nep-cfn New Economics Papers
on Corporate Finance
Issue of 2019‒08‒19
fifteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Impact of Financial Crisis on Determinants of Capital Structure of Indian Non-financial Firms: Estimating Dynamic Panel Data Model using Two-Step System GMM By Vodwal, Sandeep; Bansal, Vishakha; Sinha, Pankaj
  2. On financial frictions and firm market power By Miguel Casares; Luca Deidda; José E. Galdón-Sánchez
  4. On Selecting the Right Agent By Andreas Engert
  5. Failure and Success in Mergers and Acquisitions By Renneboog, Luc; Vansteenkiste, C.
  6. Exit of Small Businesses: Differentiating between Insolvency, Voluntary Closures and M&A By Peng XU
  7. The Impact of the 2012 NZX Listing Rule Change on Board Composition and Company Performance By Glenn Boyle; Michael Foley; Sanghyun Hong
  8. Incentive scheme and productivity in microfinance institutions in Benin By ACCLASSATO HOUENSOU, Denis; SENOU, Melain Modeste
  9. Corporate Governance and Efficiency of Rural and Community Banks (RCBs) in Ghana By OTENG-ABAYIE, ERIC Fosu; Affram, Anthony; Mensah, Henry Kofi
  10. The Likelihood of Divorce and the Riskiness of Financial Decisions By Stark, Oded; Szczygielski, Krzysztof
  11. Financial Models with Defaultable Numéraires By Travis Fisher; Sergio Pulido; Johannes Ruf
  12. Panel Modeling of Z-score: Evidence from Islamic and Conventional Saudi Banks By Ghassan, Hassan B.; Guendouz, Abdelkarim
  13. Investment decisions and sensitivity analysis: NPV-consistency of rates of return By Marchioni, Andrea; Magni, Carlo Alberto
  14. Determinants of credit growth and the bank-lending channel in Peru: A loan level analysis By José Bustamante; Walter Cuba; Rafael Nivin
  15. Determinants of profitability in the Indian logistics industry By Saripalle, Madhuri

  1. By: Vodwal, Sandeep; Bansal, Vishakha; Sinha, Pankaj
    Abstract: The sub-prime crisis of 2008 in the US shook the world markets through financial market integration, global trade links, and international banking diversification. The financial crisis led to changes in various policies both at macroeconomic and firm-level around the world. In this scenario, this study is an attempt to identify and uncover the changes in firm and institutional determinants of Debt Financing Ratio in India, before and after the crisis. Micro and macro panel data of 306 non-financial Indian listed firms were used for the period of 2002-2017 to study the factors affecting leverage. Two-step system GMM was employed to study the dynamics of leverage and its determinants during 2002-2008 (pre-crisis period) and 2009-2017 (post-crisis period). Pre and post-crisis analysis are undertaken by employing firm-specific factors represented by Non-debt tax shields, Asset Composition (tangibility), Size, Profitability, Growth Opportunity (Market to Book), and Liquidity in the firms and institutional factors represented by Economic Growth Rate and Inflation. Two models, with different measures of leverage as dependent variables, have been constructed to analyse the impact of the crisis. The results favoured that the Indian firms tend to adjust their capital structure to reach an optimum level of debt (Target Leverage). The study confirms that profitability, and size of the firm are robust determinants of leverage in both pre and post-crisis periods; tangibility is found to be insignificant in the pre-crisis period and statistically significant in the post-crisis period for both measures of leverage. Market to Book (MTB) ratio is consistently a non-significant factor for book measure of leverage, and it holds significant negative relation to the market measure of leverage. Based on the model employing the book measure of leverage as a dependent variable, the factors tangibility and liquidity show different behaviour in pre and post-crisis period. They are not found to be significant during the pre-crisis period but after the crisis, they show significance in the determination of leverage of Indian non-financial firms. Economic indicators show a negative relation of inflation with leverage in the pre-crisis period.and positive relation in the post-crisis period. Economic growth measured through GDP does not show significance during the pre-crisis period but shows a positive influence in the post-crisis period.
