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on Corporate Finance |
| By: | Elena Karnoukhova (National Research University Higher School of Economics); Anastasia Stepanova (National Research University Higher School of Economics); Maria Kokoreva (National Research University Higher School of Economics) |
| Abstract: | Innovative companies are a major driver of the global economy. The typical major owner is an institutional investor. In recent years the stakes of institutional owners have increased, which should increase the role of institutional investors. Institutional investors, however, differ. Traditional investment managers, banks, insurance companies and hedge funds have different goals and strategies, so their roles in firms differ significantly. In this article we analyze the difference between technology and non-technology companies to find out the reason for the success of fast-growing corporations. This research uses a Generalized Least Square model on a sample of 12,565 firm-year observations 2004–15, to justify the assumption that different types of investors have different effects on the performance of innovative companies. The research reveals a distinction between the type of investor and the investor strategy. By focusing on the concentration of ownership, we demonstrate the performance effect on different blockholders. Our findings suggest, first, that grey investors decrease firm value; second, that passive independent institutions enhance firm performance in virtue of their active monitoring and long-term investment horizons; third, that innovative firms have different ownership patterns to traditional ones. |
| Keywords: | ownership structure, institutional investors, innovative companies, ownership concentration |
| JEL: | G32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:70/fe/2018&r=cfn |
| By: | Grochulski, Borys (Federal Reserve Bank of Richmond); Wong, Russell (Federal Reserve Bank of Richmond) |
| Abstract: | Building on the trade-off between agency costs and monitoring costs, we develop a dynamic theory of optimal capital structure with financial distress and reorganization. Costly monitoring eliminates the agency friction and thus the risk of inefficient liquidation. Our key assumption is that monitoring cannot be applied instantaneously. Rather, transitions between agency and monitoring are subject to search frictions. In the optimal contract, the firm seeks a monitoring opportunity whenever it is financially distressed, i.e., when the risk of liquidation is high. If a monitoring opportunity arrives in time, the manager is dismissed, the capital structure is reorganized as in Chapter 11 bankruptcy, and the search for a new manager begins. In agency, an optimal capital structure consists of equity, long-term debt, contingent long-term debt, and a credit line with performance pricing. In financial distress, coupon payments to contingent debt are suspended but the interest rate on the credit line is stepped-up, which gives the firm simultaneously debt relief and a steep incentive to improve its financial position. An episode of distress can end with financial recovery, transition to bankruptcy reorganization, or liquidation. |
| Keywords: | capital structure; contingent debt; performance pricing; monitoring costs; agency costs; dynamic incentives; liquidation; nancial restructuring; bankruptcy reorganization; search frictions; CEO compensation; CEO replacement |
| JEL: | C61 D82 D86 G32 G33 M52 |
| Date: | 2018–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:18-17&r=cfn |
| By: | Mona Yaghoubi (University of Canterbury); Reza Yaghoubi; Graeme Guthrie |
| Abstract: | In this paper we investigate the financing behaviour of Hospital Corporation of America (HCA) for the years 1990 to 2013. We study the variations in HCA’s market and book leverage ratios due to 1) mergers and acquisitions, and divestitures that change a firm’s total assets, 2) buybacks, and 3) leveraged buyouts and public o˙erings that change the firm’s ownership. We scrutinize HCA’s market and book leverage ratios’ variations independently as well as relative to each other during the same periods of time. We find that i) HCA’s management team used HCA’s excess cash from divestitures to repurchase $1.7 billion of HCA’s stocks and they also called about $1.35 billion of HCA’s debt, ii) HCA’s market leverage ratio tends to stay in a target leverage zone, and iii) in some years HCA’s management team used the book leverage ratio as a tool to keep the market leverage ratio inside a target leverage zone. |
| Keywords: | Capital structure dynamics, share buyback, leveraged buyout, mergers and acquisitions, initial public offerings |
| JEL: | G32 |
| Date: | 2018–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:18/21&r=cfn |
| By: | Alves, Paulo |
| Abstract: | The goal of this paper is to study how cash holdings were affected by the financial crisis of 2008. Our results suggest that 2008 financial crisis had a negative impact on cash holdings and in the period from 2008 to 2014, contrarily to the 2009 and 2010. We hypothesize that firms in face of the present levels cash holdings do not need to accumulate more cash to eventual shortfalls. Our results show a negative impact of the shareholder rights on cash holdings during the financial crisis of 2008 and from 2008 to 2014. Possibly precautionary motive is losing power as explanatory theory, contrarily to agency hypothesis. We also have showed that cash holdings from collectivistic countries expresses a higher decrease in 2008 and from 2008 to 2014, contrarily to 2009 and 2010. It seems that collectivistic countries are tolerating more the risk because cash holdings reached values never recorded. |
