nep-cfn New Economics Papers
on Corporate Finance
Issue of 2021‒09‒06
twelve papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Does product market competition discipline managers? Evidence from exogenous trade shock and corporate acquisitions By Azizjon Alimov
  2. Rethinking budgeting process in times of uncertainty By Kunnathuvalappil Hariharan, Naveen
  3. Impact of good governance on the performance of tunisian companies listed on the BVMT By Ncib, Adel; khalfallah, Fatma
  4. Corporate Real Estate Ownership and its Contribution to Firm Performance under Business Uncertainty: Empirical Evidence from European Non-Property Companies By Julian Seger; Eduard Gaar; Benjamin Wagner; Andreas Pfnür
  5. The Impact of Government Borrowing on Corporate Acquisitions: International Evidence By Azizjon Alimov
  6. Sluggish Investment, Crisis and Firm Heterogeneity By Arrighetti, Alessandro; Landini, Fabio
  7. Young Firms, Old Capital By Song Ma; Justin Murfin; Ryan D. Pratt
  8. How does standardization affect OTC markets? Evidence from the Small Bang reform in the CDS market By Manac, Radu-Dragomir; Banti, Chiara; Kellard, Neil
  9. Social Capital, Performance of SMEs, and COVID-19 Pandemic By Rajapakshe, PSK; Gamage, SKN; Prasanna, RPIR; Jayasundara, JMSB; Ekanayake, EMS; Upulwehera, JMHM; Wijerathna, WAID; Abeyrathne, GAKNJ
  10. The role of disclosure in green finance By Steuer, Sebastian; Tröger, Tobias
  11. Spillover Effects in Firms' Bank Choice By Palma Filep-Mosberger; Attila Lindner; Judit Rariga
  12. Are smallholder farmers credit constrained? evidence on demand and supply constraints of credit in Ethiopia and Tanzania By Balana, B.; Mekonnen, D.; Haile, B.; Hagos, Fitsum; Yimam, S.; Ringler, C.

  1. By: Azizjon Alimov (IESEG School of Management, LEM-CNRS UMR 9221)
    Abstract: This paper uses the 1989 Canada-U.S. Free Trade Agreement (FTA) to study the effect of increased foreign competition on the efficiency of corporate acquisition decisions. Following the FTA, U.S. acquirers exposed to greater increases in competitive pressure experience higher announcement returns. The positive impact of increased competition is stronger in acquirers with relatively higher agency costs prior to the FTA. Managers of acquirers exposed to greater foreign competition are more likely to be terminated following value-destroying acquisitions. Overall, these results are consistent with an active role for product market competition in disciplining managers with respect to important investment decisions. These results have broader implications: a rise in foreign competition can potentially improve the efficiency of key managerial decisions.
    Keywords: Trade Liberalization, Mergers and acquisitions, Competition, Governance.
    JEL: G34 F13 D43
    Date: 2021–08
  2. By: Kunnathuvalappil Hariharan, Naveen
    Abstract: Rethinking Budgeting Process in times of Uncertainty
    Keywords: Budgeting; minimized budgeting; relative targeting; rolling forecast
    JEL: G3 G31 G32
    Date: 2020–05
  3. By: Ncib, Adel; khalfallah, Fatma
    Abstract: The goal of our research is to see how governance systems affect the performance of Tunisian businesses. Empirical validation of a panel of 100 Tunisian companies over a 10-year period from 2008 to 2018 demonstrates that the board of directors' makeup, compensation system, shareholder rights, and disclosure of financial information are all important factors.
    Keywords: Corporate Governance, Performance, Board of directors, BVMT
    JEL: M19
    Date: 2021–08–20
  4. By: Julian Seger; Eduard Gaar; Benjamin Wagner; Andreas Pfnür
    Abstract: Structural and dynamic changes, intensified by the current pandemic situation, con-front companies with high levels of uncertainty. This becomes a challenge especially when deci-sions have to be made about resources that are critical to success and difficult to revise, such as ownership of corporate real estate. This article examines how uncertainty affects the holding of specific property and whether corporate real estate ownership has a positive or negative impact on firm performance under consideration of business uncertainty. Two studies have been conducted. In the first study, multivariate cross-sectional regression analysis is used to test the link between specificity and corporate real estate (CRE) ownership under business uncertainty. Balance sheet data of non-property companies of the six biggest European economies is used. For the second study, the sample was expanded to all companies listed in Europe and their capital market data to investigate the influence of the corporate real estate ownership on firm performance under uncertainty. The empirical results show a positive link between specificity and CRE ownership. Additionally, companies seem to adjust their investment behaviour in specific properties under uncertainty by avoiding or postponing investments or even writing-off specific real estate assets due to their transfer to a new use. Furthermore, the results show that the excess returns decrease in the medium term as CRE ownership under uncertainty increases. Our findings also indicate that regardless of the uncertainty situation, CRE ownership reduces the systematic risk. Thus, ownership seems to have a diversifying effect. This paper expands the scientific discourse by explicitly linking real estate specificity with the choice between ownership, leasing or rental solutions and firm performance. The article clarifies that in order to avoid inefficiencies, the irreversibility of specific real estates should be considered in the CRE ownership decision especially by firms operating in a structurally chang-ing business environment.
