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on Corporate Finance |
| By: | Andrea Mercatanti (Bank of Italy and Luxembourg Institute of Socio-Economic Research, Program evaluation and Big Data Unit); Taneli Mäkinen (Bank of Italy); Andrea Silvestrini (Bank of Italy) |
| Abstract: | We reinvestigate the question of whether corporate investment during the financial crisis depended to a significant extent, and differently than in the pre-crisis period, on firms' short-term liquidity and indebtedness. Using data on listed firms in the euro area and the United Kingdom, we employ a correlated random coefficient panel data model estimated with instrumental variables in order to address potential endogeneity concerns. First, we find that to attain plausible identification, we must allow for the possibility that the unobserved firm-specific component of investment changed with the onset of the financial crisis. Second, our results suggest that neither cash reserves nor short-term debt, considered separately, were significant determinants of investment. However, we do find evidence of a negative conditional dependence between corporate investment and short-term debt net of cash reserves. |
| Keywords: | capital expenditure, financing constraints, financial crisis, correlated random coefficient, panel data models, instrumental variables |
| JEL: | G01 G31 G32 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1148_17&r=cfn |
| By: | Raffaele Santioni (Bank of Italy); Fabio Schiantarelli (Boston College and IZA); Philip E. Strahan (Boston College and NBER) |
| Abstract: | Italy’s economic and banking systems have been under stress in the wake of the global financial crisis and the euro crisis. Our results suggest that firms in business groups have been more likely to survive in this challenging environment than unaffiliated firms. Better performance stems from access to an internal capital market, and the survival value of groups increases, inter alia, with group-wide cash flow. We show that actual internal capital transfers increase during the crisis, and these transfers move funds from cash-rich to cash-poor firms and also to those with more favourable investment opportunities. The ability to borrow externally provides the internal capital market with additional funds, but sharing external capital becomes less important during a crisis. Our overall results highlight the benefits of internal capital markets when external capital markets are tight or distressed. |
| Keywords: | business groups, internal capital markets, financial crisis |
| JEL: | G01 G21 G31 G33 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1146_17&r=cfn |
| By: | Francesco D'Acunto; Ryan Liu; Carolin Pflueger; Michael Weber |
| Abstract: | The frequency with which firms adjust output prices helps explain persistent differences in capital structure across firms. Unconditionally, the most exible-price firms have a 19% higher long-term leverage ratio than the most sticky-price firms, controlling for known determinants of capital structure. Sticky-price firms increased leverage more than exible-price firms following the staggered implementation of the Interstate Banking and Branching Efficiency Act across states and over time, which we use in a difference-in-differences strategy. Firms’ frequency of price adjustment did not change around the deregulation. |
| Keywords: | capital structure, nominal rigidities, bank deregulation, industrial organization and finance, price setting, bankruptcy |
| JEL: | E12 E44 G28 G32 G33 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6317&r=cfn |
| By: | Maxin, Hannes |
| Abstract: | The present paper solely focuses on the investment decisions of two corporate venture capital firms. These investors have to decide whether to finance a wealthless venture alone or to share the profits and the costs with the other investor, called syndication. The critical point are the innovation objectives of the corporate investors respectively the nature of innovation of the venture. To my knowledge, no other theoretical paper considers such a financing situation consisting of two CVCs. |
| JEL: | G24 M13 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168199&r=cfn |
| By: | Zafer Kanık (Boston College, Department of Economics.); |
| Abstract: | This paper develops a framework to analyze private-sector resolution of contagion in financial networks. Inefficiencies in rescue arise due to the network structure itself. The banks which are least affected from the contagion have the least incentives to prevent failures. Optimal networks minimize the realized bankruptcy costs, and are potentially contagious and evenly connected with intermediate integration (ratio of interbank liabilities to total assets per bank) and low diversification (number of counterparties per bank). The rescue capability and incentives endogenously arise in optimal networks, which encourage banks to borrow and lend in the interbank market with minimal concern about individual failure risk and no concern about contagion risk. In optimal networks, the government assists only the rescue of the first failure, and only for small enough shocks. |
| Keywords: | acquisition, contagion, financial network, merger, rescue, resolution, systemic risk. |
| JEL: | D85 E44 G01 G32 G33 G34 G38 H81 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1717&r=cfn |
| By: | Atsushi Samitsu (Bank of Japan) |
