nep-cfn New Economics Papers
on Corporate Finance
Issue of 2019‒01‒21
nine papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Financial ratios and the prediction of bankruptcy By Jeyhun A. Abbasov
  2. Optimism in Financial Markets: Stock Market Returns and Investor Sentiments By Chiara Limongi Concetto; Francesco Ravazzolo
  3. Upgrading business investment in Turkey By Seyit Mümin Cilasun; Rauf Gönenç; Mustafa Utku Özmen; Mehmed Zahid Samancıoǧlu; Fatih Yilmaz; Volker Ziemann
  4. Do country risk factors attenuate the effect of taxes on corporate risk-taking? By Osswald, Benjamin; Sureth, Caren
  5. Corporate tax planning and firms' information environment By Osswald, Benjamin
  6. Credit constraints and firm exports: Evidence from SMEs in emerging and developing countries By Filomena Pietrovito; Alberto Franco Pozzolo
  7. Industry Concentration in Europe and North America By Matej Bajgar; Giuseppe Berlingieri; Sara Calligaris; Chiara Criscuolo; Jonathan Timmis
  8. Identifying credit supply shocks with bank-firm data: methods and applications By Hans Degryse; Olivier De Jonghe; Sanja Jakovljevic; Klaas Mulier; Glenn Schepens
  9. Guaranteed Success? The Effects of Export Credit Guarantees on Firm Performance By Lodefalk, Magnus; Tang, Aili; Tano, Sofia; Agarwal, Natasha; Wang, Zheng

  1. By: Jeyhun A. Abbasov (Central Bank of Azerbaijan Republic)
    Abstract: In this work 10 financial ratios of 835 companies (48 companies were default and 787 companies were non-default) were used for prediction of bankruptcy. On the base of different combinations of these ratios which were formed by the taking one ratio from each financial factor such as financial leverage, capital turnover, cash position, etc., 16 z-score models estimated. Unfortunately, there was small compliance for predictability power of these bankruptcy models. On the other hand, we separately used all ratios (for example; X3 – cash/Total Assets, X6 – cash/Sales) classified by the same factor (for X3 and X6, cash position) in different models and found that it doesn’t change the result of the predictability power of the bankruptcy models. Fortunately, this result shows the same pattern with most of the papers in this area.
    Keywords: Kappa test, Altman’s z-score, Edmister’s z-score, predictability power, prediction of bankruptcy
    JEL: G33 C21
    Date: 2017–12–20
  2. By: Chiara Limongi Concetto (Free University of Bolzano‐Bozen, Faculty of Economics, Italy and Sparkasse – Cassa di Risparmio, Italy); Francesco Ravazzolo (Free University of Bolzano‐Bozen, Faculty of Economics, Italy and Centre for Applied Macro and commodity Prices, BI Norwegian Business School, Norway)
    Abstract: This paper investigates how investor sentiment affects stock market returns and evaluates the predictability power of sentiment indices on U.S. and EU stock market returns. As regards the American example, evidence shows that investor sentiment indices have a negative influence on stock market returns. Concerning the European market instead, investigation provides weak results. Moreover, comparing the two markets, where investor sentiment of U.S. market tries to predict the European stock market returns, and vice versa, the analyses indicate a spillover effect from the U.S. to Europe.
    Keywords: Dynamic Bayesian econometrics, Portfolio choice, Sentiments, Stock Market Predictability
    JEL: C11 C22 G11 G12
    Date: 2019–01
  3. By: Seyit Mümin Cilasun; Rauf Gönenç; Mustafa Utku Özmen; Mehmed Zahid Samancıoǧlu; Fatih Yilmaz; Volker Ziemann
    Abstract: Starting from a low level in early 2000s, Turkey’s total capital stock has since expanded rapidly, but the composition and quality of investment raises questions. This study focuses on business investment, as the main driver of physical and knowledge-based capital formation and, hence, of potential output and the material foundations of well-being. Micro data allow to distinguish four types of firms: small businesses with a high rate of informality, medium-sized family firms, large formal corporations, and skilled start-ups. The relative importance of the challenges facing these different types of firms varies, notably with respect to skill shortcomings, regulatory burdens, labour costs, access to bank lending, over-leveraging and scarce equity capital. Improving the current business environment and overcoming the fragmentation of the business sector will be crucial to upgrade the quality of business investment and to enhance the allocative efficiency of capital formation. This calls for promoting formality, best management practices, the build-up of equity capital, access to long-term bank financing and other market-based financing that can complement traditional bank lending; and a faster and more inclusive transition to the digital economy.
    Keywords: business investment, FDI, firm-level data, R&D, Turkey
    JEL: E2 F21 O16
    Date: 2019–01–23
  4. By: Osswald, Benjamin; Sureth, Caren
    Abstract: This study examines whether country-specific risk attenuates the association between tax policies and corporate risk-taking. We define country-specific risk (political and fiscal budget risk) as taxpayer's risk that tax refunds on losses cannot be paid due to the institutional environment or fiscal reasons. We exploit a cross-country panel with 234 changes in corporate tax rates and 49 changes in loss offset rules. We investigate whether government risk-sharing via loss offset rules and tax rates affects risk-taking conditional on country risk. We also examine whether tax rate changes, that scale the risk-sharing effect, influence the propensity to conduct risky projects in different country-level risk environments. Our results suggest that country-level risk fully attenuates the previously documented association between tax policies and corporate risk-taking. It attenuates both the effectiveness of loss offset rules and tax rate changes on corporate risk-taking. While changes in tax policy are attractive to policymakers because alternative instruments to encourage risk-taking cannot as easily be adjusted, we provide significant evidence that country risk considerably limits policymakers' ability to induce firm risk-taking via changes in tax policies.
