Credit Supply Shocks: Financing Real Growth or Takeovers?
Tobias Berg, Daniel Streitz, Michael Wedow
Review of Corporate Finance Studies,
im Erscheinen
Abstract
How do firms invest when financial constraints are relaxed? We document that firms affected by a large positive credit supply shock predominantly increase borrowing for transaction-based purposes. These treated firms have larger asset and employment growth rates; however, growth entirely stems from the increased takeover activity. Announcement returns indicate a low quality of the credit-supply-induced takeover activity. These results offer the possibility that credit-driven growth can simply reflect redistribution, rather than net gains in assets or employment.
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Spillover Effects in Empirical Corporate Finance
Tobias Berg, Markus Reisinger, Daniel Streitz
Journal of Financial Economics,
Nr. 3,
2021
Abstract
Despite their importance, the discussion of spillover effects in empirical research often misses the rigor dedicated to endogeneity concerns. We analyze a broad set of workhorse models of firm interactions and show that spillovers naturally arise in many corporate finance settings. This has important implications for the estimation of treatment effects: i) even with random treatment, spillovers lead to a complicated bias, ii) fixed effects can exacerbate the spillover-induced bias. We propose simple diagnostic tools for empirical researchers and illustrate our guidance in an application.
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The Impact of Financial Transaction Taxes on Stock Markets: Short-Run Effects, Long-Run Effects, and Reallocation of Trading Activity
Sebastian Eichfelder, Mona Noack, Felix Noth
National Tax Journal,
Nr. 3,
2022
Abstract
We investigate the French 2012 financial transaction tax (FTT) and find robust evidence for anticipation effects before the implementation date. Controlling for short-run effects, we only find weak evidence for a long-run reduction in trading activity. Thus, the main impact of the French FTT on trading activity is short-run. In line with liquidity clientele effects, we find a more potent effect for low-liquidity stocks and a reallocation of trading to high-liquidity stocks from the Supplemental Liquidity Provider (SLP) program. Finally, we find weak evidence for a persistent volatility reduction but no indication of a significant FTT impact on price efficiency.
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Correlation Scenarios and Correlation Stress Testing
Natalie Packham, Fabian Wöbbeking
Journal of Economic Behavior and Organization,
January
2023
Abstract
We develop a general approach for stress testing correlations of financial asset portfolios. The correlation matrix of asset returns is specified in a parametric form, where correlations are represented as a function of risk factors, such as country and industry factors. A sparse factor structure linking assets and risk factors is built using Bayesian variable selection methods. Regular calibration yields a joint distribution of economically meaningful stress scenarios of the factors. As such, the method also lends itself as a reverse stress testing framework: using the Mahalanobis distance or Highest Density Regions (HDR) on the joint risk factor distribution allows to infer worst-case correlation scenarios. We give examples of stress tests on a large portfolio of European and North American stocks.
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The Disciplining Effect of Supervisory Scrutiny in the EU-wide Stress Test
Christoffer Kok, Carola Müller, Steven Ongena, Cosimo Pancaro
Journal of Financial Intermediation,
January
2023
Abstract
Relying on confidential supervisory data related to the 2016 EU-wide stress test, this paper presents novel empirical evidence that supervisory scrutiny associated to stress testing has a disciplining effect on bank risk. We find that banks that participated in the 2016 EU-wide stress test subsequently reduced their credit risk relative to banks that were not part of this exercise. Relying on new metrics for supervisory scrutiny that measure the quantity, potential impact, and duration of interactions between banks and supervisors during the stress test, we find that the disciplining effect is stronger for banks subject to more intrusive supervisory scrutiny during the exercise. We also find that a strong risk management culture is a prerequisite for the supervisory scrutiny to be effective. Finally, we show that a similar disciplining effect is not exerted neither by higher capital charges nor by more transparency and related market discipline induced by the stress test.
