nep-cfn New Economics Papers
on Corporate Finance
Issue of 2022‒02‒28
thirteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Waiting for Capital: Dynamic Intermediation in Illiquid Markets By Barney Hartman-Glaser; Simon Mayer; Konstantin Milbradt
  2. Learning about profitability and dynamic cash management By Décamps, Jean-Paul; Villeneuve, Stéphane
  3. Corporate environmental responsibility, financial performance, and international bank loans: Evidence from China By Huang, Yin-Siang; Lu, You-Xun
  4. The real effects of bank lobbying: Evidence from the corporate loan market By Delis, Manthos; Hasan, Iftekhar; To, Thomas; Wu, Eliza
  5. Financial support measures and credit to firms during the pandemic By Stefania De Mitri; Antonio De Socio; Valentina Nigro; Sabrina Pastorelli
  6. Organizational Structure and Decision-Making in Corporate Venture Capital By Strebulaev, Ilya A.; Wang, Amanda
  7. Zombies at Large? Corporate Debt Overhang and the Macroeconomy By Oscar Jorda; Martin Kornejew; Moritz Schularick; Alan M. Taylor
  8. Remittances and firm performance in sub-Saharan Africa : evidence from firm-level data By Kabinet Kaba; Mahamat Moustapha
  9. Taxing Banks Leverage and Syndicated Lending: A Cross-Country Comparison By Aurore Burietz; Steven Ongena; Matthieu Picault
  10. Corporate Environmental Information Disclosure and Investor Response: Empirical Evidence from China's Capital Market By Jia Meng; ZhongXiang Zhang
  11. International Pecking Order By Egemen Eren; Semyon Malamud; Haonan Zhou
  12. Suppliers as financial intermediaries: Trade credit for undervalued firms By Patrice Fontaine; Sujiao Zhao
  13. The evolving contribution of R&D, advertising and capital expenditures for US-listed firms’ growth in sales, 1979-2018. A quantile regression analysis By Joel Rabinovich

  1. By: Barney Hartman-Glaser; Simon Mayer; Konstantin Milbradt
    Abstract: We consider a firm with infrequent access to capital markets, continuous access to financing by a risk-averse intermediary, and a cost of holding cash. The intermediary absorbs a fraction of cash-flow risk that decreases with the firm’s liquidity reserves and acquires a stake in the firm under distress. Implementing the optimal contract suggests an overlapping pecking order. The firm simultaneously finances shortfalls with cash reserves and a credit line and sells equity to the intermediary when it runs out of cash. The model helps explain empirical facts and trends in financial intermediation, such as the rise of private equity.
    JEL: D86 G32 G35
    Date: 2022–01
  2. By: Décamps, Jean-Paul; Villeneuve, Stéphane
    Abstract: We study a dynamic model of a rm whose shareholders learn about its profitability, face costs of external nancing and costs of holding cash. The shareholders' problem involves a notoriously challenging singular stochastic control problem with a two-dimensional degenerate diffusion process. We solve it by means of an explicit construction of its value function, and derive a corporate life-cycle with two stages: a "probation stage" where it is never optimal for the firm to issue new shares, and a "mature stage" where the firm resorts to the market whenever needed. The cash target level is non-monotonic in the belief about the profitability and reaches its highest value on the edge between the two stages. It follows new insights on the firm's volatility and its payout ratio which depend on the firm's stage in its life cycle.
    Keywords: Corporate cash management; Corporate life cycle; Learning; Singular control
    JEL: C02 C11 C61 G32 G33 G35
    Date: 2022–02
  3. By: Huang, Yin-Siang; Lu, You-Xun
    Abstract: In the context of sustainable development and “going global” strategies, Chinese firms are paying more attention to corporate environmental responsibility (CER). Using a sample of Chinese firms from 2010-2019, this study examines the impact of CER on corporate financial performance (CFP) and international bank loans. We find that the proactive disclosure of non-hazardous industrial waste (NHIW) emissions has no significant effect on the return on assets (ROA) but significantly increases the return on equity (ROE). In addition, our results show that international banks will offer lower loan spreads and longer loan maturities to firms with better environmental performance.
    Keywords: Non-hazardous industrial waste; corporate environmental responsibility; financial performance; international bank loans
    JEL: G32 G34 Q53 Q56
    Date: 2022–01–26
  4. By: Delis, Manthos; Hasan, Iftekhar; To, Thomas; Wu, Eliza
    Abstract: Using a large sample of corporate loan facilities and hand-matched information on bank lobbying, we show that borrower performance improves after receiving credit from lobbying banks. This especially holds for opaque borrowers about which a bank possesses valuable information, as well as for borrowers with strong corporate governance. We also find that credit from lobbying banks funds corporate capital expenditures that increase the scope of firm operations, thereby leading to sales growth. Our findings are consistent with the information-transmission theory that political lobbying provides regulators with valuable borrower information, which results in improved bank-lending supervisory decisions and corporate borrower performance.