    Keywords: corporate risk-taking,country risk,cross-country study,fiscal risk,risky investments
    JEL: H25 H32 G32
    Date: 2018
  5. By: Osswald, Benjamin
    Abstract: This study examines whether internal information quality (IIQ) is associated with firms' external information quality (EIQ) and whether tax planning moderates this association. Based on the argument that higher internal information quality allows managers to convey higher quality information to market participants, I hypothesize and find a positive association between IIQ and EIQ. I then examine if tax planning, which prior literature shows affects external information quality due to proprietary costs of disclosure, attenuates this association. I find that the association between IIQ and EIQ is fully attenuated for firms with a high level of tax planning. A structural equation model that allows different elements of IIQ to covary and robustness tests corroborate my findings. Overall, my results imply that increased IIQ spills over to EIQ because managers convey higher quality internal information to market participants. However, proprietary costs resulting from a high level of tax planning appear to moderate this effect.
    Keywords: external information quality,information asymmetry,information environment,internal information quality,tax avoidance,tax planning
    JEL: G30 H26 M41
    Date: 2018
  6. By: Filomena Pietrovito (University of Molise); Alberto Franco Pozzolo (University of Molise and Centro Studi Luca d'Agliano)
    Abstract: We study the relationship between credit contraints and export behavior using a large and heterogeneous sample of small and medium size firms from 65 emerging and developing countries between 2003 and 2014. We measure credit contraints by means of each firm's self-assessment of whether it is credit rationed, and we follow an instrumental variable approach that uses firm-level instruments to address the potential endogeneity of credit constraints with respect to export performance. We find robust evidence of a negative, statistically and economically significant effect of financial constraints on both the probability that a firm exports (the extensive margin of exports) and the share of exports over total sales (the intensive margin of exports).
    Keywords: export decisions; margin of exports; credit contraints; firm level
    JEL: D22 F10 F14
    Date: 2019–01–11
  7. By: Matej Bajgar; Giuseppe Berlingieri; Sara Calligaris; Chiara Criscuolo; Jonathan Timmis
    Abstract: This report presents new evidence on industry concentration trends in Europe and in North America. It uses two novel data sources: representative firm-level concentration measures from the OECD MultiProd project, and business-group-level concentration measures using matched Orbis-Worldscope-Zephyr data. Based on the MultiProd data, it finds that between 2001 and 2012 the average industry across 10 European economies saw a 2-3-percentage-point increase in the share of the 10% largest companies in industry sales. Using the Orbis-Worldscope-Zephyr data, it documents a clear increase in industry concentration in Europe as well as in North America between 2000 and 2014 of the order of 4-8 percentage points for the average industry. Over the period, about 3 out of 4 (2-digit) industries in each region saw their concentration increase. The increase is observed for both manufacturing and non-financial services and is not driven by digital-intensive sectors.
    Keywords: business dynamics, Industry concentration, measurement
    JEL: D4 L11 L25
    Date: 2019–01–21
  8. By: Hans Degryse (KU Leuven, Halle Institute for Economic Research, and CEPR); Olivier De Jonghe (National Bank of Belgium and Tilburg University); Sanja Jakovljevic (Lancaster University); Klaas Mulier (Ghent University and National Bank of Belgium); Glenn Schepens (European Central Bank)
    Abstract: Current empirical methods to identify and assess the impact of bank credit supply shocks rely strictly on multi-bank firms and ignore firms borrowing from only one bank. Yet, these single-bank firms are often the majority of firms in an economy and most prone to credit supply shocks. We propose and underpin an alternative demand control (using industry-location-size-time fixed effects) that allows identifying timevarying cross-sectional bank credit supply shocks using both single- and multi-bank firms. Using matched bank-firm credit data from Belgium, we show that firms borrowing from banks with negative credit supply shocks exhibit lower financial debt growth, asset growth, investments, and operating margin growth. Positive credit supply shocks are associated with bank risk-taking behaviour at the extensive margin. Importantly, to capture these effects it is crucial to include the single-bank firms when identifying the bank credit supply shocks.
    Keywords: credit supply identificationbank lendingcorporate investmentbank risk-taking
    JEL: G21 G32
    Date: 2018–10
  9. By: Lodefalk, Magnus (Örebro University School of Business); Tang, Aili (Örebro University School of Business); Tano, Sofia (Örebro University School of Business); Agarwal, Natasha (World Education Foundation); Wang, Zheng (University of Nottingham)
    Abstract: Many countries offer government-backed export credit guarantees to domestic firms. We investigate the effects of such guarantees on firm exports, jobs and value added. Using uniquely detailed and exhaustive transaction-level panel data on guarantees and granular information on trade as well as on exporters and foreign-buyers, we perform difference-in-difference matching estimations. We find that guarantees improve firm performance. However, the effects are strikingly heterogeneous across firm size and response variables. Using guarantees increases the firm-destination probability to export and the value of exports by 18 and 172 percent, respectively, but does not generally increase jobs and value added. Smaller firms benefit the most in terms of exports. Overall, the evidence suggests a causal link from guarantees to firm export performance
    Keywords: Export Credit Guarantees; Credit Constraints; Trade; Firm Performance
    JEL: D22 F14 F36 G28 G32 H81 L25
    Date: 2018–12–21

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