nep-cfn New Economics Papers
on Corporate Finance
Issue of 2019‒10‒14
twenty-one papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Family Ownership and Antitrust Violations By Amore, Mario Daniele; Marzano, Riccardo
  2. Law and finance in Britain c.1900 By Coyle, Christopher; Musacchio, Aldo; Turner, John D.
  3. Fundamental characteristics of Russia’s equity market in 2018 By Abramov Alexander; Chernova Maria
  4. Startups In Russia: Ownership Vs. Performance By Olga Guseva; Anastasia Stepanova
  5. Trading and shareholder voting By Levit, Doron; Malenko, Nadya; Maug, Ernst
  6. Time Inconsistency and Financial Covenants By Haotian Xiang
  7. Tax law and the transfer of start-up losses: A European overview and categorization By Bührle, Anna Theresa; Spengel, Christoph
  8. Gender and financial well-being of South African investors By Zandri Koekemoer
  9. Should We Worry about the Decline of the Public Corporation? A Brief Survey of the Economics and External Effects of the Stock Market By Koptyug, Nikita; Persson, Lars; Tåg, Joacim
  10. The real effects of bank distress: Evidence from bank bailouts in Germany By Bersch, Johannes; Degryse, Hans; Kick, Thomas; Stein, Ingrid
  11. Is financial risk tolerance influenced by personality traits? By Susara Johanna Ferreira
  12. Redistributive Growth By Döttling, Robin; Perotti, Enrico C
  13. The Deregulation of the Private Equity Markets and the Decline in IPOs By Michael Ewens; Joan Farre-Mensa
  14. International Talent Inflow and R&D Investment: Firm-level Evidence from China By Hao Wei; Ran Yuan; Laixun Zhao
  15. Endogenous Debt Maturity: Liquidity Risk vs. Default Risk By Rodolfo Manuelli; Juan Sanchez
  16. Financial Constraints, Sectoral Heterogeneity, and the Cyclicality of Investment By Cooper Howes
  17. Finance and Carbon Emissions By de Haas, Ralph; Popov, Alexander
  18. The Riskiness of Credit Allocation and Financial Stability By Luis Brandao-Marques; Qianying Chen; Claudio Raddatz; Jérôme Vandenbussche; Peichu Xie
  19. Fiscal distress and banking performance: The role of macroprudential regulation By Balfoussia, Hiona; Dellas, Harris; Papageorgiou, Dimitris
  20. The influence of the level of education on investors risk tolerance level By Zandri Koekemoer
  21. Essays on corporate ownership and human capital By Hébert, Camille

  1. By: Amore, Mario Daniele; Marzano, Riccardo
    Abstract: We study how family ownership shapes the firms' likelihood of being involved in antitrust indictments. Using data from Italy, we show that family firms are significantly less likely than other firms to commit antitrust violations. To achieve identification, we exploit a law change that made it easier to transfer family control. Studying the mechanisms at play, we find that family firms are especially less likely to commit antitrust violations when they feature a more prominent size relative to the city where they are located, which magnifies reputational concerns. Next, we show that family firms involved in antitrust violations appoint more family members in top executive positions in the aftermath of the indictment. Moreover, these firms invest less and curb equity financing as compared to nonfamily firms. Collectively, our findings suggest that family control wards off reputational damages but, at the same time, it weakens the ability to expand in order to keep up with fiercer competition following the dismantlement of the anticompetitive practice.
    Keywords: Antitrust violation; Financing; investment; ownership
    JEL: D22 G34 G38 K21
    Date: 2019–09
  2. By: Coyle, Christopher; Musacchio, Aldo; Turner, John D.
    Abstract: In this paper, using new estimates of the size of the UK's capital market, we examine financial development and investor protection laws in Britain c.1900 to test the influential law and finance hypothesis. Our evidence suggests that there was not a close correlation between financial development and investor protection laws c.1900 and that the size of the UK's share market is a puzzle given the paucity of statutory investor protection. To illustrate that Britain was not unique in its approach to investor protection in this era, we examine investor protection laws across legal families c.1900.
