nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒09‒18
five papers chosen by
Zelia Serrasqueiro, Universidade da Beira Interior

  1. Corporate Governance exercised through the delicate balance between Shareholder’s rights and Board roles in Europe By Ngcetane-Vika, Thelela
  2. A heterogeneous-firm model of trade and growth with country-specific credit constraints By Ryoji Ohdoi; Kazuo Mino; Yunfang Hu
  3. Infrastructure and Finance: Evidence from India's GQ Highway Network By Abhiman Das; Ejaz Ghani; Arti Grover Goswami; William R. Kerr; Ramana Nanda
  4. Temperature and Local Industry Concentration By Jacopo Ponticelli; Qiping Xu; Stefan Zeume
  5. Risk Management and Derivatives Losses By Vicente García Averell; Calixto López Castañon; Gabriel Levin-Konigsberg; Hillary Stein

  1. By: Ngcetane-Vika, Thelela (Wits University, Johannesburg, South Africa)
    Abstract: Corporate governance is fundamental to well-run organisations. Accordingly, it is associated with the positive performance of corporations and international best practices. It is the blueprint that helps shareholders scope their activities and engagement within a company, including the role and structures of the Board of Directors (BoD). It is against this backdrop that the BoD is the nexus between executive leadership and corporate governance, a hallmark of an effective functioning corporation and the affirming of an integrative approach. Thus, good corporate governance is arguably an important tool in curbing corporate malfeasance and limiting scandals in corporations. Conversely, poor corporate governance is observed when there are lapses in this relationship between shareholder‘s rights and board roles. Invariably, this leads to corporate lapses and scandals. Europe has made strides in corporate governance, through its developing legislative framework. Pursuantly, corporate governance theories exercised in Europe posit ownership and management as key variables to achieving well-run organizations. Thus, central to corporate governance is the principle of separation of ownership and management. In tandem with this view, good corporate governance is achieved through the delicate balance of the rights of shareholders as owners of the company and the roles of directors who have the duty to run the affairs of the company, as enshrined in the Statute governing Company law. The empirical basis for this paper has included collecting data mostly from primary and secondary sources, including literature review on books, articles, case laws and relevant Statutes. The paper contributes to theory, practice, and policy formulation but specifically, to the importance of shareholders’ rights and board roles in corporate governance in Europe. Similarly, policy-makers could find these insights useful to inform evidence-based practices and policymaking
    Date: 2023–08–21
  2. By: Ryoji Ohdoi (School of Economics, Kwansei Gakuin University); Kazuo Mino (Kyoto Institute of Economic Research, Kyoto University); Yunfang Hu (Graduate School of Economics, Kobe University)
    Abstract: This study constructs a two-country endogenous growth model with heterogeneous firms and asymmetric countries, where the asymmetry lies in the degree of financial frictions. The tradable intermediate goods sector consists of heterogeneous firms and requires specific goods for entry. These goods are produced by heterogeneous entrepreneurs facing credit constraints due to financial frictions. Using this framework, we derive the following results analytically. First, a permanent credit crunch in one country facilitates the exit of intermediate goods firms in that country; meanwhile, it decreases the profitability of exports of the other country’s intermediate goods firms, causing exporters to switch to selling their goods domestically. Second, under no international lending and borrowing, the credit crunch reduces the growth rates of both countries not only in the long run but also during the transition to a new balanced growth path. We also compare the long-run effects under such a financial autarky and financial integration.
    Keywords: Banks; Endogenous growth; Heterogeneous firms; Asymmetric countries; Financial frictions; Country-specific credit crunch
    JEL: F12 F43 O16 O41
    Date: 2023–08
  3. By: Abhiman Das; Ejaz Ghani; Arti Grover Goswami; William R. Kerr; Ramana Nanda
    Abstract: We use data from Reserve Bank of India to study the impact of India's Golden Quadrilateral (GQ) highway project on finance-dependent activity. Loan volumes increase by 20-30% in districts along GQ and are stronger in industries more dependent upon external finance. Loan growth begins with increases in average branch size and in places with more pre-GQ loan activity. New branch openings come later, consistent with short-run adjustment costs to expanding branch networks. These patterns are not evident in placebo tests using delayed investments in NS-EW highways. Results suggest the depth of initial financial infrastructure shapes how infrastructure investments impact localities.
    JEL: G21 H4 O18 R12 R14 R33 R42
    Date: 2023–08
  4. By: Jacopo Ponticelli; Qiping Xu; Stefan Zeume
    Abstract: We use plant-level data from the US Census of Manufacturers to study the short and long run effects of temperature on manufacturing activity. We document that temperature shocks significantly increase energy costs and lower the productivity of small manufacturing plants, while large plants are mostly unaffected. In US counties that experienced higher increases in average temperatures between the 1980s and the 2010s, these heterogeneous effects have led to higher concentration of manufacturing activity within large plants, and a reallocation of labor from small to large manufacturing establishments. We offer a preliminary discussion of potential mechanisms explaining why large manufacturing firms might be better equipped for long-run adaptation to climate change, including their ability to hedge across locations, easier access to finance, and higher managerial skills.
    JEL: G3 L11 O14 Q54
    Date: 2023–08
  5. By: Vicente García Averell; Calixto López Castañon; Gabriel Levin-Konigsberg; Hillary Stein
    Abstract: Even though financial risk management has the ability to generate value, the use of financial derivatives among nonfinancial corporations remains limited. We identify a channel that contributes to this limited use: the decoupling of derivatives losses and operational gains. Specifically, firms ex post consider their operational profits separately from their derivatives profits. We explore this phenomenon among firms in Mexico. We use the universe of US dollar Mexican peso currency derivatives transactions in Mexico along with customs data to construct a unique data set on operational exchange rate exposure and financial hedging. We find that contrary to a rational and frictionless benchmark, performance in previous derivatives transactions predicts future derivatives use. Using a regression kink design to measure the impact of decoupling on risk management, we find that when losses from previous transactions increase 1 percentage point, firms become 4.24 percentage points less likely to take out a new derivatives position within 90 days. We provide further evidence that is consistent with decoupling and supports rejecting a net worth channel.
    Keywords: risk management; exchange rates; financial hedging; narrow framing; loss aversion
    JEL: G32 F31
    Date: 2023–07–01

This nep-cfn issue is ©2023 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.
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