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on Corporate Finance |
| By: | Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit); Matthew Rhodes-Kropf (Massachusetts Institute of Technology) |
| Abstract: | An extensive literature on venture capital has studied asymmetric information and agency problems between investors and entrepreneurs, examining how separating entrepreneurs from the investor can create frictions that might inhibit the funding of good projects. It has largely abstracted away from the fact that a startup typically does not have just one investor, but several VCs that come together in a syndicate to finance a venture. In this chapter, we therefore argue for an expansion of the standard perspective to also include frictions within VC syndicates. Put differently, what are the frictions that arise from the fact that there is not just one investor for each venture, but several investors with different incentives, objectives and cash flow rights, who nevertheless need to collaborate to help make the venture a success? We outline the ways in which these coordination frictions manifest themselves, describe the underlying drivers and document several contractual solutions used by VCs to mitigate their effects. We believe that this broader perspective provides several promising avenues for future research. |
| Keywords: | venture capital, syndication, networks, entrepreneurship |
| JEL: | G24 K22 L14 M52 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:17-089&r=cfn |
| By: | André Betzer (BUW - Schumpeter School of Business and Economics); Maximilian Ibel (BUW - Schumpeter School of Business and Economics); Hye Seung (Grace) Lee (Fordham University); Peter Limbach (University of Cologne - Centre for Financial Research (CFR)); Jesus M. Salas (College of Business at Lehigh University) |
| Abstract: | This study documents a positive, economically meaningful impact of executives’ general managerial skills on shareholder value. Examining 171 sudden executive deaths over thirty years, we find that a one-standarddeviation increase in the general ability index corresponds to at least a 1.5 percentage point decrease in abnormal stock returns to death announcements. Generalists are found to be significantly more valuable for firms with fewer growth prospects where difficult tasks (e.g., restructurings) need to be performed and adaptations to changing business environments become necessary. Our results provide a market-based explanation for the documented generalist hiring premium and the increasing share of generalists. |
| Keywords: | executive heterogeneity, managerial work experience, firm value |
| JEL: | G30 G34 J24 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:bwu:schdps:sdp16009&r=cfn |
| By: | Adriano A. Rampini; S. Viswanathan |
| Abstract: | We propose a dynamic theory of financial intermediaries that are better able to collateralize claims than households, that is, have a collateralization advantage. Intermediaries require capital as they can borrow against their loans only to the extent that households themselves can collateralize the assets backing these loans. The net worth of financial intermediaries and the corporate sector are both state variables affecting the spread between intermediated and direct finance and the dynamics of real economic activity, such as investment, and financing. The accumulation of net worth of intermediaries is slow relative to that of the corporate sector. The model is consistent with key stylized facts about macroeconomic downturns associated with a credit crunch, namely, their severity, their protractedness, and the fact that the severity of the credit crunch itself affects the severity and persistence of downturns. The model captures the tentative and halting nature of recoveries from crises. |
| JEL: | E02 E32 E51 G01 G21 G32 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23302&r=cfn |
| By: | De Simone, Lisa (Stanford University); Piotroski, Joseph D. (Stanford University); Tomy, Rimmy E. (University of Chicago) |
| Abstract: | We examine whether anticipation of Congress enacting a reduction in repatriation taxes affects the amount of cash U.S. multinational corporations (MNCs) hold overseas. Prior papers have focused on which U.S. MNCs repatriated foreign cash and how they deployed these funds following the repatriation tax holiday in 2004. We build on this literature and examine whether MNCs were willing to incur the costs of holding excess cash in response to anticipated but uncertain tax legislation. We find that U.S. MNCs most likely to benefit from this anticipated (yet not enacted) legislation began accumulating significant cash holdings once Congress initially proposed and began deliberating a second repatriation tax holiday. Further tests reveal that this cash accumulation was accompanied by two complementary activities designed to maximize expected tax benefits: tax-motivated income shifting and increases in permanently reinvested foreign earnings. The documentation of such preemptive behavior by corporations contributes to the literature on how firms respond to tax-induced incentives, provides a new explanation for the dramatic growth in cash holdings by U.S. MNCs over the last decade, and raises important questions about the long-run consequences of enacting temporary tax regulation. |
| JEL: | G30 G38 H25 M16 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3507&r=cfn |
| By: | W.Hussin, Wan Nur Imani |
| Abstract: | The aim of this study are used to investigate the relationship between company performance and the profitability of the company. Firm organisation that used to identify this relationship is Sime Darby Berhad. In this study, the factors that indicate to profitability such as return on asset (ROA), return on equity (ROE), return on investment (ROI), average collection period (ACP), leverage, remuneration, liquidity, operational etc. Financial instrument merely related to financial performance of the organization either internal or external financial aspect. Financial transaction usually known as an agreement, exchange of payment or communication between two parts of transaction. Financial transaction involved two parties among in the business which is buyer seller, whether businesses or individual. Financial risk that will affect company profitability such as credit risk, liquidity risk, operational risk, market risk and legal risk. In managing financial risk in banking institution, organization need to adopt with barriers or risks that may cross the transaction such as risk transaction could be as default, interest rate, market risk along with liquidity and operation. Financial risk be measure by the regression and correlation analysis to define the significant relationship between business entity and variable that related to analysis. |
