nep-cfn New Economics Papers
on Corporate Finance
Issue of 2021‒01‒04
fourteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. How will the COVID-19-crisis affect the trend in corporate saving? By Demary, Markus; Hasenclever, Stefan; Hüther, Michael
  2. The failure of Chinese peer-to-peer lending platforms : Finance and politics By He, Qing; Li, Xiaoyang
  3. Lower Bank Capital Requirements as a Policy Tool to Support Credit to SMEs: Evidence From a Policy Experiment? By Dietsch Michel; Fraisse Henri; Lé Mathias; Lecarpentier Sandrine
  4. Zombies at Large? Corporate Debt Overhang and the Macroeconomy By ; Òscar Jordà; Moritz Schularick; Alan M. Taylor
  5. Bank Efficiency and Access to Credit: International Evidence By Francis OSEI-TUTU; Laurent WEILL
  6. Business Angels and Firm Performance: First Evidence from Population Data By W. Andersson, Fredrik; Lodefalk, Magnus
  7. Does Access to Credit Come with Access to Voting? Democracy and Firm Financing Constraints By Francis OSEI-TUTU; Laurent WEILL
  8. Firm undercapitalization in Italy: business crisis and survival before and after COVID-19 By Tommaso Orlando; Giacomo Rodano
  9. The short- and long-run employment impact of COVID-19 through the effects of real and financial shocks on new firms. By Christoph Albert; Andrea Caggese; Beatriz González
  10. The Corporate Elasticity of Taxable Income: Event Study Evidence from Switzerland By Matthias Krapf; David Staubli
  11. Adaptative predictability of stock market returns By Lopes Moreira Da Veiga, María Helena; Mao, Xiuping; Casas Villalba, Maria Isabel
  12. Political Sentiment and Syndicated Loan Borrowing Costs of Multinational Enterprises By Panagiotis Karavitis; Pantelis Kazakis
  13. Do Employees Benefit from Worker Representation on Corporate Boards? By Christine Blandhol; Magne Mogstad; Peter Nilsson; Ola Lotherington Vestad
  14. Real effects of lending-based crowdfunding platforms on the SMEs By Olena Havrylchyk; Aref Mahdavi-Ardekani

  1. By: Demary, Markus; Hasenclever, Stefan; Hüther, Michael
    Abstract: In this paper we aim to shed light on the global trend in rising corporate saving over the last three decades and to discuss the effects that the Covid-19 crisis might have on companies' saving behaviour. To do so, we analyse the transition of the corporate sector from traditionally being a net borrower to becoming a net lender to the rest of the economy from a flow-of-funds perspective. In accordance with the literature, this analysis reveals that the trend in rising corporate saving is mostly pronounced in advanced economies that have been accumulating high and persistent current account surpluses, such as Germany, South Korea and Japan. In addition, we aim to analyse the various factors behind this trend by reviewing the literature. These range from the rise of uncertainty after the global financial crisis to the increased reliance on internal funding for research and development expenditures. To identify the potentially relevant factors for the German corporate sector we, subsequently, study the composition and development of Germany's aggregated corporate sector's balance sheet. We show that the rise in corporate saving is accompanied by an increase in equity capital and a reduction in the corporate sector's reliance on banking loans. Finally, we discuss the possible impact of the current Covid-19 crisis on the trend of rising global saving. We argue that the Covid-19 crisis is most likely to interrupt the trend in corporate saving in the short run due to the decline in revenues. Nonetheless, similar to the pattern observed in the aftermath of the financial crisis we conjecture that the Covid-19 shock will probably strengthen corporate saving in the long run, as corporates may well aim to restore their liquidity and equity capital buffers to be better prepared for future shocks. This will further unfold downward pressures on real interest rates and complicate the conduct of monetary policy.
    JEL: E32 F32 G32
    Date: 2020
  2. By: He, Qing; Li, Xiaoyang
    Abstract: We investigate the influence of financial and political factors on peer-to-peer (P2P) platform failures in China’s online lending market. Using a competing risk model for platform survival, we show that large platforms, platforms with listed firms as large shareholders, and platforms with better information disclosure were less likely to go bankrupt or run off (platform owners abscond with investor funds). More importantly, failing platforms were much less likely to run off in advance of major political events, but more likely to declare bankruptcy or run off after such events. These effects are more pronounced for politically connected platforms, platforms operating in provinces where local officials have close ties with central government, and in provinces with better local financial conditions. Our study highlights the role of political incentives on government regulatory intervention in platform failures.
    JEL: G33 G21 G23 P26
    Date: 2020–12–15
  3. By: Dietsch Michel; Fraisse Henri; Lé Mathias; Lecarpentier Sandrine
    Abstract: Starting in 2014 with the implementation of the European Commission Capital Requirement Directive, banks operating in the Euro area were benefiting from a 25% reduction (the Supporting Factor or "SF" hereafter) in their own funds requirements against Small and Medium-sized enterprises ("SMEs" hereafter) loans. We investigate empirically whether this reduction has supported SME financing and to which extent it is consistent with SME credit risk. Economic capital computations based on multifactor models do confirm that capital requirements should be lower for SMEs. Taking into account the uncertainty surrounding their estimates and adopting a conservative approach, we show that the SF is consistent with the difference in economic capital between SMEs and large corporates. As for the impact on credit distribution, our difference-in-differences specification enables us to find a positive and significant impact of the SF on the credit supply.
