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on Corporate Finance |
| By: | Joseph, Andreas (Bank of England); Kneer, Christiane (Bank of England); van Horen, Neeltje (Bank of England); Saleheen, Jumana (Bank of England) |
| Abstract: | Firms with high pre-crisis cash holdings invested significantly more than their cash-poor rivals during the global financial crisis and especially so during the recovery phase. This resulted in a persistent and growing investment gap between cash-rich and cash-poor firms. Cash especially benefited young and small firms and firms in industries where rivals became more financially constrained. The amplification effect of cash was absent in the period preceding the crisis. The ability to continue to invest allowed cash-rich firms to gain market share and accumulate more profits over the long-run. Having a liquid balance sheet when the credit cycle turns thus gives firms a competitive edge that lasts far beyond the crisis years. |
| Keywords: | Firm investment; cash holdings; credit constraints; financial crisis |
| JEL: | E22 E32 E44 G32 |
| Date: | 2019–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0843&r=all |
| By: | VALERIA VANNONI (University of Perugia) |
| Abstract: | Invoice trading has recently emerged in Italy as an alternative instrument for small and medium-sized enterprises financing. It represents a form of credit transfer, with the particularity that transactions take place via online platforms. In Italy, as of 30 June 2018, six platforms are active: Cashinvoice, Credimi, CashMe, Crowdcity, Fifty, Workinvoice. They are distinguished on the basis of some operational characteristics, mainly due to the mechanism of credit transfer (marketplace, supply chian finance, direct purchase). This work aims to deepen the typical profile of firms that, in this initial phase of the phenomenon, turn to the invoice trading platforms. The verification uses the tool of the unstructured questionnaire in ten points. The survey took place via email in the period January-March 2019. We received feedback from all the platforms, even if two of them communicated the impossibility to provide informations due to confidentiality issues. Collected answers show a very high number of applications, but it still generally corresponds to a limited success rate; among the main reasons for rejection, a low creditworthiness profile of applicant is reported (followed by: default risk; fraud risk; prejudicial information on firms and shareholders; pricing; invoice amount). Firms are concentrated in the northern regions of the country; the most represented sectors are manufacturing and wholesale trade. Customers are mainly mature firms, not in the start-up phase. The average value of credit is around 74 th. Euros, with an outlier platform. Operations proceed with no criticalities: only one respondents underlines that 5.42% of invoices has had a serious delay in payment by debtor. |
| Keywords: | Small Business financing; Alternative finance; Invoice trading. |
| JEL: | G23 G30 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:9912115&r=all |
| By: | Raffaele Gallo (Bank of Italy, Directorate General for Economics, Statistics and Research.) |
| Abstract: | This paper analyses the relationship between financial market conditions and the loan cost advantage of being a public firm, verifying whether the borrowing costs for public companies are more sensitive to the financial market climate than those of private firms. The analysis examines the spread of syndicated loans granted to European non-financial firms between 2004 and 2016. The results indicate that a rise in financial instability, proxied by the VSTOXX index, leads to an increase in loan spreads greater for public borrowers than for private ones. The decline in the loan cost benefit of public firms during high volatility periods is due to a weakening in their bargaining power (bargaining power channel) and in the information benefits of being listed on a market (transparency channel). Moreover, a well-developed stock market in the borrower’s home country significantly mitigates the increase in public firms’ borrowing costs observed following a worsening of financial market conditions. |
| Keywords: | financial instability, syndicated loan, public firm, loan spread, financial markets |
| JEL: | G10 G20 G21 G32 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1255_19&r=all |
| By: | Bergantiños, Gustavo; Lorenzo, Leticia |
| Abstract: | A planner wants to carry out a project involving several firms. In many cases the planner, for instance the Spanish Administration, includes in the contract a penalty clause that imposes a payment per day if the firms do not complete their activities or the project on time. We discuss two ways of including such penalty clauses in contracts. In the first the penalty applies only when the whole project is delayed. In the second the penalty applies to each firm that incurs a delay even if the project is completed on time. We compare the two penalty systems and find that the optimal penalty (for the planner) is larger in the second method, the utility of the planner is always at least as large or larger in the second case and the utility of the firms is always at least as large or larger in the first. Surprisingly, the final delay in the project is unrelated to which penalty system is chosen. |
| Keywords: | game theory; PERT; delays; penalties |
| JEL: | C72 |
| Date: | 2019–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97139&r=all |
| By: | Bernhardt, Dan (University of Illinois and University of Warwick); Koufopoulos, Kostas (University of York); Trigilia, Giulio (University of Rochester) |