| Keywords: | Liquidity risk, operational risk, profitability, risk and return, correlation and regression. |
| JEL: | G3 N0 |
| Date: | 2017–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78350&r=cfn |
| By: | Tyrefors Hinnerich, Björn (Research Institute of Industrial Economics (IFN)); Jansson, Joakim (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Board room quotas have recently received an increasing amount of attention. This paper provides novel evidence on firm performance from an exogenous change in female board participation in Sweden. We use the credible threat, aimed at listed firms, of a quota law enacted by the Swedish deputy prime minister as an exogenous variation. The threat caused a substantial and rapid increase in the share of female board members in firms listed on the Stockholm stock exchange. This increase was accompanied by an increase in different measures of firm performance in the same years, which were related to higher sales and lower labor costs. |
| Keywords: | Gender quotas; Corporate boards; Firm performance |
| JEL: | G34 G38 J16 J48 J78 M12 M51 |
| Date: | 2017–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1165&r=cfn |
| By: | Mamatzakis, Emmanuel; Zhang, Xiaoxiang; Wang, Chaoke |
| Abstract: | The effectiveness of the management team, ownership structure and other corporate governance systems in determining appropriate risk taking is a critical issue in a modern commercial bank. Appropriate risk management techniques and structures within financial institutions play an important role to ensure the stability of economy. After analyzing 43 Asian banks over the period from 2006 to 2014, I find that banks with strong corporate governance are associated with higher risk taking. More specifically, banks with intermediate size of board, separation of CEO and chairman of board, and audited by Big Four audit firm, are likely higher risk taking. Overall, my findings provide some new perspectives into the governance mechanisms that affect risk taking on commercial banks. |
| Keywords: | Banks, Risk taking, Corporate governance |
| JEL: | G21 G32 G39 |
| Date: | 2017–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78137&r=cfn |
| By: | Alaali, Fatema |
| Abstract: | This study examines the responses of some of the UK transportation, travel and leisure, and oil and gas firms to oil price changes. Fama-French-Carhart's (1997) four-factor asset pricing model is augmented with the oil price risk factor to study the association of oil and stock prices of 25 firms over the period from January 1998 to December 2012. The extent of the exposure of UK transportation and travel and leisure firms is generally negative but it is particularly significant for a number of firms including delivery services, travel and tourism, and airlines. Oil price risk exposures of UK oil and gas companies are generally positive and significant. With the aid of asymmetric and scaled specifications, some firms show strong evidence of asymmetry in the reaction of stock returns to changes in the price of oil comprising travel and tourism, airlines, and integrated oil and gas. Moreover, the results document that oil price risk exposures vary over time. In particular, the global recession of 2008 has significantly contributed to the oil price risk exposure of travel and tourism and integrated oil and gas firms. These results should be of interest to financial analysts, corporate executives, regulators and policy makers. |
| Keywords: | Oil Price, Stock returns, Asset pricing |
| JEL: | G21 Q31 |
| Date: | 2017–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78013&r=cfn |
| By: | Andrew Ellul (Indiana University); Marco Pagano (Università di Napoli Federico II CSEF, EEIF, CEPR and ECGI) |
| Abstract: | Corporate leverage responds differently to employees’ legal protection in bankruptcy depending on whether leverage is chosen to curtail workers’ bargaining power or is driven by credit constraints. Using newly collected cross-country data on employees’ rights in corporate bankruptcy, we estimate the impact of such rights on firms’ capital structure, applying triple-diff strategies that exploit time-series, cross-country and firm-level variation. The estimates show that leverage increases more substantially in response to rises in corporate property values or in profitability at firms where employees have strong seniority in liquidation and weak rights in restructuring, consistently with the strategic use of leverage. |
| Keywords: | workers’ rights, bankruptcy, seniority, leverage, wage bargaining. |
| JEL: | G31 G32 G38 H25 H26 M40 |
| Date: | 2017–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:472&r=cfn |
| By: | Rakesh Radav (University of Latvia, Department of Management) |
| Abstract: | This probably maiden study for Indian financial market on executive compensation uses novel approach by using data of women director's compensation of firm listed at Bombay stock exchange (BSE)India. The methodology adopted for this study is multivariate regression method; this method is common for the research on compensation, on the basis of the survey of literature which treats total compensation paid to the director as dependent variable and firm performance as independent variable. This study adds to the literature one more equation that is impact of firm performance (dependent variable) on compensation (independent variable). Further by using the holistic combination which is rare in the literature of executivecompensation, both measures of firm performance mainly accounting measures (EPS, ROCE and RONW) and market measures (P/E, P/BV) gives comprehensive view of firm performance in relation to compensation. The control variables mainly net sales, R and D and total assets are drawn from literature often known as instrumental variable approach in econometrics. The boundary condition for the sample is BSE-500 firms listed at Bombay stock exchange out of this BSE-500 firms sample of 407 firms are used for study. |
