{"title":"How Important Is Moral Hazard For Distressed Banks?","authors":"Itzhak Ben-David, Ajay A. Palvia, René M. Stulz","doi":"10.2139/ssrn.3599483","DOIUrl":"https://doi.org/10.2139/ssrn.3599483","url":null,"abstract":"The moral hazard incentives of the bank safety net predict that distressed banks take on more risk and higher leverage. Since many factors reduce these incentives, including charter value, regulation, and managerial incentives, the net economic effect of these incentives is an empirical question. We provide evidence on this question using two distinct periods that include financial crises and are subject to different regulatory regimes (1985–1994, 2005–2014). We find that distressed banks reduce their leverage and decrease observable measures of riskiness, which is inconsistent with the view that, on average, moral hazard incentives dominate distressed bank leverage and risk-taking policies.","PeriodicalId":127551,"journal":{"name":"Corporate Finance: Valuation","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125273309","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"(Debt) Overhang: Evidence from Resource Extraction","authors":"Michael D. Wittry","doi":"10.2139/ssrn.3497931","DOIUrl":"https://doi.org/10.2139/ssrn.3497931","url":null,"abstract":"\u0000 I study the empirical importance of debt overhang using a unique data set on resource extraction firms that provides ex ante measures of investment opportunities and important variation in terms of a firm’s obligations. In particular, unsecured reclamation liabilities create overhang that is costly to resolve and induces firms to forgo and postpone positive NPV investments. Traditional debt, in contrast, imposes few overhang-related investment distortions. These results show that (a) the overhang problem is potentially large and more broadly applies to firms’ nondebt liabilities and (b) overhang problems associated with traditional debt can be avoided through contracting and debt composition.","PeriodicalId":127551,"journal":{"name":"Corporate Finance: Valuation","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117013572","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Local Corruption, Whistleblowing, and Debt Financing","authors":"Qingjie Du, I. Hasan, Yang Wang, K. Wei","doi":"10.2139/ssrn.3607945","DOIUrl":"https://doi.org/10.2139/ssrn.3607945","url":null,"abstract":"The paper investigates whether and how a state’s local corruption environment affects firms’ financing costs. We find that firms in high-corruption states are associated with significantly higher loan spreads and tighter loan covenants. We use an instrumental variable approach and a quasi-experiment of firms’ headquarters re-locations to establish causality. Moreover, the passage of whistle-blowing laws, in the name of anti-corruption, increases firms’ bank loan costs and amplifies the impact of local corruption. Overall, we document the externality of local corruption environment on resident firms’ financing costs and the unintended outcomes of whistle-blowing laws.","PeriodicalId":127551,"journal":{"name":"Corporate Finance: Valuation","volume":"385 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115480440","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Capital Budgeting and Climate Change: Does Corporate Internal Carbon Pricing Reduce CO2 Emissions","authors":"J. Byrd, E. Cooperman, Kent Hickman","doi":"10.2139/ssrn.3575769","DOIUrl":"https://doi.org/10.2139/ssrn.3575769","url":null,"abstract":"Internal carbon pricing by corporations is a relatively new tool in carbon management. Using a sample of 1,274 firms from 45 countries and across 43 industries reporting to the Carbon Disclosure Project (the CDP) during the years, 2015 to 2018, this study uses carbon emissions intensity ratios to compare the carbon emission reductions of firms that have engaged in carbon pricing for the most recent four years with other firms that do not employ internal carbon prices. Our univariate analysis for the entire sample shows no significant difference in either revenue or employee-based carbon intensities between firms using an internal carbon price and other firms. However, when we examine industry sectors with high CO2 emissions and which are capital-intensive, there is a significant difference: Carbon pricing firms reduce emissions more quickly based on both revenue intensity and employee-intensity measures. This subsample of firms is comprised of companies in the extractive, airline, ground transportation, cement manufacturing and utilities sectors, so represent firms that regularly make large capital investments. Our results are consistent with internal carbon pricing helping capital-intensive firms make investment decisions that lower carbon emissions. Multivariate regressions confirm that the effect of internal carbon pricing is additional to reductions realized from other carbon efficiency tactics pursued by sample firms. Our results are unaffected by the existence of national carbon tax plans.","PeriodicalId":127551,"journal":{"name":"Corporate Finance: Valuation","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128664256","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Hostile Takeovers or Friendly Mergers?: A Real Options Analysis","authors":"Takeshi Ebina, Yuya Kumakura, K. Nishide","doi":"10.2139/ssrn.3435335","DOIUrl":"https://doi.org/10.2139/ssrn.3435335","url":null,"abstract":"This study analyzes a real options model of mergers and takeovers between two firms facing different but correlated uncertainty in profits. It is assumed that firms can choose two alternatives; hostile takeover or friendly merger. In a hostile takeover, a bidder firm takes all the extra value but incurs takeover costs, while in a friendly merger, both firms do not bear takeover costs but share the extra value through Nash bargaining. We show how demand uncertainty and takeover costs influence which firm is more likely to act as a bidder and which form of amalgamation will emerge. We also find that a smaller firm can be a bidder to a larger firm in a hostile manner, which is occasionally observed in actual markets.","PeriodicalId":127551,"journal":{"name":"Corporate Finance: Valuation","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125516182","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
B. Larrain, Peter Roosenboom, Giorgo Sertsios, Francisco Urzúa
