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on Corporate Finance |
| By: | Steven Ongena (University of Zurich, Swiss Finance Institute, KU Leuven and CEPR); Sara Pinoli (Bank of Italy); Paola Rossi (Bank of Italy); Alessandro Scopelliti (European Central Bank and University of Zurich) |
| Abstract: | We study the effects of diversifying funding sources on the financing conditions for firms. We exploit a regulatory reform that 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 do, 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. |
| Keywords: | bank credit, capital markets, minibonds, loan pricing, SME finance |
| JEL: | G21 G23 G32 G38 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1315_21&r= |
| By: | Gomez-Gonzalez, Jose Eduardo; Uribe, Jorge M.; Hirs-Garzon, Jorge |
| Abstract: | This study shows that capital structure choices of US corporations are interdependent across time. We follow a two-step estimation approach. First, using a large cross-section of firms we estimate year-by-year average capital structure choices, i.e., the average firm’s percentage of new funding that is secured through debt, its term composition, and the percentage of new equity represented by retained earnings. Second, these time series are included in a Factor Augmented Vector Autoregressive model in which three factors representing real economic activity, expected future funding conditions, and prices, are included. We test for the interdependence between optimal capital structure decisions and for the influence exerted by macroeconomic conditions on these decisions. Results show there is a hierarchical order in which firms make capital structure decisions. They first decide on the share of debt out of total new funding they will hire. Conditional on this they decide on the term of their debt and on their earnings retention policy. Of outmost importance, macroeconomic factors are key for making capital structure decisions. |
| Keywords: | Firms' capital structure; Financing hierarchy; Macroeconomic factors; FAVAR model |
| JEL: | D25 G30 L16 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:rie:riecdt:77&r=all |
| By: | Tho Pham (University of Reading); Oleksandr Talavera (University of Birmingham); Geoffrey Wood (Western University); Shuxing Yin (University of Sheffield) |
| Abstract: | This study examines the impacts of quality of working environment and its components on corporate financial distress. Employing a unique dataset of firm-level data from 63 countries over the period of 2012-2018, we find that a better working environment is related to a higher level of financial soundness. Particularly, firms which have better training and career development policies are less likely to take excessive risks. Further examination suggests that the quality of working environment tends to affect corporate financial risk by influencing firms' cash-holding policies. |
| Keywords: | quality of working environment, quality of life, risk taking, financial distress. |
| JEL: | G30 G32 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:21-04&r= |
| By: | Chen, Jun; Ewens, Michael (California Institute of Technology) |
| Abstract: | Although an extensive literature shows that startups are financially constrained and that constraints vary by geography, the source of these constraints is still relatively unknown. We explore intermediary financing constraints, a channel studied in the banking literature, but only implicitly addressed in the venture capital (VC) literature. Our empirical setting is the VC fundraising and startup financing environment around the passage of the Volcker Rule, which restricted banks' ability to invest in venture capital funds as limited partners (LPs). The rule change disproportionately impacted regions of the U.S. historically lacking in VC financing. We find that a one standard deviation increase in VCs' exposure to the loss of banks as LPs led to an 18% decline in fund size and about a 10% decrease in the likelihood of raising a follow-on fund. Startups were not completely cushioned from the additional constraints on their VCs: capital raised fell and pre-money valuations declined. Overall, VC financing constraints manifest as fewer, smaller funds that change investment strategy and ex- perience increases in bargaining power. Last, we show that the rule change increased the likelihood startups moved out of impacted states, thus exacerbating the geographic disparity in high-growth entrepreneurship. |
| Date: | 2021–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:8tpux&r= |
| By: | Medyawati, Henny; Yunanto, Muhamad |
| Abstract: | This study aims to find the most appropriate model for analysing the effect of financial performance, dividend policy, interest rates and the rupiah exchange rate on firm value. The research sample includes the banking sub-sector companies listed on the IDX in 2013-2019. The research method used is purposive sampling to analyse the panel data. The variables used in this study are the company value as measured by Price to Book Value (PBV), financial performance is measured by Return on Assets (ROA), dividend policy is measured by Dividend Pay-out Ratio (DPR), interest rate is measured by BI interest rate, and the rupiah exchange rate is measured by the middle rate. The results show that ROA and exchange rate affect firm value. The appropriate model used in this study is the random effect model. |
