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on Corporate Finance |
| By: | Yoshino, Naoyuki (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute) |
| Abstract: | Small and medium-sized enterprises (SMEs) are the backbone of the Asian economy. They make up more than 96% of all Asian businesses that provide 2 out of 3 private sector jobs in the continent. Therefore, it is vitally important for the Asian economies’ economic success that they have fully functioning support measures for SMEs. However, SMEs face major challenges in accessing cheap finance, mainly because there is an asymmetric information problem between suppliers and demanders of funds, which hinders their growth. We highlight the difficulties of SMEs in accessing finance, and provide remedies for mitigating them. The remedies proposed in here include the development of credit information infrastructures for SMEs to remedy the asymmetric information problem, utilization of credit rating techniques for SMEs, the development of a sustainable credit guarantee scheme, the development of specialized private banks for SME financing, and the introduction of new ways of providing community-based financing such as hometown investment trust funds. We will provide operational examples from developed Asian economies such as Japan and the Republic of Korea, and developing Asian economies such as Thailand with a view to them being implemented in the rest of Asia. |
| Keywords: | SMEs; Asian economies; credit rating; CRD; SME bank |
| JEL: | G21 G24 G32 |
| Date: | 2017–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0768&r=cfn |
| By: | Atkeson, Andrew (Federal Reserve Bank of Minneapolis); d'Avernas, Adrien (Stockholm School of Economics); Eisfeldt, Andrea L. (University of California, Los Angeles); Weill, Pierre-Olivier (University of California, Los Angeles) |
| Abstract: | Banks' ratio of the market value to book value of their equity was close to 1 until the 1990s, then more than doubled during the 1996-2007 period, and fell again to values close to 1 after the 2008 financial crisis. Sarin and Summers (2016) and Chousakos and Gorton (2017) argue that the drop in banks' market-to-book ratio since the crisis is due to a loss in bank franchise value or profitability. In this paper we argue that banks' market-to-book ratio is the sum of two components: franchise value and the value of government guarantees. We empirically decompose the ratio between these two components and find that a large portion of the variation in this ratio over time is due to changes in the value of government guarantees. |
| Keywords: | Banking; Bank valuation; Bank financial soundness; Bank regulation; Risk shifting; Bank leverage |
| JEL: | E44 G21 G28 G32 G38 H12 |
| Date: | 2018–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:567&r=cfn |
| By: | Rampini, Adriano A. |
| Abstract: | This paper studies how the durability of assets affects financing. We show that more durable assets require larger down payments making them harder to finance, because durability affects the price of assets and hence the overall financing need more than their collateral value. Durability affects technology adoption, the choice between new and used capital, and the rent versus buy decision. Constrained firms invest in less durable assets and buy used assets. More durable assets are more likely to be rented. Economies with weak legal enforcement invest more in less durable, otherwise dominated assets and are net importers of used assets. |
| Keywords: | Collateral; Durability; Financial constraints; leasing; Technology adoption; Vintage capital |
| JEL: | D21 D86 E22 G31 G32 O16 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12997&r=cfn |
| By: | Milos Markovic (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Michael Stemmer (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Using a unique dataset of unlisted Serbian firms during the period between 2005 and 2012, we analyze the impact of internal financial constraints on firm growth with respect to several firm-level characteristics. We also assess potential effects created by the 2008-2009 Global Financial Crisis. To do so, we rely on panel data models, which estimate via GMM cash flow sensitivities of firm growth, following the dynamic specification of Guariglia et al. (2011). Controlling for investment opportunities, our results show that Serbian firms face high financial constraints and exhibit generally a high reliance on retained earnings for firm growth. We do not find evidence for a crisis effect, potentially due to ex ante accumulated internal funds. Conventional firm characteristics such as age, size or overall performance largely determine the dependency on cash for firm growth. Moreover, foreign-owned companies seem to escape the financing gap by tapping other resources. A comparison with Belgian firms contrasts our results with an advanced country setting. |
| Keywords: | Financial constraints,firm growth,transition countries,dynamic panel data,GMM |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01489222&r=cfn |
| By: | Lin, Chen (Asian Development Bank Institute); Liu, Sibo (Asian Development Bank Institute); Wei, Lai (Asian Development Bank Institute) |
