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on Corporate Finance |
| By: | Iwasaki, Ichiro; Mizobata, Satoshi |
| Abstract: | This paper aims to perform a large-scale meta-analysis to examine the relationship between ownership concentration and firm performance in emerging economies of Central and Eastern Europe and the former Soviet Union. A meta-synthesis of 1517 estimates collected from 69 previous studies indicated the presence of a statistically significant and positive effect of ownership concentration on firm performance. The synthesized effect size, however, is only modest at best. A meta-regression analysis conducted to identify the factors underlying the small effect size revealed that differences in target industries, estimation periods, design of ownership variables, data sources, estimators, and choices of control variables could have had systematic and profound effects on the empirical results presented in previous studies. We have also noted that publication selection bias is strongly suspected in this research field, and that, due to the magnitude of this bias, existing studies cannot be expected to provide genuine evidence regarding the effect of ownership concentration on firm performance in European emerging economies. Further empirical studies are required to identify the true effect in this region. |
| Keywords: | ownership concentration, enterprise restructuring, firm performance, European emerging economies, meta-analysis, publication selection bias |
| JEL: | D22 G32 G34 L25 P21 P31 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2018-8&r=cfn |
| By: | Branzoli Nicola; Caiumi Antonella |
| Abstract: | The Allowance for Corporate Equity (ACE) introduced in Italy in 2011 has decreased the fiscal distortion between the costs of equity and debt by introducing the deductibility from taxable income of a notional return on capital increases. In this paper we estimate the impact of the ACE on the leverage ratio of Italian manufacturing firms. Using a novel instrumental variable approach to identify the causal effect, we find that the introduction of the incremental ACE has substantially reduced the leverage ratio of its beneficiaries. The effect of the reform increases with age and decreases with the size of the enterprise. These results suggest that an incremental ACE may be an effective policy tool to reduce the leverage ratio of European firms |
| Keywords: | Allowance for Corporate Equity, Corporate Leverage, Debt-Equity Bias |
| JEL: | G32 H25 H32 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxpap:0072&r=cfn |
| By: | Alvaro Remesal (CUNEF) |
| Abstract: | Clawback provisions allow shareholders to recover previously-awarded compensation from managers involved in accounting manipulation or misconduct. I assess theoretically and empirically the effects of clawback provisions on the structure of managerial compensation and the frequency of accounting manipulation. In a principal-agent model I show how, in the presence of clawback enforcement frictions, clawback adoption can tilt the optimal compensation schedule towards the long-term. I test the empirical relevance of the theoretical implication using data from U.S. public firms in the 2002-2016 period. The identification deals with the endogenous timing of adoption and measurement error by exploiting variation in clawback adoption across a firm's board interlock. I find that, in those firms with fewer pre-adoption independent directors, clawback adoption increases the wealthperformance sensitivity of unvested (long-term) compensation, while reduces the frequency of earnings manipulation. The results suggest that enforcement frictions are relevant, particularly for firms where managers face weak monitoring by shareholders. |
| Keywords: | Clawback, executives, governance, compensation, accounting manipulation. |
| JEL: | D86 G34 J33 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2018_1808&r=cfn |
| By: | Guillaume Plantin (Département d'économie); Jean Tirole (Toulouse School of Economics) |
| Abstract: | Building on the idea that accounting matters for corporate governance, this paper studies the equilibrium interaction between the measurement rules that firms find privately optimal, firms’ governance, and the liquidity in the secondary market for their assets. This equilibrium approach reveals an excessive use of market-value accounting: corporate performance measures rely excessively on the information generated by other firms’ asset sales and insufficiently on the realization of a firm’s own capital gains. This dries up market liquidity and reduces the informativeness of price signals, thereby making it more costly for firms to overcome their agency problems. |
| Keywords: | Cost and market value accounting; Agency; Gains trading; Equilibrium accounting rules |
| JEL: | D21 D82 G34 G38 M41 M48 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/4mmob120cl8g9ph8aisjq72u3h&r=cfn |
