nep-cfn New Economics Papers
on Corporate Finance
Issue of 2021‒10‒11
eleven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Reward Crowdfunding Campaigns: Time-To-Success Analysis By Israel Santos Felipe; Wesley Mendes-da-Silva; Cristiana Cerqueira Leal; Danilo Braun Santos
  2. Tax avoidance in French Firms: Evidence from the Introduction of a Tax Notch By A. BAUER; - M. ROTEMBERG
  3. The Impact of Delay: Evidence from Formal Out-of-Court Restructuring By Stjepan Srhoj; Dejan Kovac; Jacob N. Shapiro; Randall K. Filer
  4. Business Continuity Planning for Government Cash and Debt Management By Mr. Emre Balibek; Ian Storkey
  5. Incidence and Performance of Spinouts and Incumbent New Ventures: Role of Selection and Redeployability within Parent Firms By Natarajan Balasubramanian; Mariko Sakakibara
  6. Liquidity Crises, Liquidity Lines and Sovereign Risk By Yasin Kürsat Önder
  7. The Finance-Growth Nexus in Latin America and the Caribbean: A Meta-Analytic Perspective By Iwasaki, Ichiro
  8. Pairs Trading In The Index Options Market By Marianna Brunetti; Roberta De Luca
  9. Why do firms compete on price comparison websites? The impact on productivity, profits, and wages By Lindgren, Charlie; Li, Yujiao; Rudholm, Niklas
  10. Investors' Information Choice By Astaiza-Gómez, José Gabriel
  11. Has the Comprehensive Assessment made the European financial system more resilient? By Calo, Silvia; Gregori, Wildmer Daniel; Petracco Giudici, Marco; Rancan, Michela

  1. By: Israel Santos Felipe (Federal University of Ouro Preto/Brazil and NIPE/Portugal); Wesley Mendes-da-Silva (Sao Paulo School of Business Administration of The Fundação Getulio Vargas); Cristiana Cerqueira Leal (School of Economics and Management & NIPE - Center for Research in Economics and Finance, University of Minho); Danilo Braun Santos (Federal University of Sao Paulo/Brazil)
    Abstract: The time-to-success of reward crowdfunding campaigns constitutes a relevant topic that has been neglected in business literature. In this study, we employ parametric and semi-parametric models of survival analysis to identify the determining factors of the duration of success of these campaigns. Based on more than 4,200 reward crowdfunding campaigns, our results are robust for controls and reveal that the campaigns that attain success most rapidly are located predominantly in cities with greater income inequality. These are cities that are characterized by lower fundraising targets and receive a larger number of pledges. In addition, our covariates indicate a non-constant influence on time-to-success during the fundraising period.
    Keywords: crowdfunding; entrepreneurial finance; fintech; survival analysis; financial innovation
    JEL: L26 G32 G41 O31 C41 I31
    Date: 2021
  2. By: A. BAUER (Insee); - M. ROTEMBERG (New York University)
    Abstract: Corporate tax codes can have notches; values where after-tax profits decrease in before-tax sales. Firms endogenously respond to notches, leading to excess mass in the firm-size distribution. We study a 1997 policy reform in which the French government implemented a transient tax reform that increased profit taxes by 15% for firms with over 50 million Francs in turnover. We use two distinct and complementary approaches to estimate the extent of tax avoidance: (a) using firms far away from (and therefore unlikely to be responsive to) the tax notch in the same year and (b) the entire firm size distribution before the tax reform. Both strategies generate similar results for the extent of tax avoidance. We show that the firms who avoid the tax are the ones with the lowest calibrated adjustment costs and those with the larger profits. The tax avoidance behavior comes mostly from increases in inventories and decreases in sales.
