nep-cfn New Economics Papers
on Corporate Finance
Issue of 2020‒01‒27
thirteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Changing the Paradigm of Stock Ownership from Concentrated Towards Dispersed Ownership? Evidence from Brazil and Consequences for Emerging Countries By Gorga, Érica; Library, Cornell
  2. (Debt) Overhang: Evidence from Resource Extraction By Wittry, Michael D.
  3. credit risk effect the internal, external, and both factors on Geo Energy Resources Limited. By romzi, nurul fatin
  4. Schumpeter, the Banking System, and Innovation: Small versus Big Business By Lambert, Thomas; Velardo, Tristan
  5. Q-factors and Investment CAPM By Zhang, Lu
  6. Bank Funding and the Survival of Start-ups By Luísa Farinha; Sónia Félix; João A. C. Santos
  7. Distant Lending, Specialization, and Access to Credit By Wenhua Di; Nathaniel Pattison
  8. Disclosure of Voluntary Accounting Ratios by Malaysian Listed Companies By Abdullah, Azrul Bin; Ismail, Ku Nor Izah Ku
  9. Political Uncertainty and the Choice of Debt Sources By Hamdi Ben-Nasr; Lobna Bouslimi; M. Shahid Ebrahim; Rui Zhong
  10. The Cyclicality of CEO Turnover By Liebersohn, Carl; Packard, Heidi
  11. Sovereign exposures in the Portuguese banking system: determinants and dynamics By Maria Manuel Campos; Ana Rita Mateus; Álvaro Pina
  13. Factors influencing performance of a company Chipotle Mexican Grill. By shahbani, nuhaa

  1. By: Gorga, Érica; Library, Cornell
    Abstract: 29 Northwestern Journal of International Law & Business, (2009) This paper analyzes micro-level dynamics of changes in ownership structures. It investigates a unique event: changes in ownership patterns currently taking place in Brazil. It builds upon empirical evidence to advance the theoretical understanding of how and why concentrated ownership structures can change towards dispersed ownership. Commentators argue that the Brazilian capital markets are finally taking off. The number of listed companies and Initial Public Offerings (IPOs) in the São Paulo Stock Exchange (Bovespa) has greatly increased. Firms are migrating to Bovespa's special listing segments, which require higher standards of corporate governance. Companies have sold control in the market, and the stock market has recently seen an attempted hostile takeover. This paper discusses these current developments and analyzes ownership structures of companies listed on Bovespa's listing segments based on data from 2006 and 2007. It provides the first evidence of the decline of ownership concentration in Brazilian corporations. There is, however, an important caveat: dispersed ownership is mainly found in Novo Mercado, the listing segment that requires the one-share-one-vote rule. This paper, then, investigates firms' migration patterns, and finds that eighty-five percent of Novo Mercado's firms are "new entrant" firms. Traditional firms have mostly migrated to Level 1, the least stringent corporate governance segment. Thus, there are two corporate worlds in Brazilian capital markets: new corporations that adopt proactive corporate governance patterns, and established corporations that retain their main patterns of corporate governance or ownership structure. This paper additionally explores the consequences of increased dispersion of ownership through private contracting, such as shareholders' agreements and bylaws. The evidence suggests an increasing reliance on shareholders' agreements to coordinate joint control and to bind directors' votes. Research also shows a growing adoption of anti-takeover devices in bylaws. Finally, this paper sheds light on the incentives that may alter preferences of controlling shareholders. This discussion also explains why controlling shareholders opt to create greater diversity of ownership structures. This analysis advances our knowledge of corporate structures in other emerging countries.
    Date: 2018–04–15
  2. By: Wittry, Michael D. (Ohio State U)
    Abstract: I study the empirical importance of debt overhang using a unique dataset on resource extraction firms, which provides ex ante measures of investment opportunities and important variation in the terms of a firm's obligations. In particular, unsecured reclamation liabilities create overhang that is costly to resolve and induces firms to forgo and postpone positive NPV investments. Traditional debt, in contrast, imposes few overhang-related investment distortions. These results show that: (i) the overhang problem is potentially large and applies more broadly to a firm's non-debt liabilities; and (ii) overhang problems associated with traditional debt can be avoided through contracting and debt composition.
    JEL: D22 G30 G32
    Date: 2019–12
  3. By: romzi, nurul fatin
    Abstract: Firstly, this study aims to determine the effect of the credit risk toward the internal, external, and both factors. SPSS System has been used to analyzed the data that has been collected form the annual report of the company that has been chosen. The analysis show that the firm has the specific factors (operational ratio and operating margin). From this study, the company should do well in managing their shareholder’s equity to generate more profit by giving the clear information regarding on how invest and more complies toward elements of the corporate governance.