    Keywords: Bank lobbying; Firm performance; Syndicated loans; Information-transmission
    JEL: D72 G21 G30
    Date: 2022–01–23
  5. By: Stefania De Mitri (Bank of Italy); Antonio De Socio (Bank of Italy); Valentina Nigro (Bank of Italy); Sabrina Pastorelli (Bank of Italy)
    Abstract: The COVID-19 pandemic has led to an abrupt disruption of economic activity. A wide range of support measures have been introduced to help firms, including public loan guarantees to ease access to credit and debt moratoria to relieve their liquidity needs. This study explores the main features of the firms that had access to these initiatives in the year starting in March 2020. The liquidity crisis has prompted many companies to apply for both, especially in the sectors hit hardest by the pandemic (trade, accommodation and food services). Medium-sized and mid-cap companies, for which access to public guarantees has been extended, have resorted to guaranteed loans extensively. Access to state-backed loans has been wider for financially solid companies; recourse to moratoria has been higher for financially vulnerable firms. Overall, government measures have supported credit during the pandemic; only for large businesses, financing has increased also for those not resorting to guarantees. This evidence suggests that without the support measures, credit restrictions would have been severe also for larger companies.
    Keywords: COVID-19 pandemic, support measures, indebtedness, riskiness
    JEL: G32 H81
    Date: 2021–12
  6. By: Strebulaev, Ilya A. (Stanford U); Wang, Amanda (Stanford U)
    Abstract: This paper studies corporate venture capital (CVC) units of large US corporations to learn how they make decisions across several areas: internal organization of CVC units, relationships with par- ent companies, CVC unit objectives, investment process and approval, deal structure, relationship with portfolio companies, compensation, and composition of CVC teams. The study is conducted by interviewing senior team members of seventy-four CVC units, representing 78% of the active CVC units of companies in the S&P 500 index. CVC units are organized in significantly more diverse ways than institutional VC firms. Unlike institutional VC firms, most CVC units do not manage committed venture funds, but instead invest from the balance sheets of their parent compa- nies. Investment committees, in which parent company executives play a pivotal role in approving individual decisions, are common. Many corporate venture capitalists (CVCs) believe executives at their parent companies do not understand the norms of the venture space. The demographic composition of senior team members at CVC units is very different than that of their counterparts at institutional VC firms. The results raise a number of issues about the economic role of CVC units in corporate innovation.
    Date: 2021–11
  7. By: Oscar Jorda (University of California, Davis); Martin Kornejew (University of Bonn); Moritz Schularick (Federal Reserve Bank of New York); Alan M. Taylor (University of California, Davis)
    Abstract: What are the macroeconomic consequences of business credit booms? Are they as dangerous as household credit booms? If not, why not? We answer these questions by collecting data on non-financial business liabilities (primarily bank loans and corporate bonds) for 17 advanced economies over the past 150 years. Unlike household credit, business credit booms are rarely followed by macroeconomic hangovers. Data on debt renegotiation costs—instrumented by a country’s legal tradition—show that frictions to debt resolution make recessions deeper and longer—an important factor in explaining the differences with household credit booms.
    Keywords: corporate debt, business cycles, local projections.
    JEL: E44 G32 G33 N20
    Date: 2021–10–15
  8. By: Kabinet Kaba (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Mahamat Moustapha (Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres, LEDa - Laboratoire d'Economie de Dauphine - CNRS - Centre National de la Recherche Scientifique - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres)
    Abstract: Sub-Saharan African firms face enormous obstacles to their development. The main constraints to business performance identified are poor access to finance and a weak domestic market. In this paper, we examine how international remittances affect firms' performance. Specifically, we investigate the role of remittances on capital accumulation, sales, and employment in 34,010 firms operating in 42 Sub-Saharan African countries between 2006 and 2020. Using a fixed-effect instrumental variable approach to control for the endogeneity of remittances, we find that international remittances positively affect the share of capital held by nationals in manufacturing firms. Moreover, international remittances positively affect sales in non-manufacturing firms, while a negative effect on the sales of manufacturing firms is observed. Regarding the effect of remittances on employment, we find a positive impact on both manufacturing and non-manufacturing firms. Heterogeneity tests suggest that the effect of remittances on firms' performance is larger in less financially developed and non-resource-rich countries. As for the negative impact of remittances on sales in manufacturing firms, the results show that it is entirely due to small firms. Finally, using remittances per capita instead of remittances relative to GDP, similar result are found.