| Abstract: | P2P lending is direct lending between lenders and borrowers online without using traditional financial intermediaries such as banks. There has been a rapid increase in the amount of outstanding loans in P2P lending in recent years, mainly in the UK, the US, and China, since a major P2P lending platform in the UK was launched in 2005. In this paper, the structure of P2P lending and its characteristics are analysed using banks as a reference point. This paper also highlights the fact that the legal arrangements in P2P lending vary from country to country and those differences could affect the degree of investor protection. Samitsu (2017) explains that under the current legal arrangement in Japan, investors assume the credit risk of P2P lending platforms, and proposes utilising schemes such as specific purpose companies and specific trust companies to strengthen investor protection. |
| Keywords: | P2P lending; Financial intermediation; Banks; Systemic risk; Investor protection; FinTech |
| JEL: | K22 |
| Date: | 2017–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojlab:lab17e06&r=cfn |
| By: | Lars Hornuf; Matthias Schmitt |
| Abstract: | Today, start-ups often obtain financing via the Internet through many small contributions of non-sophisticated investors. Yet little is known about whether these start-ups can ultimately build enduring businesses. In this paper, we hand-collected data from 38 different equity crowdfunding (ECF) portals and 656 firms that ran at least one successful ECF campaign in Germany or the United Kingdom. The evidence shows that German firms that receive ECF stand a higher chance of obtaining follow-up funding through business angels or venture capitalists and have a relatively lower likelihood to survive. We find firm age, the average age of the management team, and excessive funding during the ECF campaign all have a negative effect on firms’ likelihood to obtain post-campaign financing. By contrast, the number of senior managers, registered trademarks, subsequent successful ECF campaigns, crowd exits, and the amount of the funding target all have a positive impact. Subsequent successful ECF campaigns, crowd exits, and the number of venture capital investors are significant predictors reducing firm failure. Finally, we find that some of these factors have a differential impact for Germany and the United Kingdom. |
| Keywords: | equity crowdfunding, follow-up funding, firm survival |
| JEL: | G24 M13 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6642&r=cfn |
| By: | Juan J. Cortina (World Bank); Tatiana Didier (World Bank); Sergio L. Schmukler (World Bank) |
| Abstract: | This paper documents to what extent firms from developing countries borrow short versus long term, using data on corporate bond and syndicated loan markets. Contrary to claims in the literature based on firm balance sheets, firms from developing countries borrow through bonds and syndicated loans at maturities similar to those obtained by developed country firms. The composition and use of financing matters. Firms from developing countries borrow shorter term in domestic bond markets, but the differences in international issuances (accounting for most of the proceeds) are significantly smaller. Developing country firms borrow longer term in syndicated loan markets, which they partially use for infrastructure projects. However, only large firms from developing countries (similar in size to those from developed ones) issue bonds and syndicated loans. The short-termism in developing countries is partly explained by a lower proportion of firms using these markets, with more firms relying on other shorter-term instruments. |
| Keywords: | capital raising, corporate bonds, domestic and international debt markets, developing countries, firm financing, issuance maturity, long-term debt, short-term debt, syndicated loans |
| JEL: | F34 G0 G10 G15 G21 G32 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:142&r=cfn |
| By: | Dirk Schindler |
| Abstract: | How to incorporate hard-to-measure assets into the wealth tax? We analyze the effect of an optimal wealth tax on risk-taking behavior and welfare when investors do not only have the standard portfolio choice with a well-diversified market portfolio, but can alternatively choose to invest all their wealth into a non-diversifiable, indivisible project. The latter is interpreted as entrepreneurial investment into a small, non-listed firm for which the actual value is hard to measure and non-verifiable. For such firms, real-world wealth tax systems base the wealth tax on deterministic book values. We show that this tax treatment does not distort the choice of projects if the tax is set optimally with an imputed interest rate on book values, actually larger than the risk-free market rate of return. The market equilibrium and a proportional tax on the market portfolio will ensure an efficient risk allocation between private and public consumption and across projects. Failing to apply an imputed inflation of book values, instead, gives rise to an implicit subsidy on entrepreneurial activity and distorts investment. Our findings also have implications for taxation of hard-to-measure assets under capital-gains and inheritance taxation. |
| Keywords: | wealth taxation, portfolio choice, non-listed firms, risk diversification, hard-to-measure assets |
| JEL: | H21 D14 G11 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6537&r=cfn |