nep-cfn New Economics Papers
on Corporate Finance
Issue of 2019‒12‒16
fifteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Profit Taxation and Bank Risk Taking By Kogler, Michael
  2. Endogenous Hours and the Wealth of Entrepreneurs By Wellschmied, Felix; Yurdagul, Emircan
  3. An analysis of the effect between firm's performance and determinant of liquidity ratio of Revlon Incorporation in cosmetic industry By LAM, ALEXIS LAM MAN YEE
  5. Does Stock Market Listing Impact Investment in Japan? By Joseph J. French; Ryosuke Fujitani; Yukihiro Yasuda
  6. Mergers and Innovation Portfolios By José Luis Moraga-González; Evgenia Motchenkova; Saish Nevrekar
  7. Trust and R&D Investments: Evidence from OECD Countries By Ndubuisi, Gideon
  8. Financing Entrepreneurship through the Tax Code: Angel Investor Tax Credits By Sabrina T. Howell; Filippo Mezzanotti
  9. Birds of a feather flock together and get money from the crowd By Valeria Venturelli; Giovanni Gallo; Alessia Pedrazzoli
  10. Stranded Fossil Fuel Reserves and Firm Value By Christina Atanasova; Eduardo S. Schwartz
  11. Corporate governance quality, firm size and earnings management: empirical study in Indonesia Stock Exchange By Mukhtaruddin, Mukhtaruddin Mr.
  12. THE EFFECT OF AUDITOR SWITCH TOWARD THE FIRM VALUE AND EARNING PERSISTANCE By Nuris, Dudung Ma'ruf; Juliardi, Dodik; zahroh, Fatmawati
  13. Market Risk and Operational Risk Towards Company’s Profitability By Kam Yan Hui, Jane Sarah
  14. Determinants of banks' profitability: Do Basel III liquidity and capital ratios matter? By Pierre Durand
  15. The Impacts of Firm-Specific Factors and Macroeconomics Factors towards Salesforce's Performance By Yen Joe, Wong

  1. By: Kogler, Michael
    Abstract: How can tax policy improve financial stability? Recent studies point to large potential stability gains from a reform that eliminates the debt bias in corporate taxation. It is well known that such a reform reduces bank leverage. This paper analyzes a novel, complementary channel: bank risk taking. We model the portfolio choice of banks under moral hazard and thereby emphasize the “incentive function” of equity. We find that (i) an allowance for corporate equity (ACE) and a lower corporate tax rate discourage risk taking and offer stability and welfare gains, (ii) a revenue-neutral introduction of the ACE unambiguously improves financial stability, and (iii) capital regulation and deposit insurance importantly influence the tax sensitivities of bank risk taking.
    Keywords: Corporate taxation, tax reform, banking, risk taking, financial stability
    JEL: G21 G28 H25
    Date: 2019–12
  2. By: Wellschmied, Felix (Universidad Carlos III de Madrid); Yurdagul, Emircan (Universidad Carlos III de Madrid)
    Abstract: US entrepreneurs typically work long hours in their firms and these hours form a large part of the firms' labor input. This paper studies the role of endogenous owner hours in shaping the wealth distribution among entrepreneurs. We introduce owners' endogenous labor supply into a model of entrepreneurial choice and financial frictions. The model fits well the levels and the dispersion of wealth among entrepreneurs. Long owner hours incentivize poor, highly productive individuals to be owners and help the most productive owners to accumulate large quantities of wealth. On net, owners working long hours decreases the median owner wealth and increase wealth dispersion among owners. Differently, the ability to work sufficiently short hours incentivizes owners to run low productivity firms with high wealth to income ratios. Finally, alternative calibrations ignoring the endogenous labor supply of owners lead to owners that are much richer than in the data and overstate the effect of financial frictions in the economy.
