nep-cfn New Economics Papers
on Corporate Finance
Issue of 2019‒07‒15
four papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. A Theory of Gazelle Growth: Competition, Venture Capital Finance and Policy By Persson, Lars; Kaya, Mehmet Caglar
  2. The Impact of Merger Legislation on Bank Mergers By Carletti, Elena; Ongena, Steven; Siedlarek, Jan-Peter; Spagnolo, Giancarlo
  3. Nominee directors on the board and internationalization strategy: An institutional agency perspective By Vidya Sukumar Panicker; Sumit Mitra; Rajesh Srinivas Upadhyayula
  4. Employee Costs of Corporate Bankruptcy By John R. Graham; Hyunseob Kim; Si Li; Jiaping Qiu

  1. By: Persson, Lars (Research Institute of Industrial Economics (IFN)); Kaya, Mehmet Caglar (Department of Economics)
    Abstract: This paper proposes a theory of gazelle growth in which gazelles can either grow organically or by acquisitions. In the model, there are three types of firms: incumbent, target, and gazelle. We show that the lower cost of organic growth can increase the incentives for acquisition growth. The reason for this is that the incumbent understands that if it acquires the target firm, the gazelle will then invest organically anyway to grow, and therefore, the acquisition will not be sufficient to protect the incumbent's market power. The gazelle could then acquire the target firm at a good price. We also show that financial support for the organic growth of gazelles can increase gazelles' growth by acquisitions since incumbents' preemptive motives are reduced.
    Keywords: Gazelles; Acquisitions; Organic growth; Entrepreneurial policy; Venture capital; Financial support
    JEL: G24 G34 G38 L10 L26
    Date: 2019–07–02
  2. By: Carletti, Elena (Bocconi University, IGIER, and CEPR); Ongena, Steven (University of Zurich, the Swiss Finance Institute, KU Leuven, and CEPR); Siedlarek, Jan-Peter (Federal Reserve Bank of Cleveland); Spagnolo, Giancarlo (SITEStockholm School of Economics, the University of Rome Tor Vergata, EIEF, and CEPR)
    Abstract: We fi nd that the introduction of stricter merger control legislation in the European Union in the period 1986–2007 increases the abnormal announcement returns of targets in bank mergers by 7 percentage points. In searching for potential explanations, we document an increase in the pre-merger profitability of targets, a decrease in the size of acquirers and a decreasing share of transactions in which banks are acquired by other banks. Other merger properties, including the size and risk profile of targets, the geographic overlap of merging banks and the stock market response of rivals appear unaffected. The evidence suggests that the strengthening of merger control leads to more efficient and more competitive transactions.
    Keywords: banks; mergers and acquisitions; merger control; antitrust;
    JEL: G21 G34 K21 L40
    Date: 2017–07–19
  3. By: Vidya Sukumar Panicker (Loughborough University, School of Business and Economics, UK); Sumit Mitra (Indian Institute of Management, Kozhikode); Rajesh Srinivas Upadhyayula (Indian Institute of Management, Kozhikode)
    Abstract: Extant literature on Corporate Governance predominantly examines the characteristics of Anglo-Saxon system of corporate governance. Hence, studies examining governance of firms often employ the agency theory. However, recent studies argue that the behaviour of principals and agents is shaped by the institutional logics and consequently Anglo-Saxon institutional logic based agency theory may not be applicable in other contexts. Hence, studies examined the role of institutions in shaping various actors and the decisions of the firms. In this study, we examine a specific feature in the Indian Corporate Governance context i.e., nominee directors on the board. On a sample of 764 unique firms and 4216 firm year observations spanning the period 2006-2017, we find that the nominee directors are negatively associated with internationalization of emerging economy firms. In addition, we also find that the nominee directors positively moderate the relationship between family ownership and internationalization whereas it negatively moderates the relationship between foreign institutional investors and banks on the international investments of emerging economy firms. In this manner, we contribute to the institutional agency theory by arguing that institutional logics shape the internationalization decisions of emerging market firms.
    Keywords: Internationalization strategy, Nominee directors
    Date: 2019–03
  4. By: John R. Graham; Hyunseob Kim; Si Li; Jiaping Qiu
    Abstract: An employee’s annual earnings fall by 10% the year her firm files for bankruptcy and fall by a cumulative present value of 67% over seven years. This effect is more pronounced in thin labor markets and among small firms that are ultimately liquidated. Compensating wage differentials for this “bankruptcy risk” are approximately 2.3% of firm value for a firm whose credit rating falls from AA to BBB, about the same magnitude as debt tax benefits. Thus, wage premia for expected costs of bankruptcy are of sufficient magnitude to be an important consideration in corporate capital structure decisions.
    JEL: G32 G33 J21 J31 J61
    Date: 2019–06

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