nep-cfn New Economics Papers
on Corporate Finance
Issue of 2022‒01‒31
23 papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Macro uncertainties and tests of capital structure theories across renewable and non-renewable resource companies By Denny Irawan; Tatsuyoshi Okimoto
  2. Impact of Corporate Governance on Performance: A Study of Listed Firms in Pakistan By Ali, Amjad; Alim, Wajid; Ahmed, Jawad; Nisar, Sabahat
  3. Financial Frictions, Firm Dynamics and the Aggregate Economy: Insights from Richer Productivity Processes By Ruiz-García, J. C.
  4. A Welfare Analysis on Start-Up Decisions under Default Risk By Nicola Comincioli; Paolo Panteghini; Sergio Vergalli
  5. Comparing Crowdfunding Theory and Practice: The Case of Technology Firms in England By Miglo, Anton
  6. Finance and Growth of SMEs in South Asia: Evidence from Bangladesh, Pakistan, and Sri Lanka By Sharma, Palak
  7. Does boardroom diversity impact the financial performance of FTSE 350 firms? By Corniciuc, Iarina
  8. The Cultural Origins of Family Firms By Yuan, Song; Xie, Jian
  9. Strategic complementarity and substitutability of investment strategies By Nikolay Doskov; Thorsten Hens; Klaus Reiner Schenk-Hoppé
  10. Impact of financial development on bank profitability By Ozili, Peterson K; Ndah, Honour
  11. Corporate Social Responsibility and Corporate Financial Performance: An Empirical Literature Review By Sonia Boukattaya; Zyed Achour; Zeineb Hlioui
  12. The financial value of the within-government political network: Evidence from Chinese municipal corporate bonds By Jaehyuk Choi; Lei Lu; Heungju Park; Sungbin Sohn
  13. Conditional capital surplus and shortfall across renewable and non-renewable resource firms By Denny Irawan; Tatsuyoshi Okimoto
  14. From Shareholder to Stakeholder Capitalism: Value Creation by Board Composition, Ownership Structure and Information Disclosure By Bariz, Historei
  15. Cheap Talk in Corporate Climate Commitments: The Role of Active Institutional Ownership, Signaling, Materiality, and Sentiment By Julia Anna Bingler; Mathias Kraus; Markus Leippold; Nicolas Webersinke
  16. Financial Literacy and Numeracy By Elisa Darriet; Marianne Guille; Jean-Christophe Vergnaud
  17. Diversity matters in the world of finance: does ethnic and religious diversity hinder financial development in developing countries By Amin, S.; Murshed, S.M.
  18. Mandatory ESG Reporting and Corporate Performance By Vazquez, Antonio B.; Martinez, Sofia
  19. Common Ownership and Environmental Corporate Social Responsibility By Hirose, Kosuke; Matsumura, Toshihiro
  20. Assessing Climate-Related Financial Risk: Guide to Implementation of Methods By Hossein Hosseini; Craig Johnston; Craig Logan; Miguel Molico; Xiangjin Shen; Marie-Christine Tremblay
  21. Financial inclusion: the globally important determinants By Ozili, Peterson K
  22. Firm Finances and Responses to Trade Liberalization: Evidence from U.S. Tariffs on China By Avishai Schiff
  23. Essays on financial market aspects of corporate lawsuits and investor sentiment in stock markets By Flore, Christian

  1. By: Denny Irawan; Tatsuyoshi Okimoto
    Abstract: Capital structure is one of the most critical decisions for firms in business. This study examines the role of macro (economic and non-economic) uncertainties in affecting firms’ capital structure management. Three prominent capital structure theories are tested for global resource firms: (1) static trade-off, (2) pecking order, and (3) market timing theory. The results suggest that no single theory prevails, although both pecking order and market timing theories have certain explanatory power to explain sample firms’ financing behaviour. The pecking order theory is strongly supported by the results of the leverage target adjustment model. However, the downward cyclical patterns of pecking order coefficients suggest that the resource firms tend to choose debt financing less and less over time, particularly after 2008. The market timing theory holds strong, as indicated by the significance of macro condition (uncertainties) variables in determining sample firms’ capital structure, especially after 2008 and for non-renewable firms. However, the main proxies of the cost of debt are not statistically significant. In conclusion, this study finds that resource firms have a particular pecking order preference when they need financing, and the influence of macro uncertainties are vital in determining their capital structure.
