nep-cfn New Economics Papers
on Corporate Finance
Issue of 2021‒02‒22
eleven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. COVID-19 and Precautionary Corporate Cash Holdings: Evidence from Japan By Honda, Tomohito; Uesugi, Iichiro
  5. Market sentiment, financial fragility, and economic activity: The role of corporate securities issuance By Dieckelmann, Daniel
  6. COVID-19 and College Academic Performance: A Longitudinal Analysis By Rodríguez-Planas, Núria
  7. The Impact of the Bank of Japan’s Exchange Traded Fund and Corporate Bond Purchases on Firms’ Capital Structure By Linh, Nguyen Thuy
  8. OIL PRICE EXPOSURE OF CEE FINANCIAL COMPANIES By Alexandra Horobet; Georgiana Maria Vrinceanu; Lucian Belascu
  9. Gender diversity in corporate boards: Evidence from quota-implied discontinuities By Olga Kuzmina; Valentina Melentyeva
  10. A Leverage-Based Measure of Financial Stability By Adrian, Tobias; Borowiecki, Karol Jan; Tepper, Alexander
  11. Corporate Social Responsibility and Corporate Governance: A cognitive approach By Rania B\'eji; Ouidad Yousfi; Abdelwahed Omri

  1. By: Honda, Tomohito; Uesugi, Iichiro
    Abstract: This study examines how listed firms have managed their cash holdings since the outbreak of the COVID-19 crisis, using quarterly data on publicly-traded firms in Japan. After providing an overview of developments in cash holdings since the start of the crisis, we focus on the precautionary motive for corporate cash holdings and examine the role of firms’ cash flow and volatility therein in firms’ cash holdings to find the following: (1) corporate cash holdings have increased rather than decreased since the start of the crisis; (2) an increase in firms’ cash flow has a positive impact on their cash holdings during normal times, and the sensitivity of cash holdings to cash flows was more pronounced during the first three months of the crisis; (3) firms facing higher sales volatility held more cash in the second three-month period following the start of the crisis; and (4) the cash flow sensitivity of financially constrained firms’ cash holdings during the crisis period increased more than that of unconstrained firms. Overall, the COVID-19 crisis has had a substantial impact on corporate cash management strategies and the results are consistent with the precautionary motive theory for cash holdings.
    Keywords: Cash holdings, Precautionary motive, COVID-19
    JEL: G31 G32
    Date: 2021–02
  2. By: Yasir Mehmood (MS-Banking and Finance, department of management sciences, COMSATS University Islamabad-Abbottabad Campus, Pakistan.); Syed Amjad Farid Hasnu (Professor, department of management sciences, COMSATS University IslamabadAbbottabad Campus, Pakistan.)
    Abstract: A large discrepancy exists on the use of the investment–cash flow sensitivity as a measure of financing constraints of firms. We examine this discrepancy by considering business group affiliated firms in Pakistan. The study includes 58 group affiliated firms and 32 non-group affiliated firms listed on the Karachi Stock Exchange during 2006-2010. Results of OLS and 2SLS shows a positive investment-cash flow sensitivity for business group affiliated firms and negative investment cash flow sensitivity for nongroup affiliated firms. Additional tests accordingly express that investment-cash flow sensitivity of Pakistani group affiliated firms is significantly lower to non-group affiliated firms.
