nep-cfn New Economics Papers
on Corporate Finance
Issue of 2019‒02‒18
nine papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Institutional Ownership and Private Equity Placements: Evidence from Chinese Listed Firms By He, Qing; Li, Dongxu; Lu, Liping; Chong, Terence Tai Leung
  2. Diversication Advantages During the Global Financial Crisis By Levander, Mats
  3. Equity finance: matching liability to power By Goodhart, C. A. E.; Lastra, Rosa M.
  4. Predictors of Bank Distress:The 1907 Crisis in Sweden By Grodecka, Anna; Kenny, Seán; Ögren, Anders
  5. Big Data and Firm Dynamics By Maryam Farboodi; Roxana Mihet; Thomas Philippon; Laura Veldkamp
  6. Financial constraints of innovative firms and sectoral growth By Ch.-M. CHEVALIER
  7. Optimal Corporate Taxation Under Financial Frictions By Eduardo Dávila; Benjamin M. Hébert
  8. Why the Norwegian Shareholder Income Tax is Neutral By Södersten, Jan
  9. State-owned firms behind China’s corporate debt By Margit Molnar; Jiangyuan Lu

  1. By: He, Qing; Li, Dongxu; Lu, Liping; Chong, Terence Tai Leung
    Abstract: This paper examines the impact of institutional ownership on the performance of private equity placements (PEPs) for listed firms in China. We find that the presence of institutional investors can alleviate the information asymmetries between listed firms and the market. The market reaction to PEP announcements is significantly smaller if there is a higher portion of institutional shareholdings. Long-term firm operational performance after PEPs is positively correlated with institutional shareholdings. Moreover, we find that the relationship between institutional shareholdings and PEP performance is mainly driven by non-listed corporate investors and mutual funds. Finally, the relationship between PEP performance and institutional shareholdings is stronger in smaller PEP issuers.
    Keywords: Institutional ownership; Private equity placements (PEPs); Information asymmetry; Strategic investor; Liquidity investor
    JEL: G23 G32 G38 K22
    Date: 2017–12–14
  2. By: Levander, Mats (Financial Stability Department, Central Bank of Sweden)
    Abstract: In this paper, I investigate whether being part of a business group mitigated the effects of the global financial crisis for Swedish firms. The crisis is used as an exogenous shock to firms' external financing. The investments made by business group firms are compared to those made by standalone firms. I find that being part of a business group had a mitigating effect on the impact of the crisis on firm investments. Firms that were part of a business group reduced their investments by significantly less than standalone rms. These differences are driven by a diversification effect among business group firms due to the use of internal capital markets and easier access to external financing. I present evidence of increased internal capital market activity during the crisis. Finally, my results suggest that business group firms profitability increased relative to the profitability of standalone firms after the crisis.
    Keywords: Financial crisis; firm investment; business Group; internal capital markets; external financing constraints
    JEL: G01 G30 G32
    Date: 2018–11–01
  3. By: Goodhart, C. A. E.; Lastra, Rosa M.
    Abstract: There is widespread concern that the bonus culture for senior managers in limited liability companies is having adverse effects, e.g. on risk-taking, leverage and lower longer-term investment. The moral hazard of limited liability was appreciated in the 19th century, when unlimited or multiple liability, especially for bankers, was widely adopted. Whereas outside, notably retail, investors still need the protection of limited liability, we advocate moving towards a two-tier equity system, primarily for banks, with insiders, senior managers and others with influence over corporate decisions, becoming subject to multiple liability. But the transition costs of doing so suddenly would be great, so our proposal is to start by applying this initially just to Systemically Important Financial Intermediaries.
    Keywords: banking; banks; corporate governance; institutional investors; limited liabiltiy; Senior Management Regime; Tow Tier Equity
    JEL: G30 G32 G39 K20 K22 L14 M14 N20 N22 N23 P10
    Date: 2019–01
  4. By: Grodecka, Anna (Research Department, Central Bank of Sweden); Kenny, Seán (Lund University); Ögren, Anders (Lund University)
    Abstract: This paper contributes to literature on bank distress using the Swedish experience of the international crisis of 1907, often paralleled with 2008. By employing previously unanalyzed bank-level data, we use logit regressions and principal component analysis to measure the impact of pre-crisis bank characteristics on the probability of their subsequent distress. The crisis was characterized by “creative destruction,” as those banks with weaker corporate governance structures, wider branching networks, operating with lower cost efficiency were more likely to experience distress. We find that poor credit allocation rather than foreign borrowing, as often stressed, were associated with ultimate demise.
