nep-cfn New Economics Papers
on Corporate Finance
Issue of 2018‒10‒15
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Are Banks Engines of Export? Financial Structures and Export Dynamics By Minetti, Raoul; Zhu, Susan
  2. Financial frictions, real estate collateral, and small firm activity in Europe By Banerjee, Ryan N.; Blickle, Kristian S.
  3. The Emergence of A Parallel World: The Misperception Problem for Bank Balance Sheet Risk and Lending Behavior By Inoue, Hitoshi; Nakashima, Kiyotaka; Takahashi, Koji
  4. What happens when firms invest? Investment events and firm performance By Michał Gradzewicz
  5. Debt, Information, and Illiquidity By Efraim Benmelech; Nittai Bergman
  6. Do banks adjust their liquidity to cope with environmental variation? A study of bank deregulation By Yaoyao Fan; Showyi Yuxiang Jiang; Kim Cuong Ly
  7. Raising Capital from Heterogeneous Investors By Marina Halac; Ilan Kremer; Eyal Winter

  1. By: Minetti, Raoul (Michigan State University, Department of Economics); Zhu, Susan (Michigan State University, Department of Economics)
    Abstract: We study the impact of financial structures on the dynamics of the export sector using rich data from over 60 countries. The results reveal that bank-oriented financial systems boost the size of the export sector more than market-oriented financial systems. However, especially in middle- and low-income countries, this effect mostly stems from banks slowing down exporters’ exit rather than promoting firms’ entry into export. The reduced exit from the export sector appears to reflect domestic banks’ tendency to evergreen loans to exporters (“soft budget constraint”) more than banks’ buffering role in difficult times. Foreign banks mitigate this effect and enhance the dynamism of the export sector.
    Keywords: Export Dynamics; Financial Structures; Foreign Banks
    JEL: D82 F10 G21
    Date: 2018–10–05
  2. By: Banerjee, Ryan N. (Bank for International Settlements); Blickle, Kristian S. (Federal Reserve Bank of New York)
    Abstract: We observe significant heterogeneity in the correlation between changes in house prices and the growth of small firms across certain countries in Europe. We find that, overall, the correlation is far greater in Southern Europe than in Northern Europe. Using a simple model, we show that this heterogeneity may relate to financial frictions in a country. We confirm the model’s propositions in a number of empirical analyses for the following countries in Northern and Southern Europe: the United Kingdom, Norway, France, Italy, Spain, and Portugal. Small firms in countries with higher financial frictions (for example, places where bankruptcy resolution is more difficult and/or takes longer) see a greater dependence on “stable” real estate collateral. This is most pronounced for opaque (for example, very young) firms. Through an extension to our model and our choice of specification, we show that our findings are most consistent with a collateral-value-based credit supply channel and rule out a consumer-driven demand effect.
    Keywords: firm financing; real estate collateral; credit supply; bankruptcy laws; financial frictions
    JEL: G30 G33 K11 O47 R30
    Date: 2018–10–01
  3. By: Inoue, Hitoshi; Nakashima, Kiyotaka; Takahashi, Koji
    Abstract: We examine the reason that there have coexisted the two opposing views on distressed banks' lending behavior in Japan's post-bubble period: the one is the stagnant lending in a capital crunch and the other is the forbearance lending to low-quality borrowers. To this end, we address the measurement problem for bank balance sheet risk. We identify the credit supply and allocation effects of bank capital in the bank loan equation specified at loan level, thereby finding that the ``parallel worlds'', or the two opposing views, emerge because the regulatory capital does not reflect the actual condition of increased risk on bank balance sheet, while the market value of capital does. By uncovering banks' engagement in patching-up of the regulatory capital in the Japan's post-bubble period, we show that lowly market capitalized banks that had difficulty in building up adequate equity capital for their risk exposure decreased the overall supply of credits. The parallels world can emerge whenever banks are allowed to overvalue assets with their discretion, as in Japan' post-bubble period.
    Keywords: bank capital structure; capital crunch; forbearance lending; loan-level data; uncertainty; bank risk taking.
