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on Corporate Finance |
| By: | Newton, David P.; Ongena, Steven; Xie, Ru; Zhao, Binru |
| Abstract: | Is bank- versus market-based financing different in its attitudes towards Environmental, Social, and Governance (ESG) risk? Using a novel sample covering 3,783 U.S. public firms from 2007 to 2020, we study how firm-level ESG risk affects its financing outcomes. We find that companies with higher ESG risk borrow less from banks than from markets, potentially to avoid bank monitoring and scrutiny. The Social and Governance components, in particular, matter. Furthermore, firms suffering higher numbers of negative ESG reputation shocks are less likely to continue to rely on bank credit in response to lenders' threats to end the lending arrangements. Finally, our results indicate that firms' ESG risk reduces after borrowing from banks but increases after bond issuance, suggesting that banks are more effective than public bond markets in shaping borrowers' ESG performance. |
| JEL: | G20 G21 G30 G32 |
| Date: | 2022–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2022_005&r= |
| By: | Giulio Cornelli; Jon Frost; Leonardo Gambacorta; Julapa Jagtiani |
| Abstract: | Small business lending (SBL) plays an important role in funding productive investment and fostering local economic growth. Recently, nonbank lenders have gained market share in the SBL market in the United States, especially relative to community banks. Among nonbanks, fintech lenders have become particularly active, leveraging alternative data for their own internal credit scoring. We use proprietary loan-level data from two fintech SBL platforms (Funding Circle and LendingClub) to explore the characteristics of loans originated pre-pandemic (2016‒2019). Our results show that fintech SBL platforms lent more in zip codes with higher business bankruptcy filings and higher unemployment rates. Moreover, fintech platforms’ internal credit scores were able to predict future loan performance more accurately than the traditional approach to credit scoring. Using Y-14M loan-level bank data, we also compare fintech SBL with traditional bank business cards in terms of credit access and interest rates. Overall, fintech lenders have a potential to create a more inclusive financial system, allowing small businesses that were less likely to receive credit through traditional lenders to access credit and to do so at lower cost. |
| Keywords: | peer-to-peer (P2P) lending; marketplace lending; small business lending (SBL); Funding Circle; LendingClub; alternative data; credit access; credit scoring; fintech credit |
| JEL: | G18 G21 G28 L21 |
| Date: | 2022–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:94103&r= |
| By: | Thorsten Beck; Leonardo Gambacorta; Yiping Huang; Zhenhua Li; Han Qiu |
| Abstract: | Using a unique dataset of around half a million Chinese firms that use a QR code-based mobile payment system, we find that (i) the creation of a digital payment footprint allows firms to access credit provided by the same big tech company; (ii) transaction data generated via QR code generate spillover effects on access to bank credit; and (iii) there are positive effects of access to big tech credit on sales, including during the Covid-19 shock. The findings suggest that access to innovative payment methods helps micro firms build up credit history, and that using big tech credit can ease access to bank credit. |
| Keywords: | big tech, big data, QR code, banks, asymmetric information, financial inclusion, credit markets. |
| JEL: | D22 G31 R30 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1011&r= |
| By: | Xiangtai Zuo (Shutter Zor) |
| Abstract: | In recent years, more and more state-owned enterprises (SOEs) have been embedded in the restructuring and governance of private enterprises through equity participation, providing a more advantageous environment for private enterprises in financing and innovation. However, there is a lack of knowledge about the underlying mechanisms of SOE intervention on corporate innovation performance. Hence, in this study, we investigated the association of state capital intervention with innovation performance, meanwhile further investigated the potential mediating and moderating role of managerial sentiment and financing constraints, respectively, using all listed non-ST firms from 2010 to 2020 as the sample. The results revealed two main findings: 1) state capital intervention would increase innovation performance through managerial sentiment; 2) financing constraints would moderate the effect of state capital intervention on firms' innovation performance. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2204.04860&r= |
| By: | Iman Cheratian; Saleh Goltabar; Mohammad Reza Farzanegan |
| Abstract: | Given the importance of firm strategic management in time of crises, this study investigates Micro, Small, and Medium Enterprises (MSMEs) survival strategies during the international sanctions against Iran. Using data from a questionnaire of 486 firms between December 2019 to September 2020, we found that firm strategies in reducing research and development (R&D) expenditures, marketing costs, and fixed/overhead costs and investing in information technology (IT) are positively related to their survivability. Conversely, managerial decisions to “reduce production” and “staff pay cut/freeze” have negative and significant impacts on a firm’s ability to survive during sanctions. Moreover, micro firms are more resilient than their small and medium counterparts. The findings also confirm that age has a significant and positive impact on firm survival. Finally, the results show that having a business plan, access to finance and technology, owner education, export orientation, business networking and consulting services are the key drivers of withstanding the pressure from sanctions. |
