nep-cfn New Economics Papers
on Corporate Finance
Issue of 2021‒07‒19
eighteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Financial Crisis, Corporate Governance and the Value of Cash Holdings By Tut, Daniel
  2. Does Stock Market Listing Boost or Impede Corporate Investment? By Ibrahim Yarba; Ahmet Duhan Yassa
  3. Capital Reallocation and Firm-Level Productivity Under Political Uncertainty By Tut, Daniel; Cao, Melanie
  4. Graduation of Initial Public Offering Firms from Junior Stock Markets: Evidence from the Tokyo Stock Exchange By HONJO Yuji; KURIHARA Koki
  5. Impacts of Capital Structure and Dividend Policy on the Financial Performance of Listed Companies on Vietnamese Stocks Market By Vu, Loan T.; Vu, Anh T. H.; Nguyen, Thao T. P.
  6. Financial Ratios Analysis of 7-Elaven: An Analysis of Five Years Financial Statement By ULLAH, NAZIM
  7. Leverage and Cash Dynamics By Harry DeAngelo; Andrei S. Gonçalves; René M. Stulz
  8. Risk Perceptions, Board Networks, and Directors’ Monitoring By Wenzhi Ding; Chen Lin; Thomas Schmid; Michael S. Weisbach
  9. Shareholder Liability and Bank Failure By Felipe Aldunate; Dirk Jenter; Arthur Korteweg; Peter Koudijs
  10. The Market for CEOs By Peter Cziraki; Dirk Jenter
  11. The Impact of Securities Regulation on the Information Environment around Stock-Financed Acquisitions By Gilberto Loureiro; Sónia Silva
  12. Delayed Creative Destruction: How Uncertainty Shapes Corporate Assets By Murillo Campello; Gaurav Kankanhalli; Hyunseob Kim
  13. Participation in setting technology standards and the implied cost of equity By Xin Deng; Cher Li; Simona Mateut
  14. Performance Impact of e-business use in Indonesian Small and Medium Enterprises (SMEs) By , Nabila
  15. The carrot and the stick: Bank bailouts and the disciplining role of board appointments By Mücke, Christian; Pelizzon, Loriana; Pezone, Vincenzo; Thakor, Anjan V.
  16. Corporate Tax Avoidance of Malaysian Public Listed Companies: A Multi-Measure Analysis By Nirmala Devi Mohanadas
  17. An approach to the design of financial instruments for food system projects By Rogozinski, Jacques; Moncada, Nelly Ramírez
  18. Determining Capital Structure within Arbitrage-Based Production Framework By Zhao, Guo

  1. By: Tut, Daniel
    Abstract: We study how corporate governance impacts the deployment of internal capital when external financing is costly. Using the 2008 financial crisis as a quasi-natural experiment and difference-in-difference estimation strategy, we show that the propensity to invest out of pre-crisis cash reserves is highest for weakly-governed firms. Weakly-governed firms finance additional investment using short-term debt and allocate a higher fraction of post-crisis excess cash towards building up cash balances. Contrastingly, well-governed firms have a higher propensity to allocate excess cash towards increasing the value of pledgeable assets and use accumulated cash balances to reduce short-term debt financing. Well-governed firms trade-off the cost of cash holdings against the benefit of minimizing future demand for costly external financing; effectively hedging against foregoing profitable future investment opportunities. Overall, optimal amount of internal capital increases with the cost of external financing
    Keywords: Financial Crisis, Corporate Governance, Cash, Leverage, Pledgeable Assets
    JEL: G01 G1 G18 G30 G31 G32 G35
    Date: 2021–05–28
  2. By: Ibrahim Yarba; Ahmet Duhan Yassa
    Abstract: This paper investigates investment behavior across public and privately held firms using a novel firm-level dataset. We use coarsened exact matching to construct a control group of firms with which we compare listed firms before and after listing in a difference-in-differences framework. Results reveal that stock market listing spurs growth significantly in terms of sales, employment and assets for manufacturing firms. Furthermore, results indicate that manufacturing listed firms invest more than their non-listed counterparts. In addition, their investment decisions are significantly more sensitive to changes in investment opportunities, and they respond more aggressively. These results constitute a rejecting evidence against existence of short-termism for manufacturing listed firms in Turkey. Moreover, these findings provide significant support for the arguments regarding the advantages of public firms in terms of better access to external finance and enhanced corporate structure, which enables them to fulfill growth potential much easily, and highlight the importance of policies that should be implemented to deepen the Turkish capital markets.
