Blockchain Papers

Christoph Van der Elst

No abstract is available for this record.

Olivier Accominotti, Stefano Ugolini

No abstract is available for this record.

Lennart Ante

No abstract is available for this record.

Alyson Brown

Blockchain, the distributed ledger technology underlying cryptocurrencies like Bitcoin, is poised to revolutionize industries and processes across disciplines. In particular, government agencies and companies are looking for ways to leverage blockchain’s efficiencies to facilitate safe record-keeping. Municipalities are employing blockchain-issued deeds to accurately record property ownership. Progressive legal professionals are employing blockchainissued “smart-contracts” to more accurately record contract terms. Intellectual property attorneys and related government agencies are researching blockchain-issued copyrights and patents. This Note examines how utilizing blockchain technology in securities trading to maintain accurate stockholder ledgers will allow for current market forces to be reflected in stockholder voting. Further, this Note seeks to address how blockchain-issued shares of stock could affect stockholder approved mergers and the exercise of appraisal rights. This Note posits that accurate stockholder ledgers will lead to an increase in stockholder approved mergers, but will not have an effect on the exercise of appraisal rights.

Michael D. Spain, Sean Foley, Vincent Gramoli

In this paper, we present the most extensive evaluation of blockchain system to date. To achieve scalability across servers in more than 10 countries located on 4 different continents, we drastically revisited Byzantine fault tolerant blockchains and verification of signatures. The resulting blockchain, called the Red Belly Blockchain (RBBC), commits more than a hundred thousand transactions issued by permissionless nodes. These transactions are grouped into blocks within few seconds through a partially synchronous consensus run by permissioned nodes. It prevents double spending by guaranteeing that a unique block is decided at any given index of the chain in a deterministic way by all participants. We compared the performance of RBBC against traditional Byzantine fault tolerant alternatives and more recent randomized solutions. In the same geo-distributed environment with low-end machines, we noticed two interesting comparisons: (i) the RBBC throughput scales to hundreds of machines whereas the classic 3-step leader-based BFT state machine used by consortium blockchains cannot scale to 40 identically configured nodes; (ii) RBBC guarantees transaction finality in 3 seconds and experiences a third of the latency that randomized-based solutions like HoneyBadgerBFT can offer. This empirical evaluation demonstrates that blockchain scalability can be achieved without sacrificing security.

Igor Bernardi Sonza, Alberto Granzotto

Pension funds, when they acquire common shares of companies in the capital markets, start to participate more actively in the decision-making of boards of directors and, through their representatives, in the monitoring of managers. The aim of this study is to determine whether pension funds are good monitors. This is done by identifying the influence of the control structure of pension funds over the financial performance and the market value of Brazilian public companies. Using dynamical models of linear and non-linear regressions estimated by GMM-Sys in an unbalanced panel from 1995 to 2015, it is shown that pension funds do not play a good monitoring role, as the control structure of these funds is negatively related to the financial performance of a company or, in other words, the higher the stake, the worse the performance of the company. A possible reason for this is that pension funds invest in the capital markets for portfolio diversification, are not concerned with specific decision-making in companies and have few monitoring skills, thus generating conflicts that go against the objective of maximizing the value of the company. Also, the study identifies the fact that investors give a higher value to the shares of firms in which domestic public funds have investments, even without proof that such funds improve the profitability of companies. Os fundos de pensão, ao adquirirem ações ordinárias de empresas no mercado de capitais, começam a participar mais ativamente nas tomadas de decisão dos conselhos de administração e no monitoramento dos gestores através de seus representantes. Devido a essa questão, o presente estudo buscou verificar se os fundos de pensão são bons monitores através da identificação da influência da estrutura de controle destes no desempenho financeiro e no valor de mercado das empresas de capital aberto brasileiras. Utilizando modelos dinâmicos de regressões lineares e não lineares múltiplas, estimadas pelo GMM-Sys, em um painel não balanceado de 1995 a 2015, foi evidenciado que os fundos de pensão não desempenham um bom papel de monitoramento, já que a estrutura de controle destes fundos possui uma relação inversa com o resultado financeiro tanto interno quanto de mercado, ou seja, quanto maior a participação acionária, menor é o desempenho das empresas. Esse resultado foi encontrado, possivelmente, pois os fundos de pensão investem no mercado de capitais para diversificação de portfólio, não estando preocupados com tomadas de decisão específicas nas empresas, gerando, assim, falta de habilidades de monitoramento adequadas, provocando conflitos que vão contra o objetivo de maximização de valor das empresas. Também, foi identificado que os investidores valorizam as ações de firmas investidas por fundos públicos domésticos, mesmo sem comprovação que tais fundos melhoram a rentabilidade das empresas.