{"title":"Ownership Concentration and Firm Value: New Evidence from Owner Stakes in IPOs","authors":"B. Larrain, Peter Roosenboom, Giorgo Sertsios, Francisco Urzúa","doi":"10.2139/ssrn.3583445","DOIUrl":"https://doi.org/10.2139/ssrn.3583445","url":null,"abstract":"We study the relationship between ownership concentration and firm value using hand-collected data on the stakes of owner–managers before and after initial public offerings (IPOs). We instrument for the reduction in stake using market returns shortly before IPOs. Short-run market returns are plausible instruments because owners engage in market timing by selling more when prior returns are high, but high short-run returns are unlikely to directly affect firm value years after the IPO. As predicted by agency theory, a large reduction in ownership concentration at the IPO is negatively related to valuation. Future asset growth is low when owners have low stakes. This paper was accepted by Victoria Ivashina, finance. Funding: B. Larrain acknowledges funding from ANID/CONICYT Proyecto FONDECYT Regular [Grant 1180593]. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2021.01039 .","PeriodicalId":127551,"journal":{"name":"Corporate Finance: Valuation","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134462374","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Optimal Investment Management for Prospect Theory Investors","authors":"Jordan Moore","doi":"10.2139/ssrn.3587423","DOIUrl":"https://doi.org/10.2139/ssrn.3587423","url":null,"abstract":"Suppose an investment manager has discretion to allocate the timing of client contributions or management fees over a calendar year. If her client has prospect theory preferences and anchors gains and losses to the previous account balance, then the manager's optimal timing of account inflows and outflows can increase client satisfaction. The optimal strategies allocate contributions to offset small portfolio losses and charge fees to offset large portfolio gains. I compare the optimal strategies to strategies that allocate contributions or charge fees equally every quarter or month. The client is indifferent between contributing 1.4% to 1.6% allocated equally and contributing 1% allocated optimally. The client is indifferent between paying fees of 0.58% to 0.70% assessed equally and paying fees of 1% assessed optimally. Investment managers who structure contributions and fees to target prospect theory preferences and the anchoring effect can increase individual investor savings and institutional management fees.","PeriodicalId":127551,"journal":{"name":"Corporate Finance: Valuation","volume":"29 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123610554","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Repeated Delegation","authors":"Elliot Lipnowski, João Ramos","doi":"10.2139/ssrn.2552926","DOIUrl":"https://doi.org/10.2139/ssrn.2552926","url":null,"abstract":"In an ongoing relationship of delegated decision making, a principal consults a biased agent to assess projects' returns. In equilibrium, the principal allows future bad projects to reward fiscal restraint, but cannot commit to indefinite rewards. We characterize equilibrium payoffs (at fixed discounting), showing that Pareto optimal equilibria are implemented via a two-regime 'Dynamic Capital Budget'. Rather than facing backloaded rewards—as in dynamic agency models with commitment power—the agent loses autonomy as time progresses.","PeriodicalId":127551,"journal":{"name":"Corporate Finance: Valuation","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116554324","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"FinTech Valuation","authors":"Roberto Moro Visconti","doi":"10.2139/ssrn.3533869","DOIUrl":"https://doi.org/10.2139/ssrn.3533869","url":null,"abstract":"Financial technology (FinTech) is an industry composed of diversified companies that use technology to make financial services more efficient. Fintech is recognized as one of the most critical innovations in the financial industry and is evolving at a rapid speed, driven in part by the sharing economy, favorable regulation, and information technology. Fintech promises to disrupt and reshape the financial industry by cutting costs, improving the quality of financial services, and creating a more diverse and stable financial landscape. With the advances in e-finance and mobile technologies for financial firms, fintech innovation emerged after the worldwide financial crisis in 2008 by combining the e-finance, internet technologies, social networking services, social media, artificial intelligence, and big data analytics. The valuation of FinTech companies concerns promising startups and some seasoned firms. FinTechs have a hybrid business model, as they operate in the financial (banking) sector deploying their technological attitudes. Evaluators may so wonder if FinTechs follow the typical evaluation patterns of bank/financial intermediaries or those of technological firms. Preliminary empirical evidence shows that the latter interpretation is the one consistent with the stock-market mood, and the business model of FinTechs. The appraisal methodology may conveniently start from a strategic interpretation of the business model to extract the key evaluation parameters to insert in the model. Evaluation patterns typically follow Discounted Cash Flows (DCF) or other metrics based on market comparables.<br>","PeriodicalId":127551,"journal":{"name":"Corporate Finance: Valuation","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129066497","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
James Brugler, Carole Comerton-Forde, T. Hendershott
{"title":"Does Financial Market Structure Impact the Cost of Raising Capital?","authors":"James Brugler, Carole Comerton-Forde, T. Hendershott","doi":"10.2139/ssrn.3074097","DOIUrl":"https://doi.org/10.2139/ssrn.3074097","url":null,"abstract":"We provide direct evidence on financial market structure and the cost of raising capital by examining major market structure changes in US equities markets. Only the Order Handling Rules (OHR), which transformed Nasdaq from a dealer-oriented over-the-counter market to a market where investors directly interact with each other via limit orders, lowered the cost of raising capital. Using a difference-in-difference framework relative to the NYSE and exploiting the OHR’s staggered implementation, we find that the OHR reduced the implicit costs (under-pricing) of seasoned equity offerings by one to two percentage points compared to a pre-OHR average of 3.6 percent.","PeriodicalId":127551,"journal":{"name":"Corporate Finance: Valuation","volume":"86 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116706878","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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