Corporate governance,capital structure and firm performance: Evidence from Thailand

We examine the relationship between corporate governance and firm performance for a panel sample of 493 firms of non-financial firms in Thailand during the period 2001–2014. We find that for the full sample, corporate governance is not associated with financial leverage and firm performance. Leverage has a positive effect on firm performance. When we split firms into small and large firm subsamples, we observe some influence of corporate governance. The negative effect of audit committee size on firm performance is evident for large firms while the effect of audit reputation on firm performance is evident for small firms only. Furthermore, financial leverage mediates the effect of audit committee size on firm performance for the large firms.     

A cross-country comparison of corporate governance and firm performance: Do financial structure and the legal system matter?

We blend the corporate governance and the financial structure/legal system literature streams to study whether firm performance is enhanced when its governance structure embodies the demands of the host country’s financial structure and legal system. Using a sample of 1736 unique firms representing 22 countries, we find that the joint effect of a country’s financial structure and legal system does matter when explaining the relationship between performance and the overall level of corporate governance in a given country. The results also suggest that firms operating in the market/common combination countries tend to command higher market valuations than firms with a comparable level of corporate governance that operate in the bank/civil combination countries.     

Financial and Legal Constraints to Growth: Does Firm Size Matter?

Using a unique firm‐level survey database covering 54 countries, we investigate the effect of financial, legal, and corruption problems on firms' growth rates. Whether these factors constrain growth depends on firm size. It is consistently the smallest firms that are most constrained. Financial and institutional development weakens the constraining effects of financial, legal, and corruption obstacles and it is again the small firms that benefit the most. There is only a weak relation between firms' perception of the quality of the courts in their country and firm growth. We also provide evidence that the corruption of bank officials constrains firm growth.     

Strategic Bankruptcies and Price Reactions to Bankruptcy Filings

This study investigates whether the stock market differentiates between firms that file bankruptcy petitions for strategic reasons and firms that file bankruptcy petitions for financial reasons. We perform both univariate and regression tests on a sample of 245 firms that filed Chapter 11 bankruptcy petitions between 1981 and 1996. After controlling for bankruptcy outcome, probability of bankruptcy, firm financial condition, and firm size, we find that, in the period around bankruptcy filing, firms that file bankruptcy petitions for financial reasons have significantly larger stock price declines than firms that file bankruptcy petitions for strategic reasons.     

Analyst Coverage and Intangible Assets

This study examines the relation between analysts' incentives to cover firms and the extent of their intangible assets. Because intangible assets typically are unrecognized and estimates of their fair values are not disclosed, absent analyst coverage firms with more intangible assets likely have less informative prices. Accordingly, we expect analysts have greater incentives to cover firms with more intangible assets and, thus, predict they have higher analyst coverage. As predicted, we find that analyst coverage is significantly greater for firms with larger research and development and advertising expenses relative to their industry, and for firms in industries with larger research and development expense. We also predict and find that analyst coverage is increasing in firm size, growth, trading volume, equity issuance, and perceived mispricing, and is decreasing in the size of the firm's analysts' brokerage houses and the effort analysts expend to follow the firm. These findings indicate that analyst coverage depends on private benefits and costs of covering a firm. We also test hypotheses related to analyst effort. We predict and find that analysts expend greater effort to follow firms with more intangible assets, after controlling for other factors associated with analyst effort. Our evidence indicates that intangible assets, most of which are not recognized in firms' financial statements, are associated with greater incentives for analysts to cover such firms, and greater costs of coverage. An open question is whether financial statement recognition of intangible assets could more efficiently provide information about such assets to investors.     

Offshore operations and bank loan contracting: Evidence from firms that set up subsidiaries in offshore financial centers

We examine the effects of a multinational firm's subsidiary operations in offshore financial centers (OFCs) on bank loan contracting terms. Using a propensity score matched cross-country sample of firms with and without OFC subsidiaries, we find that firms with OFC subsidiaries receive less favorable loan terms than firms without OFC subsidiaries. The results from a difference-in-differences analysis and an analysis of a firm's mutation from a non-OFC firm to an OFC firm support the causal effect of offshore operations on the unfavorable loan terms. Furthermore, focusing on firms with OFC subsidiaries, we find that the intensity of offshore operations affects loan terms unfavorably. We also find that the unfavorable effect is more pronounced for more opaque firms and for firms that are headquartered in countries or jurisdictions with weaker legal enforcement. Our findings indicate that banks view offshore operations of borrowers as a credit risk-increasing factor.     

The effect of corporate culture on firm performance: Evidence from China

This study examines whether corporate culture promotion affects firm performance in China in terms of firm market value, firm financial performance and innovation output. We find consistent evidence that corporate culture promotion is negatively related to firm market value, positively related to innovation output and not significantly related to firm financial performance. In addition, the negative effect of corporate culture promotion on firm market value is driven by small firms and firms located in less developed provinces. Furthermore, we find that some specific corporate culture promotions, such as innovation culture promotion and integrity culture promotion, are not related to firm value or financial performance. However, innovation culture promotion is positively associated with innovation output.     

