycle of the past three decades. And they could lend themselves to simple communication, both with macroprudential policymakers and the wider public.
    Keywords: Macroprudential policy; financial crises; financial stability; early warning indicators; countercyclical capital buffers; data visualisation
    JEL: E44 G01 G10 G28
    Date: 2018–07–20
  8. By: Mark Heil
    Abstract: This paper reviews empirical research on finance and labour markets. Preliminary themes in the literature follow. Finance may interact with labour market institutions to jointly determine labour outcomes. Highly leveraged firms show greater employment volatility during cyclical fluctuations, and leverage strengthens firm bargaining power in labour negotiations. Bank deregulation may have mixed impacts on labour depending upon the state of bank regulations and labour markets. Leveraged buyouts tend to dampen acquired firm job growth as they pursue labour productivity gains. The shareholder value movement may contribute to short-termism among corporate managers, which can divert funds away from firm capital accumulation toward financial markets, crowd out productive investment and fuel unemployment. Declining wage shares in OECD countries may be driven in part by financial globalisation. The financial sector contributes to rising concentration near the top of the income distribution. Finance is linked to increased reallocation of labour, which may either enhance or impede productivity growth. Finally, there is limited evidence that rising interest rate environments and homeowners with mortgage balances that exceed their home’s value may reduce labour mobility rates.
    Keywords: bank lending, capital structure, corporate finance, deregulation, employment, Financial integration, financial regulation, inequality, labour mobility, unemployment, wage differential, wages
    JEL: F3 G18 G21 G30 J3 J6
    Date: 2018–07–31

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