| Keywords: | Corporate governance, emerging economy, executive compensation, firm performance, India, Indian firms, women director |
| JEL: | G34 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ana:wpaper:17003&r=cfn |
| By: | Renaud Bourlès (Aix-Marseille Univ. (Aix-Marseille School of Economics), CNRS, EHESS and Centrale Marseille); Anastasia Cozarenco (Montpellier Business School, Montpellier Research in Management, and Centre for European Research in Microfinance (CERMi)) |
| Abstract: | This article examines the link between entrepreneurial motivation and business performance in the French microfinance context. Using hand-collected data on business microcredits from a Microfinance Institution (MFI), we provide an indirect measure of entrepreneurial success through loan repayment performance. Controlling for the endogeneity of entrepreneurial motivation in a bivariate probit model, we find that "necessity entrepreneurs" are more likely to have difficulty repaying their microcredits than "opportunity entrepreneurs". However, type of motivation does not appear to make a difference to business survival. We build a stylized model to develop formal arguments supporting this outcome. We test for the robustness of our results using parametric duration models, and show that necessity entrepreneurs experience difficulties in loan repayment earlier than their opportunity counterparts, corroborating our initial findings. |
| Keywords: | opportunity and necessity entrepreneurs, business microcredit, loan repayment, business survival |
| JEL: | C30 C41 G21 L26 M13 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1701&r=cfn |
| By: | Kim, Jiyoung |
| Abstract: | The chaebol, a South Korean form of business conglomerate, has been a key factor in the country's economic growth. In this study, the chaebol sector is added to the asset-liability matrix derived from a flow-of-funds (FOF) analysis in order to explain the role of the chaebol in the Korean financial system. We find that the power-of-dispersion indices in the asset-oriented system differ between the chaebol and other private corporations. Between 1987 and 2002, the former has increased while the latter has declined. In the case of the chaebol, excess liabilities were reduced, while investments in financial assets were increased. This tendency led to an increase in the power-of-dispersion index in this asset-oriented system. Our previous research found a decrease in this index for the private sector in Korea. However, the index increased for chaebol when the private sector is divided into the chaebol and small/medium-sized corporations in this paper. These results point to a greater concentration of economic power in the chaebol in the Korean financial market. |
| Keywords: | Business enterprises, Large-scale enterprises, Finance, Financial market, South Korea, Flow-of-funds analysis, Asset-liability matrix, Financial conglomerates (chaebol) |
| JEL: | C67 G30 N25 O16 O53 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper628&r=cfn |
| By: | Irem Demirci; Jennifer Huang; Clemens Sialm |
| Abstract: | We investigate the impact of government debt on corporate financing decisions. We document a negative relation between government debt and corporate leverage using data on 40 countries between 1990 and 2014. This negative relation holds only for government debt that is financed domestically and is stronger for larger and more profitable firms and in countries with more developed equity markets. In order to address potential endogeneity concerns, we use an instrumental variable approach based on military spending and a quasi-natural experiment based on the introduction of the Euro currency. Our findings suggest that government debt crowds out corporate debt. |
| JEL: | F21 F34 F36 F65 G28 G32 G38 H63 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23310&r=cfn |
| By: | Fátima Herranz González (Banco de España); Carmen Martínez-Carrascal (Banco de España) |
| Abstract: | Using a large sample of Spanish companies, this paper investigates the impact that firms’ financial health has on their investment and employment decisions. The results indicate that firms’ financial position is important for explaining firms’ capital expenditures and their employment levels, since cash flow, indebtedness and the debt burden appear to be relevant for explaining investment and employment dynamics. Likewise, the results obtained point to a non-linear impact of financial position on these decisions, this being larger for companies in a less sound financial situation, and suggest that the role of financial factors in explaining investment and employment dynamics is likely to be greater in recessionary periods. |
| Keywords: | financial position, investment, employment, panel data |
| JEL: | C33 E22 E24 E44 G32 J23 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1714&r=cfn |
| By: | Backman , Mikaela (Centre for Entrepreneurship and Spatial Economics (CEnSE), Jönköping International Business School, Sweden); Wallin, Tina (Centre for Entrepreneurship and Spatial Economics (CEnSE), Jönköping International Business School, Sweden) |
| Abstract: | We examine whether low access to financial intermediaries works as an obstacle acquiring financial capital for Swedish firms by using information from the Community Innovation Survey indicating whether firms perceive the acquisition of external capital to be difficult. This perception is explained by the distance to the firms’ nearest financial intermediaries and their total local supply. The results indicate that the distance to banks is related to a larger problem of obtaining external financial capital in rural areas. |
| Keywords: | financial capital; bank offices; geographical distance; Community Innovation Survey |
| JEL: | D53 G21 G23 L25 O31 |
| Date: | 2017–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0454&r=cfn |