Andreas C. Rapp

The thesis consists of three chapters and studies the role of corporate bond dealers as liquidity providers in decentralized over-the-counter markets. The first two empirical chapters explore the impact of dealers' inventory financing constraints on their ability to act as middlemen in corporate bond markets. Specifically, the first chapter provides empirical evidence that dealers' financing constraints are a crucial determinant of the costs of their liquidity provision. The second chapter demonstrates that bonds handled by dealers with higher financing constraints are associated with substantially larger and abrupt price declines and slower price reversals in case of a rating downgrade from investment to non-investment grades. The third theoretical chapter studies the effects of post-trade disclosure on a dealer's dynamic trading strategy in a two-period dealership market and shows that in terms of customer welfare neither a regime with full nor one without post-trade transparency is universally dominating.

Kai-Ling Yim

No abstract is available for this record.

Zhixiao Wang

This thesis extends the literature by adding new empirical evidence associated with firm’s decisions in fixed investment and capital structure, under the assumption of capital market imperfection. In Chapter 2, we combine a panel of over 95,000 Chinese manufacturing firms of different ownership types over the period 2000-2007 with the Marketization Index for China’s provinces during the same period and investigate whether or not, and how, the cross-regional differences in institutions and financial development can affect the firm level financing constraints. Our main results indicate that institutional and financial development in China can reduce financing constraints significantly for the investments of private firms and partly for foreign firms, while increasing the financing constraints for the investments of state and collective firms. Different from previous studies at aggregate level, we identify a positive relation between finance and growth in the Chinese economy from a micro-perspective. In Chapter 3, we estimate the respective effect of state ownership and share concentration on firms’ leverage adjustment speed towards optimal level by using the Chinese listed firms dataset (1998-2010). We find that the firms with state ownership present lower leverage adjustment speed towards optimal leverage ratio than their privately owned counterparts. A positive relation from share concentration to leverage adjustment speed is also detected. These results suggest that ownership structure can significantly determine a firm’s costs of adjustment as well as incentives to adjust. Our works offer a new channel for people to understand the heterogeneous leverage adjustment behaviours among firms. In Chapter 4, using the Chinese listed firms dataset (1998-2016), we test the casual relation from short debt maturity to firms’ fixed capital expenditure. After controlling the level of leverage, we obtain a significant negative coefficient on short debt maturity in the investment regression model, especially for the sample of firms with worse financial condition. This indicates that rollover risk plays an important role in determining firms’ investment decisions and it is more likely to be triggered at bad time. Overall, our research suggest several policy implications. First, deeper economic decentralization and further financial liberalization are important for reducing the resource misallocation between state and non-state sectors in the Chinese economy. Second, more applicable provisions for minority investor protection are required to be formulated, which are expected to provide more options for ownership reform in publicly listed SOEs. Lastly, alternatives for long-term debt financing, other than bank loans, have to be developed, thereby reducing the systematic rollover risk in the economy.

Lima Zhao, Arnd Huchzermeier

No abstract is available for this record.

Wenming Xu

No abstract is available for this record.

Peter G. Klein, Robert Wuebker

Which is more innovative: the decentralized, diversified firm, or the centralized, more narrowly focused firm? The economics and finance literatures argue that diversified firms have innovation advantages as their operating units have access to an internal capital market. In contrast, the strategy and entrepreneurship literatures argue that managers of these firms suffer from “managerial myopia,” discouraging them from investing in projects with long‐term, uncertain payoffs. We take a fresh look at the relationship between innovation and diversification using a comprehensive sample of diversified and nondiversified firms and a novel approach that teases out the mechanisms influencing the relationship between diversification and innovation. Consistent with conceptual and empirical work in strategy, we find a robust negative correlation between diversification and R&D intensity, suggesting that diversification reduces innovation by discouraging investment. However, our analysis suggests that internal capital market inefficiencies, rather than managerial myopia, is responsible for this observed negative relationship.

Mark Fenwick, Wulf A. Kaal, Erik P. M. Vermeulen

No abstract is available for this record.

