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on Corporate Finance |
| By: | Martin Farias (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: | This paper studies the impact of financial frictions on the allocation of cash flow using administrative data of Spanish non-financial corporations from 2003 to 2019. Employing an analytical framework based on the uses and sources of funds identity, I estimate regression models to examine the allocation of cash flow across its competing uses. My findings reveal that larger financial frictions are, on average, associated with a higher proportion of marginal cash flow allocated to debt repayment and lower proportions allocated to cash savings, investment, and dividend distribution. The analysis also highlights that the effect of financial frictions on the allocation of marginal cash flow varies significantly with variables capturing the economic and financial situation of each firm such as leverage, cash holdings, capital, and the availability of investment opportunities. |
| Keywords: | Financial frictions, cash flow, investment, dividends, debt, cash savings. |
| JEL: | G30 G32 G35 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:cmf:wpaper:wp2024_2409&r= |
| By: | To, Thomas; Wu, Eliza; Zhao, Diya |
| Abstract: | This paper examines the effect of board reforms on corporate acquisition performance using data from 31 countries. Using a difference-in-differences design, we find that the implementation of board reforms in the acquirer's country significantly increases acquirer returns. The increase is driven by reforms involving board independence, but not reforms involving audit committee independence nor the separation of CEO and board chair roles. Further analysis shows that the uplift in acquisition performance following improvements in board independence is strongest in acquirers with more agency problems. The ‘Board reform strengthening’ effect is concentrated in larger acquirers, with more free cash flows, executing large and public-target deals and operating in countries with ex-ante poor investor protection. The empirical evidence indicates that reforming board independence effectively alleviates agency problems between managers and shareholders and improves corporate acquisition performance. |
| Keywords: | agency problem; board reforms; corporate governance; investor protection; mergers and acquisitions |
| JEL: | J1 F3 G3 J50 |
| Date: | 2024–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123947&r= |
| By: | Imperatore, Claudia; Pope, Peter F. |
| Abstract: | Research Summary Investment growth in family firms is constrained by family preferences to retain corporate control, which limits outside equity issuance and increases the expropriation risk perceived by external minority shareholders. Tenure-based voting rights (TVRs) weaken the link between voting rights and cash flow rights, facilitating new equity capital issuance without loss of control. We find that publicly listed family firms in Italy adopt TVRs to facilitate the continuation of investment growth while retaining family control. We also find that in family firms with fragile control, investment increases after TVR adoption. Our results indicate that control-enhancing mechanisms such as TVRs can help resolve the control–growth dilemma in family firms. Managerial Summary Family firms tend to invest less than other firms because funding new investment can lead to loss of family control. Tenure-based voting rights (TVRs) reinforce the control of qualifying family shareholders, giving them extra shareholder voting power. Deviation from the one-share-one-vote principle is generally regarded as detrimental to outside shareholders' interests. However, we find that TVR-adopting Italian family firms invest more, pay higher dividends, are more profitable and have more outside shareholders on the board of directors. In other words, violation of the one-share-one-vote rule using TVRs can benefit both family owners and outside shareholders. Policymakers could consider whether TVRs can help in promoting economic growth, especially in countries where family firms are important. |
| Keywords: | control-enhancing mechanisms; disproportional ownership; family firms; tenure-voting rights; underinvestment |
| JEL: | M40 |
| Date: | 2024–06–07 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123881&r= |
| By: | Bustos, Emil (Research Institute of Industrial Economics (IFN)); Engist, Oliver (Department of Economics) |
| Abstract: | We study how financing constraints affect the cash holdings of small and medium-sized enterprises. There has been little empirical work on this topic, even though these firms often face financial constraints. We contribute by using detailed data on credit ratings in Sweden as a measure of financial constraints. We then use panel regressions and a regression-discontinuity analysis to estimate the relationship between access to credit and cash holdings. Our analysis finds no causal effect of credit ratings on cash holdings. |
| Keywords: | Financial Constraints; Cash; Private Firm; Credit Score |
| JEL: | D22 D25 G32 |
| Date: | 2024–06–25 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:iuiwop:1493&r= |
| By: | Nguyen, Quang Khai |
| Abstract: | In the context of emerging countries trying to attract foreign investors, building governance strategies and risk management of firms is an increasing concern. This study investigates the impact of financial flexibility strategies on the risk management effectiveness of firms and mechanism of these impacts by focusing on Vietnamese listed firms by applying the fixed effect and system GMM methods on a sample of 635 Vietnamese listed firms during the 2010–2021 period to derive empirical models under the high risk-high return approach. We also applied robustness tests to ensure that the results are reliable. We also investigate the level of risk management effectiveness among these firms during the 2010–2021 period. We found that financial flexibility strategies negatively impact risk management effectiveness of firms through reducing both firm risk and firm performance. Furthermore, we found that the degree of risk management effectiveness differs between low- and high-risk firms in Vietnam, with low-risk firms displaying more effective risk management compared to high-risk firms. Our research shows that financial flexibility strategies are not conducive to risk management effectiveness; however, firms can control the impact of flexibility strategies on risk management by controlling firm performance and risk. |
| Keywords: | financial flexibility, risk management effectiveness, listed firm, Vietnam |
| JEL: | G13 G18 G3 |
| Date: | 2024–05–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121162&r= |
| By: | Xiaoqiao Wang (School of Management and Economics, Chinese University of Hong Kong, Shenzhen); Jing Xie (Department of Finance and Business Economics, Faculty of Business Administration, University of Macau); Bohui Zhang (School of Management and Economics, Chinese University of Hong Kong, Shenzhen); Xiaofeng Zhao (Faculty of Business, Lingnan University) |
| Abstract: | We conduct a field experiment to explore why firms pay dividends. We change managers’perception of agency concerns from outside investors, investors’ risk preference, the information gap with outside investors, and firms’ tax clientele by contacting publicly listed firms in China to test four dividend theories (agency, bird-in-hand, signaling, and tax clientele theories). We find that past payers (firms that paid dividends in the previous year) receiving the treatment of agency concerns increase their dividends relative to the control group. In contrast, firms receiving the other treatments do not experience changes in their dividend policy. The treatment effect of agency concerns in past payers is more prominent for firms with weaker governance and robust to various model specifications. A post-experimental survey confirms our findings. The evidence suggests that the agency cost motive is most pertinent in explaining a firm’s dividend policy. |
| Keywords: | Dividend policy, Field experiment, Agency costs, Investor Relations |
| JEL: | G35 C93 G34 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:boa:wpaper:202406&r= |
| By: | HONJO Yuji; IKEDA Yuya; KURIHARA Koki |
| Abstract: | This study investigates whether founder-chief executive officer (founder-CEO) presence is associated with initial public offering (IPO) survival. Using 1, 393 IPOs listed on Japanese junior stock markets, we examine the impact of founder-CEO presence on the time to involuntary delisting, voluntary delisting, and graduation from junior stock markets. We find that founder-CEO-led firms are less likely to voluntarily delist through mergers and acquisitions (M&A) and buyouts, while they are more likely to graduate to main stock markets than non-founder-CEO-led firms. Our findings suggest that founder-CEOs at the time of the IPO have ambitions to advance the firms beyond the initial IPO, despite their resistance to strategic delisting through M&A. In addition, we find that while younger firms are more likely to delist, regardless of whether the manner is involuntary or voluntary, they are more likely to graduate from junior stock markets. Furthermore, our analyses reveal that firms with CEO retention after the IPO are less likely to delist involuntarily and voluntarily, while they are more likely to graduate from junior stock markets. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:24060&r= |