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on Corporate Finance |
| By: | Konishi, Masaru; Yoshida, Takashi |
| Abstract: | The literature that documents the positive association between financial development and growth raises the question, in a historical context, of whether financial systems were well developed enough to promote growth even in the early stages of economic growth. This study examines whether firms used the financial system (capital markets and financial intermediaries) for financing in the prewar period as actively as they do today. Applying the survival analysis to the financial data of Japanese listed nonfinancial firms in the 1914–1929 and 1999–2013 periods, we show that prewar firms used the financial system to meet their needs for funds equally or more actively compared with present-day firms; however, they did not use it to realize their optimal capital structures as actively as present-day firms do. Prior studies show that the Japanese financial system was well developed in the early 20th century in terms of the size of capital markets compared with the recent period. Our results related to meeting financing needs are consistent with this. However, the results related to the realization of optimal capital structure imply that the Japanese financial system was not as sophisticated in the prewar period as it is today in terms of allowing firms optimal choices between debt and equity for adjustments of capital structure. |
| Keywords: | Financial development, financial markets, capital structure, leverage |
| JEL: | G10 G20 G32 |
| Date: | 2019–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hcfrwp:g-1-20&r=all |
| By: | Kornelia Fabisik (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute); Rüdiger Fahlenbrach (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute); René M. Stulz (Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)); Jérôme Taillard (Babson College) |
| 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. |
| Keywords: | Firm valuation, Director and officer ownership, Liquidity, Performance history |
| JEL: | G30 G32 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1875&r=all |
| By: | Carlo Bellavite Pellegrini (Department of Economic Policy and CSEA, Catholic University of Sacred Heart); Raul Caruso (European Center of Peace Science, Integration and Cooperation CESPIC; Catholic University 'Our Lady of Good Counsel'); Rocco Cifone (CSEA, Catholic University of Sacred Heart) |
| Abstract: | This study analyses the impact of ESG scores on firms’ profitability in the automotive sector between 2002 and 2016. In particular, we exploit a novel dataset of European and North American listed firms. Results show that the environmental component of the ESG scores is positively associated with firms’ profitability. Among the components of overall ESG, the environmental score is the only that exhibits the most robust association. Eventually when considering firm value proxied by means of Tobin’s Q, results show a negative association between the Tobin’s Q and the environmental component of ESG. Further estimations have highlighted a more nuanced evidence in particular with regard to profitability namely: (i) there is a an inverse U-shaped relationship between the governance score of ESG and ROA of firms; (ii) when considering interactions, it comes out that as the firm size increases both environmental and social score are negatively associated with ROA; (iii) when considering non-linearities results show that when governance score is small ROA of firms slightly decreases but as the governance scores increases it eventually increases. |
| Keywords: | ESG, Profitability, ROA, Firm Value, Tobin's Q |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:pea:wpaper:1004&r=all |
| By: | Sawaliya, Priya; Sinha, Pankaj |
| Abstract: | The study endeavours to assess empirically the performance of various models of asset pricing employing risk factors such as market premium, book to market equity, size, investment, momentum and profitability and attempts to unearth the effects of value, size, investment, momentum and profitability. It also compares the behaviour of five different asset pricing models: standard capital asset pricing model, three and five-factor model of Fama French, four-factor model of Carhart and six-factor model during the periods of pre-recession, recession and post-recession in the Indian equity market. The study uses constituents of S&P BSE 500 as a sample, traded over the period 1st July 2005 to 31st September 2017. The results exhibit that three-factor model is an effective model which brings a lot of improvements over CAPM and suggests that market premium and size factors are the most effective and strong factors explaining the variation in returns, throughout the study period. Four-factor model performs a little better for few portfolios created based on size-momentum during 2009-17 and 2005-17. Five and six-factor model do not make any further improvement if compare with the three-factor asset pricing model. Size effect is present in all the above models and across all the time periods, however, factors such as the premium for profitability, investment and momentum are found redundant during the study period in the Indian equity market. |
| Keywords: | Asset pricing, momentum factor, profitability factor, investment factor, recession, Indian equity market. |
| JEL: | G00 G01 G2 G24 G3 G31 G39 |
| Date: | 2018–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93084&r=all |
| By: | Inderst, Roman; Vladimirov, Vladimir |
| Abstract: | We analyze how relationship finance, such as venture capital and relationship lending, affects growth firm's capital structure choices. We show that relationship investors that obtain a strong bargaining position due to their privileged information about the firm, optimally cash in on their dominance by pushing it to finance follow-up investments with equity. The firm underinvests if its owner refuses to accept the associated dilution. However, this problem is mitigated if the firm's initial relationship financing involves high leverage or offers initial investors preferential treatment in liquidation. By contrast, if initial investors are unlikely to gain a dominant position, firms optimally lever up only in later rounds. Our implications for relationship and venture capital financing highlight that the degree of investor dominance is of key importance for growth firm's capital structure decisions. |
