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on Corporate Finance |
| By: | Mario Daniele Amore; Mircea Epure |
| Abstract: | We study how generalized trust shapes the ability of firms with different ownership forms to obtain trade financing and perform during a financial crisis. Exploiting geographic variations in trust across Italian regions and the occurrence of the 2008-09 financial crisis in a difference-indifferences setting, we show that generalized trust makes family firms less able to obtain trade financing during the crisis. This finding maps into performance results: trust alleviates the negative effect of a crisis for non-family firms, while it aggravates the negative effect for family firms. This latter result depends crucially on a firm’s corporate governance: trust does not harm family firms whose board is open to non-family directors. Collectively, our findings illustrate how culture interacts with corporate attributes in shaping a firm’s prospects. |
| Keywords: | trust, trade financing, Family firms, financial crisis, performance |
| JEL: | G32 G34 Z10 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1194&r=all |
| By: | Kim, Hyonok; Yasuda, Yukihiro |
| Abstract: | We provide the first large sample comparison of earnings management by Japanese listed and unlisted firms. Based on the theoretical predictions by Stein (1989), we empirically examine whether managers’ myopic behaviors exist through inflating current earnings at the expense of long-term earnings. We find that listed firms are more likely to engage in earnings management. We also find that firm managers are more likely to manage earnings as the information content of current earnings about future earnings (stock price) increases. More importantly, we note that this manipulation is pronounced only for listed firms. This is the first study that empirically shows the market pressure for raising stock price induces earnings manipulation. |
| Keywords: | Earnings Management, Myopic, Short-termism, Stock market pressure, Unlisted firms, Private firms |
| JEL: | D80 G21 G31 G32 |
| Date: | 2020–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hcfrwp:g-1-24&r=all |
| By: | Sergio Mayordomo (Banco de España); Nicola Pavanini (Tilburg University and CEPR); Emanuele Tarantino (LUISS, EIEF and CEPR) |
| Abstract: | Between 2009 and 2011, the Spanish banking system underwent a restructuring process based on consolidation of savings banks. The program’s design allows us to study how alternative forms of consolidation affect credit supply and financial stability. Compared to bank business groups, we find that bank mergers’ market power produces a contraction in credit supply, higher interest rates, but also a reduction in non-performing loans. We then estimate a structural model of credit demand and supply. We show that short-run welfare gains from improved financial stability outweigh losses from reduced credit supply, while small long-run cost efficiencies generate large welfare increases. |
| Keywords: | bank consolidation, mergers, business groups, credit supply, financial stability, welfare |
| JEL: | G21 G28 G32 G34 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2021&r=all |
| By: | A., Rjumohan |
| Abstract: | Stock markets are without any doubt, an integral and indispensable part of a country’s economy. But the impact of stock markets on the country’s economy can be different from how the other countries’ stock markets affect their economies. This is because the impact of stock markets on the economy depends on various factors like the organization of stock exchanges, its relationship with other components of the financial system, the system of governance in the country etc. All of these factors are distinct for each country; therefore, the impact of stock markets on a country’s economy is also distinct. Over the years, the Indian capital market system has undergone major fundamental institutional changes which resulted in reduction in transaction costs, significant improvements in efficiency, transparency and safety. All these changes have brought about the economic development of the economy through stock markets. In the same way, economic expansion fuelled by technological changes, products and services innovation is expected to create a high demand for stock market development. The present paper is divided into two parts: in the first section, the evolution of international stock markets and the developments in Indian stock markets are briefly reviewed to help us understand how stock markets have emerged as the driving economic forces that they are today; and the second part presents a number of studies that review the impact of financial development, stock market development and its functions and its possible impact on economic growth. |
| Keywords: | Stock market, Economic growth, Development, Finance, Indian economy |
