nep-cfn New Economics Papers
on Corporate Finance
Issue of 2019‒10‒28
fourteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. The impact of underpricing of the default risk on investment: Evidence from Real Estate Investment Trusts (REITs) By Nguyen, Linh D.; Steininger, Bertram
  2. The rise of corporate net lending among G7 countries: a firm-level analysis By Davide Villani
  3. How legal and institutional environments shape the private debt renegotiation process? By Christophe GODLEWSKI
  4. Give Me Your Tired, Your Poor, Your High-Skilled Labor: H-1B Lottery Outcomes and Entrepreneurial Success By Stephen G. Dimmock; Jiekun Huang; Scott J. Weisbenner
  6. Does CSR influence M&A target choices? By Mathieu Gomes
  7. How Do Short-term Financial Constraints Affect SMEs’ Long-Term Investment: Evidence from the Working Capital Channel By Théo Nicolas
  8. Credit Supply: Are there negative spillovers from banks’ proprietary trading? (RM/19/005-revised-) By Kurz, Michael; Kleimeier, Stefanie
  9. Is Price to Earnings Ratio (still) useful for trading strategy? By Dedhy Sulistiawan; Felizia Arni Rudiawarni
  10. Incidental Emotions, Integral Emotions, and Decisions to Pay Taxes By Janina Enachescu; Žiga Puklavec; Christian Martin Bauer; Jerome Olsen; Erich Kirchler; James Alm
  11. International Diversification Impact on Firm Performance: A Study of the East African Community (EAC) Firms By Aniceth Kato Mpanju
  12. The Effect of Personalized Feedback on Small Enterprises’ Finances in Uganda By Antonia Grohmann; Lukas Menkhoff; Helke Seitz
  13. Debt Collateralization, Structured Finance, and the CDS Basis By Feixue Gong; Gregory Phelan
  14. Multi-Stage Compound Real Options Valuation in Residential PV-Battery Investment By Yiju Ma; Kevin Swandi; Archie Chapman; Gregor Verbic

  1. By: Nguyen, Linh D. (RWTH Aachen University); Steininger, Bertram (Department of Real Estate and Construction Management, Royal Institute of Technology)
    Abstract: This study examines the impact of underpriced default risk on investment in the real estate investment trust (REIT) sector, where firms’ investment is highly sensitive to changes in credit market conditions. The findings reveal that REITs exploiting underpriced default risk have a higher level of investment than their peers because the former can access low-cost capital. Moreover, exploiting the underpriced default risk is specific to not only REITs but also to the whole real estate investment sector. In contrast, underpriced default risk has an insignificant impact on investment of non-real estate firms because non-recourse loans are unpopular in these firms.
    Keywords: default risk; investment; real estate investment trusts (REITs); underpricing of the default risk
    JEL: G21 G32
    Date: 2019–10–21
  2. By: Davide Villani
    Abstract: In recent decades, corporate net lending has been increasing in several developed countries. This paper discusses the impact of financialisation and income distribution on the level of corporate net lending among G7 countries. We argue that financialisation affects the level of corporate net lending through firms' re-organisation towards a model of accumulation based on the maximisation of “shareholder value” and through the negative impact on investment. Moreover, the reduction in the wage share can increase the capacity of accumulation of liquidity of corporations, increasing the gap between corporate savings and investment, leading to the rise in net lending. We test our hypotheses using panel data of publicly listed non-financial corporations for the period 1990-2015. According to our findings, the process of financialisation has a positive impact on the level of net lending after 2001, while the wage share at the firm-level has a strong negative impact on the level of net lending throughout the whole period.
    Keywords: Net lending, Financialisation, Functional income distribution, Firm-level analysis
    JEL: E21 G30 O16
    Date: 2019–10
  3. By: Christophe GODLEWSKI (LaRGE Research Center, Université de Strasbourg)
    Abstract: I investigate how legal and institutional conditions around loan origination influence a private debt renegotiation process. Using a large sample of 15,000 loans on the European credit market, I apply a sequential logit model to consider the renegotiation likelihood, the conditional probability of multiple renegotiation rounds or multiple amended terms, and the renegotiation outcomes conditional on specific loan amendments. I find that legal systems with stronger protection of creditors control rights have a positive influence on renegotiation likelihood and favorable outcomes on amendments to amount or maturity. Stronger legal protection reduces renegotiation likelihood when creditors face potential strategic default by shareholders. The legal and institutional environment has a significant effect on how the initial design of the financial contract impacts the renegotiation process.
