|
on Corporate Finance |
| By: | Abed ALNasser Abdallah (American University of Sharjah); Wissam Abdallah (Lebanese American University) |
| Abstract: | This paper examines whether managers of cross-listed firms improve corporate investment efficiency through learning from the stock market upon cross-listing. Using a sample of UK firms cross-listed on US regulated and unregulated stock markets, we find that cross-listed firms on unregulated markets invest more efficiently than non-cross-listed firms following cross-listing. The analysis of pre- and post-cross-listing shows that cross-listed firms improve their investment efficiency post cross-listing regardless of the location of cross-listing (i.e. regulated versus unregulated exchanges). Furthermore, we find firms with low level of private information embedded in their stock prices, and firms with higher board independence improve their investment post cross-listing. Our findings suggest that managers of cross-listed firms are guided by firm-specific characteristic more than by stock market signals when they embark on new investment projects. Moreover, we find evidence that cross-listed firms on regulated exchanges perform poorly after cross-listing, whereas those cross-listed on unregulated exchange experience high performance post cross-listing. This indicates that the listing and regulatory requirements imposed on cross-listed firms by the US Securities and Exchange Commission (SEC) do not effectively deter managers from investing in value-destroying projects. |
| Keywords: | Cross-listing, investment efficiency, stock market feedback, price informativeness |
| JEL: | G14 G31 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:6409230&r=cfn |
| By: | Smietanka, Pawel (Bank of England); Bloom, Nicholas (Stanford University); Mizen, Paul (University of Nottingham) |
| Abstract: | The Lehman Brothers event in 2008 created a large uncertainty shock that triggered an economic slowdown lasting a decade. The macroeconomic effects are well documented, but the effect on business decisions much less so. In this paper, we explore corporate data to investigate how economic uncertainty affected investment, dividend payouts and cash holdings, based on over 10,000 UK firm-year observations. We offer new insights into the relationship between business decisions and uncertainty, by exploiting two surveys of macroeconomic uncertainty from professional forecasters and CFOs collected by the Bank of England. These data demonstrate that heightened economic uncertainty lowered investment even after controlling for investment opportunities, sales growth, and the firm’s own stock volatility. Economic uncertainty also explains the rise in cash holdings and the fall in payouts. Hence, our results help explain why UK firms invested so little and held so much cash at a time of historically low interest rates, and also why they paid out smaller dividends. These results may help explain recent sluggish productivity in the UK economy, and they also are important, because they provide a benchmark for future studies of Brexit-related uncertainty. |
| Keywords: | uncertainty; investment; cash holdings; dividend policy; survey forecasts |
| JEL: | E22 G31 G32 G35 |
| Date: | 2018–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0753&r=cfn |
| By: | Iwasaki, Ichiro; Kočenda, Evžen |
| Abstract: | Using a dataset of 126,591 service firms in 17 European emerging economies, this paper aims to estimate firm survivability in the years 2007–2015 and examine its determinants. We found that 31.3%, or 39,557 firms, failed during the observation period. At the same time, however, the failure risk greatly differed among regions, perhaps due to the remarkable gap in the progress of economic and political reforms. Moreover, the results of survival analysis revealed that large shareholding, labor productivity, and firm age played strong roles in preventing business failure beyond differences in regions and sectors. |
| Keywords: | European emerging economies, Service industry, Survival analysis, Cox proportional hazards model |
| JEL: | D22 G01 G33 L89 P34 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2018-7&r=cfn |
| By: | Pan, Wei-Fong |
| Abstract: | This study explores investor sentiment contagion across asset markets and relates specific asset market sentiments to other asset markets. The analysis reveals four main findings. First, investor sentiment highly correlates between equity markets. Second, investor sentiment in one asset market can affect those in other markets; for example, sentiments in the bond markets, particularly the US bond market, significantly Granger cause equity market sentiment, but not vice versa. Investor sentiments in the USD–JPY exchange market can Granger cause those in the Euro–USD, gold, and crude oil markets. Third, investor sentiments in the US asset markets have the largest contagion effects on asset markets given the resultant fluctuations in sentiments across other countries. Fourth, US asset market sentiments, especially bond market sentiment, can explain returns in other asset markets in different countries. |
| Keywords: | investor sentiment; contagion; asset return |
| JEL: | F30 G10 G15 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:88561&r=cfn |
| By: | Stanimira Milcheva; Yildiray Yildirim; Zhu Bing |
| Abstract: | A growing literature on how economic decision making is influenced by firms’ geographic location has emerged. We add to this stream of research by assessing the effects of geography in an asset pricing context from the firm’s perspective. We introduce a new concept of location for asset pricing accounting for the location of firms’ income-producing assets and use the information of the assets’ geographic allocation to provide a trading strategy. We use real estate and mining companies in the US to map the extract location of their income-producing assets – the properties and the mines – and to distinguish between firms with concentrated and dispersed business operations as defined by the Herfindahl index. We find that the dispersion of firms’ income-producing assets has a positive effect on returns yielding an alpha. On the other hand, concentrated firms underperform the market. Those vary with size and specialisation degree of the firms with small and specialised firms being more strongly negatively affected by the concentration effect and large and don-specialised firms more strongly positively affected by the dispersion effect. The research provides new insights into the role of location for asset pricing and shows that asset concentration can be a useful tool for strategic investment. The findings are in line with the information asymmetry theory that investors need to be rewarded for investing in a company for which it is hard to obtain and assess information about the firm’s assets due to its dispersion. |
