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on Corporate Finance |
| By: | Biesinger, Markus; Bircan, Cagatay; Ljungqvist, Alexander P. |
| Abstract: | We open up the black box of value creation in private equity with the help of confidential information on value creation plans and their execution. Plans are tailored to each portfolio company's needs and circumstances, have become more hands-on, and vary with deal type, ownership, growth strategy, and geographic focus. Successful execution is subject to resource constraints, economies of specialization, and diminishing returns, and varies systematically across funds. Successful execution is a key driver of investor returns, especially in growth, buyout, and secondary deals. Company operations and profitability improve in ways consistent with successful execution, even beyond PE funds' exit. |
| Keywords: | financial returns; Growth investing; Machine Learning; private equity; secondaries; value creation; venture capital |
| JEL: | G11 G24 G30 G32 L26 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14676&r=all |
| By: | Ferreira, Daniel; Ferreira, Miguel A.; Mariano, Beatriz |
| Abstract: | We find that the number of independent directors on corporate boards increases by approximately 24% following financial covenant violations in credit agreements. Most of these new directors have links to creditors. Firms that appoint new directors after violations are more likely to issue new equity, and to decrease payout, operational risk and CEO cash compensation than firms without such appointments. We conclude that a firm’s board composition, governance, and policies are shaped by current and past credit agreements. |
| JEL: | F3 G3 |
| Date: | 2018–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:84463&r=all |
| By: | Halling, Michael; Yu, Jin; Zechner, Josef |
| Abstract: | We find that US public firms spread out their debt more across different sources in recession quarters, making measures of debt concentration move pro-cyclically. There is substantial cross-sectional variation in these dynamics. Firms with less leverage and higher debt concentration further decrease leverage and increase debt concentration in recessions. The opposite is true for firms with higher leverage and lower debt concentration. The latter (former) group consists of firms that are larger (smaller), less risky (riskier), have fewer (more) growth options and lower (higher) cash levels. While the fraction of total assets funded by bank debt increases in the recession by approximately 18% of its average non-recession level, the equivalent measure for market debt drops by approximately 7%. Bank debt, in particular, term loans, appears to become more attractive during recession quarters, especially for borrowers characterized by high profitability while firm size, in contrast, has a positive effect on the use of market debt in recessions. A cluster analysis shows that a substantial fraction of frms changes its debt policy over the business cycle. For example, 12% of the firms that exclusively use bond-financing pre-recession switch to bank-financing during recessions. |
| Keywords: | business cycle variation; clus- ter analysis; corporate debt structure dynamics; debt concentration |
| JEL: | G01 G32 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14572&r=all |
| By: | Philippe Aghion (Harvard University [Cambridge]); Antonin Bergeaud (PSE - Paris School of Economics); Gilbert Cette (Centre de recherche de la Banque de France - Banque de France, AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Rémy Lecat (Centre de recherche de la Banque de France - Banque de France); Hélène Maghin |
| Abstract: | We identify two counteracting effects of credit access on productivity growth: on the one hand, better access to credit makes it easier for entrepreneurs to innovate; on the other hand, better credit access allows less efficient incumbent firms to remain longer on the market, thereby discouraging entry of new and potentially more efficient innovators. We first develop a simple model of firm dynamics and innovation‐based growth with credit constraints, where the above two counteracting effects generate an inverted‐U relationship between credit access and productivity growth. Then we test our theory on a comprehensive French manufacturing firm‐level dataset. We first show evidence of an inverted‐U relationship between credit constraints and productivity growth when we aggregate our data at the sectoral level. We then move to firm‐level analysis, and show that incumbent firms with easier access to credit experience higher productivity growth, but that they also experience lower exit rates, particularly the least productive firms among them. To support these findings, we exploit the 2012 Eurosystem's Additional Credit Claims programme as a quasi‐experiment that generated an exogenous extra supply of credits for a subset of incumbent firms. |
| Keywords: | credit constraint,firms,growth,interest rate,productivity |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01976402&r=all |
| By: | Albuquerque, Rui; Koskinen, Yrjo; Yang, Shuai; Zhang, Chendi |
| Abstract: | The COVID-19 pandemic and the subsequent lockdown brought about a massive slowdown of the economy and an unparalleled stock market crash. Using U.S. data, this paper explores how firms with high Environmental and Social (ES) ratings fare during the first quarter of 2020 compared to other firms. We show that stocks with high ES ratings have significantly higher returns, lower return volatilities, and higher trading volumes than other stocks. Firms with high ES ratings and high advertising expenditures perform especially well during the crash. This paper highlights the importance of ES policies in making firms more resilient during a time of crisis. |
| Keywords: | COVID-19; Customer loyalty; ESG; market crash; Stock returns; trading volume; volatility |
| JEL: | G12 G32 M14 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14661&r=all |
| By: | Chaderina, Maria; Weiss, Patrick; Zechner, Josef |
