nep-cfn New Economics Papers
on Corporate Finance
Issue of 2021‒08‒23
twelve papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Private equity buyouts and firm exports: evidence from UK firms By Paul Lavery; José María Serena Garralda; Marina-Eliza Spaliara
  2. The Impact of Delay: Evidence from Formal Out-of-Court Restructuring By Stjepan Srhoj; Dejan Kovač; Jacob N. Shapiro; Randall Filer
  3. Uninformative Performance Signals and Forced CEO Turnover By Raphael Flepp
  4. Homophily and peer influence in early-stage new venture informal investment By Qin, Fei; Mickiewicz, Tomasz; Estrin, Saul
  5. Soft and hard information in equity crowdfunding: network effects in the digitalization of entrepreneurial finance By Khavul, Susanna; Estrin, Saul; Wright, Mike
  6. Business Groups: Panics, Runs, Organ Banks and Zombie Firms By Asli M. Colpan; Randall Morck
  7. Bankruptcy Costs and the Design of Preventive Restructuring Procedures By Epaulard Anne,; Zapha Chloé.
  8. Experience Effects in Finance: Foundations, Applications, and Future Directions By Ulrike Malmendier
  9. Inflating away the public debt? An empirical assessment By Hilscher, Jens; Raviv, Alon; Reis, Ricardo
  10. On the Determinant of Financial Development in Africa: Geography, Institutions and Macroeconomic Policy Relevance By Ibrahim A. Adekunle; Olumuyiwa G. Yinusa; Tolulope O. Williams; Rahmon A. Folami
  11. Stock Market Liberalizations and Export Dynamics By Melise Jaud; Madina Kukenova; Martin Strieborny
  12. The Effect of Working Capital Turnover on Company Liquidity at PT. Gudamg Garam, Tbk (Case study on the Indonesian stock exchange) (2007 – 2011 By naryono, endang

  1. By: Paul Lavery; José María Serena Garralda; Marina-Eliza Spaliara
    Abstract: This paper examines the impact of private equity buyouts on the export activity of target firms. We exploit data on UK firms over the 2004-2017 period, and use difference-in-differences estimations on matched target versus non-target firms. Following private equity buyouts, non-exporting firms are more likely to begin exporting, and target firms are likewise more likely to increase their value of exports and their export intensity. Evidence from split-sample analysis further suggests that these patterns are consistent with private equity investors relaxing financial constraints and inducing productivity improvements.
    Keywords: private equity buyouts, exporting, financial constraints, transactions
    JEL: G34 G32
    Date: 2021–08
  2. By: Stjepan Srhoj; Dejan Kovač; Jacob N. Shapiro; Randall Filer
    Abstract: Bankruptcy restructuring procedures are used in most legal systems to decide the fate of businesses facing financial hardship. We study how bargaining failures in such procedures impact the economic performance of participating firms in the context of Croatia, which introduced a “pre-bankruptcy settlement” (PBS) process in the wake of the Great Recession of 2007 - 2009. Local institutions left over from the communist era provide annual financial statements for both sides of more than 180,000 debtor-creditor pairs, enabling us to address selection into failed negotiations by matching a rich set of creditor and debtor characteristics. Failures to settle at the PBS stage due to idiosyncratic bargaining problems, which effectively delays entry into the standard bankruptcy procedure, leads to a lower rate of survival among debtors as well as re-duced employment, revenue, and profits. We also track how bargaining failures diffuse through the network of creditors, finding a significant negative effect on small creditors, but not others. Our results highlight the impact of delay and the importance of structuring bankruptcy procedures to rapidly resolve uncertainty about firms’ future prospects.
    Keywords: bankruptcy, insolvency, liquidation, restructuring
    JEL: G33 G34 D02 L38 P37
    Date: 2021
  3. By: Raphael Flepp (Department of Business Administration, University of Zurich)
    Abstract: This paper provides evidence that corporate boards violate the informativeness principle in their forced CEO turnover decisions by failing to ignore uninformative performance outcome signals. I show that CEOs of firms with barely positive shareholder returns in the previous year are less likely to be dismissed than CEOs of firms with barely negative returns, even though this return outcome is conditionally uninformative. I observe a similar pattern for stock returns relative to the S&P 500 index return: a firm's board is less likely to dismiss its CEO if the firm barely outperformed the S&P 500 index than if the firm barely underperformed the S&P 500 index. Moreover, I demonstrate that the tendency of boards to consider uninformative absolute return outcomes has decreased over time, while their tendency to consider uninformative relative return outcomes has increased over time. This suggests that boards have shifted their focus toward relative returns while continuing to violate the informativeness principle.
