nep-cfn 2012-12-22 papers

on Corporate Finance

Issue of 2012‒12‒22
two papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

Does corporate taxation affect cross-country firm leverage? By Antonio De Socio; Valentina Nigro
Start-up banks’ default and the role of capital By Massimo Libertucci; Francesco Piersante

Does corporate taxation affect cross-country firm leverage?

By:	Antonio De Socio (Bank of Italy); Valentina Nigro (Bank of Italy)
Abstract:	We evaluate the relation between firm leverage and taxation of corporate income using a dataset of mostly unlisted European corporations, highly representative of medium-sized and large firms. We use a correlated random effect approach in order to take into account unobserved heterogeneity and to assess the contribution of cross-sectional variation of the regressors. We also apply quantile regressions to evaluate a possible differential impact of taxation on leverage across firms. Our results suggest that corporate income taxation is positively related to leverage and explains part of the cross-country variability, showing a stronger effect for less levered firms. In accordance with the theory of the debt tax shield, the relation between debt and taxation is stronger for highly profitable firms. These findings are robust to the inclusion of different measures of the financial development and characteristics of the legal system of the country where firms are located.
Keywords:	leverage, corporate taxation, financial structure
JEL:	G32 H32
Date:	2012–11
URL:	http://d.repec.org/n?u=RePEc:bdi:wptemi:td_889_12&r=cfn

Start-up banks’ default and the role of capital

By:	Massimo Libertucci (Bank of Italy); Francesco Piersante (Bank of Italy)
Abstract:	Regulation requires banks to hold a minimum capital endowment upon their establishment. But what role does initial capital play in a bank’s lifecycle? This paper addresses the issue for start-up banks. We use both survival-time and binary choice models for a sample of newly-established Italian banks in the period 1994-2006, controlling for a broad set of possible drivers of default, such as market, managerial and financial variables. Our results suggest that initial capital does play a leading role in explaining both the timing and the likelihood of a failure. Other important drivers are organisation and a balanced growth path, while market and management variables appear to play a minor role. We then turn to a quasi-experimental design: exploiting a regulatory shift in 1999 we run a counterfactual analysis of the impact of a regulatory tightening of initial capital, which affected only a subsample of banks. The set of results suggests that the effect on banks’ survival may be significant.
Keywords:	bank capital, survival analysis, probability of default analysis, start-up banks, counterfactual analysis
JEL:	G21 G28
Date:	2012–11
URL:	http://d.repec.org/n?u=RePEc:bdi:wptemi:td_890_12&r=cfn

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