nep-cfn New Economics Papers
on Corporate Finance
Issue of 2018‒10‒08
twelve papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Elective Stock and Scrip Dividends By Feito Ruiz, Isabel; Renneboog, Luc; Vansteenkiste, Cara
  2. Public Development Banks and Credit Market Imperfections By Marcela Eslava; Xavier Freixas
  3. Nowhere Else to Go: The Determinants of Bank-Firm Relationship Discontinuations after Bank Mergers By Oliver Rehbein; Santiago Carbo-Valverde
  4. Impact of Structural Change on Corporate Real Estate Ownership: Evidence from the German Corporate Real Estate Market By Julian Seger; Andreas Pfnür
  5. Insider Trading and Networked Directors By Goergen, M.; Renneboog, Luc; Zhao, Y.
  6. Long Run Returns Predictability and Volatility with Moving Averages By Chia-Lin Chang; Jukka Ilomäki; Hannu Laurila; Michael McAleer
  7. "Informational asymmetries and private credit in Lima, Peru, 1825-65" By Luis Zegarra
  8. Non-Performing Loans, Cost of Capital, and Lending Supply: Lessons from the Eurozone Banking Crisi By G. Chiesa; J. M. Mansilla-Fernández
  9. Director Networks, Turnover, and Appointments By Renneboog, Luc; Zhao, Yang
  10. Crowdfunding in a duopoly under asymmetric information By Miglo, Anton
  11. Crowdfunding Under Market Feedback, Asymmetric Information And Overconfident Entrepreneur By Miglo, Anton
  12. Common holdings and strategic manager compensation: The case of an asymmetric triopoly By Neus, Werner; Stadler, Manfred

  1. By: Feito Ruiz, Isabel (Tilburg University, Center For Economic Research); Renneboog, Luc (Tilburg University, Center For Economic Research); Vansteenkiste, Cara (Tilburg University, Center For Economic Research)
    Abstract: We investigate firms’ decisions to pay elective stock dividends, known in the UK as scrip dividends. Scrip dividends give investors the choice between receiving new shares or the equivalent value as a cash dividend. UK firms paying scrip dividends are more likely to be financially constrained, and scrip dividends are used more when access to external financing is costly. Our results are robust to using the 2008 financial crisis as an exogenous shock to credit supply. Cash preservation is the most important corporate incentive to use scrip dividends as they tend to be distributed in combination with dividend cuts and with major corporate investments such as debt-financed mergers and acquisitions. Analysis of US dividend reinvestment plans by which investors purchase new shares confirms firms’ cash-preservation motives.
    Keywords: stock dividends; scrip dividends; elective stock dividend; optional stock dividend; dividend policy; payout policy; crisis; dividend reinvestment plans; DRP; financial constraints; financial crisis; cash retention; mergers and acquisitions
    JEL: G35 G32 G34 G01
    Date: 2018
  2. By: Marcela Eslava; Xavier Freixas
    Abstract: Which projects/firms should be the target of lending by a Public Development Bank (PDB)? What is the optimal design for the PDB’s loans, and the optimal structure for delivering them? We analyze these questions in the context of a model where screening is costly to banks and underprovision of credit results from the inability of banks to appropriate the full benefits of projects they finance, more pronounced for high value projects. PDB intervention arises as a natural alternative to alleviate this inefficiency, since it originates in a failure in the private provision of credit. Lending to commercial banks at subsidized rates or providing credit guarantees, targeting the firms that generate high added value, are valid policy alternatives. Though in normal times PDB lending and credit guarantees are shown to be equivalent, lending is preferred when banks are facing a liquidity shortage, while a credit guarantees program is preferred when banks are undercapitalized. Direct lending by the PDB to the targeted industries could be superior to these subsidies to private lending, but only if the PDB’s corporate governance is strong enough for public credit to respond to efficiency considerations rather than political concerns. PDB intervention naturally addresses credit underprovision stemming from failures directly affecting financial institutions, but it can also alleviate that arising from firm’s moral hazard or insufficient access to collateral.
    Keywords: Public development banks; governmental loans and guarantees; costly screening; credit rationing.
    JEL: H81 G20 G21 G23
    Date: 2018–09–27
  3. By: Oliver Rehbein; Santiago Carbo-Valverde
    Abstract: The decision to change or terminate a bank-firm relationship has been demonstrated to be crucial for firm performance following bank mergers. We find both competition and the available firm collateral to be important factors in enabling firms to switching banks, instead of dropping their bank relationships. We also provide novel evidence that firms who are able to \textit{add} a bank relationship following a merger exhibit much stronger post-merger performance. Our findings are consistent with the interpretation that bank-mergers cause a reduction in lending to most firms, leading them to search for alternative sources of finance.
