nep-cfn New Economics Papers
on Corporate Finance
Issue of 2021‒10‒18
eighteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Leverage and Cash Dynamics By DeAngelo, Harry; Goncalves, Andrei S.; Stulz, Rene M.
  2. A Brief Comparison of Most Prominent Crowdfunding Platforms in Turkey and USA By Uzuntepe, Beren
  3. Desperate House Sellers: Distress Among Developers By Eileen van Straelen
  4. Market finance as a spare tyre? Corporate investment and access to bank credit in Europe By Andersson, Malin; Maurin, Laurent; Rusinova, Desislava
  5. Enhancing Financial Reporting Quality through Corporate Ethics Commitment By Noorul Azwin Md Nasir
  6. Relationship lending, Trust, and SME bank financing in the UK By Degryse, Hans; Matthews, Kent; Zhao, Tianshu
  7. Exploring the conjunction between the structures of deposit and credit markets in the digital economy under information asymmetry By Elena Deryugina; Alexey Ponomarenko; Andrey Sinyakov
  8. Neither True-friend nor Fairweather friend: Relationship Banking and SME borrowing under Covid-19 By Zhao, Tianshu; Matthews, Kent; Munday, Max
  9. Does Retrenchment Boost Performance? Evidence from Fallen Angels By Farroukh, Karim; Koski, Jennifer L.; Werner, Ingrid M.
  10. Foreign Trade, Education And Innovative Performance: A Multilevel Analysis By Aysan, Ahmet Faruk; Castillo-Téllez, Luis Carlos; Demirbaş, Dilek; Disli, Mustafa
  11. Banks’ consumer lending reaction to fintech and bigtech credit emergence in the context of soft versus hard credit information processing By Kowalewski; Pawel Pisany
  12. Tax Evasion by Firms By Laszlo Goerke
  13. Digital finance, green finance and social finance: is there a link? By Ozili, Peterson K
  14. Financial Inclusion and Gender Inequality in sub-Saharan Africa By Tendai Zawaira; Matthew Clance; Carolyn Chisadza; Rangan Gupta
  15. Role of Beliefs About Firm Profits and Image in Firm Recycling Behavior: Evidence from Georgia Horticultural Firms By Florkowski, Wojciech J.; Nouve, Yawotse
  16. Precautionary Liquidity Shocks, Excess Reserves and Business Cycles By Bratsiotis, George J.; Theodoridis, Konstantinos
  17. Small Business Owners and Corporate Tax Responsibility in Nigeria: An Exploratory Study By Amaeshi, Kenneth; Adi, Bongo; Ikiebey, Godson
  18. Is financial development shaping or shaking economic sophistication in African countries? By Njangang, Henri; Asongu, Simplice; Tadadjeu, Sosson; Nounamo, Yann

  1. By: DeAngelo, Harry (U of Southern California); Goncalves, Andrei S. (U of North Carolina); Stulz, Rene M. (Ohio State U)
    Abstract: This paper documents new and empirically important interactions between cash-balance and leverage dynamics. Cash ratios typically vary widely over extended horizons, with dynamics remarkably similar to (and complementary with) those of capital structure. Leverage and cash dynamics interact approximately as predicted by the internal-versus-external funding regimes in Myers and Majluf (1984). Leverage is quite volatile when cash ratios are stable and vice-versa, while net-debt ratios are almost always volatile. Most firms increase leverage sharply as cash balances (internal funds) become scarce. Capital structure models that extend Hennessy and Whited (2005) to include cash-balance dynamics explain some, but not all, aspects of the observed relation between cash squeezes and leverage increases.
