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"EQUITY CAPITAL"
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Venture capital and private equity contracting : an international perspective
Other books present corporate finance approaches to the venture capital and private equity industry, but many key decisions require an understanding of the ways that law and economics work together. This revised and updated 2nd edition offers broad perspectives and principles not found in other course books, enabling readers to deduce the economic implications of specific contract terms. This approach avoids the common pitfalls of implying that contractual terms apply equally to firms in any industry anywhere in the world. In the 2edition, datasets from over 40 countries are used to analyze and consider limited partnership contracts, compensation agreements, and differences in the structure of limited partnership venture capital funds, corporate venture capital funds, and government venture capital funds. There is also an in-depth study of contracts between different types of venture capital funds and entrepreneurial firms, including security design, and detailed cash flow, control and veto rights. The implications of such contracts for value-added effort and for performance are examined with reference to data from an international perspective. With seven new or completely revised chapters covering a range of topics from Fund Size and Diseconomies of Scale to Fundraising and Regulation, this new edition will be essential for financial and legal students and researchers considering international venture capital and private equity. An analysis of the structure and governance features of venture capital contractsIn-depth study of contracts between different types of venture capital funds and entrepreneurial firms. -- Provided by publisher.
Book
Corporate Environmental Responsibility and the Cost of Capital: International Evidence
We examine how corporate environmental responsibility (CER) affects the cost of equity capital for manufacturing firms in 30 countries. Using several approaches to estimate firms' ex ante equity financing costs, we find in regressions that control for firm-level characteristics as well as industry, year, and country effects that the cost of equity capital is lower when firms have higher CER. This finding is robust to addressing endogeneity through instrumental variables, to using alternative specifications and proxies for the cost of equity capital, and to accounting for noise in analyst forecasts. We conclude that investment in CER reduces firms' equity financing costs worldwide.
Journal Article
Big money in franchising : scaling your enterprise in the era of private equity
\"In Big Money in Franchising, franchise thought leader, board advisor, franchise investor, and private equity consultant Alicia Miller shows how private equity is profoundly transforming the business of franchising, and how franchisors and franchisees can benefit from private equity's investment and guidance. Charting the evolution of private investment's role in franchising, from its nascent origins to the operational intricacies of today's high-growth franchises, Miller offers a deep-dive into the mechanics that drive this complex, fascinating sector. Packed with current case studies and thoughtful exploration of financial strategies, Big Money in Franchising reveals how to build brands and unlock value by learning private equity's growth playbook; shows both franchisors and franchisees how they can attract and work successfully with private equity investors; and shares valuable inside information about private equity's investing process, selection criteria, due diligence process, trading dynamics, and mindset. To aid the decision and planning process, Miller provides a detailed description of the broad landscape of different types of private capital players. The book also tracks the top challenges private capital has experienced in franchise investing, providing a roadmap to vet potential capital partners and how to avoid problems and flawed strategies. Highlighting best practices in both franchising and private equity, and featuring examples from the worlds of franchising and private equity as well as interviews with franchise business owners, brand founders, and private equity executives, Big Money in Franchising shows how working with private capital can challenge the thinking of founders and franchisees alike, empowering them to take their businesses to the next level of performance.\"-- Provided by publisher.
BOOK
Does Mandatory Adoption of International Financial Reporting Standards in the European Union Reduce the Cost of Equity Capital?
This study examines whether the mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union (EU) in 2005 reduces the cost of equity capital. Using a sample of 6,456 firm-year observations of 1,084 EU firms during the 1995 to 2006 period, I find evidence that, on average, the IFRS mandate significantly reduces the cost of equity for mandatory adopters by 47 basis points. I also find that this reduction is present only in countries with strong legal enforcement, and that increased disclosure and enhanced information comparability are two mechanisms behind the cost of equity reduction. Taken together, these findings suggest that while mandatory IFRS adoption significantly lowers firms' cost of equity, the effects depend on the strength of the countries' legal enforcement.
Journal Article
Does Religion Matter to Equity Pricing?
For a sample comprising 36,105 U.S. firm-year observations from 1985 to 2008, we find that firms located in more religious counties enjoy cheaper equity financing costs. This result is robust to a battery of sensitivity tests, including alternative assumptions and model specifications, additional controls for noise in analyst forecasts, and various approaches to addressing endogeneity. In another set of tests, we find that the equity pricing role that religion plays comes predominantly from Mainline Protestants. We also document that the effect of religiosity on firms' cost of equity capital is larger for firms (periods) lacking alternative monitoring (regulation) mechanisms as measured by lower institutional ownership (the pre-SOX era), implying that religion plays a corporate governance role. Finally, we find that the importance of religion to equity pricing is concentrated in firms that suffer lower visibility, which tend to be more sensitive to local social and economic factors. By examining the links between religiosity and valuation at the firm level, we provide strong, robust evidence supporting the perspective that religion facilitates economic development.
