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on Corporate Finance |
| By: | Ramana Nanda; Sampsa Samila; Olav Sorenson |
| 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. |
| JEL: | G24 M13 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24887&r=cfn |
| By: | Gerhard Schnyder; Centre for Business Research |
| Abstract: | The study of decoupling – i.e. the discrepancies between formal policies and actual practices and outcomes – has seen a remarkable revival. Importantly, a distinction between policy-practice and means-ends decoupling has become widely-used. We argue that the decoupling literature still neglects a key feature of decoupling, namely that it is inherently a multi-level concept. Distinguishing explicitly the macro- (country) and the micro- (organisation) levels, we develop a more fine-grained typology of policy–practice and means–ends decoupling. We hypothesise that differences in the macro-environment may influence the type and extent of decoupling that prevails in a given country. We test our hypotheses in the context of the adoption of legal minority shareholder protection in four European countries. We go beyond previous studies that have investigated policy–practice and means-end decoupling in the same context by using a unique dataset for firm-level corporate governance practices that allows us to investigate the multi-level nature of decoupling more directly. Our findings suggest that that decoupling is context specific and the extent to which policy-practice decoupling occurs may depend on a country's legal style. |
| Keywords: | Decoupling, Corporate Governance, Minority Shareholder Protection |
| JEL: | G34 G38 K22 O16 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp502&r=cfn |
| By: | Matteo Accornero (Bank of Italy); Paolo Finaldi Russo (Bank of Italy); Giovanni Guazzarotti (Bank of Italy); Valentina Nigro (Bank of Italy) |
| Abstract: | We study the allocation of Italian corporate bonds among investors using a unique dataset that matches, for each security, information on the holding sectors with those of the bond and the issuer. Our main findings are the following: i) large companies issue bonds mainly on international markets, whereas smaller firms mainly target domestic markets; ii) in Italy, differently than in economies with more developed bond markets, the role of domestic institutional investors is limited, especially for SMEs’ securities, while domestic households hold larger shares of these issues; iii) Italian households hold bonds of financially sounder firms, whereas foreign investors concentrate their holdings in riskier ones; for the other Italian investors we do not find evidence of a significant risk taking attitude. Even if in recent years institutional investors have significantly increased their holdings of Italian SMEs bonds, our findings suggest that the development of this market is still hampered by the limited presence of intermediaries specialized in the subscription of financial instruments issued by smaller, unlisted and riskier firms. |
| Keywords: | corporate bond market, risk allocation, corporate bond holders |
| JEL: | G10 G23 G32 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_450_18&r=cfn |
| By: | Marcin Kacperczyk; Savitar Sundaresan; Tianyu Wang |
| Abstract: | We study the impact of foreign institutional investors on global capital allocation and welfare using novel firm-level international data. Using MSCI index inclusion as an exogenous shock to foreign ownership, we show that greater foreign ownership leads to more informative stock prices and this effect arises more from increased price efficiency than from improved firm governance. We further show that the impact of capital flows on price efficiency is due to real efficiency gains, as opposed to better information disclosure. Finally, we show that foreign ownership increases market liquidity, reduces firms' cost of equity, and leads to subsequent growth in their real investments, thus improving overall welfare. |
| JEL: | G11 G12 G14 G15 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24765&r=cfn |
| By: | Frederick S. Ahiabor; Gregory A. James; Frank O. Kwabi; Mathias M. Siems; Centre for Business Research |
| Abstract: | This paper is the first one that uses a panel data of different types of shareholder protection in order to examine (i) the effect of such laws on stock market development and (ii) the convergence of shareholder protection laws through cross-border mergers and acquisitions. We find significant results for enabling laws but less so for paternalistic ones. |
| Keywords: | Law and finance; shareholder protection; corporate governance; corporate finance |
| JEL: | G32 K22 N20 O16 P50 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp509&r=cfn |
| By: | Chernenko, Sergey (Purdue U); Erel, Isil (OH State U); Prilmeier, Robert (Tulane U) |
| Abstract: | We provide novel systematic evidence on the terms of direct lending by nonbank financial institutions. Analyzing hand-collected data for a random sample of publicly-traded middle-market firms during the 2010-2015 period, we find that nonbank lending is widespread, with 32% of all loans being extended by nonbanks. Nonbank borrowers are smaller, more R&D intensive, and significantly more likely to have negative EBITDA. Firms are also more likely to borrow from a nonbank lender if local banks are poorly capitalized and less concentrated. Nonbank lenders are less likely to monitor by including financial covenants in their loans, but appear to engage in more ex-ante screening. Controlling for firm and loan characteristics, nonbank loans carry about 200 basis points higher interest rates. Using fuzzy regression discontinuity design and matching techniques generates similar results. Overall, our results provide evidence of market segmentation in the commercial loan market, where bank and nonbank lenders utilize different lending techniques and cater to different types of borrowers. |
