nep-cfn New Economics Papers
on Corporate Finance
Issue of 2018‒11‒19
twelve papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Entrepreneurs and Junior Markets: An Assessment By Cécile Carpentier; Jean-Marc Suret
  2. Determinants of the Success of Corporate Recovery in Financial Distressed Company By Giriati
  3. Investment Decisions and Financial Leverage under a Potential Entry Threat By Shinsuke Kamoto
  4. Equity versus Bail-in Debt in Banking: An Agency Perspective By Caterina Mendicino; Kalin Nikolov; Javier Suarez
  5. Financial Credit Risk Evaluation Based on Core Enterprise Supply Chains By Mou, W.M.; Wong, W.-K.; McAleer, M.J.
  6. "Finance and growth" re-loaded By Méndez, Lizethe; Ongena, Steven
  7. Do Boards Of Directors Affect Ceo Behavior? Evidence From Payout Decisions By Artem E. Anilov; Irina V. Ivashkovskaya
  8. The role of the Audit Committee and the Board of Director in mitigating the practice of earnings management: Evidence from Jordan By Khaldoon Al Daoud
  9. Determinants of banks’ profitability and performance: an overview By FERROUHI, El Mehdi
  10. To Ask or Not To Ask? Collateral versus Screening in Lending Relationships By Artashes Karapetyan; Hans Degryse; Sudipto Karmakar
  11. Leverage over the Life Cycle and Implications for Firm Growth and Shock Responsiveness By Emin Dinlersoz; Sebnem Kalemli-Ozcan; Henry Hyatt; Veronika Penciakova
  12. Firm R&D Investment and Export Market Exposure By Bettina Peters; Mark J. Roberts; Van Anh Vuong

  1. By: Cécile Carpentier; Jean-Marc Suret
    Abstract: This article shows that a junior market can be an effective financing strategy for growth-oriented entrepreneurs who want to list on a senior stock exchange. We analyze 209 graduations from the Canadian junior market (TSXV) benchmarked with 191 initial public offerings (IPOs) on the senior exchange (TSX). Graduations are as frequent as IPOs, and the probability of reaching the TSX is significantly higher for TSXV firms than for venture capital-backed firms. The growth rate of revenues is significantly higher before graduations than before IPOs, allowing TSXV firms to reach the TSX earlier. Investors value both groups of firms similarly, indicating comparable perceived quality. In Canada, the junior market is a valuable financing strategy for growth-oriented entrepreneurs. It fulfills its role of fostering the development of innovative firms and feeding the senior exchange. However, the choice of the TSXV reduces entrepreneur ownership interest compared with the IPO strategy.
    Keywords: Junior Market,Graduation,Initial Public Offering,Small Firm,Stock Exchange,
    JEL: G32 G38 O16 M13
    Date: 2018–05–10
  2. By: Giriati (University of Tanjungpura Pontianak, Indonesia Author-2-Name: Mustaruddin Author-2-Workplace-Name: University of Tanjungpura Pontianak, Indonesia Author-3-Name: M. Rustam Author-3-Workplace-Name: University of Tanjungpura Pontianak, 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 - This study aims to examine and analyze the influence of severity, free assets, company size, asset retrenchment and CEO expertise on the success of recovery companies experiencing financial distress that are listed on the Indonesian Stock Exchange (IDX). Methodology/Technique - The population used in this study are all companies listed on the Indonesian Stock Exchange between 2011 and 2016. This study uses a simple logistic regression analysis to test the hypotheses. Findings - The results indicate that free assets and CEO expertise have a significant and positive effect on the success of a company's recovery. Meanwhile, variable severity, asset retrenchment and firm size do not affect the success of the company's recovery.
    Keywords: Turnaround/Recovery; ? Severity; Free Assets; Company Size; Asset Retrenchment; CEO Expertise.
    JEL: G30 G33 G39
    Date: 2018–06–30
  3. By: Shinsuke Kamoto (Kagawa University)
    Abstract: This study examines investment and financing decisions of a pioneering firm and agency costs of debt in the presence of an entry threat by a potential competitor. It demonstrates that the over-investment problem demonstrated by Mauer and Sarkar (2005) remains in the presence of the potential entry threat. In addition, it demonstrates that when the pioneering firm increases leverage, a potential competitor expedites its market entry. Furthermore, high leverage creates the potential for inducing the competitor to enter the market in a downturn and exposing the pioneering firm to a risk of forced bankruptcy. Therefore, the potential entry threat hinders the pioneering firm from debt financing, and thus mitigates agency conflicts between shareholders and bondholders over investment decisions.
