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on Corporate Finance |
| By: | Czarnitzki, Dirk; Giebel, Marek |
| Abstract: | We utilize a new survey experiment to evaluate the existence and degree of financial constraints for R&D in the economy. The experiment does not only allow to deduct the presence of financial constraints, but also to evaluate their economic significance. Using data on German companies, we find that financial constraints for R&D exist but that their relevance might have been overestimated in the literature. Most R&D projects that have not been implemented because of financial constraints turn out to have low expected marginal rates of return. While this findings stands in some contrast to other studies, we also find several results that are in line with the literature: young firms are most constrained and the constraints occur at the intensive margin, i.e. our results do not suggest that non-innovative companies are deterred from innovation. Instead, highly innovative companies are restricted by the capital market. |
| Keywords: | Innovation,Financial Constraints,Survey Experiment |
| JEL: | G30 O30 O31 O32 L21 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:21084&r= |
| By: | Jarkko Harju; Aliisa Koivisto; Tuomas Matikka |
| Abstract: | We study the impact of corporate taxes on firm-level investments and business activity by exploiting a 6 percentage-point reduction in the corporate tax rate during 2012–2014 in Finland. We use detailed administrative data and a difference-in-differences method comparing small corporations (tax rate cuts) to similar partnerships (no change in taxes). We find no significant average investment responses but do observe an average increase in annual sales and variable costs. These effects are driven by more cash-constrained firms and firms where the main owner actively works in the firm. |
| JEL: | G31 G38 H21 H25 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:tam:wpaper:2234&r= |
| By: | Miglo, Anton |
| Abstract: | This article analyzes the patterns of Fintech development in Greater Manchester, UK. Manchester is often called a northern capital of Fintech. We analyze different subsectors of FinTech and find that such sectors as payments, fintech loans, debt-based, reward-based and real-estate-based crowdfunding, big data analytics, data security, insurtech and regtech are the most growing areas. We also compare the Fintech structure in Manchester with that in London and other major cities in the UK and identify similarities and differences. |
| Keywords: | FinTech, cryptocurrencies, digital finance, crowdfunding, Fintech in Manchester, data security |
| JEL: | G00 G10 G32 O33 |
| Date: | 2022–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111348&r= |
| By: | Lee Seltzer |
| Abstract: | This paper studies the sensitivity of investment in apartment building maintenance to building debt levels. I use a novel data set combining housing code violations from forty-five U.S. cities with apartment financing information to show that highly leveraged buildings tend to be less well maintained. I then exploit a natural experiment that effectively increases building leverage for some New York City rent-stabilized buildings, but not others. Following the shock, violations increase for affected buildings relative to unaffected buildings. This change in violations is concentrated among more highly leveraged buildings. The results are consistent with debt-reducing investments in maintenance, with consequences for renter quality of life. |
| Keywords: | corporate finance; commercial real estate; housing code violations |
| JEL: | G3 G31 R30 |
| Date: | 2021–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:93551&r= |
| By: | Cumming, Douglas J.; Johan, Sofia Atiqah; Reardon, Robert S. |
| Abstract: | We propose three governance mechanisms pertinent to equity crowdfunding and campaign success through mitigating pronounced information asymmetries and agency problems. First, unlike IPOs for which the effect of Delaware incorporation has declined or disappeared over time, we propose Delaware incorporation matters a great deal for success in the new setting of equity crowdfunding. Second, we propose that security design is a critical tool for equity crowdfunding success and even more important than the limited 2-year financial statement disclosure. Third, we propose that platforms as intermediaries between entrepreneurs and investors play an important role in mitigating and sometimes exacerbating information asymmetries and agency problems. The population of equity crowdfunding campaigns from market inception in May 2016 to Q2, 2021 in the United States provides strong support for these propositions. |
| Keywords: | Equity Crowdfunding,Governance,Delaware Incorporation,Fintech,COVID-19 |
| JEL: | G21 G28 G51 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:668&r= |
| By: | James Cloyne (University of California Davis/NBER/CEPR); Clodomiro Ferreira (Bank of Spain); Maren Froemel (Bank of England); Paolo Surico (London Business School/CEPR) |
