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on Corporate Finance |
| By: | Ichiro Iwasaki (Institute of Economic Research, Hitotsubashi University); Xinxin Ma (Center for Far Eastern Studies, University of Toyama); Satoshi Mizobata (Institute of Economic Research, Kyoto University) |
| Abstract: | In this paper, we perform a meta-analysis of 736 estimates extracted from 31 previous studies to compare China and Eastern Europe from the viewpoint of the relationship between corporate ownership and managerial turnover. Our results strongly suggest the presence of asymmetric circumstances between the two. Namely, in Eastern Europe, private outside investors and large shareholders exert a positive influence on the managerial discipline of the companies they invest in, and the government is also actively involved in the corporate governance of state-owned enterprises. In contrast, the Chinese government and the Communist Party of China have such significant control over companies as corporate owners that private shareholders only have limited influence over top management. In this sense, Chinese firms are more likely than their East European counterparts to face greater problems in corporate governance. |
| Keywords: | corporate ownership; managerial turnover; meta-analysis; publication selection bias; China; Eastern Europe |
| JEL: | D22 G32 G34 G38 P21 P31 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:1034&r=all |
| By: | Oana Peia; Davide Romelli |
| Abstract: | Using the 2008-09 Global Financial crisis and the 2012 Euro area sovereign debt crisis as natural experiments, we investigate the effects of contractions in credit supply on R&D spending in a large sample of European firms. Our identification strategy exploits differences in financial constraints across firms, as well as the cross-industry variation in dependence on external finance, to identify a causal effect of bank credit supply on firm investment in innovation. We show that firms that are more likely financially constrained, in industries more dependent on external finance, have a disproportionally lower growth rate of R&D spending, as well as lower R&D intensity and share of R&D investment in total investment during periods of tight credit supply. These results are robust to different proxies of financial constraints, model specifications and fixed-effects identification strategies. |
| Keywords: | Financial frictions; Investment; Innovation; R&D spending |
| JEL: | O30 G21 I22 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:201926&r=all |
| By: | Joseph, Andreas; Kneer, Christiane; Saleheen, Jumana; Van Horen, Neeltje |
| Abstract: | Firms with high pre-crisis cash holdings invested significantly more than their cash-poor rivals during the global financial crisis and especially so during the recovery phase. This resulted in a persistent and growing investment gap between cash-rich and cash-poor firms. Cash especially benefitted young and small firms and firms in industries where rivals became more financially constrained. The amplification effect of cash was absent in the period preceding the crisis. The ability to continue to invest allowed cash-rich firms to gain market share and accumulate more profits over the long-run. Having a liquid balance sheet when the credit cycle turns thus gives firms a competitive edge that lasts far beyond the crisis years. |
| Keywords: | cash holdings; credit constraints; financial crisis; Firm Investment |
| JEL: | E22 E32 E44 G32 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14199&r=all |
| By: | Bischof, Jannis; Laux, Christian; Leuz, Christian |
| Abstract: | This paper examines banks' disclosures and loss recognition in the financial crisis and identifies several core issues for the link between accounting and financial stability. Our analysis suggests that, going into the financial crisis, banks' disclosures about relevant risk exposures were relatively sparse. Such disclosures came later after major concerns about banks' exposures had arisen in markets. Similarly, the recognition of loan losses was relatively slow and delayed relative to prevailing market expectations. Among the possible explanations for this evidence, our analysis suggests that banks' reporting incentives played a key role, which has important implications for bank supervision and the new expected loss model for loan accounting. We also provide evidence that shielding regulatory capital from accounting losses through prudential filters can dampen banks' incentives for corrective actions. Overall, our analysis reveals several important challenges if accounting and financial reporting are to contribute to financial stability. |
| Keywords: | Banks,Financial crisis,Financial stability,Disclosure,Loan loss accounting,Expected credit losses,Incurred loss model,Prudential filter,Fair valueaccounting |
| JEL: | G21 G22 G28 G32 G38 K22 M41 M42 M48 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:283&r=all |
| By: | Ricardo Correa; Linda S. Goldberg |
| Abstract: | Bank holding companies (BHCs) can be complex organizations, conducting multiple lines of business through many distinct legal entities and across a range of geographies. While such complexity raises the costs of bank resolution when organizations fail, the effect of complexity on BHCs’ broader risk profiles is less well understood. Business, organizational, and geographic complexity can engender explicit trade-offs between the agency problems that increase risk and the diversification, liquidity management, and synergy improvements that reduce risk. The outcomes of such trade-offs may depend on bank governance arrangements. We test these conjectures using data on large U.S. BHCs for the 1996-2018 period. Organizational complexity and geographic scope tend to provide diversification gains and reduce idiosyncratic and liquidity risks while also increasing BHCs’ exposure to systematic and systemic risks. Regulatory changes focused on organizational complexity have significantly reduced this type of complexity, leading to a decrease in systemic risk and an increase in liquidity risk among BHCs. While bank governance structures have, in some cases, significantly affected the buildup of BHC complexity, better governance arrangements have not moderated the effects of complexity on risk outcomes. |
| Keywords: | too big to fail; diversification; bank complexity; regulation; corporate governance; global banks; liquidity; agency problem; risk taking |
| JEL: | G21 G28 G32 |
| Date: | 2020–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:88198&r=all |
| By: | Guizzardi, Andrea; Stacchini, Annalisa; Costa, Michele |
