nep-cfn New Economics Papers
on Corporate Finance
Issue of 2021‒01‒18
eleven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Credit Risk in a Pandemic By Byström, Hans
  2. Bank credit and market-based finance for corporations: the effects of minibond issuances By Ongena, Steven; Pinoli, Sara; Rossi, Paola; Scopelliti, Alessandro
  3. Should Stock Returns Predictability be hooked on Long Horizon Regressions? By Theologos Dergiades; Panos K. Pouliasis
  5. Markups, intangible capital and heterogeneous financial frictions By Carlo Altomonte; Domenico Favoino; Monica Morlacco; Tommaso Sonno
  6. Real effects of lending-based crowdfunding platforms on the SMEs By Olena Havrylchyk; Aref Mahdavi-Ardekani
  7. Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity By Gareth Anderson; Ambrogio Cesa-Bianchi
  8. Set-up Costs and the Financing of Young Firms By François Derrien; Mésonnier Jean-Stéphane; Vuillemey Guillaume
  9. Do FX Interventions Lead to Higher FX Debt? Evidence from Firm-Level Data By Minsuk Kim; Rui Mano; Mico Mrkaic
  10. Funding for lending schemes should prioritize SME lending By Barnabás Székely
  11. Term Premium Dynamics and its Determinants: The Mexican Case By Ana Aguilar-Argaez; María Diego-Fernández; Rocío Elizondo; Jessica Roldán-Peña

  1. By: Byström, Hans (Department of Economics, Lund University)
    Abstract: Using different measures of how the Covid-19 pandemic progresses we find that the level of credit risk among US blue chip companies increases in tandem with the Covid-19 virus spreading. The credit risk increases dramatically during the pandemic, but we find it to be short of the levels seen during the 2008–2009 financial crisis. Furthermore, we find weekly ups and downs in credit risk and virus impact to be significantly positively correlated throughout the pandemic. Finally, Basel II capital requirements increase drastically when the pandemic strikes but, again, not to the levels seen during the financial crisis.
    Keywords: credit risk; Covid-19; equity market; debt market; CDS; Merton model; Basel II
    JEL: G10 G33 I18
    Date: 2021–01–04
  2. By: Ongena, Steven; Pinoli, Sara; Rossi, Paola; Scopelliti, Alessandro
    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 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. JEL Classification: G21, G23, G32, G38
    Keywords: bank credit, capital markets, loan pricing, minibonds, SME finance
    Date: 2020–12
  3. By: Theologos Dergiades (Department of International and European Studies, University of Macedonia); Panos K. Pouliasis (Cass Business School)
    Abstract: This paper re-examines stock returns predictability over the business cycle using price-dividend and price-earnings valuation ratios as predictors. Unlike prior studies that habitually implement long-horizon/predictive regressions, we conduct a testing framework in the frequency domain. Predictive regressions support no predictability; in contrast, our results in the frequency domain verify significant predictability at medium and long horizons. To robustify predictability patterns, the analysis is executed repetitively for fixed-length rolling samples of various sizes. Overall, stock returns are predictable for wavelengths higher than five years. This finding is robust and independent of time, window size and predictor.
    Keywords: Stock Returns; Long-Horizon Predictability, Frequency Domain.
    JEL: C10 G17 G32
    Date: 2021–02
  4. By: Kusumawati, Retno Ryani; Sulistiana, Indra
    Abstract: This study was conducted to determine the effect of Good Corporate Governance (GCG) on Financial Performance and Company Value in State-Owned Corporation in Indonesia in the era of 4.0 and society 5.0. Research subjects are state-owned corporation listed on the Indonesia Stock Exchange (IDX) for the 2013-2017 period. The samples taken are 10 State-Owned Corporation (BUMN) that are included in the criteria. The method used to analyze the relationship between variables in this study is multiple linear regression analysis. Hypothesis test results show that the Independent Board of Commissioners and Audit Committee have an effect on the Return on Assets (ROA) with a significance value of 0.012. The results of testing the second hypothesis Independent commissioners and audit committees have no simultaneous effect on Company Values with a significance value of 0.082. Partially the independent Board of Commissioners has an effect on Return On Assets (ROA) and company value. While the second variable of the Audit Committee does not affect the Return on Assets (ROA) and company value.
    Date: 2020–06–29
  5. By: Carlo Altomonte; Domenico Favoino; Monica Morlacco; Tommaso Sonno
    Abstract: This paper studies the interaction between financial frictions, intangible investment decisions, and markups at the firm level. In our model, heterogeneous credit constraints distort firms' decisions to invest in cost-reducing technology. The latter interacts with variable demand elasticity to generate endogenous dispersion across firms in markups and pass-through elasticities. We test the model's predictions on a representative sample of French manufacturing firms over the period 2004-2014. We establish causality by exploiting a quasi-natural experiment induced by a policy change that affected firms' liquidity. Our results shed new light on the roots of rising markups and markup heterogeneity in recent years.
