nep-cfn New Economics Papers
on Corporate Finance
Issue of 2020‒09‒21
eighteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Strapped for Cash? Funding for UK high growth SMEs since the global financial crisis By Brown, Ross; Lee, Neil
  2. Social Transmission Bias and Cultural Evolution in Financial Markets By Erol Akcay; David Hirshleifer
  3. The Interplay of Financial Education, Financial Literacy, Financial Inclusion and Financial Stability: Any Lessons for the Current Big Tech Era? By Nicole Jonker; Anneke Kosse
  4. Rational Choice Function Implementation for the German Stock Market Analysis By Mullat, Joseph E.
  5. In Times of Trouble: Innovative Drivers of External Competitiveness for Small Businesses during the Great Recession By Brancati, Emanuele; Brancati, Raffaele; Guarascio, Dario; Zanfei, Antonello
  6. Stress-testing a shock to remittances in a post-Covid world – what impact on liquidity? By Monahov, Alexandru
  7. Evaluating the Impact of Export Finance Support on Firm-Level Export Performance: Evidence from Pakistan By Fabrice Defever; Alejandro Riaño; Gonzalo Varela
  8. Doubling Down on Debt: Limited Liability as a Financial Friction By Jesse Perla; Carolin Pflueger; Michael Szkup
  9. Investor Tax Credits and Entrepreneurship: Evidence from U.S. States By Matthew R. Denes; Sabrina T. Howell; Filippo Mezzanotti; Xinxin Wang; Ting Xu
  10. Capital incentive policies in the age of cloud computing: An empirical case study By Andres, Raphaela; DeStefano, Timothy; Niebel, Thomas; Viete, Steffen
  11. Does Asset Durability Impede Financing? An Empirical Assessment By Nusrat Jahan
  12. Firm Life Cycle and Cost of Debt By Abu Amin; Blake Bowler; Mostafa Monzur Hasan; Gerald L. Lobo; Jiri Tresl
  13. The impact of carbon disclosure mandates on emissions and financial operating performance By Downar, Benedikt; Ernstberger, Jürgen; Reichelstein, Stefan; Schwenen, Sebastian; Zaklan, Aleksandar
  14. Credit Market Imperfection, Lack of Entrepreneurs and Capital Outflow from a Developing Economy By Sugata Marjit; Suryaprakash Mishra
  15. Antitrust policies and profitability in non-tradable sectors By Besley, Timothy; Fontana, Nicola; Limodio, Nicola
  16. Modelling Asymmetric Relationship between Exports and Growth in a Developing Economy: Evidence from Namibia By Teboho Jeremiah Mosikari; Joel Hinaunye Eita
  17. Foreign Debt, Capital Controls, and Secondary Markets: Theory and Evidence from Nazi Germany By Andrea Papadia; Claudio Schioppa
  18. Financial Literacy, Risk and Time Preferences - Results from a Randomized Educational Intervention By Matthias Sutter; Michael Weyland; Anna Untertrifaller; Manuel Froitzheim

  1. By: Brown, Ross; Lee, Neil
    Abstract: While high growth firms (HGFs) are crucial drivers of economic growth, to date there has been a dearth of research examining their funding requirements. Drawing on a survey of over 8,000 UK Small and Medium Sized Enterprises (SMEs), this paper investigates the capital structure and access to credit in high growth SMEs in the period following the global financial crisis. The findings challenge conventional wisdom about high growth SMEs in certain respects. They find it no harder than non-high growth SMEs to access external finance. The vast majority of high growth SMEs rely strongly on debt-based finance for their funding, not equity finance. High growth SMEs are much less likely to seek finance for working capital purposes but are no more likely to seek finance to invest in R&D than less rapidly growing SMEs. The findings suggest little justification for government intervention aimed at increasing credit availability for HGFs as currently espoused by the UK government.
