It is widely recognized that networks provide access to the resources necessary for founding a business. Up until now, however, the relationship between networking investments and the availability of resources has not been analyzed in depth. Using a sample of 416 nascent entrepreneurs, we address this issue, and provide evidence that networking investments lead to diminishing marginal resource returns in terms of financial, informational, emotional and contact support. Our results also show that resource returns strongly vary with resource type. While emotional support is quite easy to get, many more networking investments are needed to achieve financial support.
{"title":"How Exactly Do Networking Investments Pay Off? Analyzing the Impact of Nascent Entrepreneurs Networking Investments on Access to Start-Up Resources","authors":"Thorsten Semrau, Arndt Werner","doi":"10.2139/ssrn.1499632","DOIUrl":"https://doi.org/10.2139/ssrn.1499632","url":null,"abstract":"It is widely recognized that networks provide access to the resources necessary for founding a business. Up until now, however, the relationship between networking investments and the availability of resources has not been analyzed in depth. Using a sample of 416 nascent entrepreneurs, we address this issue, and provide evidence that networking investments lead to diminishing marginal resource returns in terms of financial, informational, emotional and contact support. Our results also show that resource returns strongly vary with resource type. While emotional support is quite easy to get, many more networking investments are needed to achieve financial support.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"97 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-11-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117202132","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}
This paper compares the investment behavior of multi-segment firms (firms with multiple business units) with that of single-segment firms. Models that omit within-firm information and incentive problems predict both set of firms to invest in response to investment opportunities. Our main findings reject this null. In particular, multi-segment firms exhibit a tendency to maintain a fixed level of capital in their business units regardless of investment opportunities. In addition to exhibiting rigid investment behavior, multi-segment firms are also less responsive to investment opportunities than single-segment firms. These effects are especially strong in multi-segment firms with unrelated business units. Our findings support the existence of agency problems within multi-segment firms.
{"title":"Organizational Scope and Allocation of Resources: Evidence on Rigid Capital Budgets","authors":"O. Ozbas, Zekiye Selvili","doi":"10.2139/ssrn.880789","DOIUrl":"https://doi.org/10.2139/ssrn.880789","url":null,"abstract":"This paper compares the investment behavior of multi-segment firms (firms with multiple business units) with that of single-segment firms. Models that omit within-firm information and incentive problems predict both set of firms to invest in response to investment opportunities. Our main findings reject this null. In particular, multi-segment firms exhibit a tendency to maintain a fixed level of capital in their business units regardless of investment opportunities. In addition to exhibiting rigid investment behavior, multi-segment firms are also less responsive to investment opportunities than single-segment firms. These effects are especially strong in multi-segment firms with unrelated business units. Our findings support the existence of agency problems within multi-segment firms.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-10-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130675286","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 paper shows that mispriced deposit insurance and capital regulation were of second-order importance in determining the capital structure of large U.S. and European banks during 1991 to 2004. Instead, standard cross-sectional determinants of non-financial firms' leverage carry over to banks, except for banks whose capital ratio is close to the regulatory minimum. Consistent with a reduced role of deposit insurance, we document a shift in banks' liability structure away from deposits towards non-deposit liabilities. We find that unobserved time-invariant bank fixed-effects are ultimately the most important determinant of banks' capital structures and that banks' leverage converges to bank specific, time-invariant targets. Copyright 2010, Oxford University Press.
{"title":"The Determinants of Bank Capital Structure","authors":"R. Gropp, Florian Heider","doi":"10.1093/ROF/RFP030","DOIUrl":"https://doi.org/10.1093/ROF/RFP030","url":null,"abstract":"The paper shows that mispriced deposit insurance and capital regulation were of second-order importance in determining the capital structure of large U.S. and European banks during 1991 to 2004. Instead, standard cross-sectional determinants of non-financial firms' leverage carry over to banks, except for banks whose capital ratio is close to the regulatory minimum. Consistent with a reduced role of deposit insurance, we document a shift in banks' liability structure away from deposits towards non-deposit liabilities. We find that unobserved time-invariant bank fixed-effects are ultimately the most important determinant of banks' capital structures and that banks' leverage converges to bank specific, time-invariant targets. Copyright 2010, Oxford University Press.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"131 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-09-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115563850","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 analyze credit line characteristics and changes in cash for a panel of firms over 1996-2006, and find evidence consistent with the economic importance of transactions costs for the management of liquidity and the resulting effects on shareholder value. We find that shareholders of financially-unconstrained firms value credit line availability and cash holdings similarly. Financially-constrained firms can increase firm value by increasing cash and credit line debt by the same amount, consistent with the theory of Gamba and Triantis (2007). The results provide strong evidence that transactions costs shape financial policy, and that shareholders benefit from low-fixed-cost access to liquidity.
