nep-cfn New Economics Papers
on Corporate Finance
Issue of 2021‒09‒27
ten papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. The Effects of Going Public on Firm Performance and Commercialization Strategy: Evidence from International IPOs By Borja Larrain; Gordon M. Phillips; Giorgo Sertsios; Francisco Urzúa
  2. Cash Holdings and Firm-Level Exposure to Epidemic Diseases By Tut, Daniel
  3. Financing structure and companies of the BRVM By Khady Diallo; Mohamed Mbengue
  4. Coronavirus crisis and company bankruptcies By Polezhaeva Natalia; Apevalova Elena
  5. Share Repurchases and Board Independence By Grosman, Anna; Amore, Mario Daniele
  6. Is Social Capital Valuable? Evidence from Mergers and Acquisitions By Jo-Ann Suchard; Giang Nguyen; Yuelin Wang
  7. IPOs and Corporate Taxes By Christine L. Dobridge; Rebecca Lester; Andrew Whitten
  8. Litigation Risk and Corporate Cash Holdings:Evidence from a Legal Shock By Tommaso Oliviero; Min Park; Hong Zou
  9. Mind the financing gap: Enhancing the contribution of intangible assets to productivity By Lilas Demmou; Guido Franco
  10. A new integrated-value assessment method for corporate investment By Dirk Schoenmaker

  1. By: Borja Larrain; Gordon M. Phillips; Giorgo Sertsios; Francisco Urzúa
    Abstract: We study the effects of going public using a unique panel of firms in 16 European countries for which we observe financial data before and after firms' initial-public-offering (IPO) attempts. We compare firms that complete their IPO with firms that withdraw their IPO. We instrument the going public decision using prior market returns. We find that firm profitability goes up after going public—contrary to previous results in the literature. We also find an post-IPO expansion in the number of subsidiaries and countries in which IPO firms operate. Our results are stronger for firms in financially dependent industries and in countries with higher investor protection consistent with going public relaxing financial constraints and with a stronger impact when agency conflicts are lower. Overall, our results are consistent with going public inducing a shift towards a strategy of commercialization to increase profitability.
    JEL: G32
    Date: 2021–09
  2. By: Tut, Daniel
    Abstract: We study the effects of firm-level exposure to an epidemic disease on corporate cash holdings amongst U.S firms. Using a text-based measure of firm-level exposure to epidemic diseases and difference-in-difference estimation strategy, we document a positive relationship between the onset of an epidemic disease and corporate cash holdings. We find that, amongst all the recent epidemics, COVID-19 has the strongest impact on cash holdings and that this effect is mostly driven by negative sentiments around the COVID-19 pandemic.
    Keywords: Cash, COVID-19, SARS, H1N1, Ebola, Zika, Epidemics, Epidemiology, Virus, Pandemic, Liquid assets, Liquidity management
    JEL: G00 G01 G30 G31 G32 G38 I11
    Date: 2021–08–28
  3. By: Khady Diallo (Université Alioune Diop de Bambey - Université Alioune Diop de Bambey); Mohamed Mbengue (Université Gaston Bergé (Saint-Louis, Sénégal))
    Abstract: The capital structure of a company is not the result of chance; it is in principle the result of a decision to integrate a whole set of factors. Thus, in order to understand the diversity of debt behavior of companies listed on the BRVM, several factors must be taken into consideration. The main objective of this article is to verify the factors that can influence the financial structure of BRVM-listed firms and to analyze their influence. Our study focuses on a sample of 28 BRVM-listed firms over a period of 11 years (2009 to 2019), using panel data. Following an econometric study involving the methods of generalized least squares (fixed effect) and generalized method of moments (one-step), we tested the influence of traditional firm-related determinants and corporate governance determinants on leverage. The results reveal that most of the determinants explain the leverage behavior of firms listed on the BRVM. They show that the variables size, tangibility, cost of financing, tax savings not related to debt is significant and positively influence the level of debt, these results are explained by the trade-off theory. Unlike the variable profitability, the size of the board of directors which are significant and influence negatively the level of debt. These results confirm the predictions of the hierarchical preference theory. However, the variable growth opportunity, liquidity and power separation are not significant, i.e. they do not explain the debt behavior of our study sample. The results obtained from this research will help explain the financing policy of firms listed on the BRVM. In addition, they will be used by the managers of the companies to find some answers to their decisions concerning the policy of indebtedness.
    Keywords: Capital Structure,Traditional Determinants,Corporate Governance Determinants. JEL Classification : G30,G32 Paper type : Empirical research
    Date: 2021–09–01
  4. By: Polezhaeva Natalia (RANEPA); Apevalova Elena (RANEPA)
    Abstract: The coronavirus crisis and the measures taken by national governments to combat the pandemic have led to an acute situation in the field of insolvency of companies. Assessments of the situation vary, and there are many reasons for this: the continuation of the pandemic, the introduction of lockdowns, and the adoption of measures to curb the wave of bankruptcies.