    Keywords: Corporate Capital Structure, Dynamic Panel Data, GMM, Two stage System GMM
    JEL: G01 G3 G32 G38
    Date: 2019–08–06
  2. By: Miguel Casares (Universidad Pública de Navarra); Luca Deidda (Università di Sassari); José E. Galdón-Sánchez (Universidad Pública de Navarra)
    Abstract: We build a static general-equilibrium model with monopolistically competitive firms that borrow funds from competitive banks in an economy subject to financial frictions. These frictions are due to non verifiability of both ex post firm returns and managerial effort. Market power has opposing effects. On one side, firms’ pricing over marginal cost reduces output compared to perfect competition. On the other, by increasing firms’ profitability, market power reduces the impact of financial frictions. The resulting tradeoff is ambiguous. We show that, other things equal, there exists an optimal positive level of market power that maximizes welfare. Such optimal degree of market power increases with moral hazard and decreases with the efficiency of firm liquidation following bankruptcy.
    Keywords: market power, moral hazard, bankruptcy, liquidation
    JEL: E44 G21 G33
    Date: 2019–08
  3. By: Simplice A. Asongu, Phd (Department of Economics, University of South Africa); Nicholas M. Odhiambo (Department of Economics, University of South Africa)
    Abstract: This study investigates whether information sharing channels that are meant to reduce information asymmetry have led to an increase in financial access. The study employs a Generalised Method of Moments technique using data from 53 African countries during the period from 2004-2011 to examine this linkage. Information sharing channels are theoretically designed to promote the formal financial sector and discourage the informal financial sector. The study uses two information sharing channels: private credit bureaus and public credit registries.
    Keywords: Information asymmetry; Financialisation; Financial Access; Africa
    JEL: R10
    Date: 2018–06
  4. By: Andreas Engert
    Abstract: Shareholder activism by hedge funds has taken hold in Germany in spite of large ownership concentration. This essay uses the example of Stada Arzneimittel AG to highlight features of activism, German style. It goes on to discuss the legal issues raised by activist campaigns at the two stages of acquiring a shareholding in the target company and, subsequently, of interacting with its management and pressuring for strategic or corporate governance changes. In light of the theory and evidence on the short-term and long-term effects of shareholder activism, the essay concludes that German and European law has rightly refrained from intervening in this most recent corporate governance development. The law lacks a reliable filter to sort desirable from undesirable forms of activism. The essay is forthcoming in Holger Fleischer, Hideki Kanda, Kon Sik Kim, and Peter O. Mülbert (eds.), German and East Asian Perspectives on Corporate and Capital Market Law: Investors versus Companies.
    Keywords: shareholder activism, hedge fund activism, major shareholdings disclosure, insider trading, company secrets
    JEL: G34 K22
    Date: 2019–08
  5. By: Renneboog, Luc (Tilburg University, Center For Economic Research); Vansteenkiste, C. (Tilburg University, Center For Economic Research)
    Abstract: This paper provides an overview of the academic literature on the market for corporate control, and focuses specifically on firms’ performance around and after a takeover. Despite the aggregate M&A market amounting to several trillions USD on an annual basis, acquiring firms often underperform relative to non-acquiring firms, especially in public takeovers. Although hundreds of academic studies have investigated the deal- and firm-level factors associated with M&A announcement returns, short-run returns are often not sustained in the long run. Moreover, the wide variety of performance measures and heterogeneity in sample sizes complicates the drawing of accurate and unambiguous conclusions. In this light, our survey compiles the recent literature and aims to identify the areas of research for which short-run returns predict (or fail to predict) long-run performance. We find that post-takeover deal performance is affected by key determinants including serial acquisitions, CEO overconfidence, acquirer-target relatedness and complementarity, and shareholder intervention in the form of voting or activism.
    Keywords: takeovers; merges and acquisitions; long-run performance; corporate governance
    JEL: G34
    Date: 2019
  6. By: Peng XU
    Abstract: In this paper, we examine the determinants of M&A, voluntary business closure and bankruptcy of mature SMEs in Japan between 2002 and 2015, using nested logit models. We show that high leverage and extremely poor operating performance are major reasons for exits in the cases of voluntary closures or bankruptcies, while firms involved in M&A are less leveraged and profitability is not as poor as for exited firms. Consistent with previous studies on internal capital markets, group firms or subsidiaries are more likely to be involved in M&A and less likely to go bankrupt. Bankrupt firms have more debt but low cash holdings in comparison with voluntarily closures. Additionally, smaller firms with aging entrepreneur founders are more likely to voluntarily close their businesses, probably due to lack of successors. Our results are driven by independent SMEs.
