nep-cfn New Economics Papers
on Corporate Finance
Issue of 2020‒06‒22
eight papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Family Ownership During the Covid-19 Pandemic By Amore, Mario Daniele; Pelucco, Valerio; Quarato, Fabio
  2. The Effect of Bank Monitoring on Loan Repayment By Nicola Branzoli; Fulvia Fringuellotti
  3. International bank lending and corporate debt structure By Jose-Maria Serena; Serafeim Tsoukas
  4. Identifying the Real Effects of Zombie Lending By Schivardi, Fabiano; Sette, Enrico; Tabellini, Guido
  5. Determinants of investment in tangible and intangible fixed assets By Miguel García-Posada; Álvaro Menéndez; Maristela Mulino
  6. Earnings Expectations in the COVID Crisis By Augustin Landier; David Thesmar
  7. COVID-19: Guaranteed Loans and Zombie Firms By Zoller-Rydzek, Benedikt; Keller, Florian
  8. Does Easing Access to Foreign Financing Matter for Firm Performance? By Udichibarna Bose; Sushanta Mallick; Serafeim Tsoukas

  1. By: Amore, Mario Daniele; Pelucco, Valerio; Quarato, Fabio
    Abstract: Prompted by the shakeup of Covid-19 on financial markets, scholars have begun to explore the corporate traits that can make firms more resilient to a pandemic. In this paper, we test how the involvement of families in ownership and governance positions influences the financial performance of Italian listed firms during the spread of Covid-19. Our results indicate that firms with controlling family shareholders fared significantly better than other firms in the pandemic period. This effect is particularly pronounced among firms in which a family is both the controlling shareholder and holds the CEO position. Collectively, our results expand existing knowledge on the determinants of organizational resilience in the wake of adverse events.
    Keywords: CEOs; COVID-19; Family Business; Financial Performance
    JEL: D10 G34
    Date: 2020–05
  2. By: Nicola Branzoli; Fulvia Fringuellotti
    Abstract: Monitoring is one of the main activities explaining the existence of banks, yet empirical evidence about its effect on loan outcomes is scant. Using granular loan-level information from the Italian Credit Register, we build a novel measure of bank monitoring based on banks’ requests for information on their existing borrowers and we investigate the effect of bank monitoring on loan repayment. We perform a causal analysis exploiting changes in the regional corporate tax rate as a source of exogenous variation in bank monitoring. Our identification strategy is supported by a theoretical model predicting that a decrease in the tax rate improves bank incentives to monitor borrowers by increasing returns from lending. We find that bank monitoring reduces the probability of a delinquency in a substantial way and that the effect is stronger for the types of loans that benefit most from bank oversight, such as term loans.
    Keywords: bank monitoring; nonperforming loan; tax policy
    JEL: G21 G32 H25 H32
    Date: 2020–05–01
  3. By: Jose-Maria Serena; Serafeim Tsoukas
    Abstract: Using a cross-country sample of bank-dependent public firms, we study the international spillovers of a change in banking regulation on corporate borrowing. For identification we examine how US firms’ liabilities vis-`a-vis banks, nonbank lenders, and bond markets evolve after an increase in capital requirements implemented by the European Banking Authority (EBA) in 2011. We find that US firms experience a reduction in credit lines but not in term loans from EU banks. In addition, US firms are able to compensate for reductions in credit lines from EU banks by securing liquidity facilities from US nonbank financial institutions without increasing borrowing from US corporate bond markets. These results suggest that diversified domestic loan markets, in which banks and nonbank financial institutions lend to corporations, can help overcome cuts in cross-border bank funding.
    Keywords: Credit lines; term loans; bank capital requirements; firm-level data; non-bank financial intermediaries
    JEL: G21 G32 F32 F34
    Date: 2020–05
  4. By: Schivardi, Fabiano; Sette, Enrico; Tabellini, Guido
    Abstract: Several papers study the real effects of zombie lending based on regressions showing that the performance of healthy firms relative to zombie firms deteriorates as the fraction of zombie firms increases. This finding is interpreted as evidence of a negative spillover from zombies to healthy firms. We argue that this commonly used approach faces a serious identification problem. Under general conditions on the distribution of firm performance, the deterioration of the relative performance of healthy firms is a mechanical consequence of an increase in the fraction of zombies and cannot be interpreted as evidence of negative spillovers.