| By: | Alvaro Remesal (CUNEF) |
| Abstract: | I estimate a dynamic agency model to quantify the importance of dismissals in CEO incentives vis-à-vis pecuniary compensation. The model features endogenous dynamics in deferred and ow compensation, as well as exogenous departures, and endogenous dismissals after poor firm performance. Thus, the model functions as a classification device for CEO turnover events that exploits information from all the departures in the data. I estimate the model via the Simulated Method of Moments, using data for CEOs in U.S. public firms appointed from 1993 to 2013. The estimated CEO dismissal rate is 1.2 percent, and the CEO replacement cost represents 3.4 percent of firm assets, 64 million in 2015 U.S. dollars for the median firm. Poor governance, proxied by director independence, increases the replacement costs in big firms. The relationship reverses in small firms, so board independence must also capture better hiring policies or career concerns of directors. The results confirm that CEO dismissals are infrequent. However, changes in the cost of replacements that generate small increases in the underlying dismissal rate lead to substantial reductions in the size of incentive compensation. |
| Keywords: | Executives, CEO turnover, CEO compensation, governance, dismissal, SMM. |
| JEL: | G34 J33 J63 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2018_1809&r=cfn |
| By: | Julio A. Crego (Tilburg University) |
| Abstract: | I argue that the arrival of a public signal, regardless of its content, can yield an increase in adverse selection costs in financial markets. To explain its occurrence, I propose a dynamic model with a public signal and risk-averse informed investors. In this set-up, the public signal induces informed investors to participate in the market as it reduces uncertainty. While it increases adverse selection costs, the increase in participation results in more informative prices. Apart from the static effects, the model's dynamics deliver testable hypotheses about price and liquidity before and after the signal's release. Using transaction-level data, I estimate the effect of the release of the Weekly Petroleum Status Report on the bid-ask spread, volume, and midpoint returns via a difference-in-difference strategy. I find that the mean bid-ask spread doubles immediately after the release and that volume increases by 32 percent. Moreover, this effect persists over time, and is independent of the report's content whereas prices react to this information immediately. Nevertheless, liquidity at the end of the trading session is not affected by the report. |
| Keywords: | Public information, news release, asymmetric information, liquidity. |
| JEL: | G12 G14 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2018_1714&r=cfn |
| By: | Julio A. Crego (Tilburg University) |
| Abstract: | I argue that the arrival of a public signal, regardless of its content, can yield an increase in adverse selection costs in financial markets. To explain its occurrence, I propose a dynamic model with a public signal and risk-averse informed investors. In this set-up, the public signal induces informed investors to participate in the market as it reduces uncertainty. While it increases adverse selection costs, the increase in participation results in more informative prices. Apart from the static effects, the model's dynamics deliver testable hypotheses about price and liquidity before and after the signal's release. Using transaction-level data, I estimate the effect of the release of the Weekly Petroleum Status Report on the bid-ask spread, volume, and midpoint returns via a difference-in-difference strategy. I find that the mean bid-ask spread doubles immediately after the release and that volume increases by 32 percent. Moreover, this effect persists over time, and is independent of the report's content whereas prices react to this information immediately. Nevertheless, liquidity at the end of the trading session is not affected by the report. |
| Keywords: | Public information, news release, asymmetric information, liquidity. |
| JEL: | G12 G14 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2017_1714&r=cfn |
| By: | Keuschnigg, Christian; Kogler, Michael |
| Abstract: | Trade and innovation cause structural change. Productive factors must flow from declining to growing industries. Banks play a major role in cutting credit to non-viable firms in downsizing sectors and provide new credit to finance investment in expanding, innovative sectors. Structural parameters of a country’s banking system thus influence comparative advantage and trade patterns. The analysis points to the importance of insolvency laws, minimum capital standards, and cost of bank equity to determine credit reallocation, sectoral expansion and trade patterns. |
