nep-cfn New Economics Papers
on Corporate Finance
Issue of 2019‒09‒23
ten papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Corporate real estate specificity, ownership and its contribution to firm performance: empirical evidence from the German capital market By Julian Seger; Andreas Pfnür
  2. The relative performance of family firms depending on the type of financial market By Lohwasser, Todor S.
  3. Determinants of Leverage Maturity Structure of Uruguayan Non-financial Firms By Miguel Mello Costa
  4. The impact of large lending on bank efficiency in U.S.A. By Andriakopoulos, Konstantinos; Kounetas, Konstantinos
  5. Underpricing in seasoned equity offerings: Evidence from European REITs and REOCs By Felix Lorenz
  6. Banks as Patient Lenders: Evidence from a Tax Reform By Elena Carletti; Filippo De Marco; Vasso Ioannidou; Enrico Sette
  7. Impact of corporate real estate on the firm performance: Theoretical concept and empirical evidence By Andreas Pfnür; Julian Seger; Rianne Appel-Meulenbroek
  8. Short-Term Investments and Indices of Risk By Heller, Yuval; Schreiber, Amnon
  9. Review of Stakeholders Conflicts in German Housing Industry By Hossein Motahar; Ritika Batra; Annette Kaempf-Dern
  10. Wage determination and fixed capital investment in an imperfect financial market: the case of China By Gu, Tao

  1. By: Julian Seger; Andreas Pfnür
    Abstract: Since decades, the choice between ownership, leasing or renting in corporate real estate management has been discussed in numerous articles. The studies have mainly focused on demonstrating the negative effects of ownership on the capital market performance of non-property companies. A wide variety of influencing factors has been identified, which demonstrably determine the real estate ownership strategy as well as its valuation by the capital market. The reliance of the ownership decision on the real estate specificity instead, has been explained by its strategic importance, but in the course of a theoretical, resource based approach only. This one-dimensional view misses possible consequences for other company divisions though. A further complicating factor is that the strategic value of specific resources, which is a major motive in favor of ownership decisions, is strongly dependent on business environmental changes. In times of structural change and increasing uncertainty, this could cause investments in specific real estate to be withheld or even alternatives to ownership to be considered. This paper aims at filling this research gap by using German balance sheet and capital market data to prove the linkage between specificity and ownership intensity by taking environmental dynamics into account and to show potential effects on the capital market performance.The article begins with a literature-based derivation of the concept of specificity focusing on the theory of the firm on the one hand and its role in corporate finance on the other. The impact of ownership, leasing or rental solutions in the case of specific real estate can be operationalised by using a framework of Pfnuer/Seger (2018). In the following multivariate regression analysis, the influence of real estate specificity on the intensity of ownership is tested while also environmental dynamics are considered. The valuation of the capital market is examined using the Fama-French factor model.The article points out on a theoretical level that ownership of specific real estate is not only based on its strategic importance. Moreover, questions of corporate finance and changes in the business environment are also relevant. Empirical evidence confirms the positive correlation between specificity and ownership strategy. In addition, the analysis provides information on the influence of specificity and ownership strategy on capital market performance.The paper expands the scientific discourse by explicitly linking real estate specificity with the choice between ownership, leasing or rental solutions and corporate success. The article concludes that the irreversibility of specific real estates should be considered in the ownership decision in order to avoid inefficiencies. This especially accounts for firms which operate in a structurally changing business environment.
    Keywords: Corporate real estate management; Firm Performance; real estate ownership; specificity
    JEL: R3
    Date: 2019–01–01
  2. By: Lohwasser, Todor S.
    Abstract: The purpose of this multi-level meta-analytic study is to examine the impact of the financial environment on general performance differences between family firms and non-family firms. The considerable cross-country variability of meta-analyses focusing on this relationship suggests noticeable differences between firm- and country-based characteristics. We trace this variance to differences in the respective development of the financial markets and banking systems. We show that family firms outperform non-family firms in market-based economies. We further show that family firms report worse performance measures in well-developed financial markets. If, however, strong investor protection buttresses these already welldeveloped financial markets, family firms also outperform non-family firms. Our study has implications for banks, family firm owners, investors, and policy-makers.
