research
My research focuses on the following themes:
My primary research areas are Corporate Finance, Corporate Governance, Financial Economics, Financial Accounting, and Industrial Organization - Entrepreneurship.
WORKING PAPERS (listed in the chronological order).
1. The Governance of Foundation-Owned Firms (with Steen Thomsen)
Abstract:
About 200 publicly listed companies worldwide are owned and controlled by enterprise foundations. In a subset of 137 foundation-owned companies for which we could access information, we examine how foundation-owned firms are governed compared to matched publicly listed firms that are conventionally controlled and owned by investors and families. Surprisingly, we find that the boards in foundation-owned firms have shorter tenure, fewer former CEOs, more women, younger board members, and chairmen, and they are less likely to have CEO duality. On the other hand, foundation-owned firms' boards are similar to boards in conventional firms in size and percentage of independent directors. Foundation-owned firms also differ from conventional firms by having sustainability committees and adopting environmental supply chain management more likely.
2. Internalizing External Capital Markets: Evidence from Swedish Corporate Groups. (with Paulo Ribeiro, Insper, Brazil) (Submitted to a journal).
Abstract:
Financially constrained firms that face moral hazard concerns may not have sufficient pledgeable income or liquidity to invest in projects with positive net present value. We hypothesize that internal capital markets can help minimize this effect through within-group lending. We investigate whether and how financially unconstrained firms within corporate groups raise funds from external capital markets and, in turn, use their internal capital markets to alleviate their affiliates' financial constraints. To examine the effects of internal capital markets on investments and other firm outcomes, we use a rich 15-year dataset of all the limited liability companies in Sweden. We contribute to the literature by analyzing how this channel allows corporate group firms to mitigate financial constraints through internalizing external capital markets within a corporate group in the financial and legal setting of a developed country. Internal capital markets give corporate groups significant advantages over firms that do not belong to a group. Our findings suggest that financially constrained group firms use funds from intragroup loans to invest more, increase their cash cushion, and decrease their external debt. We obtain these findings in a developed country with strong creditor rights and deep external capital markets.
3. How Does Debt Composition Influence Credit Risk? (Job Market Paper)
Abstract:
How do different types of debt influence firm credit risk? This paper sheds new light on this issue by decomposing the leverage ratio into market debt, bank debt, and trade credit leverage ratios by account type classification; and short-term debt and long-term debt leverage ratios by debt maturity classification. The pecking order theory (Myers & Majluf, 1984) suggests that these debt types differ in terms of the information asymmetry. Therefore, their effects on credit risk might be distinct. We find that debt to financial markets (commercial papers, bonds, etc.) is more positively correlated with the next period's CDS spread than other debt types. CDS spread also reacts positively to bank debt leverage and responds positively to trade credit leverage only for firms in competitive sectors. With regard to maturity classification, the CDS market attributes more credit risk to long-term debt than short-term debt. We also document that the CDS market tracks firms' accounts receivable. Our findings are also robust when we control for the credit quality of firms via credit ratings.
4. Tracing Credit Risk in the Equity Market
Abstract:
This paper examines the impact of stock illiquidity in the equity market on credit risk in the debt market. It hypothesizes that less liquid a firm's stock is in the stock market, the higher the firm's credit risk proxied by its CDS spread in the debt market. The paper tests this hypothesis empirically by using panel data of publicly listed nonfinancial firms in North America. The paper considers four different measures of stock liquidity, namely, the measures of bid-ask spread, the Amihud illiquidity, turnover ratio, and zero-return days to ensure the accuracy of the findings. While controlling for other known factors, a one percentage point increase in stock illiquidity leads to a 5.8 percentage points increase in CDS spread in the next quarter. The endogeneity bias in interpreting the causal relationship between these two metrics is addressed through an instrumental-variable analysis that eliminates credit risk effect on stock liquidity measures by using credit ratings.
PUBLISHED PAPER
5. A Theory of Gazelle Growth: Competition, Venture Capital Finance, and Policy. (With Lars Persson, Research Institute of Industrial Economics, Sweden)
Kaya, M. C., Persson, L. (2019). A Theory of Gazelle Growth: Competition, Venture Capital Finance, and Policy. North American Journal of Economics and Finance 50: 101019.
Abstract:
This paper proposes a theory of gazelle growth in which gazelles can grow either organically or through acquisitions. The model includes three types of firms: incumbent, target, and gazelle. We show that the lower cost of organic growth can increase the incentives for acquisition growth because the incumbent understands that if it acquires the target firm, the gazelle will then invest organically in order to grow, and therefore, the acquisition will not be enough to protect the incumbent’s market power. The gazelle could then acquire the target firm at a good price. We also show that financial support for the organic growth of gazelles can increase gazelles’ growth through acquisitions because incumbents’ preemptive motives are reduced.
