nep-cfn New Economics Papers
on Corporate Finance
Issue of 2022‒03‒21
eleven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Local Journalism under Private Equity Ownership By Michael Ewens; Arpit Gupta; Sabrina T. Howell
  2. What Gets Measured Gets Managed: Investment and the Cost of Capital By Zhiguo He; Guanmin Liao; Baolian Wang
  3. Human Capital Reallocation Across Firms: Evidence from Idiosyncratic Shocks By Erik P. Gilje; Jérôme P. Taillard; Linghang Zeng
  4. Corporate Flexibility in a Time of Crisis By John W. Barry; Murillo Campello; John Graham; Yueran Ma
  5. Factors Determining Z-score and Corporate Failure in Malaysian Companies By Azhar, Nurul Izzaty Hasanah; Lokman, Norziana; Alam, Md. Mahmudul; Said, Jamaliah
  6. Public guarantees and credit additionality during the Covid-19 pandemic By Giuseppe Cascarino; Raffaele Gallo; Francesco Palazzo; Enrico Sette
  7. Corporate governance, market orientation and performance of Iran’s upscale hotels By Soheil Kazemian; Hadrian Djajadikerta; Jamaliah Said; Saiyidi Roni; Terri Trireksani; Md. Mahmudul Alam
  8. The Distribution of Crisis Credit: Effects on Firm Indebtedness and Aggregate Risk By Federico Huneeus; Joseph P. Kaboski; Mauricio Larrain; Sergio L. Schmukler; Mario Vera
  9. The Effect of Third-Party Funds, Credit Risk, Market Risk, and Operational Risk on Profitability in Banking for Period 2014-2017 By Sondakh, Jullie J.; Tulung, Joy E.; Karamoy, Herman
  10. The Information Content of Corporate Earnings: Evidence from the Securities Exchange Act of 1934 By Oliver Binz; John Graham
  11. Wage dispersion and firm performance: evidence from Kazakhstan By Dinara Alpysbayeva; Jozef Konings; Venkat Subramanian; Aigerim Yergabulova

  1. By: Michael Ewens; Arpit Gupta; Sabrina T. Howell
    Abstract: Local daily newspapers historically played an important role in U.S. democracy by providing citizens with information about local policy issues. In recent decades, local newspapers have struggled to compete with new online platforms. In the first study of private equity (PE) in a struggling industry, we find nuanced effects. PE leads to higher digital circulation and lower chances of newspaper exit. However, the composition of news shifts away from local governance, the number of reporters and editors falls, and participation in local elections declines. The results have implications for knowledge about local policy issues and highlight trade-offs surrounding media ownership.
    JEL: G23 G32 H42 L82
    Date: 2022–02
  2. By: Zhiguo He; Guanmin Liao; Baolian Wang
    Abstract: We study the impact of government-led incentive systems by examining a staggered reform in the Chinese state-owned enterprise (SOE) performance evaluation policy. To improve capital allocative efficiency, in 2010, regulators switched from using return on equity (ROE) to economic value added (EVA) when evaluating SOE performance. This EVA policy adopts a one-size-fits-all approach by stipulating a fixed cost of capital for virtually all SOEs, ignoring the potential heterogeneity of firm-specific costs of capital. We show that SOEs did respond to the performance evaluation reform by altering their investment decisions, more so when the actual borrowing rate was further away from the stipulated cost of capital. Our paper provides causal evidence that incentive schemes affect real investment and sheds new light on challenges faced by economic reforms in China.
    JEL: G31 G38
    Date: 2022–02
  3. By: Erik P. Gilje; Jérôme P. Taillard; Linghang Zeng
    Abstract: We study human capital reallocation following firm-specific idiosyncratic shocks. Theory offers diverging predictions as to whether human capital gets reallocated to its most productive use following these shocks. To empirically test these predictions, we focus on relegation battles in the English Premier League. This setting offers well identified idiosyncratic shocks as well as both individual-level and firm-level productivity metrics. We find that human capital exits firms after a negative idiosyncratic shock. Specifically, we find that more productive players move to more productive clubs and maintain their long-term productivity. They get replaced with lower productivity players. Overall, our results show that in a setting with highly transferable skills, idiosyncratic shocks lead to a reallocation of human capital that moves an industry towards a better overall match between individual-level and firm-level productivity.
