Topics in Corporate Finance
Challenges, Opportunities, Debates, and Trends
- 2025
- Book
- Editor
- Stefano Mengoli
- Publisher
- Springer Nature Switzerland
About this book
Corporate finance is an evolving and versatile field that lies at the heart of business decision-making and economic growth. It explores how companies allocate resources, manage risks, and navigate the complexities of global financial markets. Over the years, the discipline has evolved significantly, driven by theoretical advancements, technological innovations, and the growing interconnectedness of economies worldwide. Like the Ship of Theseus, corporate finance invites us to ask whether, after so many transformations, it is still guided by the same principles as in the past, or whether we are facing an entirely new paradigm. This book brings together an array of perspectives to provide readers with a comprehensive understanding of the critical concepts, debates, and trends shaping corporate finance today.
Organized into four sections, the book offers a thematic exploration of corporate finance, ranging from foundational theories to emerging topics that address the challenges and opportunities faced by modern corporations. Each chapter, written by a leading expert in the field, combines theoretical insights with empirical evidence, offering a nuanced view of this subject, and will be of interest to researchers, students, and professionals in corporate finance.
Advertisement
Table of Contents
-
Frontmatter
-
Corporate Financial Decisions
-
Frontmatter
-
Risk Management
Emanuele BajoThis chapter examines the intricate landscape of corporate risk management, focusing on the decision to hedge financial risks. It explores the major theoretical frameworks developed over the past 40 years that justify corporate hedging, including agency theory, tax-based explanations, and stakeholder management. The text delves into the role of market imperfections, such as taxes, agency costs, financial distress, and information asymmetry, in driving hedging behavior. It also highlights the influence of managerial traits, such as overconfidence, narcissism, and risk aversion, on risk management strategies. The chapter discusses the impact of hedging on financial distress, underinvestment, idiosyncratic risk reduction, and taxes. It concludes by examining the influence of industry characteristics, country-level factors, and the effect of hedging on enterprise value. Professionals will gain insights into the complex decision-making process behind corporate risk management and the various factors that can influence hedging strategies.AI Generated
This summary of the content was generated with the help of AI.
AbstractFirms are inherently exposed to various forms of financial risk. For example, companies operating internationally often conduct transactions in foreign currencies, leaving them vulnerable to unfavorable exchange rate fluctuations. Such shifts can erode revenues or inflate costs, ultimately compressing profit margins. Similarly, financial leverage introduces exposure to interest rate volatility, where abrupt increases can significantly inflate the cost of liabilities. More broadly, many firms rely on commodities for their production processes, and the often-significant price swings in these markets can severely impact profitability. In extreme cases, these fluctuations may entirely eliminate profits or even push a firm toward financial distress. For instance, energy costs, closely tied to oil and gas prices, have exhibited considerable volatility in recent years, leading to substantial losses for companies across various industries worldwide. -
Cash Holdings
Marco BiancoThis chapter examines the significant increase in cash holdings by U.S. corporations since the 1980s, focusing on the precautionary motive, agency conflicts, and tax implications. The analysis reveals that firms hold more cash to avoid transaction costs and external finance costs, with cash flow volatility, investment opportunities, and product market competition playing crucial roles. The chapter also explores how agency conflicts between shareholders and managers influence cash retention and the value of cash holdings. Additionally, it discusses the tax motivations for holding cash abroad, particularly for multinational firms. The study highlights the methodological challenges in measuring excess cash, financing constraints, and the marginal value of cash, providing a comprehensive overview of the determinants and effects of corporate cash holdings. Professionals will gain insights into the strategic reasons behind increased cash retention and the implications for corporate finance and investment strategies.AI Generated
This summary of the content was generated with the help of AI.
