nep-cfn New Economics Papers
on Corporate Finance
Issue of 2019‒05‒13
six papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Economics of Voluntary Information Sharing By Liberti, Jose; Sturgess, Jason; Sutherland, Andrew
  2. Why Do Firms Use Equity-Based Pay? Managerial Compensation and Stock Price Informativeness By Bennett, Benjamin; Garvey, Gerald; Milbourn, Todd; Wang, Zexi
  3. Corporate Control around the World By Aminadav, Gur; Papaioannou, Elias
  4. What Are the Shareholder Value Implications of Non-Voted Shareholder Proposals? By Maxime Couvert
  5. Financial Distress and Hedging: Evidence from Canadian Oil Firms By Kun Mo; Farrukh Suvankulov; Sophie Griffiths
  6. What Causes Chinese Listed Firms To Switch Bank Loan Provider? Evidence From A Survival Analysis By Huang, Jiayi; Matthews, Kent; Zhou, Peng

  1. By: Liberti, Jose; Sturgess, Jason; Sutherland, Andrew
    Abstract: We show that lenders join a U.S. commercial credit bureau when information asymmetries between incumbents and entrants create an adverse selection problem that hinders market entry. Lenders also delay joining when information asymmetries protect them from competition in existing markets, consistent with lenders trading off new market entry against heightened competition. We exploit shocks to information coverage to show that lenders enter new markets after joining the bureau in a pattern consistent with this trade-off. Our results illuminate why intermediaries voluntarily share information and show how financial technology that mitigates information asymmetries can shape the boundaries of lending.
    Keywords: information sharing, adverse selection, specialization, financial intermediation, collateral, credit bureaus, fintech
    JEL: D43 D82 G21 G23 G32
    Date: 2018
  2. By: Bennett, Benjamin (Ohio State University (OSU) - Department of Finance); Garvey, Gerald (Blackrock); Milbourn, Todd (Washington University in Saint Louis - Olin Business School); Wang, Zexi (University of Bern)
    Abstract: We study the motive of using equity-based pay in executive compensation: the risk-sharing motive versus the performance-measuring motive. The empirical design goes through the relationship between equity-based pay and stock price informativeness (SPI). We find equity-based pay decreases in SPI, which is consistent with the risk-sharing motive but inconsistent with the performance-measuring motive. The SPI effect on compensation is stronger in financially-constrained firms, more diversified firms, and firms with less product market competition. SPI increases pay efficiency through a larger proportion of option pay, fewer perquisites, and greater pay-for-skill. We address potential endogeneity concerns by investigating the changes in compensation of managers switching between firms with different SPI.
    JEL: G30 J33
    Date: 2019–05
  3. By: Aminadav, Gur; Papaioannou, Elias
    Abstract: We provide an anatomy of corporate control around the world after tracing controlling shareholders for thousands listed firms from 127 countries between 2004 and 2012. The analysis reveals considerable and persistent differences across and within regions, as well as across legal families. Government and family control is pervasive in civil-law countries. Equity blocks in widely-held corporations are commonplace, but less so in common-law countries. These patterns apply to large, medium, and small listed firms. In contrast, the association between income and corporate control is highly heterogeneous; the correlation is strong among big and especially very large firms, but absent for medium and small listed firms. We then examine the association between corporate control and various institutional features. Shareholder rights against insiders' self-dealing activities correlate strongly with corporate control, though legal formalism and creditor rights less so. Corporate control is strongly related to labor market regulations, concerning, among others, the stringency of employment contracts, the power and extent of unions. The large sample correlations, thus, offer support to both legal origin and political-development theories of financial development.
    Keywords: Corporate Control; family firms; Government ownership; investor protection; Law and Finance; Ownership Concentration; regulation
    JEL: G30 K00 N20
    Date: 2019–04
  4. By: Maxime Couvert (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute)
    Abstract: Managerial resistance precludes half of shareholder-initiated proposals from reaching the ballot stage. I construct a novel dataset of excluded and withdrawn proposals from the Securities and Exchange Commission's responses to managers' exclusion requests. An examination of announcement returns to the exclusion and withdrawal decisions reveals that non-voted proposals have a value-destroying nature. Special interest investors pursuing self-serving agendas and retail investors advocating for one-size-fits-all reforms explain the harmful character of non-voted proposals. I correct for the selection bias induced by managerial resistance and show that focusing only on voted proposals overstates the shareholder proposals-driven value creation.
    Keywords: Corporate Governance, Corporate Social Responsibility, Shareholder Proposals, Shareholder Empowerment, Institutional Investors
    JEL: G23 G32 G34
    Date: 2018–12
  5. By: Kun Mo; Farrukh Suvankulov; Sophie Griffiths
    Abstract: The paper explores the link between financial distress and the commodity price hedging behaviour of Canadian oil firms. Specifically, we argue that the expected costs of financial distress have been associated with the hedging behaviour for Canadian oil firms between 2005 and 2015. We use firm-level annual data for 92 Canadian-based, publicly traded oil extraction companies. Results from Honore’s semiparametric model for panel data with fixed effects and Heckman's two-step model show that firms with higher short-term and long-term debt tend to hedge more. Furthermore, an increase in the Altman bankruptcy score by one is associated with the decline of the hedge ratio by 1.2 to 1.7 percentage points.
    Keywords: Firm dynamics; Financial markets
    JEL: G32 Q40
    Date: 2019–04
  6. By: Huang, Jiayi (Cardiff Business School); Matthews, Kent (Cardiff Business School); Zhou, Peng (Cardiff Business School)
    Abstract: This paper analyses the duration of firm-bank relationships and examines what drives firms in China to change from one bank loan provider to another. Matched data of firm-loan-duration to bank provides a unique panel data set of relationship between China's listed firms and their lending banks consisting of 2,102 firms listed on both the Shanghai Stock Exchange and Shenzhen Stock Exchange in the period of 1996-2016. The Cox proportional hazard model is used to allow for a semiparametric hazard function after parametrically controlling for firm specific financial factors, industry factors, ownership characteristics, internal management changes, and external macroeconomic changes. In addition, we explore the impact of the 2008 financial crisis, bank-financial and ownership characteristics. The main finding of this study is that in an environment of growing ommercialisation of relationships the firm-bank relationship between state-owned enterprises (SOEs) and state-owned banks (SOBs) in China remains super-stable. However, a change in the CEO of a firm even of a SOE increases the probability of the loan-provider being changed.
    Keywords: Firm-Bank Switch, China, Survival analysis, Hazard Function
    JEL: G21 D22
    Date: 2019–05

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