| Keywords: | Capital reallocation,banking,trade,comparative advantage |
| JEL: | F10 G21 G28 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc18:181571&r=cfn |
| By: | Emanuele Ciola (Economics Department, Università Politecnica delle Marche, Ancona-Italy) |
| Abstract: | During the last three decades Western economies have been characterized by an increasing role played by the financial sector. This process, called financialization, has been associated with lower economic growth, increased inequality and declining financial stability. In this article I develop a simple framework to study the effects of financialization on aggregate growth and systemic risk. The main driver of this mechanism is the bargaining power of intermediaries. Indeed, financial institutions, by absorbing a larger quota of income from their borrowers, can reduce the incentive for new entrepreneurs to enter in the market. Because of that, both the long-term potential growth rate and the overall stability of the system can be negatively affected by an overdeveloped financial sector. |
| Keywords: | financialization, entrepreneurship, firm financing, growth, systemic risk |
| JEL: | E44 G32 O43 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:jau:wpaper:2018/11&r=cfn |
| By: | Maxin, Hannes |
| Abstract: | This paper investigates an entrepreneur who decides whether to obtain funds from an independent venture capital firm (IVC) or a corporate venture capital firm (CVC) to develop an innovative product. In case of success, the entrepreneur enters a market and competes with an incumbent. The CVC is a subsidiary of an input producer. This input will be required by both the entrepreneur and the incumbent to produce their products. I analyze three different exit routes: (1) IPO, (2) Trade Sale via incumbent and (3) Trade Sale via input producer. I show that the CVC does not exit via a Trade Sale to its parental company due to a loss of demand for the input good. Moreover, I find that the IVC exits more innovative ventures more likely via an IPO, in comparison with the CVC. The analysis generates a number of empirical implications for the difference between IVCs and CVCs and the link between CVCs and the Trade Sale decision of their parental companies. |
| Keywords: | Corporate Venture Capital,Venture Capital,Exit,Complementarity,IPO,Trade Sale |
| JEL: | G24 M13 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc18:181647&r=cfn |
| By: | Ugo Pagano |
| Abstract: | The paper examines different types of financial organization in a framework of incomplete law, under which the rights and the duties of the individuals are not completely specified. It focuses on the relationship between finance and specificity arguing that, while financial structure influences the degree of specificity of the assets, the degree of specificity of the assets influences the financial structure of firm. Because of these two-way relation, multiple possible equilibria exist and their selection is influenced by the nature the underlying assets. For this reason, the spectacular increase of intangibles is likely to have increased the role of equity finance relatively to traditional forms of banking, which are usually guaranteed by assets that, unlike most intangibles, have thick markets and fairly stable market values. The excessive financialization of the global economy mirrors the abnormal growth of intangibles and, in particular, of the assets related to the privatization of knowledge. International regulations should also tackle the negative effects of overenclosing the knowledge commons. |
| Keywords: | Finance, Intangibles, Intellectual Property, Organizational Equuilibria |
| JEL: | G30 P51 K10 E02 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:779&r=cfn |
| By: | Yujin Kim; Chirantan Chatterjee; Matthew J. Higgins |
| Abstract: | Venture capitalists (VCs) traditionally invest in risky, early-stage innovations. Recent research suggests, however, that VCs may be herding into less risky, later-stage projects. Such a shift can create funding gaps for early-stage firms. Can regulation reverse this trend by providing information that may reduce the risk of early-stage investments? Using the regulatory setting of the European Union and the passage of the Orphan Drug Act (EU-ODA), we examine this question in the biopharmaceutical industry. We provide causal evidence that VCs are more likely to invest in early-stage biopharmaceutical firms operating in sub-fields disproportionately affected by EU-ODA. We also find that the level of syndication declined for early-stage investments and exit performance improved. Importantly, the shift towards early-stage investment did not lead to any higher proportion of bankruptcies. Collectively, our results suggest that the information provided by EU-ODA helped alleviate information asymmetries faced by VCs investing in early-stage biopharmaceutical firms. We conclude by discussing implications for entrepreneurial finance and innovation policy. |