    Keywords: Remittances,Firm Performance,Entrepreneurship,Saving and Capital Investment,Firm Employment,Africa
    Date: 2021
  9. By: Aurore Burietz (Catholic University of Lille - IÉSEG School of Management, Lille Campus; LEM CNRS 9221); Steven Ongena (NTNU Business School; Centre for Economic Policy Research (CEPR); Swiss Finance Institute; KU Leuven; University of Zurich - Department of Banking and Finance); Matthieu Picault (University of Orleans - Laboratoire d'économie d'Orléans)
    Abstract: Between 2010 and 2012 and with bank stability as the ultimate target, five European countries implemented a tax levy on banks’ liabilities thereby decreasing the cost of equity relative to the cost of debt. Using a difference-in-differences approach we assess the impact of this tax levy on banks’ participation in the syndicated loan market. We further investigate the impact of the tax levy along bank size and capital structure. We find that banks located in countries where the tax levy was implemented supply more credit. This increase is more significant for larger lenders and banks that are more capital constrained.
    Keywords: Banks, Tax Levy, Syndicated Loans
    JEL: F34 G21 G28
    Date: 2022–02
  10. By: Jia Meng (Ma Yinchu School of Economics, Tianjin University, Tianjin, China); ZhongXiang Zhang (China Academy of Energy, Environmental and Industrial Economics, China)
    Abstract: This paper aims at analyzing the impact of corporate environmenral information disclosure from the perspective of investors. To that end, we have collected environmental information disclosure data of all Chinese listed companies from 2004 to 2020 and controlled the impacts of annual reports on investor response. We apply the Fama-French five-factor model to calculate the accumulative abnormal returns of stocks during the event window period. Our results suggest that environmental information disclosure can have a significant negative response among investors when we take the impacts of annual reports into consideration. Moreover, we find that heavy-polluting companies and companies with high institutional shareholding are more likely to have negative reactions from investors. Notably, the negative response is found significant after the Ambient Air Quality Standard was revised in 2012. Furthermore, high environmental expenditure and strict environmental regulation will result in negative investor responses, while the political connection can alleviate the negative impacts of environmental information disclosure. The results remain robust in different ways. The findings suggest that listed companies may lack the incentive to engage in environmental management and are reluctant to disclose environmental information. Consequently, the government should formulate a mandatory disclosure policy and provide administrative support to environmentalfriendly companies. Besides, companies should improve innovation technology to cut down environmental costs. Meanwhile, investors should be aware of the importance of corporate environmental behaviors and realize the long-term benefits of environmental management of listed companies.
    Keywords: Environmental information disclosure, Investor response, Corporate annual reports, Fama-french five factor model, China's capital market
    JEL: L24 O3
    Date: 2022–01
  11. By: Egemen Eren (Bank for International Settlements (BIS) - Monetary and Economic Department); Semyon Malamud (Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Haonan Zhou (Princeton University - Department of Economics)
    Abstract: We document that corporates in emerging markets borrow more in foreign currency when the local currency provides a better hedge in downturns. We develop an international corporate finance model in which firms facing adverse selection choose the foreign currency share of their debt. In the unique separating equilibrium, good firms optimally expose themselves to currency risk to signal their type. The nature of this equilibrium crucially depends on the co-movement between cash flows and the exchange rate. We provide extensive empirical evidence for this signalling channel using micro data for firms in multiple emerging markets and event studies of local currency depreciation episodes.
    Keywords: Foreign currency debt, corporate debt, signalling, exchange rates, pecking order
    JEL: D82 F34 G01 G15 G32
    Date: 2022–02
  12. By: Patrice Fontaine (EUROFIDAI - EUROFIDAI, CNRS - Centre National de la Recherche Scientifique, PULV - Pôle Universitaire Léonard de Vinci); Sujiao Zhao (Banco de Portugal - Banco de Portugal, UCP Porto - Catholic University of Portugal / Porto - Faculdade de Economia e Gestão & CEGE - Catholic University of Portugal / Porto - Faculdade de Economia e Gestão & CEGE)
    Abstract: We examine the impact of undervaluation on a firm's use of trade credit. To address potential endogene- ity bias, we construct our instrumental variable based on mutual fund outflow-driven price pressure, and our undervaluation measure allows us to distinguish misvaluation from fair valuation. We find that a firm's suppliers play an important role in providing temporary bridge financing when the firm is under- valued. The effect varies with the firm's information environment and with its dependence on external finance. In addition, based on a manually matched supplier-customer sample, we show that small cus- tomers in long-term relationships with their suppliers are more likely to obtain trade credit when fac- ing stock market undervaluation, while small suppliers with a smaller customer pool extend more trade credit to their undervalued customers.
    Keywords: Undervaluation,Trade credit,Information advantage,Implicit equity stake
    Date: 2021–03
  13. By: Joel Rabinovich (City University London)
    Abstract: This article presents new insights on the evolving contribution of different types of investments to the growth in sales of US nonfinancial listed firms during the 1979-2018 period. By means of quantile regressions it is observed an increasing contribution over time of intangible investment vis-à-vis a decline in capital expenditure both for high-growth and slow-growth firms. However, the impact of different types of intangible investment differs depending on the kind of firm. Whereas research and development (R&D) has a positive contribution for high-growth firms, only advertising has a positive effect for their slow-growth peers.
    Keywords: Firm growth,Fast-growth firms,Quantile Regression,Intangibles
    Date: 2022–01–21

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