nep-cfn New Economics Papers
on Corporate Finance
Issue of 2024‒01‒29
eleven papers chosen by
Zelia Serrasqueiro, Universidade da Beira Interior

  1. Venture capital and methods of payment in mergers and acquisitions By Giang Nguyen; Hung Pham
  2. Building a Financial Constraint Index for Türkiye By Hatice Gökce Karasoy Can; Evren Erdogan Cosar
  3. The Covid-19 crisis was different:Assessing the Italian firms in trouble through a new indicator of financial solidity By Carlo Boselli; Stefano Costa; Marco Rinaldi; Claudio Vicarelli
  4. Access to Digital Finance: Equity Crowdfunding across Countries and Platforms By Estrin, Saul; Khavul, Susanna; Kritikos, Alexander S.; Löher, Jonas
  5. Three centuries of corporate governance in the UK By Turner, John D.
  6. Share of Americans in Financial Distress Reaches High Levels By Masataka Mori; Juan M. Sanchez
  7. Increasing Profitability and Confidence by using Interpretable Model for Investment Decisions By Sahar Arshad; Seemab Latif; Ahmad Salman; Saadia Irfan
  8. The TCJA and Domestic Corporate Tax Rates By Christine L. Dobridge; Patrick Kennedy; Paul Landefeld; Jacob Mortenson
  9. Displaying risk in mergers: a diagrammatic approach for exchange ratio determination By Alessandra Mainini; Enrico Moretto; Daniela Visetti
  10. Financial Performance of Microfinance Institutions in Senegal and Ivory Coast: What are the Determinants? By Amon Aniké DEH; Ndeye Paane KHOUMA
  11. Time-varying investment dynamics in the USA By Ivan Mendieta-Muñoz

  1. By: Giang Nguyen (EM - emlyon business school); Hung Pham
    Abstract: "We find evidence that venture capital (VC)-backed targets receive more stock as the method of payment in mergers and acquisitions than non-VC-backed targets do, even after controlling for self-selection bias, differences of characteristics between transactions of VC-backed and non-VC-backed targets and VC information bridge-building. VC-backed targets prefer stock of acquirers that are small, young, risky or invest intensively. In addition, we document that the ratio of stock is larger when the targets are financed by reputable VCs, a syndicate of VCs or VCs with low fund maturity. Overall, our findings suggest that VCs strategically hold shares of the acquirers that meet their investment preferences."
    Keywords: Venture capital, Merger and acquisition, Method of payment
    Date: 2023–09–10
  2. By: Hatice Gökce Karasoy Can; Evren Erdogan Cosar
    Abstract: The aim of this paper is to construct an index of financial constraints for firms in Türkiye. Traditional indices such as the KZ index, the WW index and the HP index have been constructed for advanced economies such as the United States or European countries. In this study, we take advantage of the Investment Tendency Survey sent to firms by the Central Bank of the Republic of Türkiye to extract a real indicator of financial constraints based on managers' own evaluations of their firms. The survey question on the factors that stimulate investment decisions is evaluated as a true indicator of financial constraints, and then this response is predicted with various balance sheet indicators. In this way, we construct an index of financial constraints that is specific to firms operating in the Turkish economy. We find that financial constraints can be determined with seven fundamental variables: age of the firm, size, change in size, profitability, leverage, tangibles (tangible assets to total assets) and export share. We prove the validity of the index by showing that financially constrained firms identified by this index have real difficulties in accessing bank credit in the form of lower volumes, higher interest rates and shorter loan maturities. We then show that financial constraints have a dampening effect on the firm's net worth and investment both through its own effect and through the long-term borrowing channel. Moreover, the transmission of a macro-financial shock is persistently affected by the financial constraint status. Finally, the validity of the index applies to a larger sample of companies.
    Keywords: Index of financial constraints, KZ index, Investment tendency, Turkish firms, Turkish economy
    JEL: E44 E60 G30
    Date: 2023
  3. By: Carlo Boselli (Italian National Statistical Institute); Stefano Costa (Italian National Statistical Institute); Marco Rinaldi (Italian National Statistical Institute); Claudio Vicarelli (Italian National Statistical Institute)
    Abstract: We present a new indicator of economic-financial solidity (EFSI) of Italian firms, considering profitability, solidity and firm liquidity, all evaluated in terms of their sustainability over time. On the basis of EFSI values, we classify firms in four classes, according to their degree of exposure to income and financial risks: Healty, Fragiles, At-risk, Highly at-risk. This indicator shows that in 2011-2020 a tightening process of economic and financial structure took place in the Italian business system, a trend that surprisingly continued also during the pandemic year. To investigate this, we consider the entry of firms into the Highly at-risk class (“downgrades†) in 2019-20. Through a matching technique, we run two counterfactual exercises, estimating at a sector-firm size level what the downgrade rates would have been during the crisis of 2019-20 had the business system had the same economic-financial structure prevailing in 2011 (i.e. at the eve of 2011-12 crisis) or in 2019 (i.e. the last year of economic growth). By this way, we can evaluate whether, and to what extent, the financial support to firms during 2020 contributed to the resilience of the Italian business system. Our results show that, with respect to pre-Covid year, firm aids limited the negative consequences of the pandemic especially on the smaller firms (those more severely hit by the crisis); with respect the 2011-12 crisis, in several sectors support measures more than fully compensate for the negative effects of the pandemic notwithstanding its stronger economic impact on GDP than the previous crisis episode.
