nep-cfn New Economics Papers
on Corporate Finance
Issue of 2020‒09‒14
ten papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Creditor Rights, Debt Capacity and Securities Issuance: Evidence from Anti-Recharacterization Laws By Tut, Daniel
  2. Where do we go? VC firm heterogeneity and the exit routes of newly listed high-tech firms By Diego Useche; Pommet Sophie
  3. Cheap Options Are Expensive By Assaf Eisdorfer; Amit Goyal; Alexei Zhdanov
  4. Venture Capital’s Role in Financing Innovation: What We Know and How Much We Still Need to Learn By Josh Lerner; Ramana Nanda
  5. Finance, Growth and (Macro)Prudential Policy: European Evidence By Martin Hodula; Ngoc Anh Ngo
  6. Central bank funding and credit risk-taking By Bednarek, Peter; Dinger, Valeriya; te Kaat, Daniel Marcel; von Westernhagen, Natalja
  7. Collateral damaged? Priority structure, credit supply, and firm performance By Geraldo Cerqueiro; Steven Ongena; Kasper Roszbach
  8. Data vs collateral By Leonardo Gambacorta; Yiping Huang; Zhenhua Li; Han Qiu; Shu Chen
  9. How Integrated Are Credit and Equity Markets? Evidence From Index Options By Pierre Collin-Dufresne; Benjamin Junge; Anders B. Trolle
  10. The Effect of Managers on Systematic Risk By Antoinette Schoar; Kelvin Yeung; Luo Zuo

  1. By: Tut, Daniel
    Abstract: This paper examines the effects of improvement in creditors’ rights protection on firms’ financing choices and securities issuance. To address these issues, I exploit exogenous variation in creditors’ rights protection induced by the staggered adoption of anti-recharacterization laws by some U.S. states. The laws enhance the ability of creditors to repossess collateral during bankruptcy. Using a difference-in-difference methodology to estimate the causal impacts, I find that: [1] the laws are positively related to debt capacity and debt maturity. Firms increase market leverage and substitute away from costly short-term debt financing into long-term debt financing [2] the laws are positively related to debt issuance [3] the laws are negatively related to equity issuance. My analysis further demonstrates that proactive securities issuers are significantly more responsive to the adoption of anti-recharacterization laws than passive securities issuers.
    Keywords: Creditors’ Rights, Leverage, Debt Issues, Equity Issues, Pledgeable Assets
    JEL: G2 G21 G30 G31 G32 G33
    Date: 2019–10–24
  2. By: Diego Useche (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique); Pommet Sophie (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In this paper, we study how the support of heterogeneous venture capital firms (VCs), that is independent venture capital firms (IVCs), bank-affiliated venture capital firms (BVCs), and corporate venture capital firms (CVCs), shapes the delisting route of companies through business failure and merger and acquisitions (MandAs), while distinguishing between European MandAs and extra-EU MandAs after the initial public offering (IPO). We find that the influence of the VCs in the firms' post-IPO delisting varies according to the mode of delisting and the type of venture capitalist. In particular, we find that the presence of leading IVC and BVC investments before IPO is related to a lower likelihood of exiting the stock market through business failure but does not significantly affect the likelihood of MandAs. In contrast, the presence of CVC investors is related to a higher likelihood of delisting through extra-EU MandAs.
    Keywords: Independent venture capital,IPO survivability,Corporate venture capital,Bank-affiliated venture capital,High-tech firms,Firm failure,Cross-border MandAs
    Date: 2020
  3. By: Assaf Eisdorfer (University of Connecticut - Department of Finance); Amit Goyal (University of Lausanne; Swiss Finance Institute); Alexei Zhdanov (Pennsylvania State University)
    Abstract: We show that options written on stocks with low prices are over-priced. This effect is robust to a variety of tests, controlling for common stock- and option- risk characteristics, and to reasonable transaction costs. Natural experiments corroborate this finding; options tend to become relatively more expensive following stock splits; and options on mini-indices are overpriced relative to options written on otherwise identical regular-priced indices. Our evidence suggests that (less sophisticated) retail investors consider options with low underlying prices as good deals due to low prices of such options. Demand pressure from these investors leads to option overpricing.
    Keywords: Option Returns, Investor Inattention
    JEL: G13 G14
    Date: 2020–08
  4. By: Josh Lerner; Ramana Nanda
    Abstract: Venture capital is associated with some of the most high-growth and influential firms in the world. Academics and practitioners have effectively articulated the strengths of the venture model. At the same time, venture capital financing also has real limitations in its ability to advance substantial technological change. Three issues are particularly concerning to us: 1) the very narrow band of technological innovations that fit the requirements of institutional venture capital investors; 2) the relatively small number of venture capital investors who hold, and shape the direction of, a substantial fraction of capital that is deployed into financing radical technological change; and 3) the relaxation in recent years of the intense emphasis on corporate governance by venture capital firms. While our ability to assess the social welfare impact of venture capital remains nascent, we hope that this article will stimulate discussion of and research into these questions.
