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on Corporate Finance |
| By: | Gregory Duffee; Peter Hördahl |
| Abstract: | We uncover a strong U-shape in bond financing by US firms. Firms with total debt in the range of $10 million to $100 million tend to use much less bond financing relative to loan financing than do firms with more or less total debt. There is no corresponding U-shape in less-developed Asian markets, while the advanced markets of Hong Kong SAR and Korea are in the middle. These patterns, and more generally the cross-firm variation in firms' use of bond financing relative to financing through loan facilities, are largely unrelated to either credit quality or monitoring effectiveness. This suggests that market segmentation is more likely. Finally, we find evidence of debt diversification by highly-leveraged firms. |
| Keywords: | corporate bonds, capital structure, firm financing, debt specialisation, debt diversification |
| JEL: | G30 G32 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:928&r=all |
| By: | Kilian Huber (University of Chicago - Booth School of Business) |
| Abstract: | The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in postwar Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers. |
| JEL: | E24 E44 G21 G28 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2020-172&r=all |
| By: | Antonio Falato (Federal Reserve Board - Board of Governors of the Federal Reserve System); Itay Goldstein (University of Pennsylvania - The Wharton School); Ali Hortaçsu (University of Chicago - Department of Economics) |
| Abstract: | In the decade following the financial crisis of 2008, investment funds in corporate bond markets became prominent market players and generated concerns of financial fragility. The COVID-19 crisis provides an opportunity to inspect their resilience in a major stress event. Using daily microdata, we document major outflows in these funds during this period, far greater than anything they experienced in past events. Large outflows were sustained over several weeks and were widespread across funds. Inspecting the role of sources of fragility, we show that both the illiquidity of fund assets and the vulnerability to fire sales were important factors in explaining outflows. The exposure to sectors most hurt by the COVID-19 crisis was also important. By providing a liquidity backstop for their bond holdings, the Federal Reserve bond purchase program helped to reverse outflows especially for the most fragile funds. The impact materialized quickly after announcement and was large over the post-crisis period among funds that held bonds eligible for purchase. In turn, the Fed bond purchase program had spillover effects, stimulating primary market bond issuance by firms whose outstanding bonds were held by the impacted funds and stabilizing peer funds whose bond holdings overlapped with those of the impacted funds. The evidence points to a new "bond fund fragility channel" of the Federal Reserve liquidity backstop whereby the Fed bond purchases transmit to the real economy via bond funds. |
| JEL: | G01 G1 G23 G38 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2020-98&r=all |
| By: | Chaoran Chen; Ashique Habib; Xiaodong Zhu |
| Abstract: | In the standard macro-finance model, financial constraints affect small or young firms but not large or old ones, and the implied dispersion in the marginal revenue product of capital (MRPK) of a firm cohort is less persistent compared to the data. We extend the model by allowing firm productivity to be endogenous to firms' financial constraints. With endogenous productivity, a firm's optimal demand for capital increases with collateral, financial constraints and dispersion of MRPK persist, and even large firms are likely to be constrained. Our model with endogenous productivity also amplifies productivity loss arising from financial frictions by two-fold. |
| Keywords: | Collateral Constraint, Endogenous Firm Productivity, Firm Dynamics, Misallo- cation, Aggregate Productivity, China |
| JEL: | E13 G31 L16 L26 O41 |
| Date: | 2021–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-690&r=all |
| By: | Anna Burova (Bank of Russia, Russian Federation); Henry Penikas (Bank of Russia, Russian Federation); Svetlana Popova (Bank of Russia, Russian Federation) |
