CORPORATE BOARDS AND BANK LOAN CONTRACTING

We investigate the role of corporate boards in bank loan contracting. We find that when corporate boards are more independent, both price and nonprice loan terms (e.g., interest rates, collateral, covenants, and performance‐pricing provisions) are more favorable, and syndicated loans comprise more lenders. In addition, board size, audit committee structure, and other board characteristics influence bank loan prices. However, they do not consistently affect all nonprice loan terms except for audit committee independence. Our study provides strong evidence that banks recognize the benefits of board monitoring in mitigating information risk ex ante and controlling agency risk ex post, and they reward higher quality boards with more favorable loan contract terms.     

ARE FIRM‐ AND COUNTRY‐SPECIFIC GOVERNANCE SUBSTITUTES? EVIDENCE FROM FINANCIAL CONTRACTS IN EMERGING MARKETS

We investigate how borrowers’ corporate governance influences bank loan contracting terms in emerging markets and how this relation varies across countries with different country‐level governance. We find that borrowers with stronger corporate governance obtain favorable contracting terms with respect to loan amount, maturity, collateral requirements, and spread. Firm‐level and country‐level corporate governance are substitutes in writing and enforcing financial contracts. We also find that the distinctiveness of borrowers’ characteristics affect the relation between firm‐level corporate governance and loan contracting terms. Our findings are robust, irrespective of types of regression methods and specifications.     

Data mining in road crash analysis: the context of developing countries

The recent advancements in the field of data mining have made vast progress in extracting new information and hidden patterns from large datasets which are often overlooked by the traditional statistical approaches. These methods focus on searching for new and interesting hypothesis which were previously unobserved. Road safety researchers working with the crash data from developed world have seen encouraging success in obtaining new insight into crash mechanism through data mining. An attempt was made in this study to apply these advance methods and evaluate their performance in manifesting crash causes for Bangladesh. The study applies hierarchical clustering to identify hazardous clusters, random forest to find important variables explaining each of these clusters, and classification and regression trees to unveil their respective crash mechanisms for the road crash data of Bangladesh. The results identified several new interesting relationships and acknowledged issues related to quality of data.     

Measuring Takeover Premiums in Cross-Border Mergers and Acquisitions: Insights from Turkey

We investigate whether the merger announcement dates provided in a popular mergers and acquisitions (M&A) database, SDC, serve as accurate event dates for estimating the wealth effects of mergers on target firms located in Turkey. We find that 74 percent of SDC’s merger announcement dates are preceded by merger-related events such as merger rumors, target firms’ search for potential acquirers, and early-stage merger negotiation announcements. Target cumulative abnormal return (CAR) estimates around these early dates are almost twice as large as the CAR estimates around SDC’s merger announcement dates. We argue that our findings have implications for the recently flourishing cross-border M&A literature.     

Do corporate boards matter during the current financial crisis?

This study examines the impact of corporate boards on firm performance during the current financial crisis. Using buy-and-hold abnormal returns over the crisis to measure firm performance, we find that board independence, as traditionally defined, does not significantly affect firm performance. However, when we redefine independent directors as outside directors who are less connected with current CEOs, a measure we call strong independence, there is a positive and significant relationship between this measure and firm performance. Second, outside financial experts are important for firm performance. We find that the positive impact of outside financial experts on firm performance is more significant than that of strong independence. Overall, our results suggest that firm performance during a crisis is a function of firm-level differences in corporate boards.     

Do Banks Value Innovation? Evidence from US Firms

This study evaluates how innovation within companies alleviates the information asymmetry problems in relationship lending. We hypothesize that patenting activities could reveal favorable private information and, hence, reduce the information asymmetry between innovative borrowers and banks. Using a sample of US patenting firms from 1987 to 2004, we show that borrowers with higher innovation capability (revealed by having more patent applications, higher research & development (R&D) productivity, or higher‐quality patents) enjoy lower bank‐loan spreads and better nonprice‐related loan terms. Our evidence further suggests that the information benefits of patenting activities on loan spreads is more pronounced for small or less R&D‐intensive firms.     

Banking Structure,Marketization, and Small Business Development: Regional Evidence From China

This paper provides an empirical examination of the regional banking structures in China and their effects on entrepreneurial activity. Using a panel of 27 provinces and four directly controlled municipalities from 1997 through 2008, we find that the presence of large banking institutions negatively correlates with small business development in local markets and that this negative relation is driven mainly by participation of large banks in the short‐term loan market. Rural banking institutions, in contrast, are found to promote regional entrepreneurial activity. Moreover, large state banks facilitate small business development in concentrated markets. When we interact measures of banking financing by state banks and rural banking institutions with a set of provincial‐level marketization indexes, we find that extensive marketization, factor market development and sophistication of legal frameworks mitigate the negative effect of large state banks on small business development. In provinces with advanced market development, efficient factor markets and favourable institutional settings, the positive effect of rural banking institutions on small business growth is even stronger.     

An IT professional’s dilemma: be an entrepreneur or a consultant?

Using a simple model, this paper examines the behavior of an IT professional who faces the choice between becoming an entrepreneur or an employee. To our knowledge, this is the first formal study of the dilemma facing an IT professional. IT professionals are somewhat unique in that they embody enough labor input/intellectual property that even a single professional can deliver a viable product/service. An incentive contract is auctioned to attract the highest bid in return for partial ownership from venture capitalists. Failure to raise venture finance results in the professional seeking employment. Both venture finance and employment are uncertain. The comparative-static effects of changes in project size and VC competition are determined. We find that under certain conditions a larger project is associated with a cost-plus contract, while greater VC competition results in a fixed-price contract being offered. The agent’s effort is lower in a larger project, but non-negative under greater VC competition.     

The US bankruptcy law and private equity financing: empirical evidence

The generous personal bankruptcy law in the United States is important to entrepreneurs because failed entrepreneurs can resort to this system to shelter part of their wealth against negative consequences of business failure. Fan and White (Journal of Law and Economics XLVI:543–567, 2003) documented that high bankruptcy exemptions provide incentives for entrepreneurs to start/own new businesses. The partial wealth insurance effect provided by the bankruptcy exemptions also has a significant and negative impact on the entrepreneurs’ access to bank credits (Berkowitz and White, The Rand Journal of Economics 35(1):69–84, 2004; Gropp Scholz and White, The Quarterly Journal of Economics 112(1):217-251, 1997). In this article, we investigate whether and to what extent the US bankruptcy law has any effect on venture capital (VC) investment. Making use of company level information, we document that the amount of venture financing received is negatively related to the bankruptcy exemption levels, and the number of rounds of financing as well as the number of VC funds involved is negatively associated with bankruptcy exemptions. Further, we report consistent evidences based on state level data with regard to the effects of the US personal bankruptcy law.