Small Equity Research Articles

An Evaluation of the Role of Commercial Banks in Financing Small and Medium Scale Enterprises (SMEs): Evidence from Nigeria

In this study an attempt was made to evaluate the role of commercial banks in financing small and medium scale enterprises in Nigeria. There is absolutely no doubt that small and medium scale enterprises play a pivotal role and contributes tremendously to the economic growth and development of many developing economy including Nigeria, but survival of Small and medium scale enterprises is often hampered by access to finance which key players were making attempt to solve. The objective of this study is to evaluate the extent to which commercial banks in Nigeria play their role in solving financing needs of small and medium scale enterprises. The study employed secondary data which use the ratio of loans to Small and Medium Scale Enterprises by commercial banks as a percentage of their total credit for the period between 1991-2012.The study utilize paired sample t-test and significance of ratio of loans to Small and Medium Scale Enterprises was tested to access the performance of Small and Medium Scale Enterprises Equity Investment Scheme by banks to provide finance to Small and Medium Scale Enterprises. The result shows that commercial banks loans even with the equity scheme introduction do not make significance positive impact on loan disbursement to finance SMEs. It is recommended that Nigerian commercial banks should embrace risk-averse behavior in respect of loans to SMEs, interest rate should be review for SMEs loans by Central bank of Nigeria and increase SMEEIS contribution by commercial banks. Specialized bank should be established by government to finance SMEs; it should also provide adequate infrastructural facilities in the country and address present security challenges so as to make Nigeria conducive for SMEs to operate.

Formal Institutions and Acquisitions of Non-Controlling Equity Stakes

Formal institutions shape the governance of economic, legal and social relations and have the purpose of mitigating agency problems. While prevalent research theorizes that firms’ ownership structure tends to become less concentrated as formal institutions protect minority shareholders more strongly, more recent theoretical arguments posit an opposite relationship. A joint read of these perspectives suggests that both strong and weak protection encourages concentrated ownership. In this paper, we contend that these mixed results may be, at least partially, due to the large focus of research on takeover acquisitions and to the neglect of acquisitions of minority equity stakes. While previous studies suggest that controlling shareholders may have incentives to own large equity stakes both under weak and strong shareholder protection, this work argues that minority shareholders have no incentive to own small equity shares when formal institutions weakly protect their interests. Consequently, we argue that fi...

The Nexus Between CSR, Corporate Image, Company Identification, Emotional Attachment and Small Equity Investors Behavior

Marketing literature provides empirical evidence on the relationship among corporate social responsibility (CSR), company identification, emotional attachment, corporate image and consumer behavior. However, there is sparse research that examines the impact of CSR, image, identity and emotional attachment in shaping investors' behavior. The current study fills this gap by proposing and testing a conceptual model that examines the nexus between CSR, company identification, emotional attachment and corporate image and investor behavior. Data has been collected from small equity investors trading at Lahore Stock Exchange in Pakistan using self-administered survey questionnaire technique. The study used structural equation modeling (SEM) technique to test the proposed model. The study found positive association between CSR, and corporate image, corporate identity and development of emotional attachment with company. The higher level of CSR, corporate image, corporate identity and emotional attachment leads to development of investors' behavioral loyalty with company.

The rise of crowd equity funding: where to now?

AbstractCrowd equity funding is a type of crowdfunding that allows companies to obtain seed or other capital through small equity investments from a large range of investors via an online portal. This form of finance has been viewed as a way to remedy the shortfall of capital for small and medium enterprises. As a result, a number of countries such as the US, Italy and New Zealand have promoted this form of finance. Accordingly, the paper first considers the reasons behind the rise of crowd equity funding on government agendas around the world. It then focuses on the Australian setting, by highlighting the different proposals that have been put forward to introduce legislation friendlier to crowd equity funding. The aim is to view the extent to which the proposed models provide the right balance between investor protection and entrepreneurship.

Shared home ownership by people with disability

This study investigated the most appropriate and beneficial shared home ownership models for people with disability. While shared ownership brings potential benefits such as can enhancing housing choice, security of tenure and sense of ownership, it can expose people to debt risks. Capital investment by people with disability into shared ownership may also reduce the overall cost of housing assistance required by government to overcome the supply gap.