    JEL: G24 O31
    Date: 2020–07
  5. By: Martin Hodula; Ngoc Anh Ngo
    Abstract: This paper examines the interactions between financial development, economic growth and (macro)prudential policy on a sample of euro area countries. Our main takeaway is that active (macro)prudential policy supports the positive finance-growth nexus instead of disrupting it. These benefits are found to be more likely to materialize during tightening of (macro)prudential policy measures and not during easing. This result is conditional on the ability of (macro)prudential policy to curb excess credit growth and mitigate systemic risk, which would otherwise disrupt the market. Moreover, we assert that when analysing the effects of (macro)prudential policy, it is important to account for the direction of (macro)prudential measures, not just for the frequency at which they are implemented.
    Keywords: Development, finance, growth, macroprudential policy, panel analysis
    JEL: G10 G28 O16 O40
    Date: 2020–09
  6. By: Bednarek, Peter; Dinger, Valeriya; te Kaat, Daniel Marcel; von Westernhagen, Natalja
    Abstract: This paper examines the relationship between central bank funding and credit risk-taking. Employing comprehensive bank-firm-level data from the German credit registry during 2009:Q1-2014:Q4, we find that borrowing from the central bank is associated with rebalancing of bank portfolios towards ex-ante riskier firms. We further establish that this relationship is associated with the ECB's maturity extensions and that the risk-taking sensitivity of banks borrowing from the ECB is independent of idiosyncratic bank characteristics. Finally, we highlight that these shifts in bank lending might lead to an ex-post deterioration of bank balance sheets, but increase firm-level investment and employment.
    Keywords: Monetary Policy,LTRO,Bank Lending,Credit Risk-Taking,Real Effects,TFP Growth
    JEL: E44 E52 G21 O40
    Date: 2020
  7. By: Geraldo Cerqueiro (Católica-Lisbon School of Business and Economics); Steven Ongena (University of Zürich, Swiss Finance Institute, KU Leuven and CEPR); Kasper Roszbach (Norges Bank and University of Groningen)
    Abstract: A unique legal reform in 2004 in Sweden redistributed collateral rights from banks holding floating liens to unsecured creditors without changing the value of assets on firms' balance sheets. Using a country-wide panel of all incorporated firms, we document that a zero-sum redistribution of collateral rights and the resulting reduction in collateral capacity towards banks contracts the amount and maturity of corporate debt and leads firms to slow investment and forego growth. Altering their allocation of assets, firms reduce particularly those assets with a low collateralizable value for banks and also hoard more cash. However, the reform has no impact on corporate capital intensity or efficiency, suggesting that under these newly binding credit constraints firms simply shrink their operations.
    Keywords: Collateral, investment, financial constraints, difference-in-differences, floating lien, seniority
    JEL: D22 G31 G32
    Date: 2019–05–29
  8. By: Leonardo Gambacorta; Yiping Huang; Zhenhua Li; Han Qiu; Shu Chen
    Abstract: The use of massive amounts of data by large technology firms (big techs) to assess firms’ creditworthiness could reduce the need for collateral in solving asymmetric information problems in credit markets. Using a unique dataset of more than 2 million Chinese firms that received credit from both an important big tech firm (Ant Group) and traditional commercial banks, this paper investigates how different forms of credit correlate with local economic activity, house prices and firm characteristics. We find that big tech credit does not correlate with local business conditions and house prices when controlling for demand factors, but reacts strongly to changes in firm characteristics, such as transaction volumes and network scores used to calculate firm credit ratings. By contrast, both secured and unsecured bank credit react significantly to local house prices, which incorporate useful information on the environment in which clients operate and on their creditworthiness. This evidence implies that a greater use of big tech credit – granted on the basis of machine learning and big data – could reduce the importance of collateral in credit markets and potentially weaken the financial accelerator mechanism.
    Keywords: big tech, big data, collateral, banks, asymmetric information, credit markets
    JEL: D22 G31 R30
    Date: 2020–09
  9. By: Pierre Collin-Dufresne (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute; National Bureau of Economic Research (NBER)); Benjamin Junge (Ecole Polytechnique Fédérale de Lausanne; Ecole Polytechnique Fédérale de Lausanne); Anders B. Trolle (Copenhagen Business School - Department of Finance)
    Abstract: In recent years, a liquid market for options on a broad credit default swap index (CDX) has developed. We study the extent to which these options are priced consistently with options on a broad equity index (SPX). We consider a rich structural credit risk model in which firm assets follow a jump-diffusion process with idiosyncratic and systematic risk, and we derive analytical expressions for CDX and SPX options. Calibrating the model, we find that it captures many aspects of the joint dynamics of CDX and SPX options. However, it cannot reconcile the relative levels of option implied volatilities, suggesting that credit and equity markets are not fully integrated. A strategy of selling CDX options yields significantly higher average excess returns and Sharpe ratios than selling SPX options.
    Keywords: Credit Risk, Cdx, Cdx Options, Spx, Spx Options, Structural Models
    JEL: G12 G13
    Date: 2020–07
  10. By: Antoinette Schoar; Kelvin Yeung; Luo Zuo
    Abstract: Tracking the movement of top managers across firms, we document the importance of manager-specific fixed effects in explaining heterogeneity in firm exposures to systematic risk. These differences in systematic risk are partially explained by managers’ corporate strategies, such as their preferences for internal growth and financial conservatism. Managers’ early-career experiences of starting their first job in a recession also contribute to differential loadings on systematic risk. These effects are more pronounced for smaller firms. Overall, our results suggest that managerial styles have important implications for asset prices.
    JEL: G12 G30
    Date: 2020–07

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