nep-cfn New Economics Papers
on Corporate Finance
Issue of 2021‒12‒06
ten papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Firm or bank weakness? Access to finance since the European sovereign debt crisis By Donata Faccia; Giuseppe Corbisiero
  2. The Persistent Effects of Financial Crises on the Composition of Real Investment By Jiang, Sheila; Li, Ye; Xu, Douglas
  3. Does gender diversity in the workplace mitigate climate change? By Yener Altunbas; Leonardo Gambacorta; Alessio Reghezza; Giulio Velliscig
  4. Credit Risk Database: Credit Scoring Models for Thai SMEs By Bhumjai Tangsawasdirat; Suranan Tanpoonkiat; Burasakorn Tangsatchanan
  5. The Substitute Model of Dividends at Work: a change in minority shareholder protection By Ricardo D. Brito; Paulo Sergio O. Ribeiro, Antonio Z. Sanvicente
  6. Cultural values of parent bank board members and lending by foreign subsidiaries: The moderating role of personal traits By Iftekhar Hasan; Krzysztof Jackowicz; Oskar Kowalewski; Łukasz Kozłowski
  7. A Post M&A Innovation in Family Firms By Abdul-Basit Issah
  8. The Signalling Role of Trade Credit on Loan Contracts: Evidence from a Counterfactual Analysis By P. Arca; G. Atzeni; L. Deidda
  9. The sensitivity of SME’s investment and employment to the cost of debt financing By Diana Bonfim; Cláudia Custódio; Clara Raposo
  10. Carbon Boards and Transition Risk: Explicit and Implicit exposure implications for Total Stock Returns and Dividend Payouts By Matteo Mazzarano; Gianni Guastella; Stefano Pareglio; Anastasios Xepapadeas

  1. By: Donata Faccia (Department of Economics, Trinity College Dublin, and European Central Bank); Giuseppe Corbisiero (Central Bank of Ireland)
    Abstract: This paper uses a unique dataset where credit rejections experienced by euro area firms are matched with firm and bank characteristics. This allows us to study simultaneously the role that bank and firm weakness had in the credit reduction observed in the euro area during the sovereign debt crisis, and in credit developments characterising the post-crisis recovery. Compared with the existing literature matching borrowers' and lenders' characteristics, our dataset provides a better representation of euro area firms of small and medium size. Our findings suggest that, while firm balance sheet factors have been strong determinants of credit rejections, in the crisis period bank weakness made it harder to obtain external finance for firms located in stressed countries of the euro area.
    Keywords: Credit supply, Bank lending, Credit crunch, European sovereign debt crisis
    JEL: E44 F36 G01 G21
    Date: 2020–01
  2. By: Jiang, Sheila (University of Florida); Li, Ye (Ohio State University); Xu, Douglas (University of Chicago)
    Abstract: Our paper provides the first cross-country evidence on the distinct dynamics of tangible and intangible investments during and after the global financial crisis. The pre-crisis rise of intangible-to-tangible capital ratio was reversed outside the U.S. due to a greater decline of intangible investment and a much slower recovery. Tangible capital can be externally financed, and its post-crisis recovery benefits from the restoration of credit supply. In contrast, Intangible investment relies on firms’ liquidity holdings that were drawn down in the crisis and can only be rebuilt gradually through retained profits. We provide a unified account of the findings through a dynamic model of corporate investment and liquidity management. Consistent with our model predictions, the divergence between tangible and intangible investments is more prominent in countries with weaker intellectual property protection (less external financing options for intangibles) and riskier government bonds (less robust corporate liquidity holdings).
    JEL: E22 E23 E41 E44 G01 G15 G31 G32
    Date: 2021–11
  3. By: Yener Altunbas; Leonardo Gambacorta; Alessio Reghezza; Giulio Velliscig
    Abstract: Does having more women in managerial positions improve firm environmental performance? We match firm-corporate governance characteristics with firm-level carbon dioxide (CO2) emissions over the period 2009-2019 to study the relationship between gender diversity in the workplace and firm carbon emissions. We find that a 1 percentage point increase in the percentage of female managers within the firm leads to a 0.5% decrease in CO2 emissions. We document that this effect is statically significant, also when controlling for institutional differences caused by more patriarchal and hierarchical cultures and religions. At the same time, we show that gender diversity at the managerial level has stronger mitigating effects on climate change if females are also well-represented outside the organization, e.g. in political institutions and civil society organizations. Finally, we find that, after the Paris Agreement, firms with greater gender diversity reduced their CO2 emissions by about 5% more than firms with more male managers. Overall, our results indicate that gender diversity within organizations can have a significant impact in combating climate change.
