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on Corporate Finance |
| By: | Altavilla, Carlo; Ellul, Andrew; Pagano, Marco; Polo, Andrea; Vlassopoulos, Thomas |
| Abstract: | We investigate whether government credit guarantee schemes, extensively used at the onset of the Covid-19 pandemic, led to substitution of non-guaranteed with guaranteed credit rather than fully adding to the supply of lending. We study this issue using a unique euro-area credit register data, matched with supervisory bank data, and establish two main findings. First, guaranteed loans were mostly extended to small but comparatively creditworthy firms in sectors severely affected by the pandemic, borrowing from large, liquid and well-capitalized banks. Second, guaranteed loans partially substitute pre-existing non-guaranteed debt. For firms borrowing from multiple banks, the substitution mainly arises from the lending behavior of the bank extending guaranteed loans. Substitution was highest for funding granted to riskier and smaller firms in sectors more affected by the pandemic, and borrowing from larger and stronger banks. Overall, the evidence indicates that government guarantees contributed to the continued extension of credit to relatively creditworthy firms hit by the pandemic, but also benefited banks' balance sheets to some extent. |
| Keywords: | loan guarantees,bank lending,COVID-19 pandemic,substitution,credit risk |
| JEL: | G18 G21 E63 H12 H81 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:672&r= |
| By: | Deni Irawan (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI); Crawford School of Public Policy, Australian National University, Australia; Centre for Applied Macroeconomic Analysis (CAMA), Australian National University, Australia); Tatsuyoshi Okimoto (Crawford School of Public Policy, Australian National University, Australia; Research Institute of Economy, Trade and Industry (RIETI), Japan; Centre for Applied Macroeconomic Analysis (CAMA), Australian National University, Australia) |
| Abstract: | Capital structure is one of the most critical decisions for firms in business. This study examines the role of macro (economic and non-economic) uncertainties in affecting firms’ capital structure management. Three prominent capital structure theories are tested for global resource firms: (1) static trade-off, (2) pecking order, and (3) market timing theory. The results suggest that no single theory prevails, although both pecking order and market timing theories have certain explanatory power to explain sample firms’ financing behaviour. The pecking order theory is strongly supported by the results of the leverage target adjustment model. However, the downward cyclical patterns of pecking order coefficients suggest that the resource firms tend to choose debt financing less and less over time, particularly after 2008. The market timing theory holds strong, as indicated by the significance of macro condition (uncertainties) variables in determining sample firms’ capital structure, especially after 2008 and for non-renewable firms. However, the main proxies of the cost of debt are not statistically significant. In conclusion, this study finds that resource firms have a particular pecking order preference when they need financing, and the influence of macro uncertainties are vital in determining their capital structure. |
| Keywords: | capital structure — trade-off theory — pecking order theory — market timing theory — macro uncertainties |
| JEL: | E32 G32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:lpe:wpaper:202168&r= |
| By: | Degryse, Hans; Gündüz, Yalin; O'Flynn, Kuchulain; Ongena, Steven |
| Abstract: | Firms with credit-default swaps (CDS) traded on their debt may face "empty creditors" as hedged creditors have less incentive to participate in firm restructuring. We test for the existence of empty creditors by employing an exogenous change to the bankruptcy code in Germany that effectively removes their potential impact on CDS firms. Using a unique dataset on bank-firm CDS net notional and credit exposures we find that the probability of default for CDS firms drops when the effect of empty creditors is removed. This effect increases in the average CDS hedge position of a firm's creditors and in the concentration of the firm's debt. Firms with longer credit relationships, with higher average collateral ratios of their debt, and financially safer firms are less affected by empty creditors. Banks that are not capital constrained and that are liquidity constrained embed the empty creditor effect into their probability of default estimates of affected firms to a larger extent. So do banks that monitor their creditors less and that earn a smaller portion of their income from interest activities. |
| Keywords: | Empty creditors,default,bankruptcy,credit default swaps,micro-data |
| JEL: | G21 G33 G38 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:452021&r= |
| By: | McCann, Fergal (Central Bank of Ireland); McGeever, Niall (Central Bank of Ireland); Yao, Fang (Central Bank of Ireland) |
| Abstract: | Using survey data from a representative sample of Irish Small and Medium Enterprises (SMEs), we study how firms are likely to recover under macroeconomic forecasts of the pandemic recovery. The rate of financial distress among firms is expected to fall under baseline forecasts from a peak of 12 per cent in 2020 to 7 per cent by 2024. We find that those firms that struggle to recover by the end of our scenario window were mostly unprofitable or distressed prior to the pandemic. Beyond our baseline case, we further model three alternative recovery scenarios to study the effect of fiscal support tapering, a partial recovery due to structural change in sectoral demand, and a financing gap driven by credit risk retrenchment by lenders. Our findings highlight the continued importance of “bridging” liquidity finance provision to ensure the long term solvency of viable firms. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:9/rt/21&r= |
| By: | Brindusa Anghel (Banco de España); Aitor Lacuesta (Banco de España); Federico Tagliati (Banco de España) |