    Keywords: entrepreneurship, wealth accumulation, labor supply, firm dynamics
    JEL: E23 J22 J23 L26
    Date: 2019–11
    Abstract: The reason why I conduct this analysis is to identify the corporate governance and company performance of the Revlon Incorporation using the dependent variable (ROA) and plus the independent variable (current ratio) involve the internal factor and external factor. The data is collected through the Revlon Incorporation’s annual report from the year of 2014 until 2018. The variable that are using during this analysis which is dependent variable and independent variable using ROA and current ratio for the purpose to analyze the Revlon Incorporation’s corporate governance and company performance. Return on assets (ROA) is prove of how profitable of a certain company about their total assets. ROA help manager, investor on how to conduct an efficient of a company’s management to generate earnings. Since Revlon Incorporation company asset’s main and important purpose is to earn huge amount of profits, the Revlon Incorporation is manage to manage successfully in converting the investments from assets into profits. The ROA is a profit to the Revlon Incorporation from the investment when the Revlon Incorporation’s assets are the most imperative investment for every companies in the world. A higher the Return On Assets prove that the management of Revlon Incorporation is using the Revlon Incorporation company’s assets to make more profit. The current ratio is the medium to help in measuring for the liquidity which is the higher the ROA, the higher the current ratio to solve the company’s financial obligations.
    JEL: G3 G32 O16
    Date: 2019–11–18
  4. By: Phoon, Chin Pei
    Abstract: Corporate Governance management is a very important aspect in the any types of organization. This study is aimed to test the McDonald’s overall performance with specific risk to avoid or reduce any kind of risk that organization need to play important role to efficiently manage the corporate governance element. The data is integrated from McDonald’s annual report which from year 2014 until 2018. The analysis shows that company’s risk affected by corporate governance towards company’s performance. From this research suggest that McDonald’s should control their risk in the smart way to prove the McDonald’s more reputation and stable.
    Keywords: corporate governance, risk, performance, Return on Assets (ROA)
    JEL: G3 G32
    Date: 2019–10–31
  5. By: Joseph J. French; Ryosuke Fujitani; Yukihiro Yasuda
    Abstract: We provide the first large sample comparison of investment by Japanese listed and unlisted public firms. We show that listed firms invest more and have greater sensitivity to investment opportunities than comparable unlisted companies. Our findings suggest that the role of listing in alleviating financial constraints is more important than potential underinvestment due to myopic behavior. However, the positive relationship between listing and investment is primarily driven by standalone firms. Further analysis confirms that as the number of subsidiaries in a business group increases the positive impact of listing on investment declines. Additionally, when a firm faces financial constraints listing more positively impacts investment. We also document a positive association between stock liquidity and investment for listed firms. Taken together, our results suggest that stock markets play an important role in easing financial constraints and preventing managerial shirking both of which increase investment. Finally, we show that higher levels of owner-ship by financial institutions, board members, and foreign investors increases corporate investment.
    JEL: F3 G20 G31 G39
    Date: 2019–11
  6. By: José Luis Moraga-González (Vrije Universiteit Amsterdam); Evgenia Motchenkova (Vrije Universiteit Amsterdam); Saish Nevrekar (Universidad Carlos III de Madrid)
    Abstract: This paper studies mergers in markets where firms invest in a portfolio of research projects of different profitability and social value. The portfolio nature of the investment problem brings about novel insights on the external effects of firms’ investments. The investment of a firm in one project imposes a negative business-stealing externality on the rival firms because it lowers the probability they win the innovation contest for that project; however, the investment of a firm in one project also exerts a positive business-giving externality on the rival firms because it increases the likelihood they win the contest for the alternative project.
    Keywords: innovation portfolios, R&D contests, mergers
    JEL: O32 L13 L22 O31
    Date: 2019–12–08
  7. By: Ndubuisi, Gideon
    Abstract: This paper contributes to the literature on the innovation effect of social trust by analyzing the mechanisms linking social trust and R&D Investments. High social trust level can ease firms’ credit constraints by reducing moral hazards and information asymmetries problems which make raising external capital difficult and expensive for firms. It can also reduce relational risks that expose firms to ex-post holdup or outright intellectual property expropriation. Using data from 20 OECD countries, I test these mechanisms by evaluating whether more external finance dependent and relational risks vulnerable sectors exhibit disproportional higher R&D investments in countries with high social trust level. The empirical results confirm that high social trust level encourages investments in R&D. Importantly, the results indicate that sectors which depend more on external finance and those sectors that are more vulnerable to relational risks experience a relatively greater increase in R&D investments in countries with high social trust. The results underline access to external credit and reduction in relational risks as causal pathways linking social trust and R&D investment.
