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on Corporate Finance |
| By: | Luca Spinesi; Mario Tirelli |
| Abstract: | R&D investment are an important engine of growth and development.Yet economists have often claimed underinvestment, based on the consideration thatthese projects are more costly to finance, especially, due to the asymmetric informa-tion between inside and outside investors. Coherently, a recent empirical evidence hasshown that firms intensively active in R&D are less leveraged and rely more heavilyon internal finance. Motivated by this evidence, we study the e↵ects of asymmetricinformation and financial frictions within a GE economy of Schumpeterian tradition.The model and equilibrium concept are rich enough to represent investment and in-novation decisions, technology adoption/di↵usion through patent licensing and, mostimportantly, firms’ financial decisions. In this representation, R&D-intensive firmsmight e↵ectively rely more on internal sources and equity than on debt financing, rel-ative to what would happen in frictionless markets. Further, financial decisions a↵ectaggregate investment and income dynamics. |
| Keywords: | Innovation; R&D; Schumpeterian growth; financial equilibrium; asym-metric information; firm financial structure |
| JEL: | O33 O34 O41 D53 G32 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0249&r=all |
| By: | Nicola Comincioli; Sergio Vergalli; Paolo Panteghini |
| Abstract: | In this article we use a stochastic model with one representative firm to study business tax policy under default risk. We will show that, for a given tax rate, the government has an incentive to reduce (increase) financial instability and default costs if its objective function is welfare (tax revenue). |
| Keywords: | capital structure, default risk, business taxation and welfare |
| JEL: | H25 G33 G38 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7664&r=all |
| By: | Donaldson, Jason, Roderick; Micheler, Eva |
| Abstract: | Many debt claims, such as bonds, are resaleable, whereas others, such as repos, are not. There was a fivefold increase in repo borrowing before the 2008 crisis. Why? Did banks’ dependence on non-resaleable debt precipitate the crisis? In this paper, we develop a model of bank lending with credit frictions. The key feature of the model is that debt claims are heterogeneous in their resaleability. We find that decreasing credit market frictions leads to an increase in borrowing via non-resaleable debt. Borrowing via non-resaleable debt has a dark side: it causes credit chains to form, since if a bank makes a loan via non-resaleable debt and needs liquidity, it cannot sell the loan but must borrow via a new contract. These credit chains are a source of systemic risk, since one bank’s default harms not only its creditors but also its creditors’ creditors. Overall, our model suggests that reducing credit market frictions may have an adverse effect on the financial system and may even lead to the failures of financial institutions. |
| Keywords: | resaleable debt; systemic risk; bankruptcy; repos; securities law |
| JEL: | G21 G28 G33 K12 K22 |
| Date: | 2017–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:68068&r=all |
| By: | Sandrine Lecarpentier; Mathias Lé; Henri Fraisse; Michel Dietsch |
| Abstract: | Starting in 2014 with the implementation of the European Commission Capital Requirement Directive, banks operating in the Euro area were benefiting from a 25% reduction (the Supporting Factor or "SF" hereafter) in their own funds requirements against Small and Medium-sized enterprises ("SMEs" hereafter) loans. We investigate empirically whether this reduction has supported SME financing and to which extent it is consistent with SME credit risk. Economic capital computations based on multifactor models do confirm that capital requirements should be lower for SMEs. Taking into account the uncertainty surrounding their estimates and adopting a conservative approach, we show that the SF is consistent with the difference in economic capital between SMEs and large corporates. As for the impact on credit distribution, our differences-in-differences specification enables us to find a positive and significant impact of the SF on the credit supply. |
| Keywords: | SME finance, Credit supply, Basel III, Credit risk modelling, SME Supporting Factor |
| JEL: | C13 G21 G33 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2019-12&r=all |
| By: | Fujitani, Ryosuke |
| Abstract: | Using a unique institutional background of Japan, this study first examines the effects of the increase in the reporting frequency on corporate financing. From Difference-in-Difference (DiD) analysis, I show that the increase in the reporting frequency increases external finance but not finance from bank. Next, I find that the positive effects of the increase in the reporting frequency are stronger in firms with a) financial constraints, b) ex-ante information asymmetry, and c) more external capital demand. I also find that the firms a) do not change the cash holding intensity, b) invest more, and c) payout more. Unlike prior literature, these findings suggest that the increase in the reporting frequency enhances firm activities. |