    Keywords: legal systems, institutional environment, financial contracts, private debt, renegotiation, sequential logit, Europe
    JEL: G21 G24 G32 G34
    Date: 2019
  4. By: Stephen G. Dimmock; Jiekun Huang; Scott J. Weisbenner
    Abstract: We study how access to high-skill labor affects the outcomes of start-up firms. We obtain exogenous variation in firms’ ability to access skilled labor by using win rates in H-1B visa lotteries. Relative to other firms that also applied for H-1B visas, firms with higher lottery win rates are more likely to receive additional venture capital funding and to have a successful exit via an IPO or acquisition. H-1B visa lottery winners also subsequently receive more patents and patent citations. Overall, our results show that access to high-skill labor is a critical determinant of success for start-up firms.
    JEL: D22 G24 G32 J23 J24 J61 O3
    Date: 2019–10
  5. By: Aniceth Kato Mpanju (Tanzania Institute of Accountancy)
    Abstract: The major purpose of this paper is to analyze the impact of microfinance services on SME?s performance in Dar-es-Salaam region, Tanzania. Using a sample of 350 SMEs, the study adopted a descriptive-correlation research design an econometric analysis using statistical package for social sciences (SPSS) version 24. The results show that microfinance services in the form of financial intermediation and enterprise development had to a large extent adequate to small and medium-sized entrepreneurs. Then from above analysis we may conclude that there existed a strong relationship between the extent of microfinance services and the performance of SMEs and that microfinance services influenced the performance of the SMEs in the Dar-es-Salaam region.
    Keywords: Microfinance services, SMEs, Microfinance institutions, Financial literacy and enterprise development
    JEL: G29
    Date: 2019–10
  6. By: Mathieu Gomes (CleRMa - Clermont Recherche Management - Clermont Auvergne - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA - Université Clermont Auvergne)
    Abstract: We examine the impact of corporate social responsibility (CSR) on mergers and acquisitions (M&A) target choices. We offer evidence that CSR performance of firms matter for M&A acquirers. Indeed, our results based on 608 deals between 2003 and 2014 reveal that target firms have on average higher CSR scores than similar non-target firms. We also show directly that a firm's CSR is positively associated with its propensity to become a M&A target. These results hold for all CSR dimensions (environment, social, and governance). Overall, our results suggest that CSR matters in M&A decisions.
    Keywords: Corporate social responsibility,Mergers and acquisitions,Matched-pair analysis,Logistic regression
    Date: 2019–09–02
  7. By: Théo Nicolas
    Abstract: This paper investigates the real effects of short-term financial constraints in the light of the working capital channel: cash credit constraints may force SMEs to forgo investment opportunities in order to finance their working capital needs. Building on unique indicators of cash and investment credit constraints derived from survey data, I find that: (1) short-term credit constraints are as important as long-term ones in SMEs' investment decisions; (2) the detrimental effect of cash credit constraints on corporate investment is even stronger for firms with higher working capital needs; (3) the negative relationship between working capital and fixed investment is associated with short-term financial frictions; and (4) only liquid SMEs are able to offset short-term financial frictions by adjusting their accounts receivable and inventories.
    Keywords: : Investment, Bank credit, Financial constraints, Working capital, Survey data.
    JEL: D82 E32 E51 G01 G21
    Date: 2019
  8. By: Kurz, Michael (Finance); Kleimeier, Stefanie (Finance)
    Abstract: Following the global financial crisis, policy makers considered regulations that restrict banks’ activities which were motivated by concerns that banks use central bank borrowing, government guarantees, or subsidies to fund securities trading instead of lending to the real economy. Using a global sample of 132 major banks from 2003 to 2016, we find that banks’ securities trading is indeed associated with decreased loan supply. Effects are stronger for domestic lending markets, during crisis periods, and in countries with deeper financial markets. However, corporate capital expenditures and employment growth are unaffected, suggesting that policy makers’ concerns are only partly justified.
    Keywords: credit supply, proprietary trading, international lending, banking, corporate loans
    JEL: G01 G21 G28
    Date: 2019–10–24
  9. By: Dedhy Sulistiawan (University of Surabaya); Felizia Arni Rudiawarni (University of Surabaya)
    Abstract: Overreaction phenomena stimulate assets mispricing and return reversals. Investors should build a trading strategy to receive benefits from the anomaly. Developing the classic idea of overreaction hypothesis from DeBondt and Thaler (1985 and 1990), we build stock portfolios based on sentiment and risk to produce higher future stock return. Using Indonesian data, we use financial information from public information to test weak-form efficiency. We believe that investors are not always rational and other groups of investors can use public information to generate excess return. This article finds that lower PER tend to produce higher future return, especially if lower PER accompanied by lower risk. Practically, our study contributes to the use of fundamental analysis in emerging markets. Theoretically, this study supports the idea of behavioral finance theory and reject weak-form efficient market hypothesis in Indonesia Stock Exchange.