| Keywords: | Financial crisis; Culture; Shareholder rights. |
| JEL: | G32 G38 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:89861&r=cfn |
| By: | Esida Gila-Gourgoura (Department of Economics, Faculty of Commerce, University of Cape Town); Eftychia Nikolaidou (Department of Economics, Faculty of Commerce, University of Cape Town) |
| Abstract: | This study uses the ARDL approach to cointegration to identify the factors affecting credit risk in the Italian banking system over the period 1997Q4?2017Q1. The ratio of new bad loans to the outstanding amount of performing loans in the previous period is the selected proxy of credit risk whereas a wide range of explanatory variables are included in the study. Compared to the previous studies, a wider timeframe is investigated, which captures the booming period, the global financial crisis and the ongoing Eurozone sovereign debt crisis. The findings suggest that macroeconomic cyclical, bank-specific, and financial market variables affect the flow of new bad loans in the Italian banking system. The high significance of the sovereign debt crisis risk proxy signals the important link between banking and sovereign debt crisis. |
| Keywords: | Credit risk, macroeconomic determinants, bank-specific variables, sovereign debt crisis, Italian banking systemcredit risk, Italian banking system, sovereign debt crisis |
| JEL: | C32 G17 G21 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iefpro:6909750&r=cfn |
| By: | Gibson, Rajna; Sohn, Matthias; Tanner, Carmen; Wagner, Alexander F |
| Abstract: | Two laboratory experiments show that investors perceive a CEO to be more committed to honesty when the CEO resisted, at a personal cost, engaging in earnings management. For investment decisions, a one standard deviation increase in a CEO's perceived commitment to honesty compared to another CEO reduces the relevance of differences in the CEOs' claimed future returns by 40%. This effect is prominent among investors with a proself value orientation. To prosocial investors, their own honesty values and those attributed to the CEO matter directly; returns play a secondary role. Overall, CEO honesty matters to different investors for distinct reasons. |
| Keywords: | Earnings management; honesty; investor preferences; investor segmentation; protected values; social value orientation; Trust |
| JEL: | G0 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13207&r=cfn |
| By: | Mona Yaghoubi (University of Canterbury); Michael O’Connor Keefe |
| Abstract: | This paper studies the relationship between investment volatility, capital structure, and cash levels. Our evidence suggests: i) firms with relatively high capital expenditure volatility hold relatively high levels of both debt and cash, while firms with relatively high acquisition volatility hold relatively high levels of debt and lower levels of cash. Firms with relatively high research and development volatility hold relatively high levels of debt and are not important to determine cash levels, ii) firms fund large capital expenditures, acquisitions and research and development by increasing debt or decreasing cash, iii) immediately after funding large investments firms reduce debt levels and increase cash holdings. Overall, our results are consistent with parts, but not all, of the DeAngelo, DeAngelo and Whited (2011) model. In particular, firm investment volatility is persistent and leads to high debt levels over long periods of time. |
| Keywords: | Capital structure, cash holding and investment volatility |
| JEL: | G32 |
| Date: | 2018–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:18/20&r=cfn |
| By: | Thomas Hellmann; Veikko Thiele |
| Abstract: | This paper examines the effect of investor power in a model of staged equity financing. It shows how the usual effect where market power reduces valuations can be reversed in later rounds. Once they become insiders, powerful investors may use their market power to increase, not decrease valuations. Even though powerful investors initially lower valuations, companies prefer to bring them inside to leverage their power in later financing rounds. The paper also makes predictions about investor returns, and issues a warning that unrealized interim returns can be misleading predictors of final realized returns when powerful investors distort interim valuations. |
| JEL: | G32 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25211&r=cfn |
| By: | Heider, Florian; Saidi, Farzad; Schepens, Glenn |
| Abstract: | We show that negative policy rates affect the supply of bank credit in a novel way. Banks are reluctant to pass on negative rates to depositors, which increases the funding cost of high-deposit banks, and reduces their net worth, relative to low-deposit banks. As a consequence, the introduction of negative policy rates by the European Central Bank in mid-2014 leads to more risk taking and less lending by euro-area banks with greater reliance on deposit funding. Our results suggest that negative rates are less accommodative, and could pose a risk to financial stability, if lending is done by high-deposit banks. |
| Keywords: | bank balance-sheet channel; bank risk-taking channel; deposits; Negative Interest Rates; zero lower bound |
| JEL: | E44 E52 E58 G20 G21 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13191&r=cfn |