    Keywords: markups, financial constraints, intangibles
    JEL: D22 D24 G32
    Date: 2021–01
  6. 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
  7. By: Gareth Anderson; Ambrogio Cesa-Bianchi
    Abstract: Credit spreads rise after a monetary policy tightening, yet spread reactions are heterogeneous across firms. Exploiting information from a panel of corporate bonds matched with balance sheet data for U.S. non-financial firms, we document that firms with high leverage experience a more pronounced increase in credit spreads than firms with low leverage. A large fraction of this increase is due to a component of credit spreads that is in excess of firms' expected default. Our results suggest that frictions in the financial intermediation sector play a crucial role in shaping the transmission mechanism of monetary policy.
    Date: 2020–12–04
  8. By: François Derrien; Mésonnier Jean-Stéphane; Vuillemey Guillaume
    Abstract: We show that set-up costs are a key determinant of the capital structure of young firms. Theoretically, when firms face high set-up costs, they can only be established by leveraging up and lengthening debt maturity. Empirically, we use a large sample of French firms to show that young firms have a significantly higher leverage and issue longer-maturity debt than seasoned companies. As predicted by the model, these patterns are stronger in high set-up cost industries and for firms with lower profitability. Last, we show that, following an exogenous shock that reduces banks' supply of long-term loans, young firms in high set-up cost industries grow significantly less.
    Keywords: Young firms, capital structure, set-up costs, leverage, debt maturity, financial frictions.
    JEL: D21 D22 D25 G32
    Date: 2020
  9. By: Minsuk Kim; Rui Mano; Mico Mrkaic
    Abstract: Central banks often buy or sell reserves-–-so called FX interventions (FXIs)---to dampen sharp exchange rate movements caused by volatile capital flows. At the same time, these interventions may entail unintended side effects. In this paper, we investigate whether FXIs incentivize firms to take on more unhedged FX debt, thereby increasing medium-term corporate vulnerabilities. Using a novel dataset with close to 5,000 nonfinancial firms across 19 emerging markets covering 2002--2017, we find that the firm-level share of FX debt rises following intensive use of FXIs, particularly for non-exporting firms in shallow financial markets with no FX debt to begin with. The magnitude of this effect is economically significant, with one standard deviation increase in FXI leading to an average 2 percentage points increase in the FX debt share. For reference, the median share of FX debt in the sample is zero.
    Keywords: Foreign exchange;Exchange rate arrangements;Exchange rates;Currencies;Exchange rate flexibility;WP,firm,balance sheet data,FX intervention
    Date: 2020–09–25
  10. By: Barnabás Székely (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: In the aftermath of the sovereign debt crisis the Central Bank of Hungary implemented a great-scale funding for lending scheme designed specifically to subsidize SME finance. This creates a unique opportunity to identify this policy in the SVAR framework as asymmetric credit supply shocks specific to SME lending. I find that during the post-crisis recovery, such disturbances had a substantial effect on lending conditions and the real economy. Moreover, rather than supplanting lending to large enterprises, the program had considerable positive spillover effects to this sector. Finally, for a unit of lending, these shocks had larger and more persistent effect on output than general credit supply shocks. These results are robust to different proxies of economic performance and alternative identification strategies. I conclude that under tight lending conditions funding for lending schemes are more effective if concentrated to SMEs.
    Keywords: Bayesian SVARs, Credit supply shocks, Funding for lending scheme, SME finance
    JEL: C11 E32 E44 E58
    Date: 2020
  11. By: Ana Aguilar-Argaez; María Diego-Fernández; Rocío Elizondo; Jessica Roldán-Peña
    Abstract: We estimate the term premium implicit in 10-year Mexican government bonds from 2004 to 2019, and analyze the main determinants explaining its dynamics. To do so, we decompose the longterm interest rate into its two components: the expected short-term interest rate and the term premium. The results show that the Mexican term premium increased significantly during three episodes: i) the global financial crisis; ii) the "Taper Tantrum"; and iii) the U.S. presidential election of 2016. In contrast, the term premium decreased, to historically low levels, during the U.S. "Quantitative Easing" and the "Operation Twist" programs. Additionally, we find that the main determinants that explain the dynamics of the premium are the compensation for FX risk (as a proxy of inflationary risk premium), the real compensation, and the U.S. term premium.
    JEL: G12 E43 C12 C53
    Date: 2020–12

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