| Keywords: | dominant investors; equity financing; Financial contracting; Relationship Financing |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13640&r=all |
| By: | Axioglou, Christos; Christodoulakis, Nicos |
| Abstract: | Using a panel dataset of more than 40,000 Greek corporations over the period 2001- 2014, the paper examines how their size measured by past turnover affects survival prospects and turnover growth. The analysis is carried out along three dimensions: (a) time-wise, by looking at the dynamics before and after the crisis in 2010; (b) sector-wise, by grouping firms in six areas of economic activity, namely manufacturing, construction, trade, recreation, real-estate, and the combined sectors of transport & communications; (c) region-wise, by examining firms in Northern Greece, the wider Attiki region, and the rest of the country. Other firm’s characteristics like age, market share, leverage, and fixed asset ratio are also used as explanatory variables in the econometric estimation. Investigation takes place in the framework known in the literature as the Gibrat’s Law, according to which market turnover is a random walk process and larger-size firms belong to the same population with smaller ones. Our findings suggest that in Greece larger-size firms were, in general, more likely to survive in the market than smaller ones and this relative advantage grew stronger during the crisis. Focusing on sectors, it is established that large companies in the manufacturing sector are by far more robust over the cycle, while those in the Real Estate and construction sectors manifest the highest extinction rate. Moreover, the rate of turnover growth for those firms survived is found to be negatively associated with their size, thus not confirming Gibrat’s Law in Greece. |
| Keywords: | industrial organisation; market share; manufacturing sector; crisis |
| JEL: | N0 |
| Date: | 2019–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100401&r=all |
| By: | Francesco Aiello (Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF, Università della Calabria); Paola Cardamone (Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF, Università della Calabria); Lidia Mannarino (Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF, Università della Calabria); Valeria Pupo (Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF, Università della Calabria) |
| Abstract: | This paper investigates how family and non-family firms differ in terms of their capability to introduce environmental innovation, which is measured by green patents. The analysis is carried out using a large patenting data set related to the inventions produced by about 4200 Italian manufacturing firms over the period 2009–2017. The results show that family firms are less likely than non-family firms to implement innovations in green technologies. Moreover, the role played by the stock of knowledge and the environmental management system certification differs across firm type. |
| Keywords: | eco-innovation, green patent, family firms |
| JEL: | O31 C23 G34 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:clb:wpaper:201904&r=all |
| By: | Thierry Foucault (HEC Paris); Laurent Frésard (University of Lugano; Swiss Finance Institute; University of Maryland - Robert H. Smith School of Business) |
| Abstract: | We show that product differentiation reduces the informativeness of a firm's stock price (or its peers' stock prices) about the value of its growth opportunities. This results in less efficient exercise of a firm's growth options when managers rely on information in stock prices for their decisions. This informational cost of differentiation induces conformity in product market strategies and is larger for private firms. Hence, a fi rm should differentiate more after going public. We con firm this prediction empirically and show that the post-IPO increase in differentiation is stronger for fi rms with better informed managers or less informative peers' stock prices. |
| Keywords: | Conformism, Product Differentiation, Managerial Learning, Peers, Informational efficiency |
| JEL: | G31 D21 D83 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1851&r=all |
| By: | Møen, Jarle (Dept. of Business and Management Science, Norwegian School of Economics); Schindler, Dirk (Dept. of Accounting, Auditing and Law, Norwegian School of Economics); Schjelderup, Guttorm (Dept. of Business and Management Science, Norwegian School of Economics); Bakke, Julia Tropina (SNF - Centre for Applied Research at NHH) |
| Abstract: | We study the capital structure of multinationals and expand previous theory by incorporating international debt tax shield effects from both internal and external capital markets. We show that: (i) multinationals' firm value is maximized if both internal and external debt are used to save tax; (ii) the use of internal and external debt is independent of each other; (iii) multinationals have a tax advantage over domestic firms, which cannot shift debt across international borders. We test our model using a large panel of German multinationals and find that internal and external debt shifting are of about equal importance. |
| Keywords: | Corporate taxation; multinationals; capital structure; international debt-shifting; tax avoidance |
| JEL: | F23 G32 H25 |
| Date: | 2019–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2019_001&r=all |
| By: | Christos Axioglou; Nicos Christodoulakis |
| Abstract: | Using a panel dataset of more than 40,000 Greek corporations over the period 2001- 2014, the paper examines how their size measured by past turnover affects survival prospects and turnover growth. The analysis is carried out along three dimensions: (a) time-wise, by looking at the dynamics before and after the crisis in 2010; (b) sector-wise, by grouping firms in six areas of economic activity, namely manufacturing, construction, trade, recreation, real-estate, and the combined sectors of transport & communications; (c) region-wise, by examining firms in Northern Greece, the wider Attiki region, and the rest of the country. Other firm’s characteristics like age, market share, leverage, and fixed asset ratio are also used as explanatory variables in the econometric estimation. Investigation takes place in the framework known in the literature as the Gibrat’s Law, according to which market turnover is a random walk process and larger-size firms belong to the same population with smaller ones. Our findngs suggest that in Greece larger-size firms were, in general, more likely to survive in the market than smaller ones and this relative advantage grew stronger during the crisis. Focusing on sectors, it is established that large companies in the manufacturing sector are by far more robust over the cycle, while those in the Real Estate and construction sectors manifest the highest extinction rate. Moreover, the rate of turnover growth for those firms survived is found to be negatively associated with their size, thus not confirming Gibrat’s Law in Greece. |
