nep-cfn New Economics Papers
on Corporate Finance
Issue of 2018‒11‒05
thirteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Trademarks, Firm Longevity and IPO Underpricing By Drivas, Kyriakos; Gounopoulos, Dimitrios; Konstantios, Dimitrios; Tsiritakis, Emmanuel
  2. ICT in Reducing Information Asymmetry for Financial Sector Competition By Asongu, Simplice; Nnanna, Joseph
  3. Capital Structure and a Firm’s Workforce By David A. Matsa
  4. The Valuation of Fisheries Rights: A Real Options Approach By Jose Pizarro; Eduardo S. Schwartz
  5. On the ranking consistency of global systemic risk measures: empirical evidence By Abendschein, Michael; Grundke, Peter
  6. Accès au Crédit Bancaire des Petites et Moyennes Entreprises au Sénégal By Diallo, Boubacar; Thiongane, Mamaye
  7. Currency depreciation and emerging market corporate distress By Valentina Bruno; Hyun Song Shin
  8. Lending relationships and the collateral channel By Anderson, Gareth; Bahaj, Saleem; Chavaz, Matthieu; Foulis, Angus; Pinter, Gabor
  9. The Inverted-U Relationship Between Credit Access and Productivity Growth By Philippe Aghion; Antonin Bergeaud; Gilbert Cette; Rémy Lecat; Hélène Maghin
  10. Financialization and Endogenous Technological Change: a Post-Kaleckian Perspective By Parui, Pintu
  11. Dividend Policy and Capital Structure of a Defaultable Firm By Alex S. L. Tse
  12. Determinants of Business Risks With Impact on SMEs in V4 countries By Zuzana Virglerova
  13. Knowing Me, Knowing You? Similarity to the CEO and Fund Managers' Investment Decisions By Jaspersen, Stefan; Limbach, Peter

  1. By: Drivas, Kyriakos; Gounopoulos, Dimitrios; Konstantios, Dimitrios; Tsiritakis, Emmanuel
    Abstract: We examine the role of trademarks in firm longevity and IPO underpricing. We borrow arguments from asymmetric information theory and juxtapose alternative explanations to uncover which approach best describes the underpricing phenomenon with the aid of trademarks relationship to firm longevity. We further argue that TMs that are associated with physical products are more likely to reduce information asymmetries than TMs associated with services. Therefore, we posit that TM activity by firms in the service industries is more likely to increase underpricing while in the case of the manufacturing firm’s TM activity is less (or not) likely to result to increased underpricing. We collect 2,275 US IPOs from 1997-2016 and we find that on average the presence of trademarks in a firm’s portfolio increases underpricing. We link our results with the extant literature and provide evidence which supports that higher trademark activity is associated with firm longevity and signaling quality through IPO underpricing.
    Keywords: Trademark valuation, IPO underpricing, USPTO, information asymmetry, industry analysis.
    JEL: G10 G14 G39 O30 O34
    Date: 2018–10–10
  2. By: Asongu, Simplice; Nnanna, Joseph
    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
  3. By: David A. Matsa
    Abstract: While businesses require funding to start and grow, they also rely on human capital, which affects how they raise funds. Labor market frictions make financing labor different than financing capital. Unlike capital, labor cannot be owned and can act strategically. Workers face unemployment costs, can negotiate for higher wages, are protected by employment regulations, and face retirement risk. I propose using these frictions as a framework for understanding the unique impact of a firm’s workforce on its capital structure. For instance, high leverage often makes managing labor more difficult by undermining employees’ job security and increasing the need for costly workforce reductions. But firms can also use leverage to their advantage, such as in labor negotiations and defined benefit pensions. This research can help firms account for the needs and management of their workforce when making financing decisions.
    JEL: G32 J31 J32 J33 J38 J51 J52 J63 J65 J68 M51 M52
    Date: 2018–10
  4. By: Jose Pizarro; Eduardo S. Schwartz
    Abstract: This article develops and implements a Real Option approach to value renewable natural resources in the case of Marine Fisheries. The model includes two sources of uncertainty: the resource biomass and the price of fish, and it can be used by fisheries to optimally adapt their harvesting strategy to changing conditions in these stochastic variables. The model also features realistic operational cash flows and fisheries can shutdown and reopen operations. Using publicly available data on the British Columbia halibut fishery, the required parameters are estimated and the model solved. The results indicate that the conservation of the biomass is both optimal from a financial and a social perspective. The approach could be extended to other fish species and natural resources if the appropriate data were available.