    Keywords: Operational risk, economic factors and corporate governance
    JEL: G32
    Date: 2019–04–20
  4. By: Lambert, Thomas; Velardo, Tristan
    Abstract: Joseph Schumpeter’s writings on entrepreneurship and innovation have had a profound impact on economic theory and economic thought. Schumpeter initially saw the small entrepreneur as the source of innovation and economic growth within an economic system but later saw large corporations as the source of much innovation. Because large corporations, and in modern times many governments and universities as well, play such a large role in funding research and development and new innovations, much of the bank financing of innovation is done by smaller banks for small entrepreneurs and their ideas. Venture capitalists and self-financing are the other two major forms of small entrepreneur/small business financing. Meanwhile, the financial markets (stocks and bond markets) only indirectly play a role in funding the innovation of large corporations via changes in these firms’ stock prices. Changes in stock prices reflect an estimate of the large firms’ research and development efforts and their prospects for profitable, future innovation. Much corporate research and development is financed internally within the organization as an expense of doing business. Meanwhile, government and university funding through tax dollars and non-profit sources indirectly subsidize corporate innovation because governmental entities and universities take on risks that the private sector will often not tolerate. Yet, large corporations are often the beneficiaries of such governmental and university financing of research and development efforts. In today’s times, Schumpeter would be impressed with the success of large firms regarding innovation but probably would be disappointed about the marginalization of the small entrepreneurial firm and the banking system and their diminished roles in innovation. This paper summarizes Schumpeter’s views on how the banking system and financial markets could play a role in innovation and explains how a modern day monopoly capital system (Baran and Sweezy 1966) and its financial system have transformed entrepreneurship and innovation away from small business and innovation by the small entrepreneur. Baran, Paul A, and Paul M Sweezy. 1966. Monopoly Capital: An Essay on the American Economic and Social Order. New York: Monthly Review Press.
    Keywords: banking, innovation, small business, big business
    JEL: B26 B31 B51
    Date: 2019–12
  5. By: Zhang, Lu (Ohio State U)
    Abstract: The q-factor model shows strong explanatory power and largely summarizes the cross section of average stock returns. In particular, the q-factor model fully subsumes the Fama-French (2018) 6-factor model in head-to-head factor spanning tests. The q-factor model is an empirical implementation of the investment CAPM. The basic philosophy is to price risky assets from the perspective of their suppliers (firms), as opposed to their buyers (investors). As a disruptive innovation, the investment CAPM has broad-ranging implications for academic finance and asset management practice.
    JEL: D21 D92 E22 E44 G12 G14 G31 G32 G35
    Date: 2019–12
  6. By: Luísa Farinha; Sónia Félix; João A. C. Santos
    Abstract: We document that start-ups with more access to long-term bank loans and those with more available credit in their credit lines survive longer. These findings do not appear to be driven by bank selection. Start-ups (including those founded by entrepreneurs without a business track record) that access these funding sources, in particular long-term loans, right at the beginning of their lives - when it is arguably more dicult for banks to identify winners - survive longer. Further, our findings continue to hold when we control for unobserved heterogeneity in start-ups, and when we instrument for banks' lending decisions. In addition, our findings do not seem to be entirely driven by bank monitoring because we do not find that accessing short-term bank loans yields similar results. Our results suggest that reducing uncertainty about future access to bank funding helps start-ups survive longer, possibly because it offers them insurance against future shocks and/or affords them the opportunity to make investments that they would not consider otherwise.
    JEL: G21 G32 M13
    Date: 2019
  7. By: Wenhua Di; Nathaniel Pattison
    Abstract: Small business lending has historically been very local, but distances between small businesses and their lenders have steadily increased over the last forty years. This paper investigates a new lending strategy made possible by distant small business lending: industry specialization. Using data on all Small Business Administration 7(a) loans from 2001-2017, we document a substantial increase in remote, specialized small business lenders, i.e., lenders that originate many distant loans and concentrate these loans within a small number of industries. These lenders target low-risk industries and, consistent with expertise, experience better loan performance within these industries. We then examine whether this industry-specialized lending serves as a substitute or complement to traditional, geographically specialized lending. We exploit the staggered entry of a remote, specialized lender to estimate the impact of specialized lending on credit access. Entry significantly increases total lending, with no evidence of substitution away from other lenders. The results indicate that specialized lending can deepen credit markets by providing new loans to low-risk but underfinanced small businesses.