    Keywords: forced CEO turnover, board of directors, informativeness principle, outcome bias, regression discontinuity design
    JEL: G30 M51 D23
    Date: 2021–08
  4. By: Qin, Fei; Mickiewicz, Tomasz; Estrin, Saul
    Abstract: Conceptualising early-stage new venture informal investors as co-entrepreneurs whose actions are socially embedded, we examine the role of social influence and how it interplays with entrepreneurial experience at the individual level leading to informal investment. We extend theories of social homophily and social influence to argue that informal investment decisions are influenced by shared experience and entrepreneurism in peer groups. We test our hypotheses with a multi-level model using first a large cross-country dataset and next in depth within a country. Our analysis reveals that both individual entrepreneurship experience and peer group-embedded experience significantly influence the likelihood that an individual becomes an early-stage investor. Furthermore, these social effects substitute for the lack of individual entrepreneurial experience.
    Keywords: informal investors; entrepreneurial experience; social homophily; peer influence; entrepreneurship capital; global entrepreneurship monitor (GEM); angel investors; Springer deal
    JEL: J1 F3 G3 R14 J01
    Date: 2021–08–03
  5. By: Khavul, Susanna; Estrin, Saul; Wright, Mike
    Abstract: As a digital financial innovation, equity crowdfunding (ECF) allows investors to exploit the complementarity of information provision and network effects in a reduced transaction cost environment. We build on the underlying distinction between soft and hard information and show that ECF platforms create an environment of greater information pooling that benefits from network externalities. We test our hypotheses using a unique proprietary dataset and find that soft information has a greater impact than hard on the likelihood that a financing pitch will be successful. Moreover, the effects of soft information are amplified by the size of the investor network on the platform and network size also positively moderates the effect of information on the amount invested during each pitch. We conclude that ECF platforms can successfully exploit low transaction costs of the digital environment and bring network externalities to bear on investor decisions. Taken together that these increase the supply of funds to entrepreneurs.
    Keywords: equity crowdfunding; entrepreneurial finance; soft information; network externalities; platforms; e Research Infrastructure and Investment Fund; Centre for Economic Performance; Springer deal
    JEL: G23 J26 M13
    Date: 2021–08–03
  6. By: Asli M. Colpan; Randall Morck
    Abstract: Business groups often contain banks or near banks that can protect group firms from economic shocks. A group bank subordinate to other group firms can become an “organ bank” that selflessly bails out distressed group firms and anticipates a government bailout. A group bank subordinating other group firms can extend loans to suppress their risk-taking to default risk, preserving risk-averse low-productivity zombie firms. Actual business groups can fall between these polar cases. Subordinated group banks magnify risk-taking; subordinating banks suppress risk-taking; yet both distortions promote business group firms’ survival. Limiting intragroup income and risk shifting, severing banks from business groups, or dismantling business groups may mitigate both distortions; but also limits business groups’ internal markets, thought important where external markets work poorly.
    JEL: F65 G01 G21 G23 N2
    Date: 2021–07
  7. By: Epaulard Anne,; Zapha Chloé.
    Abstract: A European directive requires Member States to give firms access to preventive restructuring procedures. This paper assesses the interest of a procedure distinct from that for insolvent firms. It is based on the French experience, where a preventive procedure has coexisted with the more common restructuring procedure since 2006. The spatial and temporal heterogeneity of the Commercial Courts' decisions allows the identification of the causal impact of the conversion from the preventive procedure to the common one on the firm's survival chances. Using an (almost) exhaustive sample of preventive bankruptcy fillings over 2010-2016, we show that conversion reduces the probability of firm survival by 50 p.p., which corresponds to indirect bankruptcy costs of around 20% of the firm assets. Our interpretation is that the low restructuring rate under the common bankruptcy procedure may alarm some of the firm's stakeholders, especially its customers. This in turn aggravates the firm's difficulties and reduces its chances of restructuring under the common procedure. We provide some empirical evidence to support this interpretation. A distinct preventive procedure helps prevent this spiral.
    Keywords: Corporate Bankruptcy; Costs of Bankruptcy; Law and Economics; Preventive Restructuring.
    JEL: G33 K22
    Date: 2021
  8. By: Ulrike Malmendier
    Abstract: This article establishes four key findings of the growing literature on experience effects in finance: (1) the long-lasting imprint of past experiences on beliefs and risk taking, (2) recency effects, (3) the domain-specificity of experience effects, and (4) imperviousness to information that is not experience-based. I first discuss the neuroscientific foundations of experience-based learning and sketch a simple model of its role in the stock market based on Malmendier et al. (2020a,b). I then distill the empirical findings on experience effects in stock-market investment, trade dynamics, and international capital flows, highlighting these four key features. Finally, I contrast models of belief formation that rely on “learned information” with models accounting for the neuroscience evidence on synaptic tagging and memory formation, and provide directions for future research.