WORKING PAPERS (listed in the chronological order).
1. The Governance of Foundation-Owned Firms (with Steen Thomsen)
Abstract:
About 200 publicly listed companies worldwide are owned and controlled by enterprise foundations. In a subset of 137 foundation-owned companies for which we could access information, we examine how foundation-owned firms are governed compared to matched publicly listed firms that are conventionally controlled and owned by investors and families. Surprisingly, we find that the boards in foundation-owned firms have shorter tenure, fewer former CEOs, more women, younger board members, and chairmen, and they are less likely to have CEO duality. On the other hand, foundation-owned firms' boards are similar to boards in conventional firms in size and percentage of independent directors. Foundation-owned firms also differ from conventional firms by having sustainability committees and adopting environmental supply chain management more likely.
2. Internalizing External Capital Markets: Evidence from Swedish Corporate Groups. (with Paulo Ribeiro, Insper, Brazil) (Submitted to a journal).
Abstract:
Financially constrained firms that face moral hazard concerns may not have sufficient pledgeable income or liquidity to invest in projects with positive net present value. We hypothesize that internal capital markets can help minimize this effect through within-group lending. We investigate whether and how financially unconstrained firms within corporate groups raise funds from external capital markets and, in turn, use their internal capital markets to alleviate their affiliates' financial constraints. To examine the effects of internal capital markets on investments and other firm outcomes, we use a rich 15-year dataset of all the limited liability companies in Sweden. We contribute to the literature by analyzing how this channel allows corporate group firms to mitigate financial constraints through internalizing external capital markets within a corporate group in the financial and legal setting of a developed country. Internal capital markets give corporate groups significant advantages over firms that do not belong to a group. Our findings suggest that financially constrained group firms use funds from intragroup loans to invest more, increase their cash cushion, and decrease their external debt. We obtain these findings in a developed country with strong creditor rights and deep external capital markets.
3. How Does Debt Composition Influence Credit Risk? (Job Market Paper)
Abstract:
How do different types of debt influence firm credit risk? This paper sheds new light on this issue by decomposing the leverage ratio into market debt, bank debt, and trade credit leverage ratios by account type classification; and short-term debt and long-term debt leverage ratios by debt maturity classification. The pecking order theory (Myers & Majluf, 1984) suggests that these debt types differ in terms of the information asymmetry. Therefore, their effects on credit risk might be distinct. We find that debt to financial markets (commercial papers, bonds, etc.) is more positively correlated with the next period's CDS spread than other debt types. CDS spread also reacts positively to bank debt leverage and responds positively to trade credit leverage only for firms in competitive sectors. With regard to maturity classification, the CDS market attributes more credit risk to long-term debt than short-term debt. We also document that the CDS market tracks firms' accounts receivable. Our findings are also robust when we control for the credit quality of firms via credit ratings.
4. Tracing Credit Risk in the Equity Market
Abstract:
This paper examines the impact of stock illiquidity in the equity market on credit risk in the debt market. It hypothesizes that less liquid a firm's stock is in the stock market, the higher the firm's credit risk proxied by its CDS spread in the debt market. The paper tests this hypothesis empirically by using panel data of publicly listed nonfinancial firms in North America. The paper considers four different measures of stock liquidity, namely, the measures of bid-ask spread, the Amihud illiquidity, turnover ratio, and zero-return days to ensure the accuracy of the findings. While controlling for other known factors, a one percentage point increase in stock illiquidity leads to a 5.8 percentage points increase in CDS spread in the next quarter. The endogeneity bias in interpreting the causal relationship between these two metrics is addressed through an instrumental-variable analysis that eliminates credit risk effect on stock liquidity measures by using credit ratings.
PUBLISHED PAPER
5. A Theory of Gazelle Growth: Competition, Venture Capital Finance, and Policy. (With Lars Persson, Research Institute of Industrial Economics, Sweden)
Kaya, M. C., Persson, L. (2019). A Theory of Gazelle Growth: Competition, Venture Capital Finance, and Policy. North American Journal of Economics and Finance 50: 101019.
Abstract:
This paper proposes a theory of gazelle growth in which gazelles can grow either organically or through acquisitions. The model includes three types of firms: incumbent, target, and gazelle. We show that the lower cost of organic growth can increase the incentives for acquisition growth because the incumbent understands that if it acquires the target firm, the gazelle will then invest organically in order to grow, and therefore, the acquisition will not be enough to protect the incumbent’s market power. The gazelle could then acquire the target firm at a good price. We also show that financial support for the organic growth of gazelles can increase gazelles’ growth through acquisitions because incumbents’ preemptive motives are reduced.