    Keywords: Small business lending; Banking competition; Specialization; Distance; Credit access; Technology; Fintech
    JEL: G21 G23 L11
    Date: 2020–01–16
  8. By: Abdullah, Azrul Bin (Universiti Teknologi MARA, Perlis Branch, Arau Campus); Ismail, Ku Nor Izah Ku
    Abstract: Accounting ratios are believed to be of fundamental importance in financial analysis, and therefore are useful addition to financial reports. This paper examines the reporting of voluntary accounting ratio by Malaysian companies in corporate annual reports. Drawing on agency and signaling theories, this paper explores whether associations exist between company performance and voluntary disclosure of accounting ratios. In particular, associations are tested between the extent of ratio disclosure and company performance (namely profitability, liquidity, leverage, and company efficiency), size and industry. Six hypotheses are tested using data collected from 2003 annual reports of 100 Malaysian listed companies. This paper provides evidence that the extent of voluntary ratio disclosure is low; and size, industry as well as liquidity significantly influence the reporting of ratios in corporate annual reports. The implications of these findings are discussed.
    Date: 2018–03–22
  9. By: Hamdi Ben-Nasr (Qatar University); Lobna Bouslimi (Concordia University); M. Shahid Ebrahim (Durham University Business School); Rui Zhong (University of Western Australia)
    Abstract: This paper studies the effect of political uncertainty on the choice of debt sources. We find a positive relationship between political uncertainty stemming from elections and the proportion of bank loans over total debts, especially when elections are closely contested. Furthermore, this relationship is stronger in opaque firms and more financially constrained firms as well as firms from countries with weaker shareholder rights, labor protection, creditor rights and national governance.
    Keywords: Bank Debt; Public Debt; National Election; Political Uncertainty
    JEL: D72 D81 G24 G32
    Date: 2019–08
  10. By: Liebersohn, Carl (Ohio State U); Packard, Heidi (U of Michigan)
    Abstract: CEO turnover is highly pro-cyclical. This paper aims to explain why. We begin by showing that the cyclicality is driven almost entirely by executives of retirement age. We further provide evidence that executives time their retirement to maximize the value of their pensions. Since CEO pay is pro-cyclical and pensions are based on pay in the final years of tenure, executives have the incentive to retire when the economy is doing well. Cyclicality is particular strong in firms with strong corporate governance, which suggests that retirement cyclicality is a tool firms use to constrain CEO behavior.
    JEL: J26 M12 M51
    Date: 2019–12
  11. By: Maria Manuel Campos; Ana Rita Mateus; Álvaro Pina
    Abstract: This paper studies the dynamics of the exposure of the Portuguese banking system to the domestic public sector over 2008-2016 and assesses possible underlying motivations. The analysis relies on a new dataset built from granular information that provides full coverage of the Portuguese banking sector and the public sector. The results suggest that moral suasion was an important driver of the evolution of sovereign exposures during the euro area crisis: domestic banks provided financing to the sovereign when the Treasury needed to issue debt amidst rising yields and, although to a smaller extent, when State-Owned Enterprises faced funding shortages in international markets. Moreover, increases in central bank funding are also related to increases in holdings of sovereign debt securities. These findings mainly hold for medium-sized and large banks. In contrast, we find no evidence of gambling for resurrection behaviour by banks with lower prudential capital or depressed profitability.
    JEL: C23 G01 G21 H63
    Date: 2019
  12. By: Niar, Hikma; Jamali, Hisnol
    Abstract: This study investigates the Determinants of profitability and firm values in the Manufacturing Sector of Firms in Indonesia. A total of 55 companies listed on the Indonesia Stock Exchange were used as samples. Observation data is used from 2014 to 2016. The Structural Equation Modeling Test using analysis of moment structures ver. 22 provides evidence that Investment decisions has a positive and significant effect on profitability but not for firm values. Capital structure has a positive and significant effect on profitability but not for firm values. Company's growth has a positive and significant effect on profitability and firm values and then the last causality is Profitability has a positive and significant effect on firm values
    Date: 2018–03–18
  13. By: shahbani, nuhaa
    Abstract: The purpose of this study to determine the internal and external factors that affecting the Chipotle Mexican Grill performance of the company. The study involved some variable used to include internal, external and both factors in order to evaluate company’s performance. For instance, company’s performance, liquidity risk, credit risk, operational risk and corporate governance index are internal factor while external factors are gross domestic product (GDP), inflation rate, exchange rate and interest rate. This study chooses company’s performance Return on Asset (ROA) as dependent variable for the performance of Chipotle Mexican Grill. All the data obtained from the financial report of Chipotle Mexican Grill from the year 2014 until 2018. Data was measured by using ratio analysis and SPSS system which is include correlation, regression and R square to find the relationship of the company performance with others variable.
    Keywords: company performance, return on asset, growth domestic product, quick ratio
    JEL: G3 G32
    Date: 2019–10–11

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