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on Corporate Finance |
| By: | Paul Décaire; Erik P. Gilje; Jérôme P. Taillard |
| Abstract: | We study when and why firms exercise real options. Using detailed project-level investment data, we find that the likelihood that a firm exercises a real option is strongly related to peer exercise behavior. Peer exercise decisions are as important in explaining exercise behavior as variables commonly associated with standard real option theories, such as volatility. We identify peer effects using localized exogenous variation in peer project exercise decisions and find evidence consistent with information externalities being important for exercise behavior. |
| JEL: | G30 G31 G32 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25624&r=all |
| By: | Frantz, Pascal; Instefjord, Norvald |
| Abstract: | In this paper, we analyse the restructuring of debt in the presence of debt overhang. The firm starts out with a debt liability and an investment opportunity. Then with unrestructured debt, the firm maintains the current borrowing payments until default or investment. If the creditors allow the parties to restructure the debt with exchange offers, then the borrowing payments change as well as the default and investment points. We find that there is a unique optimal restructuring path which maintains debt at positive levels but defers default indefinitely. This path is optimal regardless of whether the debt holders or the firm control the process through superior bargaining power. Moreover, a debt-for-equity exchange to remove all existing debt takes place just before investment that is followed by the issue of an optimal amount of new debt as part of the funding for the investment cost. The optimal investment trigger is higher along the optimal restructuring path than it is for an unlevered firm. We discuss the findings in the light of existing empirical evidence |
| Keywords: | Bargaining power; Debt forgiveness; Debt overhang; Debt restructuring; Exchange offers; Growth opportunities |
| JEL: | G32 G33 G34 |
| Date: | 2019–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:90212&r=all |
| By: | Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Stephan, Andreas (Jönköping International Business School, Jönköping University & Centre of Excellence for Science and Innovation Studies (CESIS)) |
| Abstract: | Investments considering corporate social responsibility continue to expand. Are companies pursuing a CSR agenda benefiting shareholders by reducing their financial downside risk? This paper investigates the relationship between a firm’s environmental, social and corporate governance (ESG) scores and its downside risk on the stock market. We study this link using a panel of 887 stocks listed in five European countries over the period 2005-2017. Our empirical results show that higher ESG scores are associated with reduced downside risk of stock returns. Based on the Fama-French three factor model, we found no systematic relationship between ESG and the level of risk-adjusted return. |
| Keywords: | ESG; Value at Risk; Risk-adjusted return; stock market; panel data |
| JEL: | D22 G11 G14 G32 |
| Date: | 2019–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0477&r=all |
| By: | Michi Nishihara (Graduate School of Economics, Osaka University) |
| Abstract: | This paper presents a framework to study real options with illiquidity of option exercise opportunities. I incorporate a constraint that the investment time is chosen from Poisson arrival times in the standard real option value (ROV) model. I derive the closed-form solution and show that illiquidity decreases the option value of waiting and the investment threshold. I extend the results to a case with different types of projects and show that an inferior project can be undertaken in the presence of illiquidity. I prove that the solution of the illiquid model converges to that of the ROV model for higher liquidity and converges to that of the net present value (NPV) model for lower liquidity. I also show that the solution agrees with the limit of the corresponding regime-switching model. The results fill the gaps in the NPV, ROV, and regime-switching models and reveal the effects of illiquidity on investment decisions. |
| Keywords: | real option; net present value; regime switching; liquidity; search theory |
| JEL: | D82 G13 G33 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1901&r=all |
| By: | Tracey, Belinda (Bank of England) |
| Abstract: | Around 10% of European firms were in receipt of subsidized bank loans following the peak of the European sovereign debt crisis in 2011. To what extent did such forbearance lending contribute to the subsequent low output growth experienced by the euro area? In this paper, we address this question by developing a quantitative model of firm dynamics in which forbearance lending and firm defaults arise endogenously. The model provides a close approximation to key euro-area firm statistics over the period 2011 to 2014. We evaluate the impact of forbearance lending by considering a counterfactual scenario in which firms no longer have access to loan forbearance. Our key finding is that aggregate output, investment and total factor productivity are higher in the absence of forbearance lending than in the benchmark scenario that includes forbearance lending. This suggests that forbearance lending practices contributed to the low output growth across the euro area following the onset of the sovereign debt crisis. |
| Keywords: | Forbearance lending; zombie firms; firm defaults; firm dynamics |
| JEL: | G21 G32 L25 |
| Date: | 2019–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0783&r=all |
| By: | Gleisner, Love; Thomadakis, Apostolos |
| Abstract: | This paper provides an overview of the key findings observed in the 2018 ECMI Statistical Package, a comprehensive and annually updated database on the dynamics of European and global capital markets (covering the US, Japan, China and other relevant markets). The key trends obtained from the Package on equity markets, debt securities, exchange-traded derivatives, over-the-counter derivatives and asset management are outlined in this report. |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:eps:ecmiwp:14015&r=all |
| By: | Filipovic, Zoran; Wagner, Alexander F |
| Abstract: | Mergers and acquisitions are often motivated by the intention of creating value from intangible assets. We develop a novel word list of intangibles and apply it to takeover announcements. Deals presented with more "intangibles talk" complete more quickly. However, the value of these deals to the acquirer is questionable: One standard deviation more in intangibles talk results in 0.45 percentage points lower abnormal announcement returns of bidders. Agency problems explain little of these results. Instead, payment mode choices and insider trades suggest that intangibles talk reflects managerial overoptimism. Overall, takeover announcements can provide important information regarding the quality of deals. |
| Keywords: | Corporate announcements; intangible assets; intangibles talk; mergers and acquisitions; Takeovers; textual analysis |
| JEL: | G14 G34 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13560&r=all |