nep-cfn New Economics Papers
on Corporate Finance
Issue of 2020‒11‒23
eleven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Anticorruption efforts and corporate fraud By Zou, Na
  2. Factor shares and the rise in corporate net lending By Behringer, Jan
  3. Finance, Gender, and Entrepreneurship: India's Informal Sector Firms By Gang, Ira N.; Natarajan, Rajesh Raj; Sen, Kunal
  4. Surviving Coronavirus scare: A journey of stock market amid a slowdown in Indian Economy By Sinha, Pankaj; Sawaliya, Priya; Sinha, Prateek
  5. Government financial support and firm productivity in Vietnam By Vu, Quang; Tran, Tuyen
  6. Start-up Acquisitions and Innovation Strategies By Schmutzler, Armin; Letina, Igor; Seibel, Regina
  7. Effect of Short-Term Debt on Financial Growth of Non-Financial Firms Listed at Nairobi Securities Exchange By David Haritone Shikumo; Oluoch Oluoch; Joshua Matanda Wepukhulu
  8. Price dividend ratio and long-run stock returns: a score driven state space model By Delle Monache, Davide; Petrella, Ivan; Venditti, Fabrizio
  9. A question of gender? How promotions affect earnings By Zucco, Aline; Bächmann, Ann-Christin
  10. Corporate Governance, Business Group Governance and Economic Development Traps By Luis Dau; Randall Morck; Bernard Yeung
  11. Intangible Value By Andrea L. Eisfeldt; Edward Kim; Dimitris Papanikolaou

  1. By: Zou, Na
    Abstract: This study examines whether and how anticorruption efforts may mitigate the risk of corporate fraud. Based on a sample of Chinese publicly listed firms over the period of 2008 to 2017, we find that anticorruption efforts reduce the likelihood of fraud commission and increase the likelihood of detection given fraud. These effects are driven by state-owned enterprises and politically connected firms through politician board members. We also find that firms located in regions with well-developed market and legal institutions are less likely to commit fraud in the post anticorruption period. Firms increasing internal monitoring by appointing local independent directors with accounting background help to explain the reduction of fraud in these regions. This study contributes to the literature on corporate wrongdoing and the design of strategies to mitigate the risk of corporate fraud in an emerging economy context.
    Keywords: Corporate fraud,Anticorruption,Corporate governance,Firm heterogeneity,Internal monitoring
    JEL: G30 G34 K22
    Date: 2020
  2. By: Behringer, Jan
    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 is that 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 position across countries.
    Keywords: Corporate saving,investment,income distribution,cost of capital
    JEL: E21 E22 E25 G30
    Date: 2020
  3. By: Gang, Ira N. (Rutgers University); Natarajan, Rajesh Raj (Sikkim University); Sen, Kunal (University of Manchester)
    Abstract: How does informal economic activity respond to increased financial inclusion? Does it become more entrepreneurial? Does access to new financing options change the gender configuration of informal economic activity and, if so, in what ways and what directions? We take advantage of nationwide data collected in 2010/11 and 2015/16 by India's National Sample Survey Office on unorganized (informal) enterprises. This period was one of rapid expansion of banking availability aimed particularly at the unbanked, under-banked, and women. We find strong empirical evidence supporting the crucial role of financial access in promoting entrepreneurship among informal sector firms in India. Our results are robust to alternative specifications and alternative measures of financial constraints using an approach combining propensity score matching and difference-in-differences. However, we do not find conclusive evidence that increased financial inclusion leads to a higher likelihood of women becoming entrepreneurs than men in the informal sector.
