Synergies or Overpayment in European Corporate M&A

The purpose of this research is to test whether the price paid for corporate takeovers in Europe is related to the synergies expected or whether bidders are overpaying for acquisitions. We analyzed the relationship between the premium paid in 147 mergers and acquisitions, and the bidders’ abnormal returns around the date of the transaction from 1995 to 2004. A quadratic relationship between the premiums and returns was found. When the amount paid in a transaction does not exceed the value of the target organization by more than 39.69–40.03%, the premium becomes a sign of the future synergy and will have a positive effect on the bidders’ returns. However, when the premium exceeds these values, the relationship between premiums and returns become negative and therefore the market considers bidders are overpaying. This paper show the importance of the correct valuation of the targets and of the premiums paid to ensure value creation in M&A

Financial crisis and determinants of the capital structure of spanish maritime transport firms

The purpose of this article is to analyze how the financial crisis affects the determinants of the capital structure of Spanish maritime transport firms according to both the trade-off and pecking order theories. Additionally, we test whether these effects differ between short and long-term debts. Using a sample of 225 firms (1,805 observations) between 2001 and 2015, we find that firms? liquidity and profitability are the main drivers of leverage before the crisis, whereas, during the crisis, leverage is also explained by non-debt tax shields and the level of tangible assets. Besides, our results show that the capital structure decisions of Spanish maritime transport firms are mainly determined by the pecking order theory, especially during the crisis. In this way, the pecking order theory plays an important role on total and short-term debts both before and during the crisis. However, the pecking order theory is only relevant in explaining long-term debt during the crisis. Before the crisis, there are no conclusive results about whether long-term debt is determined by the trade-off or the pecking order theory.The authors would like to thank University of Cantabria Foundation for Education and Research in the Financial Sector (UCEIF Foundation) for financial support

Coverage of financing deficit in firms in financial distress under the pecking order theory

ABSTRACT: The financing decisions adopted by firms in financial distress are very important because most of the strategy decisions such as investments, market entry, or product diversification are considerably affected by the financial constraints faced by them. However, these decisions are still not well known and empirical evidence about firms in financial distress is controversial. Previous studies do not find support for either the trade-off theory or the pecking order theory, which explain the financial decisions of healthy firms. Distressed firms frequently have to use all of their available financial resources to cover their financing deficit. This could give rise to a concave quadratic relationship between fi nancing defi cit and net debt issued, which might well explain the ambivalent results about the financial decisions of these firms. To analyze this quadratic relationship, which has not been studied previously, we perform an empirical analysis on a sample of 3,337 listed firms from Germany, Canada, the United States, France, Italy and the United Kingdom. Our results show that the pecking order theory does not appear to have a higher explanatory power in healthy firms. Moreover, the hierarchy suggested by the pecking order theory is not totally applicable in firms in financial distress. Our results show that as financing deficit grows, these firms use debt decreasingly, which gives rise to a concave quadratic relationship between financing deficit and net debt issued. This suggests that firms in financial distress have diffi culty issuing new debt. Our results also show that firms in financial distress have a greater probability of issuing equity. Therefore, these fi rms can use equity financing as an alternative to debt issuance

The single supervision mechanism and contagion between bank and sovereign risk

The objective of this article is to analyse how the Single Supervision Mechanism (SSM), the first pillar of the European Banking Union, affects contagion between bank and sovereign risk in the eurozone. Additionally, we test whether this contagion is transmitted from banks to sovereigns or vice versa, and how this transmission differs before and after the SSM. On the one hand, using quarterly data from 80 banks and 13 eurozone countries over the period 2009?2016 (2441 observations), we do not find solid evidence that the SSM reduces contagion from sovereign risk to banks' stock returns. On the other hand, the analysis of credit default swap (CDS) spreads comprises quarterly data from 25 banks and 10 eurozone countries between 2009 and 2016 (771 observations). We find that the announcement of the SSM in March 2013 reduces contagion between bank and sovereign CDS spreads. Additionally, before the announcement of the SSM, an increase in sovereign risk does not alter contagion. However, after this announcement, an increase in sovereign risk leads to lower contagion. Therefore, the announcement of the SSM has an immediate effect on CDS spreads, while there is not enough evidence for banks' stock returns

Investment decisions of companies in financial distress.

ABSTRACT: This paper analyzes the influence of financial distress on the investment behavior of companies. The analysis includes companies from Germany, Canada, Spain, France, Italy, UK and USA, which cover a wide spectrum of different institutional environments. The methodology used is panel data estimation using the Generalized Method of Moments (System-GMM), thereby allowing control of both unobservable heterogeneity and the problems of endogeneity in explanatory variables. The results show that the influence of financial distress on investment is different according to the investment opportunities available to companies. So, companies in difficulties with fewer opportunities have the greatest propensity to under-invest, while firms in difficulties with better opportunities do not present different investment behavior than healthy companies

A new approach to the analysis of monetary policy transmission through bank capital.

