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on Corporate Finance |
| By: | Feng, Xunan (Shanghai University of Finance and Economics); Johansson, Anders C. (Stockholm China Economic Research Institute) |
| Abstract: | This study examines how state versus private ownership and political participation by private entrepreneurs affect access to financing through the corporate bond market in China. We find that state ownership is positively related to the likelihood that a firm issues bonds and that firms controlled by ultimate owners who participate in politics are significantly more likely to issue bonds. We also show that state ownership as well as political participation by the ultimate owner is positively associated with the amount firms raise in bond offerings. Moreover, state firms characterized by over-investment tend to increase their excess investments after a bond offering. For under-investing private firms, existing suboptimal investment levels are alleviated by bond offerings. In addition, we find that private firms significantly increase their R&D investments after a public bond offering, especially those controlled by owners who participate in politics. Finally, bond offerings are associated with a significant decline in market value for SOEs. For firms controlled by an owner who participates in politics, the opposite holds true. These findings highlight the need to improve the existing credit allocation via the bond market and the important role political capital plays for private firms in China. |
| Keywords: | corporate bonds; bond issuance; SOEs; private firms; political participation; political connections; access to finance; China |
| JEL: | G10 G30 G32 L33 P20 |
| Date: | 2018–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hascer:2018-050&r=all |
| By: | Shai Bernstein; Abhishek Dev; Josh Lerner |
| Abstract: | This paper explores the creation and evolution of new stock exchanges around the world geared towards entrepreneurial companies, known as second-tier exchanges. Using hand-collected novel data, we document the proliferation of these new stock exchanges that were created in a large number of countries, attracted a significant volume of global IPOs, were introduced fairly cyclically, and had lower listing requirements when compared to first-tier stock exchanges. We find that increases in demand for entrepreneurial capital—as proxied for by patenting, IPOs, and stock market valuations—led to a higher likelihood of the introduction of second-tier exchanges. We find no evidence that new second-tier exchanges diverted the existing flow of IPOs from established stock exchanges. Shareholder protection strongly predicted exchange success, even in countries with high levels of venture capital activity, patenting, and financial market development. Second-tier exchanges in countries with better shareholder protection allowed younger, less profitable, but faster-growing companies to raise more capital. These results highlight the importance of institutions in enabling the provision of entrepreneurial capital to young companies. |
| JEL: | G24 G38 L26 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25414&r=all |
| By: | Kornelia Fabisik; Rüdiger Fahlenbrach; René M. Stulz; Jérôme P. Taillard |
| Abstract: | Using more than 50,000 firm-years from 1988 to 2015, we show that the empirical relation between a firm’s Tobin’s q and managerial ownership is systematically negative. When we restrict our sample to larger firms as in the prior literature, our findings are consistent with the literature, showing that there is an increasing and concave relation between q and managerial ownership. We show that these seemingly contradictory results are explained by cumulative past performance and liquidity. Better performing firms have more liquid equity, which enables insiders to more easily sell shares after the IPO, and they also have a higher Tobin’s q. |
| JEL: | G30 G32 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25352&r=all |
| By: | Mikael Béatriz; Jérôme Coffinet; Théo Nicolas |
| Abstract: | Using a unique panel design that enables to control for bank, firm, market and loan heterogeneities, we confirm that relationship lenders charge higher rates in good times and lower rates in bad times. However, we show that risky single-bank firms do not benefit from this insurance mechanism and are "held-up" by relationship lenders. Local bankcompetition and higher non-bank finance dependence alleviate this information-monopolistic behavior. Finally, long-term loans and small, non-trading-oriented and well capitalized banks drive the benefits of relationship lending. |
| Keywords: | relationship lending, financial crisis, interest rates, bank lending channel, SME, competition. |
| JEL: | D82 E32 E51 G01 G21 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:705&r=all |
| By: | Ron Alquist (AQR Capital Management); Nicolas Berman (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE & CEPR); Rahul Mukherjee (Department of Economics, Graduate Institute of International and Development Studies); Linda L. Tesar (Department of Economics, University of Michigan & NBER) |
| Abstract: | We develop a model of cross-border acquisitions in which the foreign acquirer's ownership choice reflects a trade-off between easing the target's credit constraints and the costs of operating in an environment with weak institutions. Data on domestic and foreign acquisitions in emerging markets over the period 1990-2007 support the model predictions. The share of full foreign acquisitions is higher in sectors more reliant on external finance, in countries with lower financial development, and in countries with higher institutional quality. Sectoral external finance dependence accentuates the effect of country-level financial development and institutional quality. By contrast, the level of foreign ownership in partial acquisitions is insensitive to institutional factors and depends weakly on financial factors. |
| Keywords: | foreign direct investment, foreign ownership, mergers and acquisitions, financial development, institutional quality |