    Keywords: Common Law,Finance,Investor Protection,Law,UK
    JEL: G3 G33 K22 N20
    Date: 2019
  3. By: Abramov Alexander (RANEPA); Chernova Maria (RANEPA)
    Abstract: In 2018, the Russian stock market held up its reputation as one of the most volatile markets in the world. In 2018, Russian companies’ stocks turned out to be instruments with highest returns, outperforming 36 world’s largest stock exchange markets, in contrast to 2017, when Russian stocks were at the bottom of the list of stocks with lowest returns. In 2018, the MOEX Russia Index (formerly the MICEX Index) picked up 12.3 percent, whereas the RTS Index lost 7.4 percent. In 2018, the MOEX Russia Index found itself in a small group of stock indices of Brazil, India and Argentina that managed to stay within a range of positive returns (see Fig. 1). While being composed of the same companies, the two of Russia’s indices differ in that the dollar-denominated RTS Index offers bigger returns than the ruble-denominated MOEX Russia Index. Therefore, when the Russian ruble depreciates the ruble-denominated returns on investment in the stocks composing the MOEX Russia Index are higher than the dollar-denominated returns on the RTS Index portfolio.
    Keywords: Russian economy, stock market, bond market, bond market, derivatives market, private investors
    JEL: G01 G12 G18 G21 G24 G28 G32 G33
    Date: 2019
  4. By: Olga Guseva (National Research University Higher School of Economics); Anastasia Stepanova (National Research University Higher School of Economics)
    Abstract: This paper examines how ownership characteristics affect the performance of small and medium technology startups in Russia. We focus on how different types of owners (e.g. founders, state, venture capital and corporate firms) contribute to startup performance. Using an unbalanced panel of startups from Skolkovo, the largest Russian innovation cluster, from 2010 to 2016, we found evidence of a negative relationship between a support from government-related organisations and chosen indicators of startup performance. Our findings confirmed the positive impact of venture capital on ROA, especially for the Space cluster startups. While family members as owners were not found to have a significant impact on startups, we identified a positive ontribution from managerial ownership to ROA. The study highlights the importance of other ownership characteristics, which were found to be significant in previous studies of emerged markets. We discuss potential interpretations of the findings and provide strategic management insights for startup owners and investors.
    Keywords: Startups; Ownership; Development institutes; Emerging markets
    JEL: M13 G32 G34 O38
    Date: 2019
  5. By: Levit, Doron; Malenko, Nadya; Maug, Ernst
    Abstract: We study shareholder voting in a model in which trading affects the composition of the shareholder base. In this model, trading and voting are complementary, which gives rise to self-fulfilling expectations about proposal acceptance. We show three main results. First, increasing liquidity and trading opportunities may reduce prices and welfare, because it allows shareholders with more extreme preferences to accumulate large positions and impose their views on more moderate shareholders through voting. Second, prices and welfare can move in opposite directions, which suggests that the former is an invalid proxy for the latter. Third, delegation of the decision to a board of directors may strictly improve shareholder value. However, the optimal board is generally biased, should not be representative of current shareholders, and may not always garner voting support from the majority of shareholders.
    Keywords: corporate governance; Shareholder rights; Trading; voting
    JEL: D74 D82 D83 G34 K22
    Date: 2019–10
  6. By: Haotian Xiang (University of Pennsylvania)
    Abstract: I investigate how financial covenants influence corporate behavior and firm value by allocating control rights. In a dynamic model with long-term debt, shareholders cannot commit to not expropriate creditors in the future with new debt issuances and risky investments. Creditors intervene upon violations of covenant restrictions and restructure the debt without ex ante commitment. I find that financial covenants significantly increase debt capacity, investment and ex ante firm value by disciplining shareholders. However, I show that lenders' inability to commit to a restructuring plan severely impairs contractual efficiency. My analysis suggests that a further tightening of covenants, relative to the calibrated benchmark, improves their role as a commitment device.
