nep-cfn New Economics Papers
on Corporate Finance
Issue of 2019‒03‒18
nine papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Do Public Firms Respond to Industry Opportunities More Than Private Firms? The Impact of Initial Firm Quality By Vojislav Maksimovic; Gordon M. Phillips; Liu Yang
  2. Who’s Paying Attention? Measuring Common Ownership and Its Impact on Managerial Incentives By Erik P. Gilje; Todd Gormley; Doron Y. Levit
  3. Financing and obstacles for high growth enterprises: The European case By Ferrando, Annalisa; Pal, Rozalia; Durante, Elena
  5. Stock Market Volatility Clustering and Asymmetry in Africa: A Post Global Financial Crisis Evidence By Emenike, Kalu O.
  6. Investment and the WACC: new micro evidence for France By Juan Carluccio; Clément Mazet-Sonilhac; Jean-Stéphane Mésonnier
  7. Do Survey Expectations of Stock Returns Reflect Risk Adjustments? By Klaus Adam; Dmitry Matveev; Stefan Nagel
  8. Investment in farming under uncertainty and decoupled support: a real options approach By Luca Di Corato; Dimitrios Zormpas
  9. Employee Wellbeing, Productivity and Firm Performance By Jan-Emmanuel De Neve; Christian Krekel; George Ward

  1. By: Vojislav Maksimovic; Gordon M. Phillips; Liu Yang
    Abstract: We track firms at birth and compare the growth pattern of IPO firms and their birth-matched counterparts. Firms that are larger at birth with faster initial growth are more likely to attain a larger size later in life and go public. Firms in the top percentile of predicted propensity to go public grow 29 times larger fifteen years later than matched firms if they actually become public, and 14 times larger if they stay private, showing a large selection effect. We show that public firms, and especially those public firms backed by venture capital, respond more to demand shocks post-IPO.
    JEL: G20 G24 G3 G32 L1 L22 L23 L25 L26
    Date: 2019–03
  2. By: Erik P. Gilje; Todd Gormley; Doron Y. Levit
    Abstract: We derive a measure that captures the extent to which overlapping ownership structures shift managers’ incentives to internalize externalities. A key feature of the measure is that it allows for the possibility that not all investors are attentive to whether a manager’s actions benefit the investor’s overall portfolio. Empirically, we show that potential drivers of ownership overlap, including mergers in the asset management industry and the growth of indexing, could in fact diminish managerial motives. Our findings illustrate the importance of accounting for investor inattention and cast doubt on the possibility that the growth of common ownership has had a significant impact on managerial incentives.
    JEL: D82 D83 G23 G34
    Date: 2019–03
  3. By: Ferrando, Annalisa; Pal, Rozalia; Durante, Elena
    Abstract: This paper investigates the links between alternative growth phases of firms and barriers to financing and investment using firm-level information for a representative sample of EU companies. We propose a novel classification of corporates: high growth (HGEs), stable and declining enterprises. We find that during the phase of high growth, firms are on average more financially constrained. To match their needs for external finance, HGEs are more likely to apply for equity financing. Furthermore, we identify firms with high growth potential. Using survey data, we investigate the barriers to investment activities faced by actual and potential HGEs. Our findings suggest that the most stringent obstacles for actual HGEs are the availability of skilled staff and business regulations, while potential HGEs are blocked by uncertainty about the future.
    Keywords: high growth enterprises,financing conditions,bank financing,equity financing,obstacles to investment
    JEL: D22 G01 G20 G32
    Date: 2019
  4. By: Ahmet Faruk Faysan; Mustafa Disli (-)
    Abstract: Because of their opaque nature, SMEs are overly reliant on bank lending. Therefore, we examine whether banks’ credit supply to SMEs are affected by their financial conditions. To this end, we employ a Granger causality analysis to examine whether there is an indication of a significant direction of determination between SME lending and non-performing SME loans. The results reveal no bidirectional relationship between SME lending and NPL for the entire banking sector. For Islamic banks, however, we find two-way linkages between these two parameters: a negative causation is running both from SME lending to NPL growth and from NPL to SME lending. Given Islamic banks’ deposit-oriented funding practices and their adherence to profit-and-loss sharing principles, this finding suggests the presence of heightened market discipline within the Islamic banking system.
    Keywords: Small business lending, Non-performing loans, Islamic banks.
