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on Corporate Finance |
| By: | Giorgio Barba Navaretti; Davide Castellani; Fabio Pieri |
| Abstract: | We examine the relation between the age of CEOs and firm organic growth. In a large sample of mostly privately held European manufacturing firms with more than 10 employees, we find that firms managed by a young CEO grow faster in terms of both sales and assets. Our results are robust to the inclusion of a large vector of firm and CEO characteristics and to controls for endogeneity, survival bias and time horizon. We submit that this relation is explained by an incentive of young CEOs to boost firm growth in order both to signal their talent in the market for managers and to get a longer stream of future compensation benefits. In turn, this may create an agency problem, due to a divergence of this corporate strategy from shareholders’ targets. Consistently, we find that a concentrated ownership, allowing a more effective monitoring, moderates the negative relation between CEO age and firm organic growth. |
| Keywords: | Chief Executive Officer, CEO age, organic growth, agency theory, European manufacturing firms |
| JEL: | G32 G34 L25 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwprg:2019/13&r=all |
| By: | Leon Li; Nen-Chen Richard Hwang; Gilbert V. Nartea (University of Canterbury) |
| Abstract: | This study argues that the managerial choice of earnings management strategy may be contingent upon a firm’s information asymmetry and such a strategy affects the firm’s earnings predictability. Measuring information asymmetry by earnings predictability based on the subsequent dispersion in analysts’ forecasts and employing a quantile regression to analyze 28,383 U.S. firm-year observations obtained from 1988 to 2014, this study reports that the effect of earnings management strategy on earnings predictability is non-uniform. Specifically, the amount of absolute discretionary accruals negatively (positively) relate to the subsequent dispersion in analysts’ forecasts in the low (high) quantiles of the latter. These results support our hypothesis that a firm may implement efficient or opportunistic earnings management strategies according to the degree of information asymmetry between the firm’s management and corporate outsiders. |
| Keywords: | Discretionary accruals, analysts’ forecasts dispersion, quantile regression |
| JEL: | G12 G32 |
| Date: | 2019–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:19/09&r=all |
| By: | Xiao,Tim |
| Abstract: | This article presents a new model for valuing financial contracts subject to credit risk and collateralization. Examples include the valuation of a credit default swap (CDS) contract that is affected by the trilateral credit risk of the buyer, seller and reference entity. We show that default dependency has a significant impact on asset pricing. In fact, correlated default risk is one of the most pervasive threats in financial markets. We also show that a fully collateralized CDS is not equivalent to a risk-free one. In other words, full collateralization cannot eliminate counterparty risk completely in the CDS market. |
| Keywords: | asset pricing,credit risk modeling,collateralization,comvariance,comrelation,correlation,CDS |
| JEL: | E44 G21 G12 G24 G32 G33 G18 G28 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:202075&r=all |
| By: | Christopher Hoag (Department of Economics, Trinity College) |
| Abstract: | In the late nineteenth century, clearinghouse loan certificates served as an early lender of last resort program during financial crises. This paper uses individual bank data to evaluate whether senior bank executive experience with borrowing loan certificates in a previous financial crisis influences the amount of borrowing loan certificates in the next crisis. Borrowing loan certificates in 1907 in New York City correlates with borrowing loan certificates in the previous crisis of 1893 even after controlling for individual bank characteristics. Further, the results suggest that senior bank executives with experience at the same bank during the previous crisis of 1893 borrowed smaller amounts of loan certificates in 1907. |
| Keywords: | lender of last resort; executive; learning; clearinghouse loan certificate. |
| JEL: | G21 G32 N21 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:tri:wpaper:1903&r=all |
| By: | Ufuk Akcigit; Emin Dinlersoz; Jeremy Greenwood; Veronika Penciakova |
| Abstract: | Venture capital (VC) and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and initial patent quality than non-VC-backed ones. VC-backing increases a startup’s likelihood of reaching the right tails of the firm size and innovation distributions. Furthermore, outcomes are better for startups matched with more experienced venture capitalists. An endogenous growth model, where venture capitalists provide both expertise and financing for business startups, is constructed to match these facts. The presence of venture capital, the degree of assortative matching between startups and financiers, and the taxation of VC-backed startups matter significantly for growth. |
| JEL: | G24 O31 O32 O40 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26196&r=all |
| By: | Isakov, Dusan; Pérignon, Christophe; Weisskopf, Jean-Philippe |
| Abstract: | We study the effect of dividend taxes on the payout and investment policy of listed firms and discuss their implications for agency problems. To do so, we exploit a unique setting in Switzerland where some, but not all, firms were suddenly able to pay tax-exempted dividends to their shareholders following the corporate tax reform of 2011. Using a difference-in-differences specification, we show that treated firms increased their payout by around 30% compared to control firms after the tax cut. Differently, treated firms did not concurrently or subsequently increase investment. We show that the tax-inelasticity of investment was due to a significant drop in retained earnings ̶ as the rise in dividends was not compensated by an equally-sized reduction in share repurchases. Furthermore, treated firms did not raise more equity than control firms. Lastly, we show that an unintended consequence of cutting dividend taxes is to mitigate the agency problems that arise between insiders and minority shareholders. |