Håkan Jankensgård, Alf Alviniussen, Lars Oxelheim

This article provides a comprehensive critique of current corporate foreign exchange risk management (FXRM) practices. The authors characterize much of FXRM as a “legacy” activity, a set of outdated, often decentralized and “earnings‐driven” methods and procedures that have not been subjected to rigorous cost‐benefit analysis at the enterprise level. And according to the authors, the costs of poorly designed and executed FXRM have increased sharply in recent decades because of the growing demand by analysts and investors for cost‐efficiency, transparency, and predictability. After discussing six ways in which the FX policy of most large multinationals fails to serve the interests of their investors and other important stakeholders, the authors offer the following: (1) a restatement of the goals of FXRM; (2) an illustration of various ways of implementing a largely (if not completely) centralized approach to FXRM; (3) a proposal for aligning performance evaluation and executive pay with the goals of FXRM; (4) suggestions for improving decision‐support tools in relation to FXRM; (5) proposals for integrating FXRM into an enterprise‐wide risk management system, which include shifting responsibility for FXRM from the Finance/Treasury group to a centralized risk committee (typically under a Chief Risk Officer who reports to the board of directors); and (6) suggestions for improving communication of a company's risk management policies and practices to investors and other stakeholders.

Randall Wright, Cathy Zhang, Guillaume Rocheteau

This paper provides a theory of external and internal finance where entrepreneurs finance random investment opportunities with fiat money, bank liabilities, or trade credit. Loans are distributed in an over-the-counter credit market where the terms of the loan contract, including size, rate, and down payment, are negotiated in a decentralized fashion subject to pledgeability constraints. The model has implications for the cross-sectional distribution of corporate loan rates and loan sizes, interest rate pass-through, and the transmission of monetary policy (described either as money growth or open market operations) with or without liquidity requirements.

Markus C. Arnold, Florian Elsinger, Frederick W. Rankin

No abstract is available for this record.

Ludovic Vigneron, Ramzi Benkraiem

Using a new and unique dataset dealing with French small and medium-sized enterprise (SME) financing that provides detailed information about 1 116 firm-bank relationships, we test how the number of banks with which a firm works and the organizational structure of its main bank influence its risk-taking behavior. We find evidence that SMEs engaged with a decentralized main bank (a local or mutual one) invest in less risky projects, especially when they work with fewer than three banks (one or two). We also find evidence that single-bank SMEs engaged with a centralized bank (a large or foreign one) take significantly more risks than the others.

Yang Yan

Extending the dichotomous logic of centralization of strategic and decentralization of operational rights in the M-form structuring,we decompose the decision into six subclasses,i.e.,strategy,investment,human resource,finance,budget and operation;And then we run a multivariate analysis of variance on the allocation of multi-class decision between the parent company and its directly affiliated units in the104 central enterprise groups.We find out:①In these large state-owned enterprise groups,the allocation pattern of decision take shapes,in which important sub-class are centralized while less important sub-class decentralized.②There are no significant differences in the allocation of the sub-class between three organizational structures,i.e.,functional,multi-business and holding structures;However,there are significant differences in the allocation of the sub-class between different parent-subsidiary governance distances,especially in the allocation of budget and financial rights.③The parent-subsidiary governance distance exerts a significant moderate effect on the relationship between organizational structure and the allocation of sub-class rights,especially in the allocation of financial and investment rights.These results suggest that large enterprise groups should improve their abilities of corporate governance to facilitate the alignment between the allocation of decision and organizational structure.

Alejandro Drexler, Antoinette Schoar

We show that the cost of employee turnover in firms that rely on decentralized knowledge and personal relationships depends on the firms' planning horizons and the departing employees' incentives to transfer information. Using exogenous shocks to the relationship between borrowers and loan officers, we document that borrowers whose loan officers are on leave are less likely to receive new loans from the bank, are more likely to apply for credit from other banks, and are more likely to miss payments or go into default. These costs are smaller when turnover is expected, as in the case of maternity leave, or when loan officers have incentives to transfer information, as in the case of voluntary resignations. This paper was accepted by Wei Jiang, finance.

Chung-Ying Yeh, Shih‐Kuo Yeh, Ren‐Raw Chen

No abstract is available for this record.

