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on Corporate Finance |
| By: | Adrien Matray (Princeton University); Charles Boissel (HEC-Paris) |
| Abstract: | This paper investigates how the 2013 three-fold increase in the dividend tax rate in France affected firms’ investment and performance. Using administrative data covering the universe of firms over 2008–2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments. Firms use this tax-induced increase in liquidity to invest more, particularly when facing high demand and return on capital. For every euro of undistributed dividends, firms increase their investment by 0.3 euro, leading to higher sales growth. Heterogeneity analyses show that no group of firms cut their investment, thereby rejecting models in which higher dividend taxes increase the cost of capital. Overall, our results show that the tax-induced increase in liquidity relaxes credit constraints and can reduce capital misallocation. |
| Keywords: | France; Financing Policy; Business Taxes; Capital and Ownership Structure |
| JEL: | G11 G32 H25 O16 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:276&r= |
| By: | Srivastava, Jagriti; Gopalakrishnan, Balagopal |
| Abstract: | Using a cross-country quarterly firm-level dataset, we empirically examine the impact of the COVID-19 pandemic on the trade credit channel of firms. In contrast to the impact on trade credit documented during earlier crisis episodes, we find that firms with poor credit quality obtain lower amounts of trade credit from their supplier firms during the quarters following the COVID-19 outbreak. The findings suggest that less creditworthy firms are credit rationed by their suppliers during a product market crisis, in contrast to the credit substitution documented between formal financial institutions and suppliers during a credit market crisis. Furthermore, we document that firms with better growth prospects and firms with better stakeholder relationships are able to obtain trade credit in the post-pandemic period, despite their poor creditworthiness. Our empirical analysis supports the view that supplier financing is conditional on the product market conditions and is not always a generous substitute for bank credit. |
| Keywords: | Trade credit; COVID-19; Financial constraints; Credit default; ESG |
| JEL: | G30 G32 G33 M14 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108951&r= |
| By: | Berninger, Marc; Fiesenig, Bruno; Schiereck, Dirk |
| Abstract: | Purpose – The fundamental theory of Modigliani and Miller (1958) states that a firm’s financing decisions are independent from the firm’s value. Nevertheless, several empirical studies as well as theoretical approaches from the past decade impugn this relation for real markets with their immanent inefficiencies. However, these questions are rather than academic in nature: Especially the influence of macroeconomic conditions on the market perception of debt issues is from high economic importance, since the need for new liquidity usually becomes even more urgent when the economic conditions worsen. Design/methodology/approach – This paper analyzes the reaction of shareholders to the issue of debt by Latin American firms under special consideration of the macroeconomic sentiment. To do so, a sample of debt issued by Latin American companies between 2003 and 2010 is empirically examined through an event study. Findings – The authors empirically demonstrate that specifically in Latin America, debt issuing companies show a significant underperformance during recessionary periods and an overperformance during nonrecessionary periods. These findings differ from previous results for mature capital markets. The authors conclude that not only the overall economic conditions matter to explain stock market reactions on bond issues but also the maturity of the corporate debt market plays an important role. Originality/value – The authors provide first evidence that the previously described changes in the returns on specific stocks depending on the economic sentiment (Baker and Wurgler, 2006) are under certain conditions also present in the market for corporate debt. Keywords – Emerging markets, Debt issue, Sentiment, Event study, Corporate debt, Financing decisions, Firm value Paper type – Research paper |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:127645&r= |
| By: | Selva Bahar Baziki; Tanju Capacioglu |
| Abstract: | We study the effect of two counter-cyclical credit policies on banks’ lending decisions using a unique matched bank-firm-loan micro level data. These two policy actions; the implementation of commercial real estate loan-to-value (LTV) ratio and an expansion of a collateral guarantee scheme, stand out as they give banks the freedom of choice over which customers would be subject to the policy and to what degree. When faced with a tightening LTV policy banks elect to issue loans above the LTV cap to firms with better credit history and with whom they had a longer established relationship while charging higher interest rates. Firms constrained by the policy see an increase in their other borrowing while the policy is in effect, suggesting the existence of credit spillover across loan types. In the second policy, banks again prefer firms with healthier credit histories and with whom they have a longer relationship into the credit guarantee scheme. In contrast to the existing literature, we do not see a preference for riskier firms under the scheme. At the same time, among the recipients of scheme loans, those with stronger relationships but relatively lower past credit performance have larger amounts of loans. Scheme loans are issued for larger amounts, longer periods and at higher interest rates compared to loans issued to non-participating firms during the same period. Finally, we show that the increase in scheme utilization has resulted in lower other corporate credit and general-purpose loans in banks with larger utilization rates. |