    JEL: G21 G28 G3
    Date: 2019–03
  5. By: Emenike, Kalu O.
    Abstract: This paper evaluates the nature of stock market volatility in Africa after the global financial crisis. Specifically, the paper examines volatility clustering and volatility asymmetry in aftermath of the global financial crisis for Botswana, Régionale des Valeurs Mobilières (BRVM), Egypt, Ghana, Kenya, Malawi, Mauritius, Morocco, Namibia, Nigeria, Rwanda, South Africa, Tunisia, Uganda, and Zambia. The paper employs autoregressive asymmetric generalized autoregressive conditional heteroscedasticity (AR(i)-GJR-GARCH(1,1)) model. The major findings are as follows: (i) there is evidence of volatility clustering in Africa stock markets returns after the global financial crisis, although with varying degrees; (ii) there is existence of volatility persistence in the African stock market returns after the global financial crisis except for few countries, which are not very persistent; (iii) after the global financial crisis, Africa stock markets returns are asymmetric, with negative shocks producing higher volatility in the immediate future than positive shocks of the same magnitude in some countries, and positive shocks producing higher volatility in other countries. The findings provide comparative basis for assessing market patterns, predicting market risk, and gauging market sentiment in Africa stock markets, as well as provide foreign portfolio managers required evidence for harvesting volatility through portfolio rebalancing for optimal performance.
    Keywords: stock market returns, volatility clustering, asymmetry, GARCH models, Africa
    JEL: C22 G0 N27
    Date: 2018–10–07
  6. By: Juan Carluccio; Clément Mazet-Sonilhac; Jean-Stéphane Mésonnier
    Abstract: We exploit a new dataset of consolidated balance sheets for some 1,850, mostly nonlisted, French corporate groups, in order to investigate the relationship between corporate investment and the cost of capital. Our empirical model is motivated by a standard Q-theory of investment and relates the rate of investment to a proxy for profits, the cost of capital and firm- and sector-level controls. We notably construct firm-level measures of the weighted average cost of capital (WACC) that account for industry-specific values of the cost of equity and reflect the actual capital structure of firms. We find a confirmation that a high WACC drags down investment: a one SD increase in the real WACC (+2 pp) is associated on average with a reduction by 0.65 pp in the investment rate. The effect is somewhat larger for manufacturing firms and when firms are highly leveraged or more dependent on external finance. We also investigate the impact of lower competition or higher uncertainty on business investment and do not find evidence in support of any role of these two factors in France in recent years.
    Keywords: Business Investment, Cost of Capital, Uncertainty, Competition
    JEL: G31 G32
    Date: 2019
  7. By: Klaus Adam; Dmitry Matveev; Stefan Nagel
    Abstract: Motivated by the observation that survey expectations of stock returns are inconsistent with rational return expectations under real-world probabilities, we investigate whether alternative expectations hypotheses entertained in the literature on asset pricing are consistent with the survey evidence. We empirically test (1) the notion that survey forecasts constitute rational but risk-neutral forecasts of future returns, and (2) the notion that survey forecasts are ambiguity averse/robust forecasts of future returns. We find that these alternative hypotheses are also strongly rejected by the data, albeit for different reasons. Hypothesis (1) is rejected because survey return forecasts are not in line with risk-free interest rates and because survey expected excess returns are predictable. Hypothesis (2) is rejected because agents are not always pessimistic about future returns, instead often displaying overly optimistic return expectations. We speculate as to what kind of expectations theories might be consistent with the available survey evidence.
    Keywords: Asset Pricing; Economic models; Financial markets
    JEL: G10 G12
    Date: 2019
  8. By: Luca Di Corato (Department of Economics, University Of Venice Cà Foscari); Dimitrios Zormpas (Department of Mathematics, University of Padova)
    Abstract: Under the current version of the Common Agricultural Policy (CAP), payments to EU farmers are decoupled from the production of agricultural commodities. In fact, farmers qualify for CAP support as soon as their land is maintained in good agricultural and environmental condition. In this paper, we study how decoupled payments influence the decision to invest in farming. We show that decoupling is implicitly providing a costless hedge against volatile farming profits. Consequently, a higher decoupled payment leads the potential farmer to hasten its investment but also results in a farm with lower productive capacity.
    Keywords: Decoupling, Real Options, Land Development, Capital Intensity, Passive Farming
    JEL: C61 Q15 R14
    Date: 2019
  9. By: Jan-Emmanuel De Neve; Christian Krekel; George Ward
    Abstract: Does higher employee wellbeing lead to higher productivity, and, ultimately, to tangible benefits to the bottom line of businesses? We survey the evidence and study this question in a meta-analysis of 339 independent research studies, including the wellbeing of 1,882,131 employees and the performance of 82,248 business units, originating from 230 independent organisations across 49 industries in the Gallup client database. We find a significant, strong positive correlation between employees' satisfaction with their company and employee productivity and customer loyalty, and a strong negative correlation with staff turnover. Ultimately, higher wellbeing at work is positively correlated with more business-unit level profitability.
    Keywords: employee satisfaction, engagement, employee productivity, firm performance, wellbeing, meta-analysis
    JEL: I31 J24
    Date: 2019–03

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