nep-cfn New Economics Papers
on Corporate Finance
Issue of 2019‒11‒25
eighteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Why Do U.S. CEOs Pledge Their Own Company's Stock? By Kornelia Fabisik
  2. The Korea discount and chaebols By Ducret, Romain; Isakov, Dusan
  3. Using textual analysis to identify merger participants: Evidence from the U.S. banking industry By Katsafados, Apostolos G.; Androutsopoulos, Ion; Chalkidis, Ilias; Fergadiotis, Emmanouel; Leledakis, George N.; Pyrgiotakis, Emmanouil G.
  4. Owners, external managers, and industrial relations in German establishments By Kölling, Arnd; Schnabel, Claus
  5. The impact of financial literacy and financial interest on risk tolerance By Hermansson, Cecilia; Jonsson, Sara
  6. Listing Advantages Around the World By Kenichi Ueda; Somnath Sharma
  7. Fintech Lending and Mortgage Credit Access By Jagtiani, Julapa; Lambie-Hanson, Lauren; Lambie-Hanson, Timothy
  8. Climate Change, Operating Flexibility and Corporate Investment Decisions By Chen Lin; Thomas Schmid; Michael S. Weisbach
  9. The relationship between financial development and growth: the case of emerging Europe By Alessio Ciarlone
  10. Performance Differential Between Private and State-Owned Enterprises: An Analysis of Profitability and Leverage By Phi, Nguyet Thi Minh; Taghizadeh-Hesary, Farhad; Tu, Chuc Anh; Yoshino, Naoyuki; Kim, Chul Ju
  11. Bad loan closure times in Italy By Emilia Bonaccorsi di Patti; Cristina Demma; Davide Dottori; Giacinto Micucci
  12. Global Recession Impact on the Market Value of Intangible Assets By Antanina Garanasvili
  13. A Theory of Falling Growth and Rising Rents By Philippe Aghion; Antonin Bergeaud; Timo Boppart; Peter J. Klenow; Huiyu Li
  14. The influence of bank branch closure on entrepreneurship sustainability By Sin Tian Ho, Cynthia; Berggren, Björn
  15. Accessibility of bank branches and new firm formation in Sweden By Sin Tian Ho, Cynthia; Wilhelmsson, Mats
  16. Local Capital Scarcity and Small Firm Growth: Evidence from Real Estate Booms in China By Harald Hau; Difei Ouyang
  17. Dynamics of cash holdings, learning about profitability, and access to the market By Décamps, Jean-Paul; Villeneuve, Stéphane
  18. Networking Frictions in Venture Capital, and the Gender Gap in Entrepreneurship By Sabrina T. Howell; Ramana Nanda

  1. By: Kornelia Fabisik (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute)
    Abstract: Between 2007 and 2016, 7.6% of publicly listed U.S. firms disclosed that their CEOs had pledged company stock as collateral for a loan. On average, CEOs pledge 38% of their shares. The mean loan value is an economically sizeable $65 million. CEOs use the funds to either double down (6.0%), hedge their ownership (3.5%), or to obtain liquidity while maintaining ownership (90.5%). My event study results reveal that stock market participants view pledging as value-enhancing, but perceive significant pledging as value-destroying. Similarly, I find no evidence of its negative shareholder value consequences, except for CEOs who engage in significant pledging.
    Keywords: CEO ownership, CEO incentives, pledging shares, margin loan
    JEL: G30 G32 G34
    Date: 2019–11
  2. By: Ducret, Romain (Faculty of Economics and Social Sciences); Isakov, Dusan
    Abstract: Finance practitioners frequently claim that stocks of Korean firms are undervalued and trade at a discount relative to foreign firms. This phenomenon is commonly called «the Korea discount». It is based on anecdotal evidence comparing either the price-earnings ratios of different market indexes or those of different individual stocks. This paper provides empirical evidence on the existence of such a discount using a large sample of stocks from 28 countries over the period 2002-2016. We find that Korean stocks have significantly lower price-earnings ratios than their global peers. We also investigate the role of large business groups called chaebols, which are often considered to be the main cause of the discount because of their poor corporate governance. Our findings show that it is not the case.
    Keywords: valuation; price-earnings ratio; business groups; emerging markets; Korea.
    JEL: G15 G32
    Date: 2019–11–21
  3. By: Katsafados, Apostolos G.; Androutsopoulos, Ion; Chalkidis, Ilias; Fergadiotis, Emmanouel; Leledakis, George N.; Pyrgiotakis, Emmanouil G.