    Keywords: Stock market listing, Corporate investment, Firm growth, Short-termism, Coarsened exact matching, Difference-in-differences
    JEL: C23 D22 G31 G32 L25
    Date: 2021
  3. By: Tut, Daniel; Cao, Melanie
    Abstract: Does policy uncertainty affect productivity? Policy uncertainty creates delays as firms await new information about prices, costs and other market conditions before committing resources. Such delays can have real consequences on firms’ productivity and corporate decisions. First, we find that economic policy uncertainty has a negative impact on firm-level productivity. Second, debt magnifies the adverse effects of policy uncertainty on productivity, but access to external financing during periods of significant policy uncertainty shocks has a positive impact on firm� level productivity. Third, Policy uncertainty is positively related to cash holdings but this effect is mostly driven by highly productive firms and by firms with higher levels of irreversible investments since these firms face higher opportunity costs in future states. The three findings are robust to various specifications and provide an affirmative answer to the opening question.
    Keywords: Policy Uncertainty, Capital Reallocation, TFP, Leverage, Cash, Business Cycles
    JEL: G0 G2 G28 G3 G31 G32 G38
    Date: 2021–06–28
  4. By: HONJO Yuji; KURIHARA Koki
    Abstract: For young and innovative firms, an initial public offering (IPO) is crucial for securing financing for research and development (R&D) investment. This study explores the post-IPO behavior and performance of firms listed on the two junior stock markets of the Tokyo Stock Exchange (TSE): Market of High-Growth and Emerging Stocks (MOTHERS) and JASDAQ. Using a sample of 943 non-financial firms listed on these markets from November 1999 to December 2019, we find that approximately 40% of IPO firms graduate to the TSE main markets, while more than 10% of IPO firms delist from the TSE junior markets. The results reveal that firms listed on the TSE junior markets increase financing cash flow by accessing public equity markets. Moreover, using a survival analysis approach, we examine the factors associated with the time to graduation to the TSE main markets. As a result, we find that young IPO firms and those with high R&D intensity are less likely to graduate from the TSE junior markets. In addition, firms with higher market capitalization are more likely to graduate to the TSE main markets. The results also reveal that listing regulations on graduation to the TSE main markets within 10 years, which were introduced only to MOTHERS, accelerate the graduation of IPO firms when the sample is restricted to firms listed before the announcement of the 10-year rule. Furthermore, we provide evidence that IPO firms that ultimately graduate to the TSE main markets show better post-IPO performance.
    Date: 2021–06
  5. By: Vu, Loan T.; Vu, Anh T. H.; Nguyen, Thao T. P.
    Abstract: This study is taken to describe the relationship between the levels of debt, dividend policy and the performance of firms listed in Vietnamese stock market. The dividend policy is proxied by the dividend yield while firm’s performance is measured by ROE, ROA, and P/E. The total number of observations is 552, collecting from 92 listed companies on Hochiminh Stock Exchange during 2012 and 2019. The analysis results from generalized least squares (GLS) models report that the choice of firm’s performance proxy affects the relationship between firm’s performance and leverage as well as dividend policy. While leverage has positive impact on ROE and ROA, it has negative impact on P/E. In contrast, dividend yield ratio is negatively correlated with ROA and P/E but positively correlated with ROE. However, the impact of debt levels on firm’s performance is independent with the choice of leverage proxy. The findings of this research are expected to provide better understanding about the connection between debt, dividend and performance of the firm that can support the managers to make relevant decisions.
