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on Corporate Finance |
| By: | Alessandra Iannamorelli (Bank of Italy); Stefano Nobili (Bank of Italy); Antonio Scalia (Bank of Italy); Luana Zaccaria (EIEF) |
| Abstract: | Using a comprehensive dataset of Italian SMEs, we find that differences between private and public information on creditworthiness affect firms’ decisions to issue debt securities. Surprisingly, our evidence supports positive (rather than adverse) selection. Holding public information constant, firms with better private fundamentals are more likely to access bond markets. Additionally, credit conditions improve for issuers following the bond placement, compared with a matched sample of non-issuers. These results are consistent with a model where banks offer more flexibility than markets during financial distress and firms may use market lending to signal credit quality to outside stakeholders. |
| Keywords: | asymmetric information, bank credit, bond markets, SME finance |
| JEL: | G10 G21 G23 G32 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1292_20&r=all |
| By: | Vincent Glode; Christian Opp |
| Abstract: | We develop a tractable model of strategic debt renegotiation in which businesses are sequentially interconnected through their liabilities. This financing structure, which we refer to as a debt chain, gives rise to externalities as a lender’s willingness to provide concessions to his privately-informed borrower depends on how this lender’s own liabilities are expected to be renegotiated. Our analysis reveals how targeted government subsidies and debt reductions as well as incentives for early renegotiation following large economic shocks such as COVID-19 or a financial crisis can prevent default waves. |
| JEL: | G21 G32 G33 G38 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27883&r=all |
| By: | Paul A. Gompers; Steven N. Kaplan; Vladimir Mukharlyamov |
| Abstract: | We survey more than 200 private equity (PE) managers from firms with $1.9 trillion of assets under management (AUM) about their portfolio performance, decisionmaking and activities during the Covid-19 pandemic. Given that PE managers have significant incentives to maximize value, their actions during the current pandemic should indicate what they perceive as being important for both the preservation and creation of value. PE managers believe that 40% of their portfolio companies are moderately negatively affected and 10% are very negatively affected by the pandemic. The private equity managers—both investment and operating partners— are actively engaged in the operations, governance, and financing in all of their current portfolio companies. These activities are more intensively pursued in those companies that have been more severely affected by the Covid-19 pandemic. As a result of the pandemic, they expect the performance of their existing funds to decline. They are more pessimistic about that decline than the VCs surveyed in Gompers et al. (2020b). Despite the pandemic, private equity managers are seeking new investments. Relative to the 2012 survey results reported in Gompers, Kaplan, and Mukharlyamov (2016): the PE investors place a greater weight on revenue growth for value creation; they give a larger equity stake to management teams; and, they also appear to target somewhat lower returns. |
| JEL: | G24 G31 G32 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27889&r=all |
| By: | Hein, Eckhard |
| Abstract: | In this contribution we link the recently re-discovered tendencies towards stagnation with the features of financialisation, which have started to dominate developed capitalist economies in the early 1980s. We review the main macroeconomic channels of transmission of financialisation-namely, the effects on distribution, investment in the capital stock, consumption and on the current and capital accounts. We distinguish three regimes, the debt-led private demand boom, the export-led mercantilist and the domestic demand-led regime and apply this to six countries, Germany, France, Spain, Sweden, the UK and the USA, as well as to the Eurozone, both for the period before (1999-2008) and after (2009-2018) the financial and economic crisis. We show that the dominance of the debt-led private demand boom regime, on the one hand, and the export-led mercantilist regime, on the other hand, has contributed to global current account imbalances before the financial and economic crisis 2007-9, which has demonstrated that these two regimes were unsustainable. For the period after the crisis we find a shift towards export-led mercantilist regimes and a move towards domestic demand-led regimes stabilized by government debt with global current account imbalances persisting. Finally, we elaborate on the challenges of these developments, a highly fragile global constellation with severe problems of aggregate demand generation and a tendency towards stagnation caused by high inequality and weak capital stock growth. |
| JEL: | E02 E60 E61 F62 G38 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1492020&r=all |
| By: | Ravi Jagannathan; Yang Zhang |
| Abstract: | We show that superior performance relative to peers during stressful times identifies higher quality firms as measured by conventional historical financial statement based measures as well as default probability measures. Quality measured this way is persistent, but different from price momentum. Further, a managed portfolio that takes a long position in top quintile (Stable) firms and a short position in bottom quintile (Vulnerable) firms earns superior risk adjusted returns in excess of the risk-free rate. The portfolio has an annualized Fama and French three-factor alpha of 5.2% (t=5.04) and a five-factor alpha of 3.3% (t=3.38) |
| JEL: | G0 G10 G11 G12 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27859&r=all |
| By: | Raimo, Nicola; Zito, Marianna; Caragnano, Alessandra |
