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on Corporate Finance |
| By: | Comin, Diego; Quintana Gonzalez, Javier; Schmitz, Tom; Trigari, Antonella |
| Abstract: | Standard methods for estimating total factor productivity (TFP) growth assume that economic profits are zero and adjustment costs are negligible. Moreover, following the seminal contribution of Basu, Fernald and Kimball (2006), they use changes in hours per worker as a proxy for unobserved changes in capacity utilization. In this paper, we propose a new estimation method that accounts for non-zero profits, structurally estimates adjustment costs, and relies on a utilization proxy from firm surveys. We then compute industry-level and aggregate TFP growth rates for the United States and five European countries, for the period 1995-2016. In the United States, our results suggest that the recent slowdown of TFP growth was more gradual than previously thought. In Europe, we find that TFP was essentially flat during the Great Recession, while standard methods suggest a substantial decrease. These differences are driven by profits in the United States, and by profits and our new utilization proxy in Europe. |
| JEL: | E01 E30 O30 O40 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15402&r= |
| By: | De Haas, Ralph; Martin, Ralf; Muûls, Mirabelle; Schweiger, Helena |
| Abstract: | We use data on 11,233 firms across 22 emerging markets to analyze how credit constraints and low-quality firm management inhibit corporate investment in green technologies. For identification we exploit quasi-exogenous variation in local credit conditions and in exposure to weather shocks. Our results suggest that both financial frictions and managerial constraints slow down firm investment in more energy efficient and less polluting technologies. Complementary analysis of data from the European Pollutant Release and Transfer Register (E-PRTR) corroborates some of this evidence by revealing that in areas where banks deleveraged more after the global financial crisis, industrial facilities reduced their carbon emissions by less. On aggregate this kept local emissions 15% above the level they would have been in the absence of financial frictions. |
| JEL: | D22 L23 G32 L20 Q52 Q53 |
| Date: | 2021–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2021_006&r= |
| By: | Dai, Min; Giroud, Xavier; Jiang, Wei; Wang, Neng |
| Abstract: | We propose a tractable model of dynamic investment, division sales (spinoffs), financing, and risk management for a multi-division firm that faces costly external finance. The model highlights the importance of considering the intertwined nature of the different policies. Our main results are as follows: (1) risk management considerations prescribe the allocation of resources based not only on the divisions' productivity -- as in standard models of ''winner picking'' -- but also their risk; (2) firms may choose to voluntarily spin off productive divisions to increase liquidity; (3) diversification can reduce firm value especially in low liquidity states, as it increases the cost of a spinoff and hampers liquidity management; (4) with corporate socialism, liquidity is less valuable since it is less costly to replenish the firm's liquidity through a spinoff; and (5) division-level investment is set such that the ratio between marginal q and the marginal cost of investing in each division equals the marginal value of cash. |
| JEL: | D92 G3 L25 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15341&r= |
| By: | Albuquerque, Ana; Albuquerque, Rui; Carter, Mary Ellen; Dong, Flora |
| Abstract: | This paper quantifies the cost of CEO incentive compensation by estimating an elasticity of pay to the variance of pay. This metric is based on the benchmark moral hazard model widely used to study CEO pay. Using US CEO compensation data and a variety of empirical approaches, we find that CEOs with riskier pay packages are paid more. However, the estimated elasticity of pay to the variance of pay is small. This small elasticity implies a low risk aversion coefficient for CEOs and a risk premium that is at most 12% of total pay. This risk premium is about evenly split between compensation for risk in cash bonus, stock grants, and option grants. Overall, our findings suggest that incentive pay is not too costly for firms from a risk-diversification perspective, which may explain the heavy reliance on incentive pay by US firms, and cast doubt on the ability of the benchmark moral hazard model to explain CEO pay in the US. |
| Keywords: | ARCH; CEO pay; Contract Theory; Incentive Lab; incentives; moral hazard; participation constraint; realized variance; risk aversion |
| JEL: | D81 G30 J33 M52 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15243&r= |
| By: | Papoutsi, Melina |
| Abstract: | This paper presents evidence that personal relationships between corporate borrowers and bank loan officers improve the outcomes of loan renegotiation. Analysing a bank reorganization in Greece in the mid-2010s, I find that firms that experience an exogenous interruption in their loan officer relationship confront three consequences: one, the firms are less likely to renegotiate their loans; two, conditional on renegotiation, the firms are given tougher loan terms; and three, the firms are more likely to alter their capital structure. These results point to the importance of lending relationships in mitigating the cost of distress for borrowers in loan renegotiations. JEL Classification: G21, L14, E44, E58, O16 |
