nep-cfn New Economics Papers
on Corporate Finance
Issue of 2020‒11‒09
nine papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Outside Investor Access to Top Management: Market Monitoring versus Stock Price Manipulation By Josef Schroth
  2. Bank lending during the COVID-19 pandemic By Hasan, Iftekhar; Politsidis, Panagiotis; Sharma, Zenu
  3. Chasing dividends during the COVID-19 pandemic By Eugster, Nicolas; Ducret, Romain; Isakov, Dusan; Weisskopf, Jean-Philippe
  4. Institutions, Financial Development, and Small Business Survival: Evidence from European Emerging Markets By Ichiro Iwasaki; Evžen Kocenda; Yoshisada Shida
  5. The standards and practices of corporate governance: relevant current trends By Polezhaeva Natalia; Apevalova Elena; Radygin Alexandr
  6. Corporate Debt Overhang and Credit Policy By Brunnermeier, Markus; Krishnamurthy, Arvind
  7. Risk Management in Engineering and Construction By Nguyen, Phong Thanh; Phu Nguyen, Cuong
  8. The Dynamic Impact of Exporting on Firm R&D Investment By Maican, Florin; Orth, Matilda; Roberts, Mark J.; Anh Vuong, Van
  9. Bank Liquidity Provision across the Firm Size Distribution By Gabriel Chodorow-Reich; Olivier M. Darmouni; Stephan Luck; Matthew Plosser

  1. By: Josef Schroth
    Abstract: This paper studies the role of voluntary disclosure in crowding out independent research about firm value. In the model, when inside firm owners make it easier for outside investors to obtain inexpensive biased information from the manager, investors rely less on costly unbiased research. As a result, managers are tempted to manipulate the firm stock price more, but investors are better informed because they anticipate manager manipulation. An increase in stock-price informativeness, therefore, has to be traded off against an increase in resources wasted on manipulation. I find that, surprisingly, firm owners grant investors more access to managers that manipulate more strongly. An implication is that the firm cost of capital is negatively related to manager manipulation.
    Keywords: Economic models; Financial markets; Recent economic and financial developments
    JEL: D82 D86 G14 G32 G34 M12 M41
    Date: 2020–10
  2. By: Hasan, Iftekhar; Politsidis, Panagiotis; Sharma, Zenu
    Abstract: This paper examines the pricing of global syndicated loans during the COVID-19 pandemic. We find that loan spreads rise by over 11 basis points in response to a one standard deviation increase the lender’s exposure to COVID-19 and over 5 basis points for an equivalent increase in the borrower’s exposure. This renders firms subject to a burden of about USD 5.16 million and USD 2.37 million respectively in additional interest expense for a loan of average size and duration. The aggravating effect of the pandemic is exacerbated with the level of government restrictions to tackle the virus’s spread, with firms’ financial constraints and reliance on debt financing, whereas it is mitigated for relationship borrowers, borrowers listed in multiple exchanges or headquartered in countries that can attract institutional investors.
    Keywords: Syndicated loans, Cost of credit, COVID-19, Pandemic
    JEL: G01 G21 G29 G3
    Date: 2020–10–15
  3. By: Eugster, Nicolas; Ducret, Romain (Faculty of Economics and Social Sciences); Isakov, Dusan; Weisskopf, Jean-Philippe
    Abstract: This paper investigates the impact of the COVID-19 pandemic on the trading behavior of investors around ex-dividend dates in Europe. The sudden decrease in the number of companies paying dividends reduced the opportunities to capture dividends. The firms that have maintained dividend payments during the pandemic thus attracted more interest than before. This led to a doubling in the magnitude of stock return patterns usually observed around ex-dividend days. Our evidence indicates that dividend-seeking investors are likely to be the main driver of the price patterns observed around ex-dividend dates.
    Keywords: COVID-19; dividend capture; price pressure; ex-dividend date; event study
    JEL: G12 G14 G35
    Date: 2020–10–26
  4. By: Ichiro Iwasaki; Evžen Kocenda; Yoshisada Shida
    Abstract: In this paper, we traced the survival status of 94,401 small businesses in 17 European emerging markets from 2007–2017 and empirically examined the determinants of their survival, focusing on institutional quality and financial development. We found that institutional quality and the level of financial development exhibit statistically significant and economically meaningful impacts on the survival probability of the SMEs being researched. The evidence holds even when we control for a set of firm-level characteristics such as ownership structure, financial performance, firm size, and age. The findings are also uniform across industries and country groups and robust beyond the difference in assumption of hazard distribution, firm size, region, and time period.
    Keywords: small business, institutions, financial development, survival analysis, European emerging markets
    JEL: C14 D02 D22 G33 M21
    Date: 2020
  5. By: Polezhaeva Natalia (RANEPA); Apevalova Elena (Gaidar Institute for Economic Policy); Radygin Alexandr (Gaidar Institute for Economic Policy)
    Abstract: An analysis of corporate governance practices would be impossible without understanding the corporate governance development in the context of Russian and world practices. With a certain degree of arbitrariness, the following main phases of its development can be distinguished.