| Keywords: | Macroprudential policy, Commercial real estate, Corporate loans, Loan-to-value, Relationship banking, Credit guarantee funds |
| JEL: | E51 E61 G20 G21 G28 G32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2120&r= |
| By: | Matias Braun; Francisco Marcet; Claudio E. Raddatz K. |
| Abstract: | We provide international empirical evidence that periods of rapid expansion in credit—credit booms—lead to a tradeoff between a relaxation of financial constraints and a worsening of capital allocation. This tradeoff is stronger across small, financially constrained, and more innovative firms, as well as for firms in less tangible industries. In advanced economies the misallocation effect is stronger than the relaxation of financial constraints, and the opposite is true among emerging markets. Credit booms with larger capital misallocation are associated with a higher probability of experiencing a banking crisis and with poor economic and financial performance after the boom. |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:udc:wpaper:wp520&r= |
| By: | Denny IRAWAN; OKIMOTO Tatsuyoshi |
| Abstract: | Capital structure is one of the most critical decisions for firms in doing business. This study examines the role of macro (economic and non-economic) uncertainties in firms' capital structure management. Three prominent capital structure theories are tested for global resource firms: (1) static trade-off, (2) pecking order, and (3) market timing theory. The results suggest that no single theory prevails, although both pecking order and market timing theories have certain explanatory power to explain sample firms' financing behaviour. The pecking order theory is strongly supported by the results of the leverage target adjustment model. However, the downward cyclical patterns of pecking order coefficients suggest that the resource firms tend to choose debt financing less and less over time, particularly after 2008. The market timing theory holds strong, as indicated by the significance of macro condition (uncertainties) variables in determining sample firms' capital structure, especially after 2008, and for non-renewable firms. However, the main proxies of the cost of debt are not statistically significant. In conclusion, this study finds that resource firms have a particular pecking order preference when they need financing, and the influence of macro uncertainties are vital in determining their capital structure. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:21055&r= |
| By: | Yadav, Sandeep; Srivastava, Jagriti |
| Abstract: | Purpose - COVID-19 induced uncertainty in the firms’ business transactions, product-market competition and financial market cause severe organizational legitimacy crisis. Using the organizational legitimacy perspective, we study the relationship between corporate social responsibility (CSR) activities, audit quality, and firm performance. Design/methodology/approach – We use a quarterly panel of 89,185 firm observations (15,955 unique firms) from 131 countries from July 2018 to December 2020 for 10 quarters. We use a Difference-in-Difference (DiD) method to estimate the effect of CSR activities and audit quality on firm performance during the COVID-19 period. Findings - We find a U-shaped relationship between CSR and firm performance. This relationship is strengthened during COVID-19. In contrast, we find an inverted U-shaped relationship between firm audit quality (audit fee) and firm performance. However, this relationship is weakened during the pandemic. Originality/value – Our study makes important contributions to theory and practice on maintaining organizational legitimacy during the pandemic. During the crisis, managers need to focus on strategies increasing firm value for the time period. This study shows that firms’ temporal legitimacy gaining practices such as CSR activities and audit quality provides an opportunity to increase firm value. Firm managers also need to identify the optimal level of CSR activities and audit fees to balance the cost of agency and the benefits of legitimacy. |
| Keywords: | CSR, audit quality, COVID-19, firm performance, organizational legitimacy |
| JEL: | M14 M42 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108967&r= |
| By: | Mojambo, Gabriel A.M.; Tulung, Joy Elly; Saerang, Regina Trivena |