    JEL: G31 G33 G35
    Date: 2021–06
  2. By: Uzuntepe, Beren
    Abstract: Emerging and gaining significance due to the widespread use of the Internet and the power of social media, crowdfunding, via crowdfunding platforms, provides entrepreneurs with creative business ideas with the opportunity to reach extensive masses and to be able to directly access the financial resources that their projects require. Even though the interest in crowdfunding rises, the literature seems to lack enough research about these platforms. Addressing the platforms that bring together the entrepreneurs and the backers, this research aims to compare the reward-based crowdfunding platforms operating in Turkey with the international crowdfunding platforms. Containing the categories of technology and movie/video, this research discusses the differences between the most prominent crowdfunding platforms in the two countries. The findings of the research constitute importance due to the fact that it shows the way to the entrepreneurs, crowdfunding platforms, and backers while making their decisions, encourages participation in the campaigns, and sheds light on other studies about the subject.
    Keywords: Keywords: Crowdfunding, Entrepreneurial Finance, Online Platform, Reward Based Crowdfunding, KIA
    JEL: G2 G24 G3 G32 L2 L26 M1 M13 O3 O30 O34 P3 P34 P35
    Date: 2021
  3. By: Eileen van Straelen
    Abstract: Using granular data on home builder housing developments from the 2006-09 housing crisis, I show that builders spread house price shocks across geographically distinct projects via their internal capital markets. Builders who experience losses in one area subsequently sell homes in unaffected areas at a discount to raise cash quickly. Financially constrained firms are more likely to cut prices of homes in healthy areas in response to losses in unhealthy ones. Firms also smooth shocks across projects only during the crisis and not during the boom. These results together suggest firm internal capital markets spread negative economic shocks across space.
    Keywords: Internal capital markets; Financial crises; Financial constraints; Housing markets; Product pricing
    JEL: R30 G30 G31 G01 E30
    Date: 2021–10–13
  4. By: Andersson, Malin; Maurin, Laurent; Rusinova, Desislava
    Abstract: We estimate a FAVAR with Bayesian techniques in order to investigate the impact of loan supply conditions on euro area corporate investment and its financing structure. We identify shocks to overall demand and loan supply with sign and impact restrictions. Although tightened financial conditions have adversely impacted corporate investment during and after the sovereign debt crisis, the resulting impediments in loan supply, illustrated by lower loan volumes and higher spreads, have been partly alleviated by strengthened corporate debt issuance. We show that (1) part of the protracted increase in debt to loan ratio since the crisis reflects bottlenecks in the provision of bank credit and (2) the tightened loan supply has been more adverse for small corporations with limited market access. Overall, our analysis of macro-financial developments suggests the need for policy actions to deepen the European corporate debt market and enhance market access for smaller corporates. JEL Classification: E22, E66, G21
    Keywords: corporate debt issuance, FAVAR model, financing structure, size spread, small and medium size corporates
    Date: 2021–10
  5. By: Noorul Azwin Md Nasir (Faculty of Entrepreneurship and Business, Universiti Malaysia Kelantan, Malaysia Author-2-Name: Hafiza Aishah Hashim Author-2-Workplace-Name: Faculty of Business Economics and Social Development, Universiti Malaysia Terengganu, Malaysia Author-3-Name: Noorshella Che Nawi Author-3-Workplace-Name: Faculty of Entrepreneurship and Business, Universiti Malaysia Kelantan, Malaysia Author-4-Name: "Mohd Nor Hakimin Yusof" Author-4-Workplace-Name: "Faculty of Entrepreneurship and Business, Universiti Malaysia Kelantan, Malaysia " Author-5-Name: Nur Athirah Mohd Aluwi Author-5-Workplace-Name: Faculty of Entrepreneurship and Business, Universiti Malaysia Kelantan, Malaysia Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: "Objective - A rising number of cases involving ethical misconduct within firms have of late received considerable attention in Malaysia. Despite the country's declaring having a strong corporate governance policy, strengthened through the Code of Ethics for Company Directors and Malaysia Code of Corporate Governance, unethical practices, and lack of integrity within firms remain an issue. This paper aims to review the current implementation of corporate ethical conducts among corporate governance practitioners as well as factors that influence corporate ethics commitment in a firm. Methodology/Technique - This paper is developed from extensive readings of previous literature on corporate governance practices and their effect on the quality of financial reports. Findings - This paper discloses collective approaches of corporate ethics practiced in Malaysian firms and how the implementation has enhanced the firms' overall financial reporting quality. It demonstrates current issues and the importance of corporate ethics commitment to enhance financial reporting quality. Firms that emphasize ethical commitments, reduce the risk of financial statement fraud and firms will naturally gain trust from their stakeholders. Novelty - This paper stresses the importance of sound ethical conduct above other factors that influence the financial reporting quality of firms in Malaysia. This paper is the result of extensive research on corporate ethics commitment and financial reporting quality. Type of Paper - Review."