Wildcat Capital Investors: Real Estate Private Equity

Wildcat Capital Investors is a small real estate private equity company. Its MBA intern, Jessica Zaski, is asked to develop a financial model for the purchase of Financial Commons, a 90,000 square foot office building in suburban Chicago. By simple metrics, the property seems to be a good value, but with credit conditions tight, Jessica must consider whether outside investors would be comfortable with the risks of investing in the midst of a severe commercial real estate downturn. Wildcat is designed to give students exposure to both the quantitative and qualitative aspects of investing in commercial real estate through a private equity structure. Beyond the numbers, the case allows for a discussion of the process of finding suitable real estate investments. The importance of the simultaneous negotiations that Wildcat must have with the seller, the lender, and the outside investor can be emphasized.By working through the financial models, students will take a given set of assumptions and analyze the cash flows expected to be received by the equity partners of Financial Commons. With a given deal structure, the students can then model the cash flow to both outside equity investors and Wildcat, learning the mechanics of private equity. The model will allow students to investigate how the variations in the underlying assumptions affect returns to the property and to the investors.

Business as Unusual: Managing Commercial Property in Distress

In January 2010, Benedict Clarke, general partner of a small real estate private equity venture, faced difficulty with one of his properties. When purchased in early 2007, Tulaberry Plaza was a thriving retail shopping center outside Orlando, Florida. The financial crisis and severe economic downturn forced Tulaberry's anchor tenant into bankruptcy and weakened the other tenants in the plaza. Clarke now faces pressures placed on him by his limited partners, who were shown rosy projections of the returns they would receive, and by his lender, who is presently taking most of the property's cash flow to satisfy required debt service. Clarke must devise a plan that presents the most logical and profitable way forward, while also justifying his actions to elicit the necessary support from the others involved in the transaction. The case asks students to make decisions from the perspective of Clarke, giving them an appreciation not only of the details of strategic decision-making in real estate leasing, but also of the interplay between lenders and equity partners when managing a commercial property in distress.After reading and analyzing the case, students will be able to: Choose the right tenant for a retail establishment, with an understanding that it may not be the one that promises to pay the most rent Identify the connections among commercial property performance, mortgage loan covenants, and partnership agreements, all of which can influence optimal decision-making

Pre-Distribution: A Model of Equity Bargaining with Endogenous Investments

This article sets forth a model of multilateral negotiations with alternating offers and voting in which members bargain over the distribution of equity shares prior to making investment decisions that determine the surplus to distribute. We challenge the classical assumption embedded in the divide-the-dollar setting that the fund to distribute is exogenoulsy given. Bargaining over productive incentives is fundamentally a different problem that yields a distinct set of equilibrium payoffs. The proposer faces a trade-off between rent-sharing and rent-generation subject to the constraint of receiving a majority vote. If he attempts to offer small equity shares to coalition partners, the size of the pie might shrink, rendering his large ownership percentage unfruitful. In equilibrium, the proposer forms a minimum winning coalition by offering two types of shares. Some members are incentivized to invest in the common project and they receive a share that yields a payoff greater than the ex ante value of the game, thus the proposer's rent-seeking incentives are mitigated by the production constraints. The remaining coalition partners are offered a share that buys their vote without inducing investment. We provide a new view on efficiency in bargaining games which relates to the approved incentive scheme, and not only the timing of the approval.

European equity market integration and joint relationship of conditional volatility and correlations

We analyse the integration patterns of seven leading European stock markets from 1990 to 2013 using daily data and mismatched monthly macroeconomic data. To study the mismatch of data frequencies we use the DCC-MIDAS (Dynamic Conditional Correlation – Mixed Data Sampling) technique developed by Colacito, Engle and Ghysels (Journal of Econometrics, 2011). We benchmark European integration patterns against the German stock market. The reported integration patterns show a clear divide between large and (relatively) small equity markets' short run and long run return correlations: the small markets display higher short run European convergences than the large markets and vice versa. The across-the-board divergence from Greek risk, during the crisis period, is the most unambiguous conclusion of our study. During this period, cross-country joint relationships of conditional variances and return correlations – a ‘convergence of risks’ resulting in global/regional contagious spillovers – are typically positive. Only exceptions are the German stock market's joint relationships.