    Date: 2021–06–09
    Abstract: The purpose of the study is to analyse the financial ratios of the 7-Eleven Malaysia Sdn Bhd. A number of financial ratios are estimate and analyse. For example, profitability ratios, liquidity ratios, solvency ratios, working capital management, and stock market performance. Data is collected from the Annual Report of the 7-Eleven. The study concludes that the liquidity ratios of 7 eleven were not efficient at all. The gearing ratio trend indicates that 7 eleven suffered a huge risk of going bankrupt in 2016 and 2017, it just managed to do fine in 2018. Moreover, there was an extremely low return on investment recorded for all the five years. Hence, keeping all the findings in consideration, it can be said that even though 7 eleven is doing good in terms of profitability, it is still not a good idea to invest in the company.
    Keywords: 7-Eleven, profitability ratios, liquidity ratios, solvency ratios, working capital management, stock market performance
    JEL: G23
    Date: 2021
  7. By: Harry DeAngelo; Andrei S. Gonçalves; René M. Stulz
    Abstract: This paper documents new and empirically important interactions between cash-balance and leverage dynamics. Cash ratios typically vary widely over extended horizons, with dynamics remarkably similar to (and complementary with) those of capital structure. Leverage and cash dynamics interact approximately as predicted by the internal-versus-external funding regimes in Myers and Majluf (1984). Leverage is quite volatile when cash ratios are stable and vice-versa, while net-debt ratios are almost always volatile. Most firms increase leverage sharply as cash balances (internal funds) become scarce. Capital structure models that extend Hennessy and Whited (2005) to include cash-balance dynamics explain some, but not all, aspects of the observed relation between cash squeezes and leverage increases.
    JEL: G31 G33 G35
    Date: 2021–06
  8. By: Wenzhi Ding; Chen Lin; Thomas Schmid; Michael S. Weisbach
    Abstract: What makes independent directors perform their monitoring duty? One possible reason is that they are worried about being sanctioned by regulators if they do not monitor sufficiently well. Using unique features of the Chinese financial market, we estimate the extent to which independent directors’ perceptions of the likelihood of receiving a regulatory penalty affect their monitoring. Our results suggest that they are more likely to vote against management after observing how another director in their board network received a regulatory penalty related to negligence. This effect is long-lasting and stronger if the observing and penalized directors share the same professional background or gender and if the observing director is at a firm that is more likely to be penalized. These results provide direct evidence suggesting that the possibility of receiving penalties is an important factor motivating directors.
    JEL: G34 G38
    Date: 2021–06
  9. By: Felipe Aldunate; Dirk Jenter; Arthur Korteweg; Peter Koudijs
    Abstract: Does enhanced shareholder liability reduce bank failure? We compare the performance of around 4,200 state-regulated banks of similar size in neighboring U.S. states with different liability regimes during the Great Depression. The distress rate of limited liability banks was 29% higher than that of banks with enhanced liability. Results are robust to a diff-in-diff analysis incorporating nationally-regulated banks (which faced the same regulations everywhere) and are not driven by other differences in state regulations, Fed membership, local characteristics, or differential selection into state-regulated banks. Our results suggest that exposing shareholders to more downside risk can successfully reduce bank failure.
    Keywords: limited liability, bank risk taking, financial crises, Great Depression
    JEL: G21 G28 G32 N22
    Date: 2021
  10. By: Peter Cziraki; Dirk Jenter
    Abstract: We study the market for CEOs of large publicly-traded US firms, analyze new CEOs’ prior connections to the hiring firm, and explore how hiring choices are determined. Firms are hiring from a surprisingly small pool of candidates. More than 80% of new CEOs are insiders, defined as current or former employees or board members. Boards are already familiar with more than 90% of new CEOs, as they are either insiders or executives who directors have previously worked with. There are few reallocations of CEOs across firms – firms raid CEOs of other firms in only 3% of cases. Pay differences appear too small to explain these hiring choices. The evidence suggests that firm-specific human capital, asymmetric information, and other frictions have first-order effects on the assignment of CEOs to firms.