Journal Article
Does intellectual capital disclosure affect the cost of equity capital? An empirical analysis in the integrated reporting context
PurposeThe purpose of this study is to examine the impact of intellectual capital disclosure on the cost of equity capital in the context of integrated reporting, which represents the ultimate frontier in the field of corporate disclosure.Design/methodology/approachThe authors employ content analysis to measure intellectual capital disclosure levels along with a panel analysis on a sample of 164 integrated reports.FindingsEmpirical outcomes indicate that intellectual capital disclosure levels have a significantly negative association with the cost of equity capital.Originality/valueThis study's major contribution lies in its originality in terms of empirical examination of the relationship between intellectual capital disclosure in integrated reports and the cost of equity capital.
Journal Article
Corporate internationalization, subsidiary locations, and the cost of equity capital
This study examines the relationship between corporate internationalization and the cost of equity capital. We find that international diversification reduces the cost of equity. The diversification benefits are particularly strong during the 2008 financial crisis and for financially constrained firms. We also find that market-specific factors serve as important channels through which the corporate internationalization effects amplify or attenuate. Overall, our study provides support for theories that multinational companies perform valuable diversification functions to investors in a world with segmented and imperfect financial markets.
Journal Article
Management forecasts and the cost of equity capital: international evidence
We examine international differences in the effect of management forecasts (which we use to proxy for voluntary disclosure) on the cost of equity capital (COC) across 31 countries. We find that the issuance of management forecasts is associated with a lower COC worldwide but that the effect of management forecasts on the COC depends on country-level institutional factors. Specifically, management forecasts have a stronger effect on the COC in countries with stronger investor protection and better information dissemination and a weaker effect in countries with higher mandatory disclosure requirements. Further analyses reveal that these relations are more pronounced when management forecasts are more frequent, more precise, and more disaggregated. Overall, our findings suggest that the ability of management forecasts to reduce firms’ COC derives not only from country-level factors that enhance the credibility of their forecasts but also from factors that reflect the quality of the information environment in terms of the distribution of news and the availability and quality of alternative information. Thus, investor protection, media penetration, and mandatory disclosure requirements have an important effect on the ability of management forecasts to lower the COC.
Journal Article
Does digital transformation of enterprises help reduce the cost of equity capital
Digital economy is regarded as the main economic form following agricultural economy and industrial economy. And the digital transformation has given enterprises new development momentum. Can it reduce the equity capital cost? This paper uses text analysis obtained by crawling the annual reports from 2010 to 2021 and investigates the impact of digital transformation on the corporate equity capital cost. The results show that: 1) Digital transformation will reduce the equity capital cost; 2) The digital transformation has a heterogeneous impact on the equity capital cost of enterprises with different scales, natures and levels of leverage, which is more significant for large-scale enterprises, state-owned enterprises and highly leveraged enterprises; 3) Digital transformation mainly affects the equity capital cost by improving enterprise value, rather than by increasing analysts' attention and influencing the level of corporate risk bearing.
Journal Article
Does corporate social responsibility affect the cost of equity in controversial industry sectors?
Purpose
This paper aims to examine whether corporate social responsibility influences the cost of equity capital of firms operating in controversial industry sectors.
Design/methodology/approach
This paper computes the ex-ante cost of equity capital implied in analyst earnings forecasts and stock prices for a sample of 2,006 US firm-year observations belonging to controversial industry sectors (alcohol, tobacco, gambling, military, firearms, nuclear power, oil and gas, cement and biotechnology) during the period 1991-2012. The baseline regression model links CSR score to the implied cost of equity capital (ICC) and controls for firm-specific characteristics, industry factors and economic or market-wide factors. This model enables to capture the differential effect of CSR on ICC when the firm belongs to a specific sector of the controversial industries by adding an interaction term between CSR and the dummy variable representing this belonging.
Findings
The findings show two main results. First, CSR engagement significantly reduces the implied cost of equity capital (ICC) in all controversial industry sectors, taken as a group, as well as in each one of these sectors individually. Second, this effect is more pronounced when the firm belongs to the alcohol and tobacco industry sectors.
Practical implications
The findings have two important practical implications. First, they should increase managers’ confidence and incentives, in controversial industry sectors, to pursue CSR activities. Second, policymakers can encourage managers to undertake CSR initiatives in controversial industry sectors through tax incentives (e.g. reduce taxes for CSR related investment projects).
Originality/value
This paper extends prior studies that investigate the perceptions of capital market participants of firm’s CSR commitment (Sharfman and Fernando, 2008; Goss and Roberts, 2011; El Ghoul et al., 2011; Jo and Na, 2012; Bouslah et al., 2013) by examining the effect of CSR on ICC in the controversial industry sectors. It contributes to the debate around the relevance of CSR in controversial sectors by providing evidence of the reduction effect of CSR activities on ICC in controversial industries and by showing that this reduction impact is more pronounced when the firm belongs to alcohol, tobacco industry sectors.
Journal Article