| Abstract: | This paper shows that firms with longer debt maturities earn risk premia not explained by unconditional standard factor models. We develop a dynamic capital structure model and find that firms with long-term debt exhibit more countercyclical leverage, making them more highly levered in downturns, when the market price of risk is high. The induced covariance between risk exposure and the market price of risk generates a maturity premium which we estimate at 0.21% per month. Empirical results from a conditional CAPM as well as observed beta dynamics are consistent with the model. We also exploit exogenous variation of debt maturities at the onset of the financial crisis and find that firms with shorter debt maturities experienced a smaller increase in leverage during the crisis. Also, after an initial spike, the betas of short-maturity firms reverted to levels below those of long-maturity firms by the end of 2008. |
| Keywords: | CAPM; Cross-section of stock returns; Debt overhang; Maturity; value premium |
| JEL: | G12 G32 G33 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14570&r=all |
| By: | Jonathan T. Vu; Benjamin K. Kaplan; Shomesh Chaudhuri; Monique K. Mansoura; Andrew W. Lo |
| Abstract: | Recent outbreaks of infectious pathogens such as Zika, Ebola, and COVID-19 have underscored the need for the dependable availability of vaccines against emerging infectious diseases (EIDs). The cost and risk of R&D programs and uniquely unpredictable demand for EID vaccines have discouraged vaccine developers, and government and nonprofit agencies have been unable to provide timely or sufficient incentives for their development and sustained supply. We analyze the economic returns of a portfolio of EID vaccine assets, and find that under realistic financing assumptions, the expected returns are significantly negative, implying that the private sector is unlikely to address this need without public-sector intervention. We have sized the financing deficit for this portfolio and analyze several potential solutions, including price increases, enhanced public-private partnerships, and subscription models through which individuals would pay annual fees to obtain access to a portfolio of vaccines in the event of an outbreak. |
| JEL: | G11 G12 G31 G32 G38 H12 H41 H51 I11 I18 L11 L52 Q54 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27212&r=all |
| By: | de Groot, Oliver; Richter, Alexander; Throckmorton, Nathaniel |
| Abstract: | This paper shows the success of valuation risk-time-preference shocks in Epstein-Zin utility-in resolving asset pricing puzzles rests sensitively on the way it is introduced. The specification used in the literature violates several desirable properties of recursive preferences because the weights in the Epstein-Zin time-aggregator do not sum to one. When we revise the specification in a simple asset pricing model the puzzles resurface. However, when estimating a sequence of increasingly rich models, we find valuation risk under the revised specification consistently improves the ability of the models to match asset price and cash-flow dynamics. |
| Keywords: | Asset Pricing; Equity premium puzzle; recursive utility; Risk-Free Rate Puzzle |
| JEL: | C15 D81 G12 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14588&r=all |
| By: | Gibbon, Alexandra J.; Schain, Jan Philip |
| Abstract: | This paper analyses the impact of common ownership on markups and innovation and adds to the discussion of the recently observed patterns of a long term rise in market power. We shed light on the inconclusiveness of results regarding the effects of common ownership on markups in the existing literature by exploiting industry technology classifications by the European Commission. Using a rich panel of European manufacturing firms from 2005 to 2016, we structurally infer markups and construct a measure of common ownership. Combining propensity score matching with a difference-in-differences estimator, we find an increase of firm markups by 3.1% after the first exposure tocommon ownership. While this effect is strongly pronounced in low-tech industries, we find no effect on markups in high-tech industries. In contrast, we measure a positive effect of common ownership on innovation activity in high-tech industries and no effectin low-tech industries. Both findings are consistent with recent theoretical findings in Lopéz and Vives (2019). |
| Keywords: | Competition,Common Ownership,Market Power,Industry Structure,Antitrust,Innovation |
| JEL: | L10 L41 L60 G23 G32 O34 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:340&r=all |
| By: | Darmouni, Olivier; Giesecke, Oliver; Rodnyansky, Alexander |
| Abstract: | The share of firms' borrowing from bond markets has been rising globally, and notably in the Eurozone. How does debt structure affect the transmission of monetary policy? We present a high-frequency framework that combines identified monetary shocks with a cross-sectional firm-level stock price reaction. Firms with more bonds are disproportionately affected by surprise monetary actions relative to other firms in the Eurozone. This finding stands in contrast to the predictions of a standard bank lending channel and points toward bond financing not being a frictionless "spare tire." |
| Keywords: | Banking relationships; corporate bonds; Corporate Finance; financial distress; monetary policy |
| JEL: | E44 E52 G21 G23 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14659&r=all |
| By: | Darmouni, O.; Giesecke, O.; Rodnyansky, R. |
| Abstract: | The share of firms’ borrowing from bond markets has been rising globally, and notably in the Eurozone. How does debt structure affect the transmission of monetary policy? We present a high-frequency framework that combines identified monetary shocks with a cross-sectional firm-level stock price reaction. Firms with more bonds are disproportionately affected by surprise monetary actions relative to other firms in the Eurozone. This finding stands in contrast to the predictions of a standard bank lending channel and points toward bond financing not being a frictionless "spare tire." |
| Keywords: | Monetary policy, corporate bonds, banking relationships, corporate finance, financial distress |
| JEL: | E44 E52 G21 G23 |
| Date: | 2020–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2049&r=all |