    Keywords: Capital Structure, Trade-Off Theory, Pecking Order Theory, Market Timing Theory, Macro Uncertainties
    JEL: E32 G32
    Date: 2021–08
  2. By: Ali, Amjad; Alim, Wajid; Ahmed, Jawad; Nisar, Sabahat
    Abstract: The objective of this exploration is to show the relationships among corporate governance tools (Board size, board independence, CEO status, Board Education, and Established Years of the firm) and firm performance which is determined by Return on Asset (ROA). Quantitative data is used to discover the association between the variables. The top seventy-five companies registered on the Pakistan Stock Exchange involving the period from 2010 to 2019 are taken as a sample. The research found that there is a connection between the performance of the firm with the overall extent of directors, board independence, and average education of board representatives. Insignificant results came for CEO duality and established years of the firm. The result predicted that an increase in total board members and average education of board members will increase firm performance (ROA) whereas a reduction in board independence will reduce firm performance (ROA) which explains the importance of corporate governance for the success of firm performance. Unlike previous studies, this study tried to find a long-term influence of corporate governance on firm performance by analyzing five different variables for the listed firms of Pakistan. The study provides the importance of corporate governance tools and their effectiveness for the success of organizations, especially in Pakistan.
    Keywords: Corporate Governance; Firm Performance; Pakistan; ROA; CEO Duality; Board Size; Board Independence; Board Education
    JEL: G3 G30
    Date: 2021
  3. By: Ruiz-García, J. C.
    Abstract: How do financial frictions affect firm dynamics, allocation of resources across firms, and aggregate productivity and output? Is the nature of productivity shocks that firms face primary for the effects of financial frictions? I first use a comprehensive dataset of Spanish firms from 1999 to 2014 to estimate non-parametrically the firm productivity dynamics. I find that the productivity process is non-linear, as persistence and shock variability depend on past productivity, and productivity shocks are non-Gaussian. These dynamics differ from the ones implied by a standard AR(1) process, commonly used in the firm dynamics literature. I then build a model of firm dynamics with financial frictions in which productivity shocks are non-linear and non-Gaussian. The model is consistent with a host of evidence on firm dynamics, financial frictions, and firms’ financial behaviour. In the model economy, financial frictions affect the firm life cycle. Without financial frictions, the size of an entrant firm will be three times larger. Furthermore, profit accumulation, which allows firms to overcome financial frictions, is slow, and it only speeds up when firms are mature. As a consequence, the average exiting firm is smaller than it would be without financial frictions. The aggregate consequences of financial frictions are significant. They result in misallocation of capital and reduce aggregate productivity by 16%. This figure is only 8% if productivity dynamics evolve according to a standard AR(1) process.
    Keywords: Firm Dynamics, Non-Linear Productivity Process, Financial Frictions, Misallocation
    JEL: E22 G32 O16
    Date: 2021–08–03
  4. By: Nicola Comincioli; Paolo Panteghini; Sergio Vergalli
    Abstract: This short article studies the tax effects on a start-up investment decision under uncertainty. Since the representative firm can decide both when to invest and how much to borrow, the distortive effects are twofold. We thus show that the deadweight loss (namely, the ratio between the welfare loss and tax revenue) ranges from 25 to 32%, whereas mature firms face a lower distortion (as shown by Comincioli et al. (2021) the maximum deadweight loss is about 25%).