    Keywords: business uncertainty; Corporate real estate ownership; Firm Performance; real estate specificity
    JEL: R3
    Date: 2021–01–01
  5. By: Azizjon Alimov (IESEG School of Management, UMR 9221 - LEM - Lille Economie Management, F-59000 Lille, France)
    Abstract: This paper examines how variation in the supply of government debt affects corporate acquisition activity. Using data from 50 countries from 1991 to 2017, the paper finds that government debt issuance is strongly negatively associated with acquisition activity at the firm and aggregate levels. In response to increases in government borrowing, firms appear to make better quality deals. Importantly, these effects are stronger for cash-financed deals and for more creditworthy firms whose debt is closer substitute for government bonds. Collectively, these findings suggest that rising government debt leads to “real crowding out” by affecting firm ability to make large investments.
    Keywords: government debt, mergers and acquisitions
    JEL: E62 G34
    Date: 2021–08
  6. By: Arrighetti, Alessandro; Landini, Fabio
    Abstract: The stagnation of investments and its causes have attracted great attention in the recent economic debate. In this paper we show that the flattening of the capital formation rate at the firm level is not due to lower average propensity to invest. Rather, it is the result of growing heterogeneity of choices among firms. While a subset of firms is oriented towards increasing investments, another group substantially divest. The result is a polarization of conducts that tend to cancel each other out, resulting in a flattening of aggregate investment. We argue that this asymmetry in firm's decisions depends on two main factors. The first one is the diversity of corporate strategies, which firms have developed in the past. The second driver is managerial discretion, that play an important role in the adoption of specific investment / divestment trajectories when faced with a recession. The results of our empirical analysis provide strong supports for our hypotheses: after controlling for contextual and firm-specific structural, financial and demographic variables, corporate strategies and managerial discretion in the allocation of liquid assets explain large part of the heterogeneity in investment decisions during the recession. Policy implications are discussed.
    Keywords: Fixed investments,Capital formation,Corporate strategies,Resorce based view,Firms heterogeneity,Managerial discretion,Great Recession,Manufacturing,Italy
    JEL: D22 D25 L22
    Date: 2021
  7. By: Song Ma; Justin Murfin; Ryan D. Pratt
    Abstract: Across a broad range of equipment types and industries, we document a pattern of local capital reallocation from older firms to younger firms. Start-ups purchase a disproportionate share of old physical capital previously owned by more mature firms. The evidence is consistent with financial constraints driving differential demand for vintage capital. The local supply of used capital influences start-up entry, job creation, investment choices, and growth, particularly when capital is immobile. Conversely, incumbents accelerate capital replacement in the presence of more young firms. The evidence suggests previously undocumented benefits to co-location between old and young firms.
    JEL: G3 L2 R1 R4
    Date: 2021–08
  8. By: Manac, Radu-Dragomir; Banti, Chiara; Kellard, Neil
    Abstract: Focusing on the most liquid segment of the European CDS market, this paper studies the impact of key standardization reforms. We document that the introduction of an upfront fee to standardize the cash flow of CDS contracts created an initial capital cost for traders, leading to higher CDS prices. This relation holds after accounting for well-known determinants of spreads, suggesting a separate funding channel driven by the greater capital intensity of trading. This effect is stronger when dealers are likely to bear the initial capital cost and is present across all industries, except for swaps written on financials.
    Date: 2021–08–23
  9. By: Rajapakshe, PSK; Gamage, SKN; Prasanna, RPIR; Jayasundara, JMSB; Ekanayake, EMS; Upulwehera, JMHM; Wijerathna, WAID; Abeyrathne, GAKNJ
    Abstract: The aim of this working paper is to explore the relationship between social capital and the performance of SMEs and articulate the ways of using the social capital as an instrument to address the performance of the SMEs in context of Covid-19 pandemic. Further, this review identifies the unexplored areas related to concepts ‒ social capital, SME performance, and Covid‒19 pandemic which will pave the way for further research in area focused. . The review and discussion on existing state of knowledge disclosed the key areas which create link between social capital and SME performance. First, the investigation of the impact of externalities on SMEs performance, especially the impact of COVID-19 pandemic, and how the social capital could assists to minimize the effect were divulged. Then, the way of allocating social capital to intensify the success of SMEs in the internationalization process was revealed. Accordingly, with the growing significance of the banking institutions during the pandemic period, investigating the banking relationship as an external social capital with the SMEs performance was recognized as one of the critical areas in the pandemic situation. Lastly, during the era of treating customers like the kings of the market, interaction among innovation, marketing capabilities, and social capital to facilitate the competitive performance of SMEs have been substantially addressed. Findings suggested that investigating the dynamic environmental changes of SMEs and social capital influence are vital to stimulate the sustainable competitive advantage of SME sector in the intensified economic competition.