    Keywords: Investment-Cash flow, 2SLS, Financing constraints, Pakistani Business group Firms
    JEL: M13 M21
    Date: 2020–04
  3. By: Kanwal Ikqbal Khan (Institute of Business & Management, University of Engineering & Technology, Lahore, Pakistan); Ayesha Mushtaq (Institute of Business & Management, University of Engineering & Technology, Lahore, Pakistan E)
    Abstract: Corporate violations have drawn the attention of scholars and business analysts in the last decade. Although regulations regarding CSR practices prevail, yet organizations are reluctant in their implementation as it is perceived costly, thereby neglecting its long-term institutional benefits. The current study bridges the gap between application of CSR practices in a firm and its impact on market credibility. Further, the study also addresses seven dimensions of CSR in measuring its magnitude to retain the market credibility, reducing information asymmetry and enhancing a firm’s loan accessibility. The study focuses on the non-financial firms listed at Pakistan Stock Exchange from 2009 till 2018. The results confirm that CSR practices enhance firms’ credibility. Further, the comparative analysis demonstrates that family firms that are older, bigger in size, maintain low cash holdings and financial leverage, are risk aversive, having high asset tangibility due to their involvement in CSR practices than non-family firms. Managers and shareholders may use these results to publicize CSR in order to create more opportunities for financial accessibi
    Keywords: Corporate Social Responsibility Practices, Market credibility, Information Asymmetry and Family firms
    JEL: G32 I31 L25
    Date: 2020–06
  4. By: Arzu Hajiyeva (World Economy, Azerbaijan State Economics University, Baku, Azerbaijan)
    Abstract: Modern trends in economic development, characterized by increased competition and globalization of markets, lead to a significant increase in mergers and acquisitions (M&A). Companies from emerging capital markets are beginning to play an increasingly significant role in these processes. It is very necessary to identify whether M&A deals create value for companies or are they just a convenient way for management to expand and strengthen its position. The article presents the results of a study of the effectiveness of transactions for the transfer of corporate control on a sample of companies from the BRICS countries in the period from 2009 to 2012. Based on the method of analysis of financial statements, we found an increase in the operating indicators of companies (EBITDA / Sales) as a result of mergers and acquisitions two years after their completion. The main determinants of the effectiveness of transactions initiated by companies from the BRICS countries are: deal size of acquitting company, friendly focus of the transaction and the stake share.
    Keywords: Mergers and acquisitions, BRICS, capital movement, emerging markets
    JEL: G34 F21
    Date: 2020–12
  5. By: Dieckelmann, Daniel
    Abstract: Using new quarterly U.S. data for the past 120 years, I show that sudden reversals in equity and credit market sentiment approximated by several measures of corporate securities issuance are highly predictive of banking crises and recessions. Deviations in equity issuance from historical averages also help to explain economic activity over the business cycle. Crises and recessions often occur independently of domestic leverage, making the credit-to-GDP gap a deficient early-warning indicator historically. The fact that equity issuance reversals predict banking crises without elevated private credit levels, suggests that changes in investor sentiment can trigger financial crises even in the absence of underlying banking fragility.
    Keywords: Corporate securities issuance,market sentiment,nancial fragility,banking crises,recessions
    JEL: E32 G01 G32 G41 N11 N12
    Date: 2021
  6. By: Rodríguez-Planas, Núria (Queens College, CUNY)
    Abstract: Using an unbalanced panel of close to 12,000 academic records, and difference-in-differences models and event study analyses with individual fixed effects, we evaluate the impact of the COVID-19 pandemic on lower-income students' academic performance during the spring 2020 semester relative to their higher-income peers. We find a differential effect by students' pre-COVID-19 academic performance. Top-performing lower-income students experienced a decrease in both grades (5% lower) and earned credits (11% fewer) during the spring 2020 semester relative to their higher-income peers. In contrast, lower-income students in the bottom quartile of the fall 2019 cumulative GPA distribution outperformed their higher-income peers with a 9% higher spring 2020 GPA. After ruling out alternative mechanisms, we find suggestive evidence from survey data that top-performing lower-income students' lower relative performance may be driven by greater challenges with online learning and a disproportionate intake of incomplete courses relative to their higher-income peers. Among bottom-performing lower-income students, greater concerns with maintaining financial aid than their higher income peers may have led them to a higher use of the credit/no credit grade option instead of a letter grade.
    Keywords: COVID-19, income and performance inequality, unbalanced panel of academic records, difference-in-difference models and event analysis
    JEL: I24 I23 I22
    Date: 2021–02
  7. By: Linh, Nguyen Thuy
    Abstract: This study examines the effects of the Bank of Japan’s (BOJ’s) exchange traded fund (ETF) and corporate bond (CB) purchases on the capital structure of Japanese listed firms. The results suggest that following the expansion of ETF purchases, treatment firms actively issued more stocks and became less dependent on bond debt and bank loans than control firms, resulting in a lower level of leverage. In contrast, following the introduction of CB purchases, firms whose bonds were eligible for CB purchases issued more corporate bonds, while reducing long-term bank debt by a smaller extent, thus they have a higher leverage ratio than ineligible firms. Moreover, evidence further suggests the existence of an interaction between these two purchasing programs. These results indicate that the BOJ’s ETF and CB purchases have had a considerable impact, implying that the supply of capital plays an important role in determining firms’ capital structure.