    Keywords: real options, business taxation, default risk
    JEL: H25 G33 G38
    Date: 2021
  5. By: Miglo, Anton
    Abstract: This article analyzes crowdfunding campaigns of technology firms in England. We compare the predictions of crowdfunding theories with empirical evidence. We are particularly focused on factors of campaign success related to indirect signalling (such as the choice of campaign target) by founders that have mixed evidence in existing research as opposed to direct signalling (eg. the number of updates by founders). We have found that the campaign target has U-shape effect on success of campaign. For example, the probability of success increases if the threshold value is neither very small or significantly large. This is consistent with the spirit of some theoretical research on crowdfunding. We also provide an overview of literature related to informational problems in crowdfunding, highlight gaps and controversial areas and provide some suggestions for future research.
    Keywords: crowdfunding, reward-based crowdfunding, crowdfunding in technology sector, digital entrepreneurship, information asymmetry, signalling, factors of crowdfunding success, campaign target
    JEL: G32 M21 O33
    Date: 2022–01
  6. By: Sharma, Palak (Monash University)
    Abstract: This paper studies the determinants of access to finance in small and medium enterprises (SMEs) in three South Asian economies, Bangladesh, Pakistan, and Sri Lanka. The data for this study is from the World Enterprise Survey data set for each country collected by the World bank. The paper uses logistic regression for empirical analysis. Findings of this paper confirm that access to formal and informal finance is significantly determined by the size, age, and formalization of firms. The gender of the owner-manager, sales performance, location, and legal status of the firm are insignificant predictors of a firm’s ability to raise finance. Results from this paper can help governments shape policy and develop programs that can augment a firm’s ability to raise financing from formal sources.
    Keywords: Economic growth ; informal finance ; SMEs ; World Enterprise survey JEL Classification: O11; O53
    Date: 2021
  7. By: Corniciuc, Iarina (University of Warwick)
    Abstract: This paper examines the impact of diversity on a firm's financial performance, a topic which requires more research due to the fast changes in boardroom composition and the inconclusive previous literature. The main analysis utilises panel data with a fixed effect model to examine FTSE 350 UK firms between 2001 and 2020. Results show that the percent of females is positively and significantly correlated with the two firm performance variables, Tobin's Q and ROA. Initial results also show that a higher count of nationalities have a positive and significant impact on firm performance. These results are in line with various theories which state that diverse groups are found to be more innovative as they cover a wider range of knowledge. The paper provides empirical proof of token theory, which states that gender diversity below a threshold of 15% has a negative impact on a firm's performance. This could be due to being perceived as a minority causing isolation, which in turn impacts performance. Results also show that the critical mass point, where most benefits are reaped in the relationship, lies at 40% and above female directors. This is in line with the proposed EU directive of a quota of 40% female directors.Â
    Keywords: G34 ; G38 ; J15 ; J16 ; J48 JEL Classification: Corporate Governance ; Board Diversity ; Critical Mass Theory ; Token Theory ; Performance
    Date: 2021
  8. By: Yuan, Song; Xie, Jian
    Abstract: What determines the prevalence of family firms? In this project, we investigate the role of historical family culture in the spatial distribution of family firms. Using detailed firm-level data from China, we find that there is a larger share of family firms in regions with a stronger historical family culture, as measured by genealogy density. The results are further confirmed by an instrumental variable approach and the nearest neighbor matching method. Examining the mechanisms, we find that entrepreneurs in regions with a stronger historical family culture: i) tend to have family members engage more in firms; ii) are more likely to raise initial capital from family members; iii) are more willing to pass on the firms to their children. Historical family culture predicts better firm performance due to a lower leverage ratio.
    Keywords: Family Culture; Family Firms; Genealogy; Cultural Origins; Firm Performance
    JEL: D02 D2 G3 L2 M1 Z1
    Date: 2021–12
  9. By: Nikolay Doskov (LGT Capital Partners, Pfaffikon); Thorsten Hens (University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute); Klaus Reiner Schenk-Hoppé (University of Manchester - Department of Economics)
    Abstract: Institutional investors in equities tend to follow well-defined investment strategies, often based on factors such as size, value, momentum, quality, dividend yield and other stock characteristics. This paper explores the impact of capital flows between investment strategies on the cross-section of their performance. We find that the correlation between factor performance and the cyclical nature of risk premia can be explained by capital flows. The CAPM with a non-mean-variance investor supports these results.