    Keywords: CEO labor markets, CEO-firm matching, assignment models, CEO turnover, CEO compensation
    JEL: D22 G34 J23 M12 M51
    Date: 2021
  11. By: Gilberto Loureiro (University of Minho, School of Economics and Management & NIPE); Sónia Silva (NIPE, University of Minho)
    Abstract: We investigate the effects of securities regulation, enacted by the European Union (EU) (namely,the Transparency Directive - TPD) to improve the quality of financial reporting and disclosure, on the information environment around stock-financed acquisition announcements. EU directives comprised in the Financial Services Action Plan aim to improve the information quality that flows to investors, which may help reduce the adverse selection discount when stock is used as the method of payment in Mergers and Acquisitions (M&As). We use a difference-in-differences methodology and document a significant increase in announcement returns of stock-paid acquisitions by European acquirers after the change in regulation. We also find that this result accrues essentially to companies with better firm-specific information quality and companies domiciled in EU countries with better institutional quality and shareholder protection. Our results highlight how the impact of the same regulation may differ depending on country and firm-level attributes associated with the information environment.
    Keywords: Securities Regulation; Mergers & Acquisitions; Earnings Management; Information Asymmetry, Transparency Directive; European Union
    JEL: F30 G15 G30 G34 G38
    Date: 2021
  12. By: Murillo Campello; Gaurav Kankanhalli; Hyunseob Kim
    Abstract: We show how uncertainty shapes the asset allocation, composition, productivity, and value of capital-intensive firms. We do so using detailed, near-universal data on shipping firms’ new orders, secondary-market transactions, and demolition of ships. Firms curtail both the acquisition and disposal of vessels in response to heightened uncertainty. The mechanism operates primarily through cuts in new ship orders and demolition of older ships — decisions that are costlier to reverse vis-à-vis deals in the used ship market. These dynamics are more pronounced when secondary ship markets are illiquid, as firms face stronger incentives to delay their decisions. The rise of Somali pirate attacks in 2009–2011 is used as a shock to well-defined shipping sectors to corroborate our findings. Critically, uncertainty prompts firms to concentrate their fleets into narrower, less productive portfolios, leading to value losses. Our work is novel in showing that uncertainty hampers "creative destruction," slowing both the adoption of innovation embodied in new capital and the disposal of old capital.
    JEL: D22 D25 G31
    Date: 2021–06
  13. By: Xin Deng; Cher Li; Simona Mateut
    Abstract: This paper empirically investigates the financial market’s reaction to firms’ participation in developing standards coordinated by Standard Setting Organizations (SSOs). We present the first causal evidence on the influence of SSO membership over a firm’s implied cost of equity capital - the discount rate applied by investors to its expected future cash flows. Our analysis utilizes a panel of 3,350 U.S. public firms and their memberships in 183 SSOs operating in Information and Communications Technologies (ICT) fields between 1996 and 2014. We find that participation in SSOs results in a significantly lower cost of equity for member firms, using exogenous variations from SSO closures and instrumental variables. This reduction is more pronounced for a firm’s first SSO membership, in ICT firms, among members of most influential SSOs and in certain technology domains. We empirically document the contingent role of three potential mechanisms identified by our conceptual framework - technological uncertainty, market uncertainty and information environment – through which SSO membership can affect financial outcomes.
    Keywords: cost of equity, uncertainty, technology standards, Standard Setting Organizations (SSOs)
    Date: 2020
  14. By: , Nabila
    Abstract: A new business platform is a must for companies that are disrupting new media technology, especially during the Covid 19 era. However, many incumbent companies are less able to keep up with changing business trends. Anticipate all changes in the competitive climate in the digital era in carrying out the company transformation program along with the implementation of good corporate governance values to avoid oral hazards and a greater risk of failure. proposes an integrated framework that investigates interrelationships between contextual factors that influence e-business use and consequently its impact on enterprise performance among small and medium enterprises (SMEs).