    Abstract: In this paper, we use the sentiment of annual reports to gauge the likelihood of a bank to participate in a merger transaction. We conduct our analysis on a sample of annual reports of listed U.S. banks over the period 1997 to 2015, using the Loughran and McDonald’s lists of positive and negative words for our textual analysis. We find that a higher frequency of positive (negative) words in a bank’s annual report relates to a higher probability of becoming a bidder (target). Our results remain robust to the inclusion of bank-specific control variables in our logistic regressions.
    Keywords: Textual analysis; text sentiment; bank mergers and acquisitions; acquisition likelihood
    JEL: G00 G17 G21 G34
    Date: 2019–11
  4. By: Kölling, Arnd; Schnabel, Claus
    Abstract: Using data from the representative IAB Establishment Panel in Germany and estimating a panel probit model with fixed effects, this paper finds a negative relationship between the existence of owner-management in an establishment and the probabilities of having a works council or a collective bargaining agreement. We show that family firms which are solely, partially or not managed by the owners significantly differ in the presence of works councils and collective bargaining agreements. The probabilities of having works councils and collective agreements increase substantially if just some of the managers do not belong to the owner family. We argue that these differences cannot simply be attributed to an aversion of the owners against co-determination and unions but require taking account of the notion of socio-emotional wealth prevalent in family firms. In addition, our results support the idea that external managers mainly act as agents rather than stewards in family firms.
    Keywords: industrial relations,co-determination,works council,collective agreement,family firm,Germany
    JEL: J53 M54 G32
    Date: 2019
  5. By: Hermansson, Cecilia (Department of Real Estate and Construction Management, Royal Institute of Technology); Jonsson, Sara (Stockholm University)
    Abstract: We investigate and compare the effects of financial literacy and financial interest on risk tolerance, evaluating not only at the means, but also at the whole distribution. We use a unique sample of 12,156 Swedish bank customers combining bank-register data with survey data. Results show that both financial literacy and financial interest are associated with higher risk tolerance. They further show that the impact of financial interest is significantly higher than the impact of financial literacy. Differences are also observed across the distribution. Quantile regressions show that financial interest has its greatest association at the medium-to-high range of risk tolerance, whereas financial literacy shows its greatest association at the lower range of risk tolerance. Findings contribute to the literature on risk tolerance, specifically pointing to the relevance of the noncognitive trait, interest, to individuals’ risk tolerance.
    Keywords: Financial risk tolerance; financial literacy; financial interest; quantile regression
    JEL: D83 D91
    Date: 2019–11–18
  6. By: Kenichi Ueda; Somnath Sharma
    Abstract: Using the firm-level data of 33 countries over 10 years (from 2008-2017), we find that the listed firms, on average, have lower marginal products of capital (measured by return on assets) than the unlisted firms in many countries. This implies that the listed firms face less financial constraints. Moreover, we investigate the institutional factors that exacerbate or mitigate the listing advantages across the countries. The listing advantages seem enlarged with better corporate governance and narrowed with stronger creditor's rights.
    JEL: E22 G32
    Date: 2019–11
  7. By: Jagtiani, Julapa (Federal Reserve Bank of Philadelphia); Lambie-Hanson, Lauren (Federal Reserve Bank of Philadelphia); Lambie-Hanson, Timothy (Federal Reserve Bank of Philadelphia)
    Abstract: Following the 2008 financial crisis, mortgage credit tightened and banks lost significant mortgage market share to nonbank lenders, including to fintech firms recently. Have fintech firms expanded credit access, or are their customers similar to those of traditional lenders? Unlike in small business and unsecured consumers lending, fintech mortgage lenders do not have the same incentives or flexibility to use alternative data for credit decisions because of stringent mortgage origination requirements. Fintech loans are broadly similar to those made by traditional lenders, despite innovations in the marketing and the application process. However, nonbanks market to consumers with weaker credit scores than do banks, and fintech lenders have greater market shares in areas with lower credit scores and higher mortgage denial rates.
    Keywords: fintech; mortgage lending; homeownership; online mortgages; credit access
    JEL: G20 G21 G28 R20 R30
    Date: 2019–11–18
  8. By: Chen Lin; Thomas Schmid; Michael S. Weisbach
    Abstract: Extreme temperatures lead to large fluctuations in electricity demand and wholesale prices of electricity, which in turn affects the optimal production process for firms to use. Using a large international sample of planned power plant projects, we measure the way that electric utilities’ investment decisions depend on the frequency of extreme temperatures. We find that they invest more in regions with more extreme temperatures. These investments are mostly in flexible gas and oil-fired power plants that can easily adjust their output, to improve their operating flexibility. Our results suggest that climate change is becoming a meaningful factor affecting firms’ behavior.
