nep-cfn New Economics Papers
on Corporate Finance
Issue of 2020‒02‒24
thirteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Firm Size as Moderator to Capital Structure-Its Determinants Relations By Maya Sari
  2. Political Connections and Banking Performance: The Moderating Effect of Gender Diversity By Catarina Alexandra Neves Proença; Mário António Gomes Augusto; José Maria Ruas Murteira
  3. Winners and Losers from Sovereign Debt Inflows: Evidence from the Stock Market By Fernando Broner; Alberto Martín; Lorenzo Pandolfi; Tomás Williams
  4. Financial and Human Capital of Microentrepreneurs and Financing by Microfinance Institutions (MFIs) in Cameroon By Serge MESSOMO ELLE
  5. Social Responsibility and Firm's Objectives By Michele Fioretti
  6. Basel III Implementation and SME Financing : Evidence for Emerging Markets and Developing Economies By Fisera,Boris; Horvath,Roman; Melecky,Martin
  7. Corporate Debt: Where is the Danger? By Saeidinezhad, Elham
  8. How Banks Respond to Distress: Shifting Risks in Europe’s Banking Union By Mark Mink; Rodney Ramcharan; Iman van Lelyveld
  9. The Impact of size and group affiliation in emerging markets: A Cost efficiency analysis of Indian firms By Ramesh Jangili
  10. Do Cash Windfalls Affect Wages? Evidence from R&D Grants to Small Firms By Sabrina T. Howell; J. David Brown
  11. Political Patronage on Capital Structure in Indonesia By Muhammad Istan
  12. Investment behavior and firms' financial performance: A comparative analysis using firm-level data from the wine industry By Claudiu Albulescu
  13. Is Short-Term Debt a Substitute or a Complement to Good Governance ? By Anginer,Deniz; Demirguc-Kunt,Asli; Tepe,Mete; Simsir,Serif Aziz

  1. By: Maya Sari (Netti Siska N Author-2-Name: Universitas Pendidikan Indonesia, Bandung, Indonesia Author-2-Workplace-Name: S. Sulastri Author-3-Name: Universitas Pendidikan Indonesia, Bandung, Indonesia Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: Objective – Capital structure policy is a strategic decision related to the selection of funding sources. The best mixed of capital structure will produce a low cost of capital, which in turn can maximize the value of the company. This study aims to determine the effect of company size as a moderator on the relationship of capital structure and its determinant factors on manufacturing companies in Indonesia and Malaysia.Methodology – Data were collected from 40 manufacturing companies listed on the Indonesia Stock Exchange and 130 manufacturing companies listed on the Bursa Malaysia during 2008-2017. This study will analyze the determinants of capital structure consisting of liquidity, profitability, tangibility and efficiency as well as company size as a moderating variable. The research method uses panel data regression. Findings – The company size provides a moderating effect on the relationship between capital structure with liquidity, profitability, tangibility and efficiency, and this moderation effect is strengthened in large companies in Indonesia. Instead, this moderation effect is weakening for large companies in Malaysia Novelty – Research shows that the "modified pecking order" model is better able to explain the capital structure, policies of manufacturing companies in Indonesia and Malaysia compared to the traditional pecking order and trade off theory models.Type of Paper: Empirical
    Keywords: Capital Structure; Pecking Order Theory; Trade Off Theory; Manufacturing Company; Moderating Effect
    JEL: G23 G30 G32
    Date: 2019–12–14
  2. By: Catarina Alexandra Neves Proença (Ph.D. Student at Faculty of Economics, University of Coimbra); Mário António Gomes Augusto (Centre for Business and Economics CeBER and Faculty of Economics, University of Coimbra); José Maria Ruas Murteira (Centre for Business and Economics CeBER and Faculty of Economics, University of Coimbra)
    Abstract: The present study investigates the effect of gender diversity on the impact of board members' political connections on banking performance. Using panel data on 83 banks supervised by the European Central Bank (ECB) for the period 2013-2017, our results suggest that when gender diversity is high, there is a U-shaped nonlinear relationship between political connections and banking performance. Empirical evidence also indicates that differentiating characteristics of women, such as greater ethical concern and risk aversion, help mitigate the negative effects of political connections on banking performance, safeguarding the institutions’ interests from the adverse effects of personal agendas. In addition, our results also suggest that a minimum of 14% gender diversity can actually contribute to a greater social justice and beneficial structural change. Overall, these general conclusions seem fairly robust, being drawn from several versions of the regression model adopted in the study, using different sets of control variates and different gender diversity measures.