    Date: 2022–01
  10. By: Ozili, Peterson K; Ndah, Honour
    Abstract: In this paper, we examine whether financial development is an important determinant of bank profitability. Using the robust ordinary least square and the generalized method of moments regression methodology, we find a significant negative relationship between the financial system deposits to GDP ratio and the non-interest income of Nigerian banks. This indicates that higher financial system deposits to GDP depresses the non-interest income of Nigerian banks. The result implies that the larger the size of the Nigerian financial system, the lower the profitability of banks in Nigeria. Also, we observe that bank concentration, nonperforming loans, cost efficiency and the level of inflation are significant determinants of the profitability of Nigerian banks.
    Keywords: Bank profitability, financial development, banks, return on assets, return on equity, Nigeria, financial system, bank concentration, economic growth, size of financial system, domestic credit to private sector
    JEL: F38 G20 G21 G28
    Date: 2022
  11. By: Sonia Boukattaya (ISG - Institut Supérieur de Gestion de Tunis); Zyed Achour; Zeineb Hlioui
    Abstract: This study aims to present a literature review of recent studies on the relationship between environmental, social and governance (ESG) performance, corporate social responsibility (CSR) and corporate financial performance (CFP) and to provide a path for future researches. Using content analysis method, a total of 88 papers published in renowned journals, over the period 2015-2021, were selected in the review. Several findings have been made: first, the majority of researches have focused on the CSR's "social impact" hypothesis on CFP; the reverse relationship seems to have been overlooked. Second, the contested results are likely to be attributable both to differences in research contexts and CSR' laws but also to biases relating to the operationalization of CSR concept and CFP proxies retained. Finally, several arguments are advanced arguing for an indirect link between CSR and CFP. Future research should, therefore, pay attention to the different contingent variables that are likely to affect the studied relationship.
    Keywords: Literature review,Corporate social responsibility,ESG performance,Firm performance,Firm value
    Date: 2021–11–30
  12. By: Jaehyuk Choi; Lei Lu; Heungju Park; Sungbin Sohn
    Abstract: This paper examines the effect of the political network of Chinese municipal leaders on the pricing of municipal corporate bonds. Using municipal leaders' working experience to measure the political network, we find that this network reduces the bond issuance yield spreads by improving the credit ratings of the issuer, the local government financing vehicle. The relationship between political networks and issuance yield spreads is strengthened in areas where financial markets and legal systems are less developed.
    Date: 2022–01
  13. By: Denny Irawan; Tatsuyoshi Okimoto
    Abstract: This study examines the conditional capital surplus and shortfall dynamics of renewable and non-renewable resource firms. To this end, this study uses the systemic risk index by Brownlees and Engle (2017) and considers two conditional systemic events, namely, the stock market crash and the commodity price crash. The results indicate that generally, companies in the resource sector tend to have conditional capital shortfall before 2000 and conditional capital surplus after 2000 owing to the boom of the commodity sector stock and the moderate-to-careful capital structure management adopted by these companies. This finding is especially valid for resource firms from developed countries, whose observations dominate the dataset used in this study. Furthermore, the analysis using the panel vector autoregressive model indicates a positive influence of commodity price, geopolitical, and economic policy uncertainties on the conditional capital shortfall. These uncertainties have also been proven to increase the conditional failure probability of firms in the sample. Lastly, the performance analysis shows that potential capital shortfall is positively related to market return, reflecting a high-risk high-return trade-off for this sector.
