nep-cfn New Economics Papers
on Corporate Finance
Issue of 2022‒03‒07
ten papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Heterogeneous Effect of Uncertainty on Corporate Investment: Evidence from Listed Firms in the Republic of Korea By Kim, Cheonkoo; Park, Jungsoo; Park, Donghyun; Tian, Shu
  2. Financial Factors, Firm size and Firm Potential By Ferreira, M.; Haber, T.; Rörig, C.
  4. Private or Public Equity? The Evolving Entrepreneurial Finance Landscape By Ewens, Michael; Farre-Mensa, Joan
  5. Renewable entry costs, project finance and the role of revenue quality in Australia’s National Electricity Market By Nicholas Gohdes; Paul Simshauser
  6. Factors determining Z-score and corporate failure in Malaysian companies By Nurul Izzaty Hasanah Azhar; Norziana Lokman; Md. Mahmudul Alam; Jamaliah Said
  7. Applicability of Large Corporate Credit Models to Small Business Risk Assessment By Khalid El-Awady
  8. The Reallocation Effects of COVID-19: Evidence from Venture Capital Investments around the World By Andrea Bellucci; Alexander Borisov; Gianluca Gucciardi; Alberto Zazzaro
  9. A New Era of Midnight Mergers: Antitrust Risk and Investor Disclosures By John M. Barrios; Thomas G. Wollmann
  10. The rise of digital finance: Financial inclusion or debt trap By Pengpeng Yue; Aslihan Gizem Korkmaz; Zhichao Yin; Haigang Zhou

  1. By: Kim, Cheonkoo (Korea Chamber of Commerce and Industry); Park, Jungsoo (Sogang University); Park, Donghyun (Asian Development Bank); Tian, Shu (Asian Development Bank)
    Abstract: In this paper, we analyze the effect of financial uncertainty on corporate investment using firm-level panel data from the Republic of Korea. We find that financial uncertainty has a significant negative effect on corporate investment, and that the effect is heterogeneous across firms of different sizes. Small firms and large firms are more exposed to the negative effect of uncertainty than are medium-sized firms. The negative effect of uncertainty on large firms slightly declined after the global financial crisis, but it increased for small and medium-sized enterprises (SMEs). Financial constraints and investment irreversibility amplify the negative effect of uncertainty. The inverted U-shaped curve of the uncertainty effect along the firm-size spectrum can be understood as follows: Small firms are more financially constrained and large firms’ investments are more irreversible in nature. Lastly, contrary to widespread belief, uncertainty has waned since 1990, dampening the trend of declining investment ratios. To counter the negative effect of uncertainty on SMEs, policies need to be directed toward the development of capital markets and bond markets for SMEs. Furthermore, SME policies should be redirected to target competitiveness, not protection.
    Keywords: uncertainty; corporate investment; financial constraints; investment irreversibility
    JEL: E22 G31
    Date: 2022–02–21
  2. By: Ferreira, M.; Haber, T.; Rörig, C.
    Abstract: Using a unique dataset covering the universe of Portuguese firms and their credit situation we show that financially constrained firms are found across the entire firm size distribution, account for a larger total asset share compared to standard heterogeneous firms models, and exhibit a higher cyclical sensitivity, conditional on size. In light of these findings we reassess the importance of the firm distribution in shaping aggregate outcomes in the canonical model of heterogeneous firms with financial frictions. We augment the productivity process with ex-ante heterogeneity of firms, allowing us to match the distribution of constrained firms conditional on size. This, together with the fact that constrained firms have a higher capital elasticity, leads to up to four times larger aggregate fluctuations and capital misallocation.
    Keywords: Firm size, business cycle, financial accelerator
    JEL: E62 E22 E23
    Date: 2021–11–03
  3. By: Madi, Riski Amalia (Halu Oleo University); Mutia, Hamrini; Wati, Enny; , sujono
    Abstract: This study aims to examine empirically the factors that influence investment efficiency in State-Owned Enterprises on the Indonesia Stock Exchange. This study was tested with two independent variables are managerial overconfidence and corporate governance, intervening variable is internal financing. The object of this research is the state-owned company for the period 2011-2018. 10 companies as the sample using purposive sampling technique. The analysis used in this research is panel data regression analysis. The results of this study found that investment efficiency in state-owned enterprises in Indonesia is largely determined by managerial overconfidence bias. Managers who have an overconfidence seek more aggressive and risky ventures so that they invest excessively beyond optimal levels. Managerial overconfidence in a manager can also strengthen the choice of internal financing, especially in state-owned companies. However, investment efficiency in this study is not influenced by corporate governance and internal financing. Corporate governance has also proven to have no role in corporate funding decisions. The role of internal financing as mediation was not found in this study.