| Abstract: | Donaldson, Gromb and Piacentino (2019) suggest that, in the presence of limited commitment, increasing the fraction of a firm’s cash flows that can be pledged as collateral might make the firm worse off. We show that, in fact, firms can never be hurt by increased pledgeability of cash flows in their framework. We then show that the first best can always be implemented by non-state contingent collateralized debt contracts that differ from the ones they consider. |
| Keywords: | Collateral ; Secured debt ; Pledgeability |
| JEL: | G21 G32 G33 G38 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1237&r=all |
| By: | Tharinee Pongsupatt (Kasetsart University); Apichat Pongsupatt (Kasetsart University) |
| Abstract: | A number of researches have been examined the volatility of stock price in capital market for quite some time. Many studies have been undertaken to explore determinants influencing fluctuation in stock prices in different markets and dissimilar conclusions are found. The purpose of this study attempts to determine the factors that cause stock prices to increase or decrease. Eight explanatory variables including dividend yield, growth, leverage, return on equity, bookvalue per share, earnings per share, price-earning (P/E) ratio, and net profit after tax have been selected, while one controllable variable is set as firm-size. Completed financial data of577 samples from companies listed in Thailand Stock Exchange (TSE) SET 100 Index, excluding financing and banking sector, during the period of 2009-2018 are analyzed. Multiple regression model with statistic testing at the significant level 0.05 has been implemented. The results indicate strongly positive significant association between return on equity, earnings per share, price earnings and net profit after tax on firm?s stock price. Whereas dividend yield is the only factor that has negatively relationship with stock price. This model is supported with high R2 of 0.88. The findings in this study can assist investors or managers to comprehend the effect of specific determinants to company?s stock price in Thai capital market. |
| Keywords: | Stock prices, factors, dividend yield, earnings per share, ROE, capital markets |
| JEL: | L25 M19 M41 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:9711711&r=all |
| By: | McQuinn, John (Central Bank of Ireland) |
| Abstract: | Small and Medium Enterprise (SME) access to credit deteriorated during the financial crisis and credit constraints remain high for some euro area countries. This paper investigates the factors linked to the variation in SME credit access across euro area countries. After controlling for the fundamental performance and characteristics of firms and bank funding costs, I investigate the financial and macroeconomic channels that explain variation in credit constraints across countries and time. The paper combines approaches taken in the literature, extends the analysis to the post-crisis period, distinguishes between alternative measures of credit constraints and incorporates the role of soft information. The most economically important channels associated with SME access to finance are found to be the soft information channel and firm indebtedness. Bank competition and the condition of bank balance sheets are also found to have economically important relationships with SME access to finance. |
| Keywords: | access to finance, SMEs, financial crises, soft information, firm indebtedness, bank competition, bank balance sheets, capital markets union. |
| JEL: | G01 G21 D22 D82 E66 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:10/rt/19&r=all |
| By: | Corbisiero, Giuseppe (Central Bank of Ireland); Faccia, Donata (European Central Bank) |
| Abstract: | This paper uses a unique dataset where credit rejections experienced by euro area firms are matched with firm and bank characteristics. This allows us to study simultaneously the role that bank weakness and firm weakness had in the credit reduction observed in the euro area during the sovereign debt crisis, and in credit developments characterising the post-crisis recovery. Compared with the existing literature matching borrowers’ and lenders’ characteristics, our dataset provides a better representation of euro area firms of small and medium size. Our findings suggest that, while firm balance sheet factors have been strong determinants of credit rejections, in the crisis period bank weakness made it harder to obtain external finance for firms located in stressed countries of the euro area. |
| Keywords: | Credit supply, Bank lending, Credit crunch, European sovereign debt crisis. |
| JEL: | E44 F36 G01 G21 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:12/rt/19&r=all |
| By: | Binti Mohd Shafarin, Nur Aisyah |
| Abstract: | The study’s aim is an attempt to determine the altogether performance of Telekom Malaysia Berhad which involved two main factors of internal (firm-specific) and external (macroeconomics) factors of Telekom Malaysia. This data was interpreted and collected Telekom Malaysia annual reports of five year period from 2014 to 2018. There are four risks involved which are liquidity risk, credit risk, operational risk, and market risk. Measurement of current ratio, quick ratio, average-collection period, debt to income ratio, operational ratio, and operating margin are used to examine the overall five years performance of Telekom Malaysia. Hence, to determine the relationship of these risk factors to the company’s performance, this study used liquidity risk, credit risk, operational risk, market risk, gross domestic products (GDP), inflation, interest rate, exchange rate, BETA, and corporate governance index. SPSS system is used to do data analysis in which by implementing stepwise method which applies the descriptive statistics, correlation, and model summary. Based on the data analysis, we can conclude that operational risk is the most significant to ROA since it gives the highest impact on performance of the company. Nonetheless, the other variables give low impact on the ROA and there is no significant related with |
| Keywords: | Performance, operational risk |
