1,720,989 research outputs found
Corporate Financing and Product Market Competition: An Overview
No full textThis paper offers an overview of the main interactions between corporate financing decisions and product market competition. Financial policy may affect the market game in several ways. It can make a firm more or less vulnerable to predation, commit the firm to a particular market strategy, or convey signals to the firm's competitors. Financial policy matters also in that the decision to resort to a common lender can facilitate collusion among competing firms. Finally, an appropriate design of financial claims can commit the lender not to provide potential entrants with funding or expertise
The Strategic Impact of Resource Flexibility in Business Groups
No full textThe strategic impact of resource flexibility in business groups Giacinta Cestone∗ Chiara Fumagalli∗∗ Barcelona Economics WP n.49 We show that in business groups with efficient internal capital markets resources may be channelled to either more or less profitable units. Depending on the amount of internal resources, a group may exit a market in response to increased competition, or channel funds to the subsidiary operating in that market. This has important implications for the strategic impact of group membership. Affiliation to a monopolistic subsidiary can make a cash-rich (poor) stand-alone more (less) vulnerable to entry deterrence. Also, resource flexibility within a group makes subsidiaries
Exploiting Growth Opportunities: The Role of Internal Labor Markets
Get PDFWe explore how business groups use internal labor markets (ILMs) in response to changing economic conditions. We show that following the exit of a large industry competitor, groupaffiliated firms expand and gain market share by increasing their reliance on the ILM to ensure swift hiring, especially of technical managers and skilled blue collar workers. The ability to take advantage of this shock to growth opportunities is greater in firms with closer access to their affiliates’ human capital, as geographical proximity facilitates employee relocations across units. Overall, our findings point to the ILM as a prominent mechanism making affiliation with a business group valuable at times of change. For the ILM to perform its role in the face of industry shocks, group sectoral diversification must be combined with geographical proximity between affiliates
Venture Capital Meets Contract Theory: Risky Claims or Formal Control?
No full textThis Paper develops a theory of the joint allocation of control and cash-flow rights in venture capital deals. I argue that when the need for investor support calls for very high-powered outside claims, entrepreneurs should optimally retain control in order to avoid undue interference. Hence, I predict that risky claims should be negatively correlated to control rights, both along the life of a start-up and across deals. This challenges the idea that control should always be attached to more equity-like claims, and is in line with contractual terms used in venture capital, in corporate venturing and in partnerships between biotech start-ups and large corporations. The Paper also rationalizes the evidence, documented in Gompers (1999) and Kaplan and Stromberg (2000), that venture capital contracts include contingencies triggering both a reduction in VC control and the conversion of VC's preferred stock into common stock.control rights; corporate governance; security design; venture capital
Venture Capital Meets Contract Theory: Risky Claims or Formal Control?
No full textThis paper develops a theory of the joint allocation of formal control and cash-flow rights in venture capital deals. We argue that when the need for investor support calls for very high-powered outside claims, entrepreneurs should optimally retain formal control in order to avoid excessive interference. Hence, we predict that risky claims should be be negatively correlated to control rights, both along the life of a start-up and across deals. This challenges the idea that risky claims should a ways be associated to more formal control, and is in line with contractual terms increasingly used in venture capital, in corporate venturing and in partnership deals between biotech start-ups and large drug companies. The paper provides a theoretical explanation to some puzzling evidence documented in Gompers (1997) and Kaplan and Stromberg (2000), namely the inclusion in venture capital contracts of contingencies that trigger both a reduction in VC control and the conversion! of her preferred stocks into common stocks.I acknowledge financial support from the TMR Network on “The Industrial Organization of Banking and Financial Markets in Europe”
Venture capital meets contract theory: risky claims or formal control?
No full textThis paper develops a theory of the joint allocation of formal control and cash-flow rights in venture capital deals. We argue that when the need for investor support calls for very high-powered outside claims, entrepreneurs should optimally retain formal control in order to avoid excessive interference. Hence, we predict that risky claims should be be negatively correlated to control rights, both along the life of a start-up and across deals. This challenges the idea that risky claims should a ways be associated to more formal control, and is in line with contractual terms increasingly used in venture capital, in corporate venturing and in partnership deals between biotech start-ups and large drug companies. The paper provides a theoretical explanation to some puzzling evidence documented in Gompers (1997) and Kaplan and Stromberg (2000), namely the inclusion in venture capital contracts of contingencies that trigger both a reduction in VC control and the conversion! of her preferred stocks into common stocks
Anti-Competitive Financial Contracting: The Design Of Financial Claims
No full textPublished in The Journal of Finance, Vol. LVIII, no. 5, October 2003, URI: http://www.blackwell-synergy.com/doi/pdf/10.1111/1540-6261.00599.This paper presents the first model where entry deterrence takes place through financial rather than product-market channels. In standard models of the interaction between product and financial markets, a firm’s use of financial instruments deters entry by affecting product market behavior, whereas in our model entry deterrence occurs by affecting
the credit market behavior of investors towards entrant firms. We find that in order to deter entry, the claims held on incumbent firms should be sufficiently risky, i.e. equity, in contrast to the standard Brander-Lewis (1986) result that debt deters entry. The model sheds light on the policy debate on the separation of banking as to whether banks should be permitted to hold equity in firms. It also provides an explanation for why venture capitalists hold automatically convertible securities in start-up firms.The first author acknowledges financial support from Ente Luigi Einaudi, Rome and the TMR Network on “The Industrial Organization of Banking and Financial Markets in Europe”.Peer reviewe
Corporate Social Responsibility and Managerial Entrenchment
No full textWhen stakeholder protection is left to the voluntary initiative of managers, relations with social activists may become an effective entrenchment strategy for inefficient CEOs. We thus argue that managerial turnover and firm value are increased by the institutionalization of stakeholder protection depriving incumbent CEOs of activists’ support. This finding provides a rationale for the emergence of specialized institutions (social auditors and ethic indexes) that help firms commit to stakeholder protection even in case of managerial replacement. Our theory also explains a recent trend whereby social activist organizations and institutional shareholders are showing a growing support for each others’ agenda.corporate governance; corporate social responsibility; managerial entrenchment; social activism; stakeholders
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