nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒05‒22
eight papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Korean Venture Firms' Sources of Capital By Ahn, Sohyun
  2. Business group heterogeneity and firm outcomes: Evidence from Korean chaebols By Ducret, Romain; Isakov, Dušan
  3. Downward Revision of Investment Decisions after Corporate Tax Hikes By Link, Sebastian; Menkhoff, Manuel; Peichl, Andreas; Schüle, Paul
  4. The Collateral Channel and Bank Credit By Arun Gupta; Horacio Sapriza; Vladimir Yankov
  5. Board Generational Diversity in Emerging Markets By IWASAKI, Ichiro; MA, Xinxin; MIZOBATA, Satoshi
  6. Impact of Managerial Entrenchment on Firm Performance By Waseem, Fareeha
  7. Measuring the non-financial performance of firms through the lens of the OECD Well-being Framework: A common measurement framework for “Scope 1” Social performance By Vincent Siegerink; Michal Shinwell; Žiga Žarnic
  8. Effects of CEO Duality, Board Independence, Ownership Concentration, Company Age on Profit Persistence and Firm Value: An Empirical Study of Manufacturing Companies in West Java, Indonesia By Sutrisno, Sutrisno

  1. By: Ahn, Sohyun (Korea Institute for Industrial Economics and Trade)
    Abstract: Financing decisions are some of the most important decisions firms make. Many scholars have focused on studying the mechanism behind these decisions, and comparing the outcomes of different sources of capital. Studies have found that firms’ financial decisions interact with other business decisions, such as investment decisions. Moreover, different sources of capital affect other players in the market differently, through which firms’ financing decisions affect the overall structure of the economy. This article examines the relationship between financing and other firm characteristics to shed light on firms’ strategies and performance in Korea. Korean venture firms’ unique characteristics may affect their business strategies and performance. In this article, I analyze the characteristic of venture firms by focusing on their financing decisions. Specifically, I categorize and define venture firms by the sources of capital utilized and compare their characteristics and performance using survey data from 2021. Keywords: venture firms, venture capital, venture financing, small and medium-sized enterprises, SMEs, capital financing, financing decisions, equity financing, debt financing, imperfect information, imformation asymmetry, angel investment, Korea, innovation policy
    Keywords: venture firms; venture capital; venture financing; small and medium-sized enterprises; SMEs; capital financing; financing decisions; equity financing; debt financing; imperfect information; imformation asymmetry; angel investment; Korea; innovation policy
    JEL: D81 D83 L25 O30 O31 O38 R11 R12
    Date: 2023–04–30
  2. By: Ducret, Romain (Faculty of Economics and Social Sciences); Isakov, Dušan
    Abstract: This paper examines the impact of business group affiliation on the performance and corporate policies of Korean listed firms over the period 2007-2019. This study proposes a novel approach allowing the observation of heterogeneity in the affiliation effects. Overall, we conclude that business group characteristics are reflected in firm outcomes. We find that investors perceive group membership positively as they pay a premium to hold affiliated firms. The premium is related to profitability and size of business groups, consistent with resourcebased theories. The analysis also identifies significant group specific effects on firm policies. These findings suggest that several business groups follow group-level strategies and apply homogeneous financial and investment policies to all their affiliates.
    Keywords: Business groups; performance; financing policies; investment; Korea
    JEL: G30 G32 G35 L22
    Date: 2023–04–07
  3. By: Link, Sebastian (Ifo Institute for Economic Research); Menkhoff, Manuel (Ifo Institute for Economic Research); Peichl, Andreas (Ludwig-Maximilians-Universität München); Schüle, Paul (Ifo Institute for Economic Research)
    Abstract: This paper estimates the causal effect of corporate tax hikes on firm investment based on more than 1, 400 local tax changes. By observing planned and realized investment volumes in a representative sample of German manufacturing firms, we can study how tax hikes induce firms to revise their investment decisions. On average, the share of firms that invest less than previously planned increases by three percentage points after a tax hike. This effect is twice as large during recessions.
    Keywords: investment, corporate taxation, state dependence, business cycle
    JEL: G11 H25 H32 H71 O16
    Date: 2023–04
  4. By: Arun Gupta; Horacio Sapriza; Vladimir Yankov
    Abstract: Our paper studies the role of the collateral channel for bank credit using confidential bank-firm-loan data. We estimate that for a 1 percent increase in collateral values, firms pledging real estate collateral experience a 12 basis point higher growth in bank lending with higher sensitivities for more credit constrained firms. Higher real estate values boost firm capital expenditures and lead to lower unemployment and higher employment growth and business creation. Our estimates imply that as much as 37 percent of employment growth over the period from 2013 to 2019 can be attributed to the relaxation of borrowing constraints.