    Keywords: Political connections, Gender diversity, Bank performance, ECB, GMM; Bitcoin, USD/EUR, Exchange rates, Cointegration, Forecasting.
    JEL: G21 G34 J16
    Date: 2020–03
  3. By: Fernando Broner; Alberto Martín; Lorenzo Pandolfi; Tomás Williams
    Abstract: This paper analyzes the effects on firms of sovereign debt inflows in emerging countries. To deal with the endogeneity between capital inflows and economic activity, we focus on capital inflows driven by countries’ inclusions into well-known local currency sovereign debt market indexes. These events convey little information about the future economic prospects of countries but induce large capital flows from institutional investors tracking the indexes. We show that inclusion-driven flows significantly reduce government bond yields and appreciate the domestic currency. In turn, these flows have heterogenous impact on firms’ stock market returns. Government related firms, financial firms and firms with larger financial constraints experience positive abnormal returns following the announcement of these events. Instead, companies operating in export-intensive sectors have negative abnormal returns. Our findings shed novel light on the channels through which capital inflows to sovereign debt markets affect firms in the economy.
    Keywords: sovereign debt, capital inflows, exchange rate, government bond yields, external financial dependence
    JEL: F31 F32 F36 G15 G23
    Date: 2020–01
  4. By: Serge MESSOMO ELLE (Department of Banking and Finance University of Buea, Cameroon Author-2-Name: Author-2-Workplace-Name: Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: Objective –This study determines the nature and the direction of how financial and human capital influence the financing of microentrepreneurs in Cameroon. Compared with past research, this work uses existing microentrepreneurs only, which are considered as the only ones having access to the financing of MFIs.Methodology/Technique – This study employs an explanatory approach and uses the Five Cs model and primary data to explain the influence of financial capital (capacity, collateral, capital and condition) and human capital (character) on the financing of microentrepreneurs by MFIs.Findings – On the one hand, the findings show that character, capacity and collateral significantly increase financing of microentrepreneurs by MFIs. On the other hand, the findings reveal that that condition is significant and has an inverse relationship with lending to microentrepreneurs. Collateral was found to be not significant.Novelty: Compared with past research, this work uses existing microentrepreneurs only, which are considered as the only ones having access to the financing of MFIs. This study examines the relationship between financial and human capital to capacity, collateral capital and condition and character of microentrepreneurs.Type of Paper: Empirical
    Keywords: Capacity; Character Collateral; Condition; Capital; Financing of Microentrepreneurs; Microfinance Institutions.
    JEL: G21 G32 L22 O15
    Date: 2019–12–13
  5. By: Michele Fioretti (Département d'économie)
    Abstract: This paper shows that a firm’s objectives can extend beyond profit maximization. I use data from a for-profit firm offering charity auctions of celebrities belongings whose donations affect both revenues and costs. Comparing actual donations with the profit-maximizing benchmark indicates that the firm donates in excess of profitmaximization. I provide additional evidence pointing to donations as a further objective of the firm. Also, donations do not substantially increase willingness to pay, indicating that demand cannot explain expenditures in CSR. My results shed light on the functioning of benefit corporations and open questions on the competitive conduct of non-profit maximizing companies.