    Keywords: Corporate Ethics; Corporate Governance; Financial Reporting Quality
    JEL: G34 M41
    Date: 2021–09–30
  6. By: Degryse, Hans; Matthews, Kent (Cardiff Business School); Zhao, Tianshu
    Abstract: It is well recognized that relationship banking helps to relieve the credit constraints faced by SMEs to access bank finance. Trust is an important part of relationship banking. However, the term trust is nebulous, and relationship banking means different things to different banks and different borrowers. How trust enables the credit market for SMEs through relationship banking is largely unexplored. Using a unique primary dataset of SMEsin the UK, we construct a measure of trust-based relationship banking from the perspective of the borrower. We examine the drivers of trust-based relationship banking in terms of organizational trust in the relationship manager, defined as the delegation of operational autonomy, along with local market and social capital factors, and the style of the bank-borrower relationship. Along with bank, firm, and market factors, trust-based relationship banking helped to reduce the credit constraints faced by SMEs in the decade following the global financial crisis.
    Keywords: Trust, Relationship Banking, SME Financing, Bank Organization
    JEL: G21 G29 L14
    Date: 2021–10
  7. By: Elena Deryugina (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation); Andrey Sinyakov (Bank of Russia, Russian Federation)
    Abstract: In the digital economy, customer data becomes particularly valuable. Customer transactions monitored by banks, payment systems, and retail platforms are a useful source of information to assess potential borrowers’ credit risk. Thus, a dominant player at a payment or deposit market, behaving strategically, may influence the characteristics of the lending market. In this article, we show, within the game-theoretic framework, that such dominance can affect the market structure, loan pricing, financial inclusion, and credit risk accumulated on banks’ balance sheets. Our results show that specifics of the digital economy set a new link between structures of deposit and credit markets. Information asymmetries allow the dominant player to increase its profits at the expense of the profits gained by other players. At the same time, the accessibility of loans to more risky borrowers reduces while credit risks of banks’ loan portfolios decline.
    Keywords: retail payments, banking, market structure, asymmetric information, customer data
    JEL: D43 D82 G21
    Date: 2021–09
  8. By: Zhao, Tianshu; Matthews, Kent (Cardiff Business School); Munday, Max
    Abstract: A growing literature addresses the costs and benefits associated with relationship banking, particularly for smaller firms, but with much of this work focused on normal trading conditions. Covid-19 provides an ideal testbed to explore the resilience of relationship banking. We examine whether the presence of closer pre-Covid ties between SMEs and their banks helps in accessing funds in the Covid-19 pandemic period. Then are ties between relationship bankers and SME borrowers a case of ‘true love’ or rather are the parties more akin to ‘fair-weather friends’? Data from the UK SME Finance Monitor from 2018Q2-2020Q3 is used to examine this question. Our analysis suggests that relationship banking was important for the acquisition of bank credit pre-Covid-19 but was of limited influence in post-Covid-19 lending behaviour. Banks treated SMEs that had a good relationship with them in the same way as those that did not and with public interventions to support lenders material in this.