| Keywords: | financial reporting frequency, quarterly reporting, quasi-private firms, external finance, pecking order theory |
| JEL: | G31 G32 M41 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hmicwp:230&r=all |
| By: | Pierluigi Murro (LUISS-Guido Carli University.); Tommaso Oliviero (Università di Napoli Federico II and CSEF); Alberto Zazzaro (University of Naples Federico II, CSEF and MoFiR.) |
| Abstract: | Using firm-level survey information, we study if relationship lending affects companies’ employment decisions when they face adverse conditions. Our empirical analysis reveals that firms with durable lending relationships show a significantly lower degree of sensitivity of internal workforce variation to shocks in sales. This result is robust to different measures of the shocks in sales and to an instrumental variable strategy. We also show that the result is stronger for younger, smaller and more innovative firms, confirming that relationship lending provides insurance against adverse conditions for companies whose internal labor force is arguably more valuable. |
| Keywords: | Employment, relationship banking, insurance |
| JEL: | G32 G38 H53 J65 |
| Date: | 2019–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:533&r=all |
| By: | Gimber, Andrew (Bank of England); Rajan, Aniruddha (Bank of England) |
| Abstract: | If bail-in is credible, risk premia on bank securities should decrease as funding sources junior to and alongside them in the creditor hierarchy increase. Other things equal, we find that when banks have more equity and less subordinated debt they have lower risk premia on both. When banks have more subordinated and less senior unsecured debt, senior unsecured risk premia are lower. For percentage point changes to an average balance sheet, these reductions would offset about two thirds of the higher cost of equity relative to subordinated debt and one third of the spread between subordinated and senior unsecured debt. |
| Keywords: | Funding costs; weighted average cost of capital; capital structure; creditor hierarchy; loss‑absorbing capacity; Modigliani–Miller offset; contingent claims analysis. |
| JEL: | G21 G32 |
| Date: | 2019–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0805&r=all |
| By: | Facundo Abraham (World Bank Development Research Group); Juan J. Cortina (World Bank Development Research Group); Sergio L. Schmukler (World Bank Development Research Group) |
| Abstract: | During the past decades, firms from emerging economies have significantly increased the amount of financing obtained in capital markets. Most of the literature has focused on issuances in international markets, which appear to have been a key driver of the overall activity in a context of financial globalization. This paper explores whether domestic issuances have also played a role in this increase in financing. By examining the case of East Asia, which captures most of the capital raisings among emerging economies, this paper shows that domestic issuances have been the main component of the overall expansion in capital market financing since 2000. As domestic markets developed, more and smaller firms accessed capital markets, while larger corporations increased their funding sources and their resilience to international shocks. The experience of East Asia shows that domestic capital markets can play a useful role and that numerous policies might aid in their development. |
| Keywords: | Asian Financial Crisis; corporate bond markets; corporate financing; Global Financial Crisis; SME capital markets; stock markets; syndicated loan markets |
| JEL: | F33 G00 G01 G15 G21 G23 G31 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:154&r=all |
| By: | Nawaf Almaskati (University of Waikato); Ron Bird (University of Waikato); Susanna Lu (University of Waikato) |
| Abstract: | We use a comprehensive set of country-level social and institutional measures to study the relationship between country-level factors and firm-level governance. We also examine the roles of the country’s financial development status and the firm’s external financing needs in influencing the firm’s governance framework. Using a sample of 43 countries and 3301 firms, we find that country-level factors explain a large part of the variation in firm-level governance across countries. We also find evidence that the relationship between country-level factors and firm-level mechanisms is best represented as a moderating relationship. The results also indicate the presence of a complementary relationship, albeit sometimes insignificant, between firm-level governance and all the country-level variables included in our study. When accounting for the effect of a country’s financial development status and a firm’s external financing needs, we find evidence of a positive relationship between firm-level governance and firm returns and value for firms with high financing needs which operate in countries with high financial development. |
| Keywords: | country-level governance; firm-level governance; complementary relationship; financial development; external financing needs |
| Date: | 2019–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:wai:econwp:19/09&r=all |