| JEL: | F21 F23 G34 L24 L60 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1847&r=all |
| By: | Yildirim, Ramazan; Masih, Mansur; Bacha, Obiyathulla |
| Abstract: | Many Muslim individual and institutional investors seek to invest only in stocks that are compliant with the Shari'ah (i.e. Islamic law). Among others, Dow Jones addressed this demand and has developed their proprietary screening methodologies to identify Shari'ah compliant firms (SC). One key factor that distinguishes SC firms from their non compliant peers (SNC) is that the former is not allowed to cross the leverage threshold of 33%. Due to the restrictions imposed on them, it is expected that SC firms exhibit different capital structure compared to the SNC firms. The purpose of this initial comparative study is to analyze the most reliable debt determinants identified in the literature on both firm types. This study utilizes static panel data techniques on the sample consisting of SC and SNC firms from 7 countries and 7 industries over the years 2004–2014. Our study is inconclusive and it shows that most of the determinants do exhibit different effects among both firm types. Depending on the leverage measure, the effect of different independent variables on firms' capital structure varies. A uniform effect can be exerted for debt determinants profitability for both leverage measures, and growth opportunities, firm size and tangibility for market leverage only. Our robustness tests reveal that the impact of some debt determinants on firms leverage remains consistent. The coefficient sign and significance suggests, that the capital structure decision of both firm types, both are better explained by the Pecking Order Theory for book and by the Trade-Off Theory for market leverage, respectively. |
| Keywords: | Capital Structure; Leverage; Shariah Compliant; Shariah Screening; Trade-Off Theory; Pecking Order Theory |
| JEL: | C58 E44 G15 G32 |
| Date: | 2017–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90280&r=all |
| By: | Jie Zhou |
| Abstract: | Using the Panel Study of Income Dynamics, this paper studies American households’ stock market participation in 2007–2009, a period that saw a major stock market downswing. After controlling for standard household characteristics, we estimate that the stock ownership in 2009 dropped 2.9 percentage points – a 5.9% decline – compared to that in 2007. We find evidence that less-educated households, poor households and households with heads belonging to a minority are more likely to drop out of the market after the market crash. We also compare the change in the stock ownership during the crisis period with other 2-year periods over 2003–2013. |
| JEL: | G01 G11 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:win:winwop:2018-02&r=all |
| By: | William F. Bassett; Jose M. Berrospide |
| Abstract: | We investigate one channel through which the annual bank stress tests, as part of the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) review, could unexpectedly affect the provision of bank credit. To quantify the impact of the stress tests on lending, we compare the capital implied by the supervisory stress tests with the level of capital implied by the banks’ own models, a measure we call the capital gap. We then study the impact of the capital gap on the loan growth of BHCs subject to supervisory or bank-run stress tests. Consistent with previous results in the bank capital literature, we find evidence that better capitalized banks have higher loan growth. The additional capital implied by the supervisory stress tests (capital gap) does not appear to unduly restrict loan growth. |
| Keywords: | Bank capital ; Bank lending ; Regulatory capital ; Stress tests |
| JEL: | G28 G21 |
| Date: | 2018–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2018-87&r=all |
| By: | Ana Sasi-Brodesky (Bank of Israel) |
| Abstract: | This paper examines default events in Israel's corporate bond market between 2008 and 2015. Using a sample of 106 distress events, the variation in expected recovery rates over time is analyzed. The value of distressed firms at the time of default was found to be mostly influenced by the financial conditions of peers in the industry and in the market. In particular, low liquidity and high average leverage ratios of other market participants had a negative effect on the anticipated recovery rate. Firm-specific characteristics were found to have negligible effect on expected recovery rates. Average recovery and default rates are shown to compare well with the experience in other countries. |
| Keywords: | recovery rates, default, bond market, Israel, market price |
| JEL: | G33 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:boi:wpaper:2107.17&r=all |
| By: | Singh, Nirvikar |
| Abstract: | This paper lays out some of the basic concepts surrounding financial inclusion, including access to banking, digital payments and financial literacy, as well as markets for health insurance, crop insurance, agricultural credit, small firm finance, and microcredit/ microfinance. It goes on to discuss various empirical and institutional studies of these dimensions of financial inclusion in the context of developing countries. The paper then outlines several recent studies for India which pertain to these specific aspects of financial inclusion. Finally, the paper draws lessons for policy-making and future research directions. Important considerations that emerge from the overview are the significance of social and economic context, the need to consider behavioral biases connected to situations involving time and risk, the interaction of different dimensions of financial inclusion, the importance of details of policy design, and the limited understanding we still have of many of the factors underlying the functioning of financial markets. |
| Keywords: | financial inclusion, saving, insurance, credit, microfinance, financial literacy, India |
| JEL: | G21 G22 G38 O16 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:91047&r=all |