Ownership Increase in International Joint Ventures: The Within- and Across-Country Flexibility Perspective

We employ the real options perspective to examine how multinational corporations (MNCs) increase ownership levels in their international joint ventures (IJVs) to exploit (or utilize) both within- and across-country flexibility. This paper utilize a rich dataset of South Korean firms’ foreign affiliates to test hypotheses derived from the real options theory. It examines the roles of growth options that require small equity stakes under uncertainty as well as switching options that require controlling equity stakes to coordinate switching implementation. Specifically, we examine how the ownership of jointly-owned foreign subsidiaries changes under the influence of changing labor cost uncertainty. We utilize a two-stage model to address the sample selection bias associated with a subsidiary’s choice of joint venture under the influence of high labor cost uncertainty. In the first stage, we run a probit model with a dummy variable for JVs and wholly-owned subsidiaries (WOSs) (1: JV, 0: WOS) as the dependent variable. In the second stage, we run a panel logistic regression model (STATA command, “xtlogit”). We found that MNCs engaged in greenfield IJVs increase their initial ownership when labor cost uncertainty within their host countries is favorably resolved. We also found that MNCs’ tendency to increase their IJV ownership intensifies when their subsidiary networks are exposed to negatively correlated labor cost growth rates across countries. Taking within and across country flexibility perspective, this study adds new insights on MNC ownership changes, especially in IJVs. Based upon our findings, we conclude that MNCs make flexible ownership adjustments for their foreign subsidiaries in response to different uncertainty conditions within and across countries.

Bank Runs, Fire Sales, and Equity Injections

I present a general equilibrium model of banking crises. During a crisis, depositors fly to liquidity and away from deposits in anticipation of future runs on some banks in the economy. A crisis is also associated with fire sales at an endogenously determined asset price. Crises can arise from either panics or fundamentals.I use the model to study bailouts ― in the form of equity injections into banks ― during financial crises. Large equity injections that fully recapitalize banks eliminate crises. However, smaller equity injections amplify the flight to liquidity and reduce welfare.

Determinants of the Risk-Taking Attitude among Small Equity Investors

This study explores the personality traits, perceived personal control, behavioral biases, culture, and socio-demographics in determining individual equity investor's risk assumption attitude. The study uses a survey approach to collect responses from small equity investors. A conceptual model is developed and hypotheses are tested through structure equation model (SEM). The result identifies personality traits, perceived personal control, behavioral biases, cultural factor and socio-demographic variables as strong determinants of small equity investor's risk assumption attitude.

U.S. Small Cap Equity: Which Benchmark is Best?

We find persistent performance disparities when comparing three leading benchmarks for U.S. small cap equity, with the MSCI U.S. Small Cap 1750 and the S&P Small Cap 600 outperforming the Russell 2000. Analysis suggests that differences in benchmark construction are the drivers of these disparities. When compared to the Russell, arguably the “purest” of the small cap benchmarks, the MSCI tilts into the midcap range, while the S&P only includes issues with recent positive earnings, introducing a quality screen. As the Russell is the most representative of the U.S. small cap equity space, it should remain the “default” benchmark, unless investors believe that their small cap manager will tilt toward quality, in which case the S&P provides a better fitting benchmark that historically has also imposed a higher hurdle for active managers to beat. Finally, because we expect that a quality-biased index should outperform an index lacking such a tilt, we would recommend passive investors to utilize a product tracking the S&P.

Crowdfunding in Colorado State Rules versus the Federal Rules

Colorado businesses are about to have two similar methods by which they can solicit small equity investments from the “crowd” under both state and federal rules. Aimed at facilitating capital formation for smaller businesses, the crowdfunding rules do not have the restrictions normally found in private placements under the Securities Act of 1933 § 4(a)(2) which prohibiting general solicitation and (in Rule 506(b)) limiting the number of non-accredited investors to 35. While Rule 506(c) allows general solicitation, it provides an exemption for sales to accredited investors only. There are many similarities between the Colorado rules and the federal rules, including the use of general solicitation, offerings through an intermediary, and limited amounts that may be raised. There are many differences as well, and some of these differences are significant. In adopting the respective statutes, the Colorado General Assembly and the United States Congress each expressed their desire to remove some restrictions applicable to capital formation by small businesses. The rules adopted by both Colorado Division of Securities and the Securities and Exchange Commission are complex and are more focused on investor protection than on capital formation; whether the regulators have accomplished the legislative goals remains to be seen.

Technology Licensing and Shareholding in Vertically-Related Markets

This paper explores the optimal licensing contract, in which the manufacture firm holds the equity of the retail firm and licenses the cost-reducing innovation to the vertically integrated firm. The objective of this paper is to investigate the effect of the retail firm’s equity on the manufacture firm’s licensing decisions. The paper shows that the manufacture firm prefers royalty (fixed-fee) licensing when the manufacture firm holds large (small) equity of the retail firm.