    Keywords: Collateral channel; firm borrowing constraints; bank credit allocation; corporate investment; macro-finance; transmission mechanisms
    JEL: E44 G21
    Date: 2022–04–25
  5. By: IWASAKI, Ichiro; MA, Xinxin; MIZOBATA, Satoshi
    Abstract: To identify the determinants of the generational diversity of board membership in emerging market firms, we conducted an empirical analysis using state-level social inequality indices and data on 14, 598 listed/unlisted firms from 20 Eastern European countries and China. We found that, in these emerging markets, social inequality strongly inhibits the generational diversity of board membership, regardless of the gender of board members. The results also reveal that four firm attributes—board size, CEO duality, state ownership, and the presence of foreign investors from non-advanced economies as firm owners—significantly affect the age composition of board directors in line with our expectations. Two other firm attributes—ownership concentration and firm ownership by foreign investors from advanced economies—are also found to have a significant impact on board generational diversity; however, the direction of their impact contradicts our predictions. Supplementary estimations carried out by introducing various sample restrictions produce similar results, thus confirming the statistical robustness of our findings.
    Keywords: board generational diversity, social inequality, emerging markets, Eastern Europe, China
    JEL: D22 G32 J44 K22 L22 P34
    Date: 2023–04
  6. By: Waseem, Fareeha
    Abstract: This research attempts to analyze the impact of managerial entrenchment on firm performance in the context of KSE-100 index companies in Pakistan. The given study engages the CEO share as the measure of managerial entrenchment and investigate its impact on financial performance of companies. In pertinent to this, regression analysis has been utilized by employing the top performing corporations listed on KSE-100 index. For measurement of firm performance, this study employs the two variables used to quantify firm performance as “return on assets (ROA)” and “Tobin's Q”. This study comprises 318 observations, from 53 non-financial companies of Pakistan Stock Exchange (PSX), over 6 years period (2015-2020) from annual reports. The results of this study indicate that there is a significant negative relationship between the managerial entrenchment measured through CEO share and financial performance measured through ROA and Tobin’s Q. The study has some limitations. The future researchers can add other parameters of managerial entrenchment such as board independence, board compensation, tenure and management duality to get more insights on this association. The research findings are giving implications for managers, investors and shareholders. Managers may adopt techniques that allow them to strengthen their position thus gaining investors’ confidence. This research extends the literature by comprehensively employing the impact of managerial entrenchment on financial performance of companies in KSE-100 index companies that was predominately neglected by the previous researchers in context of Pakistan.
    Date: 2023–03–30
  7. By: Vincent Siegerink; Michal Shinwell; Žiga Žarnic
    Abstract: This paper presents a conceptual framework for understanding the non-financial performance of firms through the lens of the OECD Well-being Framework. Building on existing approaches for measuring non-financial performance, it proposes a measurement framework and indicator set for what may be referred to as “Scope 1” Social performance. This refers to the well-being of stakeholders that operate within the operational boundaries of the firm, namely employees, and the capital resources that a firm contributes to and depletes that are directly relevant to society as a whole. In line with the OECD Well-being Framework, this paper emphasises the importance of measuring the well-being outcomes of stakeholders alongside the resources that firms produce and deplete. The paper also emphasises the importance of aligning the measurement of the non-financial performance of businesses at the macro-level and sectoral level by national statistical offices (NSOs) with micro-level measures collected by firms themselves. Going forward, the OECD will continue to address the measurement gaps identified in this paper and to encourage further alignment of corporate and official measures of business non-financial performance.
    Keywords: ESG, Inclusive business models, Non-financial performance indicators, Social impact measurement, Sustainability, Well-being framework
    JEL: D63 G30 I31 M14
    Date: 2022–01–27
  8. By: Sutrisno, Sutrisno
    Abstract: This research examines the dual effect of CEO, board independence, ownership concentration, and company age on earnings persistence and firm value in manufacturing companies in West Java, Indonesia. The study conducted a survey of 78 manufacturing companies in West Java in 2022. The results show that CEO duality has a negative effect on earnings persistence, while board independence has a positive effect on earnings persistence. Ownership concentration has no significant effect on earnings persistence, and company age has a positive effect on earnings persistence. In addition, board independence and company age have a positive effect on firm value, while CEO duality and ownership concentration have no significant effect on firm value. These findings suggest that companies with separate CEO and board chairman positions and higher board independence are more likely to have persistent earnings and higher firm value. The study also implies that company age plays an important role in determining earnings persistence and firm value.
    Date: 2023–03–30

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