    JEL: G15 G32 O16
    Date: 2019
  3. By: Miguel Mello Costa (Banco Central del Uruguay)
    Abstract: The purpose of this paper is to study the decision of Uruguayan non-financial firms regarding the temporal dimension of the financing structure, this is, to characterize the temporal structure of Uruguayan nonfinancial firm’s leverage. The paper mainly, analyze the interaction of long-term financial leverage with the other type of external financing of the firm and with the use of own capital. I used a unique panel database that is a merge of the Annual Economic Activity Survey and the Credit Risk Center managed by the Central Bank of Uruguay. The sample covers the period 2011-2014, for this period there is complete balance sheet information. The different external financing options for the firms are complementary to the long-term leverage. In turn, the use of the firm’s own capital is a substitute for long-term leverage. On the side of the demand for long-term credit, firms with higher profitability prefer to finance themselves with their own capital and those with lower profitability turn to external financing to the firm.
    Abstract: El propósito de este trabajo es estudiar la dimensión temporal de la estructura financiera de las empresas no bancarias uruguayas; principalmente, caracterizar la estructura temporal del apalancamiento de las firmas. El documento analiza la interacción del apalancamiento financiero a largo plazo con el otro tipo de financiamiento externo de la empresa y con el uso de capital propio. Utilicé una base de datos de panel única, resultado de la combinación de la Encuesta Anual de Actividad Económica y la Central de Riesgo Crediticio administrada por el Banco Central del Uruguay. La muestra cubre el período 2011-2014, período para el que se cuenta con información completa del balance general de las firmas no financieras. Las diferentes opciones de financiamiento externo para las empresas son complementarias al apalancamiento a largo plazo. A su vez, el uso del capital propio de la empresa es un sustituto del apalancamiento a largo plazo. Por el lado de la demanda de crédito a largo plazo, las empresas con mayor rentabilidad prefieren financiarse con su propio capital y aquellas con menor rentabilidad recurren al financiamiento externo de la empresa.
    Keywords: Financial structure, leverage, indebtedness, panel data, corporate finance; Estructura financiera, apalancamiento financiero, endeudamiento, datos de panel, finanzas corporativas
    JEL: G30 G32
    Date: 2018
  4. By: Andriakopoulos, Konstantinos; Kounetas, Konstantinos
    Abstract: This paper investigates a rather neglected issue in the banking literature regarding the impact of large lending (LL) on the three banks’ performance aspects (cost, profit and productive). Possible influences may arise in the context of banks’ credit risk as trade credit, which is provided by large, creditworthy firms, and it is a method of monitoring and enforcing loan contracts to relatively riskier firms. Indeed, trade credit providers view payments beyond the discount period as a sign of financial difficulty while the option to cut off shipments for nonpayment is a potentially powerful means for a trade creditor to force repayment, especially if a supplier provides its costumer with a product that has no close substitutes. A unique dataset was constructed concerning all USA banks collected from SDI (Statistics on Depository Institutions) report compiled by FDIC (Federal Deposit Insurance Corporation). Our sample contains 7960 banks and tracked yearly for the period 2010 -2017, creating an unbalanced panel of year observations. An econometric framework based on nested non-neutral frontiers, was developed to estimate the influence and the decomposition of large lending on the three banks' performance aspects (cost, profit and productive). Moreover, different types of frontiers aiming at the cost, profit, and production side have been investigated. The empirical findings reveal that the large lending plays a crucial role on banks' technical efficiency. Significant variations among different frontier models, type of bank and size, banks’ ownership structure and macroeconomic conditions appear to be present. By considering all CAMEL (Capital Adequacy Asset Quality Management Earnings Liquidity) parameters we notice that banks’ financial strength affects banks’ efficiency. Some policy implications are derived based on the empirical evidence supporting a safer and sounder banking system can be emerged as banks finance large firms, increasing the willingness of people to save and bank’s attitude to finance profitable investments projects that rise firm’s value and promote economic growth.
    Keywords: JEL classifications: C33; G21; G30
    JEL: C33 G21 G30
    Date: 2019–09–15
  5. By: Felix Lorenz
    Abstract: Because real estate investment trusts (REITs) are limited in their funding due to restrictions on the debt ratio and retained earnings, seasoned equity offerings (SEOs) are major events in the lifetime of a REIT and essential to ensure profitable growth (Ghosh et al. 2000). To finance growth strategies, there is consensus in the literature that REITs need to regularly raise money through capital increases and therefore access the capital market more often. Although SEOs play an important role for REITs as well as for real estate operating companies (REOCs), issued shares are regularly offered at an offer price significantly lower than the price the shares are traded on the offer day – defined as underpricing. Consequently, the issuing firm accept multiples of their year’s earnings as “money left on the table” at equity offerings (Goodwin 2013).While underpricing is highly researched for initial public offerings (IPOs), far less is known about SEOs. Furthermore, literature on the pricing of seasoned offerings focuses on listed real estate in the US, with the European market remaining mainly unobserved. Because the overall market capitalization of REITs and the money raised through SEOs is rapidly growing in Europe with more and more countries implementing the REIT-regime, the objective of the study is to investigate underpricing in SEOs for European REITs and REOCs.Considering equity offerings, literature provides several theories for the occurrence of underpricing. Theories on asymmetric information and value uncertainty based on Rock’s “winner’s curse” (1986) and Beatty and Ritter (1986) were among the first. They conclude underpricing being attributed to cost-intensive information gathering processes due to value uncertainty around the offering. Further explanations contain theories on placement cost (Corwin 2003, Goodwin 2013) and timing of SEOs (Baker and Wurgler 2002, Andrikopoulos et al. 2017). This study contains offering, company specific and market data to gain further insights on the “underpricing puzzle” with respect to European firms. Total proceeds and market capitalization are applied as proxies for value uncertainty around the SEO. We use relative proceeds to check for hypothesis on placement cost. Additionally, information on the debt ratio control for liquidity issues. In terms of timing theories, performance indicators and stock price volatility are used. We furthermore investigate differences in underpricing for REITs and REOCs. Due to higher transparency, we suggest lower underpricing for REITs than for REOCs being in line with previous studies (Ascherl and Schaefers 2016). We expect also to draw conclusion on whether real estate companies with a specialized investment focus outperform diversified ones in terms of leaving less money “left on the table” (Freybote et al. 2008).This study is to our best knowledge the first to investigate underpricing in SEOs for European REITs and REOCs. We expect to identify determinants of underpricing for SEOs and analyze differences for REITs and REOCs. We furthermore suggest our findings to be lower than comparable studies on IPOs due to the disclosed track record after the IPO, but higher than comparable studies on SEOs in the US due to the maturity and market awareness of real estate companies, especially REITs, and the incremental conduction of equity offerings (e.g. ATM offerings). The goal of the study is to provide a better understanding of the underpricing phenomenon to contribute to the solution of the “underpricing puzzle”.
    Keywords: Initial returns; market timing; REITs and REOCs; seasoned equity offerings; Underpricing
    JEL: R3
    Date: 2019–01–01
  6. By: Elena Carletti; Filippo De Marco; Vasso Ioannidou; Enrico Sette
    Abstract: We study how a greater reliance on deposits affects bank lending policies. For identification, we exploit a tax reform in Italy that induced households to substitute bank bonds with deposits. We show that the reform led to larger increases (decreases) in term deposits (bonds) in areas where households held more bonds before the reform. We then find that banks with larger increases in deposits did not change their overall credit supply, but increased credit-lines and the maturity of term-loans. These results are consistent with key theories on the role of deposits as a discipline device and of banks as liquidity providers.
    Keywords: Banks, deposits, maturity, risk-taking, government guarantee
    JEL: G21 G28 G01
    Date: 2019
  7. By: Andreas Pfnür; Julian Seger; Rianne Appel-Meulenbroek
    Abstract: The worldwide research on corporate real estate management (CREM) over the past decades leaves no doubt that this area has a decisive influence on the success of a company. However, there are still great uncertainties about the impact of CREM decisions on the firm success and the underlying causal relationships. Depending on the perspective from which CREM decisions are made, the goals and the targeted contributions to success can vary greatly. In research work, CREM has been for example examined from the perspectives of the labour productivity at the workplace, the influence on competitiveness in sales and factor markets, the financial contribution in context of corporate finance or the efficient provision of real estate resources from the viewpoint of construction and the real estate industry. In their influence on the success of a company, CREM decisions can result in competing, complementary or independent effects. Empirical studies show that the high complexity of the target system is one of the most important challenges for CREM. So far, there is no holistic concept that explains the different success contributions of CREM in their mechanisms and classifies them holistically. The purpose of this article is to develop a holistic model to explain the relationship between CREM decisions and business success and to test it empirically.In a first step, a literature-based multidimensional framework for corporate real estate's contribution to corporate success is derived. In a second step, the framework has been validated empirically on the basis of a dataset collected from computer assisted telephone interviews (CATI) among the CREM managers of the 200 largest German companies. The answers of the decision makers are positioned in a solution space using multidimensional scaling. This is followed by an comparison whether the empirically generated structure represents the dimensions and mechanisms of the framework. Finally, hierarchical-agglomerative cluster analyses are performed to validate the results.The results show that the influence of CREM on corporate success can be divided into three mechanisms: operating performance, real estate performance and financial performance. On the other hand, CREM success can be differentiated according to its maturity. If both considerations are combined, the result is a two-dimensional framework that contains all the effects of CREM on the firm success. The mechanisms of the framework can be empirically confirmed in their essential elements. The article provides an overview of the very broad, interdisciplinary literature on the connection between corporate real estate management and corporate success. The mechanisms are systematised in a holistic concept. The deeper understanding of the different CREM effects on corporate success is the basis for the effective development of CREM concepts in theory and practice.
