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on Corporate Finance |
| By: | Savvakis C. Savvides (Visiting Lecturer, John Deutsch Institute for the Study of Economic Policy, Queen’s University, Canada) |
| Abstract: | It is argued that lending where the overwhelming criterion is the collateral rather than the repayment capability of the project and the borrower is highly likely to be unproductive and will inevitably lead to a transfer of wealth. If this is done on a systematic and massive scale as was the case in Cyprus in the years leading to the 2013 crisis it is also likely to cause a long and deep balance sheet recession. Banks should therefore be in check and held accountable for such professional malpractices. |
| Keywords: | Economic development, repayment capability, project evaluation, corporate lending, credit risk |
| JEL: | D61 G17 G21 G32 G33 H43 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:qed:dpaper:4535&r=all |
| By: | Banerjee, Ryan; Hofmann, Boris; Mehrotra, Aaron |
| Abstract: | Using firm-level data for 18 major global economies, we find that the exchange rate affects corporate investment through a financial channel: exchange rate depreciation dampens corporate investment through firm leverage and FX debt. These findings are consistent with the predictions of a stylised model of credit risk in which exchange rates can affect investment through FX debt or borrowing in local currency from foreign lenders. Empirically, the channel is more pronounced in emerging market economies (EMEs), reflecting their greater dependence on foreign funding and their less developed financial systems. Moreover, we find that exchange rate depreciation induces highly leveraged firms to increase their cash holdings, supporting from a different angle the notion of a financial channel of the exchange rate. Overall, these findings suggest that the large depreciation of EME currencies since 2011 was probably a significant amplifying factor in the recent investment slowdown in these economies. |
| JEL: | E22 F31 F41 O16 |
| Date: | 2020–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2020_006&r=all |
| By: | Timothy Grieder; Juan Ortega |
| Abstract: | We measure the prevalence of zombie firms in Canada and assess how they could potentially affect the financial system. |
| Keywords: | Credit and credit aggregates; Financial stability; Sectoral balance sheet |
| JEL: | G G3 G32 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:20-3&r=all |
| By: | Lei Ding; Leonard I. Nakamura |
| Abstract: | This study provides new evidence on the impact of the Community Reinvestment Act (CRA) on mortgage lending by taking advantage of an exogenous policy shock in 2014, which caused significant changes in neighborhoods’ CRA eligibility in the Philadelphia market. The loss of CRA coverage leads to an over 10 percent decrease in purchase originations by CRA-regulated lenders. While nondepository institutions replace approximately half, but not all, of the decreased lending, their increased market share was accompanied by a greater involvement in riskier and more costly FHA lending. This study demonstrates how different lenders respond to the incentive of CRA credit. |
| Keywords: | Community Reinvestment Act; Housing; Bank Lending; Mortgage |
| JEL: | G21 G28 D14 G23 |
| Date: | 2020–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:87490&r=all |
| By: | Gareth Anderson (International Monetary Fund (IMF); University of Oxford); Ambrogio Cesa-Bianchi (Bank of England; Centre for Economic Policy Research (CEPR); Centre for Macroeconomics (CFM)) |
| Abstract: | We show that credit spreads rise after a monetary policy tightening, yet spread reactions are heterogeneous across firms. Exploiting information from a unique panel of corporate bonds matched with balance sheet data for US non-financial firms, we document that firms with high leverage experience a more pronounced increase in credit spreads than firms with low leverage. A large fraction of this increase is due to a component of credit spreads that is in excess of firms’ expected default—the excess bond premium. Consistent with the spreads response, we also document that high-leverage firms experience a sharper contraction in debt and investment than low-leverage firms. Our results provide evidence that balance sheet effects are crucial for understanding the transmission mechanism of monetary policy. |
| Keywords: | Monetary policy, Heterogeneity, Credit spreads, Excess bond premium, Credit channel, Financial accelerator, Event study, Identification |
| JEL: | E44 F44 G15 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:2005&r=all |
| By: | Ewens, Michael (California Institute of Technology); Malenko, Nadya |
| Abstract: | Venture capital (VC) backed firms face neither the governance requirements nor a major separation of ownership and control of their public peers. These differences suggest that independent directors could play a unique role on private firm boards. This paper explores the dynamics of VC-backed startup boards using new data on over 7,200 startups, along with board member entry, exit, and individual director characteristics. We document several new facts about board size, the allocation of control, and composition dynamics. At formation, a typical board has four members and is entrepreneur-controlled. Independent directors are found on the median board after the second financing event, when control over the board becomes shared, with independent directors holding the tie-breaking vote. These patterns are consistent with independent directors playing both a mediating and advising role over the startup lifecycle, and thus representing another potential source of value-add to entrepreneurial firm performance. |
| Date: | 2020–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:t96yq&r=all |
| By: | Gabriele Angori (Università degli Studi di Ferrara); David Aristei (University of Perugia) |
