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on Corporate Finance |
| By: | Evgeny Lyandres (Boston University); Maria‐Teresa Marchica (University of Manchester - Alliance Manchester Business School); Roni Michaely (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute); Roberto Mura (University of Manchester - Manchester Business School) |
| Abstract: | Portfolio diversification of firms' controlling owners influences their firms' capital investment. Empirically, the effect of owners' portfolio diversification on their firms' investment levels is positive for publicly-traded firms and tends to be negative for privately-held ones. These findings are consistent with predictions of a model in which a risk-averse investor simultaneously chooses her portfolio structure, and the level and riskiness of capital investment of the firm she controls, and in which the firm can be potentially constrained in its capital investment choices. Overall, our results indicate that owners' portfolio underdiversification and firms' financial constraints can impact firms' resource allocation. |
| Keywords: | diversification, strategies, private firms |
| JEL: | G11 G15 G31 G32 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1912&r=all |
| By: | Grover, Naina; Sinha, Pankaj |
| Abstract: | This study explores the micro and macro factors affecting liquidity created by Scheduled Commercial banks (excluding Regional Rural Bank) in India using the Generalized Method of Moments. Two measures of liquidity creation, the broad and narrow measures, were formed using RBI data available on Indian banks for the period 2005 to 2018. The study found that the variation in the broad measure was explained by equity ratio, market share, GDP, gross savings and lending rate whereas narrow measure was explained by equity ratio, market share, size and lending rate. Profitability and operating profit ratios did not affect liquidity creation. The crisis negatively affected both the measures of liquidity creation. The impact was more severe for the broad measure as compared to the narrow measure. We found the negative influence of capital on liquidity created by banks, which confirms that the implementation of Basel III norms in Indian banks will have negative implications for liquidity creation. Banks are perceived positively in the market when they create more liquidity. |
| Keywords: | Liquidity creation, micro and macro factors, broad and narrow measures, Indian Banks, influence of capital on liquidity |
| JEL: | G0 G01 G1 G18 G2 G21 G23 G3 G33 M4 |
| Date: | 2019–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94280&r=all |
| By: | Garanina, Tatiana (University of Vaasa); Muravyev, Alexander (Higher School of Economics) |
| Abstract: | This paper studies economic effects of the gender composition of corporate boards, employing a new and unique longitudinal dataset of virtually all Russian companies whose shares were traded on the national stock market between 1998 and 2014. Using multiple identification approaches, alternative measures of gender diversity, and several performance indicators, we find some evidence that companies with gender-diverse boards have higher market values and better profitability. These effects are particularly pronounced when firms appoint several women directors, which is consistent with the critical mass theory. The effects appear to be stronger in bad economic times or for firms experiencing economic difficulties. Overall, the Russian data lend some support to "the business case" for more women on corporate boards. |
| Keywords: | board of directors, gender diversity, firm performance, Russia |
| JEL: | G34 J16 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12357&r=all |
| By: | Kjell G. Nyborg (University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Zexi Wang (University of Bern) |
| Abstract: | We document that enhanced stock liquidity increases a firm’s propensity to hold cash. Endogeneity is addressed using a difference-in-differences approach based on tick-size decimalization. Our finding is surprising in light of the view that improved stock liquidity reduces financial constraints. We propose that firms hold cash also to buy back shares and higher stock liquidity strengthens this incentive. Tests are supportive. Endogeneity is controlled for using the introduction of repurchase safe harbor rules. We conclude that with respect to the effect of stock liquidity on cash holdings, the repurchase motive dominates the real investments motive. |
| Keywords: | Corporate cash holdings, Stock liquidity, Repurchases |
| JEL: | G32 G35 G10 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1930&r=all |
| By: | Sergio Mayordomo (Banco de España); Antonio Moreno (School of Economics and Business, University of Navarra); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)); Maria Rodriguez-Moreno (Banco de España) |
| Abstract: | This paper studies the effects of the bank capital requirements imposed by the European authorities in October 2011 on loan collateral and personal guarantees usage to enhance capital ratios. We use detailed information on the loan contracts granted by a representative Spanish bank and several subsidiaries to nonfinancial corporations around that date. We document that personal guarantees usage increases more than that of collateral, especially at subsidiaries with lower capital ratios. However, although the former type of guarantees demonstrably disciplined firms in their risk-taking before 2011, their subsequent overuse may have blunted their impact and may have even undermined firm performance and investment. |
| Keywords: | Banks, Asymmetric Information, Real Guarantees, Personal Guarantees, Risk Taking, Capital Requirements |
| JEL: | D43 E32 G21 G32 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1928&r=all |
| By: | Anderson, Gareth; Riley, Rebecca; Young, Garry |
| Abstract: | Exploiting differences in pre-crisis business banking relationships, we present evidence to suggest that restricted credit availability following the 2008 financial crisis increased the rate of business failure in the United Kingdom. But rather than "cleansing the economy by accelerating the exit of the least productive businesses, we find that tighter credit conditions resulted in some businesses failing despite being more productive than their surviving competitors. We also find evidence that distressed banks protected highly leveraged, low productivity businesses from failure. |
| JEL: | D24 G21 G30 L10 |
| Date: | 2019–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100947&r=all |
| By: | Serena Fatica (European Commission – JRC); Roberto Panzica (European Commission – JRC); Michela Rancan (European Commission – JRC) |
| Abstract: | The financial system plays a major role in the transition to a low-carbon economy. We investigate this issue analysing the recent developments and challenges in the bond and debt markets. First, we study the pricing of green bonds at issuance. We find a premium when green bonds are issued by supranational institutions and corporates while there is no effect for financial institutions. We also document an effect for external review and repeated access to this market. Second, we investigate lending decisions by banks issuing green bonds. Our results show that these lenders reduce their funding towards more polluting segments of the economy but limited to the amount of loans they granted as lead bank in the deal. This evidence may explain why we do not find a green premium for financial issuers. Yet it also suggests that the banking system may play a much larger role in channelling funds towards low-carbon activities, and thus reducing the environmental risks also for the financial system. |
| Keywords: | sustainable finance; climate change; bond interest rates; financial institutions |
| JEL: | G12 G20 Q52 Q53 Q54 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:jrs:wpaper:201907&r=all |
| By: | Rustam Abuzov (University of Lausanne; Swiss Finance Institute) |
| Abstract: | I study the effect of limited attention on resource allocation by venture capitalists. Using engagement in the IPO process as a measure of distraction, I document that investments made by inattentive venture capitalists into new portfolio companies tend to underperform. Such companies are 7% less likely to go public or get acquired, and also exhibit lower exit multiples. The adverse effect of distraction is present only in the vicinity of the distracting IPO and manifests itself both for individual partners and venture capital funds. Overall, the results indicate that the scarcity of attention hypothesis holds in the context of deal sourcing and screening in venture capital, highlighting the presence of skill in the company selection process. |
| Keywords: | venture capital, general partner, limited attention, screening, IPO |
| JEL: | G11 G24 M13 O31 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1914&r=all |