    Keywords: Unconventional monetary policy, Risk asset purchases, Difference in differences, Capital structure, Supply-side effects
    JEL: E52 E58 G32
    Date: 2021–01
  8. By: Alexandra Horobet (The Bucharest University of Economic Studies, Romania); Georgiana Maria Vrinceanu (The Bucharest University of Economic Studies, Romania); Lucian Belascu (“Lucian Blaga†University of Sibiu, Romania)
    Abstract: In recent years an alarming situation concerning the global financial markets is represented by the fact that Brent crude oil price and stock prices created the impression that they are strongly correlated. Besides, crude oil represents an indispensable and critical resource for the world economy and European Union member countries are net oil importers. In this general framework, the main purpose of this paper is to investigate the exposure to oil price risk of financial companies listed on stock exchanges from Central and Eastern European countries using monthly datasets covering the period between January 2011 and December 2018. The empirical analysis includes financial companies from seven economies from Central and Eastern Europe, all EU members and oil importers: Croatia, Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia. We use Brent crude oil prices, companies’ stock returns, local stock market indices, the Dow Jones Europe Financials Index and foreign exchange rates of the domestic currencies against the US dollar, as well as an index that capture the financial sector – related stress (CLIFS) in order to shed light on the idiosyncrasies of the oil price – returns relationship. The relevance of financial companies’ exposures to oil price changes is identified using the panel data methodology in a traditional OLS structure, as well as in a dynamic ARDL panel estimation that capture the longrun versus the short-run exposure of CEE financial companies to oil price risk. Our results suggest that oil price fluctuations impact the stock prices of financial companies from CEE countries, but the link between stock return and oil price risk has some specificities and is mostly observable on the long run. The oil price changes have a negative impact on companies’ stock returns, thus proving that they should be understood as a risk factor for the financial sector. At the same time, our results indirectly highlight the ubiquitous exposure of CEE economies to market risk factors and the worrying role of economy-wide risk transmitter of the financial sector.
    Keywords: Oil price, Exposure, Central and Eastern Europe, Financial sector
    JEL: F23 G15 G32
    Date: 2019–12
  9. By: Olga Kuzmina (New Economic School); Valentina Melentyeva (ZEW and University of Mannheim)
    Abstract: Using data across European corporate boards, we investigate the effects of quota-induced female representation on firm value and operations. We use quasi-random assignment induced by rounding and find that promoting gender equality is aligned with shareholder interests. This result is in stark contrast with previous work finding large negative effects of women on firm value. This discrepancy arises because these papers considered firms with different pre-quota shares of women to be good counterfactuals to each other. In our data, we see that such firms grew differently already before the regulation, resulting in a negatively biased estimate of the effect. We overcome this bias by considering sharp increases that arise whenever percentage-based regulation applies to a small group of people. We further show that these large positive effects of female directors are not explained by increased risk-taking or changes in board characteristics, but rather by scaling down inefficient operations and empire-"demolishing".
    Keywords: Gender diversity, gender quota, board of directors, firm performance
    JEL: J16 J48 G34 G38 C18
    Date: 2021–02
  10. By: Adrian, Tobias (Monetary and Capital Markets Department); Borowiecki, Karol Jan (Department of Business and Economics); Tepper, Alexander (Columbia University)
    Abstract: The size and the leverage of financial market investors and the elasticity of demand of unlevered investors define MinMaSS, the smallest market size that can support a given degree of leverage. The financial system's potential for financial crises can be measured by the stability ratio, the fraction of total market size to MinMaSS. We use that financial stability metric to gauge the buildup of vulnerability in the run-up to the 1998 Long-Term Capital Management crisis and argue that policymakers could have detected the potential for the crisis.
    Keywords: Leverage; financial crisis; financial stability; minimum market size for stability; MinMaSS; stability ratio; Long-Term Capital Management; LTCM
    JEL: G01 G10 G20 G21
    Date: 2021–02–17
  11. By: Rania B\'eji (UM, MRM); Ouidad Yousfi (UM, MRM); Abdelwahed Omri
    Abstract: This chapter aims to critically review the existing literature on the relationship between corporate social responsibility (CSR) and corporate governance features. Drawn on management and corporate governance theories, we develop a theoretical model that makes explicit the links between board diversity, CSR committees' attributes, CSR and financial performance. Particularly, we show that focusing on the cognitive and demographic characteristics of board members could provide more insights on the link between corporate governance and CSR. We also highlight how the functioning and the composition of CSR committees, could be valuable to better understand the relationship between corporate governance and CSR.
    Date: 2021–02

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