nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒05‒01
eleven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Firm Size and Financing Behavior during the COVID-19 Pandemic: Evidence from SMEs in Istanbul By Gur Nurullah; Babacan Mehmet; Ahmet Faruk Aysan; Suleyman Selim
  2. Corporate governance and business performance of hotels in Western Australia: analysis of market orientation as a mediator By Kazemian, Soheil; Djajadikerta, Hadrian Geri; Trireksani, Terri; Mohd-Sanusi, Zuraidah; Alam, Md. Mahmudul
  3. Different Market Segmentations of Dividend Policies: A Dynamic Panel Data Analysis By Nor Anis Shafai
  4. COVID-19: Firm Value and Pre-Existing Corporate Governance Regulations By Masanori Orihara
  5. Who shall succeed? An examination of manager overconfidence and CEO selection By Lin Li; Wilson H S Tong
  6. Women in Fintech: As Leaders and Users By Purva Khera; Ratna Sahay; Sumiko Ogawa; Mahima Vasishth; Ratna Sahay
  7. Distributed VC Firms: The Next Iteration of Venture Capital By Mohib Jafri; Andy Wu
  8. Does ESG Affect The Firm Value? By Agustin Palupi
  9. The Information Content from Lending Relationships Across the Supply Chain By Theo Cotrim Martins; Rafael Schiozer; Fernando de Menezes Linardi
  10. An Intangibles-Adjusted Profitability Factor By Ravi Jagannathan; Robert Korajczyk; Kai Wang
  11. Banks vs. firms: who benefits from credit guarantees? By Alberto Martin; Sergio Mayordomo; Victoria Vanasco

  1. By: Gur Nurullah (Istanbul Medipol University); Babacan Mehmet (Istanbul Medipol University); Ahmet Faruk Aysan (HBKU - Hamad Bin Khalifa University); Suleyman Selim (Istanbul Chamber of Commerce)
    Abstract: This paper examines how small and medium-size enterprises (SMEs) in Istanbul managed their financial needs during the COVID-19 pandemic. A unique survey was conducted in May-June 2021 to analyze the effect of the pandemic on financial conditions and access to finance. The paper maps the differences between firms in terms of their financing conditions and behavior based on their size during the pandemic. The novel data set helps to conceptualize the impact of the COVID-19 pandemic on SMEs. The paper makes a contribution to the literature through using a large number of variables related to firms' financial conditions and opportunities (e.g., credit restructuring, debt postponing, capital injection). The paper hypothesizes that SMEs are less likely than large firms to access formal finance opportunities, but they tend to rely more on informal financing. The empirical findings suggest that, during the pandemic, micro and small firms tend to borrow more from their acquaintances, such as relatives and friends. Micro firms are less likely to restructure their outstanding loans, borrow from banks, or inject capital. Furthermore, micro firms tend to cut their costs more to avoid further difficulty in their financial positions. Micro and small firms tend to apply for bank loans less than large firms, while medium-size firms are more likely to apply. Micro and small firms are more inclined to report difficulty in accessing credit.
    Keywords: COVID-19 emerging markets finance small and medium-size enterprises (SMEs) JEL Classifications: D22 G21 H81 COVID-19 emerging markets finance small and medium-size enterprises (SMEs) JEL Classifications: D22 G21 H81, COVID-19, emerging markets, finance, small and medium-size enterprises (SMEs) JEL Classifications: D22, G21, H81 COVID-19, H81
    Date: 2023–02–12
  2. By: Kazemian, Soheil; Djajadikerta, Hadrian Geri; Trireksani, Terri; Mohd-Sanusi, Zuraidah; Alam, Md. Mahmudul (Universiti Utara Malaysia)
    Abstract: Purpose: This study examines whether corporate governance enhances the financial and social business performance of three- to five-star hotels in Western Australia through the three dimensions of market orientation (i.e., customer orientation, competitor orientation, and inter-function coordination) as mediators. Design/methodology/approach: Data were collected from managers of hotels in the WA capital city of Perth and its surrounding areas using a questionnaire. Partial least squares structural equation modelling (PLS-SEM) was used to analyse the data. Findings: The overall result shows interesting findings of market orientation's mediating role. It is found that corporate governance may lead to better financial business performance through competitor orientation, but not through customer orientation and inter-function coordination. Complementary, corporate governance may lead to better social business performance through customer orientation and inter-function coordination, but not through competitor orientation. Originality: This paper offers contributions to both literature and practice on what dimensions of market orientation are important to enhance the performance of hotels when corporate governance is applied.