| By: | Aghion, Philippe; Bergeaud, Antonin; Cette, Gilbert; Lecat, Rémy; Maghin, Helene |
| Abstract: | In this paper we identify two counteracting effects of credit access on productivity growth: on the one hand, better access to credit makes it easier for entrepreneurs to innovate; on the other hand, better credit access allows less efficient incumbent firms to remain longer on the market, thereby discouraging entry of new and potentially more efficient innovators. We first develop a simple model of firm dynamics and innovation-base growth with credit constraints, where the above two counteracting effects generate an inverted-U relationship between credit access and productivity growth. Then we test our theory on a comprehensive French manufacturing firm-level dataset. We first show evidence of an inverted-U relationship between credit constraints and productivity growth when we aggregate our data at sectoral level.. We then move to firm-level analysis, and show that incumbent firms with easier access to credit experience higher productivity growth, but that they also experienced lower exit rates, particularly the least productive firms among them. To confirm our results, we exploit the 2012 Eurosystem's Additional Credit Claims (ACC) program as a quasi-experiment that generated exogenous extra supply of credits for a subset of incumbent firms. |
| Keywords: | credit constraint; firms; growth; interest rate; productivity |
| JEL: | G21 G32 O40 O47 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13212&r=cfn |
| By: | Vanessa S. Tchamyou (University of Antwerp, Belgium); Guido Erreygers (University of Antwerp, Belgium); Danny Cassimon (University of Antwerp, Belgium) |
| Abstract: | This study investigates the role of information and communication technology (ICT) on income inequality through financial development dynamics of depth (money supply and liquid liabilities), efficiency (at banking and financial system levels), activity (from banking and financial system perspectives) and size, in 48 African countries for the period 1996 to 2014. The empirical evidence is based on Generalised Method of Moments. While both financial depth and size are established to reduce inequality contingent on ICT, only the effect of financial depth in reducing inequality is robust to the inclusion of time invariant variables to the set of strictly exogenous variables. We extend the analysis by decomposing financial depth into its components, namely: formal, informal, semi-formal and non-formal financial sectors. The findings based on this extension show that ICT reduces income inequality through formal financial sector development and financial sector formalization as opposed to informal financial sector development and financial sector informalization. The study contributes at the same time to the macroeconomic literature on measuring financial development and responds to the growing field of addressing post-2015 Sustainable Development Goals (SDGs) inequality challenges by means of ICT and financial access. |
| Keywords: | Inequality; ICT; Financial development; Africa |
| JEL: | I30 L96 O16 O55 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:18/048&r=cfn |
| By: | Ana Sofia Monteiro (sofiamelomonteiro1@gmail.com); Hélder Sebastião (CeBER - Centre for Business and Economics Research); Nuno Silva (CeBER - Centre for Business and Economics Research) |
| Abstract: | This paper examines stock returns and dividend growth predictability using dividend yields in seven large developed markets: US, UK, Japan, France, Germany, Italy and Spain. Altogether, these countries account for around 85% of the MSCI World Index. We use annual data, and for the US, UK, Japan, and France the time series are long enough to conduct a separate analysis of the pre- and post-IIWW periods. We also study the relationship between the predictability in dividend growth and the degree of dividend smoothness. For the post-IIWW period, returns are predictable in the US and the UK but dividends are unpredictable, while the opposite pattern is observed in Spain and Italy. In Germany, there is some evidence of short-term predictability for both returns and dividends, while in France only returns are predictable. In Japan, neither variable can be forecasted. Generally, there is no clear connection between dividend smoothness and predictability. |
| Keywords: | Return; Dividend Yield, Dividend Growth, Dividend Smoothing, Predictability. |
| JEL: | G12 G17 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:papers:2018-10&r=cfn |
| By: | Diego A. Agudelo; Ignacio Arango |
| Abstract: | Cross-sectional models positively relate firm information disclosure with stock liquidity, but dynamic models in news releases days show an opposite relation. We address this puzzle by studying the effects of information arrival on liquidity and its determinants. We use trade and quote data from Colombia for 2015 and 2016, along with the complete database of news releases as reported by companies to the regulator. The results of Panel data and PVAR models suggest that news releases increase both informed and uninformed trading. All in all, the temporal negative effect of news releases on liquidity is explained by increasing asymmetric information. |
| Keywords: | Liquidity, Asymmetric Information, Informed Trading, News releases, Emerging Markets. |
| JEL: | G10 G15 G19 |
| Date: | 2017–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:col:000122:016944&r=cfn |