    JEL: G12 G23 G30 D62 Q54
    Date: 2021–11
  4. By: Bhumjai Tangsawasdirat; Suranan Tanpoonkiat; Burasakorn Tangsatchanan
    Abstract: This paper aims to provide an introduction to Credit Risk Database (CRD), a collection of financial and non-financial data for SME credit risk analysis, for Thailand. Aligning with the Bank of Thailand (BOT)’s strategic plan to develop the data ecosystem to help reduce asymmetric information problem in the financial sector, CRD is an initiative to effectively utilize data already collected from financial institutions as a part of the BOT’s supervisory mandate. Our first use case is intended to help improve financial access for SMEs, by building credit risk models that can work as a complementary tool to help financial institutions and Credit Guarantee Corporation assess SMEs financial prospects in parallel with internal credit score. Focusing on SMEs who are new borrowers, we use only SME’s financial and non-financial data as our explanatory variables while disregarding past default-related data such as loan repayment behavior. Credit risk models of various methodologies are then built from CRD data to allow financial institutions to conduct effective risk-based pricing, offering different sets of interest rates and loan terms. Statistical methods (i.e. logit regression and credit scoring) and machine learning methods (i.e. decision tree and random forest) are used to build credit risk models that can help quantify the SME’s one-year forward probability of default. Out-of-sample prediction results indicate that the statistical and machine learning models yield reasonably accurate probability of default predictions, with the maximum Area under the ROC Curve (AUC) at approximately 70-80%. The model with the best performance, as compared by the maximum AUC, is the random forest model. However, the credit scoring model that is developed from logistic regression of weighted-of-evidence variables is more user-friendly for credit loan providers to interpret and develop practical application, achieving the second-best AUC.
    Keywords: Credit Risk Database; Credit Score; Credit Risk Assessment; Credit Scoring Model; Thai SMEs
    JEL: C52 C53 C55 D81 G21 G32
    Date: 2021–11
  5. By: Ricardo D. Brito; Paulo Sergio O. Ribeiro, Antonio Z. Sanvicente
    Abstract: The Brazilian company law reform of 1976, which improved the minority shareholders protection but preserved the corporate power structure concentrated, provides an experiment to test the Substitute agency theory of dividends. Are dividends a substitute for the legal protection of shareholders? In the pre-reform low-legal-protection Brazilian market, growth firms issuing equity in the future used to signal proper governance through higher dividends. With the reform protecting minority shareholders, dividend payouts do not generally increase but decrease from unrestricted firms, mature firms’ payouts do not increase but decrease for growth firms. All these according to the Substitute narrative of dividends.
    Keywords: Agency Problems; Dividend Policy; Signaling
    JEL: G32 G35
    Date: 2021–11–18
  6. By: Iftekhar Hasan (Fordham University, United States; Bank of Finland, Finland; and University of Sydney, Australia); Krzysztof Jackowicz (Department of Banking, Insurance and Risk, Kozminski University, Poland); Oskar 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); Łukasz Kozłowski (Department of Banking, Insurance and Risk, Kozminski University, Poland)
    Abstract: In this study, we investigate how the average cultural values of parent bank board members affect lending by foreign subsidiaries and how this influence is moderated by board members’ personal traits. Using a new dataset that includes information on foreign banks and their parent companies from 66 and 29 countries, respectively, we find that loan growth of foreign subsidiaries is faster when parent boards exhibit, on average, higher uncertainty avoidance and power distance but lower individualism and indulgence. Notably, the identified regularities are significantly moderated by gender, busyness, and firm ownership of parent bank board members.