    JEL: G10 G13 G31 Q20 Q22
    Date: 2018–10
  5. By: Abendschein, Michael; Grundke, Peter
    Abstract: We empirically analyze to which extent popular global systemic risk measures (SRMs) yield comparable results with respect to the systemic importance of a financial institution and, in particular, from which determinants the degree of consistency of the classification by the various SRMs depends. In this study, we investigate the rank correlations of SRMs in order to detect common drivers that might explain (in-)consistent ranking outcomes. This could allow to facilitate the interpretation of the outcome of SRMs and to increase the reliability of their usage in academic and practical applications. Our results show that rank correlations are particularly sensitive towards a bank’s leverage and towards tightening economic conditions. This finding holds across various different specifications.
    Keywords: systemic risk,risk rankings,financial regulation
    JEL: G01 G21 G28 G32
    Date: 2018
  6. By: Diallo, Boubacar; Thiongane, Mamaye
    Abstract: The purpose of our work is to identify and understand the explanatory factors of a possible satisfaction of the demand for SME bank credit. To carry out this work, we used a multinomial logit model with as endogenous variable the different types of companies having accessed the credit "TPE, PE, ME, GE" and as base 0 that is to say companies belonging to these categories of companies and did not obtain bank financing. The estimate is based on LAREM survey data from 673 companies located in the region of Dakar, Thiés and SaintLouis. Estimates reveal that the cost of financing the loan is a constraint for Senegalese SMEs when they want to use bank credit to finance their activities while the level of study of the manager and the profitability of the activities through the net profits released impact positively the probability of accessing bank credit.
    Keywords: SME; Access to credit; Financing cost; Leader's level of education; Profit
    JEL: C25 G21 L25
    Date: 2018
  7. By: Valentina Bruno; Hyun Song Shin
    Abstract: How do emerging market corporates fare during periods of currency depreciation? We find that non-financial firms that exploit favorable global financing conditions to issue US dollar bonds and build cash balances are also those whose share price is most vulnerable to local currency depreciation. In particular, firms' vulnerability to currency depreciation derives less from the foreign currency debt as such, but from the cash balances that are built up by using foreign currency debt. Overall, our results point to a financial motive for dollar bond issuance by emerging market firms in carry trade-like transactions that leave them vulnerable in an environment of dollar strength.
    Keywords: emerging market corporate debt, currency mismatch, liability dollarization, global financial conditions
    JEL: E44 G15
    Date: 2018–10
  8. By: Anderson, Gareth; Bahaj, Saleem; Chavaz, Matthieu; Foulis, Angus; Pinter, Gabor
    Abstract: This paper shows that lending relationships insulate corporate investment from shocks to collateral values. We construct a novel database covering the banking relationships of UK firms, as well as those of their board members and executives. We find that the sensitivity of corporate investment to shocks to real estate collateral value is halved when the length of the bank-firm relationship increases from the 25th to the 75th percentile. This effect is substantially reduced for firms whose executives have a personal mortgage relationship with their firm’s bank. Our findings provide support for theories where collateral and private information are substitutes in mitigating credit frictions over the cycle.
    JEL: J1
    Date: 2018–05–15
  9. By: Philippe Aghion; Antonin Bergeaud; Gilbert Cette; Rémy Lecat; Hélène Maghin
    Abstract: In this paper, we identify two counteracting effects of credit access on productivity growth: on the one hand, better access to credit makes it easier for entrepreneurs to innovate; on the other hand, better credit access allows less efficient incumbent firms to remain longer on the market, thereby discouraging entry of new and potentially more efficient innovators. We first develop a simple model of firm dynamics and innovation-based growth with credit constraints, where the above two counteracting effects generate an inverted-U relationship between credit access and productivity growth. Then, we test our theory on a comprehensive French manufacturing firmlevel dataset. We first show evidence of an inverted-U relationship between credit constraints and productivity growth when we aggregate our data at sectoral level. We then move to firm-level analysis, and show that incumbent firms with easier access to credit experience higher productivity growth, but that they also experienced lower exit rates, particularly the least productive firms among them. To confirm our results, we exploit the 2012 Eurosystem's Additional Credit Claims (ACC) program as a quasi-experiment that generated exogenous extra supply of credits for a subset of incumbent firms.
