nep-cfn New Economics Papers
on Corporate Finance
Issue of 2019‒10‒21
eleven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Ownership, wealth, and risk taking: Evidence on private equity fund managers By Bienz, Carsten; Thorburn, Karin S; Walz, Uwe
  2. Determinants of Capital Structure: An Empirical Analysis of Listed Companies in Thailand Stock Exchange SET 100 Index By Apichat Pongsupatt; Tharinee Pongsupatt
  3. Interest Rate Risk Management by Financial Engineering in Pakistani Non-Financial Firms By Bashir, Taqadus; Khalid, Shujaat; Iqbal Khan, Kanwal; Javed, Saman
  4. The Impact of the 2007 Global Financial Crisis on IPO Performance in Asian-Pacific Emerging Markets By Giannopoulos, George; Degiannakis, Stavros; Holt, Andrew; Pongpoonsuksri, Teerapon
  5. Bank Market Power and Firm Finance: Evidence from Bank and Loan Level Data By Tamayo, Cesar E.; Gomez, Jose E.; Valencia, Oscar
  6. The influence of institutions on venture capital: How transaction costs, uncertainty, and change affect new ventures By Hoch, Felix; Lohwasser, Todor S.
  7. Splitting credit risk into systemic, sectorial and idiosyncratic components By Álvaro Chamizo; Alfonso Novales
  8. Firm acquisitions by family firms: A mixed gamble approach By Hussinger, Katrin; Issah, Abdul-Basit
  9. The Risk Weighted Ownership Index: an ex-ante measure of banks' risk and performance By Luca Bellardini; Pierluigi Murro; Daniele Previtali
  10. Does Costly Reversibility Matter for U.S. Public Firms? By Hang Bai; Erica X.N. Li; Chen Xue; Lu Zhang
  11. Bank financing to SMEs in the Republic of North Macedonia: Evidence from Survey Data By Tanja Jakimova; Neda Popovska Kamnar

  1. By: Bienz, Carsten; Thorburn, Karin S; Walz, Uwe
    Abstract: We examine the incentive effects of private equity (PE) professionals' ownership in the funds they manage. In a simple model, we show that managers select less risky firms and use more debt financing the higher their ownership. We test these predictions for a sample of PE funds in Norway, where the professionals' private wealth is public. Consistent with the model, firm risk decreases and leverage increases with the manager's ownership in the fund, but largely only when scaled with her wealth. Moreover, the higher the ownership, the smaller is each individual investment, increasing fund diversification. Our results suggest that wealth is of first order importance when designing incentive contracts requiring PE fund managers to coinvest.
    Keywords: buyouts; general partner; incentives; ownership; private equity; Risk Taking; Wealth
    JEL: D86 G12 G31 G32 G34
    Date: 2019–08
  2. By: Apichat Pongsupatt (Faculty of Business Administration, Kasetsart University); Tharinee Pongsupatt (Faculty of Business Administration, Kasetsart University)
    Abstract: The main purpose of this study is to investigate some financial indicators that affect the debt ratio in Thailand?s capital market. Two competing theories that explicate the capital structure are old-fashioned pecking order and static trade-off model. From existing literature reviews, we select seven traditional factors: profitability, asset structure, size, liquidity, non-debt tax shields, dividend policy and growth as explanatory variables. While long-term debt and total debt are used as proxies for dependent variables. This study uses secondary data collected from annual financial statements of companies in SET 100 index exclude financial business sector. All firms rank highest market capitalization and top trading liquidity in Thailand Stock Exchange for a period of 10 years during 2009-2018. After examine the data, only 760 samples are qualified under criteria. Two panel multiple regression models are implemented for statistic testing at the significant level 0.05.The results for model 1 (Long term debt) show positive and statistical significant effect of asset structure, size, liquidity and growth. While other three factors comprising profitability, non-debt tax shield and dividend policy indicate negative statistical relationships. The results for model 2 (Total debt) show positive and statistical significant effect of asset structure and growth. Whereas, two factors including profitability and liquidity display negative statistical correlation. The results of the two models are consistent with the Pecking Order theory for profitability and growth. High growth firms have higher need for funds then expect to borrow more. While asset structure is consistent with trade-off theory which hold that there should be a positive relationship between fixed assets and debt since fixed assets can serve as collateral. The explanatory variables which have the highest impact on capital structure choices for long term debt and total debt are non-debt tax shield and profitability respectively. Other independent variables such as product uniqueness, risk and macroeconomic indicators are subject to future research.