| Abstract: | This paper analyses the financial literacy of Spanish enterprises with fewer than 50 employees (small enterprises) based on a survey conducted by the Banco de España between March and May 2021 as part of a project launched by the Organisation for Economic Co-operation and Development’s International Network on Financial Education. The survey includes a series of questions aimed at measuring firms’ financial literacy (financial knowledge, attitudes and behaviour) and the financial instruments held by them, the impact of the COVID-19 crisis on their activity and their level of digitalisation. The business owners should answer these questions as long as they are involved in taking financial decisions for the business. The main results of the survey suggest that, in Spain, owners of enterprises with fewer than 20 employees have little financial knowledge compared with those of enterprises with 20 to 49 employees. The same is true of firms in the accommodation and food service activities, construction and real estate activities, and other personal services sectors (the latter being a mixed group of sectors which would include firms in education, repairs, laundry services, etc.) compared with firms in other sectors. In terms of financial attitudes, business owners with ten or more employees have a greater tendency to set long-term financial goals than owners of firms with fewer than ten employees. Some financial behaviours (such as having strategies to cope with theft or considering different options for their financial product and service providers) are less widespread among smaller firms, especially those with fewer than five employees. Lastly, the percentage of Spanish small enterprises, regardless of size, whose owners have thought about how they will fund their own retirement is remarkably low. The use of capital instruments and other more recent types of financing (such as sustainable bonds, business angels or crowdfunding) is marginal in small Spanish enterprises. Likewise, the use of property and, particularly, business interruption insurance is limited among these firms. There are no discernible, significant differences in financial knowledge, attitudes or behaviours in terms of the gender of the business owner. Also, in general, the average financial literacy of small enterprises improves with the level of educational attainment only if the owner has specific training in business, economics or finance. Other characteristics positively associated with financial competencies, irrespective of educational attainment, are having more than ten years’ experience as a business owner or having a business owner for a parent. The impact of the COVID-19 crisis on the level of turnover, profit and debt was quite similar for firms with different degrees of financial literacy. However, the negative impact on employment and liquidity was somewhat lower for the higher quartiles of owners’ financial literacy. Additionally, higher financial knowledge was associated with being more likely to apply for and obtain a new loan or benefit from a public guarantee. Firms with less financial knowledge did make greater use of income transfers and rental moratoria. Lastly, there is a positive correlation between financial literacy and a higher pre-pandemic level of digitalisation in the firm. However, there is no such correlation between financial literacy and digital activities following COVID-19. |
| Keywords: | financial literacy, small enterprises, online survey, COVID-19, digitalisation |
| JEL: | C81 D25 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2129e&r= |
| By: | Lucas Misera; Ann Marie Wiersch |
| Abstract: | the fourth concludes that businesses owned by women, and, in particular, by Black women, faced more financial and operational challenges during the pandemic and were less likely to receive financing than men-owned businesses. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:g00003:93536&r= |
| By: | Elisa Darriet (LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - CNAM - Conservatoire National des Arts et Métiers [CNAM], LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas - SU - Sorbonne Université); Marianne Guille (LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas - SU - Sorbonne Université); Jean-Christophe Vergnaud (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Paris 1 Panthéon-Sorbonne) |
| Abstract: | The aim of this chapter is to investigate the relationship between financial literacy and numeracy. It turns out that numeracy and financial literacy are strongly correlated. In order to clarify this relationship, we review, in a first section, the general definition of numeracy and its most commonly used measures. We then try to enlighten the distinction that can be made between numeracy and financial literacy. In a second section, we focus on the relationship between numeracy and financial literacy using the main empirical studies performed. Since the analyses of their results show that numeracy is a key determinant of financial literacy, we highlight, in a third and final section, the key role that numeracy could have in education programs and consumer protection policies to improve financial decisions. |
| Keywords: | Financial literacy,Numeracy |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-03461252&r= |
| By: | Falk Bräuning; José Fillat; Gustavo Joaquim |
| Abstract: | Credit availability from different sources varies greatly across firms and has firm-level effects on investment decisions and aggregate effects on output. We develop a theoretical framework in which firms decide endogenously at the extensive and intensive margins of different funding sources to study the role of firm choices on the transmission of credit supply shocks to the real economy. As in the data, firms can borrow from different banks, issue bonds, or raise equity through retained earnings to fund productive investment. Our model is calibrated to detailed firm- and loan-level data and reproduces stylized empirical facts: Larger, more productive firms rely on more banks and more sources of funding; smaller firms mostly rely on a small number of banks and internal funding. Our quantitative analysis shows that bank credit supply shocks lead to a sizable reduction in aggregate output, with substantial heterogeneity across firms, due to the lack of substitutability among alternative credit sources. Finally, we show that our insights have important implications for the validity of standard empirical methods used to identify credit supply effects (Khwaja and Mian 2008). |
| Keywords: | shock transmission; bank-firm matching; firm financing; credit supply shocks |
| JEL: | E32 E43 E50 G21 G32 |
| Date: | 2021–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:93553&r= |