nep-cfn New Economics Papers
on Corporate Finance
Issue of 2016‒07‒16
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Financial Constraints, Firms' Supply Chains and Internationalization By Raoul Minetti; Pierluigi Murro; Zeno Rotondi; Susan Chun Zhu
  2. The effect of bank shocks on firm-level and aggregate investment By Amador, João; Nagengast, Arne J.
  3. Access to Credit and Investment Decisions of SMEs in China: size matters By Regis, Paulo José
  5. An Analysis of Simultaneous Company Defaults Using a Shot Noise Process By Masahiko Egami; Rusudan Kevkhishvili
  6. Learning from the Swiss corporate governance exception By Massimiliano Vatiero
  7. Matching firms, managers and incentives By Oriana Bandiera; Luigi Guiso; Andrea Prat; Raffaella Sadun

  1. By: Raoul Minetti; Pierluigi Murro; Zeno Rotondi; Susan Chun Zhu
    Abstract: Using a unique sample of small and medium-sized Italian firms, we investigate the effect of financial constraints on firms participation in domestic and international supply chains. We find that firms more exposed to bank credit rationing and with weaker relationships with banks are more likely to participate in supply chains to overcome liquidity shortages. This benefit of supply chains is especially strong when firms forge ties with international trading partners and when they establish long-term relationships with large suppliers. To control for possible endogeneity of firms access to credit, we construct instruments capturing exogenous shocks to the structure of the Italian local banking markets.
    Keywords: Credit, Global Value Chains, nternationalization
    JEL: F10 G20 L23
    Date: 2016–07–12
  2. By: Amador, João; Nagengast, Arne J.
    Abstract: We show that credit supply shocks have a strong impact on firm-level as well as aggregate investment by applying the methodology developed by Amiti and Weinstein (2013) to a rich dataset of matched bank-firm loans in the Portuguese economy for the period 2005 to 2013. We argue that their decomposition framework can also be used in the presence of small firms with only one banking relationship as long as they account for only a small share of the total loan volume of their banks. The growth rate of individual loans in our dataset is decomposed into bank, firm, industry and common shocks. Adverse bank shocks are found to impair firm-level investment in all firms in our sample, but in particular for small firms and those with no access to alternative financing sources. For the economy as a whole, granular shocks in the banking system account for around 20-40% of aggregate investment dynamics.
    Keywords: Banks,Credit Dynamics,Investment,Firm-level data,Portuguese Economy
    JEL: E32 E44 G21 G32
    Date: 2016
  3. By: Regis, Paulo José (Division of Economics, Xi'an Jiaotong-Liverpool University)
    Abstract: Financial constraints are common in developing countries where financial systems are underdeveloped. In China, firms report access to finance is the most important obstacle in the business environment. This seems to be related to firms which fail to gain access to the credit market. We examine the likelihood of access to credit of firms where size and exporting seem to be key characteristics to consider. Credit constraints are significant to investment decisions. Together with size, access to credit is among the firm characteristics with the largest impact in the likelihood to invest.
    Keywords: access to finance, investment decision, Small and Medium-sized Enterprises, China
    JEL: G21 G32 O16 D52
    Date: 2015–08–03
  4. By: Lidia Mannarino; Valeria Pupo; Fernanda Ricotta (Dipartimento di Economia, Statistica e Finanza, Università della Calabria)
    Abstract: The main aim of this research is to investigate the influence the institutional environment has on the difference in performance between Italian family firms run by a family member and firms run by a professional manager. By using total factor productivity (TFP) as a measure of performance, we find that family-run firms are less productive than firms run by outside managers when institutional quality is high, but that the results are less obvious when institutional quality is low. The difference in performance is not significant, but by using the level of corruption as a measure of institutional quality, older family firms are found to be more productive than firms run by outside managers.
    Keywords: Family firms, TFP, Institutions
    JEL: G34 D24 O43
    Date: 2016–06
  5. By: Masahiko Egami; Rusudan Kevkhishvili
    Abstract: During subprime mortgage crisis, it became apparent that incumbent models had underestimated company default correlations. Complex models that attempt to incorporate default dependency are difficult to implement in practice. On the contrary, practical models, such as One-Factor Gaussian Copula model, greatly underestimated simultaneous default probabilities. In this article, we develop a model for a company asset process and based on this model, we calculate simultaneous default probabilities using option-theoretic approach. Our model focuses on one industry and includes a shot noise process in the asset model directly. The risk factor driving the shot noise process is common to all companies in the industry but the shot noise parameters are assumed to be company-specific; therefore, every company responds to this common risk factor differently. Apart from the shot noise process, the asset model includes company specific Brownian motion. Compared to commonly used geometric Brownian motion asset model in option-theoretic approach, our model predicted higher simultaneous default probabilities for Citigroup Inc. in 2008, and for all company combinations for the years of 2009 and 2010. Our model is easy to implement and can be extended to analyze any finite number of companies without greatly increasing computational difficulty.
    Keywords: shot noise; option-theoretic approach; asset process; simultaneous default probabilities
    JEL: G01 G21 G32
    Date: 2016–04
  6. By: Massimiliano Vatiero (Institute of Law (IDUSI), and Institute of Economics (IdEP), Facoltà di Economia, Università della Svizzera italiana, Svizzera)
    Abstract: The Swiss economy represents an exception to the legal origin theory (e.g., Roe (2006)). Although Switzerland is a country belonging to the civil law family, many of its public companies have diffused corporate ownership, as do those in common law countries. This paper maintains that the Swiss exception relies on the complementarity between corporate ownership and policies addressing employment protection and innovation. The Swiss case presents two lessons: first, the current corporate governance is the result of a long and composite path in which politics plays a pivotal role; second, the institutional differences and similarities across countries, which one would try to explain along with the legal origin theory, can derive diversely from additional politics-based accounts, such as those referring to policies on employment protection and innovation.
    Keywords: corporate governance and ownership, innovation, employment protection, institutional complementarity, Swiss economy
    JEL: G30 J50 P16
    Date: 2016–06
  7. By: Oriana Bandiera; Luigi Guiso; Andrea Prat; Raffaella Sadun
    Abstract: We exploit a unique combination of administrative sources and survey data to study the match between firms and managers. The data includes manager characteristics, such as risk aversion and talent; firm characteristics, such as ownership; detailed measures of managerial practices relative to incentives, dismissals and promotions; and measurable outcomes, for the firm and for the manager. A parsimonious model of matching and incentive provision generates an array of implications that can be tested with our data. Our contribution is twofold. We disentangle the role of risk-aversion and talent in de-termining how firms select and motivate managers. In particular, risk-averse managers are matched with firms whose compensation scheme depends less on performance. We also show that empirical findings linking governance, incentives, and performance that are typically observed in isolation, can instead be interpreted within a simple unified matching framework.
    JEL: N0
    Date: 2015–07

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