| Keywords: | crisis, recession, sanction, survival strategies, firm, Iran |
| JEL: | F51 M13 L25 L26 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9568&r= |
| By: | Wang, Tracy; Sun, Aonan |
| Abstract: | We examine the influence of institutional ownership stability on corporate social performance (CSP). We find that stable institutional ownership is associated with higher CSP, after controlling for the percentage of institutional ownership. The result is robust to alternative measures of CSP and various techniques to address endogeneity concerns. Additional analysis shows that this positive relation is driven by prudent institutional investors and by CSP dimensions directly pertinent to a specific, primary stakeholder group. Overall, we show that stable institutional investors are an effective mechanism to promote firms’ investment in long- term-oriented activities including CSR. Free Share Link provided by Elsevier (valid until May 28, 2022): https://authors.elsevier.com/a/1etOy5VD4 KnC9Z |
| Keywords: | institutional ownership stability; corporate social responsibility; corporate social performance; long-term orientation |
| JEL: | G0 M0 |
| Date: | 2022–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:112679&r= |
| By: | Veraart, Luitgard A. M. |
| Abstract: | We develop a new model for solvency contagion that can be used to quantify systemic risk in stress tests of financial networks. In contrast to many existing models it allows for the spread of contagion already before the point of default and hence can account for contagion due to distress and mark-to-market losses. We derive general ordering results for outcome measures of stress tests that enable us to compare different contagion mechanisms. We use these results to study the sensitivity of the new contagion mechanism with respect to its model parameters and to compare it to existing models in the literature. When applying the new model to data from the European Banking Authority we find that the risk from distress contagion is strongly dependent on the anticipated recovery rate. For low recovery rates the high additional losses caused by bankruptcy dominate the overall stress test results. For high recovery rates, however, we observe a strong sensitivity of the stress test outcomes with respect to the model parameters determining the magnitude of distress contagion. |
| Keywords: | systemic risk; contagion; financial networks; stress testing; mark-to-market losses; George Fellowship |
| JEL: | C62 D85 G21 G28 G33 |
| Date: | 2020–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:101905&r= |
| By: | Jin-Wook Chang; Matt Darst |
| Abstract: | This paper studies competitive market shutdowns due to adverse selection, where sellers post nonexclusive menus of contracts. We first show that the presence of the worst type of agents (moldy lemons) causes markets to fail only if their mass is sufficiently large. We then show that a small mass of moldy lemons can lead to a large cascade of exits when buyers possess outside options. Our results suggest a parsimonious way of generating sudden market shutdowns without relying on institutional details or imposing additional structure on the model. Thus, the simple insights on the properties of market shutdowns we consider are applicable to many different markets and contexts. |
| Keywords: | Asymmetric information; Market unraveling; Non-exclusive contracting |
| JEL: | D52 D53 D82 E44 G32 |
| Date: | 2022–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2022-13&r= |
| By: | Aicha Kharazi (Free University of Bozen-Bolzano, Italy) |
| Abstract: | This article explores the implications of borrower's side collateral constraints have on the real economy. The novel element in this model relative to the industry standard model is that I model the entrepreneurs, which are crucial for investment, as collateral constrained. The model is estimated using Bayesian methods and can be employed to measure the role of collateral. Regarding the results, I document that collateral requirements are highly volatile during the period of 2007–2012, and I find that the effect of an increase in collateral requirements is highly significant. Interestingly, the model assigns an important role for collateral in the shock decomposition, and the contribution of financial shocks is much marked during the financial crisis and substantially shapes macroeconomic fluctuations. |
| Keywords: | Business Loan, Collateral, Financial Shocks. |
| JEL: | E32 E44 G21 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:bzn:wpaper:bemps93&r= |
| By: | Ingolf Dittmann (Erasmus University Rotterdam); Amy Yazhu Li (Erasmus University Rotterdam); Stefan Obernberger (Erasmus University Rotterdam); Jiaqi Zheng (University of Oxford) |
| Abstract: | This study examines whether the CEO uses share repurchases to sell her equity grants at inflated stock prices, a concern regularly voiced in politics and media. We find that the timing of buyback programs and equity compensation, i.e., the granting, vesting, and selling of equity, is largely determined by the corporate calendar through blackout periods and earnings announcement dates. As a consequence, share repurchases and equity compensation are positively correlated. This correlation disappears once we account for the corporate calendar and should thus not be interpreted causally. Our results do not support the conclusion that CEOs systematically misuse share repurchases at the expense of shareholders. To the contrary, equity compensation increases the propensity to launch a buyback program when buying back shares is beneficial for long-term shareholder value. |
| Keywords: | Payout policy, share repurchases, equity-based incentives, short-termism |
| JEL: | G14 G35 M12 M52 |
| Date: | 2022–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20210101&r= |