    Date: 2022–03–08
  3. By: Nor Anis Shafai (Faculty of Business and Management, Universiti Teknologi MARA, Malaysia Author-2-Name: Noor Hafizha Muhamad Yusuf Author-2-Workplace-Name: Faculty of Business and Management, Universiti Teknologi MARA, Malaysia Author-3-Name: Noor Sharida Badri Shah Author-3-Workplace-Name: Faculty of Business and Management, Universiti Teknologi MARA, Malaysia Author-4-Name: Norhisam Bulot Author-4-Workplace-Name: Faculty of Business and Management, Universiti Teknologi MARA, Malaysia 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 - Despite much previous research on the issue, dividend policy remains an unsolved conundrum in corporate finance. By considering this, the goal of this research is to use the Generalized Method of Moments to examine dividend behaviour by identifying the key determinants of dividend policy in three different countries with different market microstructures: Singapore (developed market), Malaysia (developing market), and Saudi Arabia (emerging market). Methodology/Technique - The study uses data from each country's top 100 listed firms from 2007 until 2016. The results suggest that different determinants influence firms' dividend policies for the three countries. Findings - For Singapore as a developed market, profitability, and size are shown to be significantly and positively related to the dividend payout ratio, whereas leverage, business risk, and growth opportunities exert a significant negative effect. Meanwhile, for Malaysia (a developing market), only firm size is a significant and positive determinant. However, leverage and business risk are negatively and significantly associated with the dividend payout ratio. Conversely, for Saudi Arabia as an emerging market, firm size and leverage positively and negatively influence the dividend payout ratio. Novelty - Therefore, this study employed the generalized method of moments (GMM) to uncover novel discoveries. The findings should motivate analysts, policymakers, institutional investors, and investors to investigate the dividend policy conundrum, mainly for three different market segmentations. Type of Paper - Empirical."
    Keywords: Dividend behaviour, market microstructure, and Generalized Method of Moments.
    JEL: G32 M14
    Date: 2023–03–31
  4. By: Masanori Orihara (Department of Policy and Planning Sciences, Faculty of Engineering, Information and Systems, University of Tsukuba)
    Abstract: We find that compliance to corporate governance regulations shields firm value in the COVID19 era. We consider the Japanese corporate governance code introduced just four years before its outbreak as a suitable setting. The code recommends, not mandates, that firms appoint at least two outside directors. Stock markets appreciated immediate minimal compliers, firms that had minimally met the recommendation right after its introduction and maintained minimal compliance afterwards, relative to others from December 2019 to November 2020. Overcompliers did not differ from others, which implies that strong governance as such does not contribute to firm value in crises. The positive valuation was clustered among domestic nonmanufacturers: a sector directly damaged by the reduced mobility due to COVID-19. The findings are consistent with reputational bonding and governance theories that predict bonding to better governance has more weight in crises than in normal times.
    Keywords: Outside Director, Firm Value, Bonding Hypothesis, COVID-19, Regulation, Japan
    JEL: G31 G32 G38
    Date: 2023–03
  5. By: Lin Li (Shenzhen Audencia Business School, Shenzhen University); Wilson H S Tong
    Abstract: By categorizing managerial confidence attributes into overconfidence, rationality and diffidence with the methodology used in the finance literature, we investigate how company boards strategically select chief executive officer (CEO) replacements from the senior management pool with different confidence attributes. In normal retirements, company boards tend to select succeeding managers with the same confidence attribute as retiring CEOs. If boards fire company CEOs, they tend to select rational successors irrespective of the confidence attributes of the ousted CEOs. Such board inclination of picking rational successors also occurs when corporate operation is at the recession stage or corporate strategy is changed surrounding succession. The evidence indicates that the managerial confidence attribute is an important consideration of the board in the CEO selection process and that the board deliberately selects the CEO with a certain attribute to move the firm in a planned direction.
    Keywords: CEO selection, corporate strategy, operation status, overconfidence, Overconfidence CEO selection Corporate strategy Operation status G3 G34 G39, Overconfidence, Corporate strategy, Operation status G3, G34, G39
    Date: 2022–11–15
  6. By: Purva Khera (International Monetary Fund); Ratna Sahay (International Monetary Fund); Sumiko Ogawa (International Monetary Fund); Mahima Vasishth (University of California); Ratna Sahay (International Monetary Fund)
    Abstract: While digital financial services have made access to finance easier, faster, and less costly, helping to broaden digital financial inclusion, its impact on gender gaps varies across countries. Moreover, women leaders in the fintech industry, although growing, remain scarce. This paper explores the interaction between ‘women’ and ‘fintech’ by examining: (i) the role of women leaders on firm-level performance in the fintech industry; and (ii) the determinants of gender gaps in the usage of digital services to better understand the crosscountry differences. Results indicate that greater gender diversity in the executive board is associated with better performance of fintech firms. With regard to determinants of the gender gaps in the usage of digital financial services, we find that higher financial and digital literacy of women is associated with lower gender gaps in digital financial inclusion, and that socio-cultural factors also play a key role.
