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on Corporate Finance |
| By: | Léautier, Thomas-Olivier (TSE,IAE); Rochet, Jean-Charles (TSE, University of Zurich) |
| Abstract: | This article examines how firms facing volatile input prices and holding some degree of market power in their product market link their risk management and production or pricing strategies. This issue is relevant in many industries ranging from manufacturing to energy retailing, where risk averse firms decide on their hedging strategies before their product market strategies. We find that hedging modifies the pricing and production strategies of firms. This strategic effect is channelled through the expected risk-adjusted cost, i.e., the expected marginal cost under the measure induced by investors'risk aversion, and has diametrically opposed impacts depending on the nature of product market competition: hedging toughens quantity competition while it softens price competition. Finally, committing to a hedging strategy is always a best response to non committing, and is a dominant strategy if firms compete à la Hotelling. |
| JEL: | G32 L13 |
| Date: | 2012–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:26124&r=cfn |
| By: | Simona Mateut; Piercarlo zanchettin |
| Abstract: | We investigate the interaction between two terms of payment, supplier credit sales and customer advance payment. We find evidence that advance payments may signal customer creditworthiness and increase trade credit extension when we control for vendor size in international transactions or for the traded goods characteristics. |
| Keywords: | trade credit; advance payment; signalling |
| JEL: | G31 G32 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:12/18&r=cfn |
| By: | Färnstrand Damsgaard, Erika (National Institute of Economic Research); Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN)); Vasconcelos, Helder (Faculdade de Economia, Universidade do Porto) |
| Abstract: | Entrepreneurs face higher commercialization costs than incumbents. We show that this implies that entrepreneurs will choose more risky projects than incumbents, aiming to reduce their high expected marginal commercialization cost. However, entrepreneurs may select too safe projects from a social point of view, since they do not internalize the business stealing effect. We also show that commercialization support induces entrepreneurship but may lead to mediocre entrepreneurship by inducing entrepreneurs to choose less risky projects, whereas R&D support encourages entrepreneurship without affecting the type of entrepreneurship. Using Swedish patent citation data, we find empirical support for predictions of the model. |
| Keywords: | Entrepreneurship; Innovation; Start-ups; Ownership; Breakthrough; Quality |
| JEL: | G24 L10 L20 M13 O30 |
| Date: | 2012–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0926&r=cfn |
| By: | Tiwari, Amaresh K. (University of Liege); Mohnen, Pierre (UNU-MERIT/MGSoG, Maastricht University, and CIRANO); Palm, Franz C. (Maastricht University, and CESifo); Schim van der Loeff, Sybrand (Maastricht University) |
| Abstract: | Using a unique panel data of Dutch innovation and financial variables we empirically investigate how financing and innovation vary across firm characteristics. The study also tries to gauge the extent of market failure due to the presence of financing frictions. Our main findings can be summarized as follows. First, when firms face endogenous financial constraints, debt financing and innovation choices are not independent of firm characteristics such as age, size, and existing leverage. In the absence of financial constraints, however, firms, almost uniformly across firm characteristics, become less inclined - as compared to firms facing constraints - to engage in innovative activity by raising debt. Second, small, young, highly leveraged, and firms with lower collateralizable assets are more likely to be financially constrained. Third, large, young, and low leveraged firms are more likely to be innovators. Fourth, financial constraints adversely affect a firm’s R&D intensity. Fifth, smaller and younger firms are more R&D intensive. A new estimator, that combines the method of "Correlated Random Effects" and "Control Function" to account for the endogeneity of regressors in a structural equations model, is developed. |
| Keywords: | Financial Constraints, Capital Structure, R&D, Innovation, Firm Characteristics, Panel Data, Correlated Random Effects, Control Function |
| JEL: | G30 O30 C30 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2012062&r=cfn |