| JEL: | G32 G38 |
| Date: | 2019–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97360&r=all |
| By: | Ng, Soon Siang |
| Abstract: | The objective of a company to maximize the profit and minimize the cost. The aim of this study is to investigate the relationship between the internal and external factors and the performance of Subaru Corporation in Japan. The data analysis shows that the operating margin and the exchange rate are affected the profitability of the Subaru the most. The study used the annual report of Subaru Corporation from year 2014 until year 2018. The analysis will help the investor to invest smartly because all the data of the company is shown. In the end of the study, there are few suggestions for Subaru Corporation for them to improve the performance of the company |
| Keywords: | Profitability, Insolvency risk, Macroeconomic |
| JEL: | G3 G32 |
| Date: | 2019–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97200&r=all |
| By: | Matey, Juabin |
| Abstract: | A robust bank industry is a major player in the stability of an economy.This calls for an efficient management the banks to properly situate them in the context of robustness. By way of financial ratios and Z-score, the study analysed UT Bank’s financial performance prior to the recent bank sector reforms in Ghana. Annual financials over a ten year period (2007-2016) were used. Debt management practices of UT Bank per the results obtained were quite on the hind side. Leverage and risk variables were poorly handled. Inability to meet creditors’ claims would have been eminent considering the average mean values of debt-to-assets and debt-to equity ratios of 0.76 and 0.90 respectively. The entire bank sector will be put on a sound footing if credit management practices of individual banks are refreshed. The bank industry regulator should tighten its supervisory and monitoring role over banks to help detect early signs of non-performing banks. The study further recommends that statutory lending limits of banks be re-enforced to uphold the threshold of 10 percent for unsecured loans and 25 percentage for secured loans of net owned funds of the bank. |
| Keywords: | Bank, Debt, Distress, Performance, Credit Management Practice, Z-score |
| JEL: | E5 E58 G1 G20 G21 G24 G28 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97282&r=all |
| By: | Acosta-Smith, Jonathan (Bank of England); Arnould, Guillaume (Bank of England); Milonas, Kristoffer (Moodys); Vo, Quynh-Anh (Bank of England) |
| Abstract: | We study the interaction between banks’ capital and their liquidity transformation in both a theoretical and empirical set-up. We first construct a simple model to develop hypotheses which we test empirically. Using a confidential Bank of England dataset that includes bank-specific capital requirement changes since 1989, we find that banks engage in less liquidity transformation when their capital increases. This finding suggests that capital and liquidity requirements are at least to some extent substitutes. By establishing a robust causal relationship, these results can help guide the optimal joint calibration of capital and liquidity requirements and inform macro-prudential policy decisions. |
| Keywords: | Banking; liquidity transformation; capital requirements and financial regulation |
| JEL: | G21 G28 G32 |
| Date: | 2019–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0840&r=all |
| By: | Daniel Sales Casula; Rodrigo De-Losso |
| Abstract: | It is widely accepted in the literature that high lending fees predict negative returns because high fees capture the negative information that short sellers, on the demand side, detain. Traditionally, the supply side is seen as passive, with stock lenders acting as price takers. Recent studies, however, show that lenders are no longer passive. This study analyzes the Brazilian stock loan market, disentangling the shorting demand and supply curve shifts to understand the driving mechanism linking the supply side and stock returns. We also link the shorting supply curve with news announcements and verify how lenders react to new information in the market. Our results indicate that lenders decrease the loan supply when they predict negative future returns and use new information to change supply conditions, indicating that lenders are not price takers. |
| Keywords: | short selling; loan fee; lenders; public information |
| JEL: | G10 G12 G14 |
| Date: | 2019–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2019wpecon53&r=all |
| By: | David Procházka (University of Economics, Prague); Tomá? Zouhar (University of Economics, Prague) |
| Abstract: | Intangible assets are the main drivers of value creation and the competitive advantage of many firms across all industries. Despite the importance of intangibles in economy increases, their recognition in corporate balance sheets is restricted. Conventional accounting struggles with reliability of their measurement as well as with the uncertainty of their future economic benefits, despite the intangibles reporting provides the users with value-relevant information. The paper tests empirically the level of compliance of listed Czech companies with the disclosure requirements of IAS 38 Intangible assets in their annual reports. Using dataset of financial and non-financial firms from the period 2008-2017 (in total 210 annual reports and 2,730 individual disclosures manually collected), we document a moderate increase in disclosure quality of the sample firms over the period. Consistently with recent research, the evidence of improvement can be attributed to reporting incentives of the firms, acknowledging the importance of capital market to raise capital and, thus, to deliver useful information to the users of financial statements. However, the analysis reveal heterogeneity in the level of compliance across the firms, depending on company?s auditor and their ownership structure. Other investigated determinants, such as industry and country origin of the issuer, are not found as relevant. |
