nep-cfn New Economics Papers
on Corporate Finance
Issue of 2020‒11‒16
twenty papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Real effects of lending-based crowdfunding platforms on the SMEs By Olena Havrylchk; Aref Mahdavi Ardekani
  2. Bank Credit and Market-based Finance for Corporations: The Effects of Minibond Issuances By Steven Ongena; Sara Pinoli; Paola Rossi; Alessandro Scopelliti Author-Workplace-European Central Bank (ECB) - Directorate General Economics; University of Zurich - Department of Banking and Finance
  3. Inside the regulatory sandbox: effects on fintech funding By Giulio Cornelli; Sebastian Doerr; Leonardo Gambacorta; Ouarda Merrouche
  4. Do Acquirer Announcement Returns Reflect Value Creation? By Itzhak Ben-David; Utpal Bhattacharya; Stacey E. Jacobsen
  5. Textual Information and IPO Underpricing: A Machine Learning Approach By Katsafados, Apostolos G.; Androutsopoulos, Ion; Chalkidis, Ilias; Fergadiotis, Manos; Leledakis, George N.; Pyrgiotakis, Emmanouil G.
  6. The Reallocation Effects of COVID-19: Evidence from Venture Capital Investments around the World By Andrea Bellucci; Alexander Borisov; Gianluca Gucciardi; Alberto Zazzaro
  7. Firm Growth, Financial Constraints, and Policy-Based Finance By Tim E. DORE; OKAZAKI Tetsuji; ONISHI Ken; WAKAMORI Naoki
  8. How Valuable Is Financial Flexibility When Revenue Stops? Evidence from the COVID-19 Crisis By Fahlenbrach, Rudiger; Rageth, Kevin; Stulz, Rene M.
  9. Determinants of Capital Structure Choices by Listed Firms in Zimbabwe under Hyperinflation and Dollarization By Strike Mbulawa
  10. Firm Financing and the Relative for Labor and Capital By Khalid ElFayoumi
  11. Information Acquisition and Financial Advice By Gülen Karakoç; Marco Pagnozzi; Salvatore Piccolo; Giovanni W. Puopolo
  12. A Note on the Interpretation of Financialization as the ‘Sixth Countertendency’ to Marx’s Law of the Tendency of the Rate of Profit to Fall By Stefano Di Bucchianico
  13. Adverse selection, learning, and competitive search By Mayr-Dorn, Karin
  15. Why Does Equity Capital Flow Out of High Tobin's q Industries? By Lee, Dong Wook; Shin, Hyun-Han; Stulz, Rene M.
  16. Corporate investment and monetary policy transmission in Canada By Min Jae Kim; Jonathan Witmer
  17. Is Financial Globalization in Reverse after the 2008 Global Financial Crisis? Evidence from Corporate Valuations By Doidge, Craig; Karolyi, George Andrew; Stulz, Rene M.
  18. Judicial Efficiency and Lending Quality By Vincenzo D'Apice; Franco Fiordelisi; Giovanni W. Puopolo
  19. Mergers, branch consolidation and financial exclusion in the US bank market By Joan Calzada; Xavier Fageda; Fernando Martínez-Santos
  20. Effect of Long-Term Debt on the Financial Growth of Non-Financial Firms Listed at the Nairobi Securities Exchange By David Haritone Shikumo; Oluoch Oluoch; Joshua Matanda Wepukhulu

  1. By: Olena Havrylchk (Centre d'Economie de la Sorbonne & LabEx ReFi); Aref Mahdavi Ardekani (Centre d'Economie de la Sorbonne)
    Abstract: This paper explores the short-term impact of borrowing via lending-based crowdfunding on performance and health of small and medium enterprises (SMEs) in France. We find that firms borrowing from lending-based crowdfunding platforms are more dynamic (higher asset growth and higher profitability) and innovative, but they have lower leverage, less cash, higher funding costs and less tangible assets that could be pledged as a collateral. To account for this selection bias, we construct three control groups by using Propensity Score Matching, Mahalanobis Distance Matching and Coarsened Exact Matching methods and then run difference-in-difference regressions. We find that borrowing via lending-based crowdfunding platforms increases SMEs' leverage and interest rate burden in the short-term, but these impacts disappear after two years. We observe asset growth during the year of borrowing, but no impact on sales growth, investment, employment or profitability
    Keywords: lending-based crowdfunding; firm financing; firm performance; informational asymmetry
    JEL: G21 G23 G31 G32
    Date: 2020–08
  2. By: Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)); Sara Pinoli (Bank of Italy); Paola Rossi (Bank of Italy); Alessandro Scopelliti Author-Workplace-European Central Bank (ECB) - Directorate General Economics; University of Zurich - Department of Banking and Finance
    Abstract: We study the effects of the diversification of funding sources on the financing conditions for firms. We exploit a regulatory reform which took place in Italy in 2012, i.e., the introduction of “minibonds”, which opened a new market-based funding opportunity for unlisted firms. Using the Italian Credit Register, we investigate the impact of minibond issuance on bank credit conditions for issuer firms, both at the firm-bank and firm-level. We compare new loans granted to issuer firms with new loans concurrently granted to similar non-issuer firms. We find that issuer firms obtain lower interest rates on bank loans of the same maturity than non-issuer firms, suggesting an improvement in their bargaining power with the banks. In addition, issuer firms reduce the amount of used bank credit but increase the overall amount of available external funds, pointing to a substitution with bank credit and to a diversification of corporate funding sources. Studying their ex-post performance, we find that issuer firms expand their total assets and fixed assets, and also raise their leverage.