    Keywords: Covid-19; Economic-financial solidity; Firm aids; Mahalanobis-metric matching
    JEL: G01 H12 H81 H84 L60 L80
    Date: 2023
  4. By: Estrin, Saul (London School of Economics); Khavul, Susanna (San Jose State University); Kritikos, Alexander S. (DIW Berlin); Löher, Jonas (IfM Bonn)
    Abstract: Financing entrepreneurship spurs innovation and economic growth. Digital financial platforms that crowdfund equity for entrepreneurs have emerged globally, yet they remain poorly understood. We model equity crowdfunding in terms of the relationship between the number of investors and the amount of money raised per pitch. We examine heterogeneity in the average amount raised per pitch that is associated with differences across three countries and seven platforms. Using a novel dataset of successful fundraising on the most prominent platforms in the UK, Germany, and the USA, we find the underlying relationship between the number of investors and the amount of money raised for entrepreneurs is loglinear, with a coefficient less than one and concave to the origin. We identify significant variation in the average amount invested in each pitch across countries and platforms. Our findings have implications for market actors as well as regulators who set competitive frameworks.
    Keywords: equity crowdfunding, soft information, entrepreneurship, finance, financial access and inclusion
    JEL: D26 G23 G41 L26
    Date: 2023–12
  5. By: Turner, John D.
    Abstract: As articulated by Adam Smith, one of the central issues facing companies is that managers will not run the business in the interests of its owners and will misuse resources. This ultimately has a detrimental consequence for the wealth of the nation. This survey reviews the nature and evolution of the corporate governance of UK public companies over the past 300 years. It makes two principal arguments. First, because the separation of ownership and control was one of the rationales for the introduction of the corporate form, we should not be surprised that corporate ownership has generally been diffuse. Second, over time, the way in which owners ensure that managers act in their interests has gradually changed from a system in which shareholders monitored and exercised voice to one where there was more reliance on external forces and exiting ownership.
    Keywords: Corporate governance, shareholders, ownership, control, agency costs, UK
    JEL: G30 G34 K22 N23 N24 N83 N83
    Date: 2024
  6. By: Masataka Mori; Juan M. Sanchez
    Abstract: A smaller share of Americans were in financial distress in 2021 than before the pandemic. Depending on the type of debt, the incidence of financial distress has returned to a high level in 2023.
    Keywords: financial distress
    Date: 2023–12–26
  7. By: Sahar Arshad; Seemab Latif; Ahmad Salman; Saadia Irfan
    Abstract: Financial forecasting plays an important role in making informed decisions for financial stakeholders, specifically in the stock exchange market. In a traditional setting, investors commonly rely on the equity research department for valuable reports on market insights and investment recommendations. The equity research department, however, faces challenges in effectuating decision-making due to the demanding cognitive effort required for analyzing the inherently volatile nature of market dynamics. Furthermore, financial forecasting systems employed by analysts pose potential risks in terms of interpretability and gaining the trust of all stakeholders. This paper presents an interpretable decision-making model leveraging the SHAP-based explainability technique to forecast investment recommendations. The proposed solution not only provides valuable insights into the factors that influence forecasted recommendations but also caters to investors of varying types, including those interested in daily and short-term investment opportunities. To ascertain the efficacy of the proposed model, a case study is devised that demonstrates a notable enhancement in investor's portfolio value, employing our trading strategies. The results highlight the significance of incorporating interpretability in forecasting models to boost stakeholders' confidence and foster transparency in the stock exchange domain.
