Abstract Using a Taiwan dataset with restrictive family definitions, we examine the relation between family presence and corporate investment policy. Our analysis centers on two incentives that potentially lead to differences in investment policy between family firms and nonfamily firms: family owners' risk aversion and their real option to invest. Our findings indicate that family firms devote significantly more resources to total investment activity and RD and the investment policy appears to be driven by the significantly stronger relation between total investment and idiosyncratic risk for families with more real options ( i.e. , investment opportunities). Our robustness tests using IV-3SLS regressions provide further support of the real option argument. Further testing indicates that family firms receive more patents/patent citations per RD suggesting that active family control (holding top management position) may explain the higher R&D efficiency associated with family firms. To our knowledge, this paper is the first of its kind to propose the real option argument to explain the relation between family presence and firm investment policy.
{"title":"Real Option, Idiosyncratic Risk, and Corporate Investment: Evidence from Taiwan Family Firms","authors":"I. Chen, David K. Wang","doi":"10.2139/ssrn.3198535","DOIUrl":"https://doi.org/10.2139/ssrn.3198535","url":null,"abstract":"Abstract Using a Taiwan dataset with restrictive family definitions, we examine the relation between family presence and corporate investment policy. Our analysis centers on two incentives that potentially lead to differences in investment policy between family firms and nonfamily firms: family owners' risk aversion and their real option to invest. Our findings indicate that family firms devote significantly more resources to total investment activity and RD and the investment policy appears to be driven by the significantly stronger relation between total investment and idiosyncratic risk for families with more real options ( i.e. , investment opportunities). Our robustness tests using IV-3SLS regressions provide further support of the real option argument. Further testing indicates that family firms receive more patents/patent citations per RD suggesting that active family control (holding top management position) may explain the higher R&D efficiency associated with family firms. To our knowledge, this paper is the first of its kind to propose the real option argument to explain the relation between family presence and firm investment policy.","PeriodicalId":126826,"journal":{"name":"ERPN: Other Entrepreneurs (Finance) (Sub-Topic)","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121996808","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}
Using detailed ownership and financial information available for a large sample of owner-managed private firms in three West European countries, this paper examines the relationship between manager's age and firm's performance. Tracking firms over time, we find that as a manager ages, the firm experiences slower growth and a decline in investment, especially when a manager gets closer to retirement age. These results are stronger in industries more reliant on human capital, such as service and creative industries. Moreover, older managers are less likely to adopt managerial practices associated with better firm performance. Regional financial development moderates the relationship between a manager's age and a firm's performance. Fewer firms in more financially developed regions have older managers and in those regions the adverse effect of older managers is less pronounced. Our findings point to the importance of financial markets in facilitating the reallocation of assets from firms with older to firms with younger managers.
{"title":"Quitting Time: Manager's Age and the Performance of Closely Held Firms","authors":"Sharon Belenzon, A. Shamshur, Rebecca Zarutskie","doi":"10.2139/ssrn.2748055","DOIUrl":"https://doi.org/10.2139/ssrn.2748055","url":null,"abstract":"Using detailed ownership and financial information available for a large sample of owner-managed private firms in three West European countries, this paper examines the relationship between manager's age and firm's performance. Tracking firms over time, we find that as a manager ages, the firm experiences slower growth and a decline in investment, especially when a manager gets closer to retirement age. These results are stronger in industries more reliant on human capital, such as service and creative industries. Moreover, older managers are less likely to adopt managerial practices associated with better firm performance. Regional financial development moderates the relationship between a manager's age and a firm's performance. Fewer firms in more financially developed regions have older managers and in those regions the adverse effect of older managers is less pronounced. Our findings point to the importance of financial markets in facilitating the reallocation of assets from firms with older to firms with younger managers.","PeriodicalId":126826,"journal":{"name":"ERPN: Other Entrepreneurs (Finance) (Sub-Topic)","volume":"56 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-03-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129728808","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}
We provide new evidence on the production of audited GAAP financial statements by large U.S. privately held firms. We find that over 60% of these firms, which control $4 trillion of assets, do not produce audited GAAP financial statements. Using across industry, within industry, and within firm tests over time, our analyses reveal that several important characteristics — such as profitability, firm age, growth, ownership changes, and presence of intangibles — partially explain this variation. These findings are consistent with financial statements reducing information asymmetry and serving a stewardship role. However, economically substantial variation remains unexplained by traditional variables. Our findings suggest that incomplete contracting and alternative mechanisms, such as relationships and tangible assets, are useful alternatives to producing audited GAAP financial statements, even for large firms. Our study informs researchers, standard setters, and regulators on the actual use of audited GAAP financial statements in the broader U.S. economy and raises additional questions for future research.