    Keywords: capital misallocation; zombie lending
    JEL: E44 G21
    Date: 2020–05
  5. By: Miguel García-Posada (Banco de España); Álvaro Menéndez (Banco de España); Maristela Mulino (Banco de España)
    Abstract: We investigate which firm characteristics are associated with investment in tangible and intangible fixed assets, paying special attention to the case of R&D, and which funding sources are used for each type of investment. Regarding firm characteristics, we find that younger and more profitable firms tend to invest more in all asset types. In the case of size, larger firms invest more in R&D and intangibles but less in tangible fixed assets. In addition, there is a concave relationship between leverage and investment. Regarding funding sources, we find that cash flow is the most important source of funding for intangibles and R&D, whereas financial debt is the most important funding source for tangible fixed assets. Stock issues are used to fund R&D and, especially, tangible fixed assets. Firms use cash holdings to smooth investment in R&D.
    Keywords: investment, tangible fixed assets, R&D, intangibles
    JEL: G31 G32 O32
    Date: 2020–02
  6. By: Augustin Landier; David Thesmar
    Abstract: We analyze firm-level analyst forecasts during the COVID crisis. First, we describe expectations dynamics about future corporate earnings. Downward revisions have been sharp, mostly focused on 2020, 2021 and 2022, but much less drastic than the lower bound estimated by Gormsen and Koijen (2020). Analyst forecasts do not exhibit evidence of over-reaction: As of mid-May, forecasts over 2020 earnings have progressively been reduced by 16%. Longer-run forecasts, as well as expected “Long-Term Growth” have reacted much less than short-run forecasts, and feature less disagreement. Second, we ask how much discount rate changes explain market dynamics, in an exercise similar to Shiller (1981). Given forecast revisions and price movements, we estimate an implicit discount rate going from 10% in mid-February, to 13% at the end of March, back down to their initial level in mid-May. We then decompose discount rate changes into three factors: changes in unlevered asset risk premium (0%), increased leverage (+1%) and interest rate reduction (-1%). Overall, analyst forecast revisions explain all of the decrease in equity values between January 2020 and mid May 2020, but they do not explain shorter term movements.
    JEL: G01 G32
    Date: 2020–05
  7. By: Zoller-Rydzek, Benedikt; Keller, Florian
    Abstract: Based on the ZHAW Managers Survey (7-13 April 2020) we evaluate firm reactions towards the COVID-19 crisis. We find that the Swiss economic lockdown measures successfully froze the economy, i.e., firms show very little pro-active reactions towards the crisis, but drastically decrease their business activities. The firms in the survey report that the decline in foreign demand is the single most important reasons for their deteriorating business situation. The only significant pro-active reactions to mitigate the crisis are increased digitalization efforts. These efforts are expected to have a long-lasting impact on firms' performance due to a selection effect, i.e., firms with more positive experience of digitialization will maintain their higher levels of digitalization even after the crisis. In general we find that firms that faced a more difficult business situation before the crisis are affected more severely during the crisis. Moreover, we investigate the impact of the Swiss federal loan program (Bundeshilfe) on the business activities of Swiss firms. Specifically, we focus on the take up of firms and its interaction with the perceived business situation before and during the COVID-19 crisis. To this end, we develop a stylized theoretical model of financially constrained heterogeneous firms. We find that policy makers face a trade-off between immediate higher unemployment rates and long-term higher public spending. The former arises from a combination of a too strong economic impact of the COVID-19 lockdown and too low levels of loans provided by the government to financially distressed firms. Nevertheless, providing (too) high levels of loans to firms might create zombie firms that are going to default on their debt in the future leading to an increase in public spending.
    Keywords: COVID-19, expectations, firm behaviour, financial constraints, zombie firms
    JEL: D21 D22 D84 G33
    Date: 2020–06–05
  8. By: Udichibarna Bose; Sushanta Mallick; Serafeim Tsoukas
    Abstract: The literature shows that rigid capital control policies adversely influence international trade, leading to external financial reforms in terms of greater cross-border access to financing, which can stimulate aggregate productivity. However, the literature overlooks the relationships among access to external financing, firm-level productivity, and exporting performance. We fill this gap by using a rich dataset of 11,612 Indian firms over the period 1988–2014 and study how a unique financial policy intervention affects firm performance. We establish a significant effect of capital-account liberalization through an export-oriented policy initiative on firms’ productivity and, consequently, on their exporting activity. Finally, we find that the benefits of the policy reform are more pronounced for financially vulnerable firms characterized by either high debt or low liquidity.
    Keywords: Productivity; Exporting; Foreign Financing; FX market liberalization
    JEL: F4 F1 G1
    Date: 2020–05

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