| Date: | 2021–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:qm62a&r= |
| By: | Antonio Estache; Christophe Kieffer |
| Abstract: | This paper provides evidence on the growing degree of common ownership in the French pharmaceutical industry, on the associated anticompetitive risks and on the substantial differences across product markets within the industry. The assessment relies on the traditional Herfindahl-Hirschman Index, its modified version adopted by the common ownership literature and a new simpler alternative. These measures are then correlated with financial performance indicators collected at firm level. We find a positive and statistically significant relationship of concentration due to common ownership with the return on equity and the leverage level for some products. |
| Keywords: | Antitrust, Common Ownership, France, Index funds, Institutional Investors, Financial strategy, Market Power, Pharmaceuticals, Regulation, Shareholding |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/321968&r= |
| By: | Gilbert, RJ |
| Abstract: | This paper describes a model of research and development (R&D) investment in which firms can choose any number of R&D projects that have independent and identical probabilities of success. The measure of R&D diversity is the number of projects that are undertaken by the industry. Absent spillovers or profits at risk from innovation, mergers often—but not always—decrease R&D diversity; however, the incremental effects decline rapidly with the number of industry rivals. Mergers can have significant adverse effects if the merging firms have large profits that are at risk from an innovation. A merger can promote investment in R&D and increase expected consumer surplus if discoveries have sufficiently large information spillovers. |
| Keywords: | Competition, Innovation, Oligopoly, Mergers, Research and development, Economics, Applied Economics |
| Date: | 2019–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:econwp:qt33t5v0fx&r=all |
| By: | Iwasaki, Ichiro; Kočenda, Evžen; Shida, Yoshisada |
| Abstract: | We analyze factors behind 23,213 distressed acquisitions in European emerging markets from 2007–2019. Besides the impact of financial ratios, legal form, ownership structure, firm size, and age, we emphasize the role of institutions and channels of their propagation. We show that the quality and enforcement of insolvency laws are linked with the lower probability of distressed acquisitions, followed by corruption control and progress in banking reforms. The impact of institutions is larger in lessadvanced countries as compared to economically stronger ones. The effect of institutions increased after the financial crisis but declined as the economic situation improved. |
| Keywords: | distressed acquisitions, mergers, European emerging markets |
| JEL: | C35 D02 D22 E02 G34 K20 L22 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:hit:rrcwps:90&r= |
| By: | Lorenzo Bencivelli (Bank of Italy); Beniamino Pisicoli (University of Rome Tor Vergata) |
| Abstract: | We study how FDI affects the financial structure of targeted firms, by looking at a sample of foreign acquisitions that occurred in Italy between 1998 and 2016. We show that the entry of foreign investors promotes the diversification of financing sources. Moreover, foreign acquisitions lower investment sensitivity to the availability of bank credit and the cash flow sensitivity of cash, allowing targeted firms to rely more on non-bank external financing channels. Importantly, these effects are stronger for investment in intangible assets. These findings suggest that the positive productivity effects of FDI emphasized in the literature are, at least in part, traceable to enhanced investment in capital that is harder to finance through the banking sector. |
| Keywords: | FDIs, firms’ financial structure, non-bank financing, investment |
| JEL: | F15 F21 F23 F61 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1327_21&r= |
| By: | Ying Fan; Charles Ka Yui Leung; Zan Yang |
| Abstract: | This paper studies whether (and how) corporate decisions are affected by internal factors (such as the financial conditions of own company) and external factors (such as the actions of local competitors) in an imperfectly competitive environment. We study the listed real estate developers in Beijing as a case study. Our hand-collected dataset includes transaction-level information booked indicators (such as profitability, liability, and liquidity) and un-booked financial indicators (political connections). Our multi-step empirical model shows that both the firm's financial conditions and her competitors' counterparts are essential but play different roles in the output design, pricing, and the time-on-the-market (TOM). Internal versus external factors' relative importance relates to the degrees of market concentration in a nonlinear manner. Local market leaders' existence alters the small firms' strategy and leads to higher selling prices and slower selling pace in the local market. Our findings survive various robust checks. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1130&r= |