    JEL: D03 D8 D83 D87 D9 E17 E52 E7 G02 G4
    Date: 2021–07
  9. By: Hilscher, Jens; Raviv, Alon; Reis, Ricardo
    Abstract: This paper proposes a new method for measuring the impact of inflation on the real value of public debt. The distribution of debt debasement is based on two inputs: the distribution of privately held nominal debt by maturity, for which we provide new estimates, and the distribution of risk-adjusted inflation dynamics, for which we provide a novel copula estimator using options data. We find that inflation by itself is unlikely to lower the U.S. fiscal burden significantly because debt is concentrated at short maturities and perceived inflation shocks have little short-run persistence and are small.
    Keywords: inflation; debt debasement; value at risk; inflation derivatives; debt maturity structure; financial repression; GG009759; GA682288; OUP deal
    JEL: F3 G3 E6
    Date: 2021–02–09
  10. By: Ibrahim A. Adekunle (Babcock University, Nigeria); Olumuyiwa G. Yinusa (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Tolulope O. Williams (Olabisi Onabanjo University, Ogun State, Nigeria); Rahmon A. Folami (Olabisi Onabanjo University, Ogun State, Nigeria)
    Abstract: While it is clear that financial depth and economic diversity are prerequisites for the realisation of growth and development objectives, heterogeneous factors that determines financial development remains imperfectly understood. This ambiguity in the structural relations between varied causative factors is more pronounced in Africa where conditions for growth and development remains inadequately met. Underexplored aspects such as geographic, political, economic and macroeconomic policy determinant of financial development in Africa could have culminated into the misalignment of the continent financialisation strategies. This paper takes the lead, diverse and holistic approach to assign numerical weights to these unobserved factors to reach conclusions that can redefine policy and research on Africa's financialisation objectives. We compared result along with the mean group (MG), common correlated effect mean group (CCEMG) and Augmented Mean Group (AMG) estimators but relied on the AMG results because of its high precision, relevance and superiority in addressing core issues of cross-sectional dependence and slope homogeneity of regressors.Based on the AMG results, we found geographic, economic and macroeconomic policy factors to lead to financial development in Africa. However, our political/institutional composite index inversely relate to financial development in Africa. This counter-intuitive outcome could be due to Africa, age-long weak institutional capacities. Policy implications were discussed.
    Keywords: Financial Development; Geography; Institutions; Macroeconomic Policy; Africa
    JEL: D02 G20 P34 Q56
    Date: 2021–01
  11. By: Melise Jaud; Madina Kukenova; Martin Strieborny
    Abstract: We find that foreign investors facilitate efficiency-enhancing structural change in the recipient countries. After countries liberalize their stock markets and allow foreign investors to acquire equity stakes in domestic firms, products that do not correspond to the liberalizing countries' comparative advantage disappear disproportionately faster from their export portfolios. At the same time, the overall long-term export performance of the liberalizing countries improves. Domestic stock market development does not play the same disciplining role in forcing termination of inefficient exports, suggesting a unique role for foreign investors in improving resource allocation in the real economy.
    Keywords: financial liberalization and structural change, disciplining role of foreign investors, export dynamics
    JEL: G15 F65 O16
    Date: 2021–08
  12. By: naryono, endang (STIE PASIM SUKABUMI)
    Abstract: This study aims to determine the working capital turnover of PT Gudang Garam, the development of the company's performance at PT Gudang Garam, and to determine the effect of working capital turnover on the company's performance at PT Gudang Garam, Tbk. The research method used is the ex-post facto method. This study uses primary data and secondary data obtained from financial and non-financial reports from PT Gudang Garam. To test the hypothesis, simple regression was used. Based on the results of the analysis, it shows that there is a positive influence between working capital turnover at PT Gudang Garam. The level of closeness of the relationship (correlation) of the two variables is quite strong, namely r = 0.752 with a correlation coefficient value of r > 0. The level of influence achieved is 56.55%, and the remaining 43.45% is influenced by other factors. Meanwhile, by testing the hypothesis by using the t-test, the t-count value = 5.947 and the t-table value = 0.997. Based on the t-count value, the T-count value is greater than T-table H0 is in the rejection area. The results of simple linear regression analysis that every 1X (times) increase in working capital turnover, the company's performance will increase by 7.462%.
    Date: 2021–08–02

This nep-cfn issue is ©2021 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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