    Date: 2019–07
  7. By: Glenn Boyle (University of Canterbury); Michael Foley; Sanghyun Hong
    Abstract: We examine the impact of the December 2012 NZX listing rule change that introduced compulsory disclosure about gender diversity on NZ boards. Although criticised for its timidity, the rate of growth in female-held directorships increased significantly after the introduction of the new rule, resulting in, by 2016, average female board representation being approximately double what it had been in 2012. However, we find no relationship between this response and company performance. Across six measures of operating and financial performance, firms that responded most strongly to the listing rule change fared, on average, no better or worse than those that stuck closer to the status quo.
    Keywords: Female directors; listing rules; firm performance
    JEL: G34 G38
    Date: 2019–08–01
  8. By: ACCLASSATO HOUENSOU, Denis; SENOU, Melain Modeste
    Abstract: This article aims to analyze the productive effects of financial and non-financial incentive in microfinance institutions in Benin. We estimate a Cobb-Douglas production function augmented by the Incentive Scheme on an unbalanced panel of 14 registered MFIs over the period 2007-2017. The findings of this study show that non-financial incentives positively impact the outreach whereas the financial incentives have a negative effect on outreach. They further suggest that a well-designed incentive scheme is a powerful tool to overcome free riding and other asymmetric information problems in a costly monitoring environment.
    Keywords: Financial incentive, Non-Financial Incentive, Productivity, MFI, Benin
    JEL: D21 O31
    Date: 2019–07–31
  9. By: OTENG-ABAYIE, ERIC Fosu; Affram, Anthony; Mensah, Henry Kofi
    Abstract: Corporate governance crises that occur in the banking sector normally cripple economies and bring many hardships to individuals, corporate entities, communities, and the nation at large. In this study, we sought to examine the level of technical efficiency and productivity growth of rural and community banks (RCBs) and the impact of corporate governance indicators on the RCBs' efficiency performance in Ghana. A sample of 70 out of 140 RCBs was selected based on the ARB Apex Bank's performance ratings and data availability. Data envelopment analysis (DEA) was used to determine the technical efficiency scores of the selected RCBs. In the second stage of the analysis, these computed efficiency scores were regressed on the corporate governance variables to assess the effects of the latter. The findings from the DEA approach show that 11% to 20% of the sampled RCBs in Ghana operate close to the efficiency frontier, whereas the majority - about 65% to 81% - underperformed within the study period of 2007 to 2013. The study further established that the number of board members, frequency of board meetings, and corporate social responsibility have significant influence on RCB efficiency.
    Keywords: Corporate governance, efficiency, Rural banks, Ghana, DEA
    JEL: G2 G21
    Date: 2018–12
  10. By: Stark, Oded (University of Bonn); Szczygielski, Krzysztof (University of Warsaw)
    Abstract: We link causally the riskiness of men's management of their finances with the probability of their experiencing a divorce. Our point of departure is that when comparing single men to married men, the former manage their finances in a more aggressive (that is, riskier) manner. Assuming that single men believe that low relative wealth has a negative effect on their standing in the marriage market and that they care about their standing in that market more than married men do, we find that a stronger distaste for low relative wealth translates into reduced relative risk aversion and, consequently, into riskier financial behavior. With this relationship in place we show how this difference varies depending on the "background" likelihood of divorce and, hence, on the likelihood of re-entry into the marriage market: married men in environments that are more prone to divorce exhibit risk-taking behavior that is more similar to that of single men than married men in environments that are little prone to divorce. We offer a theoretical contribution that helps inform and interpret empirical observations and regularities and can serve as a guide for follow-up empirical work, having established and identified the direction of causality.
    Keywords: men's preferences towards risk, risk-taking behavior, concern at having low relative wealth, relative and absolute risk aversion, marital-based difference in attitudes towards risk, likelihood of divorce
    JEL: D21 D81 G32
    Date: 2019–07
  11. By: Travis Fisher; Sergio Pulido (ENSIIE - Ecole Nationale Supérieure d'Informatique pour l'Industrie et l'Entreprise, LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - INRA - Institut National de la Recherche Agronomique - UEVE - Université d'Évry-Val-d'Essonne - ENSIIE - CNRS - Centre National de la Recherche Scientifique); Johannes Ruf (Department of Mathematics London School of Economics - LSE - London School of Economics and Political Science)
    Abstract: Financial models are studied where each asset may potentially lose value relative to any other. Conditioning on non-devaluation, each asset can serve as proper numéraire and classical valuation rules can be formulated. It is shown when and how these local valuation rules can be aggregated to obtain global arbitrage-free valuation formulas.
