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on Corporate Finance |
| By: | Amore, Mario Daniele; Schwenen, Sebastian |
| Abstract: | It is well-known that luck increases the compensation of CEOs at their current firm. In this paper, we explore how luck affects CEOs' outside options in the labor market, and the performance of firms that hire lucky CEOs. Our results show that luck at their current firm makes CEOs move to a new firm and be appointed as both CEO and chairman. Lucky CEOs tend to match with firms subject to low analyst coverage and operating in less competitive industries. Moreover, lucky CEOs are able to obtain a higher pay at the new firm (both in absolute terms and compared to new industry peers). Finally, difference-in-differences results show that hiring lucky CEOs hurts firm performance, mostly due to a surge in operating costs and a poorer usage of corporate assets. |
| Keywords: | CEO Mobility; Compensation; corporate governance; firm performance; luck |
| JEL: | D86 G34 J33 M12 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14839&r= |
| By: | Luca Benzoni; Lorenzo Garlappi; Robert S. Goldstein; Julien Hugonnier; Chao Ying |
| Abstract: | We investigate optimal capital structure and debt maturity policies in the presence of fixed issuance costs. We identify the global-optimal policy that generates the highest values of equity across all states of nature consistent with limited liability. The optimal policy without commitment provides almost as much tax benefits to debt as does the global-optimal policy and, in the limit of vanishing issuance costs, allows firms to extract 100% of EBIT. This limiting case does not converge to the equilibrium of DeMarzo and He (2019), who report no tax benefits to debt when issuance costs are set to zero at the outset. |
| Keywords: | Capital Structure; Bankruptcy; Issuance Costs; Commitment; Coase Conjecture; Credit Spreads; Asset Pricing; Trading Volume; Bond Interest Rates; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill; Liquidation |
| JEL: | G12 G32 G33 |
| Date: | 2020–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:92694&r= |
| By: | Meisenzahl, Ralf; Niepmann, Friederike; Schmidt-Eisenlohr, Tim |
| Abstract: | We show that U.S. dollar movements affect syndicated loan terms for U.S. borrowers, even for those without trade exposure. We identify the effect of dollar movements using spread and loan amount adjustments during the syndication process. Using this high-frequency, within loan variation, we find that a one standard deviation increase in the dollar index increases spreads by up to 15 basis points and reduces loan amounts and underpricing by up to 2 percent and 7 basis points, respectively. These effects are concentrated in dollar appreciations. Our results suggest that global factors reflected in the dollar determine U.S. borrowing costs. |
| Keywords: | Dollar; institutional investors; Loan pricing; Risk Taking; syndicated loans |
| JEL: | F15 G15 G21 G23 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14892&r= |
| By: | Duc Khuong Nguyen; Dinh-Tri Vo |
| Abstract: | We investigate the relationship between Enterprise Risk Management (ERM) adoption and solvency for publicly listed insurers in the European Union. Our results, which control for endogeneity problem, show that ERM-adoption insurers experience a decrease in their solvency level, which may trigger their financial vulnerability in the case of unexpected shocks. Firmspecific characteristics such as leverage, ROA, combined-ratio and business type are also found to significantly increase the EU insurers? solvency, whereas the impact of firm size and age is insignificant. Moreover, insurers that have adopted the ERM share the common characteristics of higher performance, higher leverage, bigger size, and more diversified businesses. Finally, the demand of the market is an important factor of ERM adoption and insurance solvency. |
| Keywords: | risk management, ERM, insurance, solvency |
| JEL: | G22 G31 G34 |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2021-010&r= |
| By: | Ralf R. Meisenzahl; Friederike Niepmann; Tim Schmidt-Eisenlohr |
| Abstract: | We show that U.S. dollar movements affect syndicated loan terms for U.S. borrowers, even for those without trade exposure. We identify the effect of dollar movements using spread and loan amount adjustments during the syndication process. Using this high-frequency, within loan variation, we find that a one standard deviation increase in the dollar index increases spreads by up to 15 basis points and reduces loan amounts and underpricing by up to 2 percent and 7 basis points, respectively. These effects are concentrated in dollar appreciations. Our results suggest that global factors reflected in the dollar affect U.S. borrowing costs. |
| Keywords: | Loan pricing; Syndicated loans; Dollar; Institutional investors; Risk taking |
| JEL: | F15 G15 G21 G23 |
| Date: | 2021–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1312&r= |
| By: | Segol, Matthieu; Kolev, Atanas; Maurin, Laurent |
| Abstract: | Firm investment, Intangible assets, Loan terms, Credit constraint, Survey data, Instrumental variable approachUsing European firm-level data from a new survey, the EIBIS, we document the effect of bank loan terms on investment in intangible assets of non-financial corporations. We show that quantity rationing is a primary determinant borrowers' propensity to invest in intangible assets. Provided that firms are satisfied with their loan size; unfavorable rate, maturity and collateral requirements have no significant effects on the probability to invest in intangible assets. These terms however, do have a negative impact on the probability to invest in multiple intangible assets, undermining the ability of firms to benefit from the complementarities of these assets. We document the effect of loan conditions on investment intensity, as well. The effect of quantity rationing on the amount invested in intagible assets is found to be limited. Other loan conditions however, like cost, maturity and collateral requirements, have significant effect on investment intensity. |
| Keywords: | Firm investment,Intangible assets,Loan terms,Credit constraint,Survey data,Instrumental variable approach |
| JEL: | G21 D82 O30 H81 C35 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:202105&r= |
| By: | Kuzmina, Olga; Melentyeva, Valentina |