    Keywords: Entrepreneurship; SMEs; Gazelles; Innovation; Access to finance; Policy
    JEL: O31 G21 G32
    Date: 2019–06–01
  2. By: Erol Akcay; David Hirshleifer
    Abstract: The thoughts and behaviors of financial market participants depend upon adopted cultural traits, including information signals, beliefs, strategies, and folk economic models. Financial traits compete to survive in the human population, and are modified in the process of being transmitted from one agent to another. These cultural evolutionary processes shape market outcomes, which in turn feed back into the success of competing traits. This evolutionary system is studied in an emerging paradigm, new evolutionary finance. In this paradigm, social transmission biases determine the evolution of financial traits in the investor population. It considers an enriched set of cultural traits, both selection on traits and mutation pressure, and market equilibrium at different frequencies. Other key ingredients of the paradigm include psychological bias, social network structure, information asymmetries, and institutional environment.
    JEL: D03 D21 D53 D8 D82 D83 D84 D85 D9 D91 D92 G02 G1 G11 G12 G14 G28 G3 G31 G32 G34 G35 O31
    Date: 2020–08
  3. By: Nicole Jonker; Anneke Kosse
    Abstract: The entry of Big Tech firms in the financial ecosystem might affect financial stability through the opportunities and challenges they create for financial inclusion. In this paper we survey the literature to determine the effectiveness of financial education in improving financial literacy and financial inclusion and to assess the impact of financial inclusion on financial stability. Based on our findings, we argue that new empirical research is needed to determine whether financial education can play a role in ensuring that everyone is able to reap the financial-inclusion benefits that Big Tech may bring. We also conclude that financial-inclusion opportunities created by Big Tech might potentially introduce risks for overall financial stability. Because of this, we underline the importance of proper supervision and regulation.
    Keywords: Development economics; Digital currencies and fintech; Financial markets; Financial services; Financial stability
    JEL: D92 G23 O16
    Date: 2020–08
  4. By: Mullat, Joseph E.
    Abstract: A concept of a kernel was re-visited for stock market analysis using monotone choice functions. We focused on indicators of purchases and sales on the German stock market, which have an advantage over others, giving a higher dynamics of changes for each such a specific change, which was called significance level.
    Keywords: indicators, credentials, monotonic, system, kernel
    JEL: C13 C52 C82
    Date: 2020–07–03
  5. By: Brancati, Emanuele; Brancati, Raffaele; Guarascio, Dario; Zanfei, Antonello
    Abstract: This paper analyzes the main drivers of external competitiveness in times of crisis for small and medium enterprises (SMEs). We focus on the Italian experience in the midst of the financial and sovereign-debt crisis, and present robust evidence based on a comprehensive survey of Italian companies in the manufacturing and production service sectors (the MET dataset). Overall, our results confirm the high degree of heterogeneity of the Italian system and the differences between internationalized and domestic companies in terms of performance as well as structural and behavioral dimensions. In particular, data highlight not only the strict correlation between internationalization and innovative activities but also a positive change of attitude of Italian firms towards these strategies. Our analysis shows that, whilst structural factors play a key role for external competitiveness, other critical firm-level aspects trigger superior performances, especially strategic profiles, technological capabilities, and proactive behaviors such as innovativeness and R&D investment. Importantly, we document disproportionate effects of innovation for smaller and less productive companies. This points at dynamic strategies as a potential tool to fill the gap between larger/more productive companies and the set of less structured firms, a segment representing an ideal target for policy measures.
    Keywords: SME,external competitiveness,Great Recession
    JEL: M20 L23 L25
    Date: 2020
  6. By: Monahov, Alexandru
    Abstract: Remittances have historically been a stable source of funding which has played a key role in the development efforts of many nations worldwide. As a consequence of the Covid crisis and the lockdown measures imposed to counteract the spread of the disease, the World Bank estimated a drop of 20% in remittances by the end of 2020. To study the effect that such a conjuncture would have on the financial stability of developing economies, this paper develops a remittance stress test that investigates the impact of the projected shock on banking sector liquidity at a country level. The study encompasses 112 countries and finds that small, emerging economies with underdeveloped financial sectors suffer the most, with six of the ten most affected nations experiencing a drop in their liquid asset ratios that would place their banking sector at significant liquidity risk.