    Keywords: bank credit; capital markets; minibonds; loan pricing; SME finance.
    JEL: G21 G23 G32 G38
    Date: 2020–11
  3. By: Giulio Cornelli; Sebastian Doerr; Leonardo Gambacorta; Ouarda Merrouche
    Abstract: Policymakers around the world are adopting regulatory sandboxes as a tool for spurring innovation in the financial sector while keeping alert to emerging risks. Using unique data for the UK, this paper provides initial evidence on the effectiveness of the world's first sandbox in improving fintechs' access to finance. Firms entering the sandbox see a significant increase of 15% in capital raised post-entry, relative to firms that did not enter; and their probability of raising capital increases by 50%. Our results furthermore suggest that the sandbox facilitates access to capital through two channels: reduced asymmetric information and reduced regulatory costs or uncertainty. Our results are confirmed when we exploit the staggered introduction of the sandbox and compare firms in earlier to those in later sandbox cohorts, and when we compare participating firms to a matched set of firms that never enters the sandbox.
    Keywords: fintech, regulatory sandbox, startups, venture capital.
    JEL: G32 G38 M13 O3
    Date: 2020–11
  4. By: Itzhak Ben-David; Utpal Bhattacharya; Stacey E. Jacobsen
    Abstract: Stock returns around acquisition announcements are widely viewed as being reflective of the net present value created by these transactions. As such, announcement returns should correlate with acquisition outcomes. Using a new measure of realized transaction-level acquisition failure, as well as acquirer firm-level performance, we show that while these outcomes can be predicted based on observable deal and firm characteristics, they are largely uncorrelated with announcement returns. Our results cast doubt on the usefulness of announcement returns as a measure of the value created in acquisitions and call for caution in other contexts.
    JEL: G02 G14 G32 G34
    Date: 2020–10
  5. By: Katsafados, Apostolos G.; Androutsopoulos, Ion; Chalkidis, Ilias; Fergadiotis, Manos; Leledakis, George N.; Pyrgiotakis, Emmanouil G.
    Abstract: This study examines the predictive power of textual information from S-1 filings in explaining IPO underpricing. Our empirical approach differs from previous research, as we utilize several machine learning algorithms to predict whether an IPO will be underpriced, or not. We analyze a large sample of 2,481 U.S. IPOs from 1997 to 2016, and we find that textual information can effectively complement traditional financial variables in terms of prediction accuracy. In fact, models that use both textual data and financial variables as inputs have superior performance compared to models using a single type of input. We attribute our findings to the fact that textual information can reduce the ex-ante valuation uncertainty of IPO firms, thus leading to more accurate estimates.
    Keywords: Initial public offerings; First-day returns; Machine learning; Natural language processing
    JEL: G02 G14 G30 G32
    Date: 2020–10–27
  6. By: Andrea Bellucci (European Commission, Joint Research Centre (JRC)); Alexander Borisov (Carl H. Lindner College of Business, University of Cincinnati); Gianluca Gucciardi (European Commission, Joint Research Centre (JRC)); Alberto Zazzaro (Department of Economics and Statistics, University of Naples Federico II)
    Abstract: We examine possible reallocation effects on venture capital (VC) investment due to the spread of COVID-19 around the globe. Exploiting the staggered nature of the pandemic and transactionlevel data, we empirically document a shift of venture capital towards deals in pandemic-related categories. A difference-in-differences analysis estimates significant increases in invested amount and number of deals in such categories. We further highlight several heterogenous effects related to the experience of VC investors, their organizational form, and country of origin. Our results underscore the link between the spread of the pandemic and the functioning of the VC market around the world.
