Do Managerial Risk-taking Incentives Influence Firms' Exchange Rate Exposure?
Bill Francis, Iftekhar Hasan, Delroy M. Hunter, Yun Zhu
Journal of Corporate Finance,
2017
Abstract
There is scant evidence on how risk-taking incentives impact specific firm risks. This has implications for board oversight of managerial risk taking, firms' development of comparative advantage in taking particular risks, and compensation design. We examine this question for exchange rate risk. Using multiple identification strategies, we find that vega increases exchange rate exposure for purely domestic and globally engaged firms. Vega's impact increases with international operations, declines post-SOX, and is robust to firm-level governance. Our results suggest that evidence that exposure reduces firm value can be viewed, in part, as a wealth transfer from shareholders and debt-holders to managers.
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Relationship Banking and SME Financing: The Case of Wales
Kent Matthews, Hans Degryse, Tianshu Zhao
International Journal of Banking, Accounting and Finance,
No. 1,
2017
Abstract
Regional disparities in credit availability across the UK have been highlighted in a series of studies as a factor affecting both new firm starts and small firm growth prospects. This paper suggests that relationship banking might be an important means of attenuating differences in credit availability. The paper focuses on the value of relationship banking to SMEs in Wales in the period following the global banking crisis. The results show that SMEs that had developed a customer-loan relationship with their banks had a lower probability of experiencing a worsened credit outcome than those that did not. The implications of the findings for regional development and financial provision are discussed.
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09.08.2017 • 29/2017
Networked and protected
During the financial crisis, billions were spent to rescue banks that were according to their governments too big to be allowed to fail. But a study by Michael Koetter from the Halle Institute for Economic Research (IWH) and co-authors shows that besides the size of the banks, the centrality within the global financial network was also pivotal for financial institutions to receive a bail-out.
Michael Koetter
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Managerial Stability and the Pricing of New Equity Issuances: The Effects of State Enforcement of Noncompetition Agreements
Yin-chi Liao, Bill Francis, Iftekhar Hasan, Haizhi Wang
International Review of Entrepreneurship,
No. 2,
2017
Abstract
In this paper, we empirically investigate the relationship between managerial stability induced by the legal enforcement of noncompetition agreements and the pricing of new equity issuances. Making use of the variation in the enforceability of noncompetition contracts across states in the U.S., we find that managerial stability is negatively related to underpricing and price revision for our sample of new equity issuing firms. Our results demonstrate that the stability of management is important for an issuing firm to convey its intrinsic value credibly to the market.
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15.03.2017 • 13/2017
The German Economy: Employment Boom in Germany, but no Overheating of the Economy
Employment in Germany continues to increase healthily, and private consumption expands due to rising real incomes. Investment in equipment, however, remains modest. Overall, economic demand is expanding at roughly the growth rate of potential Gross Domestic Product (GDP), and the output gap is nearly closed. “In 2017, GDP will increase by 1.3% and thus at a lower rate than in the previous year, but this is only due to fewer working days and not to sliding demand,” says Oliver Holtemoeller, Head of the Department Macroeconomics and IWH vice president.
Oliver Holtemöller
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Shareholder Bargaining Power and the Emergence of Empty Creditors
Stefano Colonnello, M. Efing, Francesca Zucchi
Abstract
Credit default swaps (CDSs) can create empty creditors who may push borrowers into inefficient bankruptcy but also reduce shareholders' incentives to default strategically. We show theoretically and empirically that the presence and the effects of empty creditors on firm outcomes depend on the distribution of bargaining power among claimholders. Firms are more likely to have empty creditors if these would face powerful shareholders in debt renegotiation. The empirical evidence confirms that more CDS insurance is written on firms with strong shareholders and that CDSs increase the bankruptcy risk of these same firms. The ensuing effect on firm value is negative.
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16.03.2016 • 10/2016
German Economy Stays Stable Despite Shaky Environment
The German economy had a good start into the year 2016, in spite of heightened risks for the world economy and political turmoil in Europe. Employment and incomes are expanding, as is internal de-mand, additionally supported by government spending related to the high number of newly arrived refugees. However, sliding sentiment indicates a temporary slow down of the economy during this spring. We assume that the present political tensions inside the European Union can be mitigated in the coming months and that confidence will rise again. All in all, gross domestic product (GDP) is forecast to rise by 1.5% in 2016.
Oliver Holtemöller
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Do Courts Matter for Firm Value? Evidence from the U.S. Court System
Stefano Colonnello, Christoph Herpfer
Abstract
We estimate the link between the court system and firm value by exploiting a U.S. Supreme Court ruling which changed firms‘ exposure to different courts. We find that exposure to courts which are highly ranked by the U.S. Chamber of Commerce increases firm value. The effect is driven by courts‘ attitude towards businesses more than by their efficiency and is more pronounced for firms in industries with high litigation risk. We also test whether firms benefit from the ability to steer lawsuits into friendly courts, so-called forum shopping. We provide evidence that a reduction in firms‘ ability to forum shop decreases firm value, whereas a reduction in plaintiffs‘ ability to forum shop increases firm value.
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Assessing European Competitiveness: the Contribution of CompNet Research
Filippo di Mauro, Maddalena Ronchi
CompNet Report,
June
2015
Abstract
Restoring competitiveness is broadly acknowledged as the critical building block for achieving sustainable growth, but defining competitiveness, both in terms of tools as well as objectives, is a matter of debate. The Competitiveness Research Network (CompNet) adopts a pragmatic approach, defining “a competitive economy [as] one in which institutional and macroeconomic conditions allow productive firms to thrive… [thus supporting] the expansion of employment, investment and trade” (Draghi, 2012). This approach requires handling (i) firm-level features, most notably productivity, (ii) macroeconomic factors, and (iii) cross-border aspects related to the operation of global value chains (GVCs). While at first concentrating solely on the original mandate of explaining export competitiveness, the Network has extended the scope of its research to broader aspects related to productivity drivers.
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Do Manufacturing Firms Benefit from Services FDI? – Evidence from Six New EU Member States
J. Damijan, Crt Kostevc, Philipp Marek, Matija Rojec
IWH Discussion Papers,
No. 5,
2015
Abstract
This paper focuses on the effect of foreign presence in the services sector on the productivity growth of downstream customers in the manufacturing sector in six EU new member countries in the course of their accession to the European Union. For this purpose, the analysis combines firm-level information, data on economic structures and annual national input-output tables. The findings suggest that services FDI may enhance productivity of manufacturing firms in Central and Eastern European (CEE) countries through vertical forward spillovers, and thereby contribute to their competitiveness. The consideration of firm characteristics shows that the magnitude of spillover effects depends on size, ownership structure, and initial productivity level of downstream firms as well as on the diverging technological intensity across sector on the supply and demand side. The results suggest that services FDI foster productivity of domestic rather than foreign controlled firms in the host economy. For the period between 2003 and 2008, the findings suggest that the increasing share of services provided by foreign affiliates enhanced the productivity growth of domestic firms in manufacturing by 0.16%. Furthermore, the firms’ absorptive capability and the size reduce the spillover effect of services FDI on the productivity of manufacturing firms. A sectoral distinction shows that firms at the end of the value chain experience a larger productivity growth through services FDI, whereas the aggregate positive effect seems to be driven by FDI in energy supply. This does not hold for science-based industries, which are spurred by foreign presence in knowledge-intensive business services.
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