    JEL: G30 G31
    Date: 2019–11
  9. By: Alessio Ciarlone (Banca d'Italia)
    Abstract: In this paper, I provide evidence about the impact that changes in certain indicators of financial development have on economic growth in a sample of 19 countries of Emerging Europe. Real per capita GDP growth, bank credit to the private sector, stock market capitalization and the outstanding stock of international debt securities – along with a series of other traditional determinants of economic development – are found to be co-integrated. By means of recent econometric techniques for heterogeneous panels, inference is drawn about the long- and short-run relationship between the variables of interest. The main result of the analysis points to the existence of non-linearities. There appears to be an inverted U-shaped relationship between bank credit to the private sector and economic growth. By contrast, both domestic stock market capitalization and the stock of international debt securities display a more traditional positive and monotone relationship with economic development.
    Keywords: finance, economic growth, pooled mean group estimator, threshold effect, dynamic panel threshold, non-monotonicity, emerging Europe
    JEL: C23 F43 G21 G23 O11 O16 O41 O47 P34
    Date: 2019–11
  10. By: Phi, Nguyet Thi Minh (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Tu, Chuc Anh (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute); Kim, Chul Ju (Asian Development Bank Institute)
    Abstract: We investigate empirically the relationship between ownership identity and the performance of firms in terms of profitability and solvency. Using cross-sectional data covering over 25,000 firms worldwide and by employing various empirical methods, we find robust support for the inferior performance of government enterprises over privately owned firms. Specifically, state-owned enterprises (SOEs) tend to be less profitable than privately owned enterprises. However, they appear to be more dependent on debt for their financial needs and are, thus, better leveraged. Additionally, SOEs are more labor intensive and have higher labor costs. Thus, evidence from this study could be interpreted to mean that privatization could improve the performance of public firms. However, a study over a longer period is needed before these results can be considered conclusive.
    Keywords: performance; ownership; solvency; state-owned enterprises; private-owned enterprises
    JEL: G32 G34
    Date: 2019–05–13
  11. By: Emilia Bonaccorsi di Patti (Bank of Italy); Cristina Demma (Bank of Italy); Davide Dottori (Bank of Italy); Giacinto Micucci (Bank of Italy)
    Abstract: We propose a procedure for calculating closure times for bad business loans in Italy using Central Credit Register data over the period 2005-2016. We find that after 2008 bad loan closure times increased, peaking in the years 2011-12; they then began to fall, returning close to their initial levels in 2016. These results suggest that the recent initiatives improving banks’ non-performing loan management policies and the effectiveness and speed of recovery procedures are starting to bear fruit.
    Keywords: non-performing loans, closure times, firms’ credit, banks.
    JEL: G01 G21 G33
    Date: 2019–11
  12. By: Antanina Garanasvili
    Abstract: Aim of this analysis is to study whether the global recession of 2008 had a significant effect on how stock markets value firmsâ investments in knowledge and branding as well as complementary investments in patents and trademarks. Building on data from European Intellectual Property Office (EUIPO) and European Patent Office (EPO) we construct a firm panel covering R&D, marketing and IP investments over the period 2005-2012. In addition, we estimate market value equations for the years 2005-2008 and 2009-2012. Empirical findings suggest that there are interesting differences in which investments contributed to market value before and after 2008. First, investments in R&D contribute far more significantly to the market value after the crisis than before. Second, it becomes apparent that after the crisis patent quality arises as a significant factor which increases value of the companies. At the same time patent quantity ceases to be an influencing factor in the market value equation after 2008.
    JEL: G32 E32 O32 O34
    Date: 2019–11–05
  13. By: Philippe Aghion; Antonin Bergeaud; Timo Boppart; Peter J. Klenow; Huiyu Li
    Abstract: Growth has fallen in the U.S., while firm concentration and profits have risen. Meanwhile, labor’s share of national income is down, mostly due to the rising market share of low labor share firms. We propose a theory for these trends in which the driving force is falling firm-level costs of spanning multiple markets, perhaps due to accelerating IT advances. In response, the most efficient firms (with higher markups) spread into new markets, thereby generating a temporary burst of growth. Because their efficiency is difficult to imitate, less efficient firms find markets more difficult to enter profitably and therefore innovate less. Eventually, due to greater competition from efficient firms, within-firm markups actually fall. Despite the increase in the aggregate markup and rents, firm incentives to innovate decline—lowering the long run growth rate.