Joanna Błach, Monika Wieczorek‐Kosmala, Maria Gorczyńska, Anna Doś

IntroductionLiquidity management is a crucial managerial area of corporate finance. There is a common knowledge that even the most profitable company may go bankrupt if it does not manage its liquidity in a proper way. The importance of liquidity maintenance arises in times of crisis characterized by the high volatility of financial markets and clear symptoms of economic downturn.In this paper we focus on the problem of liquidity management by discussing the objectives and functions of corporate treasury. Corporate treasury is relatively new phenomenon, representing a profession dedicated for a defined, complex set of financial management-related tasks in a company. Corporate treasury function may be performed solely or by a dedicated department under the CFO supervision.In particular, the purpose of this paper is to support a thesis that corporate treasury has potential to enhance innovative actions within liquidity management. This potential arises primarily from the holistic managerial approach of the corporate treasury, which is supported by the broad understanding of the entire company and the extensive knowledge of all financial management areas that influence liquidity (through cash inflows and outflows) accompanied by the deep knowledge of financial market and instruments.This is a conceptual paper, based on the analysis of the current literature and practical documents. The paper is organized as follows. In the first Section we present the contemporary views on corporate treasury objectives and functions. The second Section discusses the understanding of liquidity management of a company, with cash management as the core issue regarding actions within, in the context of the core function of corporate treasury. In the third Section we address the potential areas of innovative actions of corporate treasury. The last Section concludes the paper.1. The identity of corporate treasury objectives and functionsCorporate treasury management involves financial activities within maximizing company's liquidity and mitigating various types of financial risk. However, the understanding of tasks and functions of corporate treasury is not homogenous. Possibly, it is partially connected with the clearly visible several stages of the development of corporate treasury functions. The role of the corporate treasury evolved over time, as the financial market was developing and becoming more volatile, with the growing importance of large international corporations (Figure 1).The evolution of the treasury role can be divided into three phases. During Phase I (Immature Treasury, TS 1.0) before the 1970s, treasury functions were decentralized and informal, characterized by manual processes, concerned with operational activities. Phase II (Mature Treasury, TS 2.0) started with the introduction of floating currencies systems and the end of gold standard for US dollar. This led to the increased volatility in financial markets and greater importance of treasury that become focused on financial risk management, using more and more sophisticated tools and instruments. Changing role of the treasury in Phase III (Strategic Treasury, TS 3.0) is a result of globalization process and increased complexity of financial system. Corporate treasury has to coordinate its activity with business partners and support business units in their strategies in order to create value (Polak, Robertson, Lind, 2011, p. 50). It is said that treasury involvement should be increased in all areas that require cash management, asset and liabilities management and financial risk management. It also involves enhanced reporting and communication with internal and external stakeholders as a response to their demand for better information. The strategic role of treasury in Phase III is to deliver value and efficiency for the company and act as a strategic unit to achieve the company's goals. It is stressed that the efficient treasury management is determined by four important factors: (1) centralization, (2) standardization, (3) simplification and (4) automation (Ala, 2011). …

Song‐Ping Zhu, Hao Jiao

Purpose – Due to the great distinctions for the legal environments, institutions and taxations, the restrictive external financing and costly financing cost, and great influence of macroeconomy or regulations on single industry, firms may change or adjust their organization structure to adapt to rapidly changing environment. Flat structure can decentralize the powers to subsidiary managers and can internalize the managerial market to promote competition among subsidiary managers and create an internal capital market within firms to alleviate external financing constrains, and it is matched with the diversification strategy to lower the operation risk and regulation risk for firms in changing environment. The paper aims to discuss these issues. Design/methodology/approach – The data of 6,065 listed corporations in China securities market since 2001-2006 are used to empirically test the hypotheses. Findings – The paper examines the efficiency of flat structure within the firm, investigating its influence on capital allocation and corporate performance. It shows that flat structure is better in emerging market since it is efficient in capital allocation, reducing the inefficient investment by reducing the overinvestment and alleviating the underinvestment, thus beneficial for corporate performance, both short-term and long-term accounting returns. Practical implications – From the results of this study, the paper can derive the important managerial implications that top managers should strengthen flexibility through flat structure so that their firms can grasp opportunities and obtain advantages through efficient improvement of mobility, adaptability, and combination in an uncertain environment. Moreover, flat structure can decentralize the powers to subordinate managers and create an internal managerial market and internal capital market within firms. Originality/value – By using the previous and change of multi-unit structure, the change of corporate performance, diverse and concentrated firms, the paper shows that results are not due to the endogenous problem. The study finds that in less-developed capital market under the current situation, flat structure is better, which suggests that flat structure can properly implement the strategies in emerging market and beneficial for corporate performance.