| Abstract: | We summarize the major findings of empirical studies that examine the effect of banking development on innovation and highlight their relative contributions to our understanding of the various roles the banking sector plays in determining innovation. We reassess the effect of banking development and innovation, extending the scope of analysis to more granular dimensions of innovation and to Asian economies where financial markets are less developed. We find that while theoretical implications are generally indefinite about the effect of banking development on innovation, empirical findings are less ambiguous given their distinct focus of sample firms and the underlying channels investigated. The development conditions of financial markets also matter in drawing implications for the effect of financial institutions on innovation. Specifically, when the stock market is relatively less developed, as in most Asian economies, banks play a significant role in financing and promoting innovation. Therefore, it seems plausible for policy makers in these regions to strengthen the development of the banking sector and to improve the depth of the credit market. In this survey, we will summarize the major findings of the empirical studies that examine the effect of banking development on innovation and highlight their relative contributions to our understanding about the various roles that the banking sector plays in determining innovation. Then, we will reassess the effect of banking development and innovation. |
| Keywords: | banking development; innovation; financial markets |
| JEL: | G02 |
| Date: | 2018–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0815&r=cfn |
| By: | Juan J. Cortina (World Bank); Tatiana Didier (World Bank); Sergio L. Schmukler (World Bank) |
| Abstract: | This paper studies how access to different markets and crises impact debt financing and maturity. Using data on worldwide corporate issuance activity in domestic and international bond and syndicated loan markets during 1991-2014, the paper shows that these markets are affected differently by crises, while providing financing to different firms at distinct maturities. During the global financial crisis and domestic banking crises, large firms moved away from the crisis-hit markets toward less affected, longer-term ones, switching their financing sources. Hence, firms that switched markets compensated for the financing shocks and maintained, or increased, their borrowing maturity. Country-level maturities also remained stable or even lengthened. However, firms that did not move across markets typically experienced declining financing and shorter borrowing maturities. Firm movements across markets are consistent with credit tightening during crises due to supply-side shocks, significantly affecting debt composition, borrowing maturity, and credit redistribution across firms of different sizes. |
| Keywords: | borrowing maturity, capital raising, corporate bonds, debt markets, firm financing, global financial crisis (GFC), syndicated loans |
| JEL: | G00 G10 G32 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:149&r=cfn |
| By: | Cortina, Juan José; Didier, Tatiana; Schmukler, Sergio |
| Abstract: | This paper studies how access to different markets and crises impact debt financing and maturity. Using data on worldwide corporate issuance activity in domestic and international bond and syndicated loan markets during 1991-2014, the paper shows that these markets are affected differently by crises, while providing financing to different firms at distinct maturities. During the global financial crisis and domestic banking crises, large firms moved away from the crisis-hit markets toward less affected, longer-term ones, switching their financing sources. Hence, firms that switched markets compensated for the financing shocks and maintained, or increased, their borrowing maturity. Country-level maturities also remained stable or even lengthened. However, firms that did not move across markets typically experienced declining financing and shorter borrowing maturities. Firm movements across markets are consistent with credit tightening during crises due to supply-side shocks, significantly affecting debt composition, borrowing maturity, and credit redistribution across firms of different sizes. |
| Keywords: | borrowing maturity; capital raising; corporate bonds; debt markets; firm financing; global financial crisis (GFC); syndicated loans |
| JEL: | G00 G10 G32 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13008&r=cfn |
| By: | Durand, Rodolphe; Mani, Dalhia |
| Abstract: | In this paper, we investigate family firms’ position in the intercorporate ownership network. Rooting our predictions in the Behavioral Agency Model and a Network analytical framework, we predict and find that family involvement decreases the likelihood of business group affiliation and of cross-group ties leading to a lower embeddedness within the overall network. We predict and find the opposite effect for community involvement. We use the complete longitudinal dataset of publicly listed firms’ corporate ownership ties in India (2001, 2005, and 2009). Theoretical and substantive contributions are to research on family businesses and to research on interorganizational networks. |
| Keywords: | Family Firms; Community; Embeddedness; Network |
| JEL: | M10 |
| Date: | 2018–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:1275&r=cfn |
| By: | Laeven, Luc; McAdam, Peter; Popov, Alexander |
| Abstract: | We offer new evidence on the real effects of credit shocks in the presence of employment protection regulations by exploiting a unique provision in Spanish labor laws: dismissal rules are less stringent for Spanish firms with fewer than 50 employees, lowering the cost of hiring new workers. Using a new dataset, we find that during the financial crisis, healthy firms with fewer than 50 employees borrowing from troubled banks grew faster in sectors where capital and labor were sufficiently substitutable. This result does not obtain when we use a different cut-off for Spain or the same cut-off for firms in Germany. Our evidence suggests that labor market flexibility can dampen the negative effect of credit shocks by allowing firms to keep growing by substituting labor for capital. |