{"title":"The Silent Majority: Private U.S. Firms and Financial Reporting Choices","authors":"Petro Lisowsky, Michael Minnis","doi":"10.2139/ssrn.2373498","DOIUrl":"https://doi.org/10.2139/ssrn.2373498","url":null,"abstract":"We provide new evidence on the production of audited GAAP financial statements by large U.S. privately held firms. We find that over 60% of these firms, which control $4 trillion of assets, do not produce audited GAAP financial statements. Using across industry, within industry, and within firm tests over time, our analyses reveal that several important characteristics — such as profitability, firm age, growth, ownership changes, and presence of intangibles — partially explain this variation. These findings are consistent with financial statements reducing information asymmetry and serving a stewardship role. However, economically substantial variation remains unexplained by traditional variables. Our findings suggest that incomplete contracting and alternative mechanisms, such as relationships and tangible assets, are useful alternatives to producing audited GAAP financial statements, even for large firms. Our study informs researchers, standard setters, and regulators on the actual use of audited GAAP financial statements in the broader U.S. economy and raises additional questions for future research.","PeriodicalId":126826,"journal":{"name":"ERPN: Other Entrepreneurs (Finance) (Sub-Topic)","volume":"75 10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-09-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131837838","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}
While several studies have demonstrated that there is a relative price difference between companies listed on the stock market and privately held enterprises, no academic study has addressed the question of how this private enterprise discount can be reduced and the proceeds from a divestment can be maximized. This research project has focused on the seller’s perspective in the takeover process in order to answer the following research question: What factors influence the ability of sellers to extract value when divesting a privately held target and how can these factors be optimized? Based on the existing knowledge base, the following key success factors have been determined to be the main elements of the divestment process to be studied: Increasing negotiation power by creating competition; Initiating the sales process under favourable market conditions; Selecting a group of bidders with the highest potential synergies; Inviting financial investors to the bidding process; Increasing transparency of target company information; Controlling information dissemination to potential bidders; Articulating a compelling value and growth story for each buyer; Optimizing the auction process used in the divestment; Overcoming price differences using deferred or conditional payments; and identifying and mitigating potential deal breakers. Typically, M&A advisors are hired by the owners of privately held companies in order to create a market for their illiquid asset. A survey-based study validating the perceived importance of the key success factors has been conducted in addition to multiple case studies, where specialized M&A advisors and their clients have participated. The study of five selected cases involving a privately held target company during and after the divestment process has produced results with high significance to other researchers and professionals involved in mergers and acquisitions. From multiple case studies, the best possible practices regarding the optimization of the key success factors has been derived and used to reappraise the existing knowledge base. While based on a systematic analysis of the data obtained, the research question has been answered, further studies with a larger sample will be necessary to generalize findings and to validate the theory developed.
{"title":"Maximizing the Divestment Price of a Privately Held Company","authors":"Christoph D Gosdenoz","doi":"10.2139/SSRN.2633836","DOIUrl":"https://doi.org/10.2139/SSRN.2633836","url":null,"abstract":"While several studies have demonstrated that there is a relative price difference between companies listed on the stock market and privately held enterprises, no academic study has addressed the question of how this private enterprise discount can be reduced and the proceeds from a divestment can be maximized. This research project has focused on the seller’s perspective in the takeover process in order to answer the following research question: What factors influence the ability of sellers to extract value when divesting a privately held target and how can these factors be optimized? Based on the existing knowledge base, the following key success factors have been determined to be the main elements of the divestment process to be studied: Increasing negotiation power by creating competition; Initiating the sales process under favourable market conditions; Selecting a group of bidders with the highest potential synergies; Inviting financial investors to the bidding process; Increasing transparency of target company information; Controlling information dissemination to potential bidders; Articulating a compelling value and growth story for each buyer; Optimizing the auction process used in the divestment; Overcoming price differences using deferred or conditional payments; and identifying and mitigating potential deal breakers. Typically, M&A advisors are hired by the owners of privately held companies in order to create a market for their illiquid asset. A survey-based study validating the perceived importance of the key success factors has been conducted in addition to multiple case studies, where specialized M&A advisors and their clients have participated. The study of five selected cases involving a privately held target company during and after the divestment process has produced results with high significance to other researchers and professionals involved in mergers and acquisitions. From multiple case studies, the best possible practices regarding the optimization of the key success factors has been derived and used to reappraise the existing knowledge base. While based on a systematic analysis of the data obtained, the research question has been answered, further studies with a larger sample will be necessary to generalize findings and to validate the theory developed.","PeriodicalId":126826,"journal":{"name":"ERPN: Other Entrepreneurs (Finance) (Sub-Topic)","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-07-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127725114","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}
The purpose of this study is to understand financial and behavioural influences on the export status of small and medium-sized enterprises (SMEs) in an emerging economy. In particular, we tested the direct effects of perceived costs, internal financial resources and external capital constraint on the export status of SMEs. We also tested the moderating effect of cost sensitivity on two types of perceived export costs. Survey data was collected from 356 SMEs in Malaysia and analysed using logistic regression. The results show that exporters perceive higher ongoing costs but lower initiation costs of exporting. They also perceive higher internal financial resources, fewer constraints in accessing external capital and are more sensitive towards costs compared to non-exporters. Furthermore, we found that cost sensitivity moderates the relationship between perceived costs and export status.