    Date: 2019
  7. By: Bührle, Anna Theresa; Spengel, Christoph
    Abstract: Most of the European Member States employ anti-loss trafficking rules. They aim to prevent the acquisition of mere corporate shells with high tax loss carryforwards for the tax asset to be utilized in profitable companies. However, other corporations can unintentionally be affected by the anti-abuse regulations if there is a change in ownership or activity. The transfer restrictions have been argued to impair start-up financing, as investors are faced with the risk of losing accumulated loss carryforwards in the corporation upon the entering of new or the capital increase of existing investors. This study provides an overview over the design and development of loss transfer restrictions in the EU28 over a time period of 19 years (2000-2018). Different aspects of the regulations are analyzed against the background of their impact on start-ups. Finally, the rules are categorized with respect to their strictness. Over time, more countries introduced restrictions. At the same time, the regulations became more lenient, offering start-ups more opportunities to maintain their loss carryforwards and, therefore, decreasing the risk for investors.
    Keywords: tax loss carryforward,loss trafficking,loss transfer,entrepreneurship,start-ups
    JEL: M13 H25 H32 L52
    Date: 2019
  8. By: Zandri Koekemoer (North West University)
    Abstract: Financial well-being is characterised by an individual?s attitude towards their financial status. Financial well-being can be influenced by various factors, such as socioeconomic characteristics, financial behaviours and financial stressor events. Limited research has been conducted on gender differences regarding perceptions of financial wellness. An opportunity for research in this area emerged, where the main focus of this paper was to determine the difference in financial well-being levels between male and female South African investors. Secondary data collected by an investment company was used with a total sample size of 600 investors. These investors used a self-report measure for financial well-being. The results of the study indicated that there is a statistically significant difference between male and female investors? level of financial well-being. The results also suggested that male investors have a higher level of financial well-being compared to their female counterparts. These results concur with results from previous research conducted by international researchers.
    Keywords: financial well-being, financial behaviour, gender, investors
    JEL: G11 G23 G24
    Date: 2019–10
  9. By: Koptyug, Nikita (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN)); Tåg, Joacim (Research Institute of Industrial Economics (IFN))
    Abstract: In recent years, the number of listed companies has been declining in many countries across the world. This paper provides a selective survey of the literature on the real economic effects of the stock market to assess the potential effects of this decline and determine whether it is likely to continue. The leading economic role of the stock market’s primary market, in which firms raise capital by issuing new shares, is to help growing firms secure financing. We discuss providing and certifying information, coordinating investors, and easing the redeployment of capital as the means through which capital allocation can be achieved efficiently. The main economic role of the stock market’s secondary market, the trade in existing shares, is to provide liquidity to shareholders, to aid in price discovery, and to provide diversification opportunities. Positive external effects from an active stock market may arise on consumers, labour and private firm due to increased corporate investment, more social responsible business strategies and a more positive business climate. Negative external effects on capital allocation and productivity can arise from short-termism, market mispricing, and increased cross-ownership. Local stock markets can spur innovation and foreign direct investment (FDI) and reduce the risk of early cross-border acquisitions. Given the myriad of useful economic functions the stock market performs, a future entirely absent of public companies is difficult to imagine and the decline is therefore likely at some point to come to an end. Whether we need to worry about the decline depends on the relative importance of the positive and negative external effects, a topic we feel warrants more research.
    Keywords: External effects; Growth; Productivity; Real effects; Stock market
    JEL: G10 G30 L10 L50
    Date: 2019–06–28
  10. By: Bersch, Johannes; Degryse, Hans; Kick, Thomas; Stein, Ingrid
    Abstract: How does bank distress impact their customers' probability of default and trade credit availability? We address this question by looking at a unique sample of German firms from 2000 to 2011. We follow their firm-bank relationships through times of distress and crisis, featuring the different transmission of bank distress shocks into already weakened firm balance sheets. We find that a distressed bank bailout, which is subject to restructuring and deleveraging conditions, leads to a bank-induced increase of firms' probabilities of default. Moreover, bailouts tend to reduce trade credit availability and ultimately firms' sales. We further find that the direction and magnitude of the effects depends on firm quality and the relationship orientation of banks.
