nep-cfn New Economics Papers
on Corporate Finance
Issue of 2018‒12‒03
thirteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Ownership structure of family business groups of Pakistan By SHAHID HUSSAIN; nabeel safdar
  2. Corporate governance By Lehmann, Erik
  3. Determinants of Dividend Payout Ratio in Thailand By Apichat Pongsupatt; Tharinee Pongsupatt
  4. Have capital market anomalies worldwide attenuated in the recent era of high liquidity and trading activity? By Auer, Benjamin R.; Rottmann, Horst
  5. Syndicated Lending: The Role of Relationships for the Retained Share By Chala, Alemu Tulu
  6. Refinancing Risk and Debt Maturity Choice during a Financial Crisis By Chala, Alemu Tulu
  7. Lending relationships and the collateral channel By Anderson, Gareth; Bahaj, Saleem; Chavaz, Matthieu; Foulis, Angus; Pinter, Gabor
  8. Financial structure and income inequality By Michael Brei; Giovanni Ferri; Leonardo Gambacorta
  9. Impact of Capital Structure on Enterprise?s Profitability: Evidence from Warsaw Stock Exchange By Jacek Jaworski; Leszek Czerwonka
  10. How do Capital Requirements Affect Loan Rates? Evidence from High Volatility Commercial Real Estate By David P. Glancy; Robert J. Kurtzman
  11. Financialisation, financial development, and investment: evidence from European non-financial corporations By Tori, Daniele; Onaran, Özlem
  12. Does lender type matter for the pricing of loans? By Rajan, Aniruddha; Willison, Matthew
  13. How do shocks to bank capital affect lending and growth? By Tölö, Eero; Miettinen, Paavo

  1. By: SHAHID HUSSAIN (National University of Sciences and Technology (NUST), NUST Business School); nabeel safdar (National University of Sciences and Technology (NUST), NUST Business School)
    Abstract: This study analysis the family business groups ownership structure in the framework of corporate legal system, regulatory institutions and codes of corporate governance of Pakistan. The study uses unique handpicked data comprising a sample of 326 non-financial firms listed on Pakistan Stock Exchange for a period of 2009-13. The results reveal that Pakistani corporations have high degree of concentration of ownership. The controlling shareholders own about 87 % of firms with 10 % or more shareholding and 60 % of firms with 20 % or more shareholding. Most of the businesses are controlled by families. In 63 % of business group firms, families own 20 % or more top shareholdings. The novel contribution of the study is to develop the ownership structure of family businesses and measure the cash flow leverage, cash flow and voting rights of ultimate owners in family business groups. The study finds the considerable difference in voting and cash flow rights in family business group firms. This has strong implications for regulators, minority shareholders and dispersed investors.
    Keywords: ownership structure, business group, corporate governance, cash-flow rights, minority shareholders, voting rights, family business
    JEL: G32 G34 G38
    Date: 2018–06
  2. By: Lehmann, Erik
    Abstract: Corporate governance is a recent concept that encompasses the costs caused by managerial misbehavior. Corporate governance is concerned with how organizations in general, and corporations in particular, produce value and how that value is distributed among the members of the corporation, its stakeholders. The interrelation of value production and value distribution links the ubiquitous technological aspect (the production of value) with the moral and ethical dimension (the distribution of value). Corporate governance is concerned with this link in general, but more specifically with the moral and ethical dimensions of distributing the generated value among the stakeholders. Value in firms is created by firm-specific investments, and the motivation and coordination of value enhancing activities and investment is protected by the power concentrated at the pyramidal top of the organization. In modern companies, it is the CEO and the top management deciding how to create value and how to distribute it among the relevant stakeholders. Due to asymmetric information and the imperfect nature of markets and contracts, adverse selection and moral hazard problems occur, where delegated (selected) managers could act in their own interest at the costs of other relevant stakeholders. Corporate governance is a two-tailed concept. The first aspect is about identifying the (most) relevant stakeholder(s), separating theory and practice into two different and conflicting streams: the stakeholder value approach and the shareholder value approach. The second aspect of the concept is about providing and analyzing different mechanisms, reducing the costs induced by moral hazard and adverse selection effects, and to balance out the motivation and coordination problems of the relevant stakeholders. Corporate governance is an interdisciplinary concept encompassing academic fields like finance, economics, accounting, law, taxation and psychology, among others. Like countries differ according to their institutions (i.e. legal and political systems, norms, and rules), firms differ according to their size, age, dominant shareholders or industries. Thus concepts in corporate governance differ along these dimensions as well. And while the underlying characteristics vary in time, continuously or as an exogenous shock, concepts in corporate governance are dynamic and static, offering a challenging field of interest for academics, policy makers and firm managers.