{"title":"Financial Influences on Export Status of Small and Medium-Sized Enterprises in an Emerging Economy","authors":"A. Ayob, Sveinn Vidar Gudmundsson, M. Yaacob","doi":"10.2139/ssrn.2488441","DOIUrl":"https://doi.org/10.2139/ssrn.2488441","url":null,"abstract":"The purpose of this study is to understand financial and behavioural influences on the export status of small and medium-sized enterprises (SMEs) in an emerging economy. In particular, we tested the direct effects of perceived costs, internal financial resources and external capital constraint on the export status of SMEs. We also tested the moderating effect of cost sensitivity on two types of perceived export costs. Survey data was collected from 356 SMEs in Malaysia and analysed using logistic regression. The results show that exporters perceive higher ongoing costs but lower initiation costs of exporting. They also perceive higher internal financial resources, fewer constraints in accessing external capital and are more sensitive towards costs compared to non-exporters. Furthermore, we found that cost sensitivity moderates the relationship between perceived costs and export status.","PeriodicalId":126826,"journal":{"name":"ERPN: Other Entrepreneurs (Finance) (Sub-Topic)","volume":"57 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134498563","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}
U.S. financial development varies a good deal over the last half century, primarily increasing since the 1980s. We ask whether this variation had consequences for the real economy. Difference-in-difference tests reveal that increases in financial development have disproportionate effects on industries that depend more on external finance. Higher financial development forecasts externally dependent industries using more external finance, having higher turnover of leading businesses, greater variation in firm-growth rates, more new firms entering, more mature firms exiting, lower concentration, and at the aggregate level more innovation and faster growth. The mosaic of our evidence is consistent with a Schumpeterian framework linking the supply of finance to competition, innovation, and growth. Our findings suggest that the growth in finance had some real effects that are socially beneficial.
{"title":"U.S. Financial Markets Growth and the Real Economy","authors":"Claire Y. C. Liang, R. McLean, Mengxin Zhao","doi":"10.2139/ssrn.1720717","DOIUrl":"https://doi.org/10.2139/ssrn.1720717","url":null,"abstract":"U.S. financial development varies a good deal over the last half century, primarily increasing since the 1980s. We ask whether this variation had consequences for the real economy. Difference-in-difference tests reveal that increases in financial development have disproportionate effects on industries that depend more on external finance. Higher financial development forecasts externally dependent industries using more external finance, having higher turnover of leading businesses, greater variation in firm-growth rates, more new firms entering, more mature firms exiting, lower concentration, and at the aggregate level more innovation and faster growth. The mosaic of our evidence is consistent with a Schumpeterian framework linking the supply of finance to competition, innovation, and growth. Our findings suggest that the growth in finance had some real effects that are socially beneficial.","PeriodicalId":126826,"journal":{"name":"ERPN: Other Entrepreneurs (Finance) (Sub-Topic)","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-05-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120962551","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}
“Small businesses” are often lauded as the backbone of the American economy. Politicians from both sides of the aisle proclaim their commitment to fostering small business in the United States and its importance. However, as is so often the case in policy debates, individual voices can be lost in high-level discussions over tax breaks and business aid programs. In the spirit of investigating the thoughts of actual business owners, we decided to examine a recent survey from Thumbtack.com, with the intent of lending some perspective and context to the debate over how best to aid small and new businesses in the United States. When Thumbtack conducted a large-scale survey of small business owners and service providers in late 2011 and early 2012, it included this open-ended question: “Please let us know any experiences or thoughts you have regarding the ease of doing business in your state.” Of the 6,730 respondents to the Thumbtack survey, 36.6 percent provided feedback to the open-ended question. This report qualitatively analyzes these business owners’ unfettered thoughts on issues they felt important and explores several themes that arose. The findings provide important insights for state policymakers when considering how to make their states appealing to and supportive of small business owners.The trends apparent from the responses do not necessarily echo the narrative often told about the problems business owners face in the United States. Even in these times of difficult political and fiscal issues, states can take concrete steps to support business owners and improve business friendliness.