| Keywords: | bank branch closures, corporate credit, loan officers, loan renegotiation |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212553&r= |
| By: | Raffaele Miniaci; Paolo Panteghini |
| Abstract: | This paper studies how variations in tax rates and profitability affect the (unconditional) quantiles of the distribution of the leverage of European foreign owned subsidiaries in the presence of unobserved company characteristics, possibly correlated with their observable dimensions. To achieve our goal, we suggest how to apply Firpo et al. (2009) approach to the estimation of unconditional quantile partial effects in a model with correlated random effects. The results show that the impact of taxes and profitability on subsidiaries’ financial choices varies across different quantiles of the (skewed) distribution of leverage. In particular, when the leverage ratio is low enough, an increase in a subsidiary’s tax rate stimulates its borrowing. When however, the leverage ratio is high enough, taxes do not matter. We also find that the parent company’s tax rate has a positive impact on a subsidiary’s leverage ratio only if its starting leverage ratio is low enough. Finally, profitability (proxied by ROA) has either a negative or null impact, depending on the leverage ratio and the tax rate used (namely, statutory or effective marginal tax rates). |
| Keywords: | panel data, quantile regression, corporate finance |
| JEL: | C23 C21 G32 H25 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9085&r= |
| By: | Chen, Shu; Gambacorta, Leonardo; Huang, Yiping; Li, Zhenhua; Qiu, Han |
| Abstract: | The use of massive amounts of data by large technology firms (big techs) to assess firms' creditworthiness could reduce the need for collateral in solving asymmetric information problems in credit markets. Using a unique dataset of more than 2 million Chinese firms that received credit from both an important big tech firm (Ant Group) and traditional commercial banks, this paper investigates how different forms of credit correlate with local economic activity, house prices and firm characteristics. We find that big tech credit does not correlate with local business conditions and house prices when controlling for demand factors, but reacts strongly to changes in firm characteristics, such as transaction volumes and network scores used to calculate firm credit ratings. By contrast, both secured and unsecured bank credit react significantly to local house prices, which incorporate useful information on the environment in which clients operate and on their creditworthiness. This evidence implies that a greater use of big tech credit â?? granted on the basis of machine learning and big data â?? could reduce the importance of collateral in credit markets and potentially weaken the financial accelerator mechanism. |
| Keywords: | asymmetric information; banks; Big Data; big tech; Collateral; credit markets |
| JEL: | D22 G31 R30 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15262&r= |
| By: | Gourinchas, Pierre-Olivier; Kalemli-Ozcan, Sebnem; Penciakova, Veronika; Sander, Nick |
| Abstract: | We estimate the impact of the COVID-19 crisis on business failures among small and medium size enterprises (SMEs) in seventeen countries using a large representative firm-level database. We use a simple model of firm cost-minimization and measure each firm's liquidity shortfall during and after COVID-19. Our framework allows for a rich combination of sectoral and aggregate supply, productivity, and demand shocks. We estimate a large increase in the failure rate of SMEs under COVID-19 of nearly 9 percentage points, absent government support. Accommodation & Food Services, Arts, Entertainment & Recreation, Education, and Other Services are among the most affected sectors. The jobs at risk due to COVID-19 related SME business failures represent 3.1 percent of private sector employment. Despite the large impact on business failures and employment, we estimate only moderate effects on the financial sector: the share of Non Performing Loans on bank balance sheets would increase by up to 11 percentage points, representing 0.3 percent of banks' assets and resulting in a 0.75 percentage point decline in the common equity Tier-1 capital ratio. We evaluate the cost and effectiveness of various policy interventions. The fiscal cost of an intervention that narrowly targets at risk firms can be modest (0.54% of GDP). How- ever, at a similar level of effectiveness, non-targeted subsidies can be substantially more expensive (1.82% of GDP). Our results have important implications for the severity of the COVID-19 recession, the design of policies, and the speed of the recovery. |
| Keywords: | bankruptcy; business failure; COVID-19; SMEs |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15323&r= |
| By: | ALFAZEMA, ANTONIO |