    Keywords: Investment; leverage; Agency costs; Entry threats; Real options
    JEL: G31 G32 G33
    Date: 2018–10
  4. By: Caterina Mendicino (European Central Bank); Kalin Nikolov (European Central Bank); Javier Suarez (CEMFI)
    Abstract: We examine the optimal size and composition of banks’ total loss absorbing capacity (TLAC). Optimal size is driven by the trade-off between providing liquidity services through deposits and minimizing deadweight default costs. Optimal composition (equity vs. bail-in debt) is driven by the relative importance of two incentive problems: risk shifting (mitigated by equity) and private benefit taking (mitigated by debt). Our quantitative results suggest that TLAC size in line with current regulation is appropriate. However, an important fraction of it should consist of bail-in debt because such buffer size makes the costs of risk-shifting relatively less important at the margin.
    Keywords: Bail-in debt, loss absorbing capacity, risk shifting, agency problems, bank regulation.
    JEL: G21 G28 G32
    Date: 2017–05
  5. By: Mou, W.M.; Wong, W.-K.; McAleer, M.J.
    Abstract: Supply chain finance has broken through traditional credit modes and advanced rapidly as a creative financial business discipline. Core enterprises have played a critical role in the credit enhancement of supply chain finance. Through the analysis of core enterprise credit risks in supply chain finance, by means of a “fuzzy analytical hierarchy process” (FAHP), the paper constructs a supply chain financial credit risk evaluation system, making quantitative measurements and evaluation of core enterprise credit risk. This enables enterprises to take measures to control credit risk, thereby promoting the healthy development of supply chain finance.
    Keywords: Supply chain finance, core enterprises, financial credit risk evaluation, Fuzzy Analytical Hierarchy Process (FAHP)
    JEL: D81 G32 P42
    Date: 2018–09–01
  6. By: Méndez, Lizethe; Ongena, Steven
    Abstract: We assess the relationship between finance and growth over the period 1980-2014. We estimate a cross-country growth regression for 48 countries during 20 periods of 15 years starting in 1980 (to 1995) and ending in 1999 (to 2014). We use OLS and IV estimations and we find that: 1) overall financial development had a positive effect on economic growth during all periods of our sample, i.e., we confirm that from 1980 to 2014 financial services provided by the various financial systems were significant (to various degrees) for firm creation, industrial expansion and economic growth; but that, 2) the structure of financial markets was particularly relevant for economic growth until the financial crisis; while 3) the structure of the banking sector played a major role since; and finally that, 4) the legal system is the primary determinant of the effectiveness of the overall financial system in facilitating innovation and growth in (almost) all of our sample period. Hence, overall our results suggest that the relationship between finance and growth matters but also that it varies over time in strength and in sector origination.
    Keywords: Financial Structure,Economic Growth,Financial Development
    JEL: O16 G20
    Date: 2018
  7. By: Artem E. Anilov (National Research University Higher School of Economics); Irina V. Ivashkovskaya (National Research University Higher School of Economics)
    Abstract: We test the ability of boards of directors to eliminate the negative impact of CEO behavior on payout policy. We contribute to the literature by testing the ability of boards to influence CEO payout propensity. First, we show that if the compensation scheme of a CEO does not stimulate him or her to take more risk, the level of payout will be higher. Second, by introducing an index of corporate governance quality we show that corporate governance tools may reduce the negative effects of CEO risk preferences: in companies with good corporate governance, the risk preferences of the CEO do not affect payout decisions. Third, based on a set of specifications for risk preferences, we show how the impact of CEO attitudes to risk influences the types of payouts
    Keywords: behavioral finance, corporate governance, payout policy.
