nep-cfn New Economics Papers
on Corporate Finance
Issue of 2022‒07‒25
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Ownership concentration and firm risk: The moderating role of mid-sized blockholders By Rossetto, Silvia; Selmane, Nassima; Staglianò, Raffaele
  2. Downward Revision of Investment Decisions after Corporate Tax Hikes By Sebastian Link; Manuel Menkhoff; Andreas Peichl; Paul Schüle; Lukas Menkhoff
  3. How Firms Survive in European Emerging Markets: A Survey By Eduard Baumohl; Evzen Kocenda
  4. Learning and staged equity financing By Magnus Blomkvist; Timo Korkeamäki; Tuomas Takalo
  5. Firm liquidity and solvency under the Covid-19 lockdown in France By Mattia Guerini; Lionel Nesta; Xavier Ragot; Stefano Schiavo
  6. Modelling the influence of Tobin's Q and cash flows on the capital investments of Russian firms By Stepan Bahteev; Sophia Turkanova; Andrey Pushkarev; Oleg Mariev
  7. The Big Tech Lending Model By Lei Liu; Guangli Lu; Wei Xiong

  1. By: Rossetto, Silvia; Selmane, Nassima; Staglianò, Raffaele
    Abstract: This study analyzes the relationship between mid-sized blockholders and firm risk. We show that ownership structure matters for firm risk, beyond the first largest blockholder. Firms with multiple blockholders take more risk than firms with just one blockholder, even when controlling for the stake of the largest blockholder. Consistent with the diversification argument, we find that firm risk increases by 22% when the number of blockholders increases from one to two. Our results are robust to controlling for blockholder type and firm characteristics. We carry out various robustness checks to tackle endogeneity issues. More generally, we provide evidence that firms’ decisions are affected by mid-sized blockholders, and not merely the largest blockholder. This is in line with theoretical predictions.
    Keywords: Corporate Governance; Ownership Structure; Firm Risk; Blockholders; Volatility of Operating Performance
    JEL: G11 G30 G32 G34
    Date: 2022–07–01
  2. By: Sebastian Link; Manuel Menkhoff; Andreas Peichl; Paul Schüle; Lukas Menkhoff
    Abstract: This paper estimates the causal effect of corporate tax hikes on firm investment based on more than 1,400 local tax changes. By observing planned and realized investment volumes in a representative sample of German manufacturing firms, we can study how tax hikes induce firms to revise their investment decisions. On average, the share of firms that invest less than previously planned increases by three percentage points after a tax hike. This effect is twice as large during recessions.
    Keywords: investment, corporate taxation, state dependence, business cycle
    JEL: G11 H25 H32 H71 O16
    Date: 2022
  3. By: Eduard Baumohl (University of Economics in Bratislava & Faculty of Economics, Technical University of Kosice, Slovakia); Evzen Kocenda (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic & CESifo, Munich; IOS, Regensburg)
    Abstract: We survey the empirical evidence on corporate survival and its determinants in European emerging markets. We demonstrate that (i) institutional quality is a significant preventive factor for firm survival in all sectors of the economy, which holds for small, medium and large firms alike. On the other hand, (ii) the impact of financial performance indicators is lower than one would expect. However, (iii) other firm-level variables play more important roles in firm survival, and the most important preventive factors are the legal form of a limited liability company, the number of large shareholders, and the presence of a foreign owner.
    Keywords: firm survival, institutions, financial development, European emerging markets, survival and exit determinants, hazards model
    JEL: D22 G01 G33 G34 P34
    Date: 2022–07
  4. By: Magnus Blomkvist (Audencia Business School); Timo Korkeamäki (Aalto University); Tuomas Takalo (Bank of Finland)
    Abstract: We propose a rationale for why firms often return to the equity market shortly after their initial public offering (IPO). We argue that hard to value firms conduct smaller IPOs, and that they return to the equity market conditional on a positive valuation signal. This is driven by two-way learning, as market information complements both corporate disclosure and internal information available to management. In contrast to prior studies, we find that information asymmetry is not a necessary condition for staged financing. Our arguments receive support in a sample of 3,625 U.S. IPOs between 1980-2018.
    Keywords: IPOs,security issuance,sequential financing IPOs,sequential financing
    Date: 2022–05–07
  5. By: Mattia Guerini (SSSUP - Scuola Universitaria Superiore Sant'Anna [Pisa], OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Lionel Nesta (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Xavier Ragot (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Stefano Schiavo (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)
    Abstract: We simulate the impact of the Covid-19 crisis on corporate solvency using a sample of around one million French nonfinancial companies, assuming they minimize their production costs in the context of a sharp drop in demand. We find that the lockdown triggers an unprecedented increase in the share of illiquid and insolvent firms, with the former more than doubling relative to a No-Covid scenario (growing from 3.8% to more than 10%) and insolvencies increasing by 80% (from 1.8% to 3.2%). The crisis has a heterogeneous effect across sectors, firm size, and region. Sectors such as hotels and restaurants, household services, and construction are the most vulnerable, while wholesale and retail trade, and manufacturing are more resilient. Micro-firms and large businesses are more likely to face solvency issues, whereas SMEs and medium-large firms display lower insolvency rates. The furlough scheme put forward by the government (activité partielle) has been very effective in limiting the number of insolvencies, reducing it by more than 1 percentage point (approximately 12,000 firms in our sample). This crisis will also have an impact on the overall efficiency of the French economic system, as market selection appears to be less efficient during crisis periods relative to "normal times": in fact, the fraction of very productive firms that are insolvent significantly increases in the aftermath of the lockdown. This provides a rationale for policy interventions aimed at supporting efficient, viable, yet illiquid firms weathering the storm. We evaluate the cost of such a scheme aimed at strength-ening firms' financial health to around 8 billion euros.
    Keywords: Firm liquidity,Solvency,Covid-19 lockdown
    Date: 2020–07–06
  6. By: Stepan Bahteev (Ural Federal University); Sophia Turkanova (Ural Federal University); Andrey Pushkarev (Ural Federal University); Oleg Mariev (Ural Federal University)
    Abstract: The relationship between investment and cash flow has been extensively studied since the mid-20th century. The aim of our study is to assess the impact of Tobin's ratio and cash flows on the capital investments of Russian companies. For econometric estimation we data on 206 Russian public companies traded on the Moscow Exchange from 2011 to 2020. We apply quantile regression to obtain more detailed results. The results of our study confirm the significance of the Tobin ratio and cash flow on capital investments. We observe these effects in all quantiles however their magnitude varies. This research is valuable and can be utilized by companies to maximize efficiency of their capital expenditures.
    Keywords: Tobin?s Q, Russian firms, quantile regression, capital investments
    JEL: L25 M21
    Date: 2021–07
  7. By: Lei Liu; Guangli Lu; Wei Xiong
    Abstract: By comparing uncollateralized business loans made by a big tech lending program with conventional bank loans, we find that big tech loans tend to be smaller and have higher interest rates and that borrowers of big tech loans tend to repay far before maturity and borrow more frequently. These patterns remain for borrowers with access to bank credit. Our findings highlight the big tech lender’s roles in serving borrowers’ short-term liquidity rather than their long-term financing needs. Through this model, big tech lending facilitates credit to borrowers underserved by banks without experiencing more-severe adverse selection or incurring greater risks than banks (even during the COVID-19 crisis).
    JEL: G23
    Date: 2022–06

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