    Date: 2021–12–25
  4. By: Ewens, Michael (California Institute of Technology); Farre-Mensa, Joan
    Abstract: The U.S. entrepreneurial finance market has changed dramatically over the last two decades. Entrepreneurs raising their first round of venture capital retain 30% more equity in their firm and are more likely to control their board of directors. Late-stage startups are raising larger amounts of capital in the private markets from a growing pool of traditional and new investors. These private market changes have coincided with a sharp decline in the number of firms going public—and when firms do go public, they are older and have raised more private capital. To understand these facts, we provide a systematic description of the differences between private and public firms. Next, we review several regulatory, technological, and competitive changes affecting both startups and investors that help explain how the trade-offs between going public and staying private have changed. We conclude by listing several open research questions.
    Date: 2021–11–07
  5. By: Nicholas Gohdes (Queensland University of Technology); Paul Simshauser (Griffith Business School, Griffith University)
    Keywords: Renewable Energy, PPAs, Project Finance, Counterparty Credit, Cost of Capital
    JEL: D25 D80 G32 L51 Q41
    Date: 2022–01
  6. By: Nurul Izzaty Hasanah Azhar (UiTM - Universiti Teknologi MARA [Shah Alam]); Norziana Lokman (UiTM - Universiti Teknologi MARA [Shah Alam]); Md. Mahmudul Alam (UUM - Universiti Utara Malaysia); Jamaliah Said (UiTM - Universiti Teknologi MARA [Shah Alam])
    Abstract: Predicting the sustainability of a business is crucial to prevent financial losses among shareholders and investors. This study attempts to evaluate the Altman model for predicting corporate failure in distressed and non-distressed Malaysian companies based on the data of financially troubled companies which are classified as Practice Note 17 (PN17) and matching similar non-PN17 companies during the period 2013 to 2017. This study utilizes panel ordinal and panel random effects regressions. Findings show that the liquidity, profitability, leverage, solvency, and efficiency ratios are negatively significantly associated with corporate failure and bankruptcy. The leverage ratio is determined to be the strongest indicator of bankruptcy, followed by profitability, liquidity, solvency, and efficiency ratios. The findings will help companies' management bodies implement suitable strategies to prevent further financial leakage, thereby ensuring continuous and sustainable return on investment and profits for investors and shareholders.
    Keywords: Corporate Failure,Financial Distress,PN17 companies,Ratio analysis,Z-Score
    Date: 2021
  7. By: Khalid El-Awady
    Abstract: There is a massive underserved market for small business lending in the US with the Federal Reserve estimating over \$650B in unmet annual financing needs. Assessing the credit risk of a small business is key to making good decisions whether to lend and at what terms. Large corporations have a well-established credit assessment ecosystem, but small businesses suffer from limited publicly available data and few (if any) credit analysts who cover them closely. We explore the applicability of (DL-based) large corporate credit risk models to small business credit rating.
    Date: 2021–12
  8. By: Andrea Bellucci (Università degli Studi dell’Insubria, European Commission, Joint Research Centre (JRC), and MoFiR); Alexander Borisov (Lindner College of Business, University of Cincinnati and MoFiR); Gianluca Gucciardi (European Commission, Joint Research Centre (JRC)); Alberto Zazzaro (University of Naples Federico II, CSEF and MoFiR.)
    Abstract: We examine possible reallocation effects generated by the COVID-19 outbreak by analyzing the patterns of venture capital (VC) investments around the globe. Using transaction-level data and exploiting the staggered nature of the spread of the virus, we document a shift in VC portfolios towards firms developing technologies relevant to an environment of social distancing and health pandemic concerns. A difference-in-differences analysis estimates significant increases in invested amount and number of deals in such areas. We show heterogenous effects related to the experience of VC investors, as well as their size and organizational form.
    Keywords: Venture Capital, Investment, COVID-19, Healthcare, Pandemic.
    JEL: G24 F21 D81 E22 E44
    Date: 2022–02–16
  9. By: John M. Barrios; Thomas G. Wollmann
    Abstract: Antitrust authorities search public documents to discover anticompetitive mergers. Thus, investor disclosures may alert them to deals that would otherwise escape scrutiny, creating disincentives for managers to divulge transactions. We study this behavior in publicly traded US companies. First, we estimate a regression discontinuity that exploits mandatory disclosure thresholds stipulated by securities law. We find that releasing information to investors poses antitrust risk. Second, we present a method for measuring undisclosed merger activity that relies on financial accounting reporting requirements. We find that undisclosed mergers total $2.3 trillion between 2002 and 2016.
    JEL: G3 G34 L0 L4 L40 M4
    Date: 2022–01
  10. By: Pengpeng Yue; Aslihan Gizem Korkmaz; Zhichao Yin; Haigang Zhou
    Abstract: This study focuses on the impact of digital finance on households. While digital finance has brought financial inclusion, it has also increased the risk of households falling into a debt trap. We provide evidence that supports this notion and explain the channel through which digital finance increases the likelihood of financial distress. Our results show that the widespread use of digital finance increases credit market participation. The broadened access to credit markets increases household consumption by changing the marginal propensity to consume. However, the easier access to credit markets also increases the risk of households falling into a debt trap.
    Date: 2022–01

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