    Keywords: Bank Distress; Financial Crises; Swedish Banks; Lender of Last Resort
    JEL: E58 G21 G28 H12 N23
    Date: 2018–10–01
  5. By: Maryam Farboodi; Roxana Mihet; Thomas Philippon; Laura Veldkamp
    Abstract: We study a model where firms accumulate data as a valuable intangible asset. Data accumulation affects firms’ dynamics. It increases the skewness of the firm size distribution as large firms generate more data and invest more in active experimentation. On the other hand, small data- savvy firms can overtake more traditional incumbents, provided they can finance their initial money- losing growth. Our model can be used to estimate the market and social value of data.
    JEL: D21 E01 L1
    Date: 2019–01
  6. By: Ch.-M. CHEVALIER (Insee)
    Abstract: Innovation policies can consist in measures aimed at directly alleviating financial constraints of innovative firms, beyond more traditional fiscal incentives to foster private R&D spendings. To explore the interaction between innovation and financial constraints at the sector level, and evaluate stylized policy scenarios, this paper brings together two analytical frameworks from the endogenous growth and corporate finance literatures. Within this dynamic model, firms innovate and compete for products through destructive creation and accumulate internal funds in relation to financial hindrances occurring when they enter, develop or exit. Including notably asymmetric information between investors and managers of firms with respect to uncertain cash flows, this model is first consistent with the fact that firms tend to spend more on R&D when their internal funds are higher. It then allows for experi­ments addressing growth and overall liquidity holdings for various sectoral contexts. In this specific framework, easing access to initial funding, as fiscal incentives, can have substantial effects. More­over, while a stylized high-tech sector is asso­ciated with higher growth and overall liqui­dity holdings, both variables depend to a large extent on many sectoral characteristics, such as R&D efficiency, entry costs, and cash flow mean and volatility.
    Keywords: endogenous growth, liquidity management, product innovation, firm distribution, dynamic contracts
    JEL: C61 D21 E22 G32 L11 O31
    Date: 2018
  7. By: Eduardo Dávila; Benjamin M. Hébert
    Abstract: We study optimal corporate taxation when firms are financially constrained. We describe a corporate taxation principle: taxes should be levied on unconstrained firms, which value resources inside the firm less than constrained firms. Under complete information, this principle completely characterizes optimal corporate tax policy. With incomplete information, the government can use payout policy to elicit whether a firm is constrained, and tax accordingly. In our static model, optimal corporate taxation can be implemented by a corporate dividend tax, and in our dynamic model, the optimal sequence of mechanisms can also be implemented by a corporate dividend tax.
    JEL: G38 H21 H25
    Date: 2019–01
  8. By: Södersten, Jan (Department of Economics)
    Abstract: This note extends the work by Sørensen (2005) and others by demonstrating why the Norwegian Shareholder Income Tax may be neutral between the two sources of equity funds, i.e. new share issues and retained earnings, despite the fact that the retention of earnings to finance new investment does not add to the tax benefits. The analysis crucially relies on the assumption that the deduction for the imputed rate of return is capitalized into the market prices of corporate shares. Absent capitalization, the shareholder tax is rather likely to leave the distortions caused by the double taxation of corporate source income unaffected.
    Keywords: Corporate and shareholder taxation; tax neutrality; cost of capital
    JEL: H24 H25 H32
    Date: 2019–01–29
  9. By: Margit Molnar; Jiangyuan Lu
    Abstract: While China’s overall debt-to-GDP ratio is not particularly high, its non-financial corporate debt relative to GDP is higher than in other major economies. State-owned enterprises account for over three quarters of that debt with a size exceeding GDP. This paper provides insights into the size of debt, leverage and debt service burden by various non-financial SOE groupings including by size, extent of state ownership, level of the owner, broad and detailed sector and region. Although the debt stock of local SOEs increased the fastest, firms under government agencies leveraged up more quickly and their debt service burden also grew most rapidly. SOEs in services industries increased their debt fastest, in particular in social services, transportation, real estate and construction. In turn, warehousing and real estate firms have the highest leverage. Firms in the three provinces of Xinjiang, Shanxi and Qinghai rank among the top five in all the three indicators of debt to revenues, leverage and debt service burden. Large SOEs owe most debt and leveraged up, while small and medium-size ones reduced their leverage. The surge in the debt service burden of small SOEs coincided with an increase in state assets in this group of firms. Sector-wise, state assets increased most in competitive industries. Empirical analysis shows that higher leverage and labour productivity are more conducive to a surge in SOE debt. Such surges appear to be triggered by falling interest costs, pointing to the role for easy monetary conditions in the rapid SOE debt accumulation. Recent corporate governance reforms of SOEs will likely act as disciplining device on SOE borrowing.
    Keywords: corporate debt, interest burden, leverage, state assets, state-owned enterprises
    JEL: P31 O16 G32 L32
    Date: 2019–02–14

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