    Date: 2023–12
  8. By: Christine L. Dobridge; Patrick Kennedy; Paul Landefeld; Jacob Mortenson
    Abstract: We study changes in tax positions for U.S. C corporations following passage of the 2017 tax legislation commonly known as the Tax Cuts and Jobs Act (TCJA). While existing research has focused primarily on publicly traded companies, data limitations have prevented more holistic analyses of the corporate sector. Using a representative sample of U.S. corporate tax returns, we highlight how trends in effective tax rates (ETRs) and exposure to the legislation’s main provisions varied for public, private, multinational, domestic, and large versus small firms. We document several novel facts, including that ETRs increased on average for privately held, domestic firms and for firms in the bottom 90% of the firm sales distribution after TCJA. In contrast, public, multinational, and large firms saw substantial ETR cuts on average. We find that firms' pre-TCJA exposure to changes in the corporate tax rate and treatment of net operating losses have the strongest correlation with post-TCJA ETR changes. Overall, the analysis underscores the divergent impacts of TCJA on different firm types and illuminates the economic scope and relative significance of TCJA’s myriad provisions.
    Keywords: Corporate taxes; Tax Cuts and Jobs Act; Tax reform
    JEL: H20 H25
    Date: 2023–12–15
  9. By: Alessandra Mainini; Enrico Moretto; Daniela Visetti
    Abstract: This article extends, in a stochastic setting, previous results in the determination of feasible exchange ratios for merging companies. A first outcome is that shareholders of the companies involved in the merging process face both an upper and a lower bounds for acceptable exchange ratios. Secondly, in order for the improved ‘bargaining region’ to be intelligibly displayed, the diagrammatic approach developed by Kulpa is exploited.
    Keywords: Mergers and acquisitions, exchange ratio determination, synergy, risk-adjusted performance, diagrammatic representation
    Date: 2024–01
  10. By: Amon Aniké DEH (UASZ - Université Assane Seck de Ziguinchor [Sénégal]); Ndeye Paane KHOUMA (UCAD - Université Cheikh Anta Diop de Dakar [Sénégal])
    Abstract: The purpose of this article is to study the determinants of the financial performance of MFIs in Senegal and Côte d'Ivoire, using the institutionalist approach. Our epistemological posture is positivism with a hypothetico-deductive reasoning and a quantitative approach. The data come from the BCEAO database and cover a sample of nineteen (19) MFIs during the periods from 2016 to 2019. The results of the compound error model show that size, 12_24 month portfolio at risk, capital structure, liquidity, and Doing Business index have a significant influence on the financial performance of MFIs. However, robustness tests with quantile regression at the three distribution thresholds (25%, 50%, and 75%) show that only the MFI's size, its 12-24 month PAR, and its creditworthiness have a significant impact on its financial performance. The knowledge of these factors could be useful to the managers of these MFIs in the adoption of strategies to ensure good financial viability, which is a guarantee of their sustainability and indispensable to ensure their social mission effectively.
    Abstract: L'objet de cet article est en embrassant l'approche des institutionnalistes, d'étudier les déterminants de la performance financière des IMF au Sénégal et en Côte d'Ivoire. Notre posture épistémologique est le positivisme avec un raisonnement hypothético-déductif et une démarche quantitative. Les données proviennent de la base de données de la BCEAO et portent sur un échantillon de Dix-neuf (19) IMF durant les périodes de 2016 à 2019. Les résultats du modèle à erreurs composées montrent que la taille, le portefeuille à risque 12-24 mois, la structure du capital, la liquidité et l'indice Doing Business ont une influence significative sur la performance financière des IMF. Toutefois, les tests de robustesse avec la régression quantile aux trois seuils de distribution (25%, 50% et 75%), montrent que seules la taille de l'IMF, son PAR 12-24 mois et son degré de solvabilité ont un impact significatif sur cette performance financière. La connaissance de ces facteurs pourrait être utile aux managers de ces IMF dans l'adoption de stratégies permettant d'assurer une bonne viabilité financière, gage de leur pérennité et indispensable pour assurer efficacement leur mission sociale.
    Keywords: Microfinance, Financial performance, Social performance, WAEMU, Regression, Performance financière, Performance sociale, UEMOA, Régression
    Date: 2023–07–03
  11. By: Ivan Mendieta-Muñoz
    Abstract: We study the time-varying effects of Tobin’s q and cash flow on investment dynamics in the USA using a vector autoregression model with drifting parameters and stochastic volatilities estimated via Bayesian methods. We find significant variation over time of the response of investment to shocks in both variables. The time-varying sensitivity of investment to a shock in Tobin’s q (cash flow) decreased (increased) since the early 1960s through the early 1980s, increased (decreased) since the early 1980s through the early 2000s, and it has decreased (increased) importantly again since then. Our results show that, although Tobin’s q and cash flow are complementary sources of information for investment decisions, their relative importance for investment dynamics has varied considerably over time, so both variables also represent alternative sources of information for short-run fluctuations in investment.
    Keywords: Investment dynamics, Tobin’s q, cash flow, time-varying parameters, vector autoregression, stochastic volatility JEL Classification: C11, C32, E22, E32, G31
    Date: 2024

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