nep-cfn New Economics Papers
on Corporate Finance
Issue of 2020‒12‒14
fifteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Financial Performance Analysis Of Distressed Banks: Exploration Of Financial Ratios And The Z-score By Matey, Juabin
  2. Governance Structure, Technical Change and Industry Competition By Mattia Guerini; Philipp Harting; Mauro Napoletano
  3. The Costs of Corporate Debt Overhang Following the COVID-19 Outbreak By Kristian S. Blickle; Joao A. C. Santos
  4. Gender board diversity and the cost of bank loans By Panagiotis Karavitis; Sotirios Kokas; Serafeim Tsoukas
  5. Disclosure and publication of information on the governance and ownership of joint-stock corporations in Europe (19th-early 20th centuries) By Poukens, Johan
  6. Financing Costs and the Efficiency of Public-Private Partnerships By Besart Avdiu; Alfons Weichenrieder
  7. Zombies at large? Corporate debt overhang and the macroeconomy By Òscar Jordà; Martin Kornejew; Moritz Schularick; Alan M. Taylor
  8. Tribalism and Finance By Oasis Kodila-Tedika; Simplice A. Asongu
  9. Distant but Close in Sight. Firm-level Evidence on French-German Productivity Gaps in Manufacturing By Thomas Grebel; Mauro Napoletano; Lionel Nesta
  10. Zombie lending: how many wondering souls are there? By Cecilia Dassatti; Francesc Rodriguez-Tous; Rodrigo Lluberas
  11. Artificial Intelligence Innovation in Financial Services By Margarete Biallas; Felicity O'Neill
  12. Venture capital risk, start-ups and innovation: the syndication of venture capital investments recipe. By Jonathan Labbé
  13. Inventory investment and the choice of financing: Does financial development play a role? By Junhong Yang,; Alessandra Guariglia; Yuchao Peng; Yukun Shi
  14. English private equity financing and merger in Luxembourg: study of the cultural forces on the corporate governance of an SME in the Luxembourg financial sector By Jonathan Labbé; Mélanie Robert
  15. Ten Meditations on (Public) Venture Capital – Revisited By Murray, Gordon

  1. By: Matey, Juabin
    Abstract: A robust bank industry is a major player in the stability of an economy, and therefore the macroeconomic decisions of most countries revolve around the bank-based financial sector. The Ghana financial industry witnessed a cleanup exercise in 2017 due to the impaired conditions under which it operated in the past. This study used financial ratios aided by the Z-score to analyse the financial performance of UT Bank prior to the 2017 bank industry health check in Ghana. Annual financials over a ten-year period (2007-2016) were used. It was realised that debt management practices of UT Bank were quite unsatisfactory and unimpressive. This was observed in the poor leverage and risk management variable ratios. Considering the results, UT Bank clearly had difficulty obliging to customers’ maturing debts. The average mean values of debt-to-equity and debt-to asset of 7.6 and 0.90 respectively pointed to a case of distress. The entire bank sector stands to benefit if credit management practices of banks, especially UT Bank and all other banks that suffered the same fate, are improved on. As a policy recommendation, the regulator of the bank industry should tighten up its supervisory and monitoring powers to help in detecting early signs of non-performing banks. The study further recommends that statutory lending limits of banks be re-enforced to uphold the threshold of 10 percent for unsecured loans and 25 percent for secured loans of net owned funds of banks.
    Keywords: Debt, Distress, Performance, Credit Management Practice, Z-score
    JEL: G2 G21 G28 G3 G32 G33 G34 G38
    Date: 2019–11–12
  2. By: Mattia Guerini (Université Côte d'Azur, CNRS, GREDEG, France; Sant'Anna School of Advanced Studies; Sciences Po., OFCE); Philipp Harting (Bielefeld University); Mauro Napoletano (OFCE Sciences-Po; SKEMA Business School)
    Abstract: We develop a model to study the impact of corporate governance on firm investment decisions and industry competition. In the model, governance structure affects the distribution of shares among short- and long-term oriented investors, the robustness of the management regarding possible stockholder interference, and the managerial remuneration scheme. A bargaining process between firm's stakeholders determines the optimal allocation of financial resources between real investments in R&D and financial investments in shares buybacks. We characterize the relation between corporate governance and firm's optimal investment strategy and we study how different governance structures shape technical progress and the degree of competition over the industrial life cycle. Numerical simulations of a calibrated set-up of the model show that pooling together industries characterized by heterogeneous governance structures generate the well-documented inverted-U shaped relation between competition and innovation.
    Keywords: Governance structure, industry dynamics, competition, technical change
    JEL: G34 L22 M12
    Date: 2020–11
  3. By: Kristian S. Blickle; Joao A. C. Santos
    Abstract: Leading up to the COVID-19 outbreak, there were growing concerns about corporate sector indebtedness. High levels of borrowing may give rise to a “debt overhang” problem, particularly during downturns, whereby firms forego good investment opportunities because of an inability to raise additional funding. In this post, we show that firms with high levels of borrowing at the onset of the Great Recession underperformed in the following years, compared to similar—but less indebted—firms. These findings, together with early data on the revenue contractions following the COVID-19 outbreak, suggest that debt overhang during the COVID-recession could lead to an up to 10 percent decrease in growth for firms in industries most affected by the economic repercussions of the battle against the outbreak.
