Min Maung

Corporate entrepreneurship and debt financing: evidence from the GCC countries

Purpose - – The Gulf Cooperation Council (GCC) member countries have recently given tremendous emphasis to corporate entrepreneurship. The purpose of this paper is to investigate whether the lack of entrepreneurship in publicly listed GCC firms affects their ability to acquire debt financing. Design/methodology/approach - – Using stochastic frontier approach, the paper estimates an optimal revenue function given labor costs, operating expenses, and existing physical infrastructure of an organization. The paper estimates the difference between the optimal and actual level of firm revenues from a revenue frontier function, which can be partially resulted from managerial inefficiency due to the lack of corporate entrepreneurship. The paper uses fixed-effect panel regression and simultaneous equations system to determine the effect of such inefficiency on firms’ debt financing. Findings - – The main finding is that as entrepreneurial activities increase, firms’ ability to borrow from banks also increases. Results also indicate that increased borrowing improves internal governance practices and indirectly compel the management to become more efficient. Research limitations/implications - – Results exhibit how improving entrepreneurship affects firms’ access to external financing when the financial markets are underdeveloped and are plagued with information asymmetry and agency problems. Practical implications - – The paper provides insights for policy makers in the GCC and other emerging countries where entrepreneurial activities are becoming a priority. Originality/value - – The paper develops a new proxy measure of entrepreneurship in public firms and advances our knowledge about the importance of entrepreneurship in finance.

Social capital of non-resident family members and small business financing: evidence from an Indian state

Purpose The purpose of this paper is to investigate the impact of social capital of non-resident family members on small business debt financing. Recent literature in entrepreneurship suggests that small businesses can borrow social capital to improve their access to debt financing. Design/methodology/approach Micro-entrepreneurs from India were interviewed regarding their ability to raise capital from family members as well as their relationship with banks and politicians. Findings The survey indicates that small business entrepreneurs are able to borrow social capital from non-resident Indians. Results also suggest that these small businesses are more likely to be connected to banks and politicians facilitated by their non-resident family members, which not only improves micro-entrepreneurs’ access to debt financing but also reduces their cost of borrowing. Research limitations/implications This is a co-relational study that investigates the association between social capital of non-resident family members and small business debt financing. There is not necessarily a causal relationship between the two. The findings of this study may only be generalized to firms similar to those that were included in this research. Originality/value This study contributes to the literature on the factors that improve the access to small business debt financing. The findings may be useful for financial managers, investors, financial management consultants, entrepreneurs, and other stakeholders.

Information content of dividends: A case of an emerging financial market

Purpose - – The purpose of this paper is to examine the signaling and free cash flow hypotheses of dividends in the context of an emerging financial market. Design/methodology/approach - – The authors use fundamental financial information of Chinese companies listed in the Shenzhen and Shanghai stock exchanges. They examine the impact of cash dividend payments on future profitability of individual firms with and without controlling for non-linearity in their earnings to test the signaling hypothesis. They also determine the characteristics of dividend paying firms to examine the free cash flow hypothesis. Findings - – It was found that while dividend increases by publicly listed Chinese firms are followed by increases in earnings in two subsequent years, such relationship does not exist in the case of dividend decreases. However, under the assumption of non-linearity of earnings, it was found that neither dividend increases nor dividend decreases convey any valuable information about future changes in earnings of Chinese firms. Further, it was found that firms with high cash holdings, large profitability and high managerial efficiency are likely to pay dividends. The authors therefore conclude that announcements of cash dividend payments do not signal future performance but indicate good governance practices of publicly traded firms in China. Originality/value - – This evidence is critical for potential foreign investors in their portfolio investment decisions and for regulators in determining an efficient measure of corporate disclosure in China.

Disappearing Dividends: A Rational Explanation and Implications

This paper provides risk and information asymmetry-based explanations of the disappearing dividend puzzle first documented by Fama and French (2001). Dividends serve as signaling device and, under models of dividend signaling under information asymmetry, the cost of signaling increases with volatility of firms’ cash flows. Declining propensities to pay dividends imply that information asymmetries have become lower and/or cost of signaling has increased. We find evidence consistent with both. First, we find abnormal returns associated with dividend initiations have been declining over the years. We attribute this decline to increasing stock price informativeness: as stock prices become more informative, dividends contain lower information content, which in turn result in lower price reactions. Consistent with this, we find that firms with more informative stock prices are less likely to pay dividends. In addition, we also show that firms with higher (lower) information asymmetries are more (less) likely to pay dividends. Second, we find that firms with higher (lower) cash flow volatilities are less (more) likely to pay dividends. Our risk and information asymmetry proxies could explain a significant portion of the disappearing dividend trend.