    Keywords: Systematic Risk Index, Commodity Prices, Macroeconomic Uncertainties, Panel Vector Autoregression
    JEL: E32 G32
    Date: 2021–08
  14. By: Bariz, Historei
    Abstract: This dissertation is dedicated to analysing the shift of the primacy of shareholder value to a focus on stakeholder value and the use of information disclosure, ownership structure, and board composition as instruments or levers for value generation in light of this shift. Environmental, social and governance (ESG) topics are becoming omnipresent in capital markets and various stakeholders put management under pressure to act sustainably and to incorporate environmental and social impact goals. Therefore, we first analyse the disclosure of ESG-related information in annual reports and how various measures of impression management (IM) with regard to ESG-related content affect the stakeholders’ assessment of a firm’s credit risk. We show that credit default swap (CDS) markets incorporate ESG-related information in their assessment of a firm's risk. This is significant because we make management aware of IM measures that could be used as proxies for credit risk by various stakeholders and thus help executives mitigate information asymmetry and enhance transparency. Further, we find evidence that firms might engage in strategic IM to positively influence public perception of their credit risk. Therefore, we provide important implications for rating agencies who need to monitor IM biases when interpreting qualitative ESG-related disclosures. We continue to analyse the extension of top management orientation from a shareholder value perspective to a broader stakeholder perspective with a focus on ownership structure. Accordingly, we examine market reactions caused by open letters published by the activist investor Petrus Advisers - who is a minority shareholder - on the target companies' share prices with a regional focus on Continental Europe. Positive capital market reactions are only triggered by initial disclosures directly addressed to the board of the target companies. We therefore suggest that open letters may not be the most favourable single instrument for activist investors in Europe to raise pressure on the executive board. Additionally, we examine how a new position within an organization's leadership ranks affects stakeholder value and implicitly the governance structure of a company. As digital innovation is increasing, more and more companies appoint a Chief Digital Officer (CDO). We analyse market reactions to announcements of newly created CDO positions between 2012 and 2020 and how reactions differ across time periods, sectors and geographical regions. Our results imply that investors perceive that significant value arises when a CDO role associated with the management of the business’s growth and digital transformation strategy is created. The perceived value by stakeholders is even higher the earlier a company takes on the challenges of digital transformation. This cumulative dissertation comprises three stand-alone papers, of which two papers have already been published.
    Date: 2022
  15. By: Julia Anna Bingler (ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich); Mathias Kraus (University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg); Markus Leippold (University of Zurich; Swiss Finance Institute - University of Zurich); Nicolas Webersinke (Friedrich-Alexander-Universität Erlangen-Nürnberg)
    Abstract: Corporate climate disclosures based on the TCFD recommendations are considered an important prerequisite to managing climate-related financial risks. At the same time, current disclosures are imprecise, inaccurate, and greenwashing-prone. Yet, existing research on this matter suffers from small samples or inaccuracies. Therefore, we introduce a scalable deep learning approach to enable comprehensive climate disclosure analyses of large samples by fine-tuning the ClimateBert model. Our model significantly outperforms previous approaches. We then extract the amount of cheap talk, defined as the share of precise versus imprecise climate commitments, of 14,584 annual reports of the MSCI World index firms from 2010 to 2020. Finally, we use this data to test various hypotheses on the drivers of cheap talk. We find that institutional ownership, targeted institutional investor engagement, materiality and downside risk disclosures are associated with less cheap talk. Signaling by publicly supporting the TCFD is associated with more cheap talk.
    Keywords: Corporate climate disclosures, voluntary reporting, commitments, TCFD recommendations, textual analysis, natural language processing.
    JEL: G2 G38 C8 M48
    Date: 2022–01
  16. By: Elisa Darriet (LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - CNAM - Conservatoire National des Arts et Métiers [CNAM], LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas - SU - Sorbonne Université); Marianne Guille (LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas - SU - Sorbonne Université); Jean-Christophe Vergnaud (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Paris 1 Panthéon-Sorbonne)
    Abstract: The aim of this chapter is to investigate the relationship between financial literacy and numeracy. It turns out that numeracy and financial literacy are strongly correlated. In order to clarify this relationship, we review, in a first section, the general definition of numeracy and its most commonly used measures. We then try to enlighten the distinction that can be made between numeracy and financial literacy. In a second section, we focus on the relationship between numeracy and financial literacy using the main empirical studies performed. Since the analyses of their results show that numeracy is a key determinant of financial literacy, we highlight, in a third and final section, the key role that numeracy could have in education programs and consumer protection policies to improve financial decisions.
