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on Corporate Finance |
| By: | Yael V. Hochberg; Carlos J. Serrano; Rosemarie H. Ziedonis |
| Abstract: | The use of debt to finance risky entrepreneurial-firm projects is rife with informational and contracting problems. Nonetheless, we document widespread lending to startups in three innovation-intensive sectors and in early stages of development. At odds with claims that the secondary patent market is too illiquid to shape debt financing, we find that intensified patent trading increases the annual rate of startup lending, particularly for startups with more redeployable (less firm-specific) patent assets. Exploiting differences in venture capital (VC) fundraising cycles and a negative capital-supply shock in early 2000, we also find that the credibility of VC commitments to refinance and grow fledgling companies is vital for such lending. Our study illuminates friction-reducing mechanisms in the market for venture lending, a surprisingly active but opaque arena for innovation financing, and tests central tenets of contract theory. |
| JEL: | G24 L14 L26 O16 O3 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20587&r=cfn |
| By: | Denis Cormier (ESG UQAM); Michel Magnan (Concordia University) |
| Abstract: | This paper investigates if a firm's ethical issues, in conjunction with its governance, affect its standing within financial markets. A firm's ethical reputation arises from its involvement in ethical violations and incidents while a comprehensive index proxies for governance. We assess a firm's standing within financial markets through two complementary perspectives, i.e., the level of information asymmetry between managers and investors as inferred from analyst forecast dispersion and analyst forecast error and the relation between a firm's earnings and its stock market valuation (value relevance). Our results suggest that a firm's ethical reputation affects financial analysts' forecasts as well as the stock market value assigned to its reported earnings. Moreover, it appears that corporate governance moderates such relations, with strong (weak) governance compensating for a weak (strong) ethical reputation. Overall, our evidence shows that ethical issues do not seem to pay. |
| Keywords: | Corporate governance, ethical issues, information asymmetry, stock markets |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2014-32&r=cfn |
| By: | Sandra Cavaco; Patricia Crifo; Antoine Rebérioux; Gwenaël Roudaut |
| Abstract: | This paper develops a two-way director-firm fixed effect model to study the relationship between independent directors’ individual heterogeneity and firm operating performance, using French data. This strategy allows considering and differentiating in a unified empirical framework mechanisms related to board functioning and mechanisms related to director selection. We first show that the independence status, netted out unobservable individual heterogeneity, is negatively related to performance. This result suggests that independent board members experience a strong informational gap that outweighs other monitoring benefits. However, we show that industry-specific expertise as well as informal connections inside the boardroom may help to bridge this gap. Second, we provide evidence that independent directors have higher intrinsic ability as compared to affiliated board members, consistent with a reputation-based selection process. |
| Keywords: | independent director heterogeneity, information asymmetry, director selection, firm performance, two-way fixed effect model. |
| JEL: | G30 G34 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2014-58&r=cfn |
| By: | Limbach, Peter; Sonnenburg, Florian |
| Abstract: | This study finds a positive relation between CEO fitness and firm value. For each of the years 2001 to 2011, we define CEOs of S&P 1500 companies as being fit if they finish a marathon. The literature suggests that fitness moderates stress and positively affects cognitive functions and performance. Accordingly, we find the strongest effects on firm value in subsamples where fitness is most important, i.e., for CEOs with high workload, above median age, and above median tenure. Fit CEOs are further associated with significantly higher abnormal announcement returns in M&A bids for large, public, and cross-border targets, concomitant with high stress. Our findings can explain the importance of CEO fitness in the managerial labor market and the trend among CEOs to stay fit. |
| Keywords: | CEO characteristics,CEO fitness,CEO work load,firm value,mergers and acquisitions |
| JEL: | G32 G34 J24 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:1412&r=cfn |
| By: | John Graham; Mark T. Leary; Michael R. Roberts |
| Abstract: | Using a novel dataset of accounting and market information that spans most publicly traded nonfinancial firms over the last century, we show that U.S. federal government debt issuance significantly affects corporate financial policies and balance sheets through its impact on investors' portfolio allocations and the relative pricing of different assets. Government debt is strongly negatively correlated with corporate debt and investment, but strongly positively correlated with corporate liquidity. These relations are more pronounced in larger, less risky firms whose debt is a closer substitute for Treasuries. Indeed, we find a strong negative relation between the BAA-AAA yield spread and government debt, highlighting the greater sensitivity of more highly rated credit to variation in the supply of Treasuries. The channel through which this effect operates is investors' portfolio decisions: domestic intermediaries actively substitute between lending to the federal government and the nonfinancial corporate sector. The relations between government debt and corporate policies, as well as the substitution between government and corporate debt by intermediaries, are stronger after 1970 when foreign demand increased competition for Treasury securities. In concert, our results suggest that large, financially healthy corporations act as liquidity providers by supplying relatively safe securities to investors when alternatives are in short supply, and that this financial strategy influences firms' capital structures and investment policies. |
| JEL: | E22 E44 G20 G31 G32 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20581&r=cfn |