    Keywords: credit constraint, firms, growth, interest rate, productivity.
    JEL: G21 G32 O40 O47
    Date: 2018
  10. By: Parui, Pintu
    Abstract: In post-Keynesian literature, Hein (2012a) was the first to incorporate financialization as an influential positive determinant of the rate of technological change. However, financialization is more like a two-edged sword which can affect technological progress negatively as well. We capture both the positive as well as the negative effect of financialization on technological progress which encapsulates the possibility of multiple equilibria. In analyzing the long run of the model we endogenize the financialization parameter as well. We then show how two subsystems (technological progress and financialization dynamics) when interact with each other, can produce instability and cycles for the whole system. We show that under certain circumstances, higher speed of diffusion of technological innovation, more regulated financial markets, and higher intra-class competition among firms are desirable for stabilizing the economy. Finally, we provide some policy prescriptions for the same.
    Keywords: Capital accumulation, Distribution, Financialization, Kaleckian model, Technological progress, Andronov–Hopf bifurcation, Saddle-node bifurcations, Limit cycles
    JEL: C62 C69 D33 E12 G01 O16 O41
    Date: 2018–10–05
  11. By: Alex S. L. Tse
    Abstract: Default risk significantly affects the corporate policies of a firm. We develop a model in which a limited liability entity subject to Poisson default shock jointly sets its dividend policy and capital structure to maximize the expected lifetime utility from consumption of risk averse equity investors. We give a complete characterization of the solution to the singular stochastic control problem. The optimal policy involves paying dividends to keep the ratio of firm's equity value to investors' wealth below a critical threshold. Dividend payout acts as a precautionary channel to transfer wealth from the firm to investors for mitigation of losses in the event of default. Higher the default risk, more aggressively the firm leverages and pays dividends.
    Date: 2018–10
  12. By: Zuzana Virglerova (Tomas Bata University in Zlín, Facutly of Management and Economics)
    Abstract: Many enterprises fight with various risks and it can be a reason of lack of success for their business. The first step towards successful risk management is a risk identification. Entrepreneurs use different methods for risk identification and they also detect diverse risks. The aim of the article is to identify determinants of business risks in SMEs in Visegrad Four. The article deals with the partial results of the empirical questionnaire survey, which was completed in 2018 at the Tomas Bata University in Zlín in the Czech Republic. Questionnaires from the owners of micro and SME enterprises in Hungary (388), Poland (498), Slovakia (487) and Czech Republic (408) were collected. Entrepreneurs were asked for the ability to identify risks, importance of risks and methods used for risk management in their companies. 3 research questions were set in this context. In process of solving the formulated research questions the following statistical tools such as tables, descriptive characteristics, and Person coefficient of contingency were used. Finally, the results indicate that there are differences in risk identification among countries. Also the importance of each risk is different. The similarity of results in Czech Republic and Slovakia was proved. The article concludes with a discussion which explains possible couse of differences and similarities of results.
    Keywords: business risks, SME, entrepreneurship, risk identification
    JEL: G32 M21 L26
    Date: 2018–07
  13. By: Jaspersen, Stefan; Limbach, Peter
    Abstract: This study provides evidence that investors’ demographic similarity to CEOs affects their investment decisions. We find that mutual fund managers overweight firms led by CEOs who resemble them in terms of age, ethnicity and gender. This finding is robust to excluding educational and local ties and is supported by variation in similarity caused by CEO departures. Investing in firms run by similar CEOs, on average, is associated with superior performance and is more pronounced when CEOs have more impact on their firms. Results suggest that demographic similarity to CEOs facilitates informed trading, implying that investors’ information production incorporates firm management.
    Keywords: CEO-investor similarity,familiarity bias,information advantages,investment decisions,mutual fund performance
    JEL: G11 G23 J10
    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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.