|
on Corporate Finance |
| By: | Honda, Tomohito |
| Abstract: | This study examines how credit lines affect corporate cash holdings and capital investment, using hand-collected data on credit lines for publicly traded Japanese firms for 2006–2017. Although theoretical research has explained the effects of credit lines in terms of the extensive margin, previous empirical studies have investigated the impacts of credit lines focusing on the intensive margin. Against this background, the present study concentrates on the extensive margin of the effects of credit lines and compares firms that have access to credit lines with those that do not. The empirical results are as follows: (1) firms with credit lines hold lower cash reserves than those without; (2) firms with credit lines undertake more capital investment than firms without; and (3) once firms gain access to credit lines, their cash holdings decrease and their capital investment increases. These empirical findings are consistent with the predictions of the theoretical literature and suggest that credit lines improve firms’ financial flexibility and enable firms to use cash holdings held for precautionary reasons for investment instead. |
| Keywords: | Credit lines, Cash holdings, Corporate investment, Financial constraints |
| JEL: | G31 G32 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:hit:rcesrs:dp22-2&r= |
| By: | Satyajit Chatterjee; Burcu Eyigungor |
| Abstract: | Larger firms (by sales or employment) have higher leverage. This pattern is explained using a model in which firms produce multiple varieties, acquire new varieties from their inventors, and borrow against the future cash flow of the firm with the option to default. A variety can die with a constant probability, implying that firms with more varieties (bigger firms) have a lower variance of sales growth and, in equilibrium, higher leverage. In this setup, a drop in the risk-free rate increases the value of an acquisition more for bigger firms because of their higher leverage: They can (and do) borrow a larger fraction of their future cash flow. The drop causes existing firms to buy more of the new varieties arriving into the economy, resulting in a lower startup rate and greater concentration of sales. |
| Keywords: | Startup rates; concentration; leverage; firm dynamics |
| JEL: | E22 E43 E44 G32 G33 G34 |
| Date: | 2022–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:93850&r= |
| By: | Audinga Baltrunaite (Bank of Italy); Sara Formai (Bank of Italy); Andrea Linarello (Bank of Italy); Sauro Mocetti (Bank of Italy) |
| Abstract: | We explore the role of ownership, governance and management characteristics as potential drivers of the performance gaps between firms located in the Centre and North and in the South of Italy. First, we document that southern firms are characterized by more frequent family ownership and a higher fraction of local and family directors on the board. Moreover, entrepreneurs and managers of southern firms have lower education levels and are less inclined to adopt structured managerial practices and advanced technology. Second, we examine to what extent these differences account for the performance gap between the two areas. We find that managers’ human capital explains one tenth of the difference in firm size, while family ownership accounts for one tenth of the differences in productivity. Although the analysis is purely descriptive, our findings suggest that ownership, governance and management play a significant role in explaining firm performance and account for a non-negligible fraction of the North-South divide. |
| Keywords: | ownership, family firms, corporate governance, managerial practices, human capital, firm size, productivity, technology |
| JEL: | G30 L20 M10 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_678_22&r= |
| By: | Adachi, Yuko; Iwasaki, Ichiro |
| Abstract: | This paper traces the survival status of 93,260 Russian business firms in the period of 2007–2019 and empirically examines the determinants of the acquisition of financially distressed companies (i.e., distressed acquisitions). We found that, of 93,260 firms, 50,743 failed in management, and among these distressed firms, 10,110 were rescued by acquisition during the observation period. Our empirical results indicate that, in Russian regions, the weakness of the legal system tends to increase the probability of distressed acquisitions, while other socioeconomic risks negatively affect it. These tendencies are common in most industries and regions. It is also revealed that, in the most developed area, monotown enterprises are more likely to be bailed out by acquisition after management failure than other firms, but it is not always true for the whole nation. |
| Keywords: | legal weakness, investment risk, financial distress, distressed acquisitions, Russia |
| JEL: | C35 D02 D22 E02 G34 K20 L22 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:hit:rrcwps:98&r= |
| By: | Linh, Nguyen Thuy |
