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on Corporate Finance |
| By: | Olivier, Jacques; Dessaint, Olivier; Otto, Clemens A.; Thesmar, David |
| Abstract: | There is a discrepancy between CAPM-implied and realized returns. As a result, using the CAPM in capital budgeting decisions -- as is recommended in finance textbooks -- should have valuation effects. For instance, low beta projects are expected to be valued more by CAPM-using managers than by the market. This paper empirically tests this hypothesis using publicly announced M&A decisions. We show that takeovers of lower beta targets are accompanied by lower CARs for the bidder. Consistent with our hypothesis, the effect is more pronounced for larger acquisitions, higher growth targets, and private targets. Furthermore, low beta bidders are more likely to use their own stock to finance the deal. More generally, low beta firms are less likely to issue equity, and more likely to repurchase shares. These effects are not reversed in the long-run, suggesting that CAPM-using managers may be irrational, though this last test lacks power. |
| Keywords: | Capital Budgeting; Valuation; Mergers and Acquisitions; Capital Asset Pricing Model |
| JEL: | G31 G34 |
| Date: | 2017–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:1235&r=cfn |
| By: | von Beschwitz, Bastian; Foos, Daniel |
| Abstract: | Several papers find a positive association between a bank's equity stake in a borrowing firm and lending to that firm. While such a positive cross-sectional correlation may be due to equity stakes benefiting lending, it may also be driven by endogeneity. To distinguish the two, we study a German tax reform that permitted banks to sell their equity stakes tax-free. After the reform, many banks sold their equity stakes, but did not reduce lending to the firms. Thus, our findings question whether prior evidence can be interpreted causally and suggest that banks' equity stakes may be less important for lending than previously thought. |
| Keywords: | Relationship banking,Ownership,Monitoring |
| JEL: | G21 G32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:062018&r=cfn |
| By: | Xavier Hollandts (CRCGM et IFGE - Kedge Business School - Kedge Business School); Nicolas Aubert (CERGAM - Centre d'Études et de Recherche en Gestion d'Aix-Marseille - AMU - Aix Marseille Université, INSEEC Business School - Institut des hautes études économiques et commerciales Business School (INSEEC)); Abdelmehdi Abdelhamid (CRCGM - Centre de Recherche Clermontois en Gestion et Management - Clermont Auvergne - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA - Université Clermont Auvergne); Victor Prieur (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Employee stock ownership gives employees a voice and therefore may have a major impact on corporate governance. Thus, employee stock ownership may be a powerful mean to protect CEOs from both market for corporate control and dismissal threat. In this paper, we examine the relationship between employee stock ownership and CEO entrenchment. Following the recent French legislative changes, we use a comprehensive panel dataset of the major French listed companies over the 2009-2012 period. We document inverted U shaped relationships between employee stock ownership and CEO entrenchment. Board employee ownership representation also plays a role and increases the inflexion points of these curvilinear relationship. |
| Keywords: | employee stock ownership,corporate governance,CEO entrenchment |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01495427&r=cfn |
| By: | Duc Thi Luu (Observatoire français des conjonctures économiques (OFCE)); Mauro Napoletano (Observatoire français des conjonctures économiques); Paolo Barucca; Stefano Battiston (Centre d'analyse et de mathématique sociale) |
| Abstract: | We study how network structure affects the dynamics of collateral in presence of rehypothecation. We build a simple model wherein banks interact via chains of repo contracts and use their proprietary collateral or re-use the collateral obtained by other banks via reverse repos. In this framework, we show that total collateral volume and its velocity are affected by characteristics of the network like the length of rehypothecation chains, the presence or not of chains having a cyclic structure, the direction of collateral flows, the density of the network. In addition, we show that structures where collateral flows are concentrated among few nodes (like in core-periphery networks) allow large increases in collateral volumes already with small network density. Furthermore, we introduce in the model collateral hoarding rates determined according to a Value-at-Risk (VaR) criterion, and we then study the emergence of collateral hoarding cascades in different networks. Our results highlight that network structures with highly concentrated collateral flows are also more exposed to large collateral hoarding cascades following local shocks. These networks are therefore characterized by a trade-off between liquidity and systemic risk. |
| Keywords: | Rehypothecation; Collateral; Repo contracts; Networks; Liquidity; Collateral Hoarding Effects; Systemic risks |
| JEL: | G1 G11 G32 G33 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/2b7q60gmqo82aqr0p34bieidke&r=cfn |
| By: | Shachmurove, Yochanan; Vulanovic, Milos |
| Abstract: | Specified Purpose Acquisition Companies (SPACs) are a special type of public companies currently available to investors in financial markets. As an investment vehicle, modern SPACs are traced back to 18-th century England where blank checks were first mentioned as blind pools during the infamous South Sea Bubble. In the United States, the Security and Exchange Commission classifies SPAC as a blank check company. This chapter reviews the academic and financial literatures about SPACs, describes their institutional characteristics and analyses their market performance since Initial Public Offering (IPO). The sole purpose of SPACs is to use the proceeds to finance future acquisition. |
| Keywords: | Blank checks,,Initial public offering (IPO),,IPO survival,Mergers and Acquisition (M&A),Specified Purpose Acquisition Companies,SPACs |
| JEL: | G12 G32 G14 G24 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:177392&r=cfn |
| By: | Allen, Franklin; Qian, Meijun; Xie, Jing |
| Abstract: | This paper offers a framework to understand informal financing based on mechanisms to deal with asymmetric information and enforcement. We find that constructive informal financing such as trade credits and family borrowing that relies on information advantages or an altruistic relationship is associated with good firm performance. Underground financing such as money lenders who use violence for enforcement is not. Constructive informal financing is prevalent in regions where access to bank loans is extensive, while its role in supporting firm growth decreases with bank loan availability. International comparisons show that China is not an outlier but rather average in using informal financing. |
| Keywords: | asymmetric information; Firm Growth; Informal financing; social collateral |
| JEL: | G21 G30 O16 O17 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12863&r=cfn |
| By: | Bhamra, Harjoat Singh; Kuehn, Lars-Alexander; Strebulaev, Ilya |
| Abstract: | We embed a structural model of credit risk inside a dynamic continuous-time consumption-based asset pricing model, which allows us to price equity and corporate debt in a unified framework. Our key economic assumptions are that the first and second moments of earnings and consumption growth depend on the state of the economy which switches randomly, creating intertemporal risk, which agents prefer to resolve sooner rather than later, because they have Epstein-Zin-Weil preferences. Agents optimally choose dynamic capital structure and default times. For a dynamic cross-section of firms, our model endogenously generates a realistic average term structure and time series of actual default probabilities and credit spreads, together with a reasonable levered equity risk premium, which varies with macroeconomic conditions. |
| Keywords: | Capital Structure; corporate bond credit spread; default; Equity premium; jumps; macroeconomic conditions; predictability |
| JEL: | E44 G12 G32 G33 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12827&r=cfn |