| By: | Dmitry Kreptsev (Bank of Russia, Russian Federation); Sergei Seleznev (Bank of Russia, Russian Federation) |
| Abstract: | This paper presents the DSGE model of the Russian economy with the banking sector which the Bank of Russia uses for simulation experiments. We show how the introduction of the banking sector changes impulse responses of a standard DSGE model of a small open economy. We also demonstrate that the model has fairly good predictive power. The model enables us to study the effect of banking sector-specific shocks on the economy. Estimation on Russian data has led us to conclude that in this model such shocks did not have a significant effect on the real economy’s variables in the period under observation spanning years from 2006 to 2016. |
| Keywords: | DSGE, BVAR, Russia’s economy, financial frictions, banking sector. |
| JEL: | C61 E37 E47 G10 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps27&r=all |
| By: | Asano, Koji |
| Abstract: | We study debt funding markets in which lenders can invest in financial expertise to reduce a cost of acquiring information about the underlying collateral. If the pledgeability of corporate income is low, lenders' information acquisition enhances liquidity, but they reduce expertise acquisition because of a hold-up problem. By contrast, if the pledgeability is high, information acquisition reduces liquidity, so that lenders can extract rents from firms by investing in expertise and creating fear of illiquidity. In this case, as information about collateral decays over time, there is growth in credit and expertise acquisition, making the economy more vulnerable to an aggregate shock. These results suggest that the growth of the financial sector is associated with prevalence of opaque assets and a subsequent crisis. |
| Keywords: | expertise, collateral, information acquisition, information sensitivity, liquidity |
| JEL: | D83 E44 G01 |
| Date: | 2018–12–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90830&r=all |
| By: | Sara Khotbi (CERGAM - Centre d'Études et de Recherche en Gestion d'Aix-Marseille - AMU - Aix Marseille Université - UTLN - Université de Toulon); Patrick Rousseau (CERGAM - Centre d'Études et de Recherche en Gestion d'Aix-Marseille - AMU - Aix Marseille Université - UTLN - Université de Toulon) |
| Abstract: | Mergers and acquisitions are attracting interest from financial researchers who are trying to determine the performance of these high-risk operations. It is not easy to identify variables that precisely map into the various factors that affect value creation through cross border mergers and acquisitions nor to pick an appropriate performance indicator because the definitions of performance vary in terms of accounting, financial and operational views. In this paper, we focused on the impact of the characteristics of the transaction on the corporate financial performance of mergers and acquisitions, which are return on investment, return on equity and Marris ratio, using data on the deals that occurred during the period 2010-2015 in Saudi Arabia. Panel data and precisely random effect method are applied to carry out empirical analysis. In this paper, we examine whether specific merger characteristics impact the M&A's performance. The results show that the performance is negatively influenced by the level of indebtedness for the 3 performance indicators and by the sectorial proximity for the return on equity. The cash level has a very slight positive impact on the 3 indicators. Concerning the other explanatory factors, they do not have a significant effect on performance for the acquiring firms. |
| Keywords: | Emerging economies,Mergers and acquisitions,Operation characteristics,Performance measures |
| Date: | 2018–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01932855&r=all |
| By: | Andreas Kaloudis; Dimitrios Tsolis |
| Abstract: | The major perspective of this paper is to provide more evidence regarding how "quickly", in different macroeconomic states, companies adjust their capital structure to their leverage targets. This study extends the empirical research on the topic of capital structure by focusing on a quantile regression method to investigate the behavior of firm-specific characteristics and macroeconomic factors across all quantiles of distribution of leverage (book leverage and market leverage). Therefore, depending on a partial adjustment model, we find that the adjustment speed fluctuated in different stages of book versus market leverage. Furthermore, while macroeconomic states change, we detect clear differentiations of the contribution and the effects of the firm-specific and the macroeconomic variables between market leverage and book leverage debt ratios. Consequently, we deduce that across different macroeconomic states the nature and maturity of borrowing influence the persistence and endurance of the relation between determinants and borrowing. |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1811.04473&r=all |
| By: | Takeo Hori (Department of Industrial Engineering and Economics, Tokyo Institute of Technology); Noritaka Maebayashi (Faculty of Economics and Business Aminstration, The University of Kitakyushu); Keiichi Morimoto (Department of Economics, Meisei University) |
| Abstract: | We explore how tax evasion by firms affects the growth- and welfare-maximizing rates of corporate income tax (CIT) in an endogenous growth model with productive public service. We show that the negative effect of CIT on growth is mitigated in the presence of tax evasion. This increases the benefit of raising the CIT rate for public service provision. Thus, in contrast to Barro (1990), the optimal tax rate is higher than the output elasticity of public service. Through numerical exercises, we demonstrate that the role of tax evasion by firms is quantitatively significant. |
| Keywords: | corporate income tax, tax evasion, growth, welfare |
| JEL: | H21 H26 O40 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:mei:wpaper:41&r=all |