    Keywords: : foreign banks, lending, national culture, directors, board members, bank managers
    JEL: G01 G21
    Date: 2021–10
  7. By: Abdul-Basit Issah (WIFU/Herdecke University)
    Abstract: The paper empirically investigates how family firms appropriate acquired resources to become more innovative in the context of merger waves. It draws on resource-based view and the theory of first mover (dis)advantages to examine the implications of the timing of acquisitions on innovation in family firms. Using a panel dataset of manufacturing firms in the Standard & Poor’s (S&P) 500 followed over a period of 31 years, the study finds empirical support for the predictions that targets acquired during the upswing of a merger wave are more valuable to family firms and associated with more innovation than for non-family firms.
    Keywords: Acquisitions; innovation; resource-based view; family firms; merger waves.
    JEL: G34 L10 L20 M20
    Date: 2021
  8. By: P. Arca; G. Atzeni; L. Deidda
    Abstract: We study the role of trade credit in reducing the information asymmetries between firms and banks. According to the Biais and Gollier's (1997) model trade credit is a complement to bank credit as it is used to convey information to the bank about firm quality, thereby alleviating bank credit rationing. By employing a switching regression approach and taking into account the endogeneity arising from the simultaneous decisions of the bank to extend credit and the firm to use trade credit, we find that (i) the firm decision to use trade credit is a self-selection mechanism; (ii) any firm that chooses to use trade credit would benefit from a reduction in the cost of credit, with this reduction greater for firms that actually use trade credit; (iii) firms that use trade credit have a higher probability of obtaining financing. Thus, using a methodology that allows us to account for the role of private information in the firm- bank relationship, our results provide support to the signalling role of trade credit.
    Keywords: Trade credit;asymmetric information;Signalling;Bank Credit;Endogenous Switching Regression
    Date: 2021
  9. By: Diana Bonfim; Cláudia Custódio; Clara Raposo
    Abstract: We use variation in the access to a government credit certification program in Portugal to estimate the sensitivity of SMEs´ investment and employment to the cost of debt financing. Targeted firms have access to a credit certification and loan guarantees. We use a multidimensional regression discontinuity design to estimate real effects. Eligible firms increase borrowing and obtain bank loans at lower rates than non-eligible firms, allowing them to increase investment and employment during crises. Eligible firms also exhibit increased return on assets and default less. Industry-level analysis shows reduced heterogeneity in access to credit in more exposed industries.
    JEL: A1
    Date: 2021
  10. By: Matteo Mazzarano (Fondazione Eni Enrico Mattei, Università Cattolica del Sacro Cuore); Gianni Guastella (Fondazione Eni Enrico Mattei, Università Cattolica del Sacro Cuore); Stefano Pareglio (Fondazione Eni Enrico Mattei, Università Cattolica del Sacro Cuore); Anastasios Xepapadeas (thens University of Economics and Business, University of Bologna)
    Abstract: The Security and Exchange Commission (SEC) has considered climate change as a risk issue since 2010. Several emission disclosure initiatives exist aimed at informing investors about the financial risks associated with a zero or low carbon transition. Stricter regulations, particularly in a few sectors, could affect operations costs, ultimately impacting companies financial performances, especially of listed companies. There are two ways these companies can disclose their transition risk exposure and are not alternatives. One is the explicit declaration of exposure to transition risk in the legally binding documents that listed companies must provide authorities. The other is the disclosure of GHG equivalent emissions, which is implicitly associated with transition risk exposure. This paper empirically analyses to what extent US companies stock returns incorporate information about transition risk by using explicit and implicit risk measures and comparing them. In addition, multiple total stock return measures distinguishing dividend payouts from simple stock returns. Results suggest that both explicit and implicit risks are positively related to dividend payouts and not to stock returns, while the overall effect on total stock returns is negative. Evidence supports the view that market operators price negatively the transition risk exposure and, probably as a consequence, boards in carbon intensive companies use dividend policies to attract investment in risky companies.
    Keywords: Climate risk, Transition Risk, SEC-10K, Mandatory Disclosure, Text analysis, CAPM
    JEL: G35 G32 G38 Q54
    Date: 2021–11

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