    Keywords: entrepreneurship, financial constraints, gender, informal sector, difference-in-differences, India
    JEL: O12 G28 L26
    Date: 2020–11
  4. By: Sinha, Pankaj; Sawaliya, Priya; Sinha, Prateek
    Abstract: The present study analyzes the journey of the Indian stock market during the period of 2019 to 2020. With the help of this study, we try to solve the puzzle that why the stock market is rising amid the slowdown in the Indian economy. Further, we also examine why only the Large-cap stocks were rising, whereas Small-cap and Mid-cap stocks declined. The study also examines the impact of Coronavirus pandemic on the Indian stock market with the help of event study from the period 22nd January 2020 to 8th June 2020. We have analyzed the impact of this Pandemic on the constituents of the BSE Sensex 30 index. We have also examined the performance of stock markets of top ten countries severely affected by COVID-19. We find the reasons behind this anomaly that why the Sensex and Nifty were rising is that investors are forward-looking and want to invest only in the large corporations amid the slowdown in the economy. The reason for this optimism is the number of measures the government has announced to revive the economy. As a result, these securities become very expensive and hence, Sensex and Nifty have gone up. Hence, the stock markets were rising purely on the sentiments of the investors and the expectation of a better future. The extent of the spread of COVID-19, combined with a high death rate, has resulted in an extraordinary situation of lockdowns being enforced across the world. Therefore, there is a lot of anxiety and fear among them that has resulted in sell-offs as everybody demands safer assets such as gold and the government 10-year treasury bills. The stock markets of ten countries which we analyzed in this study are also negatively affected by COVID-19, especially till the last week of March. With the help of event study, we concluded that the Indian stock market is negatively affected by COVID-19.
    Keywords: stock market, slowdown, Indian economy, COVID-19, event study
    JEL: G12 G14 G17
    Date: 2020–06–10
  5. By: Vu, Quang; Tran, Tuyen
    Abstract: Using the Färe-Primont index and instrumental variable fixed effect estimation for the data of small and medium-sized enterprises (SMEs), this study considers if receiving government financial support enables SMEs in Vietnam to become more productive. The paper discovers no evidence of linkage between financial support and firm productivity. However, access to financial support improves technological progress and growth in firm scale but has a negative effect on improvement in technical efficiency. The estimation results reveal that the use of productivity as an aggregated index in previous studies may hide the real effect of government support on firm productivity.
    Keywords: Financial support; productivity; small and medium-sized enterprises; Vietnam
    JEL: O3 O31 O33
    Date: 2020–01–15
  6. By: Schmutzler, Armin; Letina, Igor; Seibel, Regina
    Abstract: This paper provides a theory of strategic innovation project choice by incumbents and start-ups. We apply this theory to identify the effects of prohibiting start-up acquisitions. We differentiate between killer acquisitions (when the incumbent does not commercialize the acquired start-up's technology) and acquisitions with commercialization. A restrictive acquisition policy reduces the variety of research approaches pursued by the firms and thereby the probability of discovering innovations. Furthermore, it leads to strategic duplication of the entrant's innovation by the incumbent. These negative innovation effects of restrictive acquisition policy have to be weighed against the pro-competitive effects of preserving potential competition.
    Keywords: innovation,acquisitions,mergers,competition,start-ups
    JEL: O31 L41 G34
    Date: 2020
  7. By: David Haritone Shikumo; Oluoch Oluoch; Joshua Matanda Wepukhulu
    Abstract: A significant number of the non-financial firms listed at Nairobi Securities Exchange (NSE) have been experiencing declining financial performance which deter investors from investing in such firms. The lenders are also not willing to lend to such firms. As such, the firms struggle to raise funds for their operations. Prudent financing decisions can lead to financial growth of the firm. The purpose of this study is to assess the effect of short-term debt on financial growth of non-financial firms listed at Nairobi Securities Exchange for a period of ten years from 2008 to 2017. Financial firms were excluded because of their specific sector characteristics and stringent regulatory framework. The study is guided by Agency Theory and Theory of Growth of the Firm. Explanatory research design was adopted. The target population of the study comprised of 45 non-financial firms listed at the NSE for a period of ten years from 2008 to 2017. The study conducted both descriptive statistics analysis and panel data analysis. The result indicates that, short term debt explains 45.99% and 25.6% of variations in financial growth as measured by growth in earnings per share and growth in market capitalization respectively. Short term debt positively and significantly influences financial growth measured using both growth in earnings per share and growth in market capitalization. The study recommends that, the management of non-financial firms listed at Nairobi Securities Exchange to employ financing means that can improve the earnings per share, market capitalization and enhance the value of the firm for the benefit of its stakeholders.