| JEL: | G24 L51 L65 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25202&r=cfn |
| By: | Shanti (Widya Mandala Catholic University, Dinoyo Street, 42-44, 60265, Surabaya, Indonesia Author-2-Name: Bambang Tjahjadi Author-2-Workplace-Name: Airlangga University, Airlangga Street 4-6, 60286, Surabaya, Indonesia Author-3-Name: I Made Narsa Author-3-Workplace-Name: Airlangga University, Airlangga Street 4-6, 60286, Surabaya, Indonesia Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:) |
| Abstract: | Objective - The implementation of integrated reporting (IR), which is a composite of financial and non-financial information, in one single report makes financial reporting more comprehensive and more transparent. Transparent information in IR gives annual reporting of family firms a higher earnings quality. Methodology/Technique - This research aims to examine the effect of IR on earnings quality of family firms in the mining industry on the Indonesian Stock Exchange between 2014 and 2017. Findings - The results of this study indicate that there is a positive and significant relationship between integrating reporting and earnings quality. These results confirm that firms that use integrated reporting tend to show higher earnings quality. The study also finds that larger sized companies and larger leverage amounts equals a higher volume of information disclosed. Novelty – The motivation of this research is to examine IR issues that are relatively new. |
| Keywords: | Earnings Quality; Family Firms; Financial Reporting; Indonesia; Integrated Reporting. |
| JEL: | M40 M41 M49 |
| Date: | 2018–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:gtr:gatrjs:jfbr144&r=cfn |
| By: | Vitaly M. Bord; Victoria Ivashina; Ryan D. Taliaferro |
| Abstract: | We show that since 2007, there was a large and persistent shift in the composition of lenders to small firms. Large banks impacted by the real estate prices collapse systematically contracted their credit to all small firms throughout the U.S.. However, healthy banks expanded their operations and entered new banking markets. The market share gain of these banks was a standard deviation above the long-run historical market share growth and persists for years following the financial crisis. Despite this offsetting expansion, the net effect of the contraction in credit was negative, with lower aggregate credit and deposits growth, and lower entrepreneurial activity through 2015. |
| JEL: | G21 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25184&r=cfn |
| By: | Galvani, Valentina (University of Alberta, Department of Economics); Li, Lifang (University of Alberta, Department of Economics) |
| Abstract: | We show that firm-level cross-asset predictability for bonds with a high incidence of informed trading is mostly driven by information diffusion. In contrast, the activities of uninformed investors dominate in originating predictability for the remaining bonds in the firm-level cross-section. Capitalizing on these results, we explore the role of informed and uninformed trading in determining the momentum effect. We find that gradual information diffusion is the main driver of short-term momentum. However, the effect of uninformed trading may outweigh that of information in generating large momentum returns, as it is the case for private-issuer bonds. |
| Keywords: | asymmetric information; informed trading; uninformed trading; predictability; momentum; corporate bonds |
| JEL: | G10 G14 |
| Date: | 2018–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2018_017&r=cfn |
| By: | Mazzocchetti, Andrea; Lauretta, Eliana; Raberto, Marco; Teglio, Andrea; Cincotti, Silvano |
| Abstract: | The paper presents an agent-based model of a credit economy which includes a securitisation process and a bailout mechanism for banks' bankruptcies. Within this model's framework banks are able to sell mortgages to a Financial Vehicle Corporation, which finances its activity by creating Mortgage-Backed Securities and selling them to a mutual fund. In turn, the mutual fund collects liquidity by selling shares to households and remunerating them with a monthly interest rate. The impact of this mechanism is analysed by means of computational experiments for different levels of securitisation propensities of banks. Furthermore, we study a set of systemic risk indicators which have the aim to assess financial imbalances within the financial system. Two of them are the mortgage-to-GDP ratio and the Capital Adequacy Ratio which are constructed to detect only the in-balance sheet changes in banks' credit exposure. We consider two additional indicators, similar to the previous ones with the only difference that they are able to account also for the off-balance sheet items. Moreover, we introduce a novel indicator, the so-called VUC indicator, which also targets the off-balance assets. Results confirm that higher securitisation propensities weaken the financial stability of banks with relevant effects on different sectors of the economy. Most important, the analysis of systemic risk reveals the important issue of designing suitable systemic risk indicators for predicting incoming financial crises, finding that an essential feature of these indicators should be to integrate banks' off-balance sheet assets. |