Firm Size and the Impact of Securities Regulation

Using a newly-assembled dataset of 45,220 firms across 46 countries spanning the years 1996-2007, we find incongruent effects of regulation across firm size. We find that public enforcement facilitates small firm security issuance, while private enforcement benefits large firms more than small firms. However, once small firms access equity markets, private enforcement enhances the amount of equity capital raised in domestic markets. Stronger public enforcement gives rise to larger firms raising capital internationally. Comprehensively, results suggest that public (private) enforcement is more (less) consequential to firm-level access to capital than previously believed.

"Home Run, Strike Out, or Base Hit: How Do Accelerators Impact Exit and VC Financing in New Firms?"

Increasingly, entrepreneurs in search of critical early stage resources face an evolving paradigm: the rise of accelerators that integrate small equity investments with an intensive, cohort-based m...

Valor justo: um estudo sobre a aplicação retrospectiva da IFRS 13 no setor bancário no Brasil

This study aimed to identify which accounting variables that better discriminate retrospective application of IFRS 13, in the Brazilian banks in the years 2010 and 2011. The study was motived by the importance of fair value measurement for financial institutions and by concern to follow accounting disclosures to enable a greater understanding of the accounting rules. As a contribution, the paper verifies that Brazilian banks are adapting international standards, degree of alignment of banks when the requirements of disclosure of fair value measurement. This paper used the model panel and discriminant analysis of the two groups. As a result, the study evidence an inverse relationship between the equity (and the return on equity) and the fair value disclosure. Thus, the evidence of the study suggest that the smaller equity of a bank, the greater are the possibilities of justify result by measuring fair value, probably motived political costs.

Emerging Equity Markets in a Globalizing World

Given the dramatic globalization over the past twenty years, does it make sense to segregate global equities into “developed” and “emerging” market buckets? We argue that the answer is still yes. While correlations between developed and emerging markets have increased, the process of integration of these markets into world markets is incomplete. To some degree, this accounts for the disparity between emerging equity market capitalization in investable world equity market benchmarks versus emerging market economies in the world economy. Currently, emerging markets account for more than 30% of world GDP. However, they only account for 12.6% of world equity capitalization. Interestingly, this incomplete integration along with the relatively small equity market capitalization creates potentially attractive investment opportunities. Our research has important policy implications for institutional fund management.

Analysing Financing Challenges to Medium and Small Scale Industries in Nigeria: An Empirical Investigation

Inadequate funding has been the major challenge to Small and Medium Scale enterprises in Nigeria since independence till date.Every political administration, including military and civilian governments attempted to make an issue of unaccomplishable wild propaganda out of this critical economic matter of national concern, but they were all talking and instituting policies on paper, more than achieving results by practically implementing the policies and turning the much ado about empty storytelling to action and results. The 1st to the 3rd Nigerian Economic Summits sponsored by the Babangida military Junta, focused more aggressively on Economic Development through industrialisation with increased concern for the expected impact of the Medium and Small Scale Industries in Nigeria. In spite of all the inactivated, unproductive policy statements, establishments of various “Development Financial institutions”, and the ultimate technically unprofessional “liberalisation of banking institutions licensing”, which made total mockery of the institution of banking in Nigeria, including its ethics and professionalism, the consequences, of which the industry is yet to recover from. As a result of all the political interferences in the banking industry, and consequent failure of the financial system to provide appropriate financing for MSSI'S (the back bone of industrialization), since attaining independence in 1960, Nigeria is yet to experience any remarkable achievement in industrialization. On the foreign scene, the World Bank, initiated three different tranches of subsidised credit to Medium and Small Scale industries in Nigeria, administered through deposit money banks, all of which totally failed to achieve their objectives. Small and Medium Scale Industries Equity Investment Scheme (SMEEIS) was initiated and established by the Obasanjo administration, plus an additional sum of 500 billion naira budgetary provision, to support MSSI's; In spite of these and other myriads of multilateral financial supports administered through Nigerian governments and the financial system, the good intentions of the foreign governments aids and multilateral financial institutions supports, were thwarted by the corruption and fraudulent tendencies of the Nigerian authorities, and the operators of the financial system.The findings of this research effort proved that there is a positive relationship between the appropriate financing of MSSI's and a systemic development and growth of industries which is also a required condition for national economic growth and development. Poor industrialization and stunted economic growth and development in Nigeria are direct consequences of the poor funding of Medium and Small scale Industries since independence, yet there is no evidence of any promising solution in sight in the immediate future.