| Abstract: | In recent years, the debate on corporate governance has considerably grown worldwide. In this scenario, corporate governance disclosure is gaining greater attention and the advent of integrated reporting offers a new interesting channel to companies for the dissemination of corporate governance information. This study aims at investigating the factors that can affect the level of corporate governance disclosure included in the integrated reports. Our analysis, conducted on a sample of 85 international companies shows that firm size and profitability positively influence the level of corporate governance disclosure. Moreover, it demonstrates a negative impact of CEO duality on corporate governance disclosure level. |
| Keywords: | Integrated reporting,Corporate governance,Disclosure,Corporate reporting,Firm characteristics |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esconf:224760&r=all |
| By: | Christopoulos, Dimitris; Köppl, Stefan; Köppl-Turyna, Monika |
| Abstract: | We look at syndication in the venture capital industry. Investments conducted by syndicates are believed to have better chances of being successful, measured by the survival probability of portfolio companies or by successful exits. Using a novel and large dataset, covering several countries, our analysis shows that strong network ties of investors are associated with success of portfolio companies in Europe. We also show that there are differences in the association of network centrality with survival between different financing rounds, the former being more important in early-stage investments. Finally, we show a strong association of network ties of investors with sales growth of portfolio companies, before and after the deal. |
| Keywords: | Venture Capital,Networks,Europe,Investment Syndication |
| JEL: | G11 G24 M13 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:agawps:21&r=all |
| By: | Pierre-Olivier Gourinchas; Ṣebnem Kalemli-Özcan; Veronika Penciakova; Nick Sander |
| Abstract: | We estimate the impact of the COVID-19 crisis on business failures among small and medium size enterprises (SMEs) in seventeen countries using a large representative firm-level database. We use a simple model of firm cost-minimization and measure each firm’s liquidity shortfall during and after COVID-19. Our framework allows for a rich combination of sectoral and aggregate supply, productivity, and demand shocks. We estimate a large increase in the failure rate of SMEs under COVID-19 of nearly 9 percentage points, absent government support. Accommodation & Food Services, Arts, Entertainment & Recreation, Education, and Other Services are among the most affected sectors. The jobs at risk due to COVID-19 related SME business failures represent 3.1 percent of private sector employment. Despite the large impact on business failures and employment, we estimate only moderate effects on the financial sector: the share of Non Performing Loans on bank balance sheets would increase by up to 11 percentage points, representing 0.3 percent of banks’ assets and resulting in a 0.75 percentage point decline in the common equity Tier-1 capital ratio. We evaluate the cost and effectiveness of various policy interventions. The fiscal cost of an intervention that narrowly targets at risk firms can be modest (0.54% of GDP). However, at a similar level of effectiveness, non-targeted subsidies can be substantially more expensive (1.82% of GDP). Our results have important implications for the severity of the COVID-19 recession, the design of policies, and the speed of the recovery. |
| JEL: | D2 E65 G33 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27877&r=all |
| By: | Brixiova, Zuzana (University of Economics Prague); Kangoye, Thierry (African Development Bank); Yogo, Urbain Thierry (World Bank) |
| Abstract: | In the past decade inclusive growth, that is job-rich growth, has topped the policy agenda in developing countries. This paper investigates how the access to finance affects employment in small and medium-sized enterprises (SMEs) in Sub-Saharan Africa. It first presents a model where firm creation requires entrepreneurial search and paying the start-up costs, while the firm's size in terms of employment depends on the access to credit. Under the financial market imperfections, access to credit can be a binding constraint on firm entry and employment even when the banks have sufficient liquidity. Using an impact evaluation-based approach on firm-level data from 42 African countries, we show that SMEs with access to formal financing create more jobs than firms without access, with employment in firms having access to more affordable and larger loans growing the fastest. The impact of access to finance is stronger for firms in manufacturing than in services, pointing to sectoral targeting of finance as a possible policy supporting industrialization. |
| Keywords: | entrepreneurship, financial inclusion, employment, propensity score matching |
| JEL: | L2 G2 D22 C1 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13708&r=all |
| By: | Steven N. Kaplan; Morten Sorensen; Anastasia A. Zakolyukina |
| Abstract: | We use detailed assessments of CEO personalities to explore the option-based measure of CEO overconfidence, Longholder, introduced by Malmendier and Tate (2005a) and widely used in the behavioral corporate finance and economics literatures. Longholder is significantly related to several specific characteristics and is negatively related to general ability. These relations also hold for overconfidence measures derived from CEOs’ earnings guidance. Investment-cash flow sensitivities are larger for both Longholder and less able CEOs. Overall, Longholder CEOs have many of the same characteristics traditionally associated with overconfident individuals, including lower general ability, supporting the interpretation of this measure as reflecting overconfidence. |
| JEL: | G31 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27853&r=all |
