nep-cfn New Economics Papers
on Corporate Finance
Issue of 2019‒12‒23
fourteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Taxation and the life cycle of firms By Andrés Erosa; Beatriz González
  2. Factor shares and the rise in corporate net lending By Jan Behringer
  3. Effect of corporate social responsibility, good corporate governance and ownership structure on financial performance and firm value: A Study in Jakarta Islamic Index By Jallo, Amiruddin; Mus, Abdul Rahman; , Mursalim; , Suryanti; Jamali, Hisnol
  4. Financial Constraints of Entrepreneurs and the Self-Employed By Mikhed, Vyacheslav; Raina, Sahil; Scholnick, Barry
  5. Examining risk and return profiles of renewable energy investment in developing countries: The Case of the Philippines By Saculsan, Phoebe; Kanamura, Takashi
  6. Does access to international capital markets affect investment dynamics in Sub-Saharan Africa? By Senga, Christian; Cassimon, Danny; Kigabo, Thomas
  7. Yan Irianis VOL.6 ED 2 By Irianis, Yan
  8. Women on boards: do quotas affect firm performance? By Cécile Casteuble; Laetitia Lepetit; Thu Tha Tran
  9. When does it pay off to participate in markets for technology? By Adrián Kovács
  10. Valuing Private Equity Strip by Strip By Arpit Gupta; Stijn Van Nieuwerburgh
  11. How well does management deliver? Creation of shareholder wealth by large public and private Brazilian firms in 2018 By Sanvicente, Antonio Zoratto
  12. University teaching methods and financial literacy By Anna Polednáková
  13. Free Entry under Common Ownership By Sato, Susumu; Matsumura, Toshihiro
  14. Managing the family firm: evidence from CEOs at work By Bandiera, Oriana; Lemos, Renata; Prat, Andrea; Sadun, Raffaella

  1. By: Andrés Erosa (Universidad Carlos III de Madrid); Beatriz González (Banco de España and Universidad Carlos III de Madrid)
    Abstract: The Hopenhayn and Rogerson (1993) framework is extended to understand how different forms of taxing capital income affect firms’ investment and financial policies over their life cycle. Corporate income taxation slows down firm growth over the life cycle by reducing after-tax profits available for reinvesting, and it distorts optimal firms’ size. Dividend income taxation reduces external equity financing, but it does not affect size at maturity. Capital gains taxes make firms start larger, so that internal growth is lower. With these mechanisms in mind, we calibrate our economy to the US and discuss different revenue-neutral tax reforms that might lead to increases in aggregate output and capital.
    Keywords: macroeconomics, capital income taxation, firm dynamics, investment
    JEL: D21 E22 E62 G32 H32
    Date: 2019–12
  2. By: Jan Behringer
    Abstract: The corporate sector has turned from a net borrowing position to a net lending position in many advanced countries over the past decades. This phenomenon is rather unusual as the corporate sector had historically borrowed funds from other sectors in the economy. In this paper, we analyze how changes in the distribution of income between wages and profits have affected corporate net lending in a sample of 40 countries for the period 1990-2016. A consistent finding ist hat an increase (decrease) in the corporate profit share leads to an increase (decrease) in corporate net lending, controlling for other corporate net lending determinants. We disentangle the effects of the profit share on corporate saving and investment and explore a number of alternative explanations of our results, including changes in the cost of capital, shifts in the composition of industrial sectors, the growing importance of intangible capital, and a temporary crisis phenomenon. We conclude that factor shares are an important driver of macroeconomic trends and that the rise in corporate profits has contributed considerably to the improvement in the corporate net lending positions across countries.
    Keywords: Corporate saving, investment, income distribution, cost of capital
    JEL: E21 E22 E25 G30
    Date: 2019
  3. By: Jallo, Amiruddin; Mus, Abdul Rahman; , Mursalim; , Suryanti; Jamali, Hisnol
    Abstract: This study explores several of the problems that are the objectives of this study: (1) Effect of corporate social responsibility, good corporate governance and ownership structure of financial performance. (2) Effect of corporate social responsibility, good corporate governance, ownership structure and financial performance of the value of the company. (3) Effect of corporate social responsibility, good corporate governance and ownership structure on corporate value through financial performance. The research population this is a 30 companies listed on Jakarta Islamic Index (JII) period in 2013 to 2015. There are 28 companies as a research sample. Sampling technique used is purposive sampling. The analysis technique used is partial least squares (PLS) with the help of SmartPLS version 3.0 analysis program. The results show that: (1) corporate social responsibility, good corporate governance and ownership structure has a positive and significant effect on financial performance. (2) Corporate social responsibility and ownership structure has a positive and insignificant effect on firm value. (3) Good corporate governance has a positive and significant effect on firm value. (4) Corporate social responsibility and ownership structure have a positive and insignificant effect on firm value as a mediated financial performance. (5) Good corporate governance has a positive and significant effect on firm value as a mediated financial performance.
