nep-cfn New Economics Papers
on Corporate Finance
Issue of 2018‒05‒21
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Cash holding and control-oriented finance By Anderson, Ronald W.; Hamadi, Malika
  2. Cost of Experimentation and the Evolution of Venture Capital By Michael Ewens; Ramana Nanda; Matthew Rhodes-Kropf
  3. Internationalization and firm valuation: New evidence from first offshore bond issuances of US firms By Nebosja Dimic; Vitaly Orlov;
  4. The Finance Uncertainty Multiplier By Iván Alfaro; Nicholas Bloom; Xiaoji Lin
  5. Bad loans and resource allocation in crisis years: Evidence from European banks By Brunella Bruno; Immacolata Marino
  6. Does Public Debt Crowd Out Corporate Investment? International Evidence By Yi Huang; Ugo Panizza; Richard Varghese
  7. Big Data in Finance and the Growth of Large Firms By Juliane Begenau; Maryam Farboodi; Laura Veldkamp

  1. By: Anderson, Ronald W.; Hamadi, Malika
    Abstract: We critically reassess the notion that high liquid asset holding by firms faced with weak investor protection is evidence of managerial rent extraction. We show that firms facing agency problems may establish tight controls over management through concentrated ownership. Using data on Belgian listed firms between 1991 and 2006, we find a strong positive association between ownership concentration and cash holding. This indicates a precautionary motive on the part of the controlling shareholders who highly value control. We also find that firm market valuation is positively affected by the amount of cash held by firms. On the other hand, managerial ownership has no impact. These results are consistent with the hypothesis that firms' owners are pursuing a rational strategy to mitigate agency costs in the face of weak investor protections.
    Keywords: cash holding; ownership concentration; investor protection; control-oriented finance; family firms
    JEL: G30 G32 G34
    Date: 2016–12–01
  2. By: Michael Ewens; Ramana Nanda; Matthew Rhodes-Kropf
    Abstract: We study how technological shocks to the cost of starting new businesses have led the venture capital model to adapt in fundamental ways over the prior decade. We both document and provide a framework to understand the changes in the investment strategy of venture capitalists (VCs) in recent years — an increased prevalence of a “spray and pray” investment approach — where investors provide a little funding and limited governance to an increased number of startups that they are more likely to abandon, but where initial experiments significantly inform beliefs about the future potential of the venture. This adaptation and related entry by new financial intermediaries has led to a disproportionate rise in innovations where information on future prospects is revealed quickly and cheaply, and reduced the relative share of innovation in complex technologies where initial experiments cost more and reveal less.
    JEL: G24 O31 O32
    Date: 2018–04
  3. By: Nebosja Dimic; Vitaly Orlov;
    Abstract: Does internationalization affect firm valuation? To answer this question, literature mainly considers firms from around the world internationalizing by issuing equity in the USA, whereas the current study focuses on US firms that internationalize by issuing debt in overseas markets. This paper provides evidence on theories of internationalization and capital structure, finding that overseas corporate debt offerings have a positive short-term effect on US firms' valuations. The effect varies in firm characteristics, timing, and the location of the issue. Additionally, firms with a strong need for external funds and growth prospects accelerate their offshore public debt market entry.
    Keywords: Internationalization, Debt Structure, Segmentation, Tobins's q
    JEL: G15 G32 F36
    Date: 2018–02
  4. By: Iván Alfaro; Nicholas Bloom; Xiaoji Lin
    Abstract: We show how real and financial frictions amplify the impact of uncertainty shocks. We build a model with real frictions, and find adding financial frictions roughly doubles the impact of uncertainty shocks. Higher uncertainty alongside financial frictions induces the standard real-options effects on investment and hiring, but also leads firms to hoard cash, further reducing investment and hiring. We then test the model using a panel of US firms and a novel instrumentation strategy for uncertainty exploiting differential firm exposure to exchange rate and price volatility. These results highlight why in periods with greater financial frictions uncertainty can be particularly damaging.
    JEL: E0 G0
    Date: 2018–05
  5. By: Brunella Bruno; Immacolata Marino
    Abstract: The aim of this study is to explore the relation between loan portfolio quality and lending in European banks over 2005-2014. We focus on lending behavior of banks from distressed countries since the Euro sovereign debt crisis. Our results confirm the existence of a negative nexus between poor loan quality and lending, since a higher NPL ratio explains a reduced loan growth and a lower allocation to loans at the advantage of government debt (as a percentage of total assets). Such an impact on lending and reallocation effect are strong and consistent across specifications and over and above other factors that may affect credit supply.
    Keywords: bad loans, NPLs, non-performing loans, bank lending, crisis
    JEL: G20 G21 G01
    Date: 2017
  6. By: Yi Huang (IHEID, Graduate Institute of International and Development Studies); Ugo Panizza (IHEID, Graduate Institute of International and Development Studies, Geneva and CEPR); Richard Varghese (IHEID, Graduate Institute of International and Development Studies)
    Abstract: Using data for advanced and emerging economies, we show that there is a negative correlation between public debt and corporate investment. Industry-level regressions show that high levels of government debt are particularly damaging for industries that need more external ?financial resources. Firm-level regressions show that government debt increases the sensitivity of corporate investment to cash ?flow. These results indicate that the relationship between public debt and investment is likely to be causal and that public debt crowds out corporate investment by tightening credit constraints.
    Keywords: Investment, Public Debt, Crowding Out, Credit Constraints
    JEL: E22 E62 H63
    Date: 2018–05
  7. By: Juliane Begenau; Maryam Farboodi; Laura Veldkamp
    Abstract: One of the most important trends in modern macroeconomics is the shift from small firms to large firms. At the same time, financial markets have been transformed by advances in information technology. We explore the hypothesis that the use of big data in financial markets has lowered the cost of capital for large firms, relative to small ones, enabling large firms to grow larger. Large firms, with more economic activity and a longer firm history offer more data to process. As faster processors crunch ever more data – macro announcements, earnings statements, competitors' performance metrics, export demand, etc. – large firms become more valuable targets for this data analysis. Once processed, that data can better forecast firm value, reduce the risk of equity investment, and thus reduce the firm's cost of capital. As big data technology improves, large firms attract a more than proportional share of the data processing, enabling large firms to invest cheaply and grow larger.
    JEL: E2 G1 D8
    Date: 2018–04

This nep-cfn issue is ©2018 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.