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Mergers, Spinoffs, and Employee Incentives
Paolo Fulghieri, Merih Sevilir
Review of Financial Studies,
Nr. 7,
2011
Abstract
This article studies mergers between competing firms and shows that while such mergers reduce the level of product market competition, they may have an adverse effect on employee incentives to innovate. In industries where value creation depends on innovation and development of new products, mergers are likely to be inefficient even though they increase the market power of the post-merger firm. In such industries, a stand-alone structure where independent firms compete both in the product market and in the market for employee human capital leads to a greater profitability. Furthermore, our analysis shows that multidivisional firms can improve employee incentives and increase firm value by reducing firm size through a spinoff transaction, although doing so eliminates the economies of scale advantage of being a larger firm and the benefits of operating an internal capital market within the firm. Finally, our article suggests that established firms can benefit from creating their own competition in the product and labor markets by accommodating new firm entry, and the desire to do so is greater at the intermediate stages of industry/product development.
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Venture Capitalists on Boards of Mature Public Firms
Ugur Celikyurt, Merih Sevilir, Anil Shivdasani
Review of Financial Studies,
Nr. 1,
2014
Abstract
Venture capitalists (VCs) often serve on the board of mature public firms long after their initial public offering (IPO), even for companies that were not VC-backed at the IPO. Board appointments of VC directors are followed by increases in research and development intensity, innovation output, and greater deal activity with other VC-backed firms. VC director appointments are associated with positive announcement returns and are followed by an improvement in operating performance. Firms experience higher announcement returns from acquisitions of VC-backed targets following the appointment of a VC director to the board. Hence, in addition to providing finance, monitoring and advice for small private firms, VCs play a significant role in mature public firms and have a broader influence in promoting innovation than has been established in the literature.
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Human Capital Investment, New Firm Creation and Venture Capital
Merih Sevilir
Journal of Financial Intermediation,
Nr. 4,
2010
Abstract
This paper studies the relation between firm investment in general human capital, new firm creation and financial development for new firm financing, such as the existence of a venture capital industry. On one hand, firm investment in general human capital leads employees to generate new innovative ideas for starting their own firm. Since employees need a venture capitalist to start their new firm, firm investment in general human capital encourages the creation of venture capitalists by increasing the need for their services, such as providing advice and monitoring. On the other hand, as new firm financing becomes available, firms' willingness to invest in general human capital increases, and as a by-product, the creation of employee-founded and venture capital-backed new firms increases in the economy. Hence, our model provides a rational explanation for the emergence of new firms created by employees of established firms, which represents one of the most common type of new firms in many industries.
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Going Public and the Internal Organization of the Firm
Daniel Bias, Benjamin Lochner, Stefan Obernberger, Merih Sevilir
SSRN Working Paper,
May
2022
Abstract
We examine how firms adapt their organization when they go public. To conform with the requirements of public capital markets, we expect IPO firms to become more organized, making the firm more accountable and its human capital more easily replaceable. We find that IPO firms transform into a more hierarchical organization with smaller departments. Managerial oversight increases. Organizational functions dedicated to accounting, finance, information and communication, and human resources become much more prominent. Employee turnover is sizeable and directly related to changes in hierarchical layers. New hires are better educated, but younger and less experienced than incumbents, which reflects the staffing needs of a more hierarchical organization. Wage inequality increases as firms become more hierarchical. Overall, going public is associated with a comprehensive transformation of the firm's organization which becomes geared towards efficiently operating a public firm.
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Private Equity in the Hospital Industry
Janet Gao, Yongseok Kim, Merih Sevilir
ECGI Working Paper,
Nr. 787,
2021
Abstract
We examine employment and patient outcomes at hospitals acquired by private equity (PE) firms and PE-backed hospitals. While employment declines at PE-acquired hospitals, core medical workers (physicians, nurses, and pharmacists) increase significantly. The proportion of wages paid to core workers increases at PE-acquired hospitals whereas the proportion paid to administrative employees declines. These results are most pronounced for deals where the acquirers are publicly traded PE-backed hospitals. Non-PE-backed acquirers also cut employment but do not increase core workers or reduce administrative expenditures. Finally, PE-backed acquirers are not associated with worse patient satisfaction or mortality rates compared to their non-PE-backed counterparts.
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