    Keywords: corporate Governance,principal agent theory,transaction costs,theory of the firm,moral hazard,adverse selection,managerial misbehavior,merger and acquisition,board of directors,remuneration
    JEL: G34 G20 L21
    Date: 2018
  3. By: Apichat Pongsupatt (Kasetsart University); Tharinee Pongsupatt (Kasetsart University)
    Abstract: Dividend payout ratio has been a controversial topic among scholars for some decades. Researchers have different conclusion and attempt to construct theoretical models to defy factors that impact dividend payout ratio such as transaction theory or agency theory for examples. The purpose of this study is to investigate some financial indicators that affect the dividend payout ratio in Thailand?s capital market. From existing literature reviews, we select seven factors including dividend payout ratio a previous year, corporate size, current ratio, debt to equity ratio, sale growth, free cash flow and return on equity or return on assets. This study uses secondary data collected from annual financial statements of listed companies in Thailand Stock Exchange exclude financial sector during 2014 -2016 periods. After we evaluate the data based on specific criteria, only 106 companies remained qualified. Therefore 318 firm-year financial information has applied for this study. A panel multiple regression model is implemented for statistic testing at the significant level 0.05. The results show the positive and statistically significant effect of current ratio, debt ratio and return on equity to dividend payout ratio. While the results show negative and statistically significance of sales growth to dividend payout ratio. The results are consistent with prior survey except for debt ratio which shows the opposite direction. However, the results show no significant effect of dividend payout ratio a previous year, firm size and free cash flow to dividend payout ratio. Nevertheless, return on assets is better explanation than return on equity since the result demonstrates higher r square. This research limits determinants from previous literatures. Other explanatory variables such as investment opportunities, business risk or firm life cycle are subject to future research.
    Keywords: Dividend Payout Ratio, determinants, Thailand Stock Exchange
    JEL: G39 M49 G32
    Date: 2018–11
  4. By: Auer, Benjamin R.; Rottmann, Horst
    Abstract: We revisit and extend the study by Chordia et al. (2014) which documents that, in recent years, increased liquidity has significantly decreased exploitable returns of capital market anomalies in the US. Using a novel international dataset of arbitrage portfolio returns for four well-known anomalies (size, value, momentum and beta) in 21 developed stock markets and more advanced statistical methodology (quantile regressions, Markov regime-switching models, panel estimation procedures), we arrive at two important findings. First, the US evidence in the above study is not fully robust. Second, while markets worldwide are characterised by positive trends in liquidity, there is no persuasive time-series and cross-sectional evidence for a negative link between anomalies in market returns and liquidity. Thus, this proxy of arbitrage activity does not appear to be a key factor in explaining the dynamics of anomalous returns.
    Keywords: capital market anomalies,attenuation,liquidity,quantile regression,Markov regimeswitching,panel analysis
    JEL: G14 G15
    Date: 2018
  5. By: Chala, Alemu Tulu (Department of Economics, Lund University)
    Abstract: The finance literature offers ambiguous predictions about the impact of lending relationships on the share retained by lead arrangers in syndicated loans. While some literature indicates that lending relationships can help to alleviate post contractual agency conflicts, others imply that relationship lead arrangers may use their information advantage to exploit syndicate participants. Using syndicated loans made to U.S. firms, this article shows that lead arrangers retain a smaller share in lending relationships with firms. This result suggests that the agency-conflict-mitigating feature of a lending relationship outweighs the information-exploitation- facilitating feature. Consistent with the view that reputational concerns mitigate agency conflicts and make relationships less relevant, the impact on the retained share is stronger for non-top-tier and smaller lead arrangers. This article also shows that the effect of lending relationships is concentrated in loan contracts that include covenants.
    Keywords: Syndicated lending; Relationships; Retained share
    JEL: D82 G21 G32
    Date: 2018–11–13
  6. By: Chala, Alemu Tulu (Department of Economics, Lund University)
    Abstract: This paper explores whether refinancing risk is an important determinant of maturity decisions by investigating how firms with refinancing risk choose the maturity of new loans they obtain during the 2007-2009 financial crisis. The firms' refinancing risk is measured by the maturing portion of outstanding long-term debt. The result shows that firms with a high refinancing risk choose longer maturities. This effect is stronger for speculative-grade and low-cash-flow firms. There is also evidence that firms with refinancing risk obtain longer maturities from their relationship lenders.
    Keywords: Refinancing risk; Debt maturity; financial crisis
    JEL: G01 G32 G39
    Date: 2018–11–13
  7. By: Anderson, Gareth (Oxford University); Bahaj, Saleem (Bank of England); Chavaz, Matthieu (Bank of England); Foulis, Angus (Bank of England); Pinter, Gabor (Bank of England)
    Abstract: This paper shows that lending relationships insulate corporate investment from fluctuations in collateral values. We construct a novel database covering the banking relationships of private and public UK firms and their individual directors. The sensitivity of corporate investment to changes in real estate collateral values is halved when the relationship between a bank and a firm or its board of directors increases by 11 years. The importance of long bank-firm relationships diminishes when directors have personal mortgage relationships with their firm’s lender. Our findings support theories where collateral and private information are substitutes in mitigating credit frictions over the cycle.