    Keywords: Capital Structure; Thailand SET 100 Index; Pecking Order; Static trade-off; Leverage
    JEL: G30 L25 P10
    Date: 2019–10
  3. By: Bashir, Taqadus; Khalid, Shujaat; Iqbal Khan, Kanwal; Javed, Saman
    Abstract: The study aimed to investigate firm decisions of using interest rate derivatives and factors affecting this decision. Study is conducted by selecting data of 191 non-financial sector companies listed on PSX from 2010 to 2015. Logit model was employed to detect contribution magnitude of foreign sales, profitability, leverage, liquidity, price to earnings, interest coverage ratio and dividend payout towards decisions by a firm of using the interest rate derivatives. The expected users of interest rate derivatives for purpose of interest rate exposure management were the firms with high foreign sales, lesser leverage, low profits, low dividend payout ratio and low interest coverage ratio. The examination concludes that these derivatives are financial engineering tools and serve as immunization instruments for a firm from anticipated future financial risk.
    Keywords: Risk management, Interest rate derivatives, Foreign sales, Hedging, Panel logit model
    JEL: G1 G2 G3
    Date: 2019–09–01
  4. By: Giannopoulos, George; Degiannakis, Stavros; Holt, Andrew; Pongpoonsuksri, Teerapon
    Abstract: This paper assesses the comparative impact of the 2007 global financial crisis on the short and long-term performance of initial public offerings (IPOs) in the Asian-Pacific emerging markets of Thailand, China, South Korea, and Malaysia. Our results indicate that the short-term performance or underpricing of Thai IPOs increased from 19% to 44% between the pre-crisis and post-crisis periods. IPOs in each of the three other emerging markets experienced a reduction in underpricing after the financial crisis. While our results are consistent with previous IPO research, the degree of underpricing in each emerging market exceeded the levels found in studies of IPOs in developed countries. In terms of the long-term performance of IPOs, our results suggest that IPOs in Thailand, China, and South Korea performed better in the post-crisis period, while Malaysian IPOs performed worse. Our overall findings suggest that the 2007 financial crisis affected IPO performance and economic growth in each of the markets studied.
    Keywords: Benchmark-Adjusted Returns, Emerging Markets, Financial Crisis, IPO, Performance, Underpricing
    JEL: F30 G15 G20 G32
    Date: 2018
  5. By: Tamayo, Cesar E.; Gomez, Jose E.; Valencia, Oscar
    Abstract: We present new measures of market power for the banking industry in Colombia and estimate their effect on the cost of credit for non-financial firms. Our results suggest that bank competition increased during the 2006-2008 period –even as concentration increased– but decreased thereafter. Using a unique combination of loan, firm and bank-level datasets we are also able to show that banks loosing overall market power –measured by the average price-cost margin– decrease interest rates to small firms, but increase rates to firms with which they have the oldest credit relationships. This suggests (i) the existence of market power that is specific to the bank-firm relationship (i.e., informational lock-in and hold-up problems due to switching costs), and (ii) that size may be capturing other firm attributes such as observable risk, scale effects or implicit collateral.
    Keywords: Bank competition; Market power; Boone; Lerner; Colombia; Cost of firm finance; Loan-level data
    JEL: G21 D22 O16
    Date: 2019–10
  6. By: Hoch, Felix; Lohwasser, Todor S.
    Abstract: Institutional dynamics and uncertainty in a country are crucial considerations for investors when searching for venture capital opportunities. International entrepreneurship literature has focused on the impact of unidimensional measures of institutions, despite that institutional environments undergo substantial and continuous changes in multiple dimensions. This study connects literature on the institution-based view and transaction cost economics by examining the effects of reduced transaction costs and uncertainty as institutional outcomes on entrepreneurial activities. Empirical results from 85,711 ventures in 120 countries during the period from 1996 to 2018 show that ventures raise higher funding in countries with (1) generally lower transaction costs that are not constrained by overregulation, (2) higher uncertainty, and (3) institutional environments undergoing change. Funded ventures are more likely to survive in countries with (1) lower transaction costs, (2) lower uncertainty, and without (3) general or (4) disruptive institutional change. Hence, we promote a dynamic perspective for investors and founders when assessing entrepreneurial opportunities in heterogeneous countries since institutional effects driven by uncertainty and transaction costs depend on the individual business purpose.
