nep-cfn New Economics Papers
on Corporate Finance
Issue of 2022‒05‒02
fourteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Markups, intangible capital and heterogeneous financial frictions By Altomonte, Carlo; Favoino, Domenico; Morlacco, Monica; Sonno, Tommaso
  2. Risk-taking by banks: Evidence from European Union countries By Maria Teresa Medeiros Garcia; Ana Jin Ye
  3. Analysis the Effect of Financial Distress, Leverage and Free Cash Flow on Earnings Management By Rifka Aulia Inayah
  4. Firm-specific, and institutional determinants of corporate investments in Nigeria By M.Ajide, Folorunsho
  5. The Effect of Investment Risk, Macroeconomics on Stock Prices in IPO Companies during the Covid-19 Pandemic By Supriyanto
  6. Equity finance: matching liability to power By Goodhart, C. A. E.; Lastra, R. M.
  7. The Effect of Liquidity Risk Management on Financial Performance of Commercial Banks in Pakistan By Alim, Wajid; Ali, Amjad; Metla, Mahwish Rauf
  8. Real Earnings Management: Do the Experience and Gender of Big4 Auditors Matters? By Abdul Halim Chew Abdullah
  9. Population aging and bank risk-taking By Doerr, Sebastian; Kabas, Gazi; Ongena, Steven
  10. Investment expectations by vulnerable European firms: A difference-in-difference approach By Coad, Alexander; Amaral-Garcia, Sofia; Bauer, Peter; Domnick, Clemens; Harasztosi, Péter; Pál, Rozália; Teruel, Mercedes
  11. A corporate finance perspective on environmental policy By Heider, Florian; Inderst, Roman
  12. Intangibles and industry concentration: supersize me By Bajgar, Matej; Criscuolo, Chiara; Timmis, Jonathan
  13. Online Appendix to "The Firm Size-Leverage Relationship and Its Implications for Entry and Business Concentration" By Satyajit Chatterjee; Burcu Eyigungor
  14. Firm Bankruptcies and Start-Up Activity in Switzerland During the Corona Crisis By Florian Eckert; Heiner Mikosch

  1. By: Altomonte, Carlo; Favoino, Domenico; Morlacco, Monica; Sonno, Tommaso
    Abstract: This paper studies the interaction between financial frictions, intangible investment decisions, and markups at the firm level. In our model, heterogeneous credit constraints distort firms' decisions to invest in cost-reducing technology. The latter interacts with variable demand elasticity to generate endogenous dispersion across firms in markups and pass-through elasticities. We test the model's predictions on a representative sample of French manufacturing firms over the period 2004-2014. We establish causality by exploiting a quasi-natural experiment induced by a policy change that affected firms' liquidity. Our results shed new light on the roots of rising markups and markup heterogeneity in recent years.
    Keywords: markups; financial sontraints; intangibles; productivity; technological change
    JEL: D24 G32
    Date: 2021–01–08
  2. By: Maria Teresa Medeiros Garcia; Ana Jin Ye
    Abstract: The aim of this paper is to study the relation between banks’ ownership structure and their risk-taking behavior. Additionally, we examine the impact of banking regulation on banks’ approach to taking risk. The empirical analysis considers a sample of listed banks from EU countries over the period of 2011 to 2016. We found that the structure of the board of directors can influence bank risk behavior but not the ownership concentration. No significant relation was found between the influence of the regulatory environment and bank risk, i.e., stricter regulation has no effect on risk taking by banks.
    Keywords: Banks; Risk; Corporate governance; Regulation; EU countries.
    JEL: G21 G32 G34 G38
    Date: 2022–04
  3. By: Rifka Aulia Inayah (Department of Accounting, Hasanuddin University, Indonesia Author-2-Name: Amiruddin Author-2-Workplace-Name: Department of Accounting, Hasanuddin University, Indonesia Author-3-Name: Grace T. Pontoh Author-3-Workplace-Name: Department of Accounting, Hasanuddin University, Indonesia Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: "Objective - This study aims to determine and analyze the effect of financial distress, leverage, free cash flow on earnings management. Methodology/Technique - The object of this research is all companies listed on the Indonesia Stock Exchange with an observation period of 2019. The sample determination uses the purposive sampling method and a total sample of 124 companies is obtained. The analysis technique used is multiple linear regression analysis. Findings - The results show that financial distress has no significant effect on earnings management. Leverage and free cash flow have a negative and significant effect on earnings management. Novelty - This research contributes to signalling theory, which is used by company managers who have better information about their company will be encouraged to convey this information to potential investors where this is intended so that companies can increase company value by sending signals through financial statements of companies listed on the IDX. Type of Paper - Empirical."