    Keywords: remittances, stress test, liquidity risk, financial development, banking sector
    JEL: F24 F37 G21
    Date: 2020–06–30
  7. By: Fabrice Defever; Alejandro Riaño; Gonzalo Varela
    Abstract: This paper evaluates the impact of two export finance support schemes: The Export Finance Scheme (EFS) and the Long-Term Finance Facility for Plant & Machinery (LTFF) on firm-level export performance. These policies offer loans to exporters at concessionary interest rates to finance short-term working capital and long-term investment in machinery and equipment respectively. To do so, we combine customs data with information about which firms participate in each scheme and the value of the loans they obtain between 2015 and 2017. We find that EFS and LTFF increased the growth rate of exports sales by 7 and 8-11 percentage points respectively. Neither policy exerts a significant impact on the number of products that a firm exports or the number of foreign countries it sells to. Our analysis indicates that facilitating long-term investment in physical capital is more cost effective to raise exports than subsidizing exporters’ working capital needs.
    Keywords: trade finance, export credit, export subsidies, export margins, Pakistan
    JEL: G21 G28 G32 F13 F65
    Date: 2020
  8. By: Jesse Perla; Carolin Pflueger; Michael Szkup
    Abstract: We investigate how a combination of limited liability and preexisting debt distort firms’ investment and equity payout decisions. We show that equity holders have incentives to “double-sell” cash flows in default, leading to overinvestment, provided that the firm has preexisting debt and the ability to issue new claims to the bankruptcy value of the firm. In a repeated version of the model, we show that the inability to commit to not double-sell cash flows leads to heterogeneous investment distortions, where high leverage firms tend to overinvest but low leverage firms tend to underinvest. Permitting equity payouts financed by new debt mitigates overinvestment for high leverage firms, but raises bankruptcy rates and exacerbates low leverage firms’ tendency to underinvest—as the anticipation of equity payouts from future debt raises their cost of debt issuance. Finally, we provide empirical evidence consistent with the model.
    JEL: E20 E22 E44
    Date: 2020–08
  9. By: Matthew R. Denes; Sabrina T. Howell; Filippo Mezzanotti; Xinxin Wang; Ting Xu
    Abstract: Angel investor tax credits are used globally to spur high-growth entrepreneurship. Exploiting the staggered implementation of these tax credits in 31 U.S. states, we find that while they increase angel investment, they have no significant effect on entrepreneurial activity. Tax credits induce entry by inexperienced, local investors and are often used by insiders. A survey of 1,411 angel investors suggests that a “home run” investing approach alongside coordination and information frictions explain low take-up among experienced investors. The results contrast with evidence that direct subsidies to firms have large positive effects, raising concerns about using investor subsidies to promote entrepreneurship.
    JEL: G0 G14 G28 H0 H25 O3
    Date: 2020–08
  10. By: Andres, Raphaela; DeStefano, Timothy; Niebel, Thomas; Viete, Steffen
    Abstract: The following paper assesses whether current policy environments are appropriate for the emergence of cloud computing technology. In particular, this research uses firm-level data for Germany and the UK to examine the impact of capital incentive programmes (a common policy present in most OECD countries) on cloud adoption. The design for many of these policies target investments in physical capital while excluding digital services like the cloud. Firms view digital investments and digital services as substitutes, therefore narrowly define dincentive programmes may actually discourage the use of emerging tools like cloud computing, which are found to enable the growth and performance of young entrants. Overall, the results find that while capital incentive policies encourage firm investments in ICT and other forms of capital, they actually reduce the probability of cloud adoption. Policy makers may therefore need to reconsider the design of capital incentive programmes within their jurisdictions.
