nep-cfn New Economics Papers
on Corporate Finance
Issue of 2022‒08‒15
eight papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. A Study on Impact of Capital Structure on Profitability of Companies Listed in Indian Stock Exchange with respect to Automobile Industry By P. Aishwarya; Sudharani R; Suresh N
  2. Public guarantees and credit additionality during the Covid-19 pandemic By Giuseppe Cascarino; Raffaele Gallo; Francesco Palazzo; Enrico Sette
  3. Bond Finance and the Leverage Ratio By Alfred V. Guender
  4. Acquisitions, Management, and Efficiency in Rwanda's Coffee Industry By Rocco Macchiavello; Ameet Morjaria
  5. Corporate Debt Maturity Matters For Monetary Policy By Joachim Jungherr; Matthias Meier; Timo Reinelt; Immo Schott
  6. Higher capital requirements and credit supply: evidence from Italy By Maddalena Galardo; Valerio Vacca
  7. A Study on Impact of Environmental Accounting on Profitability of Companies listed in Bombay Stock Exchange By Nandini E. S; Sudharani R; Suresh N
  8. Understanding SME Trade Finance in ASEAN: An Overview By Tony Cavoli; David Christian; Rashesh Shrestha

  1. By: P. Aishwarya; Sudharani R; Suresh N
    Abstract: Current research helps in understanding both positive and negative impacts of capital structure on profits of Indian automobile companies by using variables like Return on Capital Employed, Return on Long Term Funds, Return on Net Worth, Gross Profit Margin, and Operating Profit, and Return on Asset. The study hypothesized that RoCE, RoLT, and RoNW have a positive effect and GP, OP and ROA have a negative impact on debt-equity and interest coverage ratios i.e capital structure of the companies. Also, the study proves that the relationship between profitability and capital structure variables is strongly significant. The hypothesis was tested by using fixed effect and random effect models by considering 10 years of data (from 2010-2019) from 17 automobile companies. The result of the study recommends that the firms can improve their performance by using an optimal capital structure. Also, a fair mix of debt and equity should be established to ensure that the firm maintains capital adequacy. Firms can thus be able to meet their financial compulsions and investments that can promise attractive returns.
    Date: 2022–07
  2. By: Giuseppe Cascarino (Bank of Italy); Raffaele Gallo (Bank of Italy); Francesco Palazzo (Bank of Italy); Enrico Sette (Bank of Italy)
    Abstract: We study the public loan guarantee programs implemented in Italy in the aftermath of the Covid-19 pandemic. Guided by a theoretical model and relying on a unique loan-level dataset covering the period between December 2019 and March 2021, including both guaranteed and non-guaranteed loans, we quantify to what extent public guarantees created additional credit across programs with different coverage ratios and over time. Credit additionality was highest, at around 84 cents per euro of guarantees, for the fully guaranteed loans originated in the first quarter of the program (Q2-2020). In the following quarters, the additionality of the different programs decreased, hovering around 50-60 cents per euro of guarantees. We also document that bank capitalization affected additionality for loans with lower coverage, in which banks have more skin in the game. In contrast, the additionality of the public guarantees varied very little across firms with different levels of risk, liquidity, and size.
    Keywords: public loan guarantees, credit additionality, bank capital, pandemic
    JEL: G21 G24
    Date: 2022–04
  3. By: Alfred V. Guender (University of Canterbury)
    Abstract: A binding pledgeable income constraint limits movements in the leverage ratio but permits some flexibility in the choice of bond versus loan finance in response to changes in key parameters. Due to the existence of distress costs of bond finance in the low payoff state, the share of bond finance remains low compared to more expensive loan finance under both constrained and unconstrained profit maximization.
    Keywords: Bonds, Loans, Leverage ratio, Distress cost, Pledgeable income constraint
    JEL: E44 G21 G32
    Date: 2022–06–01
  4. By: Rocco Macchiavello; Ameet Morjaria
    Abstract: Well-functioning markets allocate assets to owners that improve firms’ management and performance. We study the effects of ownership changes on coffee mills in Rwanda – an industry in which managing relationships with farmers and seasonal workers is important and that has seen many ownership changes in recent years. We combine administrative data, a survey panel of mills and an original survey of acquirers that allows us to construct acquirer-specific and target-specific control groups. A difference-in-differences design reveals that ownership changes do not improve performance unless the mill is acquired by a foreign firm. Our preferred interpretation – supported by detailed survey evidence that considers alternative hypotheses – is that foreign firms successfully implement management changes in key operational areas. Upon acquisition, both domestic and foreign owned mills attempt to implement similar changes, but domestic firms face resistance from workers and farmers. Domestic owners have relationships with their local communities, which can create opportunities to establish new mills and acquire existing ones. However, these same relationships create pressure to maintain status-quo relational arrangements, which makes it harder to implement managerial changes.
    JEL: D24 G32 G34 L25 N57 O12 O16
    Date: 2022–07
  5. By: Joachim Jungherr; Matthias Meier; Timo Reinelt; Immo Schott
    Abstract: We provide novel empirical evidence that firms’ investment is more responsive to monetary policy when a higher fraction of their debt matures. In a heterogeneous firm New Keynesian model with financial frictions and endogenous debt maturity, two channels explain this finding: (1.) Firms with more maturing debt have larger roll- over needs and are therefore more exposed to fluctuations in the real interest rate (roll-over risk). (2.) These firms also have higher default risk and therefore react more strongly to changes in the real burden of outstanding nominal debt (debt overhang). In comparison to existing models, we show that a model which accounts for the maturity of debt and its distribution across firms implies larger aggregate effects of monetary policy.
    Keywords: monetary policy, investment, corporate debt, debt maturity
    JEL: E32 E44 E52
    Date: 2022–07
  6. By: Maddalena Galardo (Bank of Italy); Valerio Vacca (Bank of Italy)
    Abstract: We use a rich dataset on bank loans to Italian firms matched to information on firms’ and banks’ characