|
on Corporate Finance |
| By: | Gopalakrishnan, Balagopal; Mohapatra, Sanket |
| Abstract: | One of the arguments often advanced for implementing a stronger insolvency and bankruptcy framework is that it enhances credit discipline among firms. Using a large cross-country firm-level dataset, we empirically test whether a stronger insolvency regime reduces firms' likelihood of defaulting on their debt. In particular, we examine whether it reduces default risk during increased economic uncertainty and various external shocks. Our results confirm that a stronger insolvency regime moderates the adverse effects of economic shocks on firms' default risk. The effects are more pronounced for firms in the top half of the size distribution. We also explore channels through which improved creditor rights influence firms’ default risk, including dependence on external finance, corporate leverage, and managerial ethics. Our main results are robust to an alternative measure of default risk, inclusion of currency and sovereign debt crisis episodes, and alternative estimations. |
| Keywords: | Insolvency; Bankruptcy; Default risk; Economic policy uncertainty; Sovereign debt crisis; Currency crisis |
| JEL: | G30 G32 G33 |
| Date: | 2019–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96283&r=all |
| By: | Qianqian Du; Thomas F. Hellmann |
| Abstract: | Does doing more deals together always strengthen investor relationships? Based on the relationships of the top 50 US venture capital firms, this paper focuses on the strengths of relationships and their dynamic evolution. Empirical estimates indicate that having a deeper relationship leads to fewer, not more future coinvestments. Moreover, deeper relationships lead to lower exit performance, even after controlling for endogeneity. Interestingly, deeper relationships first lead to lower performance, and subsequently lead to a slowdown in the relationship intensity. Relationship effects are more negative for VC firms with less central network positions, and for deals made in “hot” investment markets. |
| JEL: | G24 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26274&r=all |
| By: | Ufuk Akcigit; Emin M. 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. |
| Keywords: | venture capital, assortative matching, endogenous growth, IPO, management, mergers and acquisitions, research and development, startups, synergies, taxation, patents |
| JEL: | G24 N20 O30 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7860&r=all |
| By: | Alexey Zhukovskiy; Ranoua Bouchouicha; Heidi Falkenbach |
| Abstract: | In this paper we examine the relationship between debt flexibility and investment. Employing a hand-collected sample of debt structures of 102 European public real estate companies, we construct measures of the companies’ ability to substitute bank loans with other forms of debt. Our results show that there is a statistically and economically significant effect of debt flexibility on the investment activity of European listed real estate companies, the effect increasing during times of tight bank lending constraints. We confirm that the effect is linked to the debt structure, rather than the general degree of indebtness (leverage) of the company and robust to alternative specifications and to controlling for the institutional differences between countries. |
| Keywords: | debt flexibility; debt stucture; Investment; public real estate; REIT |
| JEL: | R3 |
| Date: | 2019–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:arz:wpaper:eres2019_105&r=all |
| By: | Mariko Hatase (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: mariko.hatase@boj.or.jp)); Yoichi Matsubayashi (Graduate School of Economics, Kobe University (E-mail: myoichi@econ.kobe-u.ac.jp)) |
| Abstract: | Tax devices have occasionally been adopted as policy tools to promote economic growth in major industrialized countries after the Second World War. In Japan, various accelerated depreciation schemes under the name 'special depreciation' were employed as major devices to stimulate investments. In this paper, we manually collect firm-level data series in the heyday of the device from the mid-1950s to the early 1970s. The findings from firm-level data are as follows: the aggregated special depreciation hit two peaks when the schemes were expanded, applying special depreciation tax incentives prevailed among listed companies, and the actual amounts varied across firms with strong upward biases. A detailed examination of each firm's financial statements indicates that each firm retained its discretion when applying the scheme and sometimes chose not to enjoy the full benefits. An empirical analysis reveals that firms with relatively less capital to labor tended to use larger special depreciation, hinting at the probability of intended effects of policy devices. Increases in the number of designated machines for the scheme- once considered to represent its inefficiency-actually activated the usage of schemes by firms. |
| Keywords: | Capital investments, Corporate taxes, Special depreciation, Investment policy, High-growth era |
| JEL: | E22 E62 H25 N15 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:19-e-17&r=all |
| By: | Mona Yaghoubi (University of Canterbury); Michael O’Connor Keefe |
| Abstract: | This paper studies the relationship between investment volatility, capital structure, and cash levels. Our evidence suggests: i) firms with relatively high realizations of future investment volatility hold relatively low levels of debt and high levels of cash, ii) firms fund large investment by increasing (issuing) debt and/or decreasing (using) cash, iii) immediately after funding large investments firms reduce debt levels and increase cash holdings. Overall, our results are consistent with the DeAngelo, DeAngelo and Whited (2011) model. In particular, firms with high realizations of future investment volatility keep their debt levels low and cash levels high to finance uncertain future investments. |
| Keywords: | Capital structure, cash holding and investment volatility |
| JEL: | G32 |
| Date: | 2019–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:19/11&r=all |
| By: | Linh D. Nguyen; Bertram Steininger |
| Abstract: | Under-pricing the default risk is inevitable in a market with many lenders. Our study examines the impact of under-priced default risk on investment in the REIT sector where firms’ investment is highly sensitive to changes in credit market conditions. We find that REITs exploiting under-priced default risk have a higher level of investment than REITs that do not because the former could obtain access to loans having low rates of interest. In addition, REITs prioritize the choice of investment over the leverage choice. In contrast, we find evidence that under-priced default risk does not have a significant impact on non-REITs’ investment while their leverage does because non-REITs desire to reduce costs of financial distress. |
| Keywords: | Default risk; Investment; real estate investment trust (REIT); under-pricing of default risk |
| JEL: | R3 |
| Date: | 2019–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:arz:wpaper:eres2019_288&r=all |
| By: | Jesse Perla (University of British Columbia); Carolin Pflueger (University of British Columbia); Michal Szkup (University of British Columbia) |
| Abstract: | We investigate how a presence of limited liabilities distorts firms’ investment decisions. We consider a simple model where firm owners are protected by limited liabilities and have to decide how much to invest as well as how to finance their investment. In contrast to earlier work, we find that, depending on the firm’s fundamentals, limited liabilities can lead to either under- or over-investment; and discuss when over-investment is more likely to occur. We then characterize condition under which over-investment happens and provide intuition for why it occurs. We also investigate how our results depend on the type of claims issued by the firm and their relative priority. Finally, we provide empirical evidence consistent with predictions of our model. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1038&r=all |
| By: | René M. Stulz |
| Abstract: | Banks are unique in that they combine the production of liquid claims with loans. They can replicate most of what FinTech firms can do, but FinTech firms benefit from an uneven playing field in that they are less regulated than banks. The uneven playing field enables non-bank FinTech firms to challenge banks for specific products whose success is not tied to what makes banks unique, but they cannot replace banks as such. In contrast, BigTech firms have unique advantages that banks cannot easily replicate and therefore present a much stronger challenge to established banks in consumer finance and loans to small firms. Both Fintech and BigTech are contributing to a secular trend of banks losing their comparative advantage as they have less access to unique information about parties seeking credit. |
| JEL: | G21 G23 G24 G28 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26312&r=all |
| By: | Kamil Korzeń (Faculty of Economic Sciences, University of Warsaw); Robert Ślepaczuk (Faculty of Economic Sciences, University of Warsaw) |
| Abstract: | The purpose of this research is to test the potential returns and robustness of an automated investment strategy. The strategy is based on momentum and macroeconomic approach, that consists of the technical core – momentum, and the additional macro screening, which is used to determine whether investment signals generate relevant investment opportunities or just technical noise. In order to check whether the macroeconomic factor is the value added to the momentum strategy, the hybrid approach is tested and compared with the simple momentum and the macroeconomic strategy alone and then assessed on a risk-adjusted return basis. The main aim of this paper is to answer the question, whether an investor can gain surplus risk-adjusted returns from merging short-term momentum strategy with the long-term macroeconomic approach. Strategies are based on the data for the selected companies from the S&P500 index in the period ranging from 02/01/1990 to 31/12/2018. |
| Keywords: | investment strategy, momentum, macroeconomic indicators, algorithmic trading, risk adjusted returns |
| JEL: | C4 C45 C61 C15 G14 G17 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2019-17&r=all |
| By: | Graeme Newell; Jufri Marzuki |
| Abstract: | Private equity investing has taken on increased importance in recent years with the major institutional investors such as pension funds and sovereign wealth funds. This includes the private equity sectors such as buyouts, venture capital and distressed etc.; as well as private equity real estate. Key private equity players such as Blackstone, Brookfield and Lone Star etc. have been active in the private equity real estate space in recent years. This paper assesses the risk-adjusted performance and diversification benefits of private equity real estate against the other private equity sectors over 2001-2017. The strategic global real estate investment implications are also highlighted. |
| Keywords: | Diversification Benefits; Global real estate; Private equity real estate; Risk-adjusted returns |
| JEL: | R3 |
| Date: | 2019–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:arz:wpaper:eres2019_79&r=all |
| By: | Thomas Hellmann; Ilona Mostipan; Nir Vulkan |
| Abstract: | We use equity crowdfunding data to ask how fundraising amounts can be explained by what entrepreneurs ask for, versus what investors want to invest. The analysis exploits unique features of crowdfunding where entrepreneurs not only set investment goals, but also chose when to close their campaigns. More experienced and more educated founder teams ask for more. Their campaigns succeed more often, and they raise more money. Female teams ask for less, are equally successful, yet raise significantly less. They also wait longer before closing campaigns, suggesting they want to raise more than what they originally asked for. |
| JEL: | G20 G24 M13 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26275&r=all |
| By: | Claudio Vitari (AMU - Aix Marseille Université, CERGAM - Centre d'Études et de Recherche en Gestion d'Aix-Marseille - AMU - Aix Marseille Université - UTLN - Université de Toulon); Elisabetta Raguseo (Polito - Politecnico di Torino [Torino]) |
| Abstract: | Previous studies, grounded on the resource based view, have already explored the relationship between the business value that Big Data Analytics (BDA) can bring to firm performance. However, the role played by the environmental characteristics in which companies operate has not been investigated in the literature. We inform the theory, in that direction, via the integration of the contingency theory to the resource based view theory of the firm. This original and integrative model examines the moderating influence of environmental features on the relationship between BDA business value and firm performance. The combination of survey data and secondary financial data on a representative sample of medium and large companies makes possible the statistical validation of our research model. The results offer evidence that BDA business value leads to higher firm performance, namely financial performance, market performance and customer satisfaction. More original is the demonstration that this relationship is stronger in munificent environments, while the dynamism of the environment does not have any moderating effect on the performance of BDA solutions. It means that managers working for firms in markets with a growing demand are in the best position to profit from BDA. |
| Keywords: | Resource based view,contingency theory,Big Data Analytics,customer satisfaction,financial performance,market performance,munificence,dynamism |
| Date: | 2019–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02293765&r=all |
| By: | Gopalakrishnan, Balagopal; Mohapatra, Sanket |
| Abstract: | Syndicated lending allows participant banks to offer larger loans for longer tenors. A diversified syndicate structure, which includes both domestic and foreign banks, can aid in reducing their risk and alleviate information asymmetry in loan contracting. Using cross-country data on syndicated loans obtained by non-U.S. firms, we find that a diversified syndicate structure is associated with lower loan spreads for riskier borrowers compared to loans made by non-diversified syndicates. We also find that the positive effect of a diversified syndicate on loan terms is more pronounced during periods of greater economic policy uncertainty, when information asymmetry tends to be higher. The baseline findings hold across subsamples of the data and are robust to alternative specifications and controls for selection effects. Our findings provide evidence on the benefits of a diversified syndicate structure in mitigating screening and monitoring costs in bank lending. |
| Keywords: | Syndicated loans; Syndicate structure; Information asymmetry; Diversification; Monitoring |
| JEL: | D82 F34 G20 G21 |
| Date: | 2019–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96297&r=all |
| By: | Álvaro Chamizo (BBVA.); Alfonso Novales (Instituto Complutense de Análisis Económico (ICAE), and Department of Economic Analysis, Facultad de Ciencias Económicas y Empresariales, Universidad Complutense, 28223 Madrid, Spain.) |
| Abstract: | We provide a methodology to estimate a Global Credit Risk Factor (GCRF) from CDS spreads using the information provided by the default-related component of observed spreads. These are previ- ously estimated using Pan and Singleton (2008) methodology. The estimated factor contains higher explanatory power on CDS spread fluctuations across sectors than standard credit indices like iTraxx or CDX. We find a positive association between GCRF and implied volatility variables, and a negative association with MSCI stock market sector indices as well as with interest rates and with the slope and the curvature of the term structure. Such correlations provide useful insights for risk management as well as for the hedging of credit portfolios. Indeed, we present a synthetic factor regression model for GCRF that we apply in a stress testing methodology for credit portfolios as well as to evaluate future credit risk scenarios. Finally, we show evidence suggesting that the exposure to systemic credit risk was priced in the market during the 2006-2015 period. |
| Keywords: | Credit Risk; Systemic Risk; Idiosyncratic Risk; Stress Tests; Factor Models; Market Pricing. |
| JEL: | E44 F34 G01 G11 G23 G32 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1927&r=all |
| By: | Matthias Breuer; Christian Leuz; Steven Vanhaverbeke |
| Abstract: | We investigate the impact of reporting regulation on corporate innovation activity. Exploiting thresholds in Europe’s regulation and a major enforcement reform in Germany, we find that forcing a greater share of firms to publicly disclose their financial statements reduces firms’ innovative activities at the industry level. At the same time, it increases firms’ reliance on patenting to protect their innovations, to the extent they continue innovating. Our evidence is consistent with reporting mandates having significant real effects by imposing proprietary costs on innovative firms, which diminishes their incentives to engage in innovative activities. Importantly, we examine and find that this decline in innovative activity is not fully compensated by positive information spillovers (e.g., to competitors, suppliers, and customers) within industries. Thus, our evidence implies that proprietary costs induced by reporting mandates are important consideration for regulators and policy makers. |
| JEL: | K22 L51 M41 M48 O43 O47 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26291&r=all |
| By: | Rosati, Nicoletta (European Commission -- JRC); Bellia, Mario (European Commission -- JRC); Matos, Pedro Verga (University of Lisbon); Oliviera, Vasco (University of Lisbon) |
| Abstract: | In this paper we propose a novel approach in analysing the impact of changes in sovereign credit ratings on stock markets. We study the evolution of a segmented form of the stock market index for several crisis-hit countries, including both European and Asian markets. Such evolution is modelled by a homogeneous Markov chain, where the transition probabilities from one starting level of the index to a new (lower or higher) level in the next period depend on some explanatory variables, namely the country’s rating, GDP and interest rate, through a generalised ordered probit model. The credit ratings turn out to be determinant in the dynamics of the stock markets for all three European countries considered - Portugal, Spain and Greece, while not all considered Asian countries show evidence of correlation of market indices with the ratings. |
| Keywords: | Credit ratings; financial crisis; Europe; Markov chains; generalized ordered probit models |
| JEL: | C25 C58 E44 G01 G15 G24 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:jrs:wpaper:201908&r=all |
| By: | Swaminathan Balasubramaniam (Washington University in St. Louis); Armando Gomes (Washington University in St. Louis); SangMok Lee (Washington University in St. Louis) |
| Abstract: | We build a search model of mergers and acquisitions (M&A) with private equity (PE) intermediation. The model comprises three concurrently operating markets: corporate-corporate, corporate-PE, and inter-PE secondary buyout (SBO). PE intermediaries search for investment opportunities, hold an inventory of rms, add operational value through better governance, and exit by selling their entire portfolio. PE funds can enhance M&A market efficiency by alleviating search frictions and providing greater liquidity through SBOs, resulting in complementarities among PE funds. A calibration result shows PE funds' values are higher by 26% due to SBOs and increasing in the number of funds. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1121&r=all |