| Abstract: | SMEs have a very important role towards society, being responsible for the production of a large part of the total goods and services, but also for stimulating competition, introducing innovative methods and for their importance in employability. In Mozambique, the credit capacity of SMEs is quite weak as the results point to the lack of organized accounting, insufficient collateral, reduced bargaining power, weak business management skills, and weaknesses in structuring business plans are challenges for SMEs to access bank financing. The main difficulty in applying for credit by companies is the existence of unattractive and uncompetitive rates and fees. The biggest problem related to accessing bank credit is the prohibitive collateral requirements and the problem of structural deficiencies, which cripple the economy. |
| Keywords: | Small and medium enterprises; Lending; Credit; Bank. |
| JEL: | M10 |
| Date: | 2021–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107516&r= |
| By: | Bennedsen, Morten; Mehrotra, Vikas; Shim, Jungwook; Wiwattanakantang, Yupana |
| Abstract: | Dynastic-controlled firms are led by founding family CEOs while the family owns an insignificant share of equity (defined as less than five percent). They represent 7.4% of listed firms in post-war Japan, include well-known firms such as Casio, Suzuki and Toyota, and are often grouped with widely-held firms in the literature. These firms differ in key performance measures from both traditional family firms and non-family firms, and evolve from the former as equity-financed growth dilutes the founding family's ownership over time. In turn, the transition from dynastic control to non-family status is driven by a diminution of strategic family resources. |
| Keywords: | Family control; ownership; Succession |
| JEL: | G32 L26 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15398&r= |
| By: | Erik P. Gilje; Michael D. Wittry |
| Abstract: | We study how ownership structure, in particular public listing status, affects workplace safety and productivity tradeoffs. Theory offers competing hypotheses on how listing related frictions affect these tradeoffs. We exploit detailed asset-level data in the U.S. coal industry and find that workplace safety deteriorates dramatically under public firm ownership, primarily in mines that experience the largest productivity increases. We find evidence consistent with information asymmetry between managers and shareholders of public firms, and ties of private firm ownership with local communities being first-order drivers of workplace safety and productivity tradeoffs. |
| JEL: | G30 G32 G34 J24 J38 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28798&r= |
| By: | Boyallian, Patricia; Dasgupta, Sudipto; Homroy, Swarnodeep |
| Abstract: | We show that over the last decade, growing public pressure for board gender diversity and awareness of gender equality issues in the U.S. has manifested in "seasoned" female board members accumulating multiple board appointments at a rate faster than seasoned male directors. The larger firms have been the most active in attracting seasoned female directors, at the expense of the smaller firms. This has likely contributed to the smaller firms lagging behind the larger firms in the pursuit of more gender balance. Our evidence is highly consistent with "supply constraints", as reflected in high costs of recruiting first-time female directors, which the larger firms manage to avoid and the smaller firms find too costly to incur. Gender quota mandates are likely to expose the smaller firms even more to these costs; however, the absence of mandates may also not be optimal. Given growing public pressure, it may be necessary to mandate that larger firms maintain the ratio of first-time to seasoned female appointments above some level. |
| Keywords: | Board Gender Diversity; Gender quota; Labor Market for Directors; supply constraints |
| JEL: | G34 G38 J16 J31 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15257&r= |
| By: | Custódio, Cláudia; Mendes, Diogo; Metzger, Daniel |
| Abstract: | This paper studies the impact of a course in "Finance" for top managers of medium and large enterprises in Mozambique through a randomized controlled trial (RCT). Survey data and accounting data provide consistent evidence that managers change firm financial policies in response to finance education. The largest treatment ef- fect is on short-term financial policies related to working capital. Reductions in accounts receivable and inventories generate an increase in cash flows used to finance long-term investments. Those policy changes also improve the performance of the treated firms. Overall, our results suggest that relatively small and low-cost interventions, such as a standard executive education program in finance, can help firms to mitigate financial constraints and potentially affect economic development. |
| Keywords: | CEOs; Financial Education; financial literacy; Financing constraints; RCT |
| JEL: | D4 G30 J24 L25 M41 O16 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15294&r= |
| By: | Alejandro Fernández-Cerezo (Banco de España); Beatriz González (Banco de España); Mario Izquierdo (Banco de España); Enrique Moral-Benito (Banco de España) |