| Keywords: | Industrial organisation, market share, manufacturing sector, crisis |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:hel:greese:133&r=all |
| By: | Boris Nikolov (University of Lausanne; Swiss Finance Institute); Lukas Schmid (Duke University - The Fuqua School of Business); Roberto Steri (University of Lausanne; Swiss Finance Institute) |
| Abstract: | In order to identify the relevant sources of firms' financing constraints, we ask what financial rictions matter for corporate policies. To that end, we build, solve, and estimate a range of dynamic models of corporate investment and financing, embedding a host of financial frictions. We focus on limited enforcement, moral hazard, and tradeoff models. All models share a common technology, but differ in the friction generating financing constraints. Using panel data on Compustat firms for the period 1980-2015 and a more recent dataset on private firms from Orbis, we determine which features of the observed data allow to distinguish among the models, and we assess which model performs best at rationalizing observed corporate investment and financing policies across various samples. Our tests, based on empirical policy function benchmarks, favor trade-off models for larger Compustat firms, limited commitment models for smaller firms, and moral hazard models for private firms. Our estimates point to significant financing constraints due to agency frictions. |
| Keywords: | Financing constraints, financial frictions, moral hazard, limited enforcement, tradeoff, dynamic contracting, agency, structural estimation, empirical policy function estimation |
| JEL: | G31 G32 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1874&r=all |
| By: | Harald Hau (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)); Gabriela Hrasko (University of Geneva; Swiss Finance Institute) |
| Abstract: | Following the 2008-9 financial crisis, large banks increasingly issued contingent convertible bonds (CoCo bonds) to increase their capital buffers – a policy supported by national bank regulators. This paper examines whether the issuance of CoCo bonds provides the same reduction in bank default risk as the corresponding issuance of common equity by analyzing the premium reduction in (single name) credit default swaps (CDS) around the corresponding issuance announcement events. We find that the default risk reduction associated with issuance crucially depends on the CoCo bond’s design features: Only CoCo bond designs with permanent write-down features provide a default risk reduction similar to equity. CoCo bonds with equity conversion features come with a lower subsequent volatility of the bank asset value, but are inferior to equity in terms of their default risk reduction. |
| Keywords: | CoCo bond, issuance announcement, asset volatility, bank stability |
| JEL: | G21 G13 G28 G32 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1867&r=all |
| By: | Parvaneh Shahnoori (Department of Economics, Eastern Mediterranean University, Mersin 10, Turkey and Payame Noor University, Bandar Abbas, Iran); Glenn P. Jenkins (Department of Economics, Queen's University, Kingston, Canada and Eastern Mediterranean University, North Cyprus) |
| Abstract: | This study estimates the willingness to pay of small and medium-sized enterprises (SMEs) for a business online banking services. The estimation utilizes a contingent valuation method employing data from 400 SMEs in the United Arab Emirates free zones. An interval regression model is used to identify company characteristics affecting WTP. The results indicate an average WTP for online banking of $518.50 per month. Firms engaging in international trade value these services at least 10% more than those with only domestic operations. Other variables that significantly affect WTP include number of employees and the transportation cost of using traditional branch banking. |
| Keywords: | contingent valuation method, interval regression model, willingness to pay, business online banking. |
| JEL: | C13 F10 G21 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:qed:dpaper:4511&r=all |
| By: | Shusen Qi (Xiamen University - School of Management); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)) |
| Abstract: | Whether bank credit is suitable to finance business innovation is a key financing question. Using a representative sample of 6,422 small firms across 22 emerging economies, we find that lack of access to credit stifles innovation, especially of the technologically “hard” type. This finding is not driven by sample selection and - given our instrumentation with the presence of local credit registers - it is ostensibly causal. Especially access to credit with longer duration and denominated in foreign currency spurs hard innovation. This detrimental impact of credit constraints on innovation activities is stronger in localities or sectors that are more dependent on external financing, and only holds for firms that are more limited in alternative sources of external financing, including small, private, or unaudited firms, receiving no government subsidy. We further found that institutional contexts can mitigate the negative impact of credit constraints, possibly via providing firms with more alternative financing means. Foreign or transactional banks, or banks in more diversified banking market are found to be better at promoting firm innovation. Lastly, bank credit enabling hard innovation is expected to foster future firm growth. |
| Keywords: | Bank credit; Innovation; Credit registry; Firm growth |
| JEL: | G21 O31 O40 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1861&r=all |