The purpose of this article is to quantify how bank capital determines the effects of mone- tary policy on bank lending. Additionally, we test how these effects differ during monetary contractions and expansions. Using a sample of 3,028 European banks between 1999 and 2012, we find that the reduction in loans caused by monetary restrictions is similar across banks regardless of their capital. In addition, during monetary expansions, banks increase their loan supply more as they become better capitalized. Contrary to previous studies, there are differences in the monetary policy transmission through capital only during ex- pansionary monetary regimes. These results are relevant because previous studies have not measured how the marginal effect of monetary policy on the growth of loans varies with the value of capital. We contribute to the existing literature by using a new approach that quantifies this marginal effect, which considerably improves the interpretation of statisti- cal results from models that include continuous variable interactions and allows a better understanding of the role of bank capital in the transmission of monetary shocks

Sustainable Banking, Financial Strength and the Bank Lending Channel of Monetary Policy

The aim of this article is to analyse how sustainable banking affects the transmission of monetary policy through the bank lending channel. We also quantify how these effects are determined by the financial strength of each bank. These objectives, which have not been studied previously, represent an important contribution because real sustainable concerns in banking did not emerged until recently, mainly with the adoption of the Sustainable Development Goals that should be reached by 2030. Since then, some studies have focused on the effects of sustainability on aspects such as bank profitability, risk or efficiency, but none has considered the effects on the bank lending channel of monetary policy. In fact, central banks have incorporated sustainability criteria into their agenda and are analyzing how to include these criteria in the monetary policy framework, so we contribute even more by shedding some light on these aspects and how they depend on the financial strength of the banking sector. We used quarterly data from 79 listed banks from the OECD between 2016 and 2019 (947 observations) and we found that the bank lending channel is operative either for banks with very low sustainability ratings or a weak financial position. When sustainability ratings increase and financial strength becomes moderate, the bank lending channel is ineffective and monetary shocks do not affect lending. For banks with certain sustainable compromises and a strong financial position, the impact of monetary shocks on lending is the opposite of the one that the bank lending channel proposes, and this impact is more intense as sustainability ratings increase. Finally, our results also show that increases in central bank assets boost lending only for banks with low or moderate sustainability ratings, regardless of their financial strength. Overall, these results suggest that more sustainable banks are less dependent on monetary policy decisions

¿Puede una ley concursal ser eficiente?: una aproximación conceptual a la solución de los problemas de insolvencia

RESUMEN. Las modificaciones realizadas en los últimos años en las legislaciones concursales de diferentes países, y las diferencias que aún persisten, ponen de manifiesto la ausencia de un modelo teórico de referencia sobre cuál es la estructura óptima que debe tener un sistema concursal. Nuestra propuesta es que solo teniendo en cuenta los tres tipos de eficiencia de la legislación, y su importancia en cada una de las fases por las que puede atravesar la empresa, es posible evaluar la utilidad de las medidas contempladas en los procedimientos de insolvencia. La pregunta que da título al trabajo no tiene una respuesta sencilla. El carácter mucha veces antagónico de los diferentes tipos de eficiencia hace que las legislaciones traten de lograr un equilibrio en función de cuáles sean los objetivos buscados. No obstante, esto no debería ser, en nuestra opinión, una cuestión fundamental. Lo importante no debe ser si la ley es eficiente totalmente o no, sino si las medidas que establece son realmente útiles para alcanzar los objetivos propuestos. Y es ahí donde una comprensión profunda de los tres tipos de eficiencia resulta imprescindible si se quiere realizar una normativa eficaz que logre de la mejor manera posible sus metas.ABSTRACT. The modifications made in recent years to bankruptcy legislation in diverse countries and the differences which still persist show the lack of a theoretical reference model regarding the optimum structure that a bankruptcy system must have. Our proposal is that only by taking into account the three types of efficiency in such legislation, and their importance in each of the phases through which a company may go, is it possible to evaluate the usefulness of measures contemplated in bankruptcy procedures. The frequently antagonistic nature of different types of efficiency means that legislation aims to achieve a balance in terms of the objectives sought. Nonetheless, in our view this should not be a fundamental question. The important thing must not be whether or not a law is totally efficient but rather that the measures that it establishes must be truly useful in achieving the proposed objectives. And that is where a profound understanding of the three types of efficiency is indispensable if the aim is to create effective regulations to best achieve its goals

Crisis in microfinance institutions: identifying problems

ABSTRACT: This article empirically analyses the reasons for crises in microfinance institutions (MFIs), using a sample of 832 MFIs from 74 countries for the period 2003-2011. The methodology used is logit analysis with panel data. The main results show that both internal and external factors influence the probability of a crisis. We find different factors that reduce the likelihood of a crisis (company’s performance, country’s economic growth, political stability and existence of a private credit bureau). On the other hand, excessive liquidity, a higher proportion of deposits over loans and more loans per employee all increase the probability of a crisis

Trade credit, sovereign risk and monetary policy in Europe

ABSTRACT: The purpose of this article is to analyze how sovereign risk influences the use of trade credit, both directly and through monetary policy. In addition, we test whether these effects differ during the crisis as compared to before the crisis. Using a sample of 45,864 Eurozone firms (2005-2012), we find that trade credit received increases when sovereign risk becomes higher, but only before the crisis. However, during the crisis, trade credit supply decreases as sovereign risk increases. Additionally, monetary restrictions only lead to an increase in trade credit in low or moderate sovereign risk countries