    JEL: G31 G32 G33 J24
    Date: 2022–02
  4. By: John W. Barry; Murillo Campello; John Graham; Yueran Ma
    Abstract: We use the COVID shock to study the direct and interactive effects of several forms of corporate flexibility on short- and long-term real business plans. We find that i) workplace flexibility, namely the ability for employees to work remotely, plays a central role in determining firms’ employment plans during the health crisis; ii) investment flexibility allows firms to increase or decrease capital spending based on their business prospects in the crisis, with effects shaped by workplace flexibility; and iii) financial flexibility contributes to stronger employment and investment, in particular when fixed costs are high. While the role of workplace flexibility is new to the COVID crisis, CFOs expect lasting effects for years to come: high workplace flexibility firms foresee continuation of remote work, stronger employment recovery, and shifting away from traditional capital investment, whereas low workplace flexibility firms rely more on automation to replace labor.
    JEL: G01 G17 G31
    Date: 2022–02
  5. By: Azhar, Nurul Izzaty Hasanah; Lokman, Norziana; Alam, Md. Mahmudul (Universiti Utara Malaysia); Said, Jamaliah
    Abstract: Predicting the sustainability of a business is crucial to prevent financial losses among shareholders and investors. This study attempts to evaluate the Altman model for predicting corporate failure in distressed and non-distressed Malaysian companies based on the data of financially troubled companies which are classified as Practice Note 17 (PN17) and matching similar non-PN17 companies during the period 2013 to 2017. This study utilizes panel ordinal and panel random effects regressions. Findings show that the liquidity, profitability, leverage, solvency, and efficiency ratios are negatively significantly associated with corporate failure and bankruptcy. The leverage ratio is determined to be the strongest indicator of bankruptcy, followed by profitability, liquidity, solvency, and efficiency ratios. The findings will help companies’ management bodies implement suitable strategies to prevent further financial leakage, thereby ensuring continuous and sustainable return on investment and profits for investors and shareholders.
    Date: 2021–11–30
  6. By: Giuseppe Cascarino (Banca d'Italia); Raffaele Gallo (Banca d'Italia); Francesco Palazzo (Banca d'Italia); Enrico Sette (Banca d'Italia)
    Abstract: We study the public loan guarantee programs implemented in Italy in the aftermath of the Covid-19 pandemic. Guided by a theoretical model and relying on a unique loan-level dataset covering the period between December 2019 and March 2021, we quantify to what extent public guarantees created additional credit across programs with different coverage ratios and over time. We also document that bank capitalization affected additionality for loans with lower coverage, in which banks have more skin in the game. In contrast, the additionality of the public guarantees varied very little across firms with different levels of risk, liquidity, and size.
    Keywords: public loan guarantees, credit additionality, bank capital, pandemic.
    JEL: G21 G24
    Date: 2022–03
  7. By: Soheil Kazemian (ECU - Edith Cowan University); Hadrian Djajadikerta (ECU - Edith Cowan University); Jamaliah Said (UiTM - Universiti Teknologi MARA [Shah Alam]); Saiyidi Roni (Murdoch University); Terri Trireksani (Murdoch University); Md. Mahmudul Alam (UUM - Universiti Utara Malaysia)
    Abstract: Market orientation has been known as an efficient managerial tool to assist in sustaining the performance of organisations. Market orientation has three dimensions, namely customer orientation, competitor orientation and inter-function coordination. This paper evaluates how corporate governance influences the three dimensions of market orientation within Iran's upscale hotels. The impacts of the three dimensions of market orientation on the hotels' social and financial performance are also examined to determine if market orientation mediates the relationships between corporate governance and performance. Partial least squares structural equation modelling (PLS-SEM) is used to analyse the survey data collected from the executives of four- and five-star hotels in Mashhad, Iran. Results show that corporate governance positively influences the three dimensions of market orientation, while overall market orientation influences financial and social performance. Specifically, customer orientation and inter-function coordination significantly reinforce such mediation, whereas the influence of competitor orientation is limited to financial performance.
