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on Corporate Finance |
| By: | Kogler, Michael |
| Abstract: | After the global financial crisis, the use of taxes to enhance financial stability received new attention. This paper compares two ways of taxing bank leverage, namely, an allowance for corporate equity (ACE), which addresses the debt bias in corporate taxation, and a Pigovian tax on bank debt (bank levy). We emphasize financial stability gains driven by lower bank asset risk and develop a principal-agent model, in which risk taking depends on the bank's capital structure and, by extension, on the tax treatment of debt and equity because of moral hazard. We find that (i) the ACE unambiguously reduces risk taking, (ii) bank levies reduce risk taking if they are independent of bank performance but may be counterproductive otherwise, (iii) high corporate tax rates render the bank levies less effective, and (iv) taxes are especially effective if capital requirements are low. |
| Keywords: | Pigovian taxes, corporate tax reform, bank risk taking, financial stability |
| JEL: | G21 G28 H25 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2022:02&r= |
| 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. |
| Keywords: | pigou tax,financing,climate change |
| JEL: | O16 L16 H23 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:253669&r= |
| By: | Arun Gupta; Horacio Sapriza; Vladimir Yankov |
| Abstract: | Our paper studies the role of the collateral channel for bank credit using confidential bank-firm-loan data. We estimate that for a 1 percent increase in collateral values, firms pledging real estate collateral experience a 12 basis point higher growth in bank lending with higher sensitivities for more credit constrained firms. Higher real estate values boost firm capital expenditures and lead to lower unemployment and higher employment growth and business creation. Our estimates imply that as much as 37 percent of employment growth over the period from 2013 to 2019 can be attributed to the relaxation of borrowing constraints. |
| Keywords: | Collateral channel; Firm borrowing constraints; Bank credit allocation; Corporate investment; Macro-finance; Transmission mechanism |
| JEL: | E44 G21 |
| Date: | 2022–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2022-24&r= |
| By: | Nikola Fabris; Nina Vujanović (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Bank stability is an important aspect of financial stability, especially in bank-centric systems such as those in Southeast Europe. The financial crisis has shown that there is a particular need to monitor credit and other similar risks. Hence, it is important to analyse risks affecting the stability of both the banking sector and the financial system as a whole. To that end, central banks have developed macroprudential policies aiming to safeguard financial stability. However, little is known about the drivers of some financial risks. In that context, this study analyses the determinants of credit risk, which is the most prominent risk in the banking sectors of three selected Southeast European economies – Montenegro, Kosovo* and Bosnia and Herzegovina. Dynamic panel data techniques were applied to 48 banks, which represent almost the entire banking sectors in the respective countries. The empirical evidence has shown that both macroeconomic and bank-specific determinants represent influential factors driving credit risk in Southeast Europe. Particularly important macroeconomic factors affecting credit risk are business cycle and sovereign debt. On the other hand, bank size, capital levels, credit activity and profitability are the most prominent factors influencing credit risk in the region. |
| Keywords: | Credit Risk, Financial Stability, Southeast Europe, Banking |
| JEL: | G21 E37 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:wii:wpaper:214&r= |
| By: | Ekundayo P. Mesagan (Pan Atlantic University, Lagos, Nigeria.); Titilope C. Adewuyi (University of Lagos, Lagos, Nigeria.); Olugbenga Olaoye (Bells University of Technology, Nigeria) |
| Abstract: | This study employs the Pool Mean Group framework to investigate the impact of corporate finance and industrial performance on pollution in Africa between 1990 and 2020. The study, which focuses on 36 African nations, found that corporate financing insignificantly enhances environmental quality in the short run, while it significantly worsens the environment in the long run. Also, the result shows that industrial performance exerts a negative but insignificant impact on pollution in both the short- and long-run periods. Lastly, the interaction term between corporate finance and industrial performance has a negative and significant impact on pollution in both periods. With this striking result, the study recommends that efforts should be made to promote the growth of environmentally sound production plants in the continent through the removal of credit facilitation bottlenecks. |
| Keywords: | Corporate Finance, Industrial Performance, Pollution, Africa |
| JEL: | G3 L25 O14 Q53 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:22/026&r= |
| By: | Shu, Guo; ZhongXiang, Zhang |