    Date: 2020–11
  8. By: Delle Monache, Davide (Bank of Italy); Petrella, Ivan (Univeristy of Warwick); Venditti, Fabrizio (European Central Bank)
    Abstract: In this paper we develop a general framework to analyse state space models with time-varying system matrices, where time variation is driven by the score of the conditional likelihood. We derive a new filter that allows for the simultaneous estimation of the state vector and of the time-varying matrices. We use this method to study the time-varying relationship between the price dividend ratio, expected stock returns and expected dividend growth in the US since 1880. We find a significant increase in the long-run equilibrium value of the price dividend ratio over time, associated with a fall in the long-run expected rate of return on stocks. The latter can be attributed mainly to a decrease in the natural rate of interest, as the long-run risk premium has only slightly fallen.
    Keywords: state space models, time-varying parameters, score-driven models, equity premium, present-value models
    JEL: C32 C51 C53 E44 G12
    Date: 2020–09
  9. By: Zucco, Aline; Bächmann, Ann-Christin
    Abstract: Occupational positions can explain an important part of the differences in pay between men and women. However, a considerable Gender Pay Gap exists even within the same occupational position. In this paper, we aim at understanding the reasons for the gap within occupational positions and, therefore, investigate whether promotions lead to the same effect on earnings growth for men and women. Using administrative data, we are the first to investigate potential gender gaps in earnings increase due to a promotion in Germany. Moreover, we are the first to analyze differences in the gender gap across promotions into different occupational positions. Our results emphasize that women's earnings growth are larger than men's after being promoted to the same position. We find that this effect is mainly due to selection since we compare a highly positively selected group of women to an average group of men. Once, we add firm fixed effects, however, gender differences disappear, which highlights the role of collective agreements.
    Keywords: Gender,Promotions,Wage Growth
    JEL: J16 M51 J31 J24
    Date: 2020
  10. By: Luis Dau; Randall Morck; Bernard Yeung
    Abstract: Every firm in a developed economy relies on the mere existence of countless other firms to keep prices competitive up and down all supply chains. Without this network externality, no firm forms; and without many firms, no network forms; locking in a low-income trap. Business group governance supersedes corporate governance in most developing economies and in the rapid catch-up development phases of most high-income economies by hierarchically coordinating firms in multiple industries, internalizing this network externality. High-income economies grow via creative destruction - creative firms imposing a negative externality upon firms they destroy or disrupt, but a larger positive innovation-related externality upon the whole economy. Business groups avoid creative self-destruction, innovation by one group firm that disrupts another. Corporate governance supersedes business group governance in high-income economies to facilitate productivity growth. If business group governance does not retreat, productivity growth is impaired and a middle-income trap can result.
    JEL: B26 G3 N20 O1 P12
    Date: 2020–11
  11. By: Andrea L. Eisfeldt; Edward Kim; Dimitris Papanikolaou
    Abstract: Intangible assets are absent from traditional measures of value, despite their very large (and growing) importance in firms' capital stocks. As a result, the fundamental anchor for value that uses book assets is mismeasured. We propose a simple improvement to the classic value factor (HML^FF) proposed by Fama and French (1992, 1993). Our intangible value factor, HML^INT, prices assets as well as or better than the traditional value factor but yields substantially higher returns. This outperformance holds over the entire sample, as well as in more recent decades in which value has underperformed. We show that this is likely due to the intangible value factor sorting more effectively on productivity, profitability, financial soundness, and on other valuation ratios such as price to earnings or price to sales.
    JEL: E22 G12
    Date: 2020–11

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