AbstractWe review the literature on corporate cash holdings considering studies on the precautionary motive, agency conflicts, and the incentives related to corporate taxation.We present a theoretical framework and empirical evidence on the determinants of cash in the context of the firm’s policies related to payout, financing, risk management, operations, and investment.Finally, we highlight a few methodological issues in empirical research. -
ESG in Corporate Finance
Luca Di SimoneThis literature review delves into the theoretical and empirical impacts of Environmental, Social, and Governance (ESG) factors on corporate finance. It explores how ESG initiatives influence financial performance, risk mitigation, and market perceptions through various theoretical frameworks such as stakeholder theory, signaling theory, and the resource-based view. The review also analyzes regional and sectoral variations, highlighting challenges like ESG data inconsistency and rating divergence. Key topics include the relevance of ESG in corporate finance, theoretical frameworks underpinning ESG integration, and empirical evidence supporting the positive impact of ESG on financial performance. The conclusion emphasizes the importance of integrating ESG into corporate finance strategies to achieve long-term sustainability and value creation.AI Generated
This summary of the content was generated with the help of AI.
AbstractEnvironmental, Social, and Governance (ESG) factors have transitioned from being peripheral considerations to central components in corporate valuation frameworks. This literature review provides a comprehensive examination of how ESG influences corporate finance through theoretical and empirical lenses. Drawing on stakeholder theory, signaling theory, and the resource-based view (RBV), and other approaches, this review explores the pathways through which ESG initiatives affect financial performance, risk mitigation, and market perceptions. Regional and sectoral variations are analyzed, alongside challenges such as ESG data inconsistency and rating divergence. Every section of this review concludes with recommendations for future research and practical implications for integrating ESG into corporate finance -
Behavioral Corporate Finance
Enrico Maria Cervellati, Natascia AngeliniThis chapter delves into the fascinating world of Behavioral Corporate Finance (BCF), exploring how psychological factors and cognitive biases influence managerial decision-making. It challenges traditional finance theories that assume managers act as rational agents, highlighting the role of heuristics, cognitive biases, and emotions in shaping financial decisions. The chapter covers key topics such as the foundations of behavioral finance, the impact of psychological biases on capital budgeting, valuation, and market efficiency, and the role of group processes in corporate decision-making. It also examines how behavioral influences affect dividend policy, agency conflicts, and mergers and acquisitions. The chapter concludes with practical measures to mitigate the impact of behavioral biases, providing a comprehensive understanding of how to integrate behavioral insights into traditional finance theories for more effective corporate financial decision-making.AI Generated
This summary of the content was generated with the help of AI.
AbstractTraditional corporate finance assumes rational managers and efficient markets. Behavioral Corporate Finance integrates psychology to explain systematic departures from that ideal. This chapter synthesizes how heuristics, cognitive biases, and framing effects shape corporate decisions, policies and outcomes across valuation and capital budgeting, perceptions of risk-return, market efficiency and anomalies, capital structure, payout policy, agency and governance, group processes, and mergers & acquisitions. We organize evidence on how these behavioral issues distort cash flow forecasts, discount rate selection, financing choices, dividend and buyback decisions, and acquisition premia, and how limits to arbitrage allow mispricing to persist. The chapter distinguishes behavioral costs from classic agency costs, reviews empirical regularities (e.g., reversals and momentum, post earnings announcement drift, IPO underpricing, market timing), and draws practical implications for CFOs and boards. We propose a debiasing toolkit – decision process design (pre mortems, checklists, reframing, risk adjusted hurdle rates), governance and incentive redesign, and a “behavioral APV” lens that incorporates perceived mispricing – to improve capital allocation and long term value creation. By integrating behavioral evidence with normative finance tools, the chapter offers an actionable framework for recognizing, measuring, and mitigating behavioral frictions in corporate decision making. -
Corporate Finance in the Age of Fintech
Nicola BorriThis chapter delves into the transformative potential of blockchain technology in the financial sector, particularly through the lens of fintech. It begins by defining financial instruments as promises, emphasizing the role of trust and the legal system in maintaining the market for promises. The text then explores how blockchain technology, with its decentralized verification mechanism, could revolutionize financial markets by providing an alternative system for enforcing promises. The chapter also discusses the challenges that fintech must overcome, including regulation, environmental sustainability, and associations with illegal activities. It highlights the potential of non-fungible tokens (NFTs) as digital property rights and their role in the future of finance. The text concludes by envisioning a future where fintech could partially or fully replace traditional finance, offering a more transparent, efficient, and regulated financial system.AI Generated
This summary of the content was generated with the help of AI.