| Keywords: | intangible assets; IAS 38; disclosure quality; listed Czech firms |
| JEL: | M41 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:9912151&r=all |
| By: | Leonardo Gambacorta; Yiping Huang; Han Qiu; Jingyi Wang |
| Abstract: | This paper compares the predictive power of credit scoring models based on machine learning techniques with that of traditional loss and default models. Using proprietary transaction-level data from a leading fintech company in China for the period between May and September 2017, we test the performance of different models to predict losses and defaults both in normal times and when the economy is subject to a shock. In particular, we analyse the case of an (exogenous) change in regulation policy on shadow banking in China that caused lending to decline and credit conditions to deteriorate. We find that the model based on machine learning and non-traditional data is better able to predict losses and defaults than traditional models in the presence of a negative shock to the aggregate credit supply. One possible reason for this is that machine learning can better mine the non-linear relationship between variables in a period of stress. Finally, the comparative advantage of the model that uses the fintech credit scoring technique based on machine learning and big data tends to decline for borrowers with a longer credit history. |
| Keywords: | fintech, credit scoring, non-traditional information, machine learning, credit risk |
| JEL: | G17 G18 G23 G32 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:834&r=all |
| By: | Bendelová, Marta Paula |
| Abstract: | The small farmers are increasingly an irreplaceable part of Slovak agriculture. Therefore, it is important to identify their main credit constraints and to analyse their access to credit as this input belongs to one of the main factors of farther development of small, young and family farmers. In other words, their access to credit is crucial for the improvement of the Slovak agricultural sector as a whole. In this paper we specify the main sources of credit for small farmers in Slovakia, why there are some difficulties in credit acquisition and what are the main challenges of Slovak small, young and family farmers. |
| Keywords: | access to credit,credit constraints,sources of credit,small farmers |
| JEL: | Q10 Q14 E51 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:209635&r=all |
| By: | Svatopluk Kapounek; Zuzana Kucerová |
| Abstract: | The paper employs a dynamic market-wide herding behavior measure of 117,166 lending-based campaigns in 119 online platforms in 37 countries that explores whether lenders follow each other in the whole crowdfunding market, within the groups of top platforms, within the specific category or platform, and within the specific category in the specific platform. We show that herding behavior plays an important signaling role in reducing opportunity costs if the auction does not receive enough monetary bids. Additionally, our threshold models identify significant herding behavior after funding goals are raised and highlight the controversial effects of signaling mechanisms on adverse selection in crowdfunding markets. |
| Keywords: | asymmetric information, crowdfunding, herding behavior, overfunding, peer-to-peer lending, signaling |
| JEL: | C55 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7973&r=all |
| By: | Leonardo Gambacorta; Luigi Guiso; Paolo Emilio Mistrulli; Andrea Pozzi; Anton Tsoy |
| Abstract: | We build a model of the mortgage market where banks attain their optimal mortgage portfolio by setting rates and "steering" customers. "Sophisticated" households know which mortgage type is best for them, while "naïve" ones are susceptible to steering by their banks. Using data on the universe of Italian mortgages, we estimate the model and quantify the welfare implications of steering. The analysis shows that banks' steering activity could generate distortions, with welfare effects that vary between households depending on their degree of sophistication. However, the introduction of measures to restrict the scope for banks to steer their customers would not necessarily increase household welfare, because such activities, even if potentially distortive, may also contain useful information. By contrast, a financial literacy campaign always has a beneficial effect on the welfare of naïve households, which are proportionately more exposed to the risk of taking inappropriate financial decisions. |
| Keywords: | steering, financial advice, mortgage market, consumer protection |
| JEL: | G21 D18 D12 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:835&r=all |
| By: | Baskran, Sumirrta |
| Abstract: | This study examines the performance of the American International Group (AIG) insurance company in terms of dependent and independent variables. This document will also demonstrate the key elements of the business. Other than that, this study has been conducted to apply the principle of corporate governance in any organisation and to ensure that we all understand that any business issues are always starting to get smaller and slowly getting worse. Therefore, safety measures should be taken and principles for corporate governance should be consistently applied. Such research is important to illustrate how the internal and external variables of an organization and the macroeconomic factors influence the degree of corporate governance of a business. |
| Keywords: | corporate governance, dependent variable, independent variable, internal and external variable, ROA, risk, macroeconomics, AIG, performance, significant, coefficient, correlation, ANOVA, descriptive statistics. |
| JEL: | G3 G32 O16 |
| Date: | 2019–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97263&r=all |