|
on Corporate Finance |
| By: | Ibrahim Yarba |
| Abstract: | This study investigates the link between corporate indebtedness and investment by utilizing a novel firm-level data, which contains the universe of all incorporated manufacturing firms in Turkey over the last decade. The results of the panel regression model with multi-dimensional fixed effects provide significant evidence of an inverted-U relationship between indebtedness and investment, indicating that leverage increases investment up to a certain level, and after that further increase in leverage has an adverse impact on investment. This non-monotonic relationship is evident for all firm size groups. Conspicuously, the indebtedness level that becomes an impediment to investment is significantly lower for SMEs than large firms, which is in support of the arguments that small firms are more likely to be affected by debt overhang. Results also reveal that firms holding more cash can sustain higher level of debts without hurting investment activity. This is also the case for high capital-intensive firms and exporters. Findings of this paper highlight the importance of policies to make equity financing more attractive, incentivise the uptake and provision of equity capital from private investors, and deepen the capital markets. |
| Keywords: | Corporate debt, Firm investment; Cash policy; SMEs, Debt overhang |
| JEL: | C23 D22 E22 G31 G32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2131&r= |
| By: | Yusuf Kenan Bagir; Unal Seven |
| Abstract: | We study whether the linkage between financing and productivity growth strengthens as the severity of financial constraints increases by using firm-level administrative data from a large emerging economy. We also explore whether upstream firms’ financial constraints play a role in the linkage between finance and productivity. Using a combination of administrative databases of tax registry and firm-to-firm trade data of 896,317 Turkish firms from 2007 to 2018, employing various robustness tests and controlling for reverse causality, we find strong evidence that firms facing higher financial constraints exhibit a higher sensitivity of total factor productivity (TFP) growth to debt growth. Moreover, we show that a rise in upstream firms’ financial constraint level also leads to increased sensitivity of TFP growth to debt growth. Our results reveal important channels through which financial constraints could hinder productivity growth in Turkey. |
| Keywords: | TFP growth, Financial constraints, Debt growth |
| JEL: | D24 G30 O16 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2132&r= |
| By: | Nilesh B. Sah (Gary W. Rollins College of Business, University of Tennessee at Chattanooga); Anandi Banerjee (McColl School of Business, Queens University of Charlotte); James Malm (College of Charleston); Anisur Rahman (Westminster College, Fulton, MO) |
| Abstract: | Several studies show that family firms avoid risky financial policies and value goals such as survival and reputation more than financial profits. Our study provides new evidence that extends the literature by showing that family firms exhibit conservative short-term investment policies by investing more in working capital. Notably, family firms hold more inventories and pay their suppliers promptly. The general notion that higher working capital investments debilitate profitability does not hold true for family firms. This paper is the first to explore the unique channel of working capital investments through which family firms may accomplish survival and reputation goals without hurting profitability. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:msb:wpaper:2021-02&r= |
| By: | Florian Léon (FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Laurent Weill (EM Strasbourg Business School) |
| Abstract: | We investigate whether the occurrence of elections affect access to credit for firms. We perform an investigation using firm-level data covering 44 developed and developing countries. We find that elections have a detrimental influence on access to credit: firms are more credit-constrained in election years but also in pre-election years. We explain this finding by the fact that elections exacerbate political uncertainty. The negative effect of elections takes place through lower credit demand, whereas the occurrence of elections does not affect credit supply. We further establish that the design of political and financial systems affects how elections influence access to credit. |
| Keywords: | Elections,Access to credit,Credit constraints |
| Date: | 2021–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03462407&r= |
| By: | Gabriele Lattanzio (Nazarbayev University, Graduate School of Business); Jerome Taillard (Babson College, Department of Finance) |
| Abstract: | Using text-based measures of cybersecurity risk, we document that low cybersecurity risk firms are more likely to initiate or be targeted for an M&A transaction. Further, we show that the market has recently started to price cybersecurity risk at the time of a deal announcement and – consistent with this finding - attempted mergers are significantly less likely to fail if the selected target has a low cybersecurity risk profile. Cyber risk is finally reflected in merger premium, which appears to be systematically higher for mergers where the acquirer exhibits low cybersecurity risk levels. These findings offer novel evidence on the economic impact of cybersecurity risk on the market for corporate control. |
| Keywords: | Mergers and Acquisitions, Cybersecurity Risk, M&A Withdrawal, Valuation |