    Keywords: Covid-19, Relationship Banking, SMEs
    JEL: G21 G28 G40
    Date: 2021–10
  9. By: Farroukh, Karim (U of Washington); Koski, Jennifer L. (U of Washington); Werner, Ingrid M. (Ohio State U)
    Abstract: We study restructuring by firms whose stock prices experience a sharp decline to a low price level-fallen angels. In response to a price decline, firms can retrench by reducing investments and cutting the workforce, or increase leverage and investments hoping for lottery-like payoffs. We find that relative to a matched sample, fallen angels retrench. While retrenchment helps boost stock prices, reducing fixed assets and employment also increase firm risk, lower growth opportunities, and reduce the probability a firm remains listed. We find no consistent evidence that retrenchment actions undertaken by fallen angels affect future operating performance.
    JEL: G10 G30 G34
    Date: 2021–06
  10. By: Aysan, Ahmet Faruk; Castillo-Téllez, Luis Carlos; Demirbaş, Dilek; Disli, Mustafa
    Abstract: This research analyses the innovative performance of 5273 companies across 64 different economic sectors and 32 different regions in Colombia. We assess the different effects on the innovative performance of firms by analyzing firm, sector, and regional level determinants. The study involves the multilevel approach of the innovation process considering the structure and behavior of innovation systems in developing countries. We furthermore focus on technology transfer from foreign trade and the role of education in the process of innovation. We find that education and open economy variables have a significant relationship with innovation performance at the firm and regional levels.
    Keywords: Multilevel, Innovative Performance, Open Economy Variables, Innovation Systems, Multilevel Regression Models, Development.
    JEL: A1 A2 O24
    Date: 2021–05–05
  11. By: Kowalewski (IESEG School of Management, UMR 9221 - LEM - Lille Economie Management, Lille, France Univ. Lille, UMR 9221 - LEM - Lille Economie Management, Lille, France CNRS, UMR 9221 - LEM - Lille Economie Management, Lille, France Institute of Economics, Polish Academy of Sciences, Warsaw, Poland); Pawel Pisany (Institute of Economics, Polish Academy of Sciences, Warsaw, Poland)
    Abstract: We analyze competition in the consumer lending segment between banks and financial technology (or “fintech”) companies (or “fintechs”) as well as giant technology (or “bigtech”) companies (or “bigtechs”) providing alternative credit. We use a database combining bank-level characteristics and country-level proxies for 72 countries during 2013–2018. We find that in developed markets, the relations between fintech/bigtech credit providers and banks are similar and competitive in nature. However, banks’ consumer lending grows simultaneously with fintech credit market development in emerging economies but decreases in the aftermath of bigtech credit emergence. Fintech credit seems to penetrate market segments not serviced by banks; thus, it plays a complementary role, but only in emerging economies. Bigtechs compete even more with banks and push some banking offers out of the market, both in emerging and developed economies. Furthermore, we show that domestic and privately owned banks are more negatively affected by competition from technology-based lending, particularly bigtech, compared to foreign banks. Thus, bigtech lending may be treated as a serious competition for banks’ relationship lending, based on soft credit information processing, provisioned traditionally by local banks.
    Keywords: alternative credit, fintech, bigtech, financial inclusion, local banks, competition, relationship lending, soft credit information
    JEL: G21 G23 O33
    Date: 2021–10
  12. By: Laszlo Goerke (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University)
    Abstract: This contribution surveys theoretical analyses of tax evasion by firms. It uses a simple model in which the firm determines economic activity and the under-declaration of the tax base to integrate various approaches into a coherent analytical framework. Initially, the chapter characterises the basic features of the firm's decision. Subsequently, it considers the effects of firm-size heterogeneity, restrictions on evasion behaviour, the co-existence of tax evasion with other illegal activities, output market interactions, non-profit objectives, and corporate governance issues.
    Keywords: Firm, Tax Avoidance, Tax Evasion
    JEL: H25 H26 K34
    Date: 2021–04
  13. By: Ozili, Peterson K
    Abstract: Identifying the intersection between digital finance, green finance and social finance is important for promoting sustainable financial, social and environmental development. This paper suggests a link between digital finance, green finance and social finance. Using a simple conceptual model, I show that digital finance offers a smooth, efficient and seamless channel for individuals and corporations to fund social projects that deliver a social dividend, and green projects that promote a sustainable environment. The implication is that digital finance is both an enabler and a channel for efficient green financing and social financing.