| Abstract: | Using detailed firm-level longitudinal data, this paper analyses the main factors affecting firms’ access to bank credit in eleven euro area countries over the period 2014-2018. We focus on firms’ loan demand behaviour and on banks’ actual credit granting decision, using alternative measures of financing constraints and controlling for endogenous sample selection and individual heterogeneity. Furthermore, we explicitly analyse the dynamics of firms’ access to credit and account for state dependence in loan demand and credit rationing probabilities. Empirical results show that small and informationally opaque businesses, with deteriorated public support and credit history, experience greater difficulties in accessing to bank loans. Moreover, we provide evidence of significant state dependence in access to credit over time. In particular, firms having already experienced credit restrictions in the past are more likely to face further financing constraints, while enterprises that repeatedly recur to external financing seem to have an easier access to credit. Finally, focusing on the subset of firms that actually need bank financing, we find that previous credit restrictions significantly reduce current demand probability, thus providing evidence of a significant credit discouragement effect. |
| Keywords: | Access to credit; Financing constraints; State dependence; Sample selection; Unobserved heterogeneity; Panel data |
| JEL: | G32 G21 D22 C23 C34 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:srt:wpaper:0220&r=all |
| By: | Koski, Heli; Valmari, Nelli |
| Abstract: | Abstract This paper uses extensive firm-level data on European and US companies from 2014–2018 to explore the short-term impacts of the General Data Protection Regulation (GDPR) on European companies’ financial performance. Our empirical analysis suggests that the costs of the GDPR during the first year of its implementation were substantial, at least for some European companies. The profit margins of the data-intensive firms increased, on average, by approximately 1.7 to 3.4 percentage points less than the profit margins of their US counterparts. The European data-intensive SMEs were the most disadvantaged group regarding their post-GDPR profit developments, while the large European data-intensive companies’ short-term post-GDPR profit margins dropped relatively less. We do not find any statistically significant difference in the profit margin developments of the very large European and US companies. This finding is consistent with the view that the very large, multinational US companies that often have European customers and deal with the personal data of EU citizens also faced substantial costs when they needed to comply with the GDPR. |
| Keywords: | Regulation, GDPR, Compliance costs, Firm profitability |
| JEL: | K2 L2 L5 |
| Date: | 2020–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:rif:wpaper:77&r=all |
| By: | Pehr-Johan Norbäck; Charlotta Olofsson; Lars Persson |
| Abstract: | Within the policy debate, there is a fear that large incumbent firms buy small firms’ inventions to ensure that they are not used in the market. We show that such “acquisitions for sleep” can occur if and only if the quality of a process invention is small; otherwise, the entry profit will be higher than the entry-deterring value. We then show that the incentive for acquiring for the purpose of putting a patent to sleep decreases when the intellectual property law is stricter because the profit for the entrant then increases more than the entry-deterring value does. |
| Keywords: | acquisitions, innovation, sleeping patents, IP law, ownership |
| JEL: | G24 L10 L20 M13 O30 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8095&r=all |
| By: | Ruiz-Buforn, Alba; Camacho-Cuena, Eva; Morone, Andrea; Alfarano, Simone |
| Abstract: | We experimentally study the information aggregation process in a laboratory financial market when a public signal is released. The public disclosure crowds out information demand and reduces price informativeness. The latter effect is primarily caused by the overweighting of public information into prices. We are the first in providing evidence that strategic pricing concerns trigger the overweighting effect and the consequent market overreaction to public disclosures. From an economic policy perspective, we give support that, when deciding their communication strategy, the regulator can mitigate the market overreaction by properly setting the level of information transparency. |
| Keywords: | Experimental asset markets; public information; information acquisition; asymmetric information |
| JEL: | C92 D82 G14 |
| Date: | 2020–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98472&r=all |
| By: | Daniel Levy (Bar-Ilan University); Tamir Mayer; Alon Raviv |
| Abstract: | Textual analysis of the NBER Working Papers published during 1999–2016 is done to assess the effects of the 2007–2009 crisis on the academic literature. The volume of crisis-related WPs is counter-cyclical, lagging the financial-instability-index. WPs by the Monetary-Economics, Asset-Pricing, and Corporate-Finance program members, hardly refer to “crisis/crises” in the pre-crisis period. As the crisis develops, however, their study-efforts of crisis-related issues increase rapidly, focusing on the links between ‘Repo-and-Securitization’ and the crisis. In contrast, WPs in macroeconomics-related programs refer extensively to “crisis/crises” in the pre-crisis period. These WPs abandon topics of ‘Sudden-Stop’ and ‘Emerging-Markets’ as the crisis developed. |
| Keywords: | 2008 Financial Crisis, Financial Crises, Textual Analysis, LDA Topic Modeling, Securitization, Repo, Sudden Stop |
| JEL: | A11 C38 C55 E32 E44 E52 E58 F30 G01 G20 G21 G28 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2020-01&r=all |
| By: | Whelsy Boungou (Larefi, University of Bordeaux) |
| Keywords: | Negative interest rates, bank profitability, Bank risk taking, European Union countries,dynamic panel data model |
| JEL: | E43 E52 E58 G21 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1910&r=all |