nep-cfn New Economics Papers
on Corporate Finance
Issue of 2020‒09‒28
eight papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Corporate Debt, Endogenous Dividend Rate, Instability and Growth By Parui, Pintu
  2. Finance and Innovation in the Production Network By Brancati, Emanuele; Minetti , Raoul; Zhu, Susan Chun
  3. Gender Smart Financing Investing In and With Women: Opportunities for Europe By Agnieszka Skonieczna; Letizia Castellano
  4. Impact of using industry benchmark financial ratios on performance of bankruptcy prediction logistic regression model By Mateusz Heba; Marcin Chlebus
  5. Information Leakages, Distribution of Profits from Informed Trading, and Last Mover Advantage By Andrey Pankratov
  6. Financial Access, Governance and the Persistence of Inequality in Africa: Mechanisms and Policy instruments By Vanessa S. Tchamyou
  7. Repurchase Options in the Market for Lemons By Saki Bigio; Liyan Shi
  8. Forward looking loan provisions: Credit supply and risk-taking By Bernardo Morais; Gaizka Ormazabal; José-Luis Peydró; Mónica Roa; Miguel Sarmiento

  1. By: Parui, Pintu
    Abstract: In a stock-flow consistent neo-Kaleckian growth-model, we endogenize the dividend rate and debt-level in the long run and investigate the possibility of multiple equilibria and instability in the economy. We find that the economy is in a wage-led demand and debt-burdened growth regime. However, both debt-led and debt-burdened demand regimes are possible. In some instances, the speed of the adjustment parameter related to the dividend dynamics plays a crucial role in stabilizing the economy. Otherwise, the economy may lose its stability and gives birth to limit cycles. A significant rise in the interest rate may cause instability in the economy.
    Keywords: Capital Accumulation, Dividend Rate, Kaleckian Model, Instability, Limit Cycle
    JEL: C62 E12 O41
    Date: 2020–09–02
  2. By: Brancati, Emanuele (University of Rome, La Sapienza); Minetti , Raoul (Michigan State University, Department of Economics); Zhu, Susan Chun (Michigan State University, Department of Economics)
    Abstract: Disruptions of the production network, such as that triggered by the 2020 global crisis, can spill over to firms’ financing and investment processes. This paper studies the role of the production network in the nexus between finance and investment in innovation. Using matched firm-bank data on 25,000 Italian businesses over the 2011-2017 period, we find that firms’ participation in supply chains significantly attenuates the negative effect of bank credit constraints on innovation. A disruption of 25% of the supply chain linkages is predicted to magnify the impact of credit constraints on innovation by about 17%. The support of supply chains to credit constrained innovators reflects not only liquidity pooling in supply chains but also the substitution of liquidity-intensive innovations with transfers of knowledge along R&D-oriented chains. The support fails however to materialize for radical innovations.
    Keywords: Banks; Financial Constraints; Innovation; Supply Chains
    JEL: G21 O30
    Date: 2020–09–08
  3. By: Agnieszka Skonieczna; Letizia Castellano
    Abstract: Gender-diverse teams produce better results. However, women remain underrepresented when it comes to investment, both as beneficiaries of investment and as decision-makers. In 2018, over 90% of capital raised by tech companies backed by European venture capital (VC) went to teams that did not have a single female founder. This paper discusses the reasons behind the gender investment gap, with a focus on the lack of female investors. Women’s wealth is on the rise and women tend to invest in more long-term and impactful projects. Investing in and with women is thus an opportunity that Europe needs to seize for more sustainable and inclusive growth. InvestEU, the EU investment programme as of 2021, could act as a catalyst of these benefits by stimulating gender-smart financing, i.e. financing that funds, empowers and inspires female founders and investors.