    Keywords: green finance, social finance, digital finance, sustainable development, environment, sustainable finance, innovation
    JEL: G02 G20 G21 Q56
    Date: 2021
  14. By: Tendai Zawaira (Department of Economics, University of Pretoria, Hatfield 0028, South Africa); Matthew Clance (Department of Economics, University of Pretoria, Hatfield 0028, South Africa); Carolyn Chisadza (Department of Economics, University of Pretoria, Hatfield 0028, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)
    Abstract: This study analyses the association between financial inclusion and gender inequality in sub-Saharan Africa. Our findings suggest that generally, most individuals in sub-Saharan Africa rely on informal sources of finance, such as savings at a savings club and borrowing from family and friends compared to formal financial sources. Moreover, women are more likely to turn to the informal sources compared to men which is a concern that needs to be addressed at policy level. Improving access to finance is at the center of improving gender equality and increasing the economic freedoms and opportunities that women have to contribute to their families and societies.
    Keywords: Gender, Financial development, Financial inclusion, Africa
    JEL: J16 O11
    Date: 2021–10
  15. By: Florkowski, Wojciech J.; Nouve, Yawotse
    Keywords: Environmental Economics and Policy, Resource/Energy Economics and Policy, Agribusiness
    Date: 2021–08
  16. By: Bratsiotis, George J.; Theodoridis, Konstantinos
    Abstract: This paper identifies a precautionary banking liquidity shock via a set of sign, zero and forecast variance restrictions imposed. The shock proxies the banking sector's reluctance to lend to the real economy induced by an exogenous preference change for liquid assets. Through the lens of a DSGE model, the precautionary liquidity shock is shown to work through two channels: reserves (balance sheet) and the deposit rate (intertemporal effect). The overall effect is a downward co-movement in output, consumption, investment, and prices, which is amplified the higher are the long-run risks in the economy and banks' responsiveness to potential risk.
    Keywords: SVAR,Sign and Zero Restrictions,DSGE,Precautionary Liquidity Shock,Excess Reserves,Deposit Rate,Risk,Financial Intermediation
    JEL: C10 C32 E30 E43 E51 G21
    Date: 2021
  17. By: Amaeshi, Kenneth; Adi, Bongo; Ikiebey, Godson
    Abstract: This study explores how small business owners talk about their tax responsibility, especially in non-enabling institutional contexts. It identifies two main types of tax responsibility discourses amongst these business owners: (1) duty-based and (2) rights-based. The duty-based talks see taxation primarily as the citizens’ responsibility to governments, which should always be fulfilled unconditionally, while rights-based talks see taxation primarily as the government’s responsibility to citizens, which should be fulfilled first, in order for the government to earn the trust of citizens for higher tax compliance. Further analyses reveal that these talks are anchored on four common discursive themes – i.e. socio-economic development, legal, moral, and philanthropic themes, which business owners respond to in different ways. The paper argues that understanding these diverse responses will help tax regulators respond to taxpayers’ attitudes effectively. Summary of ATAP 15 by Kenneth Amaeshi, Bongo Adi and Godson Ikiebey.
    Keywords: Finance, Governance,
    Date: 2020
  18. By: Njangang, Henri; Asongu, Simplice; Tadadjeu, Sosson; Nounamo, Yann
    Abstract: This paper aims to investigate the effect of financial development on economic complexity using a panel dataset of 24 African countries over the period 1983-2017. The empirical evidence is based on two different approaches. First, we adopt the Hoechle (2007) procedure which produces Driscoll-Kraay standard errors to account for heteroscedasticity and cross–sectional dependence. Second, we implement the system Generalized Method of Moments to account for endogeneity. The results show that financial development increases economic complexity in Africa. Looking at the regional difference, the results show that this effect is less beneficial for SSA countries.
    Keywords: Financial development, Economic complexity, Panel data analysis, Africa
    JEL: E02 G20 G24 O55 P14
    Date: 2021–01

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