| Abstract: | We use data across European corporate boards to investigate the effects of quota-induced female representation, under minimal possible identification assumptions. We find that having more women in board causally increases Tobin's Q, despite some negative effects on operating performance and more likely employment downsizings. We interpret this evidence as firms scaling down inefficient operations. Our results highlight that gender quotas are not necessarily a costly way of promoting equality. |
| Keywords: | Gender diversity; Gender quota; Performance; women in boards |
| JEL: | D22 G32 J16 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14942&r= |
| By: | Benavente, Jose Miguel (Inter-American Development Bank (IADB)); Zuniga, Pluvia (UNU-MERIT) |
| Abstract: | The role of market competition on firm innovation remains a controversial policy question, especially in the context of developing countries. This paper presents new empirical evidence about the impact of market competition on firm innovation engagement in Colombian and Chilean manufacturing industries. We correct for the endogeneity of market competition using instruments proxying entry costs and policy interventions (i.e. competition decisions and entry law reforms), our results are like those of developed countries. Market competition increases firm propensity to invest in innovation in manufacturing enterprises and this relationship is linear in Chilean while in Colombian industries it takes the form of an inversed-U shape relation. The impact of competition is decreasing with the level of sector asymmetry -as preconised in the literature, while the impact of firm distance to the frontier affects firm innovation engagement differently in the two countries. In Chile, competition raises innovation incentives for the third and fourth productivity quartiles while no impact is found for firms in the first (bottom) two quartiles. In contrast, in Colombia market competition raises innovation engagement across regardless their firm productivity position but effects are stronger in the medium range (second and third quartiles). Our main results are robust to controlling for past innovation engagement, import competition and business dynamics. |
| Keywords: | Market Competition, Innovation, Technology Purchasing, Productivity, Latin American Firms |
| JEL: | O32 D41 O47 D24 |
| Date: | 2021–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2021024&r= |
| By: | Zhiqiang Lu; Junjie Wu; Hongyu Li; Duc Khuong Nguyen |
| Abstract: | This paper investigates the impact of local banks and digital financial inclusion on small and medium enterprise (SME) financing constraints. Using data of Chinese SMEs for the period 2007?2017, our robust results find (1) SMEs financing constraints are negatively associated with the proportion of local bank branches and the degree of digital financial inclusion; (2) the effect of local banks is more pronounced for small, transparent, and firms in the regions less dependent on bank credit; and (3) local bank branches and digital financial inclusion have a substitution effect on alleviating SMEs financial constraints. The findings shed light on how digital finance technologies could influence traditional SME-bank relationship and have important policy and managerial implications. |
| Keywords: | local banks; digital financial inclusion; financing constraints; SMEs; China. |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2021-008&r= |
| By: | Buss, Adrian; Sundaresan, Savitar |
| Abstract: | We identify a novel economic mechanism through which passive ownership positively affects informational efficiency in the cross-section of firms. Passive ownership lowers the cost of capital, encouraging firms to invest more aggressively in risky growth opportunities. The resultant higher cash flow volatility induces active investors to acquire more information, implying higher price informativeness for firms with high passive ownership. These firms also have higher stock prices and higher stock-return variances. In aggregate, a rise in passive ownership can also improve informational efficiency if uninformed investors are crowded out. We document that our mechanism applies more generally to benchmarked institutional investors. |
| Keywords: | asset allocation; Asset Pricing; Informational efficiency; passive investing; Risk Taking |
| JEL: | G11 G14 G23 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14843&r= |
| By: | Denny IRAWAN; OKIMOTO Tatsuyoshi |
| Abstract: | Examining the relationship between environmental, social, and governance (ESG) performance and firm value has attracted significant attention, as ESG investing has grown rapidly over the last decade. In this study, we examine this issue by investigating the structural change in the effects of ESG scores and firm value, as proxied by Tobin's Q. The results indicate that ESG scores have a more positive impact on Tobin's Q only after 2011, and social and controversial pillars are the most significant in explaining firm valuation. Concerning firm investment, our results also suggest that firms with better ESG have more investment opportunities through higher Tobin's Q. Given these results, this study also investigates whether firms with higher ESG performance have a higher tendency to overinvest. The overall results suggest that although ESG performance has significant positive effects on the firms' opportunity to invest after 2011, this does not necessarily imply that firms with higher ESG performance have a higher tendency to overinvest. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:21033&r= |
| By: | Matias Braun; Francisco Marcet; Claudio E. Raddatz K. |
| Abstract: | We provide international empirical evidence that periods of rapid expansion in credit—credit booms—lead to a tradeoff between a relaxation of financial constraints and a worsening of capital allocation. This tradeoff is stronger across small, financially constrained, and more innovative firms, as well as for firms in less tangible industries. In advanced economies the misallocation effect is stronger than the relaxation of financial constraints, and the opposite is true among emerging markets. Credit booms with larger capital misallocation are associated with a higher probability of experiencing a banking crisis and with poor economic and financial performance after the boom. |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:udc:wpaper:wp519&r= |