    Date: 2017–11–29
  4. By: Mikhed, Vyacheslav (Federal Reserve Bank of Philadelphia); Raina, Sahil (University of Alberta); Scholnick, Barry (University of Alberta)
    Abstract: Growth-oriented entrepreneurial start-ups generate more economic growth than other self-employed businesses, yet they only constitute a small fraction of start-ups. We examine whether financial constraints impede these types of start-ups by exploiting lottery wins as exogenous wealth shocks. We find that lottery-win magnitude increases winners’ subsequent incorporation, implying that entrepreneurs face financial constraints, but not business registration, implying that financial constraints do not bind as much for the self-employed. Our results, that financial constraints bind for incorporations among men, for serial entrepreneurs, during economic booms, and in neighborhoods without local lenders, are important for understanding the financial impediments to entrepreneurial start-ups.
    Keywords: entrepreneurship; self-employment; financial constraints
    JEL: G21 L26 M13
    Date: 2019–12–11
  5. By: Saculsan, Phoebe; Kanamura, Takashi
    Abstract: This paper examines the risk and return profiles of energy companies with renewable energy (RE) investment in developing countries taking the Philippines as our country case study. First, we analyze the impact of the global RE project specific risk and country risk on RE projects using a simple capital asset pricing model (CAPM) by benchmarking stock returns of these companies to either the global S&P (S&PGCE) index or to the local Philippine Stocks Exchange (PSE) index. Our findings show that on short- and mid- to long term investment interval, a “pure” RE company, the Energy Development Corporation (EDC), is affected by both these risks examined, while those with partial investment in renewables are affected only on the short-term. Next, we calculated these companies’ abnormal returns by using the Jensen’s alpha. Results show that EDC's alpha values are positive on all short- and medium-to-long term investments and on both indices, suggesting that Philippine RE companies are possibly underestimated on both the global RE market and the Philippine stock market. Lastly, we examined the latest Feed-in Tariff (FIT) level by using the beta results of EDC and the FIT structure of solar PV. Results show that the FIT rate generates profit to both the global and local RE companies’ risk and returns from the investors’ perspective, but is higher than the desired FIT rate from the policymakers’ perspective. This paper aids in investment decision-making by showing that differences in investment timeframes and RE shares could impact investment outcomes in developing countries.
    Keywords: renewable energy investment; capital asset pricing model (CAPM); developing countries; Philippines
    JEL: G12 G15 Q20
    Date: 2019–12
  6. By: Senga, Christian; Cassimon, Danny; Kigabo, Thomas
    Abstract: This study investigates the influence of government borrowing through international capital markets on investment dynamics in Sub-Saharan Africa (SSA). We apply the synthetic control method to Gabon, Ghana and Senegal to assess whether this kind of government borrowing affects private, public and FDI in these countries using annual data for the period 1995-2017. Our results suggest that government and private investment have not been affected by governments’ borrowing through international capital markets, but that the move may have boosted these countries’ capacity to attract foreign direct investment. They lend support to the hypothesis that these countries’ exposure to international capital markets is an opportunity to register on the investors’ radar.
    Keywords: Sub-Saharan Africa; investment; synthetic control method
    JEL: E22 F21 F34 G15 O55
    Date: 2019–12
  7. By: Irianis, Yan
    Abstract: This study aims to determine the influence of book tax difference, corporate governance consisting of the independent board of commissioners, institutional ownership and managerial ownership, and liquidity on the quality of earnings in manufacturing companies listed on the Indonesia Stock Exchange. This study used a samples of 19 manufacturing companies listed on BEI in the period 2010-2014. Method of data analysis used multiple linear regression. This result indicates the simultaneously testing of obtained result that book tax difference, independent board of commissioners, institutional ownership, managerial ownership and liquidity significant effect on earning quality. Partially, book tax difference, the board of commissioners independent and influential liquidity positive and significant on earnings quality, liquidity can have negative effects and significant on earnings quality, While the ownership of institutional and managerial ownership no effect on earnings quality.
    Date: 2019–10–04
  8. By: Cécile Casteuble (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique); Laetitia Lepetit (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges); Thu Tha Tran (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In this paper, we investigate the impact of gender quotas on firm performance using countries worldwide that have introduced a gender quota with sanction as a quasi-natural experiment. Our statistical analysis shows that board members' characteristics significantly change after the implementation of the gender quota. The results of our empirical analysis provide evidence that gender quotas have a neutral impact on firm performance in the short term and in the longer term, independently of changes in directors' age, education, nationality, experience or independence. Our findings provide evidence that policymakers can use mandatory quotas to force firms to achieve gender balance on corporate boards without a negative impact on firm performance. Our results also suggest that policymakers create unrealistic expectations for women to boost firm performance. JEL Classification: G34, G38.