    Keywords: Social Trust, Innovation; R&D Investments; Relational Risks; Credit Constraints
    JEL: A13 O17 O31 O43
    Date: 2019–11
  8. By: Sabrina T. Howell; Filippo Mezzanotti
    Abstract: A central issue in public finance is the tradeoff between maintaining tax revenues and using the tax code to incentivize particular economic activities. One important dimension of this tradeoff is whether incentive policies are used in practice as policymakers intend. This paper examines one particular tax program that many U.S. states use to stimulate entrepreneurship. Specifically, angel tax credits subsidize wealthy individuals’ investments in startups. This paper finds that these programs have no measurable effect on local entrepreneurial activity or beneficiary company outcomes, despite increasing some measures of angel activity. This appears to reflect the programs failing to screen out financially unconstrained firms and often being used for tax arbitrage. Over 90 percent of beneficiary companies fall into at least one of three categories: a corporate insider received a tax credit; the company previously raised external equity; or the company is not in a high-growth sector. Notably, at least 33 percent of beneficiary companies include an investor receiving a tax credit who is an executive at the company.
    JEL: G0 G18 G24 G38 O3
    Date: 2019–11
  9. By: Valeria Venturelli; Giovanni Gallo; Alessia Pedrazzoli
    Abstract: In constructing online alternative finance instruments as a new form of financial democratization and financial inclusion, this article aims at verifying the presence of similarity effect in equity crowdfunding investments. Discussion focuses on ethnic and gender similarity between the seekers and investors that sustained the project. Our analysis is based on 5,996 personal investors that have participated in 81 equity crowdfunding campaigns, on Crowdcube, a British equity crowdfunding platform from 2011 and 2016. Results show that in equity crowdfunding gender and ethnic similarities play different role based on investors’ characteristics - gender, ethnicity and the combination of two. In particular, ethnic similarity positively influence the level of amount invested by both female and male investors belonging to an ethnic minority. Even if female investors tend to prefer male company, their preference changes if a female proponent belonging to an ethnic minority runs the company. From a practical perspective, our findings shed new light on how individual characteristics can be important factor in financing situations. Results allow entrepreneurs and equity crowdfunding platforms to understand better potential investor behaviour and highlights the role of equity crowdfunding as tool for minorities’ financial inclusion and women entrepreneur empowerment.
    Keywords: equity crowdfunding, entrepreneurial finance, ethnicity, gender, similarity effect
    JEL: G02 G11 M13
    Date: 2019–12
  10. By: Christina Atanasova; Eduardo S. Schwartz
    Abstract: Do capital markets reflect the possibility that fossil fuel reserves may become “stranded assets” in the transition to a low carbon economy? We examine the relation between oil firms’ value and their proved reserves. Using a sample of 679 North American oil firms for the period 1999 to 2018, we document that while reserves are an important component of oil firm value, the growth of these reserves has a negative effect on firm value. This negative effect on value is stronger for oil producers with higher extraction costs. When we decompose total reserves into developed and undeveloped reserves, we show that the negative effect of reserves growth on value is due to firms growing their undeveloped oil reserves. Unlike developed, undeveloped reserves require major capital expenditures and longer time before they can be extracted. We also document that the negative effect is stronger for undeveloped oil reserves located in countries with strict climate policies. Our evidence is consistent with markets penalizing future investment in undeveloped reserves growth due to climate policy risk. High level of institutional ownership, stock market liquidity and analyst coverage do not change the negative effect of undeveloped reserves growth on firm value.