    Keywords: Devaluation,Defaultable numéraire,Non-classical valuation formulas
    Date: 2019–01–01
  12. By: Ghassan, Hassan B.; Guendouz, Abdelkarim
    Abstract: Several studies on the banking sector have shown that Islamic banks are more financially robust and stable compared to conventional banks, mostly in periods of financial crises. The aim of this research is to measure and compare the level of stability between Islamic and conventional banks in Saudi Arabia using quarterly data. The sample covers around two-thirds of banks operating in the Saudi stock market, and data comprises the last global financial crisis. The panel data model shows that Islamic banks relatively reduce the financial stability index; meanwhile, they contribute efficiently to enhance financial stability through the diversification of their assets. According to our findings Riyad Bank and SAMBA positively impact the financial stability, while Al-Rajhi bank has a positive but moderate role in enhancing the banking stability. As well, the Saudi banking sector exhibits a weak competitiveness which negatively impact the banking stability. Consequently, the limited presence of Islamic banks in the Saudi banking sector menaces any efforts to improve the financial stability.
    Keywords: Islamic Banks, Financial Crisis, Financial Stability, Z-score Model, Saudi Arabia.
    JEL: C12 C23 G21 G28 G33
    Date: 2018–02–03
  13. By: Marchioni, Andrea; Magni, Carlo Alberto
    Abstract: Investment decisions may be evaluated via several different metrics/criteria, which are functions of a vector of value drivers. The economic significance and the reliability of a metric depend on its compatibility with the Net Present Value (NPV). Traditionally, a metric is said to be NPV-consistent if it is coherent with NPV in signalling value creation. This paper makes use of Sensitivity Analysis (SA) for measuring coherence between rates of return and NPV. In particular, it introduces a new, stronger definition of NPV-consistency that takes into account the influence of value drivers on the metric output. A metric is strongly NPV-consistent if it signals value creation and the ranking of the value drivers in terms of impact on the output is the same as that provided by the NPV. The degree of (in)coherence is calculated with Spearman's (1904) correlation coefficient and Iman and Conover's (1987) top-down coefficient. We focus on the class of AIRRs (Magni 2010, 2013) and show that the average Return On Investment (ROI) enjoys strong NPV-consistency under several (possibly all) methods of Sensitivity Analysis.
    Keywords: Finance, sensitivity analysis, investment decisions, NPV, Return On Investment, consistency, average, AIRR
    JEL: C02 C67 G31
    Date: 2018–01–31
  14. By: José Bustamante; Walter Cuba; Rafael Nivin
    Abstract: This paper uses loan-level data from Peru's credit registry to determine how the role of bank-specific characteristics (i.e. bank size, liquidity, capitalization, funding, revenue, and profitability) may affect the supply of credit in domestic and foreign currency. Also, we analyze how these characteristics affect the banks' response to monetary policy shocks. Finally, we assess how the link between bank-specific characteristics and credit supply is affected by global financial conditions and commodity price changes. Our results show that well-capitalized, high-liquidity, low-risk, more profitable banks tend to grant more credit, especially in domestic currency. Moreover, we found evidence that reserve requirements both in domestic and foreign currency are effective in curbing domestic credit in Peru, giving support to the BCRP's active use of RRs as a macroprudential tool to smooth out the credit cycle. Last, we found that banks with more diversified funding sources are less affected after a negative commodity price change.
    Keywords: credit channel, monetary policy, credit registry data
    JEL: E44 G21 G32 L25
    Date: 2019–07
  15. By: Saripalle, Madhuri
    Abstract: The Indian economy has one of the highest transportation and logistics cost as a percentage of gross domestic product (13%) globally. This paper analyses trends in profitability and discusses some key macro and micro level factors influencing the Indian logistics industry comprising road transport logistics, storage and distribution. It discusses the role of macroeconomic factors such as tax policy in influencing the logistics network complexity, which in turn increase logistics costs. At a micro level, the paper uses firm-level data of 201 companies from Prowess database and estimates an econometric model to analyse major determinants of profitability in the logistics sector. The study finds that liquidity, market share, debt-equity, and age are significant determinants of profitability in the logistics sector.
    Keywords: profitability; transportation; supply chain; logistics; third party logistics; 3PL; India
    JEL: L1 L21 L81
    Date: 2018

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