    Keywords: SME finance, Credit supply, Basel III, Credit risk modelling, Capital requirement.
    JEL: C13 G21 G33
    Date: 2020
  4. By: ; Òscar Jordà; 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 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: 2020–12–08
  5. By: Francis OSEI-TUTU (LaRGE Research Center, Université de Strasbourg); Laurent WEILL (LaRGE Research Center, Université de Strasbourg)
    Abstract: This paper examines the impact of bank efficiency on access to credit. We test the hypothesis that higher bank efficiency, meaning better ability of banks to operate at lower costs, favors access to credit for firms. To this end, we perform a cross-country analysis with firm-level data on access to credit and bank-level data to compute bank efficiency, using a sample of about 54,000 firms from 76 countries. We find that greater bank efficiency improves access to credit for firms. The beneficial impact of bank efficiency to alleviate credit constraints takes place through the demand channel by reducing borrower discouragement to apply for a loan. Whereas the positive impact of bank efficiency on credit access is observed for firms of all sizes, the effect tends to be more pronounced in countries with better economic and institutional framework. Our results therefore support policies favoring bank efficiency to enhance access to credit.
    Keywords: bank efficiency, access to credit, borrower discouragement.
    JEL: G21 O16
    Date: 2020
  6. By: W. Andersson, Fredrik (Statistics Sweden); Lodefalk, Magnus (Örebro University School of Business)
    Abstract: Business angels dominate early-stage investment in firms, but research on their investment effects is scarce and is limited by sample selection. Therefore, we propose an algorithm for identifying business angel investments from total population data. We apply the algorithm to study business angels’ effects on firm performance, using detailed and longitudinal total population data for individuals and firms in Sweden. Employing these data and a quasi-experimental estimator, we find that business angels invest in firms that already perform above par. There is also a positive effect on subsequent growth compared with control firms. Firms with business angel investments perform better in terms of sales growth, employment growth and the likelihood of becoming a high-growth firm. However, contrary to previous research, we cannot find any impact on firm survival. Overall, our results underline the need to address sample selection issues both in identifying business angels and in evaluating their effects on firm performance.
    Keywords: business angels; firm performance; sample selection; population data
    JEL: C23 G24 G32 L25
    Date: 2020–12–22
  7. By: Francis OSEI-TUTU (LaRGE Research Center, Université de Strasbourg); Laurent WEILL (LaRGE Research Center, Université de Strasbourg)
    Abstract: Access to credit is one of the main obstacles for the growth of firms. We test the hypothesis that democracy exerts an impact on access to credit. Democratic development is expected to alleviate credit constraints for firms by favoring inclusive institutions and by strengthening the institutional framework. We perform regressions at the firm-level on a large dataset of 46,000 firms in 108 countries. We find evidence of a negative effect of democratic development on credit constraints for firms. We further establish that democratic development contributes to reduce borrower discouragement and leads to more bank loan approval decisions. Our key finding is therefore that democracy favors access to credit. Our work contributes to the debate on the impact of democracy on economic development by considering one firm-level channel of transmission.
    Keywords: democracy, access to credit, financing constraints.
    JEL: G21 P16
    Date: 2020
  8. By: Tommaso Orlando (Bank of Italy); Giacomo Rodano (Bank of Italy)
    Abstract: In a context characterized by upcoming regulatory changes and deeply affected by the COVID-19 epidemic, this paper examines the diffusion of firm undercapitalization (i.e., the firm displaying a level of equity below the legal limit) among Italian corporations. In a proposal by the National Board of Accountants, business crisis is substantially identified with undercapitalization. Indeed, our analyses show that the onset of undercapitalization often anticipates business termination: around 60 percent of involved firms go out of business within 3 years. In 2010-18, on average around 8.5 percent of Italian companies were undercapitalized. The impact of the COVID-19 epidemic may be substantial: our predictions indicate that the share of undercapitalized firms at the end of 2020 may exceed 12 percent. This estimate incorporates the powerful mitigating effects of several interventions enacted by the Italian government between March and August 2020 to support firms damaged by the pandemic. The increase in undercapitalization may reverberate onto the functioning of the new ‘early warning’ system, which will become operational in September 2021: our predictions suggest that the number of firms that could be involved in early warning procedures may be almost twice as large as that foreseeable on the basis of accounting data from 2018.