| By: | Ernesto Zangari (Bank of Italy) |
| Abstract: | This paper provides an assessment of the evolution of the Italian corporate tax system over the last decade through the computations of new and updated effective tax rates. The analysis takes into account the specificities of Italy’s Allowance for Corporate Equity (ACE) and looks at the evolution of market interest rates to evaluate the effects. It relies on a new method to measure the effect of the limits to the deductibility of the cost of debt. Over the period 2010-2020, the legislative changes led to effective taxation becoming highly volatile. This dynamic was mostly driven by the evolution of the ACE regime. Since 2016, the temporary tax incentives for purchasing machinery greatly reduced the cost of capital. However, since 2019 the provision that phased out the incentives at higher-levels of investment may have lowered their effectiveness for larger firms. The analysis also shows that ACE has better economic properties than the Mini-Ires regime that replaced it temporarily in 2019, in terms of incentive to invest and to increase equity funding. |
| Keywords: | taxation, effective tax rates, corporate taxation, EMTR, allowance for corporate equity |
| JEL: | H25 H32 H71 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1291_20&r=all |
| By: | Kraemer-Eis, Helmut; Botsari, Antonia; Gvetadze, Salome; Lang, Frank; Torfs, Wouter |
| Abstract: | This working paper provides an overview of the main markets relevant to the EIF, with a particular focus on the impact of COVID-19. It starts by discussing the general market environment, then looks at the main aspects of equity finance and the markets for SME debt products and, finally, it highlights important aspects of microfinance in Europe. A chapter on Fintech complements the analysis. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eifwps:202067&r=all |
| By: | Pierluigi Bologna (Bank of Italy); Wanda Cornacchia (Bank of Italy); Maddalena Galardo (Bank of Italy) |
| Abstract: | We estimate the causal effect of a mortgage supply expansion on house prices by using an exogenous change in prudential regulation: the abolition in 2006 of a banks' maturity transformation limit. After the repeal of the prudential rule, credit increased only for the banks that were previously constrained by the regulation, while it remained unchanged for the other banks. Such differential response rules out demand-based explanations and fully identify the rule abolition as an exogenous shock that we exploit as an instrument for mortgage supply expansion. We estimate the elasticity of house price growth to new mortgage credit to be close to 5 percent. Our results also show that the effect of a mortgage supply expansion on house prices significantly differs across municipalities' and borrowers' characteristics. |
| Keywords: | prudential policy, credit supply, house prices, financial constraints |
| JEL: | G21 G28 R21 R31 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1294_20&r=all |
| By: | Shawn Cole; Martin Melecky; Florian Mölders; Tristan Reed |
| Abstract: | There is growing interest in impact investing, the idea of deploying capital to obtain both financial and social or environmental returns. Examination of every equity investment made by the International Finance Corporation, one of the largest and longest-operating impact investors, across 130 emerging market and developing economies shows that this portfolio has outperformed the S&P 500 by 15 percent. Investments in larger economies have higher returns, and returns decline as banking systems deepen and countries relax capital controls. These results are consistent with imperfect integration of international capital markets, and a core thesis of impact investing that some eligible markets do not receive sufficient investment capital. |
| JEL: | G15 O1 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27870&r=all |
| By: | Biswajit Banerjee (Ashoka University); Jelena Ćirjaković (Bank of Slovenia) |
| Abstract: | This paper examines the impact of the global financial crisis on firm exit and corporate deleveraging in Slovenia during 2008‒2014 using firm-level data. Firms are classified according to whether they increased their leverage, decreased their leverage or ceased operation during the specified time interval, and the likelihood of being in these three states are estimated. Deleveraging likelihood is analysed separately for total debt, business-to-business debt, bank debt, and non-bank financial debt. This empirical exercise shows that the influence of covariates on firm exit was different from that on deleveraging, and the impact on deleveraging differed between different types of debt. |
| Keywords: | Firm indebtedness; Firm deleveraging; Firm exit; Financial crisis; Slovenia |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ash:wpaper:41&r=all |
| By: | Mathew, Nanditha (UNU-MERIT); Napolitano, Lorenzo (Joint Research Center (JRC), European Commission); Rizzo, Ugo (Department of Mathematics and Computer Science, University of Ferrara) |
| Abstract: | In this paper we analyze the impact of foreign R&D collaborations on the performance of domestic firms and how the relationship is augmented by the pre-existing capabilities of the domestic firms. Using data on Indian firms, we study patterns of co-invention of Indian firms with foreign partners. The results from a causal mediation analysis confirm the crucial role played by domestic firms' absorptive capacity in enhancing the benefits from a foreign collaboration. The evidence we present in this work highlights the microeconomics behind the process of technological capability accumulation and catching up in developing countries. |
| Keywords: | Co-patenting, Foreign Collaboration, Absorptive Capacity, Capability accumulation, Corporate Performance |
| JEL: | D24 L20 O12 O32 O33 O34 |
| Date: | 2020–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2020044&r=all |