| By: | Ron Alquist (AQR Capital Management); Nicolas Berman (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR); Rahul Mukherjee (Department of Economics, Graduate Institute of International and Development Studies); Linda Tesar (Department of Economics, University of Michigan, NBER - National Bureau of Economic Research - National Bureau of Economic Research) |
| Abstract: | We develop a model of cross-border acquisitions in which the foreign acquirer's ownership choice reflects a trade-off between easing the target's credit constraints and the costs of operating in an environment with weak institutions. Data on domestic and foreign acquisitions in emerging markets over the period 1990-2007 support the model predictions. The share of full foreign acquisitions is higher in sectors more reliant on external finance, in countries with lower financial development, and in countries with higher institutional quality. Sectoral external finance dependence accentuates the effect of country-level financial development and institutional quality. By contrast, the level of foreign ownership in partial acquisitions is insensitive to institutional factors and depends weakly on financial factors. |
| Keywords: | foreign direct investment,foreign ownership,mergers and acquisitions,financial development,institutional quality |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01945577&r=all |
| By: | Scholz, Robert; Vitols, Sigurt |
| Abstract: | This discussion paper examines the relationship between co-determination and corporate social responsibility (CSR) in German companies, thereby addressing two distinct literatures. On the one hand, most quantitative studies of co-determination focus on its economic impact, with relatively little attention paid to other kinds of outcomes. On the other hand, few studies on CSR have looked at the role of worker representatives. Using a new measure of co-determination strength, the Mitbestimmungsindex (MB-ix), it is demonstrated that co-determination strength is positively related to the presence of "substantive" CSR policies, such as the adoption of targets for reducing pollution, but is unrelated to "symbolic" CSR policies, such as membership in UN Global Compact. The paper therefore sheds new light on the role of co-determination and provides a more differentiated view of the spread of what has been termed "explicit" CSR in Germany, one of the most prominent of the "coordinated market economies". |
| Keywords: | co-determination,worker participation,corporate social responsibility,sustainability,Unternehmensmitbestimmung,Arbeitnehmerbeteiligung,soziale Unternehmensverantwortung,Nachhaltigkeit |
| JEL: | G34 J53 M14 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbgwp:spiii2018304&r=all |
| By: | Hasanova, Savia (Asian Development Bank Institute) |
| Abstract: | While financial inclusion is considered one of the key drivers of development today, it is quite new to the Kyrgyz Republic. The Kyrgyz Republic attempted to introduce the notion of financial inclusion after a violent power shift in 2010. The economy experienced an overall decline, the banking sector shrank, and financial intermediation slowed down. The National Bank introduced a number of regulatory measures to tighten the supervision of the financial sector and increase consumer protection. Some of the efforts have worked well: the banking sector has rebounded, savings have been mobilized, and financial markets have started developing. However, national development patterns, such as unstable economic growth, a high poverty rate, and weak governance are the key vulnerabilities for increasing inclusivity of financial products and services. Income inequality, especially when comparing rural versus urban areas, is substantial and restricts access to financial services for the rural population. Small and medium-sized enterprises face barriers for getting sufficient financing because of high collateral requirements. The population has a low level of financial literacy and is reluctant to use modern financial services. Our analysis suggests an urgent need for consolidated efforts to include more people and businesses into financial activities, mobilize their savings, and improve access to credit. |
| Keywords: | financial inclusion; financial institutions; government policy and regulation; economic development; financial markets; saving and capital investment; financial literacy; personal savings |
| JEL: | A20 D04 G02 G21 G28 O16 |
| Date: | 2018–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0850&r=all |
| By: | Thierno Barry (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges); Laetitia Lepetit (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges); Frank Strobel (University of Birmingham [Birmingham]); Thu Tran (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges) |
| Abstract: | Using a panel of controlled European banks, we examine whether board structures that include directors that are related to minority shareholders can be an effective corporate governance mechanism to limit expropriation by controlling shareholders, without exacerbating risk. We find that the inclusion of such minority directors does indeed increase the effectiveness of bank boards, as it results in higher market valuations whereas the presence of independent directors does not, without increasing risk. Our results depend crucially on whether or not minority directors are related to "active" institutional investors, the extent of holdings of related shareholders, as well as the strength of the supervisory regime. To identify the relationship, we use as instrumental variable for the presence of minority directors the distance of minority shareholders from the headquarters of the bank. |
| Keywords: | Bank governance,minority directors,independent directors,market valuation,bank risk |
| Date: | 2018–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01937927&r=all |
| 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-base 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 firm-level 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: | inverted-u relationship, credit, eurosystem |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1588&r=all |