    JEL: G01 G21 G28
    Date: 2018–07–26
  4. By: Michał Gradzewicz (Narodowy Bank Polski and Warsaw School of Economics)
    Abstract: The aim of the study is to investigate the firm-level relationship between investment spikes and subsequent productivity developments. We used census data of Polish firms with employment above 9 persons, we measured investment spike and constructed a control sample for comparison. We showed various performance indicators before and after investment spike. We tested for the effects of a spike using generalized difference-in-difference models. The results suggest different effects for SMEs and larger companies. In smaller firms investment spike is associated with subsequent sales and employment expansion and lagged labor productivity rise, consistently with learning-by-doing model. TFP of smaller firms falls directly after a spike and only gradually rises thereafter. In larger firms investment spike also result in expansion of sales, but labor productivity is not improving relative to control group, despite a drop of employment. Moreover, capital deepening of larger firms results in significantly lower TFP, both in absolute and relative terms.
    Keywords: investment spike, productivity, TFP, efficiency, firm-level data, difference-in-difference
    JEL: D22 D24 L16 O3
    Date: 2018
  5. By: Efraim Benmelech; Nittai Bergman
    Abstract: We analyze the empirical determinants of liquidity in debt markets in light of predictions stemming from debt-based information theories. We conduct a battery of tests confirming predictions of asymmetric information models of bond liquidity, including those that predict a``hockey-stick" relation between bond liquidity and underlying fundamental value. When debt is deep in the money, it becomes informationally insensitive and more liquid. In contrast, when firm value deteriorates towards the left tail, the value of debt becomes informationally sensitive and less liquid. We alleviate endogeneity concerns using exogenous variation in firm value that is plausibly not driven by bond liquidity. Our results shed new empirical light on the determination of liquidity in debt markets.
    JEL: E44 E51 G01 G12 G14 G32
    Date: 2018–09
  6. By: Yaoyao Fan (Glasgow School of Business and Society, Glasgow Caledonian University); Showyi Yuxiang Jiang (Leeds University Business School, University of Leeds); Kim Cuong Ly (School of Management, Swansea University)
    Abstract: The effect of bank deregulation on adjustment speed of bank liquidity is the focus of this paper. We find that banks tend to increase their adjustment speed of liquidity in response to bank deregulation. Banks tend to escape their current state and move to a state with less deregulation. Those banks that move to the less deregulated state reduce their adjustment speed. A strategic movement of headquarters helps banks to fend off competitive pressure. The environmental factors of population and personal income reduce the market-based focus flexibility of banks; however, higher interest expenses incentivise banks to increase their speed. Surviving banks and acquiring banks react as market-makers whereas target banks respond as market-takers. Failed banks lose their distinct competencies to react properly when environmental variation occurs. Banks affiliated with multi-bank holding companies holding a larger network and larger environment are able to increase their liquidity adjustment speed. The observable trends of how banks adjust liquidity in response to bank deregulation have important regulatory implications in reducing the environmental challenges faced by banks.
    Keywords: environmental variation, bank liquidity, adjustment speed, bank deregulation, Basel III Net Stable Funding Ratio
    JEL: G20 G21 G38
    Date: 2018–10–08
  7. By: Marina Halac; Ilan Kremer; Eyal Winter
    Abstract: A rm raises capital from multiple investors to fund a project. The project succeeds only if the capital raised exceeds a stochastic threshold, and the rm offers payments contingent on success. We study the rm's optimal unique-implementation scheme, namely the scheme that guarantees the rm the maximum payoff. This scheme pays investors differential net returns (per unit of capital) depending on the size of their investments. We show that if the distribution of the investment threshold is log-concave, larger investors receive higher net returns than smaller investors. Moreover, higher dispersion in investor size increases the rm's payoff. Our analysis highlights strategic risk as an important potential driver of inequality.
    Keywords: mechanism design, contracting with externalities, collective action problem, strategic complementarities, unique implementation
    JEL: D86 G24 L24
    Date: 2018

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