    JEL: G34 G35
    Date: 2018
  8. By: Khaldoon Al Daoud (Yarmouk University)
    Abstract: Recently, the audit committees and boards of directors have been considered to be corporate governance mechanisms that can play key roles in mitigating earnings management practices. This study?s purpose is to explore the impact of the board of directors (i.e., size, CEO duality, independence and financial expertise and knowledge) and the presence of an audit committee with earnings management practices in Jordanian firms. The study used the leverage ratio as a control variable. The sample covered industrial firms listed in the Amman Stock Exchange from the years 2014-2016. This study used multiple regression in determining if the board of directors and the audit committee affect earnings management practices. The study revealed that the presence of an audit committee negatively affected the earnings management practice in industrial Jordanian firms. This study suggested that characteristics of the board of directors, namely, independence and CEO duality, significantly influenced the practices of earnings management Furthermore, the findings indicate that separating the position of CEO and chairman along with more independent board members plays an increasingly important role in preventing earnings management practices by ensuring the effective monitoring of management. The study recommends extending such research to offer a more comprehensive awareness of earnings management in emerging capital markets using new variables of corporate governance.
    Keywords: Earnings management, board of director, audit committee and Jordan.
    Date: 2018–10
  9. By: FERROUHI, El Mehdi
    Abstract: The present paper aims to provide an overview of the theoretical and empirical studies and research on banks profitability and performance. Thus, we present the principles of evaluation and modeling of banking performance, we review theories and models related to banking profitability and performance and we present empirical studies of banks profitability.
    Keywords: Profitability, performance, camels, banks
    JEL: G17 G21 G32
    Date: 2018–04–01
  10. By: Artashes Karapetyan; Hans Degryse; Sudipto Karmakar
    Abstract: We study the impact of higher capital requirements on banks' decisions to grant collateralized rather than uncollateralized loans. We exploit the 2011 EBA capital exercise, a quasi-natural experiment that required a number of banks to increase their regulatory capital but not others. This experiment makes secured lending more attractive vis-à-vis unsecured lending for the affected banks as secured loans require less regulatory capital. Using a loan-level dataset covering all corporate loans in Portugal, we identify a novel channel of tighter capital requirements: relative to the control group and after the shock, treated banks require loans more often to be collateralized but less so for relationship borrowers. We further nd this impact is stronger for collateral that saves more on regulatory capital.
    JEL: G21 G28 G32
    Date: 2018
  11. By: Emin Dinlersoz; Sebnem Kalemli-Ozcan; Henry Hyatt; Veronika Penciakova
    Abstract: We study the leverage of U.S. firms over their life-cycle and implications for firm growth and responses to shocks. We use a new dataset that matches private firms’ balance sheets to U.S. Census Bureau’s Longitudinal Business Database (LBD) for the period 2005–2012. A number of stylized facts emerge. First, firm size and leverage are strongly positively correlated for private firms, both in the cross section of firms and over time for a given firm. For public firms, there is a weak negative relation between leverage and size. Second, young private firms borrow more, but firm age has no relation to public firms’ leverage. Third, while private firms switch from debt to equity financing as they age, public firms slightly reduce equity financing as they age. Building on this “normal times” benchmark and using the “Great Recession” as a shock to financial conditions, we show that, for private firms, firm size can serve as a good predictor of financial constraints. During the Great Recession, leverage declines for private firms, but not for public firms. We also provide evidence that private firms’ growth is positively related to leverage, as they finance their growth during normal times with short-term borrowing, whereas the relationship between leverage and firm growth is negative for public firms. These results suggest that public firms are not financially constrained during normal times or during crisis, but private firms are.
    JEL: E23 G32
    Date: 2018–11
  12. By: Bettina Peters; Mark J. Roberts; Van Anh Vuong
    Abstract: In this article we study differences in the returns to R&D investment between firms that sell in international markets and firms that only sell in the domestic market. We use German firm-level data from the high-tech manufacturing sector to estimate a dynamic structural model of a firm's decision to invest in R&D and use it to measure the difference in expected long-run benefit from R&D investment for exporting and domestic firms. The results show that R&D investment leads to a higher rate of product and process innovation among exporting firms and these innovations have a larger impact on productivity improvement in export market sales. As a result, exporting firms have a higher payoff from R&D investment, invest in R&D more frequently than firms that only sell in the domestic market, and, subsequently, have higher rates of productivity growth. The endogenous investment in R&D is an important mechanism that leads to a divergence in the long-run performance of firms that differ in their export market exposure. Simulating the introduction of trade tariffs we find a substantial reduction in firms' productivity growth and incentive to invest in R&D.
    JEL: F14 L25 O3
    Date: 2018–11

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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