| Abstract: | This paper explores the heterogeneity across firms within each sector and region in the impact of and response to the COVID-19 shock. It relies on a survey conducted by Banco de España to 4,004 companies in November 2020 matched to very rich balance-sheet information on firm characteristics. According to our results, the impact of the COVID-19 shock was larger in the case of small, young and less productive firms located in urban areas within each sector-region pair. Moreover, these firms resorted relatively more to public-guaranteed loans, tax deferrals, and furlough schemes (ERTEs). More indebted companies, which were not hit relatively harder by the shock, also perceived public-guaranteed loans as very useful. Firms consider that uncertainty represents a key hindrance to the recovery, but observable characteristics do not explain the variation in the perception of uncertainty once the impact of the shock is accounted for. Finally, we use the announcement of the Pfizer vaccine on November 9th 2020 as a natural experiment to provide evidence that the vaccine announcement increased significantly firms’ subjective recovery expectations. |
| Keywords: | COVID-19, firms, sales, employment, uncertainty |
| JEL: | D22 L20 L25 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2120&r= |
| By: | Burkart, Mike; Lee, Samuel; Petri, Henrik |
| Abstract: | How should bidders fi nance tender offers when the objective of the takeover is to improve incentives? In such a setting, debt fi nance has bene fits even when bidders have deep pockets: It ampli es incentive gains, imposes Pareto sharing on bidders and free-riding target shareholders, and makes bidding competition more efficient. High leverage, independent of fi nancing needs, can be privately and socially optimal. Although takeover debt dilutes target shareholders, they may benefi t most from it, especially when bidding is competitive. |
| Keywords: | Debt Financing; Debt overhang; Equity Dilution; free-riding; tender offers |
| JEL: | G34 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15249&r= |
| By: | Laura D’Amato (Universidad de Buenos Aires - IIEP); Máximo Sangiácomo (BCRA y UNDLP); Martín Tobal (Banco de México) |
| Abstract: | Exporting is a finance-intensive activity. But credit markets are frequently underdeveloped and domestic financing tends to be scarce in developing countries, for which a strong export sector is crucial for economic development. Thus, this paper investigates whether foreign financing provides better financing conditions than domestic financing and/or otherwise unavailable external finance, thus increasing export survival rates in a developing country. To that end, it assembles a unique dataset, rarely available for other countries, containing information on foreign credit obtained by Argentine exporters. Based on the empirical models conventionally used in the export survival literature—specifically the probit random effects and the clog-log setups—we provide evidence of a positive link between foreign financing and export survival. This finding is confirmed using an instrumental variable approach. |
| Keywords: | International trade Credit foreign Financing export survival |
| JEL: | F10 F13 G20 G28 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:16&r= |
| By: | Roth, Felix; Sen, Ali; Rammer, Christian |
| Abstract: | This paper analyses the impact of intangible capital on firm-level productivity for Germany using panel data from the Community Innovation Survey for the time period 2006 to 2018. Our paper presents three novel results. First, we find a highly significant positive relationship between intangible capital and firm-level productivity with elasticities overall in line with previous findings reported for other large EU economies. Second, our results show that both manufacturing and services are highly intangible-capital intensive, and that intangibles have a greater impact on firm-level productivity in services - particular in the business services sector. Third, our results show that intangible capital investments in German firms are equal to investments in tangible capital since the early 2000s. Overall, the evidence presented in our paper indicates that Germany - in line with other advanced economies - has undergone a structural transition into a knowledge economy in which intangibles act as an important driver of firm-level productivity. |
| Keywords: | Intangible capital,firm-level productivity,panel data,Germany |
| JEL: | D24 O30 L22 C33 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:uhhhdp:9&r= |
| By: | Román-Aso, Juan A.; Coca Villalba, Fernando; Mastral Franks, Vanessa; Bosch Frigola, Irene |
| Abstract: | In the last decades, a large number of academic contributions have investigated the access to credit from a great variety of perspectives. The aim of this paper is to develop an index of financial conditions to contrast subsequently, the impact of firm size and industry on it according to the information asymmetric theory. To that end, we implement a Principal Component Analysis with a database made up of 233 Spanish freelancers and MSMEs in 2018. This technique permits us to gather the objective facts and subjective perceptions of the surveyed by detecting common elements in their responses. Once components are identified, we run statistical tests to find out if firm size and industry explain the differences amongst companies. Our outcome only proves the theory for firm size, meanwhile the hypothesis remains unclear for industry |
| Keywords: | Index of financial conditions,Principal Components Analysis,Asymmetric information |
| JEL: | G20 G30 M21 M41 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:234038&r= |