| JEL: | G30 G34 M14 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:asx:nugsbw:2021-02&r= |
| By: | Bell, Brian; Pedemonte, Simone; Van Reenen, John |
| Abstract: | We exploit the large rise in relative performance awards in the United Kingdom over the last two decades to investigate whether these contracts improve the alignment between CEO pay and firm performance. We first document that corporate governance appears to be stronger when institutional ownership is greater. Then, using hand-collected data from annual reports on explicit contracts, we show that (1) CEO pay still responds more to increases in the firms' stock performance than to decreases, and, importantly, this asymmetry is stronger when corporate governance is weak as measured by low institutional ownership; and (2) "pay for luck"persists as remuneration increases with random positive shocks, even when the CEO has equity awards that explicitly condition on firm performance relative to peer firms in the same sector. A major reason why relative performance contracts do not eliminate pay for luck is that CEOs who fail to meet the terms of their past performance awards are able to obtain more generous new equity rewards in the future in weakly governed firms. We show the mechanism operates both through the quantum of shares and the structure of new contracts. These findings suggest that reforms to the formal structure of CEO pay contracts are unlikely to align incentives in the absence of strong corporate governance. |
| JEL: | N0 R14 J01 |
| Date: | 2021–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112749&r= |
| By: | Bui, Anh Tuan; Pham, Linh Chi; Ta, Thi Khanh Van |
| Abstract: | Using firm-level data on 11,000 companies across seven countries in South Asia, this paper explores the effects of access to finance on employment growth and performance at the firm level. The paper focuses on how the impact of financing obstacles varies across firm sizes. The results show that higher obstacles in access to finance reduces employment growth and performance for firms of all sizes, especially micro and small firms. We find significant differences between firms with less than 10 employees and small firm, which suggests that significant reforms are needed to drive micro firm growth to small and medium enterprises. |
| Keywords: | Access to finance obstacles,employment growth,Total factor of productivity |
| JEL: | J21 J41 M51 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:991&r= |
| By: | Ms. TengTeng Xu; Ms. Sumiko Ogawa; Lucyna Gornicka |
| Abstract: | To assess the resilience of India’s corporate sector against COVID-19-related shocks, we conducted a series of stress tests using firm-level corporate balance sheet data. The results reveal a differential impact across sectors, with the most severe impact on contact-intensive services, construction, and manufacturing sectors, and micro, small, and medium enterprises. On policy impact, the results highlight that temporary policy measures have been particularly effective in supporting firm liquidity, but the impact on solvency is less pronounced. On financial sector balance sheets, we found that public sector banks are more vulnerable to stress in the corporate sector, partly due to their weaker starting capital positions. When considering forward-looking multiperiod growth scenarios, we find that the overall corporate performance will depend on the speed of recovery. A slower pace of recovery could lead to persistently high levels of debt at risk, especially in some services and industrial sectors. |
| Date: | 2021–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/278&r= |
| By: | Bui, Anh Tuan; Pham, Linh Chi; Ta, Thi Khanh Van |
| Abstract: | This paper explores the impact of financial and legal obstacles that affect small and medium enterprises (SMEs) in middle-income East Asian countries by utilizing the most recent and unique dataset from the World Bank Enterprise Surveys. We particularly assess whether and at what level the effects on SMEs differ from those on large firms; We also examine how financial and institutional development levels contribute to firm performance. Our findings provide important guidance for regulators, including the authorities of middle-income nations, who seek to facilitate SMEs' development. |
| Keywords: | Sales Growth,Employment Growth,Financial Obstacles,Legal Obstacles |
| JEL: | G38 G01 G00 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:990&r= |
| By: | Daniele Bianchi; Mykola Babiak |
| Abstract: | We investigate the dynamics of daily realised returns and risk premiums for a large cross-section of cryptocurrency pairs through the lens of an Instrumented Principal Component Analysis (IPCA) (see Kelly et al., 2019). We show that a model with three latent factors and time-varying factor loadings significantly outperforms a benchmark model with observable risk factors: the total (predictive) R2 from the IPCA is 17.2% (2.9%) for individual returns, against a benchmark 9.6% (-0.02%) obtained from a model with six observable risk factors explored in previous literature. By looking at the characteristics that significantly matter for the dynamics of risk premiums, we provide robust evidence that liquidity, size, reversal, and both market and downside risks represent the main driving factors behind expected returns. These results hold for both individual assets and characteristic-based portfolios, pre and post the Covid-19 outbreak, and for weekly individual and portfolio returns. |
| Keywords: | cryptocurrency markets; instrumented PCA; asset pricing; factor models; risk premiums; |
| JEL: | G11 G12 G17 C23 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp710&r= |