Julie Bower, Howard Cox

The Whitbread Investment Company (WIC), commonly referred to as the Whitbread Umbrella, was an investment trust comprising minority shareholdings in a large array of regional and family brewers that was established in 1956. It was a listed company quoted on the UK stock exchange but was majority owned by the Whitbread group and members of the Whitbread family; the chairman of Whitbread was also a director of WIC. The structure survived in this form as a quasi-independent entity until 1994, when, under increasing pressure from institutional shareholders, the Whitbread group was forced to end its own two-tier voting structure as well as acquire, then subsequently divest, the minority shareholdings of WIC. As an essentially bid-proof trust WIC served to maintain the independence of not just the many regional brewers it had invested in - at least for a time - but also the wider Whitbread business. As explained in the 1989 anti-trust inquiry into the UK brewing industry, the backdrop to the establishing of WIC was the post-World War II fledgling market for corporate control emanating from the changes in legislation brought about by the Companies Acts of 1947 and 1948. Fearing that their independence was at risk from hostile approaches from early financial entrepreneurs, a group of family-managed and property-rich regional brewer-retailers sought the help of the larger patriarchal Whitbread, under the auspices of the influential Colonel W.H. Whitbread. Whitbread obliged with equity investment in return for formalised trading agreements and in some cases an invitation for a Whitbread director to join the board of the regional brewer. As the 1950s progressed, Whitbread expanded the number of such relationships and ring-fenced them in the WIC structure. In addition, the relationship between WIC, Whitbread and the Whitbread family was strengthened by WIC accepting Whitbread ‘A’ (ordinary) shares in lieu of payment for Whitbread’s acquisition of control of some of WIC’s investments and the purchase of high voting ‘B’ shares (twenty times the vote of an ‘A’ share) from Whitbread family members when they became available. By the time of the ‘merger wave’ of 1968-72 that saw the entry of influential property finance entrepreneur Maxwell Joseph into the Beerage through the hostile bid for southern neighbour Watney Mann, Whitbread, via the agency of WIC, had brought under full ownership and control the majority of the original 20 or so regional brewery investments. It had become one of the largest national brewer-retailers through sequential acquisition without recourse to the capital markets. While the umbrella structure did not of itself prevent third party approaches to one of the regional firms (WIC considered offers on longer term merits alone, and in the case of the 1992 hostile bid for Morland from rival Greene King, it sold its 28.5 per cent stake to the predator) the complexity of the arrangement and the involvement of the larger Whitbread were seen as an effective defence to a hostile bid. WIC was a firm-sponsored solution to a perceived issue arising in the post-world war II period, specifically changes in company law that created a market for corporate control. That this might not have acted in the best interests of the wider brewing industry was summed up in a Campaign for Real Ale poster: “a fine idea in principle, but as the murdered diplomat Gregory Markov discovered, an Umbrella can be a pretty nasty weapon in the wrong hands” (CAMRA poster, 1988). References: Bower, J. and Cox, H. (2012) ‘Regulatory capture and special interest pleading: how Scottish & Newcastle became the UK’s largest brewer’, Business History Review, 86 (Spring): 43-68. Franks, J. and Mayer, C. (1996) ‘Hostile takeovers in the UK and the correction of managerial failure’, Journal of Financial Economics, 40 (1): 163-181. Gourvish, T.R. and Wilson, R.G. (1994) ‘The British Brewing Industry 1830-1980’, Cambridge, UK Hannah, L. (1974) ‘Takeover bids in Britain before 1950: an exercise in business ‘pre-history’, Business History, 16 (1): 65-77.

Clemens Löffler, Thomas Pfeiffer

Applying the Monti-Klein framework, we examine the optimal financing strategy of a fi rm that requires funding for individual projects at an imperfect credit market. In particular, we study under which circumstances the firm should raise debt for projects separately (decentralized funding) or jointly (centralized funding) and how this organizational choice af fects the selection and resource allocation among projects. We fi nd that it is optimal to decentralize funding when competition at the credit market and the fi rm s level of equity are both either rather low or rather high. In this case, funding the strongest projects is optimal. For intermediate values of competition and equity, centralized funding is optimal. In this case, bundling strong projects with weak projects can be optimal (corporate socialism). All these funding strategies serve winner picking, i.e. the firm shifts disproportionately more funds to the pro table projects. In contrast to previous literature, winner picking and corporate socialism are not necessarily exclusive; rather, corporate socialism allows winner picking more aggressively.