    Keywords: Firm performance, Women leaders, Digital financial inclusion, Financial literacy, Digital literacy
    JEL: J16 L25 G53
    Date: 2023–03–02
  7. By: Mohib Jafri; Andy Wu
    Abstract: Using a combination of incentive modeling and empirical meta-analyses, this paper provides a pointed critique at the incentive systems that drive venture capital firms to optimize their practices towards activities that increase General Partner utility yet are disjoint from improving the underlying asset of startup equity. We propose a "distributed venture firm" powered by software automations and governed by a set of functional teams called "Pods" that carry out specific tasks with immediate and long-term payouts given on a deal-by-deal basis. Avenues are provided for further research to validate this model and discover likely paths to implementation.
    Date: 2023–04
  8. By: Agustin Palupi (Trisakti School of Management, Jl. Kyai Tapa No.20, Tomang, Kec. Grogol petamburan, 11440, Jakarta, Indonesia Author-2-Name: Author-2-Workplace-Name: Author-3-Name: Author-3-Workplace-Name: 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 - As the concept of sustainability develops in the industrial world, stakeholders are compelled to consider ESG performance when measuring company value. A company needs to increase its value and demonstrate its sustainability capabilities by publishing sustainability reports on ESG factors. This research aims to inquire whether ESG affects the firm's value. Methodology/Technique - The causality research is analyzed with Eviews using ASEAN panel data from 2019-2021 to measure the effect of ESG on firm value with a total of 738 firm years of data. Findings - Environmental performance is associated with high ecological costs in developing nations and is a burdensome additional expense that will deteriorate the company's financial condition. Disclosure of nonfinancial information jeopardizes the creation of company value, resulting from meeting the demands of stakeholders imposed on the company, thereby causing other agency conflicts. The relatively low level of investor confidence in the signal contributes to ESG performance that lowers the company's market value. Most investors respond negatively to these signals, assuming that the activities disclosed in ESG reporting are too costly and detrimental to their interests. They could be more enthralling in investing, decreasing market demand, and reducing the company's value. Novelty - This study explains the determinants of firm value from ESG scores and separate ESG scores in the ASEAN market. Type of Paper - Empirical."
    Keywords: ESG, Firm value, Environment score, Social score, Governance score, Sustainability
    JEL: F64 L50 Q25 G02 G39 M14
    Date: 2023–03–31
  9. By: Theo Cotrim Martins; Rafael Schiozer; Fernando de Menezes Linardi
    Abstract: Using unique administrative data on firm-to-firm payments and bank-to-firm lending, we investigate how lending to a firm is affected by same-bank lending to the firm’s customers and suppliers. We show that bank lending increases when the same bank also lends to the firm’s customers or suppliers. Additionally, we find that the revelation of negative information about the creditworthiness of a firm’s major customer causes an increase in the cost and a reduction in the duration of the loans provided to the firm. These results suggest that lending to firms connected through the supply chain conveys valuable information to banks.
    Date: 2023–03
  10. By: Ravi Jagannathan; Robert Korajczyk; Kai Wang
    Abstract: We treat expenditures that create intangible assets as investments and instead of expensing them, we add them back to earnings when measuring the return on equity of firms while constructing the profitability factor in the Fama and French (2015) five factor model. The profitability factor we construct has significant alpha relative to many extant multi-factor asset-pricing models, including the standard Fama-French five factor model. When the profitability factor in the Fama and French (2015) five factor model is replaced with our intangibles adjusted profitability factor, the model performs better in explaining the cross section of stock returns, and several anomalies documented in the literature. Portfolios that exploit price momentum, earnings momentum, and operating leverage no longer have significant alphas. The improvement is consistent with the dividend discount model for equity valuation. Adjusted earnings constructed by treating expenditures that create intangible assets as investments help forecast the cross section of future cash dividends and operating cash flows on stocks better, especially at longer horizons. Adopting our adjustment when constructing the monthly rebalanced profitability factor in the Hou et al. (2015) four factor model improves its performance as well. Our intangible adjusted profitability factor has smaller left tail risk and co-tail risk with the market when compared to the standard profitability factor.
    JEL: G0 G1 G12
    Date: 2023–03
  11. By: Alberto Martin; Sergio Mayordomo; Victoria Vanasco
    Abstract: Many countries implemented large-scale programs to guarantee private credit in response to the outbreak of COVID-19. Yet the role of banks in allocating guarantees - and thus in shaping their effects - is not well understood. We study this role in an economy where entrepreneurial effort is crucial for efficiency but it is not contractible, giving rise to a debt overhang problem. In such an environment, credit guarantees increase efficiency to the extent that they allow firms to reduce their repayment obligations. We show that banks follow a pecking order when allocating guarantees, prioritizing riskier, highly indebted, firms, from whom they can extract more surplus. The competitive equilibrium is constrained inefficient: all else equal, the planner would tilt the allocation of guarantees towards more productive, safer firms, and would fully pass-through the benefits of guarantees to firms in the form of lower repayments. We confirm the model's main predictions on the universe of all credit guarantees granted in Spain following the outbreak of COVID.
    Keywords: Credit guarantees, debt overhang, liquidations.
    Date: 2023–04

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