    Keywords: Price Earnings Ratio (PER), Price to Book Value (PBV), stock risk, future return, trading strategy
    JEL: G11 G14
    Date: 2019–10
  10. By: Janina Enachescu (University of Vienna); Žiga Puklavec (University of Vienna); Christian Martin Bauer (University of Vienna); Jerome Olsen (University of Vienna); Erich Kirchler (University of Vienna); James Alm (Tulane University)
    Abstract: In this paper we present initial investigations of the role of emotions on tax compliance decisions. We first introduce selected emotion theories, and we also present different paths by which emotions can possibly affect tax decisions, namely indirectly via mood and emotions unrelated to the tax decision itself (or "incidental emotions") and directly via emotions that are elicited in the taxation context itself (or "integral emotions"). We then present and discuss an experimental study investigating the first path suggested above, the influence of positive versus negative mood on tax compliance. Further, we also present and analyze a study exploring emotions elicited by the taxation context. Finally, we suggest that a fruitful path for future research is the integration of emotions into the slippery slope framework of tax compliance.
    Keywords: Tax compliance, incidental emotions, integral emotions, behavioal economics, nudges, laboratory experiments.
    JEL: H26 C91
    Date: 2019–10
  11. By: Aniceth Kato Mpanju (Tanzania Institute of Accountancy)
    Abstract: The major purpose of this research was to analyse the impact of internationalisation strategy on industry performance among the East African Community (EAC) firms. We used a sample to 279 domestic firms and multinational companies (MNC?s) subsidiaries in the manufacturing sector, service sector and agriculture sector. The impact of internationalisation strategy on firm performance was investigated by logistic regression analysis using statistical package for social sciences (SPSS). The results confirm that performance is perceived to be stronger by firms with foreign connections as compared to domestic firms, and that the MNC?s subsidiaries experience better (sustainable development) performance of their functions as compared to local firms.
    Keywords: EAC firms, Firm performance, International diversification, Internationalisation theories, MNCs
    JEL: L25
    Date: 2019–10
  12. By: Antonia Grohmann; Lukas Menkhoff; Helke Seitz
    Abstract: This RCT examines the effect of a new style finance training during which participants are given personalized feedback on their financial business outcomes in addition to a “rules-of-thumb” training approach. We compare this to the effects of a “rules-of-thumb” training by itself and to a control group. Targeting about 500 small and micro entrepreneurs in Kampala, Uganda, we find that the personalized feedback training significantly improves outcomes at the six-months horizon. The index of primary outcomes increases by 0.258 SD units and overall savings improve by 0.257 SD units. Analyzing the feedbacks provided we find evidence that feedback works by increasing motivation, in line with “feedback-intervention-theory.”
    Keywords: Financial Training, Feedback, Small Business Growth, Economic Development
    JEL: O12 D22 O16 L26
    Date: 2019
  13. By: Feixue Gong (Massachusetts Institute of Technology); Gregory Phelan (Williams College)
    Abstract: Tranching an asset increases its basis; tranching a CDS, as occurs with the CDX index, increases the CDS basis on the underlying asset. We study how the ability to use financial contracts as collateral affects the CDS basis using a general equilibrium model with collateralized financial promises and multiple states of uncertainty. A positive basis emerges when risky assets and their derivative debt contracts can be used as collateral for financial promises. We provide an empirical test of our theory using inclusion in the CDX and find that inclusion in the CDX increases the CDS basis.
    Keywords: Collateral, securitized markets, cash-synthetic basis, credit default swaps, asset prices, credit spreads.
    JEL: D52 D53 G11 G12
    Date: 2019–09
  14. By: Yiju Ma; Kevin Swandi; Archie Chapman; Gregor Verbic
    Abstract: Strategic valuation of efficient and well-timed network investments under uncertain electricity market environment has become increasingly challenging, because there generally exist multiple interacting options in these investments, and failing to systematically consider these options can lead to decisions that undervalue the investment. In our work, a real options valuation (ROV) framework is proposed to determine the optimal strategy for executing multiple interacting options within a distribution network investment, to mitigate the risk of financial losses in the presence of future uncertainties. To demonstrate the characteristics of the proposed framework, we determine the optimal strategy to economically justify the investment in residential PV-battery systems for additional grid supply during peak demand periods. The options to defer, and then expand, are considered as multi-stage compound options, since the option to expand is a subsequent option of the former. These options are valued via the least squares Monte Carlo method, incorporating uncertainty over growing power demand, varying diesel fuel price, and the declining cost of PV-battery technology as random variables. Finally, a sensitivity analysis is performed to demonstrate how the proposed framework responds to uncertain events. The proposed framework shows that executing the interacting options at the optimal timing increases the investment value.
    Date: 2019–10

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.
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