| JEL: | G21 G23 G30 G32 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2018-13&r=cfn |
| By: | Christophe Cahn; Mattia Girotti; Federica Salvadè |
| Abstract: | We study how third-party rating information influences firms' access to bank financing and real outcomes. We exploit a refinement in the rating scale that occurred in France in 2004. The new rules made some firms within each rating class receive a positive rating surprise. We find that such firms enjoy greater and cheaper access to bank credit. In particular, they obtain more credit from previously less informed lenders, and start new bank relationships more easily. Consequently, they rely on equity to a lower extent and invest more. These findings suggest that credit ratings help reducing the hold-up problem and increase competition among banks. |
| Keywords: | Credit Ratings, Banks, Lending Technology, Corporate Financing, Real Effects, Holdup problem. |
| JEL: | G21 G32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:691&r=cfn |
| By: | Sabrina T. Howell; Marina Niessner; David Yermack |
| Abstract: | Initial coin offerings (ICOs) are sales of blockchain-based digital tokens associated with specific platforms or assets. Since 2014 ICOs have emerged as a new financing instrument, with some parallels to IPOs, venture capital, and pre-sale crowdfunding. We examine the relationship between issuer characteristics and measures of success, with a focus on liquidity, using 453 ICOs that collectively raise $5.7 billion. We also employ propriety transaction data in a case study of Filecoin, one of the most successful ICOs. We find that liquidity and trading volume are higher when issuers offer voluntary disclosure, credibly commit to the project, and signal quality. |
| JEL: | G24 G32 K22 L26 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24774&r=cfn |
| By: | Swenson, Andrew L. |
| Abstract: | The performance of over 500 North Dakota farms, 2007-2016, is summarized using 16 financial measures. Farms are categorized by geographic region, farm type, farm size, gross cash sales, farm tenure, net farm income, debt-to-asset, and age of farmer to analyze relationships between financial performance and farm characteristics. Five-year averages, 2011-2015, are also presented. In 2016, median and average acreage per farm was 1,779 and 2,365, respectively. Median and average cash farm revenue was $535,952 and $704,566, respectively. About 75% of farms were crop farms and median age of farm operators was 48. Median net farm income in 2016 increased to $82,178 from $18,982 in 2015, which was the lowest since 1997. The 10-year high was $238,054 in 2012. Financial measures for 2012, 2011, 2010, 2008 and 2007 were much superior to those in other years for the 2007-2016 period. The Red River Valley and crop farms typically had stronger profitability, solvency, and repayment capacity than other regions and farm types, respectively, but not in 2013 and 2014. Median net farm income of livestock farms decreased to $2,864 in 2016 from a ten year high of $95,130 in 2014. Farms with sales less than $500,000 were nearly twice as likely to have debt-to-asset higher than 70 percent as farms with sales greater than $500,000. Farms that own some crop land, but less than 40 percent of the land they operate were more likely to be crop farms, farm more acreage, have larger sales, and be more profitable. As expected, solvency and percent of crop land owned increased with farmer age. Median net farm income as a percent of gross revenue was the lowest in the decade in 2015, at 5.1%, and the highest in 2012, at 36.8%. |
| Keywords: | Agricultural Finance, Farm Management |
| Date: | 2017–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:ags:nddaae:262389&r=cfn |
| By: | Kewei Hou; Haitao Mo; Chen Xue; Lu Zhang |
| Abstract: | In a multiperiod investment framework, firms with high expected growth earn higher expected returns than firms with low expected growth, holding investment and expected profitability constant. This paper forms cross-sectional growth forecasts, and constructs an expected growth factor that yields an average premium of 0.82% per month (t = 9.81). The q5-model, which augments the Hou-Xue-Zhang (2015) q-factor model with the new factor, shows strong explanatory power in the cross section, and outperforms other recently proposed factor models such as the Fama-French (2018) six-factor model. |
| JEL: | G12 G14 G31 G32 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24709&r=cfn |
| By: | Dimitrios Zormpas |
| Abstract: | We examine the case of a firm holding the option to make an uncertain and irreversible investment. The firm is decentralized and there is information asymmetry between the owner and the investment manager regarding the price of an input (e.g. a key equipment) that needs to be purchased by an outside supplier with market power. We show that the total loss attributed to the information asymmetry has two components: i) the loss in the decentralized firm itself and ii) a negative externality that the outside input supplier endures. We show that the latter is likely not just a part, but rather the main component of the total loss. Last, we prove that the negative externality is reduced when the principal uses an audit technology in parallel with the bonus-incentive mechanism. |
| JEL: | D82 L10 |
| Date: | 2018–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:jmp:jm2018:pzo81&r=cfn |
| By: | Abramov Alexander (RANEPA) |
| Abstract: | In 2017, the Russian stock market once again reaffirmed its reputation of being one of the most volatile in the world. In contrast to the situation in 2016, when Russia's stock market, in terms of its rates of return, set a world record among the other 36 stock markets included in the analysis, in 2017 it joined the group of outsiders. Over that year, the RTS Index gained only 0.1 percent vs. 52.3 percent in 2016, and the MICEX Index (MOEX Russia Index)[1] at year-end demonstrated a negative rate of return of 5.5 percent, while over the previous year it had gained 26.8 percent (Fig. 1). The different movement patterns of the two Russian indexes with the same issuer portfolio can be explained by the higher rate of return of the RTS Index (which is denominated in foreign currencies) relative to the (ruble-denominated) MOEX Russia Index that it displays in response to the weakening USD-to-RUB exchange rate. |