    Keywords: firm undercapitalization, equity deficit, early warning, impact of COVID-19 on Italian corporations
    JEL: G32 G33 K29
    Date: 2020–12
  9. By: Christoph Albert (CEMFI); Andrea Caggese (UPF, CREI and Barcelona GSE); Beatriz González (Banco de España)
    Abstract: We use the latest available empirical evidence on the impact of the COVID-19 shock on the EU economy to predict its effect on firm entry, and in particular on high-growth startups, and on the related short- and long-run impact on employment growth. We find that the COVID-19 shock is expected to reduce firm entry and that its overall impact is very sensitive to financial conditions. A relatively small increase in financial frictions is likely to strongly reduce the entry of high-growth startups, with fewer jobs created in the short run but, more importantly, also slower employment growth in the long run. We then develop a model with heterogeneous startup types and simulate the effects of the COVID-19 shock on the entry and growth of a cohort of new firms to evaluate alternative policies. We find that a loan subsidy that reduces the excess cost of credit for new startups is the most efficient policy in promoting the entry of high-growth startups. The comparison of this subsidy with a wage subsidy that supports current employment shows that, for the same overall costs, the number of jobs created by the loan subsidy in the long term is significantly larger than that created by the wage subsidy in the short term. Our findings imply that, while policies aiming to stimulate current employment are important, in order to ensure also a faster recovery in the future they should be accompanied by measures directed at reducing the cost of credit for new businesses.
    Keywords: recessions, financial crisis, entrepreneurship, firm dynamics, coronavirus, COVID-19
    JEL: E20 E32 D22 J23 M13
    Date: 2020–12
  10. By: Matthias Krapf; David Staubli
    Abstract: We estimate the corporate elasticity of taxable income. Our analysis draws on panel variation in the decentralized system of corporate taxation in Switzerland. We find that an increase in a jurisdiction's corporate net-of-tax rate by 1% results in an increase in aggregate corporate income by about 3.5% over a time span of 4 years. The elasticity is larger in remote, non-central locations. Firm entry, exit, and mobility only account for a small share of the overall elasticity.
    Keywords: corporate income tax, tax elasticity, fiscal federalism
    JEL: H21 H25 H32
    Date: 2020
  11. By: Lopes Moreira Da Veiga, María Helena; Mao, Xiuping; Casas Villalba, Maria Isabel
    Abstract: We revisit the stock market return predictability using the variance risk premium and conditional variance as predictors of classical predictive regressions and time-varying coefficient predictive regressions. Also, we propose three new models to forecast the conditional variance and estimate the variance risk premium. Our empirical results show, first, that the flexibility provided by time-varying coefficient regressions often improve the ability of the variance risk premium, the conditional variance, and other control variables to predict stock market returns. Second, the conditional variance and variance risk premium obtained from varying coefficient models perform consistently well at predicting stock market returns. Finally, the time-varying coefficient predictive regressions show that the variance risk premium is a predictor of stock market excess returns before the global financial crisis of 2007, but its predictability decreases in the post global financial crisis period at the 3-month horizon. At the 12-month horizon, both the variance risk premium and conditional variance are predictors of stock excess returns during most of 2000-2015.
    Keywords: Variance Risk Premium; Time-Varying Coefficient Predictive Regressions; Time-Varying Coefficient Har-Type Models; Realized Variance; Predictability; Nonparametric Methods
    JEL: G1 C53 C52 C51 C22
    Date: 2020–12–18
  12. By: Panagiotis Karavitis; Pantelis Kazakis
    Abstract: International business literature widely recognizes that political forces play a crucial role in modern corporations. Yet, rare are the studies of how foreign operations mitigate the detrimental effect that firm-level political exposure has on the cost of lending. We study such channels in a sample of U.S. corporations with foreign subsidiaries in 69 countries. We proxy firm-level political exposure via political sentiment. We show that firms with lower political sentiment (i.e., higher political exposure) have a higher cost of lending. We document that multinational enterprises with a presence in many countries, and those having an extended network of foreign subsidiaries can lower the harmful effects of increased political uncertainty. This outcome also holds in the presence of foreign economies of scale, and when multinational corporations have foreign subsidiaries in countries with higher political polarization.
    Keywords: political sentiment, syndicated loans, multinationals, international diversification
    JEL: G21 G18 P16
    Date: 2020–12
  13. By: Christine Blandhol; Magne Mogstad; Peter Nilsson; Ola Lotherington Vestad
    Abstract: Do employees benefit from worker representation on corporate boards? Economists and policymakers are keenly interested in this question – especially lately, as worker representation is widely promoted as an important way to ensure the interests and views of the workers. To investigate this question, we apply a variety of research designs to administrative data from Norway. We find that a worker is paid more and faces less earnings risk if she gets a job in a firm with worker representation on the corporate board. However, these gains in wages and declines in earnings risk are not caused by worker representation per se. Instead, the wage premium and reduced earnings risk reflect that firms with worker representation are likely to be larger and unionized, and that larger and unionized firms tend to both pay a premium and provide better insurance to workers against fluctuations in firm performance. Conditional on the firm’s size and unionization rate, worker representation has little if any effect. Taken together, these findings suggest that while workers may indeed benefit from being employed in firms with worker representation, they would not benefit from legislation mandating worker representation on corporate boards.
    Keywords: worker compensation, worker representation, corporate governance, unions
    JEL: G34 G38 J31 J54 J58
    Date: 2020
  14. By: Olena Havrylchyk (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Labex ReFi - UP1 - Université Panthéon-Sorbonne); Aref Mahdavi-Ardekani (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    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 as 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
    Date: 2020–08

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