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on Corporate Finance |
| By: | Yueran Ma; José A. Scheinkman |
| Abstract: | We study asset and debt characteristics of US bank holding companies. We show that financial institutions, especially large institutions, are not just about holding discrete assets. Services and going-concern values are important, and capital market debt against going-concern values accounts for 10% to 15% of total assets, comparable to the volume of capital market debt against discrete assets. We find that financial institutions’ debt against going-concern values has weak monitoring, relative to similar debt among non-financial firms. We argue that weak monitoring prevails because creditors cannot easily punish or restructure these institutions should they violate covenants, which limits covenants’ usefulness. |
| JEL: | G21 G28 G32 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28088&r=all |
| By: | Guzman Gonzales-Torres (Bank of Italy); Francesco Manaresi (Bank of Italy); Filippo Scoccianti (Bank of Italy) |
| Abstract: | We show that the credit crunch of 2007-2013 favoured the adoption by startups of more efficient, intangible-intensive technologies. Using data for the universe of Italian corporations, we document that the cohorts of firms born during the crisis significantly increased their share of intangible capital relative to both incumbents and comparable young firms born before the crisis. Moreover, the entry rates of intangible-intensive startups decreased by less than those of other firms. We estimate that this selection is directly linked to the tightening of credit conditions. We use a firm dynamics model to unveil the mechanism behind these patterns. Intangible goods make firms more efficient and profitable, reducing their demand of total capital and, crucially, their leverage at entry: this increases their resiliency to a financial shock. In the aggregate, a credit tightening changes the composition of new cohorts in favor of intangible-intensive producers, resulting in a persistent increase in intangible capital accumulation. |
| Keywords: | firm dynamics, intangibles, startup, financial crisis |
| JEL: | E22 E23 G32 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_582_20&r=all |
| By: | Manthos D. Delis (Montpellier Business School); Maria Iosifidi (University of Surrey - Surrey Business School); Pantelis Kazakis (University of Glasgow - Adam Smith Business School); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)); Mike G. Tsionas (Montpellier Business School) |
| Abstract: | This paper studies whether management quality in acquiring firms determines merger and acquisition (M&A) success. We model management practices as an unobserved (latent) variable in a standard microeconomic model of the firm and derive firm-year management estimates. We show that our measure is among the most important determinants of value creation in M&A deals. Our results are robust to the inclusion of acquirer fixed effects, to a large set of control variables, and to several other sensitivity tests. We also show that management explains, albeit to a lesser extent, acquirers’ return on equity and Tobin’s q. |
| Keywords: | Mergers and acquisitions; Management practices; Acquirer returns |
| JEL: | G14 G34 J24 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp20102&r=all |
| By: | Òscar Jordà; Martin Kornejew; Moritz Schularick; Alan M. Taylor |
| 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 near-universe 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: | 2020–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:89124&r=all |
| By: | Iftekhar Hasan; Panagiotis Karavitis; Pantelis Kazakis; Woon Sau Leung |
| Abstract: | This paper studies the relationship between corporate social responsibility (CSR) and profit shifting. Using a profit-shifting measure derived from worldwide data for parent firms and their foreign subsidiaries, we find that corporate social responsibility is positively and significantly associated with profit shifting, consistent with the legitimacy theory and a risk-management strategy. Our findings are robust to a battery of sensitivity and endogeneity tests. Overall, our evidence suggests that multinational firms with higher CSR scores shift larger amounts of profits to their low-tax foreign subsidiaries, potentially indicating strategic planning in the choice of CSR investments by multinational enterprises. |
| Keywords: | Corporate social responsibility, Legitimacy theory, Risk management, Profit shifting, Corporate tax systems, Agency problems |
| JEL: | F23 G30 G32 H25 H26 L10 L21 M14 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2020_28&r=all |
| By: | Jayasooriya, Sujith |
| Abstract: | Access to finance in the digital era is innovative with the different alternative funding approaches. In emerging markets, digital innovation of the financial sources is not limited to the own capital or borrowing from bank or credit institutions but numerous paths of financing. The purpose of the research is to recognize the alternative and innovative funding tools including borrowed from bank/credit institution, borrowed against interest from other sources, and borrowed from other sources without interest, peer-to-peer (P2P) lending -borrowed from friends and relatives without interest-, and stocks issued. The data was obtained from the survey of 2647 enterprises conducted by the UNU WIDER 2015 in Vietnam. The probit model approach for access to finance is used to analyze the impact of alternative funding tools for enterprises. The results predict the use of alternative funding tools for startup capital and investment financing of the firms separately. The results revealed that sources of start-up capital from founders’ own money, loans from friends and acquaintances, finance/investments from other enterprises, domestic bank loan, and Informal credit association (money lenders, informal bank, pawnshop) are positively and significantly affect the access to finance, while loans from family members, business associations, and international bank loans are not significant. Meanwhile, own funding, bank/credit institution, borrowed against interest from other sources, and borrowed from other sources without interest, borrowed from friends and relatives without interest have significantly affected the access to finance. In a summary, the alternative funding tools are an important source for financing SMEs in Vietnam. |