| JEL: | G1 G2 O16 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101855&r=all |
| By: | Hyunduk Suh (Inha University); Jin Young Yang (Zayed University) |
| Abstract: | We analyze international firm-level data to examine the relationship between housing cycle and firm capital expenditure or R&D spending. We use the housing price component independent of firms’ investment opportunity and credit supply shocks, obtained by historical decomposition of a structural VAR, as the key explanatory variable. The baseline results support the existence of the collateral channel as housing price growth and firm investment exhibit a positive relationship. This collateral channel is more distinct for capital expenditure than R&D spending, and in housing market downturns than booms. Another notable finding is that despite the collateral channel, large housing price booms are detrimental to investment, which suggests a possible reallocation of resources from the production sector to the housing sector during those phases. Moreover, various firm-specific and country-specific characteristics are found to affect the housing price-investment relationship. Small firms and firms with stronger investment opportunities respond more sensitively to housing price shocks. Countries that rely more on bank financing, collateralized lending, and with higher LTV restraint, display a larger collateral effect in capital expenditure. |
| Keywords: | Housing cycle, Investment, R&D, Housing price, Collateral channel |
| JEL: | E22 E32 G31 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:inh:wpaper:2020-2&r=all |
| By: | Lars Hornuf; Eliza Stenzhorn; Tim Vintis |
| Abstract: | In this article, we examine how investor motives affect investment behavior in equity crowdfunding. In particular, we compare the investment behavior of sustainability-oriented with ordinary crowd investors on six leading equity crowdfunding platforms in Austria and Germany and investigate whether they suffer from a default shock that was recently identified by Dorfleitner et al. (2019). In general, we find evidence of a default shock in equity crowdfunding that occurs immediately after the event and if investors experience more than two insolvencies. Moreover, we find that sustainability-oriented investors pledge larger amounts of money and invest in more campaigns than ordinary crowd investors. The results also suggest that sustainability-oriented crowd investors care about non-financial returns, as they react more sensitively after experiencing a default in their equity crowdfunding portfolios, which indicates that they suffer beyond the pure financial loss. These findings contribute to recent literature on equity crowdfunding, socially responsible investing, and how individual investment motives and personal experiences affect investment decisions. |
| Keywords: | equity crowdfunding, individual investor behaviour, entrepreneurial finance, social , ethical, and environmental investing, socially responsible investing |
| JEL: | G11 G24 K22 M13 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8339&r=all |
| By: | Qiping Xu; Eric Zwick |
| Abstract: | This paper documents tax-minimizing investment, in which firms tilt capital purchases toward fiscal year-end to reduce taxes. Between 1984 and 2013, average investment in fiscal Q4 exceeds the average of fiscal Q1 through Q3 by 37%. Q4 spikes occur in the U.S. and internationally. Research designs using variation in firm tax positions and the 1986 Tax Reform Act show that tax minimization causes spikes. Spikes increase when firms face financial constraints or higher option values of waiting until fiscal year-end. We develop an investment model with tax asymmetries to rationalize these patterns. Models without purchase-year, tax-minimization motives are unlikely to fit the data. |
| JEL: | D21 D22 D92 G31 H25 H32 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27363&r=all |
| By: | Brenda Solis Gonzalez (Institute of Economic Studies, Faculty of Social Sciences, Charles University Opletalova 26, 110 00, Prague, Czech Republic) |
| Abstract: | Using a novel dataset I examine to what extent the introduction of national Asset Management Companies (AMCs) impacts the effects of bank-specific and macroeconomic determinants of the NPLs ratio for European countries. This study provides evidence on how national AMCs help to alleviate the level of the NPL ratio in countries with high level of non-viable exposures. The results of the dynamic panel data models show that the NPL ratio is lower and less persistent for banks in countries with national AMC since banks are able to clean their balance sheet with lower losses when market prices of NPL are depressed. For countries with national AMC in general the influence of bank-specific factors is lower than during normal conditions. In the case of macroeconomic factors, the results on the size and direction of the impact are mixed. However, these factors remain the key determinants with the unemployment and the lending rate being the leading indicators. |