    Keywords: Cloud Computing,Investment Scheme,ICT Adoption,Technology Diffusion,Policy Evaluation
    JEL: L22 O33
    Date: 2020
  11. By: Nusrat Jahan (Department of Economics, Carleton University)
    Abstract: Does asset durability limit firms’ ability to obtain external financing when they are financially constrained? According to theory, an increase in durability increases the down-payment required to purchase a tangible asset, and hence the overall financing needs by a firm (Rampini (2019)). Using the depreciation rate to measure asset durability, I find financing frictions can affect firm investment through the asset durability channel. Specifically, asset durability increases external financing costs for financially constrained firms, but the effect is ambiguous for unconstrained firms. Additionally, I find when firms endogenously choose asset durability, more (less) financially constrained firms invest in less (more) durable capital. These results provide mixed support to the idea that the durability of an asset impedes financing.
    Date: 2020–09
  12. By: Abu Amin; Blake Bowler; Mostafa Monzur Hasan; Gerald L. Lobo; Jiri Tresl
    Abstract: This paper examines the relation between the corporate life cycle and lending spreads. Using a sample of 20,307 firm-loan observations spanning 5,076 publicly traded U.S. firms, we find that lending spreads follow a U-shape pattern across the life cycle phases. This pattern is in addition to the variation explained by typical controls. In a multivariate analysis, we find that firms in the introduction and decline phases pay lending spreads that are greater than firms in the mature phase (differences of 6 percent and 12 percent, respectively). We explore omitted variables bias and instrumental variable estimation in robustness testing and find that the Ushape pattern persists. Our findings are consistent with theoretical predictions regarding the relationship between the corporate life cycle and various lending risks.
    Keywords: firm life cycle; cost of debt; bank loans; risk;
    JEL: G32 M21
    Date: 2020–09
  13. By: Downar, Benedikt; Ernstberger, Jürgen; Reichelstein, Stefan; Schwenen, Sebastian; Zaklan, Aleksandar
    Abstract: We examine whether a disclosure mandate for greenhouse gas emissions creates stakeholder pressure for firms to subsequently reduce their emissions. For UK-incorporated listed firms such a mandate was adopted in 2013. Using a difference-in-differences design, we find that firms affected by the mandate reduced their emissions - depending on the specification - by an incremental 14-18% relative to a control group. This reduction was accompanied by an average 9% increase in production costs. At the same time, the treated firms were able to increase their sales by an almost compensating amount. Taken together, our findings provide no indication that the disclosure requirement led to a significant deterioration in the financial operating performance of the treated firms, despite the significant carbon footprint reduction following the disclosure mandate.
    Keywords: disclosureof non-financial information,mandatory disclosure,greenhouse gas emissions,real effects
    JEL: Q28 Q40 M41 M48
    Date: 2020
  14. By: Sugata Marjit; Suryaprakash Mishra
    Abstract: This paper explores the impact of credit market on the entrepreneurs and demand for credit in a credit constrained economy and the resultant impact on the capital flows. In standard trade models the capital flows across countries are explained as a result of the rate of return differentials due to presence/absence of capital among the countries whereby capital flows from the capital rich countries to capital poor countries. We show that the rate of return differentials could arise due to presence/absence of entrepreneurs, i.e., low price of capital in autarky may reflect lack of demand for credit due to scarcity of entrepreneurs and not capital abundance and eventually may lead to capital outflow from a capital scarce country. This is a different way of echoing the sentiment of the well-known “Lucas Paradox” which suggests that capital might flow from the poor to the rich countries. We also show the possibility of trade and capital flow being complements and not substitutes, as is usual in standard models.