AbstractThis chapter analyzes how fintech will reshape financial services by combining blockchain’s decentralized verification with AI, data, digital currencies, and programmable money.
-
-
Capital Operations
-
Frontmatter
-
Relationship Lending and Corporate Investment Decisions
Pierluigi Murro, Valentina PeruzziThis chapter delves into the profound impact of relationship lending on corporate investment decisions, highlighting its role in mitigating informational frictions and providing stable credit access. It explores how relationship lending fosters innovation by supporting riskier investments, facilitates international expansion by helping firms overcome export barriers, and stabilizes employment during downturns. The chapter also examines the influence of relationship lending on firm entry dynamics, favoring spinoffs and larger entrants. Additionally, it discusses the potential risks, such as rent extraction and hold-up problems, that accompany the benefits of relationship lending. The empirical evidence presented underscores the nuanced view that relationship lending is a powerful tool for overcoming financial frictions, but its effectiveness depends on the balance between flexibility and lock-in, and the institutional environment.AI Generated
This summary of the content was generated with the help of AI.
AbstractOver the past decades, the role of banks in shaping corporate financial and real decisions has received increasing attention. Among the various lending models, relationship lending—defined as the provision of credit based on the accumulation of soft, non-verifiable information through repeated interactions between the bank and the borrower—has emerged as a key mechanism to mitigate informational frictions, particularly for small, opaque, and financially constrained firms. -
The Going Public Decision of Small- and Medium-Sized Firms
Francesco BaldiThis chapter delves into the world of Growth Enterprise Markets (GEMs), focusing on their structure, strategic importance, and the role of Nominated Advisors. It begins by explaining the functioning of GEMs, with a particular emphasis on the UK AIM and the EuroNext Growth Milan. The text then reviews the most relevant literature on GEMs, highlighting five key research streams. These include the characteristics of firms that choose to list on GEMs, the role of Nominated Advisors, the underpricing of IPOs on GEMs, corporate governance and disclosure of information, and the cost of raising equity capital on GEMs compared to main markets. The chapter also presents an econometric analysis based on a sample of IPOs undertaken in the EuroNext Growth Milan, studying the factors that influence the amount of equity capital listed companies can raise and the value they realize one year after their IPOs. The findings of this analysis have key practical implications for candidate firms, investors, EuroNext Growth Advisors, and stock market authorities. The chapter concludes with a discussion of the benefits and challenges of listing on GEMs, providing a comprehensive overview of this important topic in corporate finance.AI Generated
This summary of the content was generated with the help of AI.
AbstractGrowth enterprise markets (GEMs) provide small and medium-sized (SME), growth-oriented firms with lower cost access to public equity capital with both less stringent listing requirements and continuous obligations in terms of disclosure of information and transparency compared to traditionally-regulated exchanges. -
The Evolution of the Listing Propensity of Large European Firms
Silvia Rigamonti, Andrea SignoriThis chapter delves into the evolution of large public and private firms in Europe over a 30-year period, from 1992 to 2022. It highlights a notable trend where both public and private firms experienced growth in numbers and sales until 2012, followed by a decline in firm count. However, private firms have continued to grow in total sales, indicating a consolidation trend where fewer but larger firms dominate. The analysis reveals significant variations across countries and industries, with capital-intensive sectors like Manufacturing and Oil & Gas maintaining a high share of public firms, while sectors like Retail and Wholesale show a shift towards private ownership. The chapter also investigates the factors influencing a firm's listing status, such as size, age, and ownership structure. The findings suggest that larger firms are more likely to be publicly traded, while firms with concentrated ownership are less likely to list. The chapter concludes by discussing the economic and policy implications of these trends, emphasizing the need for targeted reforms to enhance the attractiveness of public equity markets while allowing firms to benefit from the flexibility of private ownership.AI Generated
This summary of the content was generated with the help of AI.