    Keywords: Financial literacy,Numeracy
    Date: 2021–10
  17. By: Amin, S.; Murshed, S.M.
    Abstract: This paper investigates the relationship between ethnic and religious diversity and financial development by using the data for 102 developing countries. It is widely accepted that financial depth, and the more ready availability of finance, has a central role to play in fostering economic growth. We hypothesize that financial development in developing countries, especially those at the early stages of economic development, may be retarded by pre-existing ethnic and religious diversity, which may produce conflict. However, we believe that this risk can be moderated by sound institutional functioning – including good governance and democracy. Financial depth is measured by M2 and private credit (as a percentage of GDP); the Alesina fragmentation index is used for measuring ethnic and religious diversity, varieties of democracy (VDEM) and the quality of governance datasets. Our results are supportive of our hypothesis that ethnic and religious diversity can indeed hamper financial development; these risks, however, are mitigated by well-functioning institutional arrangements
    Keywords: Ethnic diversity, religious diversity, financial development
    JEL: Z10 Z13 G0
    Date: 2022–01–10
  18. By: Vazquez, Antonio B. (Mistra Center for Sustainable Markets (Misum)); Martinez, Sofia (Stockholm School of Economics)
    Abstract: We examine the effects of an ESG reporting mandate on firms’ corporate performance. Exploiting discontinuous ESG reporting requirements assigned to otherwise similar small and large-sized private firms, we document that ESG reporting increases firms’ corporate performance. Our evidence suggests that the mandate helps firms establishing a credible commitment with employees and customers, which allows them to enjoy higher performance. Our results are robust to a matched sample, a mixed difference-in-differences and regression discontinuity setting and to the use of alternative thresholds of ESG reporting. We contribute to the literature by providing evidence that suggests private firms benefit from reporting non-financial information.
    Keywords: private firms; mandatory ESG reporting; regression discontinuity design; difference-in-differences design
    JEL: G38 K22 M14 M41 M48
    Date: 2022–01–10
  19. By: Hirose, Kosuke; Matsumura, Toshihiro
    Abstract: We theoretically investigate how common ownership (or the extent of collusion in an industry) affects firms' voluntary commitment with emission restrictions and emissions abatement activities in an oligopoly. We find that common ownership reduces emissions by reducing output, and may stimulate emissions abatement activities if the degree of common ownership is small. However, significant common ownership always reduces emissions abatement activities. Additionally, common ownership may or may not improve welfare, depending on the implicit carbon cost.
    Keywords: corporate social responsibility, anticompetitive effect, voluntary emissions cap, emissions abatement
    JEL: L13 M14 Q57
    Date: 2021
  20. By: Hossein Hosseini; Craig Johnston; Craig Logan; Miguel Molico; Xiangjin Shen; Marie-Christine Tremblay
    Abstract: The Bank of Canada and the Office of the Superintendent of Financial Institutions completed a climate scenario analysis pilot project with the collaboration of six Canadian financial institutions. The project aimed to increase understanding of the financial sector’s potential exposure to risks in transitioning to a low-carbon economy and to help build the capabilities of authorities and financial institutions in assessing climate-related risks. To support the broader financial-sector community in building these capabilities, this report provides detail on the methodologies the pilot used to assess credit and market risks, which were informed by the financial impacts generated by the climate transition scenarios. The method to assess credit risk combined top-down and bottom-up approaches. Variables from the climate transition scenarios were first translated into sector-level financial impacts. The financial institutions then used these impacts to estimate the implications on credit outcomes through borrower-level assessments. Using the transition scenarios’ financial impacts, and the stressed credit outcomes, the project estimated a relationship between climate transition information and credit risk. This was used to calculate expected credit losses at the portfolio level. The method to assess market risk was solely top-down. Using the scenario analysis, the project used a dividend discount model to estimate sectoral equity revaluations, which it then applied to equity portfolio holdings.