    Keywords: bank mergers, relationship banking, competition
    JEL: G21 G34
    Date: 2018–09
  4. By: Julian Seger; Andreas Pfnür
    Abstract: In the last decades US non-property companies have opened up increasingly to alternatives to real estate ownership and thus have reduced their holdings. European companies followed this trend in a more cautious way still showing generally higher ownership ratios. Incentives might become stronger in the future though, if owning real estate competes with new business requirements and thus harms firm performance. Despite the great number of articles analyzing the contribution of real estate ownership to non-property company’s performance, the business environment and especially external trends are rarely considered. Therefore, this paper addresses two main questions: Firstly, how real estate ownership affects organizational performance in general and secondly, whether the contribution of ownership changes considering future market trends. Using the example of German non-property companies, the article analyzes whether firms affected by structural change demonstrate a higher willingness to reduce corporate real estate (CRE) ownership holdings. The paper begins with a literature based elaboration of the term structural change followed by a comparison of international ownership holdings. In a next step the relationship between ownership and its impact on organizational performance considering influences of business environment is summarized in a theoretical framework. Hereafter, a multivariate cluster analysis is performed on a dataset taken from the study by Just and Pfnuer (2016). In a last step, the identified firm clusters are tested regarding their tendency to reduce ownership holdings. The article provides diverse explanations of why ownership could harm firm performance if market trends are considered. In accordance with these findings, the results of the multivariate analysis suggest that the higher firms are affected by structural change, the higher is their willingness to reduce ownership by sale-and-rent-back transactions.This article differs from existing literature in two ways. Instead of using balance sheet data, the analysis applied in this article is based on a dataset of surveyed CRE managers. Moreover, the paper takes a broader view on ownership and firm performance by including the business environment. First hints show that structural change and associated new business requirements change the relevance of CRE ownership. In order to avoid competitive disadvantages, especially European firms should scrutinize their high ownership ratios.
    Keywords: Cluster Analysis; Corporate real estate; Firm Performance; Ownership; Structural Change
    JEL: R3
    Date: 2018–01–01
  5. By: Goergen, M.; Renneboog, Luc (Tilburg University, Center For Economic Research); Zhao, Y.
    Abstract: We analyze the relation between insider trading and the networks of executive and non-executive directors in UK listed companies. While most existing studies focus on firm-specific private information, we find that non-firm-specific information - such as information on other companies and information on industry and market trends - plays an important role in insider trading behavior and performance. Well-connected directors trade shares less frequently and for smaller values. However, their transactions are more profitable, especially when they make consecutive opportunistic purchases in multiple companies on whose boards they sit. Taken together, well-connected directors are likely to outperform their peers with inferior networks.
    Keywords: insider trading; director networks; network analysis; centrality; opoortunistic trading; routine trading
    JEL: G14 G34 G39
    Date: 2018
  6. By: Chia-Lin Chang (Department of Applied Economics Department of Finance National Chung Hsing University, Taiwan.); Jukka Ilomäki (Faculty of Management University of Tampere, Finland.); Hannu Laurila (Faculty of Management University of Tampere, Finland.); Michael McAleer (Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute Erasmus School of Economics Erasmus University Rotterdam, The Netherlands and Department of Quantitative Economics Complutense University of Madrid, Spain And Institute of Advanced Sciences Yokohama National University, Japan.)
    Abstract: The paper examines how the size of the rolling window, and the frequency used in moving average (MA) trading strategies, affect financial performance when risk is measured. We use the MA rule for market timing, that is, for when to buy stocks and when to shift to the risk-free rate. The important issue regarding the predictability of returns is assessed. It is found that performance improves, on average, when the rolling window is expanded and the data frequency is low. However, when the size of the rolling window reaches three years, the frequency loses its significance and all frequencies considered produce similar financial performance. Therefore, the results support stock returns predictability in the long run. The procedure takes account of the issues of variable persistence as we use only returns in the analysis. Therefore, we use the performance of MA rules as an instrument for testing returns predictability in financial stock markets.
    Keywords: Trading strategies; Risk; Moving average; Market timing; Returns predictability; Volatility; Rolling window; Data frequency.