    Keywords: Venture Capital, Investment, COVID-19, Healthcare, Pandemic
    JEL: G24 F21 D81 E22 E44
    Date: 2020–10
  7. By: Tim E. DORE; OKAZAKI Tetsuji; ONISHI Ken; WAKAMORI Naoki
    Abstract: This paper investigates how additional credit supply affects the growth of small and medium enterprises (SMEs) by looking at a unique policy-based, small business lending program in Japan. Combining the loan-level data provided by the Japan Finance Corporation with the financial statement database for SMEs, we compare outcomes between SMEs receiving the loan (treated group) and SMEs not receiving the loan (control group). We find that policy-based credit supply increases investment and employment, which results in a higher long-run growth rate of SMEs. SMEs increase their asset value and hire more employees immediately after the credit supply and the effects stay persistent over years. On the other hand, sales increases gradually over years, which suggests that the credit supply changes the growth rate of SMEs, though we cannot detect any improvement in labor productivity. The persistent differences in long- and short-term loans between treated and control groups may suggest that SMEs are indeed credit constrained and face difficulty finding alternative financing sources.
    Date: 2020–10
  8. By: Fahlenbrach, Rudiger (Ecole Polytechnique Federale de Lausanne and Swiss Financial Institute); Rageth, Kevin (Ecole Polytechnique Federal de Lausanne and Swiss Financial Institute); Stulz, Rene M. (Ohio State U and European Corporate Governance Institute)
    Abstract: Firms with greater financial flexibility should be better able to fund a revenue shortfall resulting from the COVID-19 shock and benefit less from policy responses. We find that firms with high financial flexibility within an industry experience a stock price drop lower by 26% or 9.7 percentage points than those with low financial flexibility. This differential return persists as stock prices rebound. The firms more exposed to the COVID-19 shock benefit more from cash holdings. There is no evidence that recent payouts made the average firm’s stock price drop worse. Our results cannot be explained by a leverage effect.
    JEL: G01 G14 G32 G35
    Date: 2020–10
  9. By: Strike Mbulawa (Botho University,Gaborone, Botswana)
    Abstract: The paper uses panel data, from 2000 to 2013, to examine the key determinants of capital structure choices for Zimbabwe listed firms under hyperinflation and dollarization by: (1) providing a reduced form model which isolates the key factors consistent with the unique situation for Zimbabwe; (2) testing the existence of a nonlinear relationship between leverage and capital structure factors; (3) ascertainingthe significance of marginal effects of explanatory variables due to inflation; and (4) establishing how the behaviour of firm managers influenced the choice of leverage. In an inflationary environment, the main factors explaining the choice of debt wereprofitability, non-debt tax shield, payout ratio, ownership structure, hyperinflation dummy variable, growth opportunities and asset structure. Under dollarization,leverage was explained by changes in revenue, firm size, short-term liquid assets, dividend payout ratio, taxation and the industry dummy variable. Information asymmetries, the use of short-term debt and the strong influence by firm managerson the choice of leverage were prevalent during the period of inflation. Firm size and liquidity explained use of long-term debt during dollarization. Debt finance had a nonlinear relationship with firm size and managerial ownership. A reversed pecking orderof finance is suggested by evidence in this study. The study shows that the composition and level of debt are important under the review period. The key implications for policy require the streamlining of access and use of bank finance and funds from capital markets. Access to capital and money markets by firms can be supported by improving the flow of quality information and efficient credit rationing policies.
    Date: 2020
  10. By: Khalid ElFayoumi
    Abstract: During both the 2008 and the COVID crises, aggregate employment in Europe and the US fell despite continuing growth in the aggregate capital stock. Using more than one million firm-year observations of small and medium European firms between 2003 and 2018, this paper introduces new stylized facts on how firms’ relative demand for labor and capital evolved as their capital structure adjusted to the events of the 2008 crisis. It also provides the first micro-level evidence that firms substitute capital for labor when financing costs rise. The empirical evidence lends support to the hypothesis that substitution is driven by an incentive to raise holdings of collateralizable capital. The analysis uses the heterogeneous effects of ECB monetary policy surprises across the firm distribution to identify exogenous firm-level external financing shocks. The results suggest that maintaining a well functioning credit market supports a higher labor share of economic growth.