    Keywords: Climate change; Financial stability; Econometric and statistical methods; Credit and credit aggregates
    JEL: C C5 C53 C83 G G1 G32
    Date: 2022
  21. By: Ozili, Peterson K
    Abstract: This paper highlights the globally-important determinants of financial inclusion. The determinants identified in this paper are formal account ownership; demand for formal savings; demand for formal borrowings; financial literacy and education; debit and credit cards usage; the need to receive remittances from family and friends; size of the financial system; number of automated teller machines (ATMs); number of bank branch; closeness to a bank; availability and access to mobile phones; availability of digital financial products and services; technology infrastructure; government policy; culture and traditional belief systems; national financial inclusion strategy and implementation; and direct legislation.
    Keywords: financial inclusion; determinants; unbanked adults; access to finance; digital finance; financial literacy
    JEL: G20 G21 I31
    Date: 2021
  22. By: Avishai Schiff
    Abstract: This paper examines the relationship between a firm’s finances and its response to trade liberalization. Using a landmark change in U.S. tariff policy vis-à-vis Chinese imports and micro level data from the U.S. Census Bureau, I find larger manufacturing job losses in better capitalized firms - those with less leverage and more cash on hand. The effects concentrate in industries where weaker balance sheets are likely to lead to collateral and other borrowing constraints, helping rule out alternative explanations. Finally, domestic manufacturing job losses are not accompanied by greater reductions in sales or aggregate employment, but better capitalized firms do exhibit reduced input costs and increased productivity. These findings point to offshoring as the predominant firm response to trade liberalization and suggest a role for financial capacity in facilitating offshoring investments.
    Date: 2021–11
  23. By: Flore, Christian
    Abstract: This dissertation’s first subject area considers the impact of legal proceedings on corporate valuation. The first paper of this subject area analyzes the shareholder wealth effects of corporate prosecution settlements in the U.S. from 2001 to 2014. The results show that the settlement of criminal prosecution leads to positive shareholder wealth effects due to the resolution of uncertainty. Stockholders generally view the announcement of plea agreements more positively than the announcement of deferred prosecution and non-prosecution agreements. Therefore, the argument that particularly large corporations are treated preferentially and suffer comparatively less when using pretrial diversions cannot be confirmed by the empirical results. The second paper considers the reaction of banks’ stocks, bonds, and credit default swaps to the announcements of monetary penalties. From 2005 to 2015, the 25 largest global financial institutions paid combined more than $285 billion in legal penalties. A reduction in default risk and lower financing costs, as well an increase in the stock market valuation is observed, suggesting that banks benefit from settling lawsuits. Again, the positive reaction is likely driven by the resolution of uncertainty. While the sued bank’s systemic risk increases in the size of the relative monetary penalty, also positive spillover effects to other banks facing pending lawsuits with the same plaintiff are observed, demonstrating the systemic effect of law enforcement against banks. Furthermore, banks appear to correctly anticipate penalties, as they are cash flow-effective but not income-effective in the year they are announced. In the second subject area of this dissertation, the impact of self-disclosed sentiment on the stock market is investigated using the two major social media platforms Seeking Alpha (SA) and StockTwits (ST). It is found that negative self-disclosed sentiment on SA produces economically significant negative returns on the next day. In contrast, self-disclosed disagreement and positive self-disclosed sentiment on ST induce significant trading volume the next day. Both effects are predominantly driven by small stocks. The results indicate that self-disclosed sentiment is a powerful means of measurement and that the quality oriented SA is connected to stock returns while the quantity oriented ST is connected to trading activity.
    Date: 2022

This nep-cfn issue is ©2022 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.