    JEL: G20 G30 O16
    Date: 2020–07
  4. By: Mateusz Heba (Faculty of Economic Sciences, University of Warsaw); Marcin Chlebus (Faculty of Economic Sciences, University of Warsaw)
    Abstract: The phenomenon of companies bankruptcy is crucial for business partners and financial institutions due to the fact that business failure might be the cause of huge losses. Researchers has continually been aimed for improving models performance in the prediction of companies bankruptcy. Some authors of scientific papers claim that the process of evaluation of the companies situation requires comparison of its characteristics defined as financial ratio with situation of whole sector in order to obtain reliable conclusions. In this paper, a hypothesis that usage of the industry benchmarks (transformation of raw financial ratios values into sectoral deciles groups numbers) improves results of bankruptcy prediction logistic regression model is verified. Based on empirical results for Polish market, it turns out that although models estimated on different types of data have similar discriminatory power, logistic regression using raw financial ratios obtained a bit better results than its industry equivalents defined as sectoral deciles groups numbers. It is worth emphasizing that empirical part of paper uses information about 109K companies what is the rarity in bankruptcy prediction papers – researchers usually use small datasets that include less than several hundred records.
    Keywords: bankruptcy prediction, financial ratios, industry financial ratios, sectoral financial ratios, logistic regression, financial econometrics
    JEL: C52 C53 C58
    Date: 2020
  5. By: Andrey Pankratov (University of Lugano; Swiss Finance Institute)
    Abstract: I model a market in which a trader with superior information about an asset is subject to careful scrutiny by another agent who immediately observes the trading decisions of the informed agent with some noise and engages in (klepto)parasitic behavior by imicking the informed trader and trading on her own behalf (this can be interpreted as a broker or a high-frequency trader). I show that if the precision with which the parasitic trader observes the informed trader’s decisions is high enough, then the parasitic trader absorbs a dominant fraction of the expected abnormal profits coming from informed trading. My theory is able to explain why the percentage abnormal returns on the trades of corporate insiders are high while dollar returns on these trades can be quite moderate. Additionally, I explain through my model a sudden upsurge of HFT activity during a five-year period 2004-2009.
    Keywords: Asymmetric information, Information leakages, Market microstructure, Market efficiency, Equilibrium, HFT, Sharing profits, Short-swing profit rule
    JEL: G11 G12 G14
    Date: 2020–08
  6. By: Vanessa S. Tchamyou (Yaounde, Cameroon)
    Abstract: The aim of this paper is to investigate policy instruments by which the persistence of inequality is affected through financial development channels in 48 African countries for the period 1996 – 2014. Financial dynamic channels of depth (money supply and liquid liabilities), efficiency (at banking and financial system levels), activity (from banking and financial system perspectives) and stability are used. Political (“voice and accountability†and political stability), economic (government effectiveness and regulation quality) and institutional (rule of law and corruption-control) governance policy instruments are also involved. The empirical evidence is based on the Generalised Method of Moments (GMM). The results show that financial depth and financial stability are the best channels of reducing inequality. Moreover, the relevance of these financial channels is significantly apparent when policy instruments are exclusively governance variables. The comparative relevance of governance dynamics in the persistence of inequality is discussed. The study responds to two recent policy and scholarly challenges, notably: the persistence of inequality in Africa and the relevance of governance in addressing income inequality by means of financial access.
    Keywords: Finance; Governance; Inequality; Modelling; Africa
    JEL: O16 O10 I30 C50 O55
    Date: 2020–01
  7. By: Saki Bigio; Liyan Shi
    Abstract: We study repurchase options (repo contracts) in a competitive asset market with asymmetric information. Gains from trade emerge from a liquidity need, but private information about asset quality prevents the full realization of trade. We obtain a unique equilibrium, which features a pooling repo contract and full participation among borrowers. The equilibrium repo contract resolves adverse selection: the embedded repurchase option prevents the market unraveling that occurs in asset-sale markets. However, the contract is inefficient due to cream skimming. Competition to attract high-quality borrowers through the terms of the repurchase option inefficiently lowers liquidity. The equilibrium contract has a closed form and is portable to many applications.
    JEL: D82 G23 G32
    Date: 2020–08
  8. By: Bernardo Morais; Gaizka Ormazabal; José-Luis Peydró; Mónica Roa; Miguel Sarmiento
    Abstract: We show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected-rather than incurred-credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms- SMEs with shorter credit history, less tangible assets or more defaulted loans-but engage in "search-for-yield" within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification.
    Keywords: Loan provisions, IFRS9, ECL, corporate real and credit supply effects of accounting, bank risk-taking
    JEL: E31 G18 G21 G28
    Date: 2020–08

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