{"title":"Voices of Small Businesses: Discussion and Policy Implications","authors":"Kate Maxwell, Y. Motoyama","doi":"10.2139/SSRN.2166537","DOIUrl":"https://doi.org/10.2139/SSRN.2166537","url":null,"abstract":"“Small businesses” are often lauded as the backbone of the American economy. Politicians from both sides of the aisle proclaim their commitment to fostering small business in the United States and its importance. However, as is so often the case in policy debates, individual voices can be lost in high-level discussions over tax breaks and business aid programs. In the spirit of investigating the thoughts of actual business owners, we decided to examine a recent survey from Thumbtack.com, with the intent of lending some perspective and context to the debate over how best to aid small and new businesses in the United States. When Thumbtack conducted a large-scale survey of small business owners and service providers in late 2011 and early 2012, it included this open-ended question: “Please let us know any experiences or thoughts you have regarding the ease of doing business in your state.” Of the 6,730 respondents to the Thumbtack survey, 36.6 percent provided feedback to the open-ended question. This report qualitatively analyzes these business owners’ unfettered thoughts on issues they felt important and explores several themes that arose. The findings provide important insights for state policymakers when considering how to make their states appealing to and supportive of small business owners.The trends apparent from the responses do not necessarily echo the narrative often told about the problems business owners face in the United States. Even in these times of difficult political and fiscal issues, states can take concrete steps to support business owners and improve business friendliness.","PeriodicalId":126826,"journal":{"name":"ERPN: Other Entrepreneurs (Finance) (Sub-Topic)","volume":"560 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127681273","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}
In this paper we investigate the link between entrepreneurship and financial constraints. We develop a dynamic partial equilibrium model of an individual utility maximization that predicts that the person is more likely to start her business when financial constraints are eased. We test this hypothesis using German Socio-Economic Panel data covering the periods 2000 - 2002 and measure release from financial constraints by windfall gains. The estimates confirm that the individual has higher propensity to start her business when she gets windfall gains. Furthermore, there are stronger effects for persons that have sufficient, but not very high levels of income and abilities.
{"title":"Entrepreneurship, Windfall Gains and Financial Constraints: The Case of Germany","authors":"Oleksandr Talavera, Dorothea Schaefer","doi":"10.2139/ssrn.669003","DOIUrl":"https://doi.org/10.2139/ssrn.669003","url":null,"abstract":"In this paper we investigate the link between entrepreneurship and financial constraints. We develop a dynamic partial equilibrium model of an individual utility maximization that predicts that the person is more likely to start her business when financial constraints are eased. We test this hypothesis using German Socio-Economic Panel data covering the periods 2000 - 2002 and measure release from financial constraints by windfall gains. The estimates confirm that the individual has higher propensity to start her business when she gets windfall gains. Furthermore, there are stronger effects for persons that have sufficient, but not very high levels of income and abilities.","PeriodicalId":126826,"journal":{"name":"ERPN: Other Entrepreneurs (Finance) (Sub-Topic)","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115369225","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}
Stock options are important to high-growth entrepreneurial firms and to the overall vibrancy of the economy. This policy advisory gives basic information on how stock options work, current trends in their use, impacts of their use, and their role in the recruiting and retention of personnel. In addition, the various public policies that affect stock options are summarized.Suggestions are offered that may make the use of options more effective and equitable. When used correctly, options improve productivity and ensure that companies share wealth with all workers. When misused, options can trigger a backlash against excessive executive pay, poor accounting practices, and risky management strategies.
{"title":"Employee Stock Options: Their Use and Policy Implications","authors":"Erik R. Pages","doi":"10.2139/ssrn.1260357","DOIUrl":"https://doi.org/10.2139/ssrn.1260357","url":null,"abstract":"Stock options are important to high-growth entrepreneurial firms and to the overall vibrancy of the economy. This policy advisory gives basic information on how stock options work, current trends in their use, impacts of their use, and their role in the recruiting and retention of personnel. In addition, the various public policies that affect stock options are summarized.Suggestions are offered that may make the use of options more effective and equitable. When used correctly, options improve productivity and ensure that companies share wealth with all workers. When misused, options can trigger a backlash against excessive executive pay, poor accounting practices, and risky management strategies.","PeriodicalId":126826,"journal":{"name":"ERPN: Other Entrepreneurs (Finance) (Sub-Topic)","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122156686","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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