nep-cfn New Economics Papers
on Corporate Finance
Issue of 2018‒10‒29
six papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. The Effect of Common Ownership on Profits : Evidence From the U.S. Banking Industry By Jacob P. Gramlich; Serafin J. Grundl
  2. Real Estate Finance and Investment By Alexey Zhukovskiy; Heidi Falkenbach; Ranoua Bouchouicha
  3. Does Corporate Real Estate Value Matter for Stock Returns? By Anil Kumar; Carles Vergara-Alert
  4. Tax Influence on Financial Structures of M&As By Harendt, Christoph
  5. Natural catastrophes and bank lending: the case of flood risk in Italy By Ivan Faiella; Filippo Natoli
  6. Is there anything special about local banks as SME lenders? Evidence from bank corrective programs By Iftekhar Hasan; Krzysztof Jackowicz; Robert Jagiełło; Oskar Kowalewski; Łukasz Kozłowski

  1. By: Jacob P. Gramlich; Serafin J. Grundl
    Abstract: Theory predicts that "common ownership" (ownership of rivals by a common shareholder) can be anticompetitive because it reduces the weight firms place on their own profits and shifts weight toward rival firms held by common shareholders. In this paper we use accounting data from the banking industry to examine empirically whether shifts in the profit weights are associated with shifts in profits. We present the distribution of a wide range of estimates that vary the specification, sample restrictions, and assumptions used to calculate the profit weights. The distribution of estimates is roughly centered around zero, but we find statistically significant estimates in either direction in some cases. Economically, most estimates are fairly small. Our interpretation of these findings is that there is little evidence for economically important effects of common ownership on profits in the banking industry.
    Keywords: Banking ; Common Ownership ; Competition ; Profits
    JEL: L10 L40 L20 G21 G34
    Date: 2018–10–03
  2. By: Alexey Zhukovskiy; Heidi Falkenbach; Ranoua Bouchouicha
    Abstract: The debt structure - and the complexity of it - affects both agency and bankruptcy costs. For bankruptcy costs, the effects of debt complexity channel through increasing negotiation costs and decreasing liquidation value. In this paper we analyse, how debt complexity affects firm valuations. Employing a sample of 215 U.S. equity REITs, we construct a HHI-index based measure of debt complexity and analyse the effect of debt complexity on Tobin’s Q. We find that higher debt complexity is associated with lower firm values during recessions, consistent with our hypothesis that the effect is due to bankruptcy costs. The effect is economically and statistically significant and robust to alternative specifications.
    Keywords: Bankruptcy Costs; Debt complexity; debt structure; firm value; REITs
    JEL: R3
    Date: 2018–01–01
  3. By: Anil Kumar; Carles Vergara-Alert
    Abstract: In this article we study the effect of change in the market value of corporate real estate (CRE) assets on firms' stock returns. We show that a positive shock in the value of CRE assets positively affects stock returns of real estate owning firms. We further document - "real estate based stock return comovement" - that is, stock returns of firms which either experience increase in their pledgeable collateral, or own higher proportion of CRE assets, or both comove with each other and this comovement is cyclical in nature. We also show that the degree of comovement is higher in the periods of increasing values of CRE, as well as for firms that are financially constrained and headquartered in the same geographical area.
    Keywords: comovement; Corporate real estate; stock return
    JEL: R3
    Date: 2018–01–01
  4. By: Harendt, Christoph
    Abstract: A well-known strategy of tax avoidance by multinationals is to locate debt in subsidiaries in countries with a high tax rate. In case of M&As it is particularly advantageous to locate debt at the level of holdings. By using firm-level data provided by the German Central Bank, I show empirically that indeed the probability that a firm is held by a holding in the same country increases with the local tax rate. Furthermore, consolidating the balance sheets of firms and their holdings leads to a stronger effect of taxes on the debt ratio. However, I find this effect only for a sample of all firms and no additional effect in case of M&As. I conclude that those findings may be one explanation why previous studies have found relatively low effects of taxes on debt financing.
    Keywords: Corporate Taxation,Multinational Entities,Foreign Direct Investment,Capital structure,Mergers and acquisitions,Empirical Analysis,Firm-level data
    JEL: F23 G32 G34 H25 H26 H32
    Date: 2018
  5. By: Ivan Faiella (Bank of Italy); Filippo Natoli (Bank of Italy)
    Abstract: We investigate the relationship between bank lending and catastrophe risk by analyzing the exposure of banks to Italian firms located in areas at risk of flooding. By matching a new map of flood risk areas with proprietary data on bank loans at municipal level we find that, on controlling for sectoral- and province-level fixed effects, lending to non-financial firms is negatively correlated with their flood risk exposure. A province-level analysis, which also allows us to control for bank- and firm-specific factors, confirms this finding when the borrowers are small and medium-sized enterprises. This investigation gives an initial insight into the relationship between the risk of natural catastrophes - exacerbated by climate change - and lending decisions.
    Keywords: catastrophe risk, climate change, rare disasters, bank lending, flooding, Italy
    JEL: G21 P48 Q54
    Date: 2018–10
  6. By: Iftekhar Hasan (Fordham University, Bank of Finland and University of Sydney); Krzysztof Jackowicz (Department of Banking, Insurance and Risk, Kozminski University, Poland); Robert Jagiełło (Warsaw School of Economics and National Bank of Poland); Oskar Kowalewski (IÉSEG School of Management and LEM-CNRS (UMR 9221)); Łukasz Kozłowski (Department of Banking, Insurance and Risk, Kozminski University, Poland)
    Abstract: We re-investigate the special role of local banks in shaping the financial constraints of small and medium-sized enterprises (SMEs). Using a comprehensive dataset from an emerging economy, including the information on local bank corrective programs, we find that local banks remain privileged and, most importantly, difficult to replace lenders for SMEs. We show that the deterioration of a SME’s access to bank financing linked to local banks’ corrective programs depends on the presence of other healthy local banks in the SME’s vicinity. Furthermore, we demonstrate that healthy local banks, when their neighboring peers experience financial difficulties, substantially increase lending.
    Keywords: Smart Beta, strategic beta, factor investing, factor selection, Bayesian variable selection
    Date: 2018–10

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