AbstractThis chapter examines the long-term evolution of large public and private firms in Europe and investigates whether their listing propensity has changed over time. Using data covering a 30-year timespan (from 1992 to 2022), we document a historical rise in the number of both public and private firms, followed by a decline in the last decade. While public firms mirror this overall trend in both numbers and aggregate sales, private firms exhibit sustained growth in sales despite their declining number. The share of total sales attributed to private firms has steadily increased. Additionally, we highlight significant variation across industries and countries. Our findings point to a structural shift favoring private ownership among large firms, with potential implications for capital allocation and market competition in Europe. -
Seasoned Equity Offerings
Marco Bigelli, Stefano MengoliSeasoned Equity Offerings (SEOs) refer to the issuance of additional shares by publicly traded companies to raise capital or adjust their capital structure. This chapter delves into the cyclical patterns of SEOs, highlighting periods of low activity followed by significant surges, as illustrated by data from 1970 to 2015. The analysis compares public offerings and rights issues, noting that the latter are more prevalent in countries with concentrated ownership. The chapter explores the mathematics behind SEOs, including the potential expropriation of existing shareholders in public offerings and the avoidance of this issue through preemptive rights offerings. It also discusses the market reaction to SEOs, which is generally negative in the US due to factors like adverse selection and signaling theories. However, in countries where rights issues are the primary method, the market reaction is typically positive. The chapter concludes by examining various theoretical models and empirical evidence, providing a comprehensive understanding of the complexities surrounding SEOs and their impact on market dynamics.AI Generated
This summary of the content was generated with the help of AI.
AbstractSeasoned Equity Offerings (SEOs) refer to the issuance of additional shares by a firm that is already publicly traded on the stock market. Companies typically undertake SEOs to raise capital for new investments or to adjust their capital structure. The newly issued shares generally possess the same characteristics as the existing ones. -
European Microfinance: Financial Inclusion and Entrepreneurship
Alessandra Cavallo, Giuseppe TorluccioThis chapter delves into the transformative role of microfinance in Europe, highlighting its shift from poverty alleviation to a key driver of SME growth and entrepreneurship. It examines the regulatory and institutional frameworks in Italy, France, Romania, Slovenia, and Sweden, showcasing how these structures shape microfinance accessibility and impact. The text also explores emerging trends such as green microfinance and digital lending, which are reshaping the sector's future. Additionally, it discusses the challenges and opportunities facing microfinance institutions (MFIs), including regulatory fragmentation, high operational costs, and the need for sustainable funding mechanisms. The chapter concludes by emphasizing the importance of microfinance in fostering inclusive economic development and job creation, particularly in the post-pandemic recovery efforts.AI Generated
This summary of the content was generated with the help of AI.
AbstractMicrofinance is a critical instrument for financial inclusion and economic development in both developing and developed economies (Cull & Morduch, 2018). Initially conceptualized as a tool for poverty alleviation in the global South, microfinance has significantly evolved also within the European context (Armendáriz & Morduch, 2010; Bourlès & Cozarenco, 2018). -
The Reorganization of the Italian Distressed Firms: A Dynamic Approach to Assess the Conditions Leading to Resilience or Failure
Genc Alimehmeti, Angelo PalettaThis chapter delves into the reorganization of distressed firms in Italy, focusing on the conditions that lead to resilience or failure. It examines the roles of financial indicators like the Z-Score and leverage, governance structures, and court oversight in the reorganization process. The study employs a sequential logit model to analyze the determinants of financial distress resolution at three critical stages: court admission, creditors' approval, and court homologation. The findings reveal that factors such as the Z-Score and leverage significantly influence creditor approval, while the presence of independent directors and management control impact the likelihood of admission and homologation. The study also highlights the importance of court monitoring and the role of fresh capital injections in the reorganization process. By adopting a dynamic perspective, the research provides valuable insights into the complex interplay of factors that determine the success or failure of preventive agreements, offering practical implications for stakeholders involved in corporate crisis resolution.AI Generated
This summary of the content was generated with the help of AI.
