nep-cfn New Economics Papers
on Corporate Finance
Issue of 2011‒01‒03
five papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Corporate R&D and firm efficiency: Evidence from Europe’s top R&D investors By Subal C. Kumbhakar; Raquel Ortega-Argilés; Lesley Potters; Marco Vivarelli; Peter Voigt
  2. Real and financial tradeoffs in non-listed firms: Cash flow sensitivities and how they change with shocks to firms' main-bank By Charlotte Østergaard; Amir Sasson; Bent E. Sørensen
  3. Investment and financing constraints in China: does working capital management make a difference? By Sai Ding; Alessandra Guariglia; John Knight
  4. Doing R&D or not, that is the question (in a crisis…) By Michele Cincera; Claudio Cozza; Alexander Tübke; Peter Voigt
  5. Risk allocation and incentives for private contractors: an analysis of Italian project financing contracts By Francesco Decarolis; Cristina Giorgiantonio; Valentina Giovanniello

  1. By: Subal C. Kumbhakar (State University of New York at Binghamton); Raquel Ortega-Argilés (IN+ Centre for Innovation, Technology and Policy Research, Instituto Superior Técnico); Lesley Potters (Utrecht School of Economics); Marco Vivarelli (Università Cattolica, Milano-Piacenza); Peter Voigt (JRC-IPTS)
    Abstract: The main objective of this study is to investigate the impact of corporate R&D activities on firm performance, measured by labour productivity. To this end, the stochastic frontier technique is used on a unique unbalanced longitudinal dataset on top European R&D investors over the period 2000–2005. The study quantifies technical inefficiency of individual firms. From a policy perspective, the results of this study suggest that – if the aim is to leverage firms’ productivity – emphasis should be put on supporting corporate R&D in high-tech sectors and, to some ex-tent, in medium-tech sectors. On the other hand, corporate R&D in the low-tech sector is found to have a minor effect in explaining productivity. Instead, encouraging investment in fixed assets appears important for the productivity of low-tech industries. Hence, the allocation of support for corporate R&D seems to be as important as its overall increase and an ‘erga omnes’ approach across all sectors appears inappropriate. However, with regard to technical efficiency, R&D intensity is found to be a pivotal factor in explaining firm efficiency. This is true for all industries.
    Keywords: Corporate R&D, productivity, technical efficiency, stochastic frontier analysis
    JEL: L2 O3
    Date: 2010–12
  2. By: Charlotte Østergaard (Norwegian School of Management and Norges Bank (Central Bank of Norway)); Amir Sasson (Norwegian School of Management); Bent E. Sørensen (University of Houston and the CEPR)
    Abstract: We study how non-listed firms trade off financial, real, and distributive uses of cash. We show that firms' marginal value of cash (MVC) affects the mix of external and internal finance used to absorb fluctuations in cash flows; in particular, high-MVC firms employ substantially more external finance on the margin. Linking firms to their main bank, we find that shocks to bank finance affect corporate trade-offs and have real effects in high-MVC firms, making investment more sensitive to firm cash flows. Our analysis suggests that external finance constraints affect the real economy via firms' marginal value of cash.
    Keywords: Cash Management, Cash Holdings, Cost of External Finance, Non_listed Firms, Bank Lending Channel
    Date: 2010–12–16
  3. By: Sai Ding; Alessandra Guariglia; John Knight
    Abstract: We use a panel of over 120,000 Chinese firms of different ownership types over the period 2000-2007 to analyze the linkages between investment in fixed and working capital and financing constraints. We find that those firms characterized by high working capital display high sensitivities of investment in working capital to cash flow (WKS) and low sensitivities of investment in fixed capital to cash flow (FKS). We then construct and analyze firm-level FKS and WKS measures and find that, despite severe external financing constraints, those firms with low FKS and high WKS exhibit the highest fixed investment rates. This suggests that good working capital management may help firms to alleviate the effects of financing constraints on fixed investment.
    Keywords: Cash flow, financing constraints, working capital
    JEL: D92 E22
    Date: 2010
  4. By: Michele Cincera (Solvay Brussels School of Economics and Management, Université Libre de Bruxelles); Claudio Cozza (Fondazione Formit); Alexander Tübke (JRC-IPTS); Peter Voigt (JRC-IPTS)
    Abstract: This study investigates how corporate R&D evolves in the light of the contemporary economic crisis. We investigate what empirical evidence from past downturns suggests, discuss the relevant literature and perform an empirical analysis of recent business survey data (collected during 2009). We question whether companies tend to spend more or less on R&D and innovation activities during periods of recession and analyse empirically what general patterns can be distinguished in this regard, given the particular circumstances of the most recent crisis. Our findings suggest that company behaviour varies: some companies have reduced their innovation activities significantly, while others maintained them and a third group even increased their activities to reap the benefits in the expected upswing afterwards. Overall, we observe a deceleration of R&D and innovation activities in the light of the crisis, but the trend figures remain positive. Driven by the companies that reinforce their R&D and innovation efforts to thrive through the downturn and thus seek to gather the benefits in the upswing to come, the R&D and innovation landscape is likely to look different in the aftermath of the crisis. These changes will inevitably affect policy intervention in the field of innovation and are a unique chance for the reorientation of policy measures. More profoundly, they could be at the roots of a new paradigm, departing from a transition from an industrial to a knowledge-based society.
    Keywords: Corporate R&D investments, innovation activities, company strategy, economic crisis, R&D globalization
    JEL: F01 O33
    Date: 2010–12
  5. By: Francesco Decarolis (University of Wisconsin - Madison); Cristina Giorgiantonio (Bank of Italy, Economic Research Department); Valentina Giovanniello (Tribunale di Roma)
    Abstract: Despite the many reforms in the public procurement sector in recent years, the Italian system is still marked by high levels of fragmentation and is considerably exposed to the risks of collusion, corruption and of ex-post renegotiations with the winning contractors. Other deficiencies are also present at the planning stages of the works. These problem areas appear ascribable in part to the current regulations on the awarding of public works contracts, which do not guarantee the correct functioning of the selection mechanisms of private contractors. Indications from the economic literature and international comparisons suggest that improvements could arise from: i) the elimination of automatic exclusion mechanisms for anomalous tenders (which would reduce the risk of collusion between bidders); ii) the centralization of assessments of anomalous offers under the responsibility of larger adjudicating authorities and with an increase in the surety guarantees given by the winning bidders, which would reduce the risk of subsequent renegotiations; iii) the reinforcement of measures to combat corruption; iv) a greater standardization of planning and, for the more complex auctions, the use of competitive dialogue.
    Keywords: Infrastructure, Auctions, Regulation
    JEL: D44 H57 K23 L22
    Date: 2010–12

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