    Keywords: upscale hotels,tourism and hospitality,social performance,financial performance,market orientation,Corporate governance,Iran,partial least squares,PLS
    Date: 2021
  8. By: Federico Huneeus; Joseph P. Kaboski; Mauricio Larrain; Sergio L. Schmukler; Mario Vera
    Abstract: We study the distribution of credit during crisis times and its impact on firm indebtedness and macroeconomic risk. Whereas policies can help firms in need of financing, they can lead to adverse selection from riskier firms and higher default risk. We analyze a large-scale program of public credit guarantees in Chile during the COVID-19 pandemic using unique transaction-level data of demand and supply of credit, matched with administrative tax data, for the universe of banks and firms. Credit demand channels loans toward riskier firms, distributing 4.6% of GDP and increasing firm leverage. Despite increased lending to riskier firms at the micro level, macroeconomic risks remain small. Several factors mitigate aggregate risk: the small weight of riskier firms, the exclusion of the riskiest firms, bank screening, contained expected defaults, and the government absorption of tail risk. We quantitatively confirm our empirical findings with a model of heterogeneous firms and endogenous default.
    JEL: E44 E5 G01
    Date: 2022–02
  9. By: Sondakh, Jullie J.; Tulung, Joy E.; Karamoy, Herman
    Abstract: The study aimed to investigate the effect of third-party funds, credit risk, market risk, and operational risk on profitability in banking, especially on the banks included in BUKU 2 category simultaneously or partially. The sampling technique used in the study was saturated sampling. Therefore, a number of 54 banks were obtained as samples. The data in the study were quantitative data, namely in form of financial statements of banking companies included in BUKU 2 category for period 2014-2017. The data were obtained from websites of the concerned banks. The research method used was multiple linear regression analysis. In the study, to measure the Third-Party Funds variable used DPK ratio, to measure the Credit Risk variable used NPL and NPF ratio, to measure the Market Risk variable used NIM ratio, to measure the Operational Risk variable used BOPO ratio, and to measure the Profitability variable used ROA ratio. The result of the study showed that partially third-party funds and credit risk had no significant effect on profitability, partially market risk had significant positive effect on profitability, and partially credit risk had significant negative effect on profitability. While simultaneously, third-party funds, credit risk, market risk, and operational risk had significant effect on profitability.
    Keywords: Third-Party Funds, Credit Risk, Market Risk, Operational Risk
    JEL: G21 G32
    Date: 2021–03–07
  10. By: Oliver Binz; John Graham
    Abstract: We examine whether the Securities Exchange Act of 1934 increased the information content of corporate earnings disclosures. Prior research questions whether the Act improved disclosure quality but generally relies on long-window tests and yields mixed results. We focus on whether the Act increased earnings informativeness, improving upon prior designs by focusing on short earnings announcement windows and employing a difference-in-differences design to control for potential contemporaneous structural changes. We document an increase in earnings informativeness following the Act, which is larger for treatment firms (which withheld disclosure before the Act) than for control firms. The increase in informativeness is more pronounced for firms that are subject to stronger enforcement.
    JEL: B26 G14 G18 K22 M41 M48
    Date: 2022–02
  11. By: Dinara Alpysbayeva (Norwegian University of Life Sciences, School of Economics and Business); Jozef Konings (Nazarbayev University, Graduate School of Business); Venkat Subramanian (Nazarbayev University, Graduate School of Business); Aigerim Yergabulova (Nazarbayev University, Graduate School of Business)
    Abstract: This paper studies within-firm pay inequality and its impact on firm performance in Kazakhstan. We measure within-firm pay inequality as the wage differential between the top- and the bottom-level job occupations. First, we report that wage inequality is higher in larger firms. This finding is consistent with the theories of differentiated pay schemes and the scope of control. Further, we explore to what extent a rise in firm inequality affects firm performance. Although a higher wage dispersion may serve as a signal to attract more productive or talented workers, we find no evidence to support the idea that incentive-based pay can boost overall firm performance. The negative impact points to rent extraction by top job occupations.
    Keywords: Pay inequality, Job occupations, Performance, Firm size
    JEL: J31 L25 M52
    Date: 2022–03

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