| Abstract: | The green credit policy plays a vital role in promoting enterprise upgrading. Using a thirteen year panel data of listed companies in China (2007 2019), this study uses the difference in differences (DID) method to examine the effects of the Green Credit Guidelines in 2012 (GCG2012) on the firm level total factor productivity (TFP). Our results show that the GCG2012 significantly increases the TFP of companies in green credit restricted industries. This finding remains robust through employing the PSM-DID model, alternating the treatment group, changing the sample period, and controlling the effects of other environmental policies and financial crises. This effect is more pronounced for private enterprises, companies with worse debt paying ability, companies in highly competitive industries and companies in regions with higher financial liberalization. The impact mechanism test indicates that increasing the green innovation and reducing the agency costs (including green agency costs and traditional agency costs) are two possible channels to boost firm level TFP. Further analysis shows that the GCG2012 is effective not only for heavily polluting industries but also for light polluting industries, and that the GCG2012 can improve the economic performance of firms in green credit restricted industries. Overall, this study reveals the micro mechanisms behind the long term impact of the GCG2012 policy on firm level TFP, providing empirical evidence and policy suggestions for improving green credit policies and promoting green development. |
| Keywords: | Environmental Economics and Policy, Production Economics, Productivity Analysis |
| Date: | 2022–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemwp:320842&r= |
| By: | Igor Makarov; Antoinette Schoar |
| Abstract: | The paper provides an overview of cryptocurrencies and decentralized finance. The discussion lays out potential benefits and challenges of the new system and presents a comparison to the traditional system of financial intermediation. Our analysis highlights that while the DeFi architecture might have the potential to reduce transaction costs, similar to the traditional financial system, there are several layers where rents can accumulate due to endogenous constraints to competition. We show that the permissionless and pseudonymous design of DeFi generates challenges for enforcing tax compliance, anti-money laundering laws, and preventing financial malfeasance. We highlight ways to regulate the DeFi system which would preserve a majority of benefits of the underlying blockchain architecture but support accountability and regulatory compliance. |
| JEL: | G1 G2 G20 G21 G23 G3 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30006&r= |
| By: | Lars Hornuf; Gül Yüksel |
| Abstract: | In this article, we use a meta-analysis to examine the performance of socially responsible investing (SRI). After a thorough literature search, we review 153 empirical studies containing 1,047 observations of SRI performance. We find that, on average, SRI neither outperforms nor underperforms the market portfolio. However, in line with modern portfolio theory, we find that global SRI portfolios outperform regional sub-portfolios. Moreover, high-quality publications, publications in finance journals, and authors who publish more frequently on SRI are all less likely to report SRI outperformance. In particular, we find that including more factors in a capital market model reduces the likelihood that a study will find SRI outperformance. These findings have important implications for the policy evaluation of environmental, social, and governance goals in general, the asset management literature in particular, and the perspective of different scientific disciplines. |
| Keywords: | environmental social governance, ESG, socially responsible investment, SRI, meta-analysis |
| JEL: | G11 G12 M14 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9724&r= |
| By: | Philippe Choné; Laurent Linnemer |
| Abstract: | We study the behavior of a firm that consistently maximizes a misspecified profit function. We provide an equilibrium concept where the misspecification error remains undetected. We examine the uniqueness and stability of the equilibria. The model of the price-taking firm belongs to this class. In one of these models, the cost-taking firm, the equilibrium price increases with fixed costs. The behavioural price can be lower or higher than the rational price, meaning consumers can benefit from the lack of rationality. Finally in a long-run perspective where the cost is endogenous, we show that the behavioral and rational firms end with the same level of output. |
| Keywords: | behavioural model of a firm, misspecified profit function, fixed costs |
| JEL: | L12 L21 L23 L25 M41 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9718&r= |
| By: | Abdullah Othman (Cambridge Resources International Inc.); Glenn P. Jenkins (Department of Economics, Queens University, Kingston, Ontario, Canada, K7L3N6 and Cambridge Resources International Inc.); Mikhail Miklyaev (Department of Economics, Queens University, Kingston, Ontario, Canada, K7L3N6 and Cambridge Resources International Inc.) |
| Abstract: | In this paper, an analytical framework and a practical approach are developed to measure the economic opportunity cost of capital (EOCK). This national parameter is an essential determinant for practical application to the economic appraisal of investment projects in a consistent manner for a country. An application of the model is carried out for Mozambique since Mozambique is a small open economy and is also integrated into the global capital market. Estimate of the EOCK is based on the hypothesis that when funds are raised in the capital market to finance any investment project, those funds are likely to come from displaced investment, newly stimulated domestic savings, and newly stimulated foreign capital inflows. It can then be estimated as a weighted average of the opportunity cost of each of the three alternative sources of funds. The EOCK is the most appropriate rate used to discount the economic benefits and costs of a project to see if the project is economically viable for society as a whole. |
| Keywords: | Capital Market, Discount Rate, Investment Funds, Investment Projects, Economic Growth, Mozambique |
| JEL: | H43 O22 |
| Date: | 2022–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:qed:dpaper:4582&r= |