AbstractThis chapter examines the comparative efficiency of judicial and extrajudicial solutions to corporate crises, focusing on Italy’s preventive agreement (concordato preventivo) under Article 160 of the bankruptcy law. Utilizing a sequential logit model, this study analyzes the determinants influencing various stages of financial distress resolution, including court admission, creditor approval, and court homologation, based on a dataset of 728 cases from 13 courts in Tuscany and Puglia.The analysis reveals significant ex-ante and ex-post determinants that shape the outcomes of preventive agreements. Key findings include the predictive power of financial indicators like Z-score and leverage during creditor approval phases, the critical role of governance structures, and the nuanced impact of management control and fresh money infusion. The study also underscores the importance of court monitoring and plan methodology, particularly distress analysis and cash flow projections, in navigating insolvency proceedings.This chapter advances the understanding of corporate crisis resolution, offering valuable insights for practitioners and policymakers aiming to optimize restructuring processes.
-
-
Corporate Finance and Governance
-
Frontmatter
-
Corporate Finance: Origins and Evolution
Massimiliano Barbi, Sandro Sandri, Massimo SpisniThis chapter delves into the origins and evolution of corporate finance, tracing its development from the 1960s to the present day. It highlights key contributions from influential figures such as Irving Fisher, John Burr Williams, and John Lintner, who laid the groundwork for modern valuation and dividend signaling theories. The chapter also explores the foundational works of Modigliani and Miller, which revolutionized the understanding of capital structure and dividend decisions. Additionally, it discusses the impact of Eugene Fama's efficient market hypothesis, the Black-Scholes-Merton option pricing model, and the agency theory of Jensen and Meckling. The chapter concludes by emphasizing the strategic role of corporate finance in modern enterprises, particularly in supporting decision-making and creating shareholder value. Readers will gain insights into the historical context, theoretical frameworks, and practical applications that have shaped corporate finance into the dynamic and strategic discipline it is today.AI Generated
This summary of the content was generated with the help of AI.
AbstractModigliani and Miller’s 1958 seminal article, “The Cost of Capital, Corporation Finance, and the Theory of Investment,” is widely considered the starting point of modern corporate finance. Although some might argue that corporate finance is not a discipline in its own right but rather a subset of finance, its role from a managerial perspective has expanded significantly since the 1960s. In larger firms, the Chief Financial Officer (CFO) has become a key partner to the Chief Executive Officer (CEO), responsible for developing financial strategy, managing resources, and driving value creation. This chapter explores corporate finance as a modern discipline and highlights the seminal contributions that have shaped its identity. It also emphasizes the use of case-based research, which positions corporate finance as both a managerial field and a bridge to finance and economics. -
Managerial Styles, Strategic Decisions, and Firm Outcomes
Massimiliano Barbi, Valentina FeboThis chapter delves into the profound impact of top executives' personal traits, experiences, and incentives on corporate decisions and outcomes. It examines how managerial styles, shaped by factors like age, gender, education, and risk preferences, influence strategic choices and firm performance. The text also explores the role of professional backgrounds and life experiences in shaping managerial behavior, highlighting how early life events and career paths affect risk-taking and decision-making. Additionally, it investigates how executive compensation structures, including equity and debt incentives, drive corporate policies and risk management strategies. The chapter concludes by emphasizing the importance of recognizing the subjective values and motivations of executives in understanding corporate outcomes, offering a comprehensive overview of the multifaceted nature of corporate governance and strategic decision-making.AI Generated
This summary of the content was generated with the help of AI.
AbstractManagerial styles significantly influence corporate decision-making. This chapter reviews how managers’ personal traits, experiences, and incentives shape their leadership styles and, in turn, affect corporate decisions, firm performance, and risk. Understanding these dynamics can help boards and shareholders select and develop leaders who align with the firm’s strategic goals and expectations. -
What About Corporate Board Diversity?