    Keywords: Collateral; lending relationships; SMEs; information frictions
    JEL: E22 E32 G32
    Date: 2018–11–16
  8. By: Michael Brei; Giovanni Ferri; Leonardo Gambacorta
    Abstract: This paper empirically investigates the link between financial structure and income inequality. Using data for a panel of 97 economies over the period 1989-2012, we find that the relationship is not monotonic. Up to a point, more finance reduces income inequality. Beyond that point, inequality rises if finance is expanded via market-based financing, while it does not when finance grows via bank lending. These findings concur with a well-established literature indicating that deeper financial systems help reduce poverty and inequality in developing countries, but also with recent evidence of rising inequality in various financially advanced economies.
    Keywords: inequality, finance, banks, financial markets
    JEL: G10 G21 O15 D63
    Date: 2018–11
  9. By: Jacek Jaworski (WSB University in Gda?sk); Leszek Czerwonka (University of Gda?sk, Faculty of Economics)
    Abstract: The aim of the paper is to diagnose the impact of the capital structure of companies listed on the Warsaw Stock Exchange on their profitability. The ratios used in the profitability measurement are Return on Sales (ROS), Return on Assets (ROA) and Return on Equity (ROE). The capital structure is characterised by the total debt ratio (DR) and long-term debt ratio (LDR). The method of the empirical study is panel analysis of data from financial statements of 372 companies listed in Warsaw in the years 1998 - 2016. As control variables, the size of the company and the rate of its growth were assumed.The results of the study indicate that the impact of the total debt share in the capital structure on profitability is negative. On the other hand, the dependence between profitability and long-term debt is positive. In addition, it has been found out that a greater size of a company results in higher profitability. A similar relationship is observed for the company growth rate.The limitations of the research are: a time-limited and number-limited research sample and lack of consideration in the study of external conditions (e.g. the general economic situation, the industry, internationalisation etc.).
    Keywords: profitability, return on sales, return on assets, return on equity, leverage, sources of finance, capital structure
    JEL: G32 C23
    Date: 2018–06
  10. By: David P. Glancy; Robert J. Kurtzman
    Abstract: We study how bank loan rates responded to a 50% increase in capital requirements for a subcategory of construction lending, High Volatility Commercial Real Estate (HVCRE). To identify this effect, we exploit variation in the loan terms determining whether a loan is classified as HVCRE and the time that a treated loan would be subject to the increased capital requirements. We estimate that the HVCRE rule increases loan rates by about 40 basis points for HVCRE loans, indicating that a one percentage point increase in required capital raises loan rates by about 9.5 basis points.
    Keywords: Basel III ; Capital Requirements ; Commercial Real Estate
    JEL: G38 G28 G21
    Date: 2018–11
  11. By: Tori, Daniele; Onaran, Özlem
    Keywords: financialisation; financial development; non-financial corporations; fixed investment; Europe
    JEL: E2 E21
    Date: 2018–11–09
  12. By: Rajan, Aniruddha (Bank of England); Willison, Matthew (Bank of England)
    Abstract: Loan markets often contain lenders with contrasting business models and ownership structures. But does that matter for outcomes in these markets? We examine whether it does using a loan-level data set of mortgage transactions in the United Kingdom. We find the type of lender can matter for pricing behaviour. The levels of interest rates, as well as the sensitivity of rates to funding costs and borrower risk, vary between lender types. Some of these differences are consistent with theories of how agency problems might vary between types of lenders and past empirical studies. But other differences are not consistent. The results suggest further research is needed to understand how, to what extent, and why lender types affect pricing in loan markets.
    Keywords: Banking; lending; business models; mutuals
    JEL: G21 G30 L21
    Date: 2018–11–16
  13. By: Tölö, Eero; Miettinen, Paavo
    Abstract: We examine bank capital shocks using a recent new approach based on non-normal errors in vector autoregressive models. Using a sample of 14 European economies over January 2004 through March 2018 we identify two distinct classes of bank capital shocks, capital tightening shocks, and bank profitability shocks. We find that both bank capital shocks frequently lead to changes in lending volume and interest rates for new loans. In contrast to some recent similar studies, we find less evidence for impact on production. Bank capital shocks have further effects on the substitution between the bank and market-based financing and on credit allocation across different borrower sectors. Policymakers may find these results useful when considering counter-cyclical adjustments to the bank capital requirements.
    JEL: C11 C32 C54
    Date: 2018–11–28

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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