    Keywords: Objectives of the firm; Corporate Social Responsibility; Donations; Structural Estimation; Externalities
    JEL: L21 D64 C14
    Date: 2020–01
  6. By: Fisera,Boris; Horvath,Roman; Melecky,Martin
    Abstract: This paper examines the effect of Basel III implementation on the access to finance of small and medium-size enterprises in 32 emerging markets and developing economies. Analyzing rich, repeated cross-sectional data and a panel of matched firm-bank data in a difference-in-differences setting with sample selection adjustment, the authors find a short-term, moderately negative effect of Basel III on small and medium-size enterprises'access to financing. The results suggest that firms with access to bank credit prior to Basel III implementation could have been affected less than firms that were initially on the fringes of financial inclusion?firms with only a bank account. The paper fails to find any additional heterogeneous effects across firm size or age, bank capitalization or liquidity, or across countries that transitioned to Basel III from Basel II versus Basel 2.5. Overall, the initial conditions of the banking system as well as of complementary business and financial regulation can co-determine the size of short-term costs from the newly implemented global financial regulation in emerging markets and developing economies.
    Date: 2019–12–02
  7. By: Saeidinezhad, Elham
    Abstract: This paper will attempt to take a first step toward building a granular framework by examining the sustainability of American corporate debt through the sustainability analysis of nonfinancial corporate sectors. This approach does not displace but rather complements traditional measures used by analysts that rely on aggregated and netted metrics. By examining sectoral debt composition based on both dimensions of corporate indebtedness, a mixed picture emerges. While some sectors show more resiliency to a downturn than standard analysis implies, other sectors, particularly within the utilities sector, show far greater exposure to profitability and interest rate shocks than commonly understood. It is important to note that while this paper evaluates the liquidity of non-financial corporate debt sectors in response to adverse events, it does not examine the ultimate holders of this debt and their liquidity requirements. Therefore, it does not provide us with a complete picture of the systemic vulnerabilities presented by these instruments.
    Keywords: corporate debt, leverage, liquid assets, debt repayment capacity
    JEL: G11 G30 G31 G32
    Date: 2019–05
  8. By: Mark Mink (De Nederlandsche Bank); Rodney Ramcharan (Marshall School of Business, University of Southern California); Iman van Lelyveld (Vrije Universiteit Amsterdam)
    Abstract: This paper uses granular bond portfolio data to study how banking systems across the European Union (EU) adjust their asset holdings in response to regulatory solvency shocks. We also study the impact of these shocks at financial intermediaries on the prices of bonds in their portfolio. Despite the creation of a Single Supervisory Mechanism (SSM) in the EU, we find that risk-shifting interacts with regulatory arbitrage motives to explain how banks adjust their portfolios after adverse solvency shocks. After regulatory solvency declines, banks increase their exposure to domestic bonds, including higher yielding but zero risk-weight sovereign bonds. The increase in banking system risk might therefore be even larger than the decline in risk-weighted solvency ratios suggests. Distress in the banking system also feeds back onto bond prices. Bonds owned by less-well capitalized banking systems trade at a discount relative to otherwise similar bonds owned by better capitalized intermediaries.
    Keywords: Bank capital, portfolio allocation, risk shifting, SSM
    JEL: G11 G12 G15 G21
    Date: 2020–02–04
  9. By: Ramesh Jangili (Indira Gandhi Institute of Development Research; Institute of Economic Growth)
    Abstract: Despite strengthening market discipline and improving overall competition, emerging markets, like India, still have severe information problems. Large firms and group firms in these markets have the potential to gain differential advantage as well as destroy value. We analyse the cost efficiency performance of firms in India: the degree of cost efficiency with respect to firm size and the cost efficiency of firms affiliated to business groups with that of standalone firms. We find that as firm size increases the degree of cost efficiency decreases and standalone firms exhibit better cost efficiency scores when compared with that of group affiliated firms. This supports the view that firms having either market power or involved in explicit or implicit form collusion incur higher costs. Alternatively, firms which do not have market power minimises the cost in a better way.