| Keywords: | Alternative funding, P2P lending, SMEs, Access to Finance |
| JEL: | L11 L22 L25 M13 |
| Date: | 2020–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104387&r=all |
| By: | Arianna Agosto (Università di Pavia); Daniel Felix Ahelegbey (Università di Pavia) |
| Abstract: | Interconnectedness between economic institution and sectors, already recognised as a trigger of the great financial crisis in 2008-2009, is assuming growing importance in financial systems. In this paper we study contagion effects between corporate sectors using financial network models, in which the significant links are identified through conditional independence testing. While the existing financial network literature is mostly focused on Gaussian processes, our approach is based on discrete data. We indeed test dependence in the conditional mean (and volatility) of default counts in different economic sector estimated from Poisson autoregressive models, and in its shocks. Our empirical application to Italian corporate defaults in the 1996-2018 period reveals evidence of a high inter-sector vulnerability, especially at the onset of the global financial crisis in 2008 and in the following years. Many contagion effects between corporate sectors are indeed found in the shock component of the default count dynamics. |
| Keywords: | Financial networks; Inter-sector contagion; Poisson autoregressive models; Vector autoregressive models; Conditional Granger causality; PC-algorithm |
| JEL: | C01 C32 C58 G21 G32 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0180&r=all |
| By: | Tetyana Balyuk; Nagpurnanand R. Prabhala; Manju Puri |
| Abstract: | The $669 billion Paycheck Protection Program (PPP) provides highly subsidized financing to small businesses. The PPP is a positive shock in financing supply to the small, highly constrained publicly listed firms in our sample and has average positive treatment effects. Yet, uptake is not universal. In fact, several firms return PPP funds before use, and curiously, experience positive valuation effects when they do so. These firms desire and the markets value the release from government oversight even if it means giving up cheap funding. The PPP is also a demand shock to the banks making PPP loans. Intermediary supply effects shape PPP delivery. Larger borrowers enjoy earlier PPP access, an effect that is more pronounced in big banks. The results have implications for policy design, the costs of being public, and bank-firm relationships. |
| JEL: | E61 G32 G38 H81 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28114&r=all |
| By: | Jayasooriya, Sujith |
| Abstract: | Roles of technology, innovation and finance in Small and Medium Enterprise (SME) sector for economic development process is critical in emerging Asia. Growth, innovation, and productivity enhancement of the SME sector is always limited, and not up to its potential in Asia; Sri Lankan SME sector is not deviated from this dilemma. The paper discusses the case of project in economic enterprises development services and its approaches in supply-side management of SMEs in Sri Lanka. A baseline evaluation survey of 1200 SMEs was conducted to identify the potential and constrains for the supply side of the SMEs to promote technology adoption, innovation and financing in line with the national SME sector development policies. The results are discussed in three distinguished theses: (i) Enabling role of the technology and finance: creating enabling environment for the smooth procedures, capacity building, venture capital, financial development and banks, credit to the private sector and loans; (ii) Facilitative role of the finance and technology: application of technology and adaptation to the skill development and connections, information flow, and financial capacity; (iii) Innovative role of the finance and technology: microfinance, microinsurance, and transactions. The evidences show that lack of access to finance and technology demotes capacity building and skill training, information flow, business environment and networking of the SMEs. Hence, integrative solutions of finance and technology increase management of risks, adoption and enhanced networking for the enterprise development. These two pillars, technology and finance, become catalyst in the supply-side of the SMEs. Provoking business environment through technology adoption and financial sector development policies improving human capital, entrepreneurship and innovation enhance the performance of SMEs to thrive sustainable growth and development. |
| Keywords: | Business Environment, Finance, Innovation, SMEs, Technology |
| JEL: | L26 L53 O14 O31 O32 |
| Date: | 2020–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104412&r=all |
| By: | Zana Bacaj; Ana Cristina Hirata Barros |
| Keywords: | Finance and Financial Sector Development - Finance and Development Finance and Financial Sector Development - Microfinance Private Sector Development - Corporate Governance Private Sector Development - Enterprise Development & Reform Private Sector Development - Small and Medium Size Enterprises |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:33560&r=all |
| By: | Robert S. Harris; Tim Jenkinson; Steven N. Kaplan; Ruediger Stucke |
| Abstract: | We present new evidence on the persistence of U.S. private equity (buyout and venture capital) funds using cash-flow data sourced from Burgiss’s large sample of institutional investors. Previous research, studying largely pre-2000 data, finds strong persistence for both buyout and venture capital (VC) firms. Using ex post or most recent fund performance (as of June2019), we confirm the previous findings on persistence overall as well as for pre-2001 and post-2000 funds. However, when we look at the information an investor would actually have – previous fund performance at the time of fundraising rather than final performance – we find little or no evidence of persistence for buyouts, both overall and post-2000. For post-2000 buyouts, the conventional wisdom to invest in previously top quartile funds does not hold. Using previous fund PME at fundraising, we find modest persistence, but it is driven by bottom, not top quartile performance. On the other hand, persistence for VC funds persists even when using information available at the time of fundraising. Therefore, the conventional wisdom of investors holds for VC. |
| JEL: | G11 G24 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28109&r=all |