    Keywords: Financial Distress; Leverage; Free Cash Flowandearnings Management.
    JEL: G32 M21 M41 M42
    Date: 2021–12–31
  4. By: M.Ajide, Folorunsho (Southwestern University, Nigeria)
    Abstract: We examined the effect of institutional quality and firm-specific factors on corporate investment in Nigeria using fifty-four (54) quoted non-financial firms within the period of 2002–2012. We applied dynamic panel estimator proposed by Arellano–Bond (1991). The results showed that regulatory quality, corruption, political stability and control of corruption have insignificant effect in determining corporate investments in Nigeria. Our results also confirmed that firms’ firm-specific factors influenced corporate investment in Nigeria. While firms’ cash flow displayed positive and significant effect on investment other factors had negative effects oninvestment. Our results showed that investment is constrained to internally generated fund, despite the existence of capital market. In addition, the spill over effect of tightening monetary policy during the period of study had increased the cost of borrowing thereby having a negative effect on investment in the real sector. Were commended that when the monetary authorities are focusing on inflation targeting, they should also not lose sight of its impact on corporate investment and other productivity growth of firms; which is the source of long terms ustainable growth and development of economies. & 2017 Faculty of Commerce and Business Administration, Future University.Production and Hosting by Elsevier B.V..
    Keywords: Institution; Nigeria; GMM; Firm-specific; Investment
    Date: 2022–03–24
  5. By: Supriyanto (Department of Administrative Sciences, Padjadjaran University, Bandung, Indonesia Author-2-Name: Mohammad Benny Alexandri Author-2-Workplace-Name: Department of Administrative Sciences, Padjadjaran University, Bandung, Indonesia Author-3-Name: Nurillah Jamil Achmawati Novel Author-3-Workplace-Name: Department of Administrative Sciences, Padjadjaran University, Bandung, Indonesia Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: "Objective - This study investigates the effect of investment risk, macroeconomics on stock prices in IPO companies during the Covid-19 pandemic. Methodology/Technique - Financial statements are used to collect sample secondary data. A total of 74 samples from data collection were then used to test hypotheses using SmartPLS software. Findings - The results showed that the Current Assets to Total Assets Ratio (CATAR) and PBV (Price to Book Value) are still new topics that provide great benefits for investing in IPO companies. Novelty - This study adds to the body of knowledge on investment risk and macroeconomics by elucidating the effect of investment on stock prices. Additionally, it provides an overview of the sources of information that can be used to inform investment decisions and to anticipate misinformation received, allowing investors to earn more money with less risk. Type of Paper - Empirical."
    Keywords: Investment Risk; Macroeconomics; Stock Prices; Covid-19
    JEL: G31 E02 E31 E60
    Date: 2022–03–31
  6. By: Goodhart, C. A. E.; Lastra, R. M.
    Abstract: In this article we question the wisdom of limited liability for all equity holders in the case of banks and systemically important financial institutions (SIFIs), though our proposals could be extended to all public limited companies. Limited liability can be a major source of moral hazard and excessive risk taking—a privilege that allows shareholders to enjoy the upside from their commercial activity while limiting their exposure in the event of failure. We propose that there should be two different classes of equity for banks and SIFIs. The division should be between outsiders, with no inside knowledge of the working of the firm and/or ability to control its decisions, and insiders, who have both the information and capacity to influence corporate decision-making. Outsiders would remain with limited liability, while multiple liability (double, triple, and potentially unlimited) would apply to insiders. The purpose of our proposal is to shift the costs of failure back to those who have responsibility for taking these decisions. The idea of financial liability ‘with teeth’—which is rooted in history—provides an innovative solution that improves the incentives for managers to take responsible decisions, and promotes a radical change in the structure of capitalism—addressing the unfairness of the current system which has enhanced inequality and encouraged populism.