Khine Kyaw, Barbara Petracci, Elena SapienzaThis chapter examines the critical role of corporate board diversity in shaping firm performance and governance. It begins by exploring the theoretical foundations of board diversity, highlighting the Resource Dependency Theory and the Agency Theory as key frameworks for understanding its benefits. The text then delves into the various dimensions of diversity, including gender, age, cultural, and expertise diversity, discussing the potential advantages and drawbacks of each. A significant portion of the chapter is dedicated to gender diversity, analyzing the impact of female representation on boards, the effectiveness of different policies aimed at increasing gender diversity, and the challenges associated with achieving it. The chapter also explores the effects of diverse boards on firm performance, strategy and innovation, board composition and structure, and governance and control. Furthermore, it discusses the institutional determinants and deterrents of board gender diversity, highlighting the role of external and contextual factors in shaping diversity efforts. Finally, the chapter looks ahead to future social trends and academic research areas in corporate diversity, emphasizing the need for a more holistic understanding of board diversity that considers multiple dimensions and their interplay.AI Generated
This summary of the content was generated with the help of AI.
AbstractThis chapter begins with a brief introduction to corporate governance and the crucial role played by the board of directors. It then offers the theoretical underpinnings for board diversity, before delving into the various dimensions of board diversity – age, expertise, cultural, ethnic, and especially gender diversity. The chapter then discusses key factors that can either promote or hinder board diversity and outlines the positive and negative impacts of diversity on board dynamics and functionalities. Next, the chapter highlights the effects board diversity has on firm outcomes such as financial performance, strategies, and innovations. The chapter concludes by discussing current trends in corporate board diversity and identifying potential areas for future research. -
Family Firms
Giulia Baschieri, Andrea CarosiFamily firms are a cornerstone of the global economy, contributing significantly to job creation, economic stability, and innovation. This chapter explores the unique characteristics of family firms, including their long-term vision, socioemotional wealth, and strong community ties. It delves into the strengths and challenges of family firms, such as their resilience to economic crises, their commitment to local communities, and the complexities of generational succession. The text also examines the role of corporate governance and agency theory in family firms, highlighting the conflicts of interest that can arise between family members and other stakeholders. Real-life examples, such as the cases of Ford Motor Company and Parmalat, illustrate the impact of succession planning and the extraction of private benefits. The chapter concludes by emphasizing the importance of effective succession planning and transparent governance in ensuring the long-term success and stability of family businesses.AI Generated
This summary of the content was generated with the help of AI.
AbstractMost firms worldwide are controlled by their founders or their families and heirs. Family ownership is nearly universal among privately held firms but is also dominant among publicly traded firms (e.g., La Porta et al., 1999; Faccio and Lang, 2002; Siaba and Rivera, 2024).
-
-
Investors and Financial Markets
-
Frontmatter
-
Investors Attention in Financial Markets
Stefano Mengoli, Pierpaolo PattitoniThis chapter delves into the critical role of investor attention in financial markets, exploring how cognitive constraints and media influence shape trading behavior and portfolio decisions. It examines various measures of attention, including direct and indirect methods, and differentiates between the attention levels of professional and retail investors. The chapter also provides empirical evidence using Apple Inc. as a case study, highlighting the impact of investor attention on stock price movements. Additionally, it discusses the relationship between retail and naive investor attentions, using Google Trends and Wikipedia page views as proxies. The findings reveal that investor attention is a significant factor in explaining stock price movements and that different categories of investors exhibit distinct patterns of attention. The chapter concludes with a Vector Autoregressive (VAR) analysis, demonstrating the temporal precedence of attention among different investor groups.AI Generated
This summary of the content was generated with the help of AI.