    Keywords: Russian economy, corporate governance
    JEL: G32 G33 G34
    Date: 2020
  6. By: Brunnermeier, Markus (Princeton U); Krishnamurthy, Arvind (Stanford U)
    Abstract: Many business sectors and households face an unprecedented loss of income in the current COVID recession, triggering financial distress, separations, and bankruptcy. Rather than stimulating demand, government policy's main aim should be to provide insurance to firms and workers to avoid undue scarring that will hamper a recovery, once the pandemic is past. We develop a corporate finance framework to guide interventions in credit markets to avoid such scarring. We emphasize three main results. First, policy should inject liquidity into small and medium sized firms that are liquidity constrained and for which social costs of bankruptcy are high. Second, large firms for whom solvency is the dominant issue require a more nuanced approach. Debt overhang creates a distortion leading these firms to fire workers, forgo expenditures that maintain enterprise value, and delay filing for a Chapter 11 bankruptcy longer than is socially efficient. Government resources toward reducing the legal and financial costs of bankruptcy are unambiguously beneficial. Policies that reduce funding costs are only socially desirable if the pandemic is expected to be short-lived and if bankruptcy costs are high. Last, transfers necessary to avoid bankruptcy allow borrowers to continue paying their mortgages or credit card bills and ultimately benefit owners of assets such as real estate or credit card receivables. Taxes to fund transfers should be raised from these asset owners.
    Date: 2020–06
  7. By: Nguyen, Phong Thanh; Phu Nguyen, Cuong
    Abstract: The constant demand for construction in developing countries like Vietnam causes more and more challenges and difficulties to Project Management Units (PMUs) in carrying projects to completion on schedule, with quality assurance and fewer costs. In order to do this, PMUs need to have better and tighter management tools and forms. However, in order to minimize risks during project implementation, the binding terms in contracts are also becoming stricter with more and more new forms of contracts. One of them is the design-build (DB) contract form. This paper presents the critical risk factors for designbuild projects in the construction industry. Good identification and management of these risk factors will help projects succeed and will increase the confidence of owners and contractors who seek to use the design-build form.
    Keywords: design-build (DB); risk management; project manager; construction management; Vietnam
    JEL: D81 G32 L33 R42
    Date: 2019–02–02
  8. By: Maican, Florin (University of Gothenburg); Orth, Matilda (Research Institute of Industrial Economics (IFN)); Roberts, Mark J. (Pennsylvania State University); Anh Vuong, Van (Maastricht University)
    Abstract: This article estimates a dynamic structural model of firm R&D investment in twelve Swedish manufacturing industries and uses it to measure rates of return to R&D and to simulate the impact of trade restrictions on the investment incentives. R&D spending is found to have a larger impact on firm productivity in the export market than in the domestic market. Export market profits are a substantial source of the expected return to R&D. Counterfactual simulations show that trade restrictions lower both the expected return to R&D and R&D investment level, thus reducing an important source of the dynamic gains from trade. A 20 percent tariff on Swedish exports reduces the expected benefits of R&D by an average of 32.2 percent and lowers the amount of R&D spending by 13.9 percent in the high-tech industries. The corresponding reductions in the low-tech industries are 30.4 and 8.9 percent, respectively. R&D adjustments in response to export tariffs mainly occur on the intensive, rather than the extensive, margin.
    Keywords: R&D; Innovation; Trade policy; Productivity
    JEL: F13 L13 L60 O30
    Date: 2020–10–13
  9. By: Gabriel Chodorow-Reich; Olivier M. Darmouni; Stephan Luck; Matthew Plosser
    Abstract: Using loan-level data covering two-thirds of all corporate loans from U.S. banks, we document that SMEs (i) obtain much shorter maturity credit lines than large firms; (ii) have less active maturity management and therefore frequently have expiring credit; (iii) post more collateral on both credit lines and term loans; (iv) have higher utilization rates in normal times; and (v) pay higher spreads, even conditional on other firm characteristics. We present a theory of loan terms that rationalizes these facts as the equilibrium outcome of a trade-off between commitment and discretion. We test the model’s prediction that small firms may be unable to access liquidity when large shocks arrive using data on drawdowns in the COVID recession. Consistent with the theory, the increase in bank credit in 2020:Q1 and 2020:Q2 came almost entirely from drawdowns by large firms on pre-committed lines of credit. Differences in demand for liquidity cannot fully explain the differences in drawdown rates by firm size, as we show that large firms also exhibited much higher sensitivity of drawdowns to industry-level measures of exposure to the COVID recession. Finally, we match the bank data to a list of participants in the Paycheck Protection Program (PPP) and show that SME recipients of PPP loans reduced their non-PPP bank borrowing in 2020:Q2 by between 53 and 125 percent of the amount of their PPP funds, suggesting that government-sponsored liquidity can overcome private credit constraints.
    Keywords: liquidity provision; macro-finance; credit; financial constraints; loan terms; banking; credit lines; COVID-19
    JEL: G00 G20 G30
    Date: 2020–10–01

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