    Keywords: Labor demand, financial frictions, jobless growth, labor share
    JEL: E3 E5 G3 J2 J3
    Date: 2020
  11. By: Gülen Karakoç (Università degli studi di Milano); Marco Pagnozzi (Università di Napoli Federico II and CSEF); Salvatore Piccolo (Università di Bergamo and CSEF); Giovanni W. Puopolo (Università di Napoli Federico II and CSEF)
    Abstract: This paper studies the interplay between the investor’s incentives to delegate her asset allocation choice to a biased financial advisor, and the advisor’s decision to acquire information about multiple characteristics of the risky asset. We show that, to prevent unprofitable investments, the investor may delegate to the advisor imposing a cap on the amount of wealth that the advisor can invest. This cap (i) is decreasing in the magnitude of the conflict of interests between the investor and the advisor and (ii) may be lower when the advisor possesses more information. Interestingly, although the investor always prefers a more-informed advisor, the advisor may choose not to acquire full information, and reducing the conflict of interests with the investor may actually induce the advisor to acquire less information.
    Keywords: Financial Advice, Asset-Allocation, Delegation, Information Acquisition.
    JEL: G11 G21 D40 D82 D83
    Date: 2019–11–04
  12. By: Stefano Di Bucchianico
    Abstract: Marxian economics has been dealing extensively with the phenomenon of financialization. Among the wide variety of approaches, there are those putting at the center of the stage the issue of faltering profitability. Besides the analytical arguments, one finds in this line of research contributions linking financialization and the list of counter-elements to the Law of the Tendency of the Rate of Profit to Fall. Financialization is thus interpreted as the 'sixth' countertendency to that law (the ‘increase of stock capital’), referring to the list in Chapter XIV of Capital, Vol. III. We aim to provide an alternative interpretation of that last counter-factor. The proposal is based on three elements. First, the role of joint-stock companies issuance of long-term financing instruments yielding low remuneration. Second, how the average rate of profit is calculated. Third, the role of the organic composition of capital in determining differences in sectoral profitability. We eventually claim that the sixth element should be read as referring to the convergence of the rate of profit towards a uniform value and not as a prediction of the emergence of financialization
    Keywords: Law of the Tendency of the Rate of Profit to Fall; Karl Marx; financialization; Capital, Volume III; rate of profit
    JEL: B14 B26 B51
    Date: 2020–10
  13. By: Mayr-Dorn, Karin
    Abstract: I develop a dynamic version of the competitive search model with adverse selection in Guerrieri, Shimer and Wright (2010). My model allows for an analysis of the effects of firm learning on labor market efficiency in the presence of search frictions. I find that firm learning increases relative expected earnings in high-ability jobs and, thereby, enhances imitation incentives of low-ability workers. The net effect on the aggregate expected match surplus and unemployment is indeterminate a priori. Numerical results show that firm learning does not increase labor market efficiency.
    Keywords: job search,on-the-job effort,asymmetric information,learning
    JEL: D82 D83 J64
    Date: 2020
  14. By: Ahmad Saufi, Sarah
    Abstract: This study aims to determine the relationship between dependent variable, quick ratio and other internal and external variables in VF Corporation in United States over five years. For the purpose of analysis, the selected data from 2014 until 2018 of VF Corporation is applied as the sample of data. The examination is being carried out in determine the effect of different variables such as return on assets (ROA), average collection period, debt to income, operational ratio, operating margin, corporate governance index, gross domestic product (GDP), inflation, interest rate, exchange rate and market risk. The finding reveals that the liquidity of the company can be influenced by the operational risk. The study shows average collection period have significant negative effect on firm’s liquidity.
    Keywords: liquidity performance, operational risk, and average collection period
    JEL: G3 G32 O16
    Date: 2019–11–14
  15. By: Lee, Dong Wook (Korea U); Shin, Hyun-Han (Yonsei U); Stulz, Rene M. (Ohio State U and European Corporate Governance Institute)
    Abstract: High Tobin's q industries receive more funding from capital markets than low Tobin's q industries from 1971 to 1996. Since then, the opposite is true. The key to understanding this shift is that large firms for which q is more a proxy for rents than for investment opportunities have become more important within industries. For these firms, repurchases increase with q but capital expenditures do not, so that q explains more the variation of repurchases than of capital expenditures. Consequently, equity capital flows out of high q industries because, for these industries, stock repurchases are high and issuances are low.