    Keywords: Cluster Analysis; Corporate real estate management; CREM performance; multidimensional scaling
    JEL: R3
    Date: 2019–01–01
  8. By: Heller, Yuval; Schreiber, Amnon
    Abstract: We study various decision problems regarding short-term investments in risky assets whose returns evolve continuously in time. We show that in each problem, all risk-averse decision makers have the same (problem-dependent) ranking over short-term risky assets. Moreover, in each of these problems, the ranking is represented by the same risk index as in the case of CARA utility agents and normally distributed risky assets.
    Keywords: Indices of riskiness, risk aversion, local risk, Wiener process.
    JEL: D81 G32
    Date: 2019–08–30
  9. By: Hossein Motahar; Ritika Batra; Annette Kaempf-Dern
    Abstract: Purpose: German housing industry has delivery shortages which leads to a lack of supply of dwellings. Some of these shortages are owing to the planning or construction delay that could be caused by the conflicts, such as delivery delay or cost excess, between the different involved stakeholders. These stakeholders have direct and indirect influence on quality, time and cost of every project and could affect construction process from initial phases to operation and procurement. This paper therefore, investigates the conflicts between involved stakeholders in German housing industry and see how they can affect time, cost and quality of the project.Methodology/ Approach: This study conducts a literature review on the stakeholders’ conflicts in German housing industry. The collected data is classified in different clusters and an integrated stakeholders’ conflicts model is presented.Findings: This paper presents the interests of involved stakeholders in German housing industry and as a result stakeholders’ interests are transparent. This enables the management team to identify where the conflicts occur can and manage the conflicts before they lead to delivery delay or cost excess.Limitations: The huge number of stakeholders makes it complicated to investigate the interests of all parties. Therefore this study focuses on ‘Manage closely’ stakeholders. Practical Implications: This research enables the housing industry to have a precise overview of its stakeholders and develops a foundation for stakeholders’ conflicts management.Originality/ Value: Compared to the common approaches this study contributes to the ‘manage closely’ stakeholders and discovers the most important group of the stakeholders in German housing industry and their interests as well and presents an integrated stakeholders’ conflicts model. It investigates the different conflicts between stakeholders’ interests and clarifies how these conflicts can lead to delivery delay or cost excess.
    Keywords: Conflict Management; German housing industry; Stakeholder Management; Stakeholders
    JEL: R3
    Date: 2019–01–01
  10. By: Gu, Tao
    Abstract: The purpose of this paper is to examine how wage decisions and fixed asset investments are determined under China’s imperfect financial market. In addition, we also investigate what kind of interrelationship exists between wage determination and fixed asset investment. To test the hypothesis, we collect aggregate data on wages, the financial market, and fixed asset investment by province, sector, and ownership type from several statistical yearbooks. The main results are (1) while the rise in financial market maturity has led to rising wage levels for state-owned enterprises, this phenomenon is not observed in the private sector, (2) retained earnings are positively correlated with capital investment, indicating that China’s financial market is incomplete. Furthermore, in the private sector, there is a strong reliance on internal reserves that is not observed in the state-owned sector, suggesting that the private sector is differentially treated in the financial market. (3) In the state-owned sector, wage growth has a positive correlation with fixed assets, while in the nonstate-owned sector this relationship is not observed. This implies that in the nonstate-owned sector the underpayment of wages may be used as a survival strategy to conduct business if under financial constraints.
    Keywords: Imperfect financial market, Fixed capital investment, Wage determination
    JEL: G10 G30 J3
    Date: 2019–09–12

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