{"title":"Credit Lines and the Substitutability of Cash and Debt","authors":"M. Flannery, G. B. Lockhart","doi":"10.2139/ssrn.1422867","DOIUrl":"https://doi.org/10.2139/ssrn.1422867","url":null,"abstract":"We analyze credit line characteristics and changes in cash for a panel of firms over 1996-2006, and find evidence consistent with the economic importance of transactions costs for the management of liquidity and the resulting effects on shareholder value. We find that shareholders of financially-unconstrained firms value credit line availability and cash holdings similarly. Financially-constrained firms can increase firm value by increasing cash and credit line debt by the same amount, consistent with the theory of Gamba and Triantis (2007). The results provide strong evidence that transactions costs shape financial policy, and that shareholders benefit from low-fixed-cost access to liquidity.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-09-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114942421","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}
I study the means of payment in acquisitions from a demand perspective. I propose that the decision to pay cash is positively related to the prevailing investor cash demand. To test this prediction, I construct a new measure of investor cash preferences using mutual fund flows (“cash popularity”). I show that the choice of cash offers is significantly affected by the cash popularity in the market. One standard deviation increase in cash popularity raises the probability of cash offers from 38% to 53%. When cash is very popular, cash mergers strengthen the bargaining power of the bidder. This effect is stronger in the cases where the target stock displays high idiosyncratic volatility and low institutional ownership. The use of cash when cash is popular also increases the probability of success of the deal. Overall, the evidence supports a cash demand explanation on the choice of payment methods in mergers and acquisitions.
{"title":"Why Do Firms Pay Cash in Acquisitions? Evidence from a Demand Perspective","authors":"Lei Zhang","doi":"10.2139/ssrn.1136343","DOIUrl":"https://doi.org/10.2139/ssrn.1136343","url":null,"abstract":"I study the means of payment in acquisitions from a demand perspective. I propose that the decision to pay cash is positively related to the prevailing investor cash demand. To test this prediction, I construct a new measure of investor cash preferences using mutual fund flows (“cash popularity”). I show that the choice of cash offers is significantly affected by the cash popularity in the market. One standard deviation increase in cash popularity raises the probability of cash offers from 38% to 53%. When cash is very popular, cash mergers strengthen the bargaining power of the bidder. This effect is stronger in the cases where the target stock displays high idiosyncratic volatility and low institutional ownership. The use of cash when cash is popular also increases the probability of success of the deal. Overall, the evidence supports a cash demand explanation on the choice of payment methods in mergers and acquisitions.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129307013","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 develop a dynamic model of bank capital structure in an acquisitions context which predicts: (i) total bank value and the bank's equity capital are positively correlated in the cross-section, and (ii) the various components of bank value are also positively cross-sectionally related to bank capital. Our empirical tests provide strong support for these predictions. The results are robust to a variety of alternative explanations--growth prospects, desire to acquire toe-hold positions, desire of capital-starved acquirers to buy capital-rich targets, market timing, pecking order, the effect of banks with binding capital requirements, Too Big To Fail, target profitability, risk, and mechanical effects. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.
{"title":"Bank Capital and Value in the Cross Section","authors":"Hamid Mehran, A. Thakor","doi":"10.1093/RFS/HHQ022","DOIUrl":"https://doi.org/10.1093/RFS/HHQ022","url":null,"abstract":"We develop a dynamic model of bank capital structure in an acquisitions context which predicts: (i) total bank value and the bank's equity capital are positively correlated in the cross-section, and (ii) the various components of bank value are also positively cross-sectionally related to bank capital. Our empirical tests provide strong support for these predictions. The results are robust to a variety of alternative explanations--growth prospects, desire to acquire toe-hold positions, desire of capital-starved acquirers to buy capital-rich targets, market timing, pecking order, the effect of banks with binding capital requirements, Too Big To Fail, target profitability, risk, and mechanical effects. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"52 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130785622","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}
There is anecdotal evidence that the primary reason why managers hold cash on their balance sheets is to cover operating losses (operating shortfalls). In this paper, we rationalize this as an optimal response in a world with contract heterogeneity. Specifically, we relax the standard assumption that all of the firm’s contracts are securities and assume that firms have two kinds of contracts outstanding - securities (issued to providers of financial capital) and non-traded “factor contracts” (issued to the providers of nonfinancial inputs such as labor, leasing companies, providers of processed goods). We derive testable implications and show that over the period of 1980-2007: a) operating shortfalls are an important explanatory factor for corporate cash holdings, b) a firm’s maximum shortfall is a better predictor of cash holdings than average shortfall and c) firms with a high fraction of intangible assets hold more cash in response to operating shortfalls. Also, the secular increase in corporate cash holdings documented by prior researchers appears to be correlated with increasing firms’ operating shortfalls.