    JEL: F3 G3 G32
    Date: 2020–03–20
  7. By: Alim, Wajid; Ali, Amjad; Metla, Mahwish Rauf
    Abstract: The study tests the effect of liquidity risk management on the financial performance of commercial banks in Pakistan. Pakistani financial market is heavily dependent on its banking sector to achieve its financial goals and stability. Therefore, the banking sector’s performance has a significant effect on the overall economy of the country. To achieve its need for stability, the central bank of Pakistan ensures that banks maintain an optimum liquidity position to reap the most benefits and increase returns. In this study, the effect of liquidity risk management on financial performance is studied using panel data for Ordinary Least Square analysis. Financial data of all commercial banks operating in Pakistan during the period of study was taken from the year 2006 to 2019 using data archives of the State Bank of Pakistan website. It is concluded that higher liquidity increases banks’ performance in commercial banks of Pakistan. The results are in line with several studies and available literature. This study can become a good reference for future policy decisions regarding the minimum liquidity requirements of banks in this region. This study can be further enhanced using a longer period of study and include more variables specific to the banking sector in Pakistan, like bank size, age of bank, etc. Further studies may include other non-commercial banks to further strengthen the study and increase its reliability.
    Keywords: Liquidity Risk; Performance; Banking Sector; ROA; ROE; Pakistan
    JEL: G21 G33
    Date: 2021
  8. By: Abdul Halim Chew Abdullah (Center for Governance Resilience and Accountability, Faculty of Economics and Management Universiti Kebangsaan Malaysia Author-2-Name: Norman Mohd Saleh Author-2-Workplace-Name: Center for Governance Resilience and Accountability, Faculty of Economics and Management Universiti Kebangsaan Malaysia Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: "Objective - This study examines whether the experience and gender of auditors in Big4 firm in relationship of deterring Real Earnings Management (REM).Different from the majority of previous studies, this study focuses on auditors in Big4 audit firms and real earnings management within Malaysian business environment. Big4 audit firms are associated with high quality audit because of the reputation to uphold, thusadopted stringent quality control and assurance approach, systems and procedures. Once adopted, the effect of individual characteristics may become less important. Thus, it is questionable whether individual characteristics such as auditor experience and gender could still have an influence on the outcomes of an audit, in this case, REM, when the audit firms are Big 4 (assuming very stringent quality control procedures are adopted). Methodology/Technique - This study substantiates prior literatureand conducted tests only on companies audited by Big4 audit firms.We also find that auditor experiences confirms to Agency Theory where REM reduces when the experience increases.Data was obtained from the Companies Commission of Malaysia (SSM), DataStream and Bursa Malaysia. Findings - The result confirms prior literature that auditor experience isstillanimportant factor that can limit REM, even in companies audited by the Big4 firms. The results howeverreveal that Big4 female auditors do not have any significant effect in reducing REM. Novelty - Although female auditors are claimed by Gender Socialization Theory, to have better moral judgments than male auditors, the result shows both genders are equal, at least in limiting REM. Type of Paper - Empirical."
    Keywords: Big4 Auditors; Auditor Experience; Real Earnings Management;Auditor Gender; Bursa Malaysia
    JEL: M40 M41 M42
    Date: 2021–12–31
  9. By: Doerr, Sebastian; Kabas, Gazi; Ongena, Steven
    Abstract: Does population aging affect bank lending? To answer this question we exploit geographic variation in population aging across U.S. counties to provide the first evidence on its impact on bank risk-taking. We find that banks more exposed to aging counties experience deposit inflows due to seniors' higher savings rate. They consequently extend more credit, but relax lending standards: Loan-to-income ratios increase and application rejection rates decline. Exposed banks also see a sharper rise in nonperforming loans during downturns, suggesting that population aging may lead to financial instability. These results are in line with an increase in savings and a decline in investment opportunities induced by population aging.