    JEL: E22 E44 G31 G35 L16
    Date: 2020–02
  16. By: Min Jae Kim; Jonathan Witmer
    Abstract: Unexpected changes in interest rates lead small firms to materially change their investment rate. Large firms, in contrast, show a smaller response. This suggests both that financial conditions are an important channel for transmitting monetary policy and that firm characteristics can help us better understand fluctuations in business investment.
    Keywords: Firm dynamics, Monetary policy, Monetary policy: transmission of
    JEL: D92 G32
    Date: 2020–11
  17. By: Doidge, Craig (U of Toronto); Karolyi, George Andrew (Cornell U); Stulz, Rene M. (Ohio State U and European Corporate Governance Institute)
    Abstract: For the last two decades, non-US firms have lower valuations than similar US firms. We study the evolution of this valuation gap to assess whether financial markets are less integrated after the 2008 global financial crisis (GFC). The valuation gap for firms from developed markets increases by 31% after the GFC – a reversal in financial globalization – while the gap for firms from emerging markets (excluding China) stays stable. There is no evidence of greater segmentation for non-US firms cross-listed on major US exchanges and the typical valuation premium of such firms relative to domestic counterparts stays unchanged. However, the number of such firms shrinks sharply, so that the importance of US cross-listings as a mechanism for market integration diminishes.
    JEL: F21 F65 G10 G15 G34
    Date: 2020–04
  18. By: Vincenzo D'Apice (Center for Relationship Banking and Economics (CERBE).); Franco Fiordelisi (Essex Business School.); Giovanni W. Puopolo (Università di Napoli Federico II and CSEF)
    Abstract: We investigate the causal relationship between the efficiency of country’s judicial system and the quality of bank lending, using the enforcing contracts reforms that have been implemented in four European countries as a quasi-natural experiment. We find that improvements of enforcing contracts determine large, significant, and persistent reductions of banks’ non-performing-loans (NPLs). These findings are robust to several difference-in-difference tests and reverse causality concerns. Our results have important policy implications especially at the light of the recent Covid-19 pandemic since they may help the banking system mitigate the virus’ negative financial effects.
    Keywords: Judicial Systems, Non-Performing Loans, Banking Stability.
    JEL: G21 G28
    Date: 2019–11–04
  19. By: Joan Calzada (Universitat de Barcelona); Xavier Fageda (Universitat de Barcelona); Fernando Martínez-Santos (Universidad San Pablo CEU)
    Abstract: We analyze the role of bank mergers as determinants of the evolution of branch presence at the county level. Panel regressions based on county-level branch density are used to study differences across urban versus rural counties as well as pre- and post-crisis. The results indicate that bank mergers contributed to the increase of branches in the pre-crisis period and to its reduction in the post-crisis period, but the expansion effect of the mergers before the crisis mainly took place in metropolitan counties. Additional results show that broadband penetration has contributed to the reduction in the number of branches after the crisis and that branch closures are associated with an increase in the share of unbanked and underbanked households at the county level.
    Keywords: Bank branches, Mergers, Competition, Broadband, Financial Exclusion, United States.
    JEL: L16 L22 G21 G34 G38
    Date: 2019
  20. By: David Haritone Shikumo; Oluoch Oluoch; Joshua Matanda Wepukhulu
    Abstract: A significant number of the non-financial firms listed at Nairobi Securities Exchange (NSE) have been experiencing declining financial performance which deter investors from investing in such firms. The lenders are also not willing to lend to such firms. As such, the firms struggle to raise funds for their operations. Prudent financing decisions can lead to financial growth of the firm. The purpose of this study is to assess the effect of Long-term debt on the financial growth of Non-financial firms listed at Nairobi Securities Exchange. Financial firms were excluded because of their specific sector characteristics and stringent regulatory framework. The study is guided by Trade-Off Theory and Theory of Growth of the Firm. Explanatory research design was adopted. The population of the study comprised of 45 non-financial firms listed at the NSE for a period of ten years from 2008 to 2017. The study conducted both descriptive statistics analysis and panel data analysis. The result indicates that Long term debt explains 21.6% and 5.16% of variation in financial growth as measured by growth in earnings per share and growth in market capitalization respectively. Long term debt positively and significantly influences financial growth measured using both growth in earnings per share and growth in market capitalization. The study recommends that, the management of non-financial firms listed at Nairobi Securities Exchange to employ financing means that can improve the earnings per share, market capitalization and enhance the value of the firm for the benefit of its stakeholders.
    Date: 2020–10

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