    Keywords: Internationalization, Innovations, SMEs, Social capital, Sustainable competitive advantage
    JEL: L00
    Date: 2020–08–30
  10. By: Steuer, Sebastian; Tröger, Tobias
    Abstract: We study the design features of disclosure regulations that seek to trigger the green transition of the global economy and ask whether such regulatory interventions are likely to bring about sufficient market discipline to achieve socially optimal climate targets. We categorize the transparency obligations stipulated in green finance regulation as either compelling the standardized disclosure of raw data, or providing quality labels that signal desirable green characteristics of investment products based on a uniform methodology. Both categories of transparency requirements canbe imposed at activity, issuer, and portfolio level. Finance theory and empirical evidence suggest that investors may prefer "green" over "dirty" assets for both financial and non-financial reasons and may thus demand higher returns from environmentally-harmful investment opportunities. However, the market discipline that this negative cost of capital effect exerts on "dirty" issuers is potentially attenuated by countervailing investor interests and does not automatically lead to socially optimal outcomes. Mandatory disclosure obligations and their (public) enforcement can play an important role in green finance strategies. They prevent an underproduction of the standardized high-quality information that investors need in order to allocate capital according to their preferences. However, the rationale behind regulatory intervention is not equally strong for all categories and all levels of "green" disclosure obligations. Corporate governance problems and other agency conflicts in intermediated investment chains do not represent a categorical impediment for green finance strategies. However, the many forces that may prevent markets from achieving socially optimal equilibria render disclosure-centered green finance legislation a second best to more direct forms of regulatory intervention like global carbon taxation and emissions trading schemes. Inherently transnational market-based green finance concepts can play a supporting role in sustainable transition, which is particularly important as long as first-best solutions remain politically unavailable.
    Keywords: green finance,sustainable finance,ESG,mandatory disclosure,taxonomies,benchmarks,labels,asset pricing,market discipline,climate change,climate risk
    JEL: D4 D6 G1 G3 G4 K2
    Date: 2021
  11. By: Palma Filep-Mosberger (Magyar Nemzeti Bank (Central Bank of Hungary)); Attila Lindner (University College London, MTA KTI); Judit Rariga (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: In this paper, we study firm-bank relationship formation. Combining domestic inter-firm network data from value-added tax declarations and credit registry for Hungary, we estimate the spillover effects in bank choice, identifying from variation on the bank level. Having at least one peer in the network who has an existing loan with a bank increases the probability that the firm will borrow a new loan from the same bank. We provide suggestive evidence that the estimated spillover effect is due to firm-to-firm information transmission about banks. According to our results, firms can learn about banking practices from their peers but they also point to financial stability concerns in the event of shocks to domestic supply chains.
    Keywords: bank choice, firm network, spillover effects.
    JEL: G30 L14 D22
    Date: 2021
  12. By: Balana, B.; Mekonnen, D.; Haile, B.; Hagos, Fitsum (International Water Management Institute (IWMI)); Yimam, S.; Ringler, C.
    Abstract: Credit constraint is considered by many as one of the key barriers to adoption of modern agricultural technologies, such as chemical fertilizer, improved seeds, and irrigation technologies, among smallholders. Past research and much policy discourse associates agricultural credit constraints with supply-side factors, such as limited access to credit sources or high costs of borrowing. However, demand-side factors, such as risk-aversion and financial illiteracy among borrowers, as well as high transaction costs, can also play important roles in credit-rationing for smallholders. Using primary survey data from Ethiopia and Tanzania, this study examines the nature of credit constraints facing smallholders and the factors that affect credit constraints. In addition, we assess whether credit constraints are gender-differentiated. Results show that demand-side credit constraints are at least as important as supply-side factors in both countries. Women are more likely to be credit constrained (from both the supply and demand sides) than men. Based on these findings, we suggest that policies should focus on addressing both supply- and demand-side credit constraints, including through targeted interventions to reduce risk, such as crop insurance and gender-sensitive policies to improve women’s access to credit.
    Keywords: Agricultural credit; Loans; Smallholders; Farmers; Supply balance; Constraints; Households; Gender; Women; Socioeconomic environment; Technology transfer; Adoption; Microfinance; Financial institutions; Risk factors; Policies; Small scale systems; Irrigation; Econometric models
    Date: 2020

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