Institutional effects on information content of US and French management earnings forecasts: Evidence from market reactions and analyst revisions

The United States and France are both most developed economies in the world. Their socio-economic institutions, however, are very different. These differences are indications of their dichotomous legal regimes: common law in the US versus code law in France. The political influence of these legal regimes, in turn, leads to a dichotomized classification of accounting systems: the British-American Model and the French Continental Model. This study extends these institutional effects into the field of management earnings forecast. We find that earnings forecasts by French firms are less informative than those made by US firms matched-up by industry and firm size. We also compare US and French financial analysts' revisions of their forecasts following the management forecasts. We find that revisions by French analysts are more influenced by management forecasts. Our findings are consistent with prior studies that argue that information asymmetry in code-law countries is largely resolved through private information channels, rendering less information content in management announcements and less demand and incentives for original research by financial analysts.     

ISO certification,financial constraints,and firm performance in Latin American and Caribbean countries

We employ World Bank Enterprise Survey data collected in 2006–2010 for 21,852 firms from 31 Latin American and Caribbean countries to investigate determinants of the adoption of International Organization for Standardization (ISO) certification, the relation between ISO certification and firm financial constraints, and the effect of ISO certification on firm performance. We find that ISO accreditation is positively related to firm size and firm age. Exporters and foreign firms are more likely to adopt ISO certification. We document that ISO-certified firms exhibit significantly lower level of financial constraints and higher labor productivity and lower cost of sales than non-certified firms.     

Financial industry lobbying and shareholder litigation outcomes: implications for managers and regulators

We examine the relationship between financial firm corporate lobbying, shareholder-based litigation outcomes, and firm value. We show that political lobbying lowers federal class action securities litigation likelihood for public financial institutions. Secondly, lobbying firms experience a higher likelihood of having litigation dismissed, and the average settlement amount is significantly lower for lobbying institutions. In addition, shortly after a litigation announcement, lobbying firms experience significantly higher cumulative abnormal returns (CARs), compared to non-lobbying firms. Finally, we show that lobbying firms have higher long-run buy-and-hold abnormal stock returns (BHARs) following lobbying activities. Our results link financial institution lobbying activity with improved legal outcomes and relatively higher firm value. While lobbying improves financial firm value, our results also imply that lobbying creates a disadvantage for non-lobbying firms within the industry. Our results provide insights, not only to corporate managers, but to regulators and policymakers interested in the impact of lobbying on the efficacy and objectivity of regulation and enforcement in the financial services industry.     

A two-part fractional regression model for the financial leverage decisions of micro,small, medium and large firms

In this paper we examine the following two hypotheses, which traditional theories of capital structure are relatively silent about: (i) the determinants of financial leverage decisions are different for micro, small, medium and large firms; and (ii) the factors that determine whether or not a firm issues debt are different from those that determine how much debt it issues. Using a binary choice model to explain the probability of a firm raising debt and a fractional regression model to explain the relative amount of debt issued, we find strong support for both hypotheses. Confirming recent empirical evidence, we find also that, although larger firms are more likely to use debt, conditional on their having some debt, firm size is negatively related to the proportion of debt used by firms.     

Small firms in the SSBF

This paper uses Survey of Small Business Finance data to better understand how the owners of small firms use decisions about legal organization, firm size, capital structure, and owner investment in the firm to manage firm risk. The main findings are: Firms with unlimited liability are smaller, both when measured by assets and number of employees, and tend to be less leveraged than those whose owners limit personal exposure to firm liabilities. Entrepreneurs tend to hold largely undiversified positions by investing heavily in their firms, and this does not differ appreciably by legal organization. The percentage of firms with limited liability has remained virtually constant through time, although within this group there is a trend toward hybrid legal organizations with beneficial tax treatment. We estimate return on assets and find that entrepreneurship is a very risky undertaking, with high upside gain. The possibility of high future returns helps explain the coexistence of a large percentage of firms with negative equity and low default rates. The shape of the return distribution and limited liability interact; the option to declare bankruptcy shields owners from personal loss in the lower tail of the distribution while preserving the potential for significant firm returns in the upper tail.     

Business groups in China

We investigate whether business groups in China act as internal capital markets, in an environment that is characterized by a high level of government intervention, a weak legal system, and an underdeveloped financial market. We study how institutional factors, such as the ultimate owner and level of market development, shape the role of these business groups. We find that business groups help member firms overcome constraints in raising external capital, and that the internal capital market within a business group is more likely to be an alternative financing channel among state-owned firms than among private firms. We also find that the internal capital market is more likely to help those affiliated firms which are private, local government owned relative to those owned by central government, or located in regions with a well-developed institutional environment. We present evidence of the role of business groups in risk sharing among affiliated firms, but find that business group affiliation has no impact on firm accounting performance. This study sheds new light on the theory of the firm and its boundaries, and provides a better understanding of China's rapidly growing economy.     