    Keywords: Cost Efficiency, Size, Group Affiliation, Stochastic Frontier Analysis
    JEL: L25 D24 M21
    Date: 2019–12
  10. By: Sabrina T. Howell; J. David Brown
    Abstract: This paper examines how employee earnings at small firms respond to a cash flow shock in the form of a government R&D grant. We use ranking data on applicant firms, which we link to IRS W2 earnings and other U.S. Census Bureau datasets. In a regression discontinuity design, we find that the grant increases average earnings with a rent-sharing elasticity of 0.07 (0.21) at the employee (firm) level. The beneficiaries are incumbent employees who were present at the firm before the award. Among incumbent employees, the effect increases with worker tenure. The grant also leads to higher employment and revenue, but productivity growth cannot fully explain the immediate effect on earnings. Instead, the data and a grantee survey are consistent with a backloaded wage contract channel, in which employees of financially constrained firms initially accept relatively low wages and are paid more when cash is available.
    JEL: G32 G35 J31 J41
    Date: 2020–01
  11. By: Muhammad Istan (State Institute of Islamic Studies, Curup, Bengkulu, Indonesia Author-2-Name: Kamaludin Author-2-Workplace-Name: Bengkulu University, Bengkulu, Indonesia Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: Objective – The purpose of this research is to test the theory of capital structure by determining whether the relationship is affected by Political Patronage. The study will examine political support, capital structure and financial performance of the company. Methodology/Technique – The data in this research is in the form of financial ratios displayed in the financial report of each company listed from 2010 to 2016. The sample was selected using purposive sampling with as many as 70 companies indicated to have political support. The data was analysed using regression analysis. Findings – The results show that Political Patronage has an influence on capital structure and political Patronage has a weak effect on financial performance. Type of Paper: Empirical
    Keywords: Political Patronage; Capital Structure; Financial Performance.
    JEL: G30 G32 G39
    Date: 2019–12–12
  12. By: Claudiu Albulescu (CRIEF)
    Abstract: This paper assesses the role of financial performance in explaining firms' investment dynamics in the wine industry from the three European Union (EU) largest producers. The wine sector deserves special attention to investigate firms' investment behavior given the high competition imposed by the latecomers. More precisely, we investigate how the capitalization, liquidity and profitability influence the investment dynamics using firm-level data from the wine industry from France (331 firms), Italy (335) firms and Spain (442) firms. We use data from 2007 to 2014, drawing a comparison between these countries, and relying on difference-and system-GMM estimators. Specifically, the impact of profitability is positive and significant, while the capitalization has a significant and negative impact on the investment dynamics only in France and Spain. The influence of the liquidity ratio is negative and significant only in the case of Spain. Therefore, we notice different investment strategies for wine companies located in the largest producer countries. It appears that these findings are in general robust to different specifications of liquidity and profitability ratios, and to the different estimators we use.
    Date: 2020–01
  13. By: Anginer,Deniz; Demirguc-Kunt,Asli; Tepe,Mete; Simsir,Serif Aziz
    Abstract: Short-term debt exposes firms to credit supply shocks and liquidity risk. Short-term debt can also reduce potential agency conflicts between managers and shareholders by exposing managers to more frequent monitoring by the market. This paper examines whether internal monitoring through independent boards and stronger shareholder protections can substitute for external monitoring through the use of short-term debt. The analysis finds that the relationship between debt maturity and governance depends on shareholder rights in a given country. In countries with stronger investor protection, governance and short-term debt act as substitutes. Instrumenting the institutional environment with legal origin confirms the results.
    Keywords: Inflation,Social Policy,Judicial System Reform,Legal Reform,Regulatory Regimes,Legislation,Legal Products,Civic Participation and Corporate Governance,Corporate Governance,Multinational&Corporate Governance,Capital Flows,Capital Markets and Capital Flows,International Trade and Trade Rules,Economic Growth
    Date: 2019–09–25

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