    JEL: D02 D23 G24 L26 M13 O57 P48
    Date: 2019
  7. 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 from CDS spreads that can be very useful for risk management. The global risk factor (GRF) reproduces quite well the different epis- odes that have affected the credit market over the sample period. It is highly correlated with standard credit indices, but it contains much higher explanatory power for fluctuations in CDS spreads across sectors than the credit indices themselves. The additional information content over iTraxx seems to be related to some financial interest r ates. We first use the estimated GRF to analyze the extent to which the eleven sectors we consider are systemic. After that, we use it to split the credit risk of indi- vidual issuers into systemic, sectorial, and idiosyncratic components, and we perform some analyses to test that the estimated idiosyncratic components are actually firm-specific. The systemic and sec- torial components explain around 65% of credit risk in the European industrial and financial firms and 50% in the North American firms in those sectors, while 35% and 50% of risk, respectively, has an idiosyncratic nature. Thus, there is a significant margin for portfolio diversification. We also show that our decomposition allows us to identify those firms whose credit would be harder to hedge. We end up analyzing the relationship between the estimated components of risk and some synthetic risk factors, in order to learn about the different nature of the credit risk components.
    Keywords: Credit Risk; Systemic Risk; Sectorial Risk; Idiosyncratic Risk; Asset Allocation.
    JEL: C58 F34 G01 G32
    Date: 2019–09
  8. By: Hussinger, Katrin; Issah, Abdul-Basit
    Abstract: This study elucidates the mixed gamble confronting family firms when considering a related firm acquisition. The socioemotional and financial wealth trade-off associated with related firm acquisitions as well as their long-term horizon turns family firms more likely to undertake a related acquisition than non-family firms, especially when they are performing above their aspiration level. Post-merger performance pattern confirm that family firms are able to create long-term value through these acquisitions and by doing so they surpass non-family firms. These findings stand in contrast to commonly used behavioural agency predictions, but can be reconciled with theory through a mixed gambles' lens.
    Keywords: firm acquisitions,related firm acquisitions,mixed gamble,aspiration level,socioemotional wealth,value creation
    JEL: G34 L10 L20 M20
    Date: 2019
  9. By: Luca Bellardini (University of Rome Tor Vergata); Pierluigi Murro (LUISS University); Daniele Previtali (University of Naples Parthenope)
    Abstract: Attributing ratings to the top-20 owners, we construct a Risk-Weighted Ownership index (RWO) to measure the profitability and risk-taking behaviour of the ownership structure at banks. Collecting data from 19 European countries plus the UK over the 2008-2017 period, preliminary results show strong evidence that RWO measures are significant in explaining bank performance and risk, at both an accounting and a market-based level. Overall, these results suggest that not only markets and regulators should look at bank’s owners: instead, it is far more relevant to assess the contribution carried by top-owners to bank risk, both individually and collectively.
    Keywords: bank, ownership, risk, corporate governance
    JEL: G21 G32
    Date: 2019–04
  10. By: Hang Bai; Erica X.N. Li; Chen Xue; Lu Zhang
    Abstract: Yes, most likely. The firm-level evidence on costly reversibility is even stronger than the prior evidence at the plant level. The firm-level investment rate distribution is highly skewed to the right, with a small fraction of negative investments, 5.79%, a tiny fraction of inactive investments, 1.46%, and a large fraction of positive investments, 92.75%. When estimated via simulated method of moments, the standard investment model explains the average value premium, while simultaneously matching the key properties of the investment rate distribution, including the cross-sectional volatility, skewness, and the fraction of negative investments. The combined effect of costly reversibility and operating leverage is the key driving force behind the model’s quantitative performance.
    JEL: E22 E44 G12 G14 G31
    Date: 2019–10
  11. By: Tanja Jakimova (National Bank of the Republic of North Macedonia); Neda Popovska Kamnar (National Bank of the Republic of North Macedonia)
    Abstract: This paper presents the main findings of the Survey for bank financing to small and medium enterprises (SMEs). The key objective was to capture the main features of the “supply side” of SMEs financing in the Republic of North Macedonia and to identify institutional and policy constraints of banks involvement with SMEs. The findings reveals that banks considered SMEs lending market as large, competitive, not very saturated, but with very positive outlook. While the main driver for bank involvement with SMEs sector is profitability and the good prospects of the SME segment, a number of obstacles are present, including SME-related factors, macroeconomic factors, legal and contractual environment and some bank-specific factors. The overall conclusion is that SMEs access to finance should be further supported and encouraged in order to increase their contribution to growth of the economy.
    Keywords: small and medium enterprises, bank finance, survey data
    JEL: G20
    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.