AbstractInvestors have access to thousands of stocks listed worldwide, with over 2200 companies on the New York Stock Exchange (NYSE) and around 3500 on the NASDAQ. Given the vast number of options, searching for individual stocks can be time-consuming. So, how do investors decide which ones to invest in? -
Financial Education
Giulia Baschieri, Andrea CarosiThis chapter delves into the critical role of financial literacy in shaping household finance, with a particular focus on stock market participation, portfolio choices, credit behavior, retirement planning, and economic resilience. It highlights significant gender disparities in financial literacy and the complementarity between financial literacy and financial advice. The chapter also critically evaluates various measurement practices, including knowledge-based, behavioral, and multidimensional approaches, and uses microdata from the Italian Survey on Household Income and Wealth to demonstrate the persistent gaps in financial knowledge. Probit regression analyses confirm a robust and statistically significant relationship between financial literacy and market participation, even after controlling for socioeconomic and demographic characteristics. The chapter underscores financial literacy as a critical form of human capital with significant implications for individual financial well-being and policy design. Through a difference-in-differences design, the chapter explores the causality of financial literacy, providing partial causal support with heterogeneous effects across financial products. The findings highlight the importance of financial literacy in promoting economic resilience and informed financial decision-making.AI Generated
This summary of the content was generated with the help of AI.
AbstractThis chapter examines the role of financial literacy (FL) in shaping individuals’ financial behavior, market participation, and economic resilience. It reviews major theoretical models and measurement approaches, integrating international evidence that links FL with wealth accumulation, portfolio diversification, and retirement planning. Persistent gender and educational gaps are highlighted. The empirical section analyzes data from Italian households, showing how higher FL levels significantly increase participation in financial markets and the use of sophisticated instruments. Overall, the chapter frames FL as a key dimension of human capital and a strategic driver for financial inclusion, economic stability, and policy effectiveness. -
Equity Duration
Gian Luca TassinariThis chapter explores the concept of equity duration, tracing its origins back to the pioneering work of Macaulay and subsequent contributions by Hicks, Samuelson, and others. The text delves into the challenges of extending the concept of duration from bonds to equities, highlighting the unique characteristics of equity cash flows and the impact of changes in discount rates. The chapter presents three main methodological approaches to measuring equity duration: theoretical, statistical, and hybrid. The theoretical approach is based on the dividend discount model (DDM) and provides a forward-looking measure of equity duration. The statistical approach uses time series data to estimate the sensitivity of stock prices to changes in interest rates, providing a backward-looking measure. The hybrid approach combines balance sheet data and market information to estimate equity duration. The chapter also discusses the equity duration paradox, which refers to the discrepancy between the high duration estimates obtained using the theoretical approach and the lower estimates obtained using the statistical approach. The text explores various explanations for this paradox, including the impact of changes in expected inflation and real interest rates on equity duration. The chapter concludes by highlighting the importance of a correct measurement of equity duration for financial immunization, risk management, asset allocation, and the estimation of the opportunity cost of equity capital.AI Generated
This summary of the content was generated with the help of AI.
AbstractDuration is traditionally used to measure the exposure to interest rate risk of a fixed income portfolio and the contribution of the individual components to its overall risk. Although the duration of a financial instrument undoubtedly represents an indispensable parameter for the quantification and the management of financial risk, the attempt to extend the concept of duration to equities has proven very complex and has often been a source of confusion. However, given the importance of this parameter in financial immunization, risk management, tactical asset allocation, and since it could be a relevant factor even in estimating the cost of equity capital, equity duration certainly cannot be set aside. In this chapter, the main equity duration models and the most relevant empirical results reported in academic literature are illustrated in detail. In addition, since equity duration has been the subject of considerable debate among academics and scholars over the years, the so-called equity duration paradox is discussed. -
Return Connectedness Among Selected Asset Classes and Green Bonds
Massimiliano MarzoThis study delves into the dynamic relationship between green bonds and various asset classes, focusing on the periods before and after the COVID-19 pandemic. It examines how green bonds, which finance environmentally beneficial projects, interact with traditional and non-traditional bonds, including high-yield and ABS bonds. The research employs a time-varying parameter vector auto-regression (TVP-VAR) model to analyze daily data from January 2015 to October 2023, providing insights into the interconnectedness of these asset classes. The study introduces a novel portfolio construction method, the 'minimum connectedness' portfolio (MCON), and compares it with traditional approaches like Minimum Variance (MV) and Minimum Correlation Portfolios (MCOR). The findings reveal that green bonds' behavior significantly differs pre- and post-COVID, with tighter monetary policies increasing the connectedness among asset classes. The study concludes that while green bonds do not necessarily enhance portfolio performance, their role in diversified portfolios is crucial for understanding risk transmission dynamics. The research underscores the importance of considering different portfolio construction techniques when incorporating green bonds into investment strategies, highlighting their potential benefits and challenges.AI Generated
This summary of the content was generated with the help of AI.