    JEL: O31 O47 O51
    Date: 2019–11
  14. By: Sin Tian Ho, Cynthia (Department of Real Estate and Construction Management, Royal Institute of Technology); Berggren, Björn (Department of Real Estate and Construction Management, Royal Institute of Technology)
    Abstract: We study the influence of bank branch closure on new firm formation in Sweden, with a panel database that captures the geographical locations of all the Swedish bank branches from 2000 to 2013. Using spatial econometric analysis at a municipal level, we show that bank proximity to firms is vital for entrepreneurship to thrive and sustain in Sweden. From the Fixed-Effects spatial models, the increase in distance to the banks due to bank branch closure is shown to affect new firm formation negatively. The further a firm is located away from the bank, the higher the monitoring cost is for the banks. The increase in distance also results in an increase in information asymmetries because of the banks’ eroded ability to collect soft information about the borrower firm. Due to high risks associated with the lack of information and uncertainty, banks might not be as willing to loan money to a distant firm compared to a nearby firm. Furthermore, the presence of neighbourhood spillover effects is evidenced through the Moran’s I statistics, which means that the omission of spatial effects in the analysis would have resulted in biased estimates.
    Keywords: bank branches; entrepreneurship; financing; new firm formation; Sweden
    JEL: C31 R10
    Date: 2019–11–14
  15. By: Sin Tian Ho, Cynthia (Department of Real Estate and Construction Management, Royal Institute of Technology); Wilhelmsson, Mats (Department of Real Estate and Construction Management, Royal Institute of Technology)
    Abstract: Drawing on location theory, the local relationships between new firm formation and its determinants are explored in 290 municipalities across Sweden. From the robust geographically weighted regression (GWR) models, mostly positive relationships with new firm formation are shown for firm density, human capital level, industry diversification level and percentage of immigrants living in the area. In contrast, mostly negative relationships are shown for weighted mean distance to the nearest bank branches, establishment size, unemployment rate, industry specialization. Spatially constrained multivariate clustering is also applied to group municipalities with similar conditions. Patterns in the industry composition and the location attributes are then analysed for each cluster.
    Keywords: GWR; new firm formation; entrepreneurship; Sweden
    JEL: C31 G21 M13 R50
    Date: 2019–11–14
  16. By: Harald Hau; Difei Ouyang
    Abstract: In geographically segmented credit markets, local real estate booms can deteriorate the funding conditions for small manufacturing firms and undermine their competitiveness. Using exogenous variation in the administrative land supply across 172 Chinese cities, we show that higher predicted real estate prices cause higher borrowing costs for small manufacturing firms, reduce their bank lending, lower their investment rate and labor productivity, and reduce their output and TFP growth by economically significant magnitudes. These effects are absent in large and listed companies with access to the national capital market. The evidence highlights the benefits of financial market integration.
    Keywords: factor price externalities, real estate booms, firm growth, financial constraints
    JEL: D22 D24 R31
    Date: 2019
  17. By: Décamps, Jean-Paul; Villeneuve, Stéphane
    Abstract: We develop a dynamic model of a firm whose shareholders learn about its long-term profitability, face costs of external financing and costs of holding cash. Cash management policy generates a corporate life-cycle with two stages: a "probation stage" where the firm has no access to the capital markets, pays little in dividends, increases its cash target levels and a "mature stage" where the firm does have access to external financing, pays dividends, decreases its cash target levels. The model provides new insights on the corporate propensity to save and the firm's value dynamics when its profitability is difficult to ascertain.
    Date: 2019–11
  18. By: Sabrina T. Howell; Ramana Nanda
    Abstract: Exploiting random variation in the number of venture capitalist (VC) judges assigned to panels at Harvard Business School’s New Venture Competition (NVC) between 2000 and 2015, we find that exposure to more VC judges increases male participants’ chances of founding a VC-backed startup after HBS much more than this exposure increases female participants’ chances. A survey suggests this is in part because male participants more often proactively reach out to VC judges after the NVC. Our results suggest that networking frictions are an important reason men benefit more than women from exposure to VCs. Such frictions can help explain part of the gender gap in entrepreneurship, and also have implications for how to design networking opportunities to facilitate financing of the best (rather than just the best networked) ideas.
    JEL: D83 D85 G24 J16 L26
    Date: 2019–11

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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