The Corporate Investment Benefits of Mutual Fund Dual Holdings
Rex Wang Renjie, Patrick Verwijmeren, Shuo Xia
Journal of Financial and Quantitative Analysis,
forthcoming
Abstract
Mutual fund families increasingly hold bonds and stocks from the same firm. We present evidence that dual ownership allows firms to increase valuable investments and refinance by issuing bonds with lower yields and fewer restrictive covenants, especially when firms face financial distress. Dual holders also prevent overinvestment by firms with entrenched managers. Overall, our results suggest that mutual fund families internalize the agency conflicts of their portfolio companies, highlighting the positive governance externalities of intra-family cooperation.
Read article
East Germany
The Nasty Gap 30 years after unification: Why East Germany is still 20% poorer than the West Dossier In a nutshell The East German economic convergence process is hardly…
See page
Department Profiles
Research Profiles of the IWH Departments All doctoral students are allocated to one of the four research departments (Financial Markets – Laws, Regulations and Factor Markets –…
See page
Department Profiles
Research Profiles of the IWH Departments All doctoral students are allocated to one of the four research departments (Financial Markets – Laws, Regulations and Factor Markets –…
See page
Corporate Governance Benefits of Mutual Fund Cooperation
Rex Wang Renjie, Patrick Verwijmeren, Shuo Xia
IWH Discussion Papers,
No. 21,
2022
Abstract
Mutual fund families increasingly hold bonds and stocks from the same firm. We study the implications of such dual holdings for corporate governance and firm decision-making. We present evidence that dual ownership allows financially distressed firms to increase investments and to refinance by issuing bonds with lower yields and fewer restrictive covenants. As such, dual ownership reduces shareholder-creditor conflicts, especially when families encourage cooperation among their managers. Overall, our results suggest that mutual fund families internalize the shareholder-creditor agency conflicts of their portfolio companies, highlighting the positive governance externalities of intra-family cooperation.
Read article
Family Firms and Management Practices
Margarita Tsoutsoura
Oxford Review of Economic Policy,
No. 2,
2021
Abstract
This article reviews the existing literature about management practices in family firms, the most prevalent form of corporate ownership around the world. I summarize the existing evidence that shows family firms are less likely to adopt structured management practices, especially ‘dynastic’ family firms that combine family ownership and control. I discuss what might be the unique features of family firms that drive the lower adoption of management practices, despite the evidence that improving management boosts their productivity and performance.
Read article
Lack of Selection and Limits to Delegation: Firm Dynamics in Developing Countries
Ufuk Akcigit, Harun Alp, Michael Peters
American Economic Review,
No. 1,
2021
Abstract
Delegating managerial tasks is essential for firm growth. Most firms in developing countries, however, do not hire outside managers but instead rely on family members. In this paper, we ask if this lack of managerial delegation can explain why firms in poor countries are small and whether it has important aggregate consequences. We construct a model of firm growth where entrepreneurs have a fixed time endowment to run their daily operations. As firms grow large, the need to hire outside managers increases. Firms’ willingness to expand therefore depends on the ease with which delegation can take place. We calibrate the model to plant-level data from the U.S. and India. We identify the key parameters of our theory by targeting the experimental evidence on the effect of managerial practices on firm performance from Bloom et al. (2013). We find that inefficiencies in the delegation environment account for 11% of the income per capita difference between the U.S. and India. They also contribute to the small size of Indian producers, but would cause substantially more harm for U.S. firms. The reason is that U.S. firms are larger on average and managerial delegation is especially valuable for large firms, thus making delegation efficiency and other factors affecting firm growth complements.
Read article
Drivers of Effort: Evidence from Employee Absenteeism
Morten Bennedsen, Margarita Tsoutsoura, Daniel Wolfenzon
Journal of Financial Economics,
No. 3,
2019
Abstract
We use detailed information on individual absent spells of all employees in 4140 firms in Denmark to show large differences in average absenteeism across firms. Using employees who switch firms, we decompose days absent into an individual component (e.g., motivation, work ethic) and a firm component (e.g., incentives, corporate culture). We find the firm component explains 50%–60% of the difference in absenteeism across firms, with the individual component explaining the rest. We present suggestive evidence of the mechanisms behind the firm effect with family firm status and concentrated ownership strongly correlated with decreases in absenteeism. We also analyze the firm characteristics that correlate with the individual effect and find that firms with stronger career incentives attract lower-absenteeism employees.
Read article
The Effect of Succession Taxes on Family Firm Investment: Evidence From a Natural Experiment
Margarita Tsoutsoura
Journal of Finance,
No. 2,
2015
Abstract
This paper provides causal evidence on the impact of succession taxes on firm investment decisions and transfer of control. Using a 2002 policy change in Greece that substantially reduced the tax on intrafamily transfers of businesses, I show that succession taxes lead to a more than 40% decline in investment around family successions, slow sales growth, and a depletion of cash reserves. Furthermore, succession taxes strongly affect the decision to sell or retain the firm within the family. I conclude by discussing implications of my findings for firms in the United States and Europe.
Read article