| Keywords: | corporate taxes; dividends; payouts; investment; agency problems. |
| JEL: | G35 G38 H25 K34 |
| Date: | 2019–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:fri:fribow:fribow00498&r=all |
| By: | Sebayang, Minda Muliana; Bukit, Rina |
| Abstract: | The size of the company (size) is a factor that affects quality disclosure of environmental impacts. This is related to the number of assets owned by the company where large companies need more funds in managing their operations compared to smaller companies. Companies with large sizes also tend to pay more attention to the quality of disclosure of the company's environmental impact to obtain a good impression from stakeholders. This study aims to obtain empirical evidence about the characteristics of companies that influence the quality of disclosure of the company's environmental impact. |
| Keywords: | environmental quality disclosure; Indonesia; companies’ characteristics; profitability; company size; |
| JEL: | G29 G30 O44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95520&r=all |
| By: | Benjamin Hippert (University of Paderborn) |
| Abstract: | Employing a sample of 492 merger and acquisition (M&A) announcements from 284 acquirers across North America and Europe between 2005 and 2018, this study analyzes the impact of M&A announcements on an acquirers abnormal CDS spread changes. We find that spreads from CDS which are written on acquirers increase by 310 bps during a symmetric five-day event window suggesting that investors expect an increase in the acquirers credit risk exposure due to M&As. Next to this baseline finding, we conduct a large variety of sensitivity analyses to gain more insight into the driving factors of the rising risk perception of CDS investors due to M&A announcements. |
| Keywords: | credit default swaps, risk perception of CDS investors, mergers and acquisitions, event study |
| JEL: | G14 G34 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:pdn:dispap:52&r=all |
| By: | Miroslav Mateev (American University in the Emirates) |
| Abstract: | This paper investigates the impact of regulation and ownership on the performance of banks in 19 countries in the Middle East and North Africa (MENA) region, over a period of 11 years (2005 - 2015). We test the hypothesis that the effect of regulation on efficiency and profitability depends on the type of bank ownership. We find that only capital regulations have a strong impact on bank efficiency, but this effect does not depend on the level of ownership concentration of the bank. In line with previous empirical studies, we find that the impact of regulatory measures on bank profitability does not depend on bank ownership type. We also investigate whether the impact of regulation and ownership is different between conventional and Islamic banks, and find that the interaction effect of bank regulations and different types of ownership on a bank?s profitability is strongly significant only in the sample of Islamic banks. The analysis of bank performance before and after the recent global financial crisis reveals that bank regulations have no influence on cost efficiency of a conventional bank either before or after the crisis; however, the impact on an Islamic bank?s efficiency is strongly significant in the full sample period and the post-crisis period. |
| Keywords: | global financial crisis, ownership, bank regulation, efficiency, profitability |
| JEL: | G21 G28 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iefpro:8911196&r=all |
| By: | Fayçal Mraihi (Higher School of Economics and Business Sciences of Tunis); Inane Kanzari (Higher School of Economics and Business Sciences of Tunis) |
| Abstract: | In this study, we try to develop a model for predicting corporate default based on a multivariate discriminant analysis (ADM) and a multilayer perceptron (MLP). The two models are applied to the Tunisian cases. Our sample consists of 212 companies in the various industries (106 ‘healthy’ companies and 106 “distressed” companies) over the period 2005-2010. The results of the use of a battery of 87 ratios showed that 16 ratios can build the model and that liquidity and solvency have more weight than profitability and management in predicting the distress. Despite the slight superiority of the results provided by the MLP model, on the control sample, the results provided by the two models are good either in terms of correct percentage of classification or in terms of stability of discriminating power over time and space. |
| Date: | 2019–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:erg:wpaper:1328&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon) |
| Abstract: | The purpose of this study is to investigate whether enhancing financial access influences productivity in Sub-Saharan Africa. The research focuses on 25 countries in the region with data for the period 1980-2014. The adopted empirical strategy is the Generalised Method of Moments. The credit channel of financial access is considered and proxied by private domestic credit while four main total factor productivity (TFP) dynamics are adopted for the study, namely: TFP, real TFP, welfare TFP and real welfare TFP. It is apparent from the findings that enhancing financial access positively affects welfare TFP whereas the effect is not significant on TFP, real TFP and welfare TFP. Policy implications are discussed. The study complements the extant literature by engaging hitherto unemployed dynamics of TFP in Sub-Saharan Africa. |
| Keywords: | Economic Output; Financial Development; Sub-Saharan Africa |
| JEL: | E23 F21 F30 O16 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:19/052&r=all |