| Keywords: | Russian economy, stock market, share market, bond market, derivatives market |
| JEL: | G01 G12 G18 G21 G24 G28 G32 G33 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:gai:ppaper:ppaper-2018-305&r=cfn |
| By: | Klova, Valeriia (University of Stavanger); Odegaard, Bernt Arne (University of Stavanger) |
| Abstract: | Equity trading costs have been argued to have fallen to extreme lows following the introduction of automated trading. The justification is a fall in estimates of spreads, such as closing and effective spreads. A spread is however measured conditional on an expected transaction size. If transaction sizes falls, spreads fall, without necessarily implying a lowering in trading costs. We argue that much of the fall in spreads is driven by the fall in transaction size following the automation of trading. Alternative estimators of transaction costs less sensitive to trade size, such as the the Lesmond, Ogden and Trzcinka (1999), Corwin and Schultz (2012) and Abdi and Ranaldo (2017) estimators, show much less of a downward trend. Using transaction by transaction data for the Norwegian equity market for the period 1999 to 2016, we show that the lowering of spreads is driven by the decline in order sizes. |
| Keywords: | Equity Trading Costs; Spread; High/Low Estimator |
| JEL: | G10 G12 G20 G23 |
| Date: | 2018–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:stavef:2018_004&r=cfn |
| By: | Ben-David, Itzhak (OH State U); Li, Zhi (Chapman U); Wang, Zexi (U of Bern) |
| Abstract: | It is well-established that financially constrained firms scale down their investment activity. The lost investment opportunities, however, could potentially be captured by other firms that are less financially constrained. We test this proposition using the Reg SHO pilot regulation, which relaxed short-selling constraints for about 30% of firms and thus tightened their financial constraints. Following the introduction of the regulation, pilot firms indeed reduced their investments, while their direct competitors increased their investments, expanded their market share, and became more profitable. We conclude that opportunities lost due to financial constraints could be salvaged by competing firms. |
| JEL: | G12 G14 G15 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2018-09&r=cfn |
| By: | Juliane Begenau (Stanford University); Laura Veldkamp (New York University); Maryam Farboodi (Princeton University) |
| Abstract: | One of the most important trends in modern macroeconomics is the shift from small firms to large firms. At the same time, financial markets have been transformed by advances in information technology. We explore the hypothesis that the use of big data in financial markets has lowered the cost of capital for large firms, relative to small ones, enabling large firms to grow larger. As faster processors crunch ever more data -- macro announcements, earnings statements, competitors' performance metrics, export demand, etc. -- large firms become more valuable targets for this data analysis. Large firms, with more economic activity and a longer firm history offer more data to process. Once processed, that data can better forecast firm value, reduce the risk of equity investment, and thus reduce the firm's cost of capital. As big data technology improves, large firms attract a more than proportional share of the data processing, enabling large firms to invest cheaply and grow larger. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:155&r=cfn |
| By: | Nguyen, Quoc Hung |
| Abstract: | We develop a tractable two-sector endogenous growth model in which heterogeneous entrepreneurs face borrowing constraints and the government collects tax to fund public eduction. This model is isomorphic to a Uzawa-Lucas model and there exists a balanced-growth path equilibrium in which the growth rate depends on the financial deepening level. We show that the policy tax rate exerts inverted U-shaped effects on the growth rate. Additionally, at the optimal policy tax rates the model's predictions are consistent with correlational regularities documented from 35 OECD countries with regards to financial deepening, factor accumulation and working hours. |
| Keywords: | Heterogeneity; Financial Deepening; Endogenous Growth |
| JEL: | E10 E22 E44 O16 |
| Date: | 2018–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:88328&r=cfn |
| By: | Jason Donaldson (Washington University in St Louis); Giorgia Piacentino (Columbia University); Jeongmin Lee (Washington University in St. Louis) |
| Abstract: | We present a dynamic model of the repo market in which the liquidity of collateral determines the opportunity cost of lending. Because illiquid collateral is hard to convert to cash to undertake investment opportunities, the opportunity cost of lending against it is high. Hence spreads are high on repos backed by illiquid collateral, even if default risk is not. This opportunity cost channel leads to a new amplification mechanism: a decrease in the liquidity of collateral increases the opportunity cost of capital, contracting credit and depressing asset prices. The option to buy assets at depressed prices spirals back to increase the opportunity cost further, causing a repo run. We solve for the model dynamics following a negative shock to the liquidity of collateral and use the model to assess how much the opportunity cost channel contributed to repo runs in the 2008-2009 crisis. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:1180&r=cfn |