AbstractThe present chapter delves into the role of green bonds within a non-conventional asset class investment portfolio. Despite the increasing evidence about the role of Green Bond in asset allocation, there is limited evidence on the interaction of this asset class together with non-conventional asset class indexes for the US Market, such as ABS bonds, High-Yield bond (rating CCC), Municipal Green Bonds, Nasdaq Green Bonds, and MSCI US Stock Market index. The analysis is conducted using a time-varying parameter vector auto-regression (TVP-VAR) model to examine daily data from January 1, 2015, to October 20, 2023. This setting allows for studying the connectedness between asset classes conditional on several market situations. Various dynamic weighting schemes are employed to construct bond portfolios, including a minimum connectedness portfolio aiming to minimize the connectedness between variables. Our findings are that Green Bonds act as a net transmitter only in the last part of the sample. The weights of Green Bonds in the portfolio range from 6 to 14 percent. Green Bonds do not show any special hedging role within the context of other asset classes. Contrary to common wisdom, leaving out Green Bonds allows for building portfolios with higher Sharpe Ratios. The evidence here collected casts some doubts about the hedging properties of Green Bonds when non-standard asset classes are considered as ingredients for asset allocation. -
Event Studies in Corporate Finance: An Example from Sporting Competitions
Murad Harasheh, Cecilia NicoliniThis chapter delves into the methodology and applications of event studies in corporate finance, with a particular focus on the impact of sporting events on stock market performance. The analysis centers around the 2022 Formula One season, examining how races influence the stock prices of Ferrari and Mercedes. The study challenges the Efficient Market Hypothesis by highlighting the role of investor sentiment and behavioral finance in market reactions. Key findings include the superior market performance of Mercedes compared to Ferrari and the significant impact of Formula One races on stock prices. The chapter also discusses the limitations of traditional event studies and the importance of cumulative abnormal returns in capturing long-term market effects. By integrating insights from sports finance and behavioral finance, this study offers a comprehensive understanding of how sporting events shape financial markets.AI Generated
This summary of the content was generated with the help of AI.
AbstractThe financial markets are often perceived as barometers of economic sentiment, dynamically responding to news and events. One of the most insightful tools to capture this response is the event study methodology. Since its emergence in the late 1960s, event studies have evolved into a cornerstone of empirical research in finance and corporate finance, helping researchers and practitioners alike to assess how specific events influence firm value, investor perception, and market behavior.
-
-
Backmatter
- Title
- Topics in Corporate Finance
- Editor
-
Stefano Mengoli
- Copyright Year
- 2025
- Publisher
- Springer Nature Switzerland
- Electronic ISBN
- 978-3-032-07046-3
- Print ISBN
- 978-3-032-07045-6
- DOI
- https://doi.org/10.1007/978-3-032-07046-3
PDF files of this book have been created in accordance with the PDF/UA-1 standard to enhance accessibility, including screen reader support, described non-text content (images, graphs), bookmarks for easy navigation, keyboard-friendly links and forms and searchable, selectable text. We recognize the importance of accessibility, and we welcome queries about accessibility for any of our products. If you have a question or an access need, please get in touch with us at accessibilitysupport@springernature.com.