| Abstract: | This study investigates visitors’ perceived value in little known small areas, at the early stage of tourism development, participating in a European regional development project, for improving the local tourism supply and marketing initiatives, with limited investments. We suggest to employ an Ordinal Structural Equation Model with Pairwise Likelihood estimator to deal with non-normal and missing data. We detect which destinations’ aspects convey the greatest value to tourists, identify market segmentation variables, test the relations of perceived value with satisfaction, intention to recommend and destination image. Results are relevant for policymakers and destination managers, even more in the post-COVID-19 tourism recovery. |
| Keywords: | Perceived value; Ordinal SEM; Tourism development planning; Segmentation variables; Small areas; Destination marketing. |
| JEL: | O29 R1 Y8 |
| Date: | 2020–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101245&r=all |
| By: | Delatte, Anne-Laure; Matray, Adrien; Pinardon-Touati, Noémie |
| Abstract: | Formally independent private banks change their supply of credit to the corporate sector for the constituencies of contested political incumbents in order to improve their reelection prospects. In return, politicians grant such banks access to the profitable market for loans to local public entities among their constituencies. We examine French credit registry data for 2007-2017 and find that credit granted to the private sector increases by 9%-14% in the year during which a powerful incumbent faces a contested election. In line with politicians returning the favor, banks that grant more credit to private firms in election years gain market share in the local public entity debt market after the election is held. Thus we establish that, if politicians can control the allocation of rents, then formal independence does not ensure the private sector's effective independence from politically motivated distortions. |
| Keywords: | local government financing; moral suasion; politics and banking |
| JEL: | G21 G30 H74 H81 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14409&r=all |
| By: | Dyaran Bansraj (Erasmus University Rotterdam); Han Smit (Erasmus University Rotterdam); Vadym Volosovych (Erasmus University Rotterdam) |
| Abstract: | By holding assets longer and increasingly focusing on growth strategies private equity firms enter the territory of strategic buyers. In one such strategy, a private equity firm buys a company and then builds on that “platform†through add-on acquisitions. We ask whether such serial (buy-and-build) acquisition strategies deliver operating synergies, as expected from strategic buyers, or rather are a form of “window-dressing.†We collect a sample of buy-and-build strategies from seven major European markets and find that the profitability of these strategies improves more than that of the comparable strategies, constructed by us from stand-alone companies. We analyze a number of operating outcomes across various strategy sub-types and confirm that these operational improvements are consistent with the synergy interpretation. |
| Keywords: | Private Equity, Leveraged Buyouts, Buy-and-Build, Operating Performance, Synergies |
| JEL: | L2 G24 G34 |
| Date: | 2020–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20200041&r=all |
| By: | Benjamin Hemingway (Bank of Lithuania & Vilnius University) |
| Abstract: | The impact of creditor and debtor rights following firm insolvency are studied in a firm dynamics model where defaulting firms choose between restructuring or exit. The model accounts for differing effects of productivity shocks across economies that differ in the credit/debtor rights. Following a negative shock labour productivity falls sharply in a creditor-friendly regime such as the UK while in a debtor-friendly regime such as the US, there is a larger employment response. This paper suggests a possible explanation for the different employment and labour productivity response in the UK and US since the financial crisis. |
| Keywords: | Bankruptcy, Insolvency, Firm Financing |
| JEL: | D21 E22 G33 |
| Date: | 2020–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:77&r=all |
| By: | Stephen P. Ferris; Jan Hanousek; Jiri Tresl |
| Abstract: | We examine the persistence of corporate corruption for a sample of privately-held firms from 12 Central and Eastern European countries over the period 2001 to 2015. Creating a proxy for corporate corruption based on a firm’s internal inefficiency, we find that corruption enhances a firm’s profitability. A channel analysis further reveals that inflating staff costs is the most common approach by which firms divert funds to finance corruption. We conclude that corruption persists because of its ability to improve a firm’s return on assets, which we refer to as the Corporate Advantage Hypothesis. |
| Keywords: | corruption; inefficiency; performance; private firms; |
| JEL: | G30 F38 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp659&r=all |
| By: | Anne-Laure Delatte (CEPII, CNRS, and CEPR); Adrien Matray (Princeton University); Noemie Pinardon-Touati (HEC Paris) |
| Abstract: | Formally independent private banks change their supply of credit tothe corporate sector for the constituencies of contested political incum-bents in order to improve their reelection prospects. In return, politicians grant such banks access to the profitable market for loans to local public entities among their constituencies. We examine French credit registry data for 2007–2017 and find that credit granted to the private sector increases by 9%–14% in the year during which a powerful incumbent faces a contested election. In line with politicians returning the favor,banks that grant more credit to private firms in election years gain market share in the local public entity debt market after the election is held.Thus we establish that, if politicians can control the allocation of rents, then formal independence does not ensure the private sector’s effective independence from politically motivated distortions. |
| Keywords: | France, politics and banking; moral suasion; local government financing |
| JEL: | G21 G30 H74 H81 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:262&r=all |
| By: | Baghai, Ramin P.; Silva, Rui C; Thell, Viktor; Vig, Vikrant |
| Abstract: | The importance of skilled labor and the inalienability of human capital expose firms to the risk of losing talent in critical times. Using Swedish micro-data, we document that firms lose workers with the highest cognitive and noncognitive skills as they approach bankruptcy. In a quasi-experiment, we confirm that financial distress is driving these results: following a negative export shock caused by exogenous currency movements, talent abandons the firm, but only if the exporter is highly leveraged. Consistent with talent dependence being associated with higher labor costs of financial distress, firms that rely more on talent have more conservative capital structures. |
| Keywords: | bankruptcy; Capital Structure; Employees; financial distress; Talent |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14383&r=all |