    Keywords: Risk-taking, financial stability, low interest rates, population aging, demographics
    JEL: E51 G21
    Date: 2022
  10. By: Coad, Alexander; Amaral-Garcia, Sofia; Bauer, Peter; Domnick, Clemens; Harasztosi, Péter; Pál, Rozália; Teruel, Mercedes
    Abstract: The effect of the COVID shock on European economies has been severe and also unequal, with some firms being affected much more strongly than others. To improve the effectiveness of policy interventions, policymakers need to understand which types of vulnerable firms have been suddenly pushed into dire circumstances. We seek to fill this important gap in our knowledge by providing evidence from the EIBIS (European Investment Bank Investment Survey, 2016-2020) on how the COVID shock has affected the investment activity and investment-related framework conditions of vulnerable firms. While data on actual investment activity post-COVID is not yet available to us, we focus on investment expectations. We exploit the fact that the same questions relating to investment expectations have been asked in several previous survey waves, which enables a difference-indifferences approach to investigate how investment expectations might have suddenly changed, for vulnerable groups of firms, immediately after the onset of the COVID crisis. We focus on 4 groups of vulnerable firms: High-Growth Enterprises (HGEs), young and small firms, R&D investors and nonsubsidiary firms. R&D investors are more likely to be pessimistic about investment plans as a consequence of the COVID shock, and (similarly) HGEs are less likely to be optimistic about investment plans. R&D investors are less likely to be optimistic about the availability of internal finance, while HGEs and R&D investors are more likely to be pessimistic about the availability of external finance. Subsidiary firms, interestingly, are more likely to report a decrease in expected investment, although this could be part of a conservative group-level strategy and coordinated group-level reduction in investment, however that is not caused by any detectable lack of access to (internal or external) finance. Event study graphs generally confirm our regression results.
    Date: 2022
  11. By: Heider, Florian; Inderst, Roman
    Abstract: This paper examines optimal enviromental policy when external financing is costly for firms. We introduce emission externalities and industry equilibrium in the Holmström and Tirole (1997) model of corporate finance. While a cap-and-trading system optimally governs both firms' abatement activities (internal emission margin) and industry size (external emission margin) when firms have sufficient internal funds, external financing constraints introduce a wedge between these two objectives. When a sector is financially constrained in the aggregate, the optimal cap is strictly above the Pigouvian benchmark and emission allowances should be allocated below market prices. When a sector is not financially constrained in the aggregate, a cap that is below the Pigiouvian benchmark optimally shifts market share to less polluting firms and, moreover, there should be no "grandfathering" of emission allowances. With financial constraints and heterogeneity across firms or sectors, a uniform policy, such as a single cap-and-trade system, is typically not optimal.
    Date: 2022
  12. By: Bajgar, Matej; Criscuolo, Chiara; Timmis, Jonathan
    Abstract: This paper presents new evidence on the growing scale of big businesses in the United States, Japan and 11 European countries. It documents a broad increase in industry concentration across the majority of countries and sectors over the period 2002 to 2014. The rising concentration is strongly associated with intensive investment in intangibles, particularly innovative assets, software and data, and this relationship is magnified in more globalized and digital-intensive industries. The results are consistent with intangibles disproportionately benefiting large firms and enabling them to scale up and raise their market shares, increasingly over time.
    Keywords: competition; industry and entrepreneurship; innovation
    JEL: E22 L10 L25
    Date: 2021–10–28
  13. By: Satyajit Chatterjee (Federal Reserve Bank of Philadelphia); Burcu Eyigungor (Federal Reserve Bank of Philadelphia)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2022
  14. By: Florian Eckert (ETH Zurich, Switzerland); Heiner Mikosch (ETH Zurich, Switzerland)
    Abstract: This paper examines the incidence of rm bankruptcies and start-ups in Switzerland based on unique register data. We propose to assess the frequency of bankruptcies over time using the concept of excess mortality. During the Corona crisis in 2020 and the rst half of 2021, bankruptcy rates were substantially lower and the number of new rm formations was substantially higher as compared to the pre-crisis period. This holds across most industries and regions. The Great Recession and the Swiss Franc Shock showed reverse patterns. Bankruptcies dropped more in industries and cantons, in which the share of rms who received a Covid-19 loan is comparatively high. The strong start-up activity is driven by industries where the pandemic induced structural adjustments.
    Keywords: Firm Bankruptcies, Insolvencies, Excess Mortality, Firm Formations, Start-Ups, Switzerland, Corona Crisis, Industry-Level, Canton-Level
    JEL: E32 G33 M13
    Date: 2021–11

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