| Abstract: | In response to a change in interest rates, younger firms not paying dividends adjust both their capital expenditure and borrowing significantly more than older firms paying dividends. The reason is that the debt of younger non-dividend payers is far more sensitive to fluctuations in collateral values, which are significantly affected by monetary policy. The results are robust to a wide range of possible confounding factors. Other channels, including movements in interest payments, product demand, profitability and mark-ups, are also significant but seem unlikely to explain the heterogeneity in the response of capital expenditure. Our findings suggest that financial frictions play a significant role in the transmission of monetary policy to investment. |
| Keywords: | monetary policy, investment, firm’s debt, collateral, financial frictions |
| JEL: | E22 E32 E52 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:92&r= |
| By: | Cumming, Douglas J.; Reardon, Robert S. |
| Abstract: | COVID-19 brought about a shift in entrepreneurial opportunities and in the United States. In this paper, we proxy entrepreneurial processes by examining housing prices in different regions of the United States. Housing prices capture the movement in people, tax dynamics, and behavioral preferences for equity ownership in different regions and over time, all of which were drastically impacted by COVID-19. We examine all U.S. equity crowdfunding offerings starting with the very first offerings in 2016 Q2 until 2021 Q1 based on data from the Securities and Exchange Commission. The data indicate that regional housing prices post-COVID-19 are a strong predictor of the number of equity crowdfunding campaigns and the amount of capital raised. The impact of housing price changes on crowdfunding is more pronounced among more prosperous regions. The housing price effect is robust to numerous controls and consideration of outliers. |
| Keywords: | Equity Crowdfunding,COVID-19,Regional Entrepreneurship |
| JEL: | G21 G28 G51 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:665&r= |
| By: | Pavel Chakraborty (Department Of Economics, Management School, Lancaster University); Nirvana Mitra (Department Of Economics, Shiv Nadar University) |
| Abstract: | New liberalization policies are rapidly globalizing financial services in developing countries, but there is little or no microeconomic evidence on the impact of banking reforms on the real economy. We examine the impact of a banking sector reform, characterized by the introduction of new domestic private and/or foreign banks, on Indian manufacturing firms' access to credit, performance and the resulting misallocation in the Indian economy using a unique firm-bank matched data. We find that the introduction of new banks led to (i) increase in access to credit by 18|23% for big firms (top 25 percentile of size distribution); (ii) reduction in access to loans for small firms (bottom 25th percentile) by around 45%; and (iii) increase in profit, total sales for big firms. Next, we follow Hsieh and Klenow (2009) and estimate the distortions arising out of capital and output market and show that the banking reforms significantly relaxed the credit constraints only for the big and more productive firms, resulting in reduced capital market misallocation. Finally, our counterfactual experiment shows that the reallocation of credit led to an overall gain in manufacturing output by 0.15 - 1.1%. |
| Keywords: | Banking Reforms, Private and/or Foreign Banks, Big Firms, Cream Skimming, Misallocation. |
| JEL: | G1 G21 O47 L25 |
| Date: | 2022–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:alr:wpaper:2022-01&r= |
| By: | Isaac Baley; Andrés Blanco |
| Abstract: | We investigate the long-run effects of permanent corporate tax reforms on aggregate capital behavior. In an investment model with fixed adjustment costs and partial irreversibility, we show that corporate taxes and investment frictions jointly determine three interconnected macroeconomic outcomes: (i) capital allocation, (ii) capital valuation, and (iii) capital fluctuations around steady-state. Using corporate tax and firm-level investment data from Chile, we discover that a lower corporate income tax improves the allocation of capital, reduces capital valuation, and accelerates capital fluctuations. |
| Keywords: | corporate taxes, investment frictions, fixed adjustment costs, irreversibility, lumpiness, capital misallocation, Tobin’s q, transitional dynamics, inaction, propagation |
| JEL: | D30 D80 E20 E30 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1813&r= |
| By: | Steffen Juranek; Øivind Anti Nilsen; Simen A. Ulsaker |