    Keywords: Business Taxes, Tax Evasion, Firm Production
    JEL: H25 H26 H32 D24
    Date: 2020
  3. By: Stjepan Srhoj; Dejan Kovac; Jacob N. Shapiro; Randall K. Filer
    Abstract: Bankruptcy restructuring procedures are used in most legal systems to decide the fate of businesses facing financial hardship. We study how bargaining failures in such procedures impact the economic performance of participating firms in the context of Croatia, which introduced a “pre-bankruptcy settlement” (PBS) process in the wake of the Great Recession of 2007 - 2009. Local institutions left over from the communist era provide annual financial statements for both sides of more than 180,000 debtorcreditor pairs, enabling us to address selection into failed negotiations by matching a rich set of creditor and debtor characteristics. Failures to settle at the PBS stage due to idiosyncratic bargaining problems, which effectively delays entry into the standard bankruptcy procedure, leads to a lower rate of survival among debtors as well as reduced employment, revenue, and profits. We also track how bargaining failures diffuse through the network of creditors, finding a significant negative effect on small creditors, but not others. Our results highlight the impact of delay and the importance of structuring bankruptcy procedures to rapidly resolve uncertainty about firms’ future prospects.
    Keywords: bankruptcy; insolvency; liquidation; restructuring;
    JEL: G33 G34 D02 L38 P37
    Date: 2021–08
  4. By: Mr. Emre Balibek; Ian Storkey
    Abstract: Cash and debt management operations are part of the “transactional” functions of public financial management. It is critical that these functions are resilient to external disruptions, ranging from information and communication technology (ICT) system outages to natural disasters. This technical manual aims to provide guidance on the steps that government cash and debt management units can follow to develop and implement a practical business continuity plan that economizes the resources used. It also discusses the evolving nature of business disruption risks faced by cash and debt management over the last decade, including the COVID-19 pandemic, as well as risk mitigation solutions that have emerged.
    Keywords: Business continuity planning; business impact analysis; operational risk management; business disruption risks; cash and debt management; COVID-19; pandemic
    Date: 2021–09–21
  5. By: Natarajan Balasubramanian; Mariko Sakakibara
    Abstract: Using matched employer-employee data from 30 U.S. states, we compare spinouts with new ventures formed by incumbents (INCs). We propose a selection-based framework comprising idea selection by parents to internally implement ideas as INCs, entrepreneurial selection by founders to form spinouts, and managerial selection to close ventures. Consistent with parents choosing better ideas in the idea selection stage, we find that INCs perform relatively better than spinouts, and more so with larger parents. Regarding the entrepreneurial selection stage, we find evidence consistent with resource requirements being a greater entry barrier to spinouts and greater information asymmetry promoting spinout formation. Parents’ resource redeployment opportunities are associated with lower relative survival of INCs, consistent with their being subject to greater selection pressures in the managerial selection stage.
    Keywords: spinouts, new venture formation process, new venture performance, selection, resource redeployability
    Date: 2021–09
  6. By: Yasin Kürsat Önder (-)
    Abstract: This paper quantitatively investigates the trade-offs of introducing an extra line of credit in an emergency situation. I show that temporary access to these lines for up to 3 percent of mean annual income during low liquidity periods yields long-term effects with a lower cost of borrowing but with incentives to accumulate higher debt. Permanent access, however, has only short-lived effects because temporal arrangement better completes the markets and induces market discipline as the government worries about rollover risk once the low liquidity period ends. I also present in an event analysis that Mexico’s arrangement of swap lines with the Federal Reserve amid the global financial crisis in 2008 helped avoid a potential debt crisis.
    Keywords: sovereign default, liquidity shocks, swap lines, sudden stops
    JEL: F30 F34
    Date: 2021–10
  7. By: Iwasaki, Ichiro
    Abstract: This paper performs a meta-analysis of the effect of financial development and liberalization on macroeconomic growth in Latin America and the Caribbean using a total of 233 estimates collected from 21 previous works. Meta-synthesis of the collected estimates demonstrates that it is probable that financial development and liberalization enhance economic growth in the region, and these policy measures have the potential to have a meaningful impact on the real economy. The synthesis results also reveal that the choice of financial variables significantly affects reported estimates in the literature. Meta-regression analysis of literature heterogeneity and test for publication selection bias produce findings that are compatible with the synthesis results. The test results of publication selection bias also confirm that the existing literature contains genuine empirical evidence of the growth-promoting effect of finance in the region.
