nep-cfn New Economics Papers
on Corporate Finance
Issue of 2015‒04‒11
two papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Access to Public Capital Markets and Employment Growth By Borisov, Alexander; Ellul, Andrew; Sevilir, Merih
  2. Bubbles and Central Banks: Historical Perspectives By Brunnermeier, Markus K; Schnabel, Isabel

  1. By: Borisov, Alexander; Ellul, Andrew; Sevilir, Merih
    Abstract: This paper investigates the importance of accessing public capital markets through an initial public offering (IPO), and the consequent relaxation of firms’ financial constraints, for firm-level long term employment decisions. We find that firms significantly increase post-IPO investment in human capital compared to the pre-IPO stage. To address endogeneity concerns, we use a novel dataset of private firms and compare employment growth of IPO firms with two different control groups: First, private firms that file for an IPO but eventually withdraw their offering due to exogenous market conditions, and second, a propensity score matched sample of private firms that never file for an IPO. Firms that complete the IPO process experience higher employment growth in the post-IPO period relative to each control group. Importantly, our results show that the most likely channel for the realization of higher employment growth is the relaxation of financial constraints, allowing the newly public firms to access both equity and debt markets for funding investment in human capital, and not only capital expansion. Overall, our results highlight the importance of public capital markets for job creation over long term horizons.
    Keywords: Corporate growth; Employment growth; Financial constraints; Human capital; IPOs
    JEL: G32 G34
    Date: 2015–04
  2. By: Brunnermeier, Markus K; Schnabel, Isabel
    Abstract: This paper reviews some of the most prominent asset price bubbles from the past 400 years and documents how central banks (or other institutions) reacted to those bubbles. The historical evidence suggests that the emergence of bubbles is often preceded or accompanied by an expansionary monetary policy, lending booms, capital inflows, and financial innovation or deregulation. We find that the severity of the economic crisis following the bursting of a bubble is less linked to the type of asset than to the financing of the bubble—crises are most severe when accompanied by a lending boom and high leverage of market players, and when financial institutions themselves are participating in the buying frenzy. Past experience also suggests that a purely passive “cleaning up the mess” stance toward the buildup of bubbles is, in many cases, costly. Monetary policy and macroprudential measures that lean against inflating bubbles can and sometimes have helped deflate bubbles and mitigate the associated economic crises. However, the correct implementation of such proactive policy approaches remains fraught with difficulties.
    Keywords: bubbles; capital flows; credit; macroprudential policy; monetary policy
    JEL: E44 E52 F34 G01 N10
    Date: 2015–04

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