| Abstract: | In this paper we analyse the bank merger between DnB and Gjensidige Bank in 2003, ranked by market share as number one and number three in the Norwegian bank market. Focusing on loans to firms, our difference-in-differences analysis shows no increase of concentration of new loans. The concentration in affected markets (markets where both merging parties were present) developed similarly to unaffected markets. Moreover, the interest rate tended to be lower in the affected markets relative to unaffected markets, but this relationship is weak and not statistically significant. The merger also affected the riskiness of loans only marginally. These weak effects could be the result of efficiency gains in the form of lower costs being pass-through to customers, and the increased market power (and consequently higher interest rates) cancelled each other out. The remedial measures imposed by the Norwegian Competition Authority on the two merging parties are also likely to explain some of the modest effects of the merger. The weak effects are largely coincident with international literature showing the effects of mergers and acquisitions in the banking sector to be modest. |
| Keywords: | banking, local competition, risk taking, firm behaviour |
| JEL: | G21 L41 D53 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9480&r= |
| By: | Avagyan, Vardan; Camacho, Nuno; Van der Stede, Wim; Stremersch, Stefan |
| Abstract: | Innovation project selection is a decision of major relevance to firms. Errors in this decisionmay have serious consequences for firms, especially as many firms struggle with optimiz-ing innovation project selection decisions. In their pitches to innovation decision-makers,project teams invariably present financial projections on their innovation projects, whichoften include best- and worst-case scenario presentation. Despite the potential influencethe presentation of such financial projections has on firms’ innovation project selectiondecisions, this topic has not received sufficient attention in the literature. This study exam-ines the role of scenario presentation on financial projections in innovation project selec-tion by conducting two conjoint experiments among 2,425 managers and 11 follow-upinterviews with senior executives. First, the findings of this study suggest that firms shouldhelp project teams present small- rather than large-range scenarios. This is important for atleast the 57% of firms surveyed in this study where project teams are reported to present‘too wide’ and ‘too extreme’ scenarios. Second, firms seeking to promote transformationalinnovation in their innovation pipeline should make the presentation of small-range sce-narios required for an innovation proposal to be presented to a project selection commit-tee. This is relevant for 79% of surveyed firms that would like to select moretransformational than core innovation projects and especially for the half of which thatcurrently do not require scenario presentation. Third, project teams with less expertiseshould develop scenarios analytically rather than intuitively and convey the project’sstrategic merit to decision-makers to help increase innovation project selection likelihood |
| Keywords: | innovation; innovation project selection decisions; financial projections; finance; marketing-accounting interface; marketing-finance interface; new product development; scenario presentation |
| JEL: | M40 L81 |
| Date: | 2021–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112474&r= |
| By: | Hong, Jieying; Pouget, Sébastien |
| Abstract: | This paper studies the role of preopening periods in liquidity formation and welfare in financial markets. Because no transaction occurs during these preopening periods, their economic significance could be questioned. We model a market where costly participation and asymmetric information prevent latent liquidity from being expressed. At equilibrium, risk-averse insiders use preopening periods to better coordinate supply and demand of liquidity by communicating liquidity needs, thus improving welfare. Partial or full communication of private signals by the insider with the asset at preopening periods does not always enhance liquidity formation, but improves welfare through reducing adverse selection risk faced by the outsider and increasing the likelihood of her entry. Our findings have implications for portfolio management and the design of financial markets. |
| Keywords: | Asymmetric Information; Liquidity Formation; Preopening Periods |
| JEL: | G14 D82 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126366&r= |
| By: | Ergys Islamaj; M. Ayhan Kose |
| Abstract: | Cross-border capital flows are expected to lead to increased international risk sharing by facilitating borrowing and lending in global financial markets. This paper examines risk-sharing outcomes of various types of capital flows (foreign direct investment, portfolio equity, debt, remittance, and aid flows) in a large sample of emerging market and developing economies. The results suggest that remittances and aid flows are associated with increased international risk sharing. Other types of capital flows are not consistently correlated with better risk-sharing outcomes. These findings are robust to the use of different econometric specifications, country-specific characteristics, and other controls. |
| Keywords: | capital flows, remittances, aid flows, international risk sharing |
| JEL: | E1 F02 F4 G01 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2021-96&r= |