    Keywords: debt overhang; COVID-19
    JEL: G3
    Date: 2020–12–01
  4. By: Panagiotis Karavitis; Sotirios Kokas; Serafeim Tsoukas
    Abstract: We examine the relationship between female board representation and the cost of lending, using a dataset of 13,714 loans from 386 banks matched with 2,432 non-financial firms from 1999 to 2013. We find that firms with female directors command lower loan spreads. In addition, female independent directors have a stronger impact on lowering spreads compared to female directors' other attributes. However, as firms build relationships with their lenders this effect becomes less potent. Finally, when we introduce firm-level heterogeneity we document that changes in gender diversity exert a stronger impact on the cost of lending in the case of bank-dependent firms, especially for relationship borrowers.
    Keywords: Gender diversity, Board of directors, Bank loans, Relationship lending
    JEL: G21 G30
    Date: 2020–09
  5. By: Poukens, Johan
    Abstract: Corporate law increasingly paid attention to the disclosure and publication of information on the governance and ownership of joint-stock corporations. This paper on the one hand gives an overview of mandatory disclosure and publication requirements for joint-stock companies in the corporate legislation of Belgium, France, Germany, the Netherlands, Spain and the United Kingdom from the beginning of the nineteenth century until the interwar period. We argue that changes over time were consequence of a new approach to investor protection which coincided with transition to a concessionary regime to general incorporation and that differences between countries with different legal traditions were minimal. On the other hand, references to official publications which contained constitutional documents and information on governance and ownership are provided in an appendix.
    JEL: N01 N43 N44
    Date: 2020
  6. By: Besart Avdiu; Alfons Weichenrieder
    Abstract: The paper compares provision of public infrastructure via public-private partnerships (PPPs) with provision under government management. Due to soft budget constraints of government management, PPPs exert more effort and therefore have a cost advantage in building infrastructure. At the same time, hard budget constraints for PPPs introduce a bankruptcy risk and bankruptcy costs. Consequently, if bankruptcy costs are high, PPPs may be less efficient than public management, although this does not result from PPPs’ higher interest costs.
    Keywords: public-private partnerships, infrastructure, financing costs, default
    JEL: H11 H54 G33
    Date: 2020
  7. By: Òscar Jordà (Federal Reserve Bank of San Francisco; and Department of Economics, University of California, Davis); Martin Kornejew (Department of Economics, University of Bonn); Moritz Schularick (Federal Reserve Bank of New York; and Department of Economics, University of Bonn; and CEPR); Alan M. Taylor (Department of Economics and Graduate School of Management, University of California, Davis; NBER; and CEPR)
    Abstract: With business leverage at record levels, the effects of corporate debt overhang on growth and investment have become a prominent concern. In this paper, we study the effects of corporate debt overhang based on long-run cross-country data covering the nearuniverse of modern business cycles. We show that business credit booms typically do not leave a lasting imprint on the macroeconomy. Quantile local projections indicate that business credit booms do not affect the economy’s tail risks either. Yet in line with theory, we find that the economic costs of corporate debt booms rise when inefficient debt restructuring and liquidation impede the resolution of corporate financial distress and make it more likely that corporate zombies creep along.
    Keywords: corporate debt, business cycles, local projections
    JEL: E44 G32 G33 N20
    Date: 2020–12
  8. By: Oasis Kodila-Tedika (Kinshasa, DRC); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: We assess the correlations between tribalism and financial development in 60 countries using data averages from 2000-2010. The tribalism index is used to measure tribalism whereas financial development is measured from perspectives of financial intermediary and stock market developments. The long term finance variable is stock market capitalisation while the short run variable is private and domestic credit. We find that tribalism is negatively correlated with financial development and the magnitude of negativity is higher for financial intermediary development relative to stock market development. The findings are particularly relevant to African and Middle Eastern countries where the scourge of tribalism is most pronounced.
    Keywords: Tribalism; Financial Development
    JEL: E62 H11 H20 G20 O43
    Date: 2020–01
  9. By: Thomas Grebel (Technische Universität Ilmenau, Germany); Mauro Napoletano (OFCE Sciences-Po; SKEMA Business School); Lionel Nesta (Université Côte d'Azur, France; GREDEG CNRS; OFCE, SciencesPo; SKEMA Business School)
    Abstract: We study the productivity level distributions of manufacturing firms in France and Germany, and how these distributions evolved across the Great Recession. We show the presence of a systematic productivity advantage of German firms over French ones in the decade 2003-2013, but the gap has narrowed down after the Great Recession. Convergence is explained by the better growth performance of French firms in the post-recession period, especially of those located in the top percentiles of the productivity distribution. We also highlight the role of sectoral growth, firm size and export intensity in explaining the above convergence. In contrast, the contribution of allocative efficiency was small.