    JEL: G12 Q3 Q5
    Date: 2019–11
  11. By: Mukhtaruddin, Mukhtaruddin Mr. (Universitas Sriwijaya)
    Abstract: Earnings management (EM) is manipulation done by management in preparing financial statement in order to gain management advantages or to increase the firm value. EM can reduce the quality of financial statements because it does not show the real earning periodical. This research aims to identify the effect of good corporate governance (GCG) (institutional ownership, managerial ownership, frequency of board meetings, frequency of audit committee (AC) meetings), firm size, and leverage on the EM. Population comprises the companies in LQ 45 index of Iindonesia Stock Exchange (IDX) for the period 2010–2014. Samples of the research were taken using purposive sampling method, and the variables are tested using multiple linear regression analysis. The results of the research show that partially, only leverage has significant effect on EM, while institutional ownership, managerial ownership, frequency of board meeting, frequency of AC meetings, and firm size have no significant effect on EM, but all of the variables have simultaneously significant effect on EM. Limitations of the research are the only used 6 independent variables and 21 companies as samples of the research
    Date: 2018–01–11
  12. By: Nuris, Dudung Ma'ruf (Universitas Negeri Malang); Juliardi, Dodik; zahroh, Fatmawati
    Abstract: The present study aims at examining the effect of audit quality measured by auditor switch on firm value and earnings persistence. The present study was conducted on public service companies which were listed on Indonesian Stock Exchange in 2010 – 2015, with 82 sample companies. The data was obtained through secondary data from Indonesian capital market directory and simple regression analysis for the data analysis.The result indicates that auditor quality has significant effect on firm value. The quality of an auditor has significant effect on earnings persistence. The Study limitation in term of the coefficient of determination because the independent variable of auditor quality is not the only one that can affect the firm value and earnings persistence. Therefore, it is suggested for futher research to add another independent variable in the future.
    Date: 2017–12–05
  13. By: Kam Yan Hui, Jane Sarah
    Abstract: The objective of a business is to earn profit and it should be acclaimed that profitability alone is not very helpful in determining the efficiency and performance of the business firm unless it is related to other factors such as risk. In the context of business proliferation, we are witnessing an unprecedented variegation of risk situations and uncertainty in the business world where the entire existence of an organization are being akin to risk. Each profit earns are associated to numerous of risk and every company consist different types of risks. Nevertheless, market risk and operational risk are very impactful to every business, as it directly influence business profitability and if it doesn’t manage well, the business will come into a drastic problem. This study was presented to examine the outcomes of market risk and operational risk on profitability of Skechers from year 20014-2018. This study in the end halt that effective risk management is very fundamental for business insight and growth.
    Keywords: Market Risk, Operational Risk, Profitability
    JEL: G3 G32 O16
    Date: 2019–11–18
  14. By: Pierre Durand
    Abstract: In this paper, we investigate the role played by the TCR and LCR among determinants of banks' profitability. To this end, using Random Forest regressions and a large dataset of banks' balance sheet variables, we assess the impact and predicting power of Basel III capital and liquidity ratios. Our results confirm the trade-off theory of the capital structure: banks have an optimal capital ratio below which the relation between capital and profitability is positive. On average, this optimum falls between 15% and 20%. Furthermore, we show that LCR has a positive, but weak, effect on profitability. Overall, our findings illustrate the fact that regulatory ratios do not constitute binding conditions for banks' performance.
    Keywords: Basel III, Capital ratio, Liquidity ratio, Banks' profitability, Random Forest regressions.
    JEL: C44 G21 G28
    Date: 2019
  15. By: Yen Joe, Wong
    Abstract: A company's profitability performance or return on assets (ROA) can be affected by its internal and external variables. The internal variables that used in this study were operating margin, corporate governance index, current ratio and average collection period whereas the external variables used were inflation, GDP, interest rate, exchange rate, and standard deviation. The main objective of this study was to examine the impacts of firm-specific factors and macroeconomics factors towards company performance. The independence variables of firm-specific factors and macroeconomic factors were examined to determine their relationship with the dependent variable which is the company performance or ROA. Data were gathered through the company's annual reports, Focus Economics, World Bank and International Monetary Fund (IMF) and was analyzed by using Statistical Package for Social Science (SPSS) version 22. Besides, this study applied descriptive analysis, correlation analysis, coefficients, and multiple regression analysis to examine the relationship between the variables. The multiple regression analysis of company performance shows that there is significant relationship with the average collection period and inflation. The recommendation for this study is that Salesforce Inc should practices well risk management in order to mitigate unexpected threats. In addition, Salesforce Inc should also invest in corporate social responsibility to maintain its sustainable development. This study is able to help people in studying the impacts of the firm-specific variables and macroeconomic variables towards the company performance.
    Keywords: Firm-specific Factors, Macroeconomics Factors, Company Performance
    JEL: G3 G32 O16
    Date: 2019–10–31

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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