| By: | Brian Boyer; Taylor D. Nadauld; Keith P. Vorkink; Michael S. Weisbach |
| Abstract: | Standard measures of private equity performance based on cash flows overlook discount rate risk. An index constructed from prices paid in secondary market transactions indicates that private equity discount rates vary considerably. While the standard alpha for our index is zero, measures of performance based on cash flow data for funds in our index are large and positive. To illustrate that results are not driven by idiosyncrasies of private equity secondary markets, we obtain similar results using cash flows and returns of synthetic funds that invest in small cap stocks. Ignoring variation in PE discount rates can lead to a misallocation of capital. |
| JEL: | G11 G23 G24 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28691&r= |
| By: | Ma’aji, Muhammad M.; Anderson, Ediri O.; Colon, Christine G. |
| Abstract: | The purpose of this paper is to examine how corporate governance instruments impact firm value in the context of Cambodian banks. This paper considers foreign and domestic-owned banks in Cambodia. This study opts for a balanced sample of foreign and domestic owned banks for the period 2014-2018. Panel data regression is adopted for estimation of main results. The suitable model, i.e. fixed and random effect model is selected using the Hausman specification test where the result shows that the random effect model using generalized least square (GLS) regression is more suitable for the analysis. The findings show that Cambodian banks are having a substantially higher percentage of NEDs on their board, high implementation of governance procedures on board committees where on average the banks are having more than the required two board committees (audit and risk committees) as required by the Prakas on the governance of banks by National Bank of Cambodia. The average board size is around 8 members of which at least 3 members are having a postgraduate degree or a professional qualification. Policymakers need to improve on their supervisory function as the majority of the domestic and some foreign banks do not disclose their annual reports on their company website as required by the Prakas on Corporate Governance of Banks operating in Cambodia. Moreover, amendments should be made to the current corporate governance code for financial institutions as there are no explanatory notes that guide companies and therefore, the current guideline is open to individual and subjective interpretation. |
| Date: | 2021–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:8jx2y&r= |
| By: | Kubinec, Robert (Princeton University); Lee, Haillie Na-Kyung; Tomashevskiy, Andrey |
| Abstract: | We present an experiment that manipulates corporate political connections to understand whether a company's political influence is a barrier or an inducement to intercorporate investment. Our data come from a survey of 3,329 firm employees and managers located in Venezuela, Ukraine and Egypt. On the whole we find that our respondents do not prefer to invest in companies with political connections. These results are highly conditional on the respondent's company: respondents from highly connected companies prefer to invest in companies with political connections, while respondents at less-connected companies prefer to invest in companies without political connections. We believe that what explains this finding are differences in how companies with and without connections manage liability as our survey data shows connected companies are much more likely to employ informal rather than formal mechanisms to resolve disputes. As a result, we believe that unconnected companies are more likely to invest in other unconnected companies to ensure that their property rights are protected. |
| Date: | 2021–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:uks25&r= |
| By: | Asongu, Simplice; Odhiambo, Nicholas |
| Abstract: | This research assesses the importance of credit access in modulating governance for gender inclusive education in 42 countries in Sub-Saharan Africa with data spanning the period 2004-2014. The Generalized Method of Moments is employed as empirical strategy. The following findings are established. First, credit access modulates government effectiveness and the rule of law to induce positive net effects on inclusive “primary and secondary education”. Second, credit access also moderates political stability and the rule of law for overall net positive effects on inclusive secondary education. Third, credit access complements government effectiveness to engender an overall positive impact on inclusive tertiary education. Policy implications are discussed with emphasis on Sustainable Development Goals. |
| Keywords: | Finance; Governance; Sub-Saharan Africa; Sustainable Development |
| JEL: | G20 I28 I30 O16 O55 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107091&r=all |