nep-cfn New Economics Papers
on Corporate Finance
Issue of 2022‒07‒11
three papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Causal Effects of a Tax Incentive on SME Capital Investment By HOSONO Kaoru; HOTEI Masaki; MIYAKAWA Daisuke
  2. Fifty years since Altman (1968): Performance of financial distress prediction models By Surbhi Bhatia; Manish K. Singh
  3. When do proxy advisors improve corporate decisions? By Berno Buechel; Lydia Mechtenberg; Alexander F. Wagner

  1. By: HOSONO Kaoru; HOTEI Masaki; MIYAKAWA Daisuke
    Abstract: We estimate the causal effects of a tax incentive for specific productivity-enhancing equipment that was introduced in 2014 for Japanese small and medium-sized enterprises. Using firm-level panel data, we obtain the following findings. First, the introduction of the tax incentive did not on average effectively increase the capital investment ratio of eligible firms, which could be due to the small number of firms using the incentives. Second, despite the first finding, the firms using the tax incentive increased their capital investment ratio and improved labor productivity more than the comparable firms did. Third, firms using the tax incentive did not increase capital intensity. Fourth, among the firms using the tax incentive, less cash-rich, smaller, and younger firms increased their capital investment ratio to a greater degree. These results show that the actual use of the tax incentive mitigates financial constraints in upgrading capital and improving labor productivity.
    Date: 2022–05
  2. By: Surbhi Bhatia (Independent Researcher); Manish K. Singh (Department of Humanities and Social Sciences Indian Institute of Technology Roorkee and XKDR Forum)
    Abstract: Using bankruptcy filings under the new Insolvency and Bankruptcy Code (2016), we investigate the effect of firm characteristics and balance sheet variables on the forecast of one-year-ahead default for Indian manufacturing firms. We compare traditional discriminant analysis and logistic regression models with state-of-the-art variable selection technique-the least absolute shrinkage and selection operator, and the unsupervised techniques of variable selection-to identify key predictive variables. Our findings suggest that the ratios considered as important by Altman (1968) still hold relevance for the prediction of default, no matter the technique applied for variables selection. We find cash to current liability (a liquidity measure) as an additional robust and significant predictor of default. In terms of predictive accuracy, the reduced-form multivariate discriminant analysis model used in Altman (1968) performs at par with the more advanced econometric specification for both in-sample and full-sample default prediction.
    JEL: C53 G17 G32 G33
    Date: 2022–06
  3. By: Berno Buechel (University of Fribourg - Faculty of Economics and Social Science); Lydia Mechtenberg (University of Hamburg); Alexander F. Wagner (University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute)
    Abstract: There is an ongoing debate about how proxy advisory firms affect corporate decisions. A major concern is that shareholders seeking to save costs use a proxy advisor's vote recommendation as substitute for own research, thereby reducing efficiency of shareholder decision-making. We show that the opposite effect -- complementarity between a proxy advisor's recommendation and shareholders' research effort -- occurs if two conditions are met: (i) the board of directors is sufficiently well informed; and (ii) shareholders can condition their investment in research on the proxy advisor's recommendation. Then, a proxy advisor with information quality sufficiently close to that of the board's strictly improves corporate decisions, while a proxy advisor with a more diverging information quality leaves corporate decisions unaffected.
    Keywords: Proxy advisors, strategic voting
    JEL: G23 D72 D83
    Date: 2022–05

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