    Keywords: financial development and liberalization, economic growth, meta-analysis, publication selection bias, Latin America and the Caribbean
    JEL: E44 G10 O11 O16 O54
    Date: 2021–10
  8. By: Marianna Brunetti (DEF and CEIS, Università di Roma "Tor Vergata"); Roberta De Luca (Bank of Italy)
    Abstract: We test the Index options market efficiency by means of a statistical arbitrage strategy, i.e. pairs trading. Using data on five Stock Indexes of the Euro Area, we first identify any potential option mispricing based on deviations from the long-run relationship linking their implied volatilities. Then, we evaluate the profitability of a simple pair trading strategy on the mispriced options. Despite the signals of potential mispricing are frequent, the statistical arbitrage does not produce significant positive returns, thus providing evidence in support of Index Option market efficiency. The time-to-maturity of the options involved in the trade as well as financial market turbulence have a marginal effect on the eventual strategy returns, which are instead mostly driven by the moneyness of the options traded. Our results remain qualitatively unchanged if a stricter definition of reversion to the equilibrium is applied or when the long-run relationship is estimated on an (artificially derived) time series of options prices rather than on options’ implied volatilities.
    Keywords: pairs trading,option market efficiency
    JEL: G10 G12 C44 C5
    Date: 2021–09–02
  9. By: Lindgren, Charlie (Dalarna University, 791 88 Falun, Sweden); Li, Yujiao (Dalarna University, 791 88 Falun, Sweden); Rudholm, Niklas (Institute of Retail Economics (Handelns Forskningsinstitut))
    Abstract: This paper investigates how firm entry into a price comparison website marketplace affects firm productivity, profits, and wages. We want to answer the key research question: Why do firms compete on price comparison websites? A substantial literature indicates that competition in such marketplaces is fierce, leading to lower prices for products sold. We suggest that participation in these marketplaces also leads to increased productivity, i.e., output increases when holding constant the level of inputs used. This leads to increased profits, motivating firms to enter price comparison websites despite fierce competition. Our results indicate that for the full sample of firms, PriceSpy participation increases output by almost 12% when holding the level of inputs constant. Also, investigation of who gains from the increased productivity shows that, for entering firms, operating profits increase by 9% and gross wages by 14% when studying the full sample of firms. That labor gains more from PriceSpy participation is even clearer when studying the impact on wholesale and retail firms separately. For those firms, gross wages increased by 16–17% after entry, while no statistically significant impact was found regarding operating profits.
    Keywords: Online retailing; e-commerce; price comparison websites; productivity; value added.
    JEL: D22 D24 D33 L81
    Date: 2020–09–01
  10. By: Astaiza-Gómez, José Gabriel
    Abstract: I estimate a demand model for online services of financial data, from a random parameters or mixed logit model, using a sample with searches at Bloomberg Terminals and at the EDGAR system. My preliminary results suggest that the substitution investors make of financial information providers, are affected by the subscription prices, investors' expectations on stock returns, and investors' income.
    Keywords: random parameters, open access services, subscription providers, market shares.
    JEL: D80 D82 D83 D84 G00 G14 G23 L86
    Date: 2021
  11. By: Calo, Silvia (Central Bank of Ireland); Gregori, Wildmer Daniel (European Commission); Petracco Giudici, Marco (European Commission); Rancan, Michela (Marche Polytechnic University)
    Abstract: What has been the impact of the Comprehensive Assessment (CA) carried out by the ECB on banks' resilience? Implementing a difference-indifference approach, we analyse a non-risk based measure defined as the ratio of Tier 1 capital over total assets of European banks’ balance sheets during the years 2007-2018. This wide time span, compared to previous literature, allows a better analysis of CA's medium-term effects. We find that banks under the CA have a higher ratio, suggesting that the CA has contributed to foster banks' resilience. Importantly, this seems to have been achieved by banks increasing their capitalization level without shrinking their assets. In addition, this impact appears to be driven by banks located in countries where the regulatory environment and property rights are relatively less strong.
    Keywords: Comprehensive assessment, European banks, Financial stability, Regulation
    JEL: G21 G28
    Date: 2021–08

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