nep-cfn New Economics Papers
on Corporate Finance
Issue of 2019‒07‒29
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. An empirical study on the influencing factors for the over-investment of Chinese SOEs By Hou, Yang; Wu, Manling
  2. Takeover, Distress, and Equity Issuance: Evidence from Korea By Euna Cho
  3. Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry By Dennis, Patrick; Gerardi, Kristopher S.; Schenone, Carola
  4. Development banking, state of confidence and sustainable growth By Victor Manuel Isidro Luna
  5. An Economic Examination of Collateralization in Different Financial Markets By Xiao,Tim
  6. Bank Executive Experience in a Financial Crisis By Christopher Hoag
  7. Ambiguity and Information Processing in a Model of Intermediary Asset Pricing By Leyla Jianyu Han; Kenneth Kasa

  1. By: Hou, Yang; Wu, Manling
    Abstract: The efficiency of investment affects the future development of the enterprises. The relevant literature on the corporate investment shows that the information asymmetry and the conflict of agency between the executives and the shareholders of the enterprises have a significant influence on the investment decision-makings. This study uses data of Chinese SOEs to analyze the factors affecting the efficiency of capital allocation of these Chinese SOEs from the perspective of free cash flow, ownership structure, agency costs, financing constraints and government intervention. The results of this study show that the phenomenon of over-investment is relatively obvious among the Chinese state-controlled listed enterprises. The results also show that substantial free cash flow, relatively high ownership concentration and government intervention are the major factors that lead to the over-investment in these Chinese state-owned listed companies. At the meantime, the financing constraints play a positive role in restraining the over-investment of Chinese SOEs, but their effect is quite weak. Moreover, the distortions of the senior executives’ value goals lead to the failure of executive compensation mechanism and the construction of a proper governance system needs to begin with the property rights relations.
    Keywords: Over-investments Chinese SOEs Capital Allocation Free Cash Flow
    JEL: G31 G32
    Date: 2019–06–27
  2. By: Euna Cho (Economic Research Institute, Bank of Korea)
    Abstract: We study the motive and the economic effects of takeover in Korea, which has not been actively studied due to difficulties in collecting data. Using the data of largest shareholder change disclosed in the Korea Exchange's public disclosure system in 2004-2017, we estimate logit regressions of the likelihood that the firms to be a target. We also estimate panel regressions to examine the effect of takeovers on financial performances. The results show that takeovers in Korea occur in relation to financial distress, and that some companies tend to be targeted repeatedly. However, after the takeover, the financial distress is not resolved, indicating poor performance of takeovers motivated by financial distress.
    Keywords: Takeovers, Financial distress, Equity issuance, Financial Performance, Method of Takeover
    JEL: G34 G32 G30 L25
    Date: 2019–07–01
  3. By: Dennis, Patrick (University of Virginia); Gerardi, Kristopher S. (Federal Reserve Bank of Atlanta); Schenone, Carola (University of Virginia)
    Abstract: Institutional investors often own significant equity in firms that compete in the same product market. These "common owners" may have an incentive to coordinate the actions of firms that would otherwise be competing rivals, leading to anti-competitive pricing. This paper uses data on airline ticket prices to test whether common owners induce anti-competitive pricing behavior. We find little evidence to support such a hypothesis, and show that the positive relationship between average ticket prices and a commonly used measure of common ownership previously documented in the literature is generated by the endogenous market share component, rather than the ownership component, of the measure.
    Keywords: common ownership; airline prices; institutional ownership; competition
    JEL: G33 G34 G38 L11 L41
    Date: 2019–07–01
  4. By: Victor Manuel Isidro Luna
    Abstract: This article outlines the role of three types of development banks (communal, national, and multilateral) in promoting sustainable growth and development in the future. The 2007-2008 crisis made clear the need for: (1) heavy investment in developed as well as peripheral countries, and (2) coordinated financial institutions at the local, national, and international levels. Given a historical and spatial context, development banks can adopt different types of ownership (public or private), can target a myriad of specific sectors, and can promote local and international cooperation. We argue that for sustainable growth to be achieved, “confidence” has to be provided by public financial institutions. In our analysis we follow post-Keynesian ideas, which, considering the use of money with “social responsibility,” are thought to match the ideas of other heterodox approaches.
    Keywords: Development Banks, 2007-2008 Crisis, State of Confidence, Post-Keynesian, Sustainable Growth
    JEL: G10 G20
    Date: 2019–07
  5. By: Xiao,Tim
    Abstract: This paper attempts to assess the economic significance and implications of collateralization in different financial markets, which is essentially a matter of theoretical justification and empirical verification. We present a comprehensive theoretical framework that allows for collateralization adhering to bankruptcy laws. As such, the model can back out differences in asset prices due to collateralized counterparty risk. This framework is very useful for pricing outstanding defaultable financial contracts. By using a unique data set, we are able to achieve a clean decomposition of prices into their credit risk factors. We find empirical evidence that counterparty risk is not overly important in credit-related spreads. Only the joint effects of collateralization and credit risk can sufficiently explain unsecured credit costs. This finding suggests that failure to properly account for collateralization may result in significant mispricing of financial contracts. We also analyze the difference between cleared and OTC markets.
    Keywords: unilateral/bilateral collateralization,asset pricing,plumbing of the financial system,swap premium spread,OTC/cleared/listed financial markets
    JEL: E44 G21 G12 G24 G32 G33 G18 G28
    Date: 2019
  6. By: Christopher Hoag (Department of Economics, Trinity College)
    Abstract: This paper evaluates whether senior bank executive experience can influence bank outcomes during a financial crisis. Some bank executives in New York City in the crisis of 1907 possessed experience as a senior bank officer at the same bank in New York during the previous nationwide crisis of 1893. The evidence suggests that individual bank deposit losses at the same institution are correlated across these two crises. However, this correlation cannot be explained by the retention of top executives at the bank from the previous financial crisis.
    Keywords: financial crisis; executive; learning.
    JEL: G21 G32 N21
    Date: 2019–07
  7. By: Leyla Jianyu Han; Kenneth Kasa (Simon Fraser University)
    Abstract: The paper incorporates ambiguity and information processing contraints into a model of intermediary asset pricing. Financial intermediaries are assumed to possess greater information processing capacity. Households purchase this capacity, and then delegate their investment decisions to intermediaries. As in He and Krishnamurthy (2012), the delegation contract is constrained by a moral hazard problem, which gives rise to a minimum capital requirement. Both agents have a preference for robustness, reflecting ambiguity about asset returns (Hansen and Sargent (2008)). We show that ambiguity aversion tightens the capital constraint, and amplifies its effects. Indirect inference is used to calibrate the model's parameters to the stochastic properties of asset returns. Detection error probabilities are used to discipline the degree of ambiguity aversion. The model can explain both the unconditional moments of asset returns and their state dependence, even with DEPs in excess of 20%.
    Keywords: Ambiguity, Information Processing, Asset Pricing, Financial Crisis
    JEL: D81 G01 G12
    Date: 2019–07

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