{"title":"Contract Heterogeneity, Operating Shortfalls, and Corporate Cash Holdings","authors":"Hao Jiang, Woochan Kim, R. Rao","doi":"10.2139/ssrn.1469366","DOIUrl":"https://doi.org/10.2139/ssrn.1469366","url":null,"abstract":"There is anecdotal evidence that the primary reason why managers hold cash on their balance sheets is to cover operating losses (operating shortfalls). In this paper, we rationalize this as an optimal response in a world with contract heterogeneity. Specifically, we relax the standard assumption that all of the firm’s contracts are securities and assume that firms have two kinds of contracts outstanding - securities (issued to providers of financial capital) and non-traded “factor contracts” (issued to the providers of nonfinancial inputs such as labor, leasing companies, providers of processed goods). We derive testable implications and show that over the period of 1980-2007: a) operating shortfalls are an important explanatory factor for corporate cash holdings, b) a firm’s maximum shortfall is a better predictor of cash holdings than average shortfall and c) firms with a high fraction of intangible assets hold more cash in response to operating shortfalls. Also, the secular increase in corporate cash holdings documented by prior researchers appears to be correlated with increasing firms’ operating shortfalls.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129553984","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 paper examines the decision by Australian Real Estate Trusts (A-REITs) to issue seasoned equity offerings from 2000-2008 and stock market reaction to the offerings. The findings review that highly leveraged A-REITs with variable earnings are less likely to issue seasoned equity offerings. Inconsistent results for structure and type of properties held by the A-REIT do not allow for inference to be drawn. Similar to previous studies of seasoned equity offerings, we find a significant negative abnormal return associated with their announcement and no evidence of excessive leakage of information. Furthermore, market reaction differences to announcements of SEOs for the pre-global financial crisis (GFC) (2000-2006) and GFC eras (2007-2008) are noted with GFC era shareholders incurring larger abnormal return losses at 1.13% in comparison to the pre-GFC era shareholder loss of 0.34% on the SEO announcement day. Cross-sectional regressions show that the issued amount, leverage and profitability are significant factors affecting abnormal returns. Growth opportunities, tangibility, operating risk, size of A-REIT and other variables capturing A-REIT structure and property types held do not have an impact on abnormal returns.
{"title":"Determinants and Market Impact of Seasoned Equity Offerings: The Case of A-REITs","authors":"Bwembya Chikolwa, Jinu Kim","doi":"10.2139/ssrn.1460288","DOIUrl":"https://doi.org/10.2139/ssrn.1460288","url":null,"abstract":"The paper examines the decision by Australian Real Estate Trusts (A-REITs) to issue seasoned equity offerings from 2000-2008 and stock market reaction to the offerings. The findings review that highly leveraged A-REITs with variable earnings are less likely to issue seasoned equity offerings. Inconsistent results for structure and type of properties held by the A-REIT do not allow for inference to be drawn. Similar to previous studies of seasoned equity offerings, we find a significant negative abnormal return associated with their announcement and no evidence of excessive leakage of information. Furthermore, market reaction differences to announcements of SEOs for the pre-global financial crisis (GFC) (2000-2006) and GFC eras (2007-2008) are noted with GFC era shareholders incurring larger abnormal return losses at 1.13% in comparison to the pre-GFC era shareholder loss of 0.34% on the SEO announcement day. Cross-sectional regressions show that the issued amount, leverage and profitability are significant factors affecting abnormal returns. Growth opportunities, tangibility, operating risk, size of A-REIT and other variables capturing A-REIT structure and property types held do not have an impact on abnormal returns.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-08-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128564614","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 investigate the effect of growth opportunities on a firm’s choice of step-down performance sensitive debt (PSD) jointly with leverage and debt maturity. By explicitly linking the interest rate with the borrower’s credit quality via interest-decreasing options, step-down PSD arguably attenuates the negative effect of growth opportunities on leverage. Using a large loan deal sample from the Dealscan dataset over the period between 1990 and 2006, we demonstrate three main findings. First, the negative relation between growth opportunities and leverage is attenuated by both the issuance of step-down PSD and its proportion in the debt structure after controlling for short maturity debt effect. Second, the attenuation effect of step-down PSD is concentrated in loans with high renegotiation cost. Third, firms with higher growth opportunities are more likely to borrow debt with an interest-decreasing provision. Overall the evidence suggests that an interest-decreasing provision can mitigate suboptimal investment incentives for high growth firms.
