Thin Capitalization Rules and Entrepreneurial Capital Structure Decisions

Tax planners often choose debt over equity financing. As this has led to increased corporate debt financing, many countries have introduced thin capitalization rules to secure their tax revenues. In a general capital structure model we analyze if thin capitalization rules affect dividend and financing decisions, and whether they can partially explain why corporations receive both debt and equity capital. We model the Belgian, German and Italian rules as examples. We find that the so-called Miller equilibrium and definite financing effects depend significantly on the underlying tax system. Further, our results are useful for the treasury to decide what thin capitalization type to implement.

How the Entrepreneurial Top Management Team Setup Influences Firm Performance and the Ability to Raise Capital: A Literature Review

This paper reviews research findings on entrepreneurial top management teams within the last 20 years. It concentrates on team-based management factors and their influence on a new venture’s growth and ability to raise capital. This paper integrates recent findings and provides an overview of the current state of research. Moreover, it contributes to the overall topic by proposing five clusters of major team-specific influences, derives determinants of success and failure, and reveals recommendations for further research.

Firm Building and Entrepreneurship in Second-Tier High-Tech Regions

This paper examines how a second-tier high-technology region leveraged corporate assets—mostly from transnational firms—in building a knowledge-based economy. The paper reviews how firm building and entrepreneurship influence the evolution of a peripheral regional economy. Using a case study of Boise, Idaho (the US), the research highlights several important sources of entrepreneurship. Entrepreneurial firm formation is closely linked with a region's ability to grow incubator organizations, particularly innovative firms. These innovative firms provide the training ground for entrepreneurs. Firms, however, differ and the ways in which firm building activities influence regional entrepreneurship depend on firm strategy and organization. Thus, second-tier high-tech regions in the US are taking a different path than their well-known counterparts such as Silicon Valley or Route 128 around Boston.

Which Combinations Of New Venture Firms Resources Payoff? A Configurational Perspective

Baldauf, Artur; Schweiger, Simone A.; Wuethrich, Adrian

Firms, do you know your currency risk exposure? Survey results

This paper surveys the currency risk management practices of Swiss industrial corporations. We find tha industrials do not quantify their currency risk exposure and investigate possible reasons. One possibility is that firms do not think they need to know because they use on-balance-sheet instruments to protect themselves before and after currency rates reach troublesome levels. This is puzzling because a rough estimate of at least cash flow exposure is not a prohibitive task and could be helpful. It is also puzzling that firms use currency derivatives to hedge/insure individual short-term transactions, without apparently trying to estimate aggregate transaction exposure.

Postacquisition performance of acquiring firms

We investigate whether negative postacquisition stock-price performance of acquiring firms is a genuine phenomenon or a statistical artifact. Using a comprehensive sample of domestic acquisitions in the 1966-1986 period, we show that acquiring firms underperform a control portfolio only during the three years but not five years following the acquisition. There is evidence of negative performance in the second and third postacquisition years, but that performance occurs mainly in the 1960s and 1970s, and disappears in the 1980s. Thus, especially in the later years, the postacquisition years do not provide convincing evidence of wasteful corporate acquisitions, or strong evidence that contradicts market efficiency.

Corporate acquisitions by listed firms: the experience of a comprehensive sample

The sample used includes tender offers, mergers, acquisitions of privately held corporations, and comprehensive acquisitions of other firms' assets. According to the results, the majority of bid announcements prompt significant stock price increases, especially when controlling for partial anticipation problems and relative acquisition size. Furthermore, there is little evidence that firms that engage in "bad" acquisitions are more likely to be taken over.

Merger decisions and executive stock ownership in acquiring firms

This study supports the proposition that managerial welfare affects merger decisions. The abnormal stock returns experienced by bidder firms, from the time of the announcement of a merger bid through the stockholder approval date, are positively relaterd to the percentage of own-company stock held by the senior management of the bidder. The results suggest that substantial amounts of own-company share ownership help align the interests of stockholders and management.