    Keywords: gender quotas,Corporate governance,firm performance
    Date: 2019–11–28
  9. By: Adrián Kovács
    Abstract: This paper examines the contribution of different technology acquisition strategies to the market value of firms. I exploit a large consolidated dataset on publicly listed US-firms to distinguish between the contributions of patented inventions that these firms acquired via acquisitions of other firms – embodied technology acquisition – and via the outright purchase of standalone technology – disembodied technology acquisition. I develop hypotheses relating firms ability to benefit from both strategies to the size of their internal knowledge stock and their degree of familiarity with the acquired technology. In line with my predictions, I find a positive contribution of embodied technology acquisition on market value, which increases with the size of firms’ internal knowledge stock as well as their familiarity with the acquired technology. Contrary to my predictions, I find a negative contribution of disembodied technology acquisition, except for firms having the largest internal knowledge stocks in my sample. Interestingly, my results reveal that firms are most likely to benefit from the acquisition of familiar technology via the embodied mode whilst at the same time indicating that the negative association between market value and the acquisition of standalone technology is most pronounced when this technology is novel to the acquiring firm. Overall, my findings suggest that the benefits associated with acquiring technology from external sources are only realized when firms possess a minimum degree of absorptive capacity, with the minimum needed to benefit from technology acquisition being significantly higher for technology acquired via the disembodied mode.
    Keywords: Markets for Technology, Patent Assignments, Mergers and Acquisitions, Market Value
    Date: 2019–06–17
  10. By: Arpit Gupta; Stijn Van Nieuwerburgh
    Abstract: We propose a new valuation method for private equity investments. First, we construct a cash-flow replicating portfolio for the private investment, applying Machine Learning techniques on cash-flows on various listed equity and fixed income instruments. The second step values the replicating portfolio using a flexible asset pricing model that accurately prices the systematic risk in bonds of different maturities and a broad cross-section of equity factors. The method delivers a measure of the risk-adjusted profit earned on a PE investment and a time series for the expected return on PE fund categories. We apply the method to buyout, venture capital, real estate, and infrastructure funds, among others. Accounting for horizon-dependent risk and exposure to a broad cross-section of equity factors results in negative average risk-adjusted profits. Substantial cross-sectional variation and persistence in performance suggests some funds outperform. We also find declining expected returns on PE funds in the later part of the sample.
    JEL: G00 G11 G12 G23 G32 R30 R51
    Date: 2019–11
  11. By: Sanvicente, Antonio Zoratto
    Abstract: This paper examines the performance of 157 of the 400 largest nonfinancial firms in Brazil in 2018. The metric used is the creation of value for their shareholders, represented by the difference between return on assets (operating income/assets) (ROA) and the weighted average of the opportunity cost of debt and equity (WACC) used to finance those assets. Among the 157 firms, one finds 66 privatelyowned and 91 publicly-owned companies. Of those, the management of 18 privately-owned (27,3%) and 13 publicly-owned firms (14,3%) were able to produce value for shareholders, because ROA > WACC. Therefore, this positive outcome occurred in less than half of the companies surveyed, and it is apparent that the proportion of such an outcome in private firms was higher than that for public firms.
    Date: 2019–12
  12. By: Anna Polednáková (University of Economics in Bratislava, Faculty of Business Management, Department of Business Finance)
    Abstract: Education and general literacy are one of the basic pillars of the company. Analyzes showed us that financial literacy in Slovakia is very low. According to recent analyzes, primary and secondary school pupils have low financial literacy. A similar situation exists in universities. Economic trends prepare students for corporate financial management, who should have significantly better results in financial literacy than non-financial specializations, but this has not been confirmed in the analyzes. It is therefore necessary to find new teaching methods that will increase financial literacy and will increase students' motivation to increase financial literacy as a basis for further study of the financial subjects of the Financial Management program to be able to apply financial management tools and methods in the company.
    Keywords: financial literacy, financial market, financial management, teaching methods, indebtedness, bankruptcy.
    JEL: I21 G32
    Date: 2019–10
  13. By: Sato, Susumu; Matsumura, Toshihiro
    Abstract: This study investigates the equilibrium and welfare properties of free entry under common ownership. We formulate a model in which incumbents under common ownership choose whether to enter a new market. We find that an increase in common ownership reduces entries, which may or may not improve welfare. Welfare has an inverted-U shaped relationship with the degree of common ownership. However, if firms do not have common ownership before the entry, after entry common ownership harms welfare.
    Keywords: Overlapping ownership; Free entry, Insufficient entry, Excessive entry, Circular markets
    JEL: L13 L22
    Date: 2019–12–11
  14. By: Bandiera, Oriana; Lemos, Renata; Prat, Andrea; Sadun, Raffaella
    Abstract: We build a comparable and bottom-up measure of CEO labor supply for 1,114 CEOs, and investigate whether family and professional CEOs differ on this dimension of effort. Family CEOs work 9% fewer hours relative to professional CEOs. CEO hours worked are positively correlated with firm performance, and account for 18% of the performance gap between family and professional CEOs. We study the sources of the differences in labor supply across family and professional CEOs by exploiting firm and industry heterogeneity, and variation in meteorological and sport events. The evidence suggests that family CEOs value–or can pursue–leisure activities more than professional CEOs.
    JEL: R14 J01 J50
    Date: 2018–05–01

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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