    Keywords: International productivity gaps, productivity distributions, firm level comparisons
    JEL: L10 N10 D24
    Date: 2020–11
  10. By: Cecilia Dassatti (Banco Central del Uruguay); Francesc Rodriguez-Tous (Cass Business School); Rodrigo Lluberas (Banco Central del Uruguay)
    Abstract: Banks' incentives to implement a policy of forbearance in order to avoid increasing their loan loss reserves leads to loan “evergreening”, through which a bank grants additional credit to a troubled firm. Exploiting granular data of all corporate loans from the Credit Registry in Uruguay, we identify banks' zombie lending strategies. While most papers on zombie lending focus on firms that display low levels of profitability, low productivity or that receive subsidized loans, we analyze zombie lending strategies by looking at changes in loans' repayment schedules granted by banks to firms. This allows us to actually observe the implementation of a zombie lending strategy, instead of inferring it through firms' balance-sheet indicators. After identifying and characterizing zombie lending, we study its effects on credit growth, finding a positive and statistically significant relationship between credit growth and zombie lending.
    Keywords: banks, credit, loan evergreening, regulatory arbitrage, zombie lending
    JEL: G21 G28 E44
    Date: 2020
  11. By: Margarete Biallas; Felicity O'Neill
    Keywords: Finance and Financial Sector Development - Access to Finance Finance and Financial Sector Development - Financial Structures Finance and Financial Sector Development - International Financial Markets Information and Communication Technologies - ICT Applications International Economics and Trade - Trade Finance and Investment Private Sector Development - Emerging Markets
    Date: 2020–06
  12. By: Jonathan Labbé (CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine)
    Abstract: This study presents the effects of the syndication of venture capital investments, on start-ups innovation. For this purpose, we have built a database of 315 deals carried out in 96 companies over a ten-year period. This study attempts to characterize the importance of the role of resources and the competitive advantage they confer to companies. By using the level of research and development (R&D) expenditure and patent applications as a measure of innovation, we highlight several results. Using a dynamic panel approach, we observe that the use of syndication financing tends to "optimize" the effects on the innovation of start-ups.
    Abstract: Cet article présente les effets des financements par syndication mixte sur l'innovation des start-ups. Pour cela nous avons construit une base de données regroupant 315 financements réalisés dans 96 entreprises sur une période de dix années. Cette étude tente caractériser l'importance du rôle des ressources et de l'avantage compétitif qu'elles confèrent aux entreprises. En utilisant le niveau des dépenses de recherche et développement (R&D) et les dépôts de brevets comme mesure de l'innovation nous mettons en évidence plusieurs résultats. Grâce à une approche par panels dynamiques, nous observons que le recours au financement par syndication tend à « optimiser » les effets sur l'innovation des start-ups.
    Keywords: Governance,Start-ups,Start-ups Keywords: Venture capital,Gouvernance,Innovation,Syndication,Capital-Investissement
    Date: 2020–11–12
  13. By: Junhong Yang,; Alessandra Guariglia; Yuchao Peng; Yukun Shi
    Abstract: Using a panel of 224,604 Chinese firms over the period 2004-2009, together with a set of unique city-level financial development data, we document a positive and significant association between both bank loans and trade credit and inventory investment. Furthermore, we find that in cities with relatively high (low) financial development, firms rely more on bank loans (trade credit) to finance their inventory investment. Finally, we show that the moderating effect played by financial development on the association between bank loans/trade credit and inventory investment is more pronounced for firms more likely to face financing constraints, namely privately-owned, small firms, with no political connections, located in coastal regions. Our results are robust to using a variety of different specifications and estimation methods.
    Keywords: Financing choice, Trade credit, Bank loans, Inventories, Financial development, Financing constraints
    Date: 2020
  14. By: Jonathan Labbé (CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine); Mélanie Robert (CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine)
    Date: 2020–12–10
  15. By: Murray, Gordon
    Abstract: This paper reflects on the policy formation process in the burgeoning area of government’s involvement venture capital finance (VC) over the two decades 2000-2020. It looks at both why and how government VC funds (GVC) have evolved. The increasingly common vehicle of ‘hybrid’ co-investment funds, which include both public and private VC investors managed by a jointly approved private fund manager, is analysed. The evolution and greater refinement of public intervention in VC markets over time is acknowledged while noting that significant operational challenges remain. There is some evidence that later iterations of GVC programmes have started to add net value which may imply a public-policy learning process. A fluctuating supply over time for venture capital finance, particularly at the earliest stages of firm formation and growth, suggests the benefits of well-designed and complementary government venture capital activity. The rubric of Ten Meditations is employed as a device to communicate both problem and prescription across the academic/policy maker divide. The paper is intended to be relevant to policy makers while grounded in robust academic research.
    Keywords: Venture Capital, Entrepreneurial Finance, Government Policy, Co-investment Funds
    JEL: G2 G24 G28
    Date: 2020–11–27

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