| Keywords: | Non-performing loans, Asset Management Companies, credit risk, macroeconomic determinants, bank-specific determinants, dynamic panel data |
| JEL: | G21 G28 G32 C23 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2020_17&r=all |
| By: | Mahyar Kargar; Benjamin Lester; David Lindsay; Shuo Liu; Pierre-Olivier Weill; Diego Zúñiga |
| Abstract: | We study liquidity conditions in the corporate bond market since the onset of the COVID-19 pandemic. We find that in mid-March 2020, as selling pressure surged, dealers were wary of accumulating inventory on their balance sheets, perhaps out of concern for violating regulatory requirements. As a result, the cost to investors of trading immediately with a dealer surged. A portion of transactions migrated to a slower, less costly process wherein dealers arranged for trades directly between customers without using their own balance sheet space. Interventions by the Federal Reserve appear to have relaxed balance sheet constraints: soon after they were announced, dealers began absorbing inventory, bid-ask spreads declined, and market liquidity started to improve. Interestingly, liquidity conditions improved for bonds that were eligible for the Fed’s lending/purchase programs and for bonds that were ineligible. Hence, by allowing dealers to unload certain assets from their balance sheet, the Fed’s interventions may have helped dealers to better intermediate a wide variety of assets, including those not directly targeted. |
| JEL: | E5 E58 E65 G0 G01 G12 G21 G23 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27355&r=all |
| By: | Spatareanu, M.; Manole, V.; Kabiri, A.; Roland, I. |
| Abstract: | How does banks’ default risk affect the probability of default of non-financial businesses? The literature has addressed this question by focusing on the direct effects on the banks’ corporate customers – demonstrating the existence of bank-induced increases in firms’ probabilities of default. However, it fails to consider the indirect effects through the interfirm transmission of default risk along supply chains. Supply chain relationships have been shown to be a powerful channel for default risk contagion. Therefore, the literature might severely underestimate the overall impact of bank shocks on default risk in the business economy. Our paper fills this gap by analyzing the direct as well as the indirect impact of banks’ default risk on firms’ default risk in the U.K. Relying on Input-Output tables, we devise methods that enable us to examine this question in the absence of microeconomic data on supply chain links. To capture all potential propagation channels, we account for horizontal linkages between the firm and its competitors in the same industry, and for vertical linkages, both between the firm and its suppliers in upstream industries and between the firm and its customers in downstream industries. In addition, we identify trade credit and contract specificity as significant characteristics of supply chains, which can either amplify or dampen the propagation of default risk. Our results show that the banking crisis of 2007-2008 affected the non-financial business sector well beyond the direct impact of banks’ default risk on their corporate clients. |
| Keywords: | default risk, propagation of banking crises, supply chains |
| JEL: | G21 G34 O16 O30 |
| Date: | 2020–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2058&r=all |
| By: | Mark J. Flannery; Jan Hanousek; Anastasiya Shamshur; Jiri Tresl |
| Abstract: | Using a large sample of European acquisitions, we find that acquired firms substantially close the gap between their actual and optimal leverage ratios. The bulk of this adjustment occurs quite rapidly – within a year of the acquisition. The typical over-levered firm adjusts its debtto-assets ratio from 34.4% in the year before acquisition to 20% in the year after. (The adjustment is smaller, but still quite rapid, for targets that had been under-leveraged.) These adjustments occur primarily through debt issuances or retirements. We also investigate whether target firms’ pre-merger leverage contributes to the probability of them being acquired. We find that firms further away from their optimal leverage are more likely to be acquired: for an average firm, an increase in the absolute leverage deviation from 1% to 10% of total assets increases the probability of being acquired by 4.1% to 5.6% (The larger effect applies to overleveraged firms.) Overall, our results provide support for the trade-off theory of capital structure and suggest that financial synergies have a significant role in the typical European acquisition decision. |
| Keywords: | M&A; target capital structure; leverage deficit; |
| JEL: | G30 G32 G34 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp661&r=all |