| Abstract: | A genuine measure of an ex ante credit risk links borrowers’ financial position with the odds of default. Comprehension of borrower’s financial position is proxied by the derivatives of its filled financial statements, i.e. financial ratios. To measure an ex ante credit risk, one needs a forward-looking estimate. We identify statistically significant relationships between the shortlisted financial ratios and the subsequent default events. To estimate the odds of the borrower to default on its obligations, we simulate its probability of default at a horizon of one year. We horse run the constructed PD model against the alternative measures of ex ante credit risk that the related literature on bank risk-taking widely uses: credit quality groups and credit spreads in interest rates. We compare the results obtained with the PD model, and with the alternative approaches. We find that the PD model predicts the default event more accurately at a horizon of one year. We conclude that the developed measure of ex ante credit risk is feasible for estimating the risk-taking behaviour by banks and analysing the shifts in portfolio composition with the sufficient degree of granularity. The model could be used in applied research as the tool for measuring ex ante credit risk based on micro level data (credit registry). |
| Keywords: | ex ante probability of default, corporate credit, credit registry, probability of default mode, credit quality groups, credit spreads |
| JEL: | E44 E51 E52 E58 G21 G28 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps66&r=all |
| By: | Stephen J. Terry (Boston University - Department of Economics); Toni M. Whited (University of Michigan - Stephen M. Ross School of Business; NBER); Anastasia A. Zakolyukina (University of Chicago - Booth School of Business) |
| Abstract: | The accuracy of firm information disclosures and the efficiency of long-term investment both play crucial roles in the economy and capital markets. We estimate a dynamic model that captures a trade-off between these two goals that arises when managers confront realistic incentives to misreport financial statements and distort their real investment choices. Managers in our model distort reported profits by 6.7% of sales on average. Counterfactual analysis reveals that while eliminating this misreporting through disclosure regulation is possible, it incentivizes managers to distort real investment, which results in a 1% drop in average firm value, reflecting a quantitatively meaningfully tradeoff. |
| Keywords: | Information, disclosure, r&d, growth |
| JEL: | E22 G31 G34 M41 K22 K42 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2020-110&r=all |
| By: | Dutta, Sourish |
| Abstract: | The crucial and growing role performed by different financial intermediaries such as venture capitalists and angel investors as well as more traditional intermediaries such as commercial banks in developing entrepreneurial or innovative firms and boosting product market innovations has led to great research interest in the economics of innovation and entrepreneurial finance. Besides this, there are some important factors or developments which have affected the entrepreneurial finance in general as well as its influence upon different entrepreneurial or innovative firms. Indeed, it is also true that the financial and ownership structures of the different entrepreneurial firms and the legal as well as the institutional environment, in which they operate, itself affects the product market innovations (Chemmanur and Fulghieri, 2014). Therefore, in this paper, I want to target a broad theme i.e. analysis of the mechanisms behind this scenario, especially, in the context of the Indian market system. |
| Date: | 2019–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:sdxqv&r=all |
| By: | Franco Frizzera; Martín Grandes |
| Keywords: | Economic Growth, Dominican Republic, Growth Accounting, ICT Capital, Total Factor Productivity. |
| JEL: | O47 O54 E22 |
| Date: | 2020–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:col:000382:018668&r=all |
| By: | Guido Caselli; Michele Costa; Flavio Delbono |
| Abstract: | The Italian region Emilia-Romagna ranks first among the world’s most important cooperative districts. Using a unique dataset covering all firms registered in the region, we investigate the performance of active firms in the period 2010-18. By focusing on employment, revenue and profits of cooperative firms as compared to conventional firms, we disentangle the differences between the average performance of the two types of companies and detect the presence of a “size effect” driving much of the difference between them. Moreover, our results strengthen previous empirical evidence about the countercyclical role of cooperative firms: they seem to optimize a mixture of employment and profits, assigning a greater weight to the former during downturns and stagnation. Finally, we examine the regional logistics industry and compare also the profitability of employees in the two segments of the sector. |
| JEL: | L21 L25 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1159&r=all |
| By: | Robert S. Harris (University of Virginia - Darden School of Business); Tim Jenkinson (University of Oxford - Said School of Business); Steven N. Kaplan (University of Chicago - Booth School of Business; NBER); Ruediger Stucke (Warburg Pincus LLC) |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2020-167&r=all |