| Keywords: | sytemic financial risk indicators, securitisation, housing market, agent-based models |
| JEL: | C63 G21 G23 R31 |
| Date: | 2018–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:89779&r=cfn |
| By: | Morales, Rosa; Radoniqi, Fatos |
| Abstract: | his paper investigates the relationship between various measures of intangible capital and the market valuation of young biopharmaceutical firms. We employ a non-linear model to measure the impact of R&D, patents, alliances, organizational capital, and mergers on the value of 349 newly-incorporated firms between 1980 and 2006. We find that, with the exception of mergers, our measures of intangible capital havepositive and significant effects on market values; the impact of R&D declines as firms mature; and the omission of either alliances or organizational capital leads to a significant overstatement of the influence of R&D. |
| Keywords: | Innovation, R&D, Intangible Assets, Market Valuation, Biopharmaceuticals |
| JEL: | E22 G32 L65 O32 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:88580&r=cfn |
| By: | Avdiu, Besart; Weichenrieder, Alfons |
| Abstract: | The paper compares provision of public infrastructure via public-private partnerships (PPPs) with provision under government management. Due to soft budget constraints of government management, PPPs exert more effort and therefore have a cost advantage. At the same time, hard budget constraints for PPPs introduce a bankruptcy risk and bankruptcy costs. Consequently, PPPs may be less efficient, although this does not result from PPPs’ higher interest costs. |
| JEL: | H11 H54 G33 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc18:181521&r=cfn |
| By: | Simplice Asongu (Yaoundé/Cameroon); Nicholas Odhiambo (Pretoria, South Africa) |
| Abstract: | This study investigates whether information sharing channels that are meant to reduce information asymmetry have led to an increase in financial access. The study employs a Generalised Method of Moments technique using data from 53 African countries during the period from 2004-2011 to examine this linkage. Information sharing channels are theoretically designed to promote the formal financial sector and discourage the informal financial sector. The study uses two information sharing channels: private credit bureaus and public credit registries. The study found that both information sharing channels have a positive and significant impact on financial access. The study also found that public credit registries complement the formal financial sector to promote financial access. The policy implications are discussed. |
| Keywords: | Information asymmetry; Financialisation; Financial Access; Africa |
| JEL: | G20 G29 L96 O40 O55 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:afe:wpaper:18/001&r=cfn |
| By: | Bernales, Alejandro; Garrido, Nicolás; Sagade, Satchit; Valenzuela, Marcela; Westheide, Christian |
| Abstract: | Exchanges nowadays routinely operate multiple, almost identically structured limit order markets for the same security. We study the effects of such fragmentation on market performance using a dynamic model where agents trade strategically across two identically-organized limit order books. We show that fragmented markets, in equilibrium, offer higher welfare to intermediaries at the expense of investors with intrinsic trading motives, and lower liquidity than consolidated markets. Consistent with our theory, we document improvements in liquidity and lower profits for liquidity providers when Euronext, in 2009, consolidated its order flow for stocks traded across two country-specific and identically-organized order books into a single order book. Our results suggest that competition in market design, not fragmentation, drives previously documented improvements in market quality when new trading venues emerge; in the absence of such competition, market fragmentation is harmful. |
| Keywords: | Fragmentation,Competition,Liquidity,Price Efficiency |
| JEL: | G10 G12 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:234&r=cfn |
| By: | Fischer, Andreas M. (Swiss National Bank); Groeger, Henrike (European University Institute); Saure, Philip (Johannes Gutenberg University); Yesin, Pinar (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 |
| JEL: | F32 F47 G11 |
| Date: | 2018–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:345&r=cfn |