| Abstract: | Despite of the abundant opportunities in Indonesian bank industry, digital era began to challenge banks to fully embrace the use of technology (information) with the objective of prolong competitive advantage. An organization becomes a reflection of its top managers. In facing such challenges, Top Management Team (TMT) members initiative to overcome the current status quo, will be reflected to the company under their management. For this reason, an effective TMT structure is a mandatory during the digital era to digitalize banking firms. This research investigates the relationship between top management team characteristics and Indonesian banks financial performance during the digital era. For top management team characteristics, this research includes functional background, gender diversity, average age, level of education, IT Expertise, and experience in years. While to measure the performance of Indonesian banks financial performance the paper includes return on asset (ROA), capital adequacy ratio (CAR), and non-performing loan (NPL). The results show that gender diversity have positive significant influences on NPL, average age have positive significant influences on ROA, CAR, NPL, and IT expertise have positive significant influences on CAR. |
| Keywords: | Bank, Top Management Team, Financial Performance |
| JEL: | G2 G21 G3 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108783&r= |
| By: | Eccles, Peter (Bank of England); Grout, Paul (Bank of England); Siciliani, Paolo (Bank of England); Zalewska, Anna (University of Bath) |
| Abstract: | There is evidence that machine learning (ML) can improve the screening of risky borrowers, but the empirical literature gives diverse answers as to the impact of ML on credit markets. We provide a model in which traditional banks compete with fintech (innovative) banks that screen borrowers using ML technology and show that the impact of the adoption of the ML technology on credit markets depends on the characteristics of the market (eg borrower mix, cost of innovation, the intensity of competition, precision of the innovative technology, etc.). We provide a series of scenarios. For example, we show that if implementing ML technology is relatively expensive and lower-risk borrowers are a significant proportion of all risky borrowers, then all risky borrowers will be worse off following the introduction of ML, even when the lower-risk borrowers can be separated perfectly from others. At the other extreme, we show that if costs of implementing ML are low and there are few lower-risk borrowers, then lower-risk borrowers gain from the introduction of ML, at the expense of higher-risk and safe borrowers. Implications for policy, including the potential for tension between micro and macroprudential policies, are explored. |
| Keywords: | Adverse selection; banking; big data; capital requirements; credit markets; fintech; machine learning; prudential regulation |
| JEL: | G21 G28 G32 |
| Date: | 2021–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0930&r= |
| By: | Aylin Aslan; Ahmet Sensoy; Levent Akdeniz |
| Abstract: | Initial coin offerings (ICOs) have emerged as an alternative way of raising funds for entrepreneurial ventures to develop a new project or product. In this study, a comprehensive analysis is conducted on the determinants of ICO success and aftermarket performance of ICOs. Our evidence suggests that ICOs with higher ratings, shorter planned token sale duration, smaller share for token sale, larger number of experts and more members in the developing team have a greater likelihood of success and raising more funds. We also show that offer price and market sentiment play a major role in explaining longer term post-ICO performance. Yet, key to a successful ICO and post-ICO performance differ between boom vs bust periods in the cryptocurrency markets. |
| Keywords: | Fundraising success, Initial coin offerings, Post-ICO performance, underpricing |
| JEL: | G24 L26 M13 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2116&r= |
| By: | Baje, Lora Kryz C.; Ballesteros, Marife M.; Bayuday-Dacuycuy, Connie; Ancheta, Jenica A. |
| Abstract: | Cognizant of the value and contribution, as well as of the challenges in the agricultural finance, the government has intensified its lending programs designed to help the agricultural sector, specifically, the smallholders. Thus, affordable and easy access retail lending has intensified in recent years. Despite these efforts, significant problems remain. These include the lack of markets and low prices, which have significant implications on the overall repayment capacity and credit rating of the small farmer and fisherfolk (SFF). Indeed, these lending programs are unlikely to become successful if financing and production are not viewed in the bigger context of a value chain financing. Thus, this paper looks into the SFF’s financing ecosystem and provides recommendations on how the existing value chain financing can become more inclusive and sustainable. <p>Comments to this paper are welcome within 60 days from date of posting. Email publications@mail.pids.gov.ph. |
| Keywords: | agriculture, Philippines, agricultural financing, agricultural value chain financing, small farmer and fisherfolk |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:phd:dpaper:dp_2020-38&r= |
| By: | James Malcomson |
| Abstract: | This paper shows that, in the presence of relational contracts, an increase in uncertainty with no change in factor prices reduces capital investment and productivity in the long run even if the parties are otherwise risk neutral. |
| Keywords: | General capital, specific capital, investment, relational contracts, risk |
| Date: | 2021–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:940&r= |