| Abstract: | This study examines the spillovers of the Bank of Japan’s (BOJ’s) exchange-traded fund (ETF) and corporate bond (CB) purchases on bank operations and the supply of bank loans for public and private firms not subject to BOJ purchases. The results show that, first, following the introduction of the BOJ’s purchases in 2010, the total lending of highly exposed banks decreased; instead, such banks invested more in securities compared to less exposed banks. Second, evidence suggests a small but negative effect of the purchase program on bank investment and performance ratios. The decline in targeted firms’ bank loans may have intensified banking competition and encourage highly affected banks to engage more in risk-taking activities, which might adversely affect banks. Third, consistent with the increase in exposed banks’ risk-taking incentives, the impact on bank loans of public ineligible firms is shown to be insignificant, while SMEs with higher exposure to the BOJ’s program had more favorable loan terms such as larger loan amounts and lower interest rates after the policy implementation. However, this positive impact on SMEs is not strong enough to improve firms’ performance. |
| Keywords: | Unconventional monetary policy, Risk asset purchases, Risk-taking channel, Firm financing, Bank-firm relationship |
| JEL: | E52 G21 G32 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:hit:tdbcdp:e-2021-02&r= |
| By: | Barbera, Alessandro; Gereben, Aron; Wolski, Marcin |
| Abstract: | We estimate heterogeneous treatment effects of the EIB financial support on European firms between 2008 and 2015. The relevant control groups are created with propensity score matching and the effects are estimated in a difference-in-differences framework, controlling for firm-level and country-sector-year fixed effects. We find that the positive effects of EIBsupported lending on job creation and investments were larger for smaller and younger firms. Moreover, we find evidence that longer maturities and more advantageous loan pricing are associated with larger employment and investment effects, while no larger impact is observed for larger loan volumes. Overall, the results suggest that benefits of the EIB support are rather observed on an intensive, rather than on an extensive, margin. |
| Keywords: | climate action and environment,economics |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:202203&r= |
| By: | Krämer-Eis, Helmut; Block, Jörn; Botsari, Antonia; Krause, Carlos; Gvetadze, Salome; Moritz, Alexandra; Lang, Frank; Schulze, Anna |
| Abstract: | Against the background of the need for alternative and additional financing channels for SMEs in Europe, this paper analyses the market segment of debt funds. It provides a market overview and comprehensive insight into the results of the EIF Private Debt Survey, a new study that provides unique perspective and helps to increase the transparency of the market to the public. Finally, the paper presents the EIF's action plan to address market weaknesses in the European private debt market. |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eifwps:202279&r= |
| By: | Minetti, Raoul (Michigan State University, Department of Economics); Murro, Pierluigi (LUISS University); Peruzzi, Valentina (Sapienza University of Rome) |
| Abstract: | We investigate whether globally active firms are more likely to be credit constrained by banks during a financial crisis. Using data on 15,000 businesses from seven European countries, we find that firms with a stable involvement in global value chains were 25% less likely to be rationed by banks during the 2009 financial crisis. This contrasts with the stronger likelihood of credit rationing of firms engaging in plain vanilla export activities. Matching the firm-level information with bank-level data, we obtain that banks insulated global chain participants from the credit crunch, not only accounting for the beneficial effects of global supply chain participation, but also to minimize negative spillovers on their own activities abroad. |
| Keywords: | Banks; global value chains; firm export; financial crises |
| JEL: | D22 F10 G20 |
| Date: | 2022–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:ris:msuecw:2022_002&r= |
| By: | Christian Kubitza (University of Bonn, Institute of Finance and Statistics, Adenauerallee 24-42, 53113 Bonn, Germany); Nicolaus Grochola (Goethe University Frankfurt, International Center for Insurance Regulation, Germany.); Helmut Gründl (Goethe University Frankfurt, International Center for Insurance Regulation, Germany.) |
| Abstract: | Life insurers sell savings contracts with surrender options, allowing policyholders to prematurely withdraw guaranteed surrender values. Surrender options move toward the money when interest rates rise. Hence, higher interest rates raise surrender rates, as we document for the German life insurance sector. Using a calibrated model, we estimate that surrender options would force insurers to sell up to 2% of their investments during an enduring interest rate rise of 25 bps per annum. The resulting price impact depends on insurers' investment behavior. Forced asset sales are amplified by insurers' long-term investments but mitigated by reducing the guarantees on surrender values. |
| Keywords: | Life Insurance, Liquidity Risk, Interest Rates, Fire Sales, Systemic Risk |
| JEL: | G22 E52 G32 G28 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:154&r= |