融资约束会导致劳动收入份额下降吗?——基于世界银行提供的中国企业数据的实证研究

本文考察了融资约束对劳动收入份额的影响。首先基于文献提出了一个假说,面临融资约束的企业,通过信贷获得流动资本的能力受到限制,它们倾向于减少劳动雇用或降低工资水平,从而对劳动收入份额产生负面影响。通过对世界银行提供的中国企业数据进行系统GMM估计和稳健性分析,我们找到了这一命题的支持性证据:私人企业的负债资产比(融资约束的代理变量)与劳动收入份额显著负相关,而国有企业和外资企业则没有类似的结论。出现这一差异的关键原因是,在中国,只有私人企业面临着融资约束的困扰。     

Microstructures,financial reforms and informational efficiency in an emerging market

This paper investigates the effects of microstructures and financial reforms on time-varying informational efficiency in an emerging equity market setting. Our data comprises of firm level data from the Trinidad and Tobago Stock Exchange, over the period 1990–2013. Using a dynamic panel regression framework while controlling for firm size, we find that microstructures, specifically liquidity, volatility, automation and the number of shareholders have an important role in influencing the time-varying efficiency of this emerging market. The financial reforms, namely liberalisation and regulation are not found to have a notable influence. We also consider heterogeneity at the firm level, finding that the microstructures of the banking firms listed in this market have a greater impact on market efficiency, in relation to the other listed firms.     

Corporate debt maturity in the MENA region: Does institutional quality matter?

We investigate corporate debt maturity structure in the MENA region and its firm and institutional determinants using a sample of 444 listed firms over the 2003–2011 period, or 3717 firm-year observations. We find a very limited use of long-term debt by MENA firms; long-term debt represents only 3.41% of the typical MENA firm's total debt, which is much less than what is reported in prior literature on other parts of the world. Consistent with the predictions of debt maturity theories and prior empirical findings, we find that leverage, firm size, and asset tangibility are positively associated with the use of more long-term debt while firms facing a higher risk of default tend to use more short-term debt. In addition, we find that better quality institutions lead to the use of more long-term debt in MENA. Specifically, stronger rule of law, better regulatory effectiveness, better legal protection of creditors, and more developed financial intermediaries are associated with greater use of long-term borrowing by MENA firms. Our findings have important policy implications as they illuminate the path toward needed reforms that would enhance MENA firms' access to long-term debt, which may ultimately result in more private investment and jobs.     

Firm Size,Book-to-Market Ratio,and Security Returns: A Holdout Sample of Financial Firms

Fama and French (1992) document a significant relation between firm size, book-to-market ratios, and security returns for nonfinancial firms. Because of their initial interest in leverage as an explanatory variable for security returns, Fama and French exclude from their analysis financial firms, thus creating a natural holdout sample on which to test the robustness of their results. We document that the relation between firm size, book-to-market ratios, and security returns is similar for financial and nonfinancial firms. In addition, we present evidence that survivorship bias does not significantly affect the estimated size or book-to-market premiums in returns. Our results indicate data-snooping and selection biases do not explain the size and book-to-market patterns in returns.     

A bright side of financial constraints in cash management

This paper tests whether financial constraints play a disciplinary role in cash dissipation in the presence of agency problems. We hypothesize that when firms have difficulty raising external funds, empire-building managers of cash-rich firms will be less likely to spend cash on negative NPV projects as compared to unconstrained managers. Empirically, we examine firm performance after cash dissipation and associate it with the degree of financial constraints. We find that cash spending by managers in financially constrained firms is associated with higher future profitability and stock returns compared to cash spending by managers in unconstrained firms. Further tests reveal that the positive effect of financial constraints on firm performance is not driven by differences in corporate governance. Financial constraints actually substitute for good governance in disciplining managers. We find that corporate governance improves the efficiency of cash dissipation in unconstrained firms, but not in constrained firms. Likewise, financial constraints' disciplinary effect is found to be concentrated in firms that are poorly governed.     

Bank concentration and financial constraints on firm-level investment in Europe

This study examines the effect of bank concentration on financing constraints of non-financial firms in 14 European countries between 1992 and 2005. Using firm-level data we analyze financial constraints with the Euler equation derived from the dynamic investment model. We find that with a highly concentrated banking sector firms are less financially constrained. This result is robust to consideration of firm opacity, firm size, and business cycle. Relaxation of financial constraint while greater for firms in less opaque industries also accrues for firms in more opaque industries. Greater bank concentration is associated with less tight financial constraint during both expansions and recessions. Results overall are consistent with an information-based hypothesis that more market power increases banks’ incentives to produce information on potential borrowers. Findings are robust to consideration of country specific institutional factors.     

Trade Receivables Policy of Distressed Firms and Its Effect on the Costs of Financial Distress

This paper studies the trade receivables policy of distressed firms as the trade-off between the firm's willingness to gain sales and the firm's need for cash. We find that firms increase trade receivables when they have profitability problems, but reduce trade receivables when they have cash flow problems. We also find that a firm that significantly cuts its trade receivables when in financial distress will experience an additional drop of at least 13% in sales and stock returns over the previously documented 20% average drop for financially troubled firms. Moreover, the performance decline of a firm in financial distress is significantly higher if the firm cuts trade receivables than if it does not.