    JEL: C22 C32 C58 G32
    Date: 2018–09
  7. By: Luis Zegarra (Católica Graduate Business School)
    Abstract: "This article examines the credit market of Lima, Peru, in 1825-65 and analyzes the effects of information asymmetries on the allocation of credit. Family loans were associated with lower interest rates due to differences in information costs. However, private lenders did not allocate a large portion of loans to their relatives. As the elite was largely known, lenders partly coped with information asymmetries by lending to the elite. Specialists on lending also rose in response to market imperfections. By economizing on screening and monitoring, specialists partly coped with information asymmetries. The evidence also suggests that notaries served as intermediaries and reduced information costs. Nevertheless, private lenders did not fully cope with information asymmetries: high information costs severely restricted interregional lending."
    Keywords: "Information asymmetries, credit, Latin America, Peru"
    JEL: G21 N26
    Date: 2018–04
  8. By: G. Chiesa; J. M. Mansilla-Fernández
    Abstract: This paper develops a theoretical model as a foundation of empirical analysis of the transmission channel of non-performing loans (NPLs) on bank cost of capital, credit and liquidity creation in the Eurozone. Empirical results confirm the model’s predictions and suggest that holding non-performing loans increases the cost of capital for banks in the short-term and the long-term. Moreover, the increased cost of capital reduces credit and liquidity creation, and the more so the less capitalized is the bank. This phenomenon is found to be economically more significant for European periphery country banks than for core country banks. The identification of the transmission channel is robust to the Granger predictability test.
    JEL: G11 G21 G32 H63
    Date: 2018–10
  9. By: Renneboog, Luc (Tilburg University, Center For Economic Research); Zhao, Yang
    Abstract: This paper analyzes the labor market (turnover and appointments) of executive and non-executive directors by means of social network methodology. We find that directors with strong networks are able to obtain labor market information that enables them to leave their firm more easily for better opportunities. Networks also mitigate information asymmetry problems of external director appointments. Furthermore, the strong impact of indirect connections is in line with the ‘strength of the weak ties’ theory. The fact that direct connections are less important signifies that the connections to people that are close and local are likely to convey redundant information, whereas connections to distant individuals are more efficient in terms of information acquisition and labor market performance improvement.
    Keywords: corporate governance; director networks; director turnover; director appointments
    JEL: G23 J4 J14
    Date: 2017
  10. By: Miglo, Anton
    Abstract: Traditionally crowdfunding has been used for funding very innovative projects. Recently, however, companies have begun using crowdfunding to finance more traditional products where they compete against other sellers of similar products. One of the major platforms Indiegogo launched several projects consistent with this trend. This paper offers a model of a duopoly where firms can use crowdfunding prior to direct sales. The model is based on asymmetric information between competitors regarding the demand for the product. It provides several implications that have not yet been tested. For example we find that high-demand firms can use crowdfunding to signal their quality.
    Keywords: crowdfunding, asymmetric information, reward-based crowdfunding, duopoly, signalling
    JEL: D43 D82 G32 L11 L13 L26 M13
    Date: 2018
  11. By: Miglo, Anton
    Abstract: This article is the first one that considers a model of the choice between the different types of crowdfunding, which contains elements of the asymmetric information approach and behavioral finance (overconfident entrepreneurs). The model provides several implications, most of which have not yet been tested. Our model predicts that equity-based crowdfunding is more profitable than reward-based crowdfunding when an entrepreneur is overconfident. This is because either the entrepreneur learns from the sale of shares before making production decisions or because the crowd anticipates the entrepreneur's behavior when valuing the shares offered for sale. The model also predicts that an equilibrium can exist where high-quality firms use equity-based crowdfunding in equilibrium which contrasts the spirit of traditional results (for example pecking-order theory) where equity represents an inferior security. The latter has rational managers. It also contrasts traditional behavioral finance literature (for example, Fairchild (2005)) where equity is not issued in equilibrium.
    Keywords: crowdfunding, asymmetric information, overconfidence, equity-based crowdfunding, reward-based crowdfunding, entrepreneurship and learning
    JEL: D82 G32 L11 L26 M13
    Date: 2018
  12. By: Neus, Werner; Stadler, Manfred
    Abstract: We study an asymmetric triopoly in a heterogeneous product market where quantity decisions are delegated to managers. The two biggest firms are commonly owned by shareholders such as index funds while the smallest firm is owned by independent shareholders. Under such a common holding owner structure, the owners have an incentive to coordinate when designing their manager compensation schemes. This coordination leads to a reallocation of production and induces a redistribution of pro profits. The trade volume in the market is reduced so that shareholder coordination is detrimental to consumer surplus as well as welfare.
    Keywords: common holdings,index funds,shareholder coordination,manager compensation
    JEL: G32 L22 M52
    Date: 2018

This nep-cfn issue is ©2018 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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