nep-cfn New Economics Papers
on Corporate Finance
Issue of 2020‒08‒17
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. The Financing of Investment: Firm Size, Asset Tangibility and the Size of Investment By Mathias Lé; Frédéric Vinas
  2. IPO patterns in Euronext after the global financial crisis of 2007-2008 By Nuno Miguel Barateiro Gonçalves Silva; Hélder Miguel Correia Virtuoso Sebastião; Diogo Henriques
  3. Debt Maturity and Innovation By Yuliyan Mitkov
  4. Strategic Information Transmission and Efficient Corporate Control By Paul Voß; Marius Kulms
  5. Political connections and remuneration of bank board's members: Moderating effect of gender diversity By Catarina Alexandra Neves Proença; Mário António Gomes Augusto; José Maria Ruas Murteira
  6. Business continuity in times of distress: debt restructuring agreements and compositions with creditors in Italy By Alessandro Danovi; Iacopo Donati; Ilaria Forestieri; Tommaso Orlando; Andrea Zorzi
  7. Capital Market Financing and Firm Growth By Didier Brandao,Tatiana; Levine,Ross Eric; Llovet Montanes,Ruth; Schmukler,Sergio L.

  1. By: Mathias Lé; Frédéric Vinas
    Abstract: How do firms finance their investment? To what extent does the financing mix depends on the nature or the size of investment? To what extent does the funding mix of investment vary along firm size? Relying on a unique database of firms covering 72% of the value added in France over three decades, this paper addresses those questions and provides a comprehensive picture of the financial resources used by firms to finance their investment. We uncover significant cross-sectional heterogeneity in the financing mix of investment along firm size, asset tangibility and investment size. In particular, we show that the commonly held view that "firms strongly rely on bank credit in a bank-based economy" weakens significantly as we consider larger firms or when it comes to finance intangible investments or relatively small investments.
    Keywords: Investment, Working Capital, Firm Financing, Bank Credit, Equity Finance, Retained Earnings, Firm Size, Investment Spikes .
    JEL: E22 G21 G30 G31 G32
    Date: 2020
  2. By: Nuno Miguel Barateiro Gonçalves Silva (University of Coimbra, CeBER - Centre for Business and Economics Research, Faculty of Economics); Hélder Miguel Correia Virtuoso Sebastião (University of Coimbra, CeBER - Centre for Business and Economics Research, Faculty of Economics); Diogo Henriques (University of Coimbra, Faculty of Economics)
    Abstract: This paper investigates the pricing patterns of 161 IPOs that occurred in 2009-2017 in the Euronext markets of Amsterdam, Brussels, Lisbon, and Paris. Across all the IPOs, we find a first-day raw return of 1.4% and an industry-adjusted return of 1.2%. After one year, the average raw returns are slightly higher, around 4.5%, and the average adjusted returns are negative, around -2.7%. These first-day returns are lower whilst long-run returns are higher than those reported in other studies, most notably in those that use periods that overlap our sample Healthcare is the industry that presents a higher initial underpricing (2.3% industry-adjusted return), whilst the Technology industry presents the higher year underperformance (-29.5% industry-adjusted return). Mainly, results are in line with the market conditions and investor sentiment hypotheses according to which, when market conditions are bad (crises), uninformed investors are not so active and optimistic in the IPO market, hence initial underpricing and subsequent underperformance tend to be lower.
    Keywords: IPO, Euronext, underpricing, market conditions, investor sentiment
    JEL: G12 G14 G24
    Date: 2020
  3. By: Yuliyan Mitkov
    Abstract: The financing of innovative firms must balance two goals. On one hand, since innovation is inherently risky, the firm must receive adequate protection after failure to motivate innovative activity. At the same time, the firm must be liquidated when its assets can be redeployed more efficiently elsewhere. In this paper, I propose a theory of debt maturity as an incentive device to motivate innovation. I show how the firm’s optimal debt maturity is shaped by the possibility of debt renegotiations, the tangibility of its assets and the riskiness of its innovative project. The model predicts that innovative firms would lengthen their debt maturity when expecting to extract more concessions from their financiers once the project has started.