| Keywords: | Fama French abnormal return; geographic diversification; long-short trading strategy; REITs |
| JEL: | R3 |
| Date: | 2018–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:arz:wpaper:eres2018_227&r=cfn |
| By: | Kortwewg, Arthur (University of Southern California); Schwert, Michael (Ohio State University); Strebulaev, Ilya A. (Stanford University) |
| Abstract: | This paper shows that the frequency of capital structure adjustment varies significantly across firms. The most active 25% of firms account for 51% of leverage adjustments, while the least active 50% of firms account for only 19% of such events. Using new hand-collected data from detailed corporate filings, we find that frequently rebalancing firms tend to use lines of credit to fund operating losses and working capital needs. In contrast, infrequently rebalancing firms use long-term debt and equity to fund investment and rebalance capital structure. These findings underscore the importance of adjustment costs in financing decisions and show that the reasons for rebalancing are much broader than those covered by contemporary capital structure theories. Our results demonstrate the advantage of complementing accounting data with rich textual data from corporate filings. |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3699&r=cfn |
| By: | Rizzo, Emanuele (Tilburg University, School of Economics and Management) |
| Abstract: | This thesis consists of three chapters, one at the intersection between corporate governance and corporate law, one at the intersection between corporate governance and the management literature, and one focusing on the repercussions of regulation on asset prices. The first chapter studies the net shareholder wealth effect of a specific legal arrangement within the U.S. legal system, the shareholders' right to sue the company and its officers, and documents that this effect is, on average, negative. The second chapter explores the market perception of top management team diversity. The empirical analysis relies on a novel, text-based measure of team diversity, and shows that the market systematically underestimates the financial performance of firms with a diverse top management team. Finally, the last chapter investigates whether uninformed institutional investors’ demand can affect asset prices. The empirical strategy exploits the staggered changes of bank trusts’ fiduciary duty standard in the U.S. as an exogenous shock to institutions’ preferences, and documents that uninformed institutional demand can have a large and prolonged impact on stock prices. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutis:b5158260-ea13-4763-b992-62e63c97fdb8&r=cfn |
| By: | Andreas M. Fischer (Swiss National Bank); Henrike Groeger (European University Institute); Philip Sauré (Johannes Gutenberg-University Mainz); Pinar Yesin (Swiss National Bank) |
| Abstract: | This paper develops a formal strategy to calculate current accounts with retained earnings (RE) on equity investment and analyzes their adjustment during the global financial crisis. RE are the part of companies' profits which are reinvested and not distributed to shareholders as dividends. International statistical standards treat RE on foreign direct investment and RE on portfolio investment differently: while the former enter the current and financial account, the latter do not. We show that this differential treatment strongly affects current accounts of several advanced economies, frequently referred to as financial centers, with large positions in equity (portfolio) investment. Our empirical analysis finds that the differential treatment of RE alters the interpretation of current account adjustment for the global financial crisis. |
| Keywords: | Current account adjustment, financial centers, retained earnings, equity investment |
| Date: | 2018–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:jgu:wpaper:1809&r=cfn |
| By: | Juan Carlos Conesa; Begona Dominguez |
| Abstract: | Should capital income be taxed for redistributional purposes? Judd (1985) suggests that it should not. He finds that the optimal capital tax is zero at steady state from the point of view of any agent. This paper re-examines this question in an innitely-lived worker-capitalist model, in which capitalists devote management time to build capital. Two forms of capital taxation are considered: one for which investment is not tax deductible (corporate tax) and a second one for which investment is fully and immediately tax deductible (dividend tax). Our main results are as follows. The optimal corporate tax is zero at steady state from the point of view of any agent. However, the optimal dividend tax is in general not zero at steady state and depends on preference parameters, life-time wealth and the point of view (Pareto weights) of the benevolent policymaker. For Pareto weights that lead to Pareto-improving reforms, we find that labor tax rates should be eliminated while dividend tax rates should be increased to around 36 percent at steady state. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:nys:sunysb:18-10&r=cfn |
| By: | Simplice Asongu (Yaoundé/Cameroun); Joseph O. Nnanna (DBN, Abuja, Nigeria) |
| Abstract: | In this study, we examine the role of information and communication technology in complementing information sharing bureaus (or private credit bureaus and public credit registries) for financial sector competition. Hitherto unexplored dimensions of financial sector competition are employed, namely: financial sector dynamics of formalization, informalization and non-formalization. The empirical evidence is based on 53 African countries for the period 2004-2011 and the Generalised Method of Moments (GMM) with forward orthogonal deviations. The findings differ across financial sectors in terms of marginal, net and threshold effects. By introducing the concept of financialization, the study unites two streams of research by: improving the macroeconomic literature on measuring financial development and responding to an evolving field of development literature by means of informal finance. Moreover, a practical method by which to disentangle the effects of reducing information asymmetry on various financial sectors is suggested. Policy implications are discussed. |
| Keywords: | Information sharing; Banking competition; Africa |
| JEL: | G20 G29 L96 O40 O55 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:18/035&r=cfn |