    Keywords: Russian economy, corporate governance
    JEL: I18 I19 G32 G33 G34
    Date: 2021
  5. By: Grosman, Anna; Amore, Mario Daniele
    Abstract: Share repurchases have come under criticism as they may be used for earnings management and take capital away from productive investment. However, share repurchases can also reduce the agency costs of free cash flow and offset the dilution of current shareholders. Whether firms engage in good or manipulative share repurchases can crucially hinge on the quality of corporate governance. Using UK firm panel data, we study the effect of independent directors on repurchase policies. Our results indicate that board independence increases the propensity to engage in share repurchases. Moreover, board independence attenuates the harmful effect of manipulative share repurchases on employment growth. Our approach exploits the passage of a corporate governance reform which provided a unique opportunity to tease out the causal impact of independent directors on share repurchases. Our findings advocate in favor of more active involvement of independent directors in payout policies.
    Keywords: corporate governance; boards; share repurchases; independent directors; employment; earnings management; UK
    JEL: G30 G35 J3
    Date: 2021–09–19
  6. By: Jo-Ann Suchard (UNSW Business School, University of New South Wales Sydney.); Giang Nguyen (School of Political Science and Economics, Waseda University.); Yuelin Wang (School of Political Science and Economics, Waseda University.)
    Abstract: Using comprehensive social capital data of U.S. counties from the Social Capital Project, we show evidence that the county-level social capital where the acquirer is located is positively related to the acquirer’s announcement returns. This finding withstands alternative model specifications and remains robust to endogeneity concerns. We also document that social capital has a more pronounced effect on the acquirer’s announcement returns when the supermajority to approve a merger, acquirer size, the deal size, and the ratio of stock payment are larger and the percentage of blockholder ownership is smaller. Additionally, we find that social capital creates more synergies, enhances acquirers’ long-term performance, and shortens deal completion duration. Overall, our results support the shareholder value maximization view that social capital constrains managerial opportunistic and selfserving behaviors, which leads to better acquisition outcomes.
    Keywords: Social Social Capital, Merger and Acquisition, Shareholder Value Maximization.
    JEL: G34 Z13
    Date: 2021–09
  7. By: Christine L. Dobridge; Rebecca Lester; Andrew Whitten
    Abstract: How does going public affect firms’ tax obligations and tax planning? Using a panel of U.S. corporate tax return data from 1994 to 2018, we compare tax payments for firms that completed an IPO with those that filed for an IPO but later withdrew and remained private. We find that in the years immediately following IPO completion, firms have a higher probability of paying taxes and pay more U.S. tax. The effects occur regardless of tax status in the pre-IPO period and are not explained by statutory limitations imposed on the use of pre-IPO losses. Higher income reported for financial reporting purposes, as well as lower interest deductions attributable to debt repayment, contribute to the increased tax payments. These increases are partially offset by higher tax deductions for post-IPO investment and employment spending. Furthermore, the IPO is associated with increased tax planning through foreign tax haven use. The evidence adds to the nascent literature examining corporate tax implications of the IPO decision.
    Keywords: Corporate tax; IPO; Investment; Tax haven
    JEL: G31 G32 H25
    Date: 2021–09–07
  8. By: Tommaso Oliviero (Università di Napoli Federico II and CSEF); Min Park (University of Bristol); Hong Zou (University of Hong Kong)
    Abstract: Theory offers two diverging views on the effect of ex-ante litigation risk on corporate cash holdings. To test the effect, this paper exploits the phase-by-phase introduction of securities class actions in Korea. Following the increase in litigation risk, firms significantly increase their cash holdings. The effects are stronger for firms with high operating cash flow volatility, no D&O insurance coverage, and tighter financial constraints. The results hold robustly in differences-in-differences and regression discontinuity designs. The causal estimates, together with the increase in corporate litigation risk worldwide, put forth a novel link, unexplored in the literature, between litigation risk and the secular increase in cash holdings.
    Keywords: Liquidity; cash holdings; litigation risk; difference-in-differences; regression discontinuity.
    JEL: G30 G32 K22
    Date: 2021–09–06
  9. By: Lilas Demmou; Guido Franco
    Abstract: Intangible assets are an important driver of productivity and ultimately output growth. Yet, despite their aggregate rise in the past decades, productivity has continued to grow modestly in the majority of OECD countries. This is in part because many firms – particularly young and small ones - are often held back from building up intangible assets, as financing their production or acquisition is more difficult than for tangibles. Building on the analytical framework recently developed by the OECD (Demmou, Stefanescu and Arquié, 2019; Demmou, Franco and Stefanescu, 2019) and extending the empirical analysis, the paper provides evidence that easing financing restrictions is particularly beneficial for productivity in sectors that rely more intensively on intangible assets, indirectly pointing to the existence of a “financing gap” due to financial frictions. This aggregate productivity impact reflects both increases in the productivity of each firm and better allocation of labour across firms. Recognizing cross-country differences in the structure of financial systems, the policy discussion focuses on how to make the three main sources of external finance available to firms -- bank lending, equity financing, and direct government support -- more suited to fit the needs of an intangible-based economy. Finally, the paper briefly discusses the extent to which the COVID-19 crisis may have created specific challenges for intangible investment, making policy interventions in these areas more relevant and urgent.
    Keywords: finance, Intangible assets, productivity
    JEL: D24 G30 O30 O47
    Date: 2021–09–28
  10. By: Dirk Schoenmaker
    Abstract: Companies are under pressure to change their business models and become more sustainable. Corporate governance codes across Europe have introduced the term ‘long-term value creation’ to capture companies’ social responsibility. However, the concept of long-term value creation lacks tools that would enable its application. Companies still steer their investments based on outdated valuation methods, which are entirely based on financial value. The concept of integrated value would give substance to...
    Date: 2021–09

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