    Keywords: Debt maturity, Innovation, Risk-taking, Renegotiation, Agency costs
    JEL: G24 G32 G33 O31
    Date: 2020–07
  4. By: Paul Voß; Marius Kulms
    Abstract: We present a model of corporate takeovers in which both, a potential acquirer and incumbent management have private information about the firm value under their respective leadership. Despite the two-sided asymmetric information and endogenously misaligned interests of shareholders and incumbent management, first-best control allocation is feasible if incumbent management can strategically communicate with shareholders. However, shareholders prefer access to more information than revealed in equilibrium. This demand for information leads to inefficiently few takeovers. The model provides implications for the regulation of disclosure requirements and fairness opinions, as well as empirical predictions that link executive compensation to takeover outcomes.
    Keywords: Communication, cheap talk, takeover, tender o er, signaling
    JEL: D82 D83 G34 G38
    Date: 2020–06
  5. By: Catarina Alexandra Neves Proença (University of Coimbra, Ph.D. Student at Faculty of Economics); Mário António Gomes Augusto (University of Coimbra, Centre for Business and Economics,CeBER, Faculty of Economics); José Maria Ruas Murteira (University of Coimbra, Centre for Business and Economics,CeBER, Faculty of Economics)
    Abstract: This study investigates the effect of the political connections of members of banks' Boards of Directors on the remuneration of these boards, taking into account the gender diversity of their members. Using a panel of observations on 77 banks supervised by the ECB for the period 2013 to 2017, and the generalized method of moments (GMM), our results show that, when analyzing linear effects, political connections have a negative impact on the remuneration of the members of the banks' Boards of Directors, reducing them. However, when investigating the possible moderating effect, we found that when gender diversity is high, there is a non-linear, inverted U-shaped relationship between the political connections and the remuneration of members of the Boards of Directors of banks. Our results also show that the differentiating characteristics of the female gender, accentuate the negative effects of political connections on remuneration, making the institution's interests to be privileged at the expense of those of its personal agendas. Overall, these general results prove to be robust across different choices of the measures used for gender diversity.
    Keywords: Political connections, Gender diversity, Remuneration, ECB, GMM.
    JEL: G21 G28 G34 J16
    Date: 2020–06
  6. By: Alessandro Danovi (University of Bergamo); Iacopo Donati (University of Florence); Ilaria Forestieri (University of Florence); Tommaso Orlando (Bank of Italy); Andrea Zorzi (University of Florence)
    Abstract: The Italian insolvency framework makes several restructuring tools available to firms and their creditors, so that distress does not necessarily lead to liquidation. This paper analyses two such instruments: debt restructuring agreements (DRAs) and compositions with creditors (CCs), both commonly used to reorganize distressed firms and preserve their continuity. These procedures typically involve large firms, particularly in the case of DRAs where judicial control over negotiations is milder. Firms using DRAs are in less critical economic conditions when they file for restructuring, but they do so after longer periods of distress. Despite their declared aim, the effectiveness of these instruments in terms of business continuity is limited: many firms that use them end up exiting the market, in particular in DRAs. Firms that survive display only partial recovery, which is relatively more intense in CCs. However, the apparently superior performance of CCs is overshadowed by the long duration of restructuring, which may prevent us from observing definitive outcomes.
    Keywords: insolvency, firm restructuring, business continuity
    JEL: G33 G34 K29
    Date: 2020–07
  7. By: Didier Brandao,Tatiana; Levine,Ross Eric; Llovet Montanes,Ruth; Schmukler,Sergio L.
    Abstract: This paper studies whether there is a connection between finance and growth at the firm level. It employs a new dataset of 150,165 equity and bond issuances around the world, matched with income and balance sheet data for 62,653 listed firms in 65 countries over 1990-2016. Three main patterns emerge from the analyses. First, firms that choose to issue in capital markets use the funds raised to grow by enhancing their productive capabilities, increasing their tangible and intangible capital and the number of employees. Growth accelerates as firms raise funds. Second, the faster growth is more pronounced among firms that are more likely to face tighter financing constraints, namely, small, young, and high-R&D firms. Third, capital market issuances are associated with faster growth among firms located in countries with more developed capital markets relative to banks. Capital markets are also comparatively effective at allowing financially constrained firms to raise capital.
    Keywords: Financial Sector Policy,Capital Markets and Capital Flows,Capital Flows,Financial Economics,Finance and Development,Mining&Extractive Industry (Non-Energy)
    Date: 2020–07–27

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