{"title":"Growth Opportunities and Step-Down Performance Sensitive Debt","authors":"Xiumin Martin","doi":"10.2139/ssrn.1458019","DOIUrl":"https://doi.org/10.2139/ssrn.1458019","url":null,"abstract":"We investigate the effect of growth opportunities on a firm’s choice of step-down performance sensitive debt (PSD) jointly with leverage and debt maturity. By explicitly linking the interest rate with the borrower’s credit quality via interest-decreasing options, step-down PSD arguably attenuates the negative effect of growth opportunities on leverage. Using a large loan deal sample from the Dealscan dataset over the period between 1990 and 2006, we demonstrate three main findings. First, the negative relation between growth opportunities and leverage is attenuated by both the issuance of step-down PSD and its proportion in the debt structure after controlling for short maturity debt effect. Second, the attenuation effect of step-down PSD is concentrated in loans with high renegotiation cost. Third, firms with higher growth opportunities are more likely to borrow debt with an interest-decreasing provision. Overall the evidence suggests that an interest-decreasing provision can mitigate suboptimal investment incentives for high growth firms.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"166 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-08-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122983610","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}
Revealing factors responsible for the creation of difference in management of current assets between public sector and private sector enterprises is a complex task. However pattern of decision making at miscellaneous junctures differs in a great way between the two. Apart from the above mentioned cause work culture, atmosphere and environment within the organizations etc. are few aspects which are not identical in many ways within the public and private sector enterprises. Hence its impact can be observed in operating activities too. Taking a glance over vivid distinguishable factors like movement of inventory, changes in the level of cash and extent of dependence over current liabilities etc. one may get guidelines to point out the causes liable for creating difference in managing working capital between two types of enterprises. Although it is assumed that the pattern of utilization of current assets and exploitation of current liabilities differs between the two enterprises, it becomes a must to check the validity of the statement. Further analysis is confined to Indian Iron and Steel Industry. Tata Iron and Steel Company (TISCO) and Rashtriya Ispat Nigam Limited (RINL) represent private and public sector enterprises respectively.
{"title":"Is the Way of Managing Working Capital for Public and Private Sector Enterprises Different?: 'Discussion Based on Comparative Case Studies of TISCO and RINL'","authors":"S. Joshi","doi":"10.2139/ssrn.1458066","DOIUrl":"https://doi.org/10.2139/ssrn.1458066","url":null,"abstract":"Revealing factors responsible for the creation of difference in management of current assets between public sector and private sector enterprises is a complex task. However pattern of decision making at miscellaneous junctures differs in a great way between the two. Apart from the above mentioned cause work culture, atmosphere and environment within the organizations etc. are few aspects which are not identical in many ways within the public and private sector enterprises. Hence its impact can be observed in operating activities too. Taking a glance over vivid distinguishable factors like movement of inventory, changes in the level of cash and extent of dependence over current liabilities etc. one may get guidelines to point out the causes liable for creating difference in managing working capital between two types of enterprises. Although it is assumed that the pattern of utilization of current assets and exploitation of current liabilities differs between the two enterprises, it becomes a must to check the validity of the statement. Further analysis is confined to Indian Iron and Steel Industry. Tata Iron and Steel Company (TISCO) and Rashtriya Ispat Nigam Limited (RINL) represent private and public sector enterprises respectively.","PeriodicalId":437258,"journal":{"name":"Corporate Finance: Capital Structure & Payout Policies","volume":"82 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-08-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131618402","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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