| Keywords: | capital-labor substitution; credit crunch; employment protection; Firm Growth |
| JEL: | D20 G21 J80 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13026&r=cfn |
| By: | Richard Disney (Institute for Fiscal Studies and University of Sussex); Helen Miller (Institute for Fiscal Studies and Institute for Fiscal Studies); Thomas Pope (Institute for Fiscal Studies and Institute for Fiscal Studies) |
| Abstract: | Firm-level investment paths are commonly characterised by periods of low or zero investment punctuated by large investment ‘spikes’. We document that such spikes are important for understanding ?rm and aggregate level investment in the UK. We show that annual variation in aggregate investment is driven by variation in the number of ?rms undertaking investment spikes rather than in the size of spikes or in investment outside of spikes. Our main contribution is to set out and estimate a ?rm-level model of the timing of investment spikes that: (i) incorporates measures of macroeconomic conditions and can be used to replicate movements in aggregate investment; (ii) incorporates a role for ?rm capital structure, which we demonstrate explains part of ?rms’ heterogeneous investment responses to the Great Recession. We ?nd an important role for low demand growth in depressing investment in the recession and for ongoing uncertainty in prolonging investment weakness in later years. The minority of ?rms that persistently operate with high debt levels were signi?cantly less likely to undertake an investment spike after the recession, which is consistent with them having been more exposed to ?nancial distress. |
| Keywords: | Business investment; adjustment cost; recession; hazard functions; capital structure |
| JEL: | C41 D22 E22 E32 G31 G32 L25 |
| Date: | 2018–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:18/03&r=cfn |
| By: | Yamada, Kazuo (Asian Development Bank Institute); El Kalak, Izidin (Asian Development Bank Institute); Takahashi, Hidenori (Asian Development Bank Institute) |
| Abstract: | We examine how changes in macroeconomic conditions (the global financial crisis) relate to investment and financial decision making for each of the different size categories of small and medium-sized enterprises (SMEs). We use a large dataset of 764,963 observations in Japan for the time period from 2006 to 2014 to understand the heterogeneity of SMEs in financing and investment decision making, such in size, industry, and region. Our findings are of particular importance for regulators because we show that SMEs are dynamic in nature where they change their financial behavior in response to any macroeconomic shock. In addition, we report differences among the different size subsample at the sales growth and state/industry GDP growth levels. Hence, this requires designing a unique set of regulations for each group accordingly to effectively enhance the growth potential for each group and for SMEs as a whole. These findings have implications for lenders, especially banks, which should treat each size group within SMEs differently while lending or assessing creditworthiness. |
| Keywords: | SMEs; size categories; macro-economic shocks; investment; financing policy; Japan |
| JEL: | G28 G32 G38 |
| Date: | 2018–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0819&r=cfn |
| By: | Colliard, Jean-Edouard; Gromb, Denis |
| Abstract: | How do resolution frameworks affect the private restructuring of distressed banks? We model a distressed bank’s shareholders and creditors negotiating a restructuring given asymmetric information about asset quality and externalities onto the government. This yields negotiation delays used to signal asset quality. We find that strict bail-in rules increase delays by worsening informational frictions and reducing bargaining surplus. We characterize optimal bail-in rules for the government. We then consider the government’s possible involvement in negotiations. We find this can lead to shorter or longer delays. Notably, the government may gin from committing not to partake in negotiations. |
| Keywords: | Bank resolution; bail-out; bail-in; debt restructuring |
| JEL: | G21 G28 |
| Date: | 2018–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:1272&r=cfn |
| By: | Mou, W.M.; Wong, W.-K.; McAleer, M.J. |
| Abstract: | Supply chain finance has broken through traditional credit modes and advanced rapidly as a creative financial business. Core enterprises have played a crucial role in the credit enhancement of supply chain finance. Through the analysis of the core enterprise credit risks in supply chain finance, by means of Fuzzy Analytical Hierarchy Process (FAHP), the paper constructs a supply chain financial credit risk evaluation system, leading to quantitative measurement and evaluation of core enterprise credit risk. This novel approach should assist enterprises in taking appropriate measures to control credit risk, thereby promoting the healthy development of supply chain finance. |
| Keywords: | Supply chain finance, Core enterprises, Credit risk, Fuzzy analytic hierarchy process (FAHP) |
| JEL: | P42 H81 D81 G32 |
| Date: | 2018–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureir:109056&r=cfn |