    Date: 2021–06–12
  15. By: Mücke, Christian; Pelizzon, Loriana; Pezone, Vincenzo; Thakor, Anjan V.
    Abstract: We empirically examine the Capital Purchase Program (CPP) used by the US gov- ernment to bail out distressed banks with equity infusions during the Great Recession. We find strong evidence that a feature of the CPP - the government's ability to ap- point independent directors on the board of an assisted bank that missed six dividend payments to the Treasury - helped attenuate bailout-related moral hazard. Banks were averse to these appointments - the empirical distribution of missed payments exhibits a sharp discontinuity at five. Director appointments by the Treasury led to improved bank performance, lower CEO pay, and higher stock market valuations.
    Keywords: Bank Bailout,TARP,Capital Purchase Program,Dividend Payments,Board Appointments,Bank Recapitalization
    JEL: G01 G2 G28 G38 H81
    Date: 2021
  16. By: Nirmala Devi Mohanadas (Faculty of Business, Multimedia University, Malaysia Author-2-Name: Abdullah Sallehhuddin Abdullah Salim Author-2-Workplace-Name: Faculty of Management, Multimedia University, Persiaran Multimedia, 63100 Cyberjaya, Selangor, Malaysia Author-3-Name: Suganthi Ramasamy Author-3-Workplace-Name: Faculty of Business, Multimedia University, 75450 Air Keroh, Melaka, Malaysia 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 - Even with corporate tax avoidance being extensively studied, it is still lacking a single universal measurement. There is also a dearth of studies focusing on developing economies such as Malaysia. This study, therefore, analyses the correlations between effective tax rates (ETRs) and book-tax differences (BTDs), which are the most commonly used measures of corporate tax avoidance on Malaysian listed companies for ten years. Methodology/Technique - This study performs distribution, frequency, and correlation analyses on the ETRs and BTDs of the Top 300 companies listed in the Main Market of Bursa Malaysia based on market capitalization. The data used spans a ten-year period from 2010 to 2019. Findings - The results of the distribution, frequency, and correlation analyses show that both these measures are closely related gauges of corporate tax avoidance. Novelty - The results of this study provide further statistical proof that ETR and BTD measures of corporate tax avoidance are closely related. Its utilization of data from listed companies in Malaysia expands the current body of literature by addressing corporate tax avoidance practice in a developing economy. By concentrating on both ETR and BTD measures, this study's analysis is consistent with the broad continuum of corporate tax avoidance spectrum and significantly reduces the risk of warping its determination of tax avoidance level. Type of Paper - Empirical."
    Keywords: Cash ETR; corporate tax avoidance; GAAP ETR; permanent BDT; total BTD.
    JEL: G30 H25 H26 M40
    Date: 2021–07–30
  17. By: Rogozinski, Jacques; Moncada, Nelly Ramírez
    Abstract: This article collects a series of recommendations and experiences from multilateral banks, in particular from the Inter-American Investment Corporation in the period 2005-2013 for the financing of regional projects and the Development Bank in Mexico (2014-2018). Similarly, general considerations are provided for the design and implementation of innovative, flexible and balanced financing schemes between profitability and development in vulnerable sectors such as the food system.
    Keywords: LATIN AMERICA, MEXICO, NORTH AMERICA, food systems, financial institutions, risk, development banks, public sector, capital market
    Date: 2021
  18. By: Zhao, Guo
    Abstract: To explore the interactions between financial decisions and production decisions of representative firm, we propose a dynamic production model under the joint constraints of technology, budget and no arbitrage. Theoretical and numerical analysis shows that dynamic production in no arbitrage equilibrium may undergo a bifurcation into a stable capital-intensive state and an unstable labor-intensive state. Further, it is shown that in no-arbitrage equilibrium a firm’s capital structure is endogenously determined by its endowment structure. These findings are consistent with empirical evidences and hence justify the no-arbitrage based production model as a useful framework with methodological advantages.
    Keywords: production theory, no arbitrage, multiple equilibria, conditional convergence, capital structure puzzle
    JEL: D24 E23 G32
    Date: 2021–06–27

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