    Keywords: credit market imperfection, credit rationing, redistribution, entrepreneurs, capital flows
    JEL: F21 F36 D63 G21
    Date: 2020
  15. By: Besley, Timothy; Fontana, Nicola; Limodio, Nicola
    Abstract: Firms in tradable sectors are more likely to be subject to external competition to limit market power while non-tradable firms are more dependent on domestic policies and institutions. This paper combines an antitrust index available for multiple countries with firm-level data from Orbis covering more than 10 million firms from 90 countries, covering 20 sectors over 10 years and finds that profit margins of firms operating in non-tradable sectors are significantly lower in countries with stronger antitrust policies compared to firms operating in tradable sectors. The results are robust to a wide variety of empirical specifications.
    Keywords: competition; antitrust; institutions; forthcoming
    JEL: F3 G3 J1
    Date: 2020–09–04
  16. By: Teboho Jeremiah Mosikari; Joel Hinaunye Eita (College of Business and Economics, University of Johannesburg)
    Abstract: This study investigates the asymmetric relationship between the main export sectors and economic growth in Namibia. Nonlinear autoregressive distributive lag (NARDL) was used to estimate the asymmetric relationship between the main export sectors and the economic growth of Namibia. The study used quarterly data for the period 2009 – 2018. The data were sourced from the Bank of Namibia and Namibia Statistics Agency. The results indicate that there is an asymmetric relationship between the main export sectors and the economic growth of the Namibian economy. The results show that an increase (positive values) in the export of the three main export products will cause economic growth to improve. A decrease (negative values) in export will cause economic growth to deteriorate. The results suggest that estimating the nonlinear relationship for different sectors of the economy (instead of estimating the relationship at an aggregate level for total exports) will ensure that economic policies are sector-specific. The results further suggest that when exports are declining, expansionary policies will be the appropriate responses.
    Keywords: Asymmetric; NARDL; export; economic growth; Namibia
    JEL: C50 C53 F14 F17
    Date: 2020
  17. By: Andrea Papadia; Claudio Schioppa
    Abstract: One of history's largest repatriations of sovereign and commercial debt occurred in Germany between 1931 and 1939. Our study of the episode finds that German authorities kept private initiatives of debt repatriation under increasingly strict control in order to avoid known detrimental macroeconomic effects, yet allowed the practice on a discretionary basis as a way to reap internal political benefits. The repatriated bonds exhibited a non-negligible and varying spread between their domestic prices and their respective prices on foreign stock markets. We analyze nine years of weekly spreads to argue that the crucial factor for the origination, variation and persistence of the spread was the impact of capital controls on the efficiency of secondary markets. Additionally, we model how internal redistribution motives in the form of elite capture affect socially optimal debt repatriations, merging established results in the literature on debt buybacks with recent research that links the efficiency of secondary markets to sovereign risk. Our analysis offers a comprehensive interpretation of the salient aspects of the historical episode as well as novel insights for several open debates in international macroeconomics.
    Keywords: Sovereign risk; Elite capture; Capital controls; Germany; Nazi regime; Foreign debt; Secondary markets
    JEL: E65 F38 H63 N24
    Date: 2020–08
  18. By: Matthias Sutter; Michael Weyland; Anna Untertrifaller; Manuel Froitzheim
    Abstract: We present the results of a randomized intervention in schools to study how teaching financial literacy affects risk and time preferences of adolescents. Following more than 600 adolescents, aged 16 years on average, over about half a year, we provide causal evidence that teaching financial literacy has significant short-term and longer-term effects on risk and time preferences. Compared to two different control treatments, we find that teaching financial literacy makes subjects more patient, less present-biased, and slightly more risk-averse. Our finding that the intervention changes economic preferences contributes to a better understanding of why financial literacy has been shown to correlate systematically with financial behavior in previous studies. We argue that the link between financial literacy and field behavior works through economic preferences. In our study, the latter are also related in a meaningful way to students’ field behavior.
    Keywords: financial literacy, randomized intervention, risk preferences, time preferences, field experiment
    JEL: C93 D14 I21
    Date: 2020

This nep-cfn issue is ©2020 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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