    Keywords: bank distress,bank risk channel,firm risk channel,relationship banking,firmdefaults,financial crisis
    JEL: G01 G21 G24 G33
    Date: 2019
  11. By: Susara Johanna Ferreira (North West University)
    Abstract: Financial risk tolerance refers to the degree of uncertainty an investor is willing to accept, and can often be influenced by individual characteristics. However, personal psychological preferences play a prominent role in an investor?s judgement and relationship with their finances. Limited research has been done on investors to see whether their type of personality will influence the level of risk they are willing to tolerate and ultimately the performance of their asset portfolios. Therefore, this article aids toward the contribution in understanding how personality traits can influence financial decision-making. The secondary data for this article was purposefully collected by an investment company using a quantitative questionnaire, which was electronically distributed to 600 investors within the South African market. The results of this study indicated that different personalities prefer different levels of risk. Individuals who are more open to experience, indicated a significant difference in risk tolerance levels compared to other personality types. The results for this article were comparable to previous research where only some of the personality traits play a role in investment decisions.
    Keywords: Risk tolerance, personality traits, gender, investment decisions
    JEL: G11 D14 D81
    Date: 2019–10
  12. By: Döttling, Robin; Perotti, Enrico C
    Abstract: We study long term effects of the technological shift to intangible capital, whose creation relies on the commitment of skilled human capital in firm production. Humancapital cannot be owned, so firms need less financing. Human capital cannot be credibly committed so firms need to reward it by deferred compensation, diluting future profits. As human capital income is not tradeable, total investable assets fall. The general equilibrium effect is a gradual fall in interest rates and a re-allocation of excess savings into rising valuations of existing assets such as real estate. The concomitant rise in house prices and wage inequality leads to higher household leverage.
    Keywords: excess savings; Human Capital; Intangible Capital; knowledge based technological change; mortgage credit; skill premium
    JEL: D33 E22 G32 J24
    Date: 2019–09
  13. By: Michael Ewens; Joan Farre-Mensa
    Abstract: The deregulation of securities laws—in particular the National Securities Markets Improvement Act (NSMIA) of 1996—has increased the supply of private capital to late-stage private startups, which are now able to grow to a size that few private firms used to reach. NSMIA is one of a number of factors that have changed the going-public versus staying-private trade-off, helping bring about a new equilibrium where fewer startups go public, and those that do are older. This new equilibrium does not reflect an IPO market failure. Rather, founders are using their increased bargaining power vis-a-vis investors to stay private longer.
    JEL: G24 G28 G32
    Date: 2019–09
  14. By: Hao Wei (Department of International Economics, Beijing Normal University); Ran Yuan (Department of International Economics, Beijing Normal University); Laixun Zhao (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: Using firm-level R&D data with regional international talent data, we find that international talent increases the R&D investment of Chinese manufacturing firms, a result that is further confirmed with patent data and under a number of robustness checks. These findings stem from two mechanisms: international talent boosts human capital accumulation and provides a diversified labor force. Further, the R&D promoting effect is stronger if firms are located in eastern China rather than in other regions, of small and medium-sized rather than large-sized, of domestic ownership rather than foreign ownership. The policy implication is, the introduction of international talent can be a new way to promoting R&D investment, especially for skilled-labor constrained countries.
    Keywords: International talent inflow, Manufacturing firms, R&D, Patent application
    JEL: F16 F22 O32
    Date: 2019–09
  15. By: Rodolfo Manuelli (Washington University); Juan Sanchez (Federal Reserve Bank of St. Louis)
    Abstract: We study the endogenous determination of debt maturity in a setting with default risk. Firms have access to a bond with a flexible structure. The optimal bond maturity balances liquidity risk and default risk. Firms with poor prospects and firms in more unstable industries will choose shorter maturities even if it is feasible to issue longer debt. The model also offers predictions on how asset maturity, asset salability, and leverage influence maturity. Even though our model is extremely stylized, predictions are roughly consistent with the evidence. Moreover, it o¤ers some insights into the factors that determine the structure of debt.
    Date: 2019
  16. By: Cooper Howes (UT Austin)
    Abstract: While investment in most sectors declines in response to a contractionary monetary policy shock, investment in the manufacturing sector increases. Using manually digitized aggregate income and balance sheet data for the universe of US manufacturing firms, I show this increase is driven by the types of firms which are least likely to be financially constrained. A two-sector New Keynesian model with financial frictions can match these facts; unconstrained firms are able to take advantage of the decline in the user cost of capital caused by the monetary contraction while constrained firms are forced to cut back. Counterfactual exercises suggest that aggregate investment should become more strongly countercyclical as fewer sectors face financial constraints.
    Date: 2019
  17. By: de Haas, Ralph; Popov, Alexander
    Abstract: We study the relation between financial structure and carbon emissions in a large panel of countries and industries. For given levels of economic and financial development, emissions per capita are lower in economies that are relatively more equity-funded. Industry-level analysis reveals two channels. First, deeper stock markets reallocate investment towards cleaner industries and, second, they allow carbon-intensive industries to produce green patents and reduce their energy intensity. Only one-tenth of these industry-level reductions in domestic emissions is offset by increased carbon embedded in imports. A firm-level analysis of an exogenous shock to the cost of equity in Belgium confirms our findings.
    Keywords: Carbon Emissions; Financial Development; Financial structure; Innovation
    JEL: G10 O4 Q5
    Date: 2019–09
  18. By: Luis Brandao-Marques; Qianying Chen; Claudio Raddatz; Jérôme Vandenbussche; Peichu Xie
    Abstract: We explore empirically how the time-varying allocation of credit across firms with heterogeneous credit quality matters for financial stability outcomes. Using firm-level data for 55 countries over 1991-2016, we show that the riskiness of credit allocation, captured by Greenwood and Hanson (2013)’s ISS indicator, helps predict downside risks to GDP growth and systemic banking crises, two to three years ahead. Our analysis indicates that the riskiness of credit allocation is both a measure of corporate vulnerability and of investor sentiment. Economic forecasters wrongly predict a positive association between the riskiness of credit allocation and future growth, suggesting a flawed expectations process.
    Date: 2019–09–27
  19. By: Balfoussia, Hiona; Dellas, Harris; Papageorgiou, Dimitris
    Abstract: Fiscal fragility can undermine a government's ability to honor its bank deposit insurance pledge and induces a positive correlation between sovereign default risk and financial (bank) default risk. We show that this positive relation is reversed if bank capital requirements in fiscally weak countries are allowed to adjust optimally. The resulting higher requirements buttress the banking system and support higher output and welfare relative to the case where macroprudential policy does not vary with the degree of fiscal stress. Fiscal tenuousness also exacerbates the effects of other risk shocks. Nonetheless, the economy's response can be mitigated if macroprudential policy is adjusted optimally. Our analysis implies that, on the basis of fiscal strength, fiscally weak countries would favor and fiscally strong countries would object to banking union.
    Keywords: bank performance; Banking Union; Fiscal distress; Greece; optimal macroprudential policy
    JEL: E3 E44 G01 G21 O52
    Date: 2019–09
  20. By: Zandri Koekemoer (North West University)
    Abstract: Increased attention is being given to the influencethat demographic factors have on financial risk tolerance. Financial risk tolerance is the overall amount of uncertainty an investor is willing to take with regard to his/herinvestment decisions. The aim of this article was to investigate whether an investor?s level of education plays a role in the level of financial risk that they are willing to tolerate.Data for this article was purposefully collected using a quantitative questionnaire thatwas electronically distributed to 600 investors within the South African market. Previous research suggests thata positive relationship exists between the level of education and risk tolerance. In other words, an investor with a higher level of education will be willing to tolerate more financial risk due to being able to take more calculated financial risks. The results of this study indicated similar findings to previous research wherean individual with a postgraduate degree was more likely to be high risk tolerant compared to an individual with a lower level of education. Individuals who had some level of schooling were more likely to be risk adverse.
    Keywords: Risk tolerance, education level, financial decisions, demographics
    JEL: A23 I22 G11
    Date: 2019–10
  21. By: Hébert, Camille (Tilburg University, School of Economics and Management)
    Abstract: This thesis consists of three chapters and studies the firm's organizational structure at a different stage of its life cycle: early-stage, growth, business group. The first chapter investigates the underlying reasons for the gender funding gap in the venture capital industry. It highlights a significant role for investors' stereotypes that ultimately impedes minority-founded startups' growth. The second chapter identifies conditions under which firms choose to grow by buying an incumbent company as opposed to building on their pre-existing human capital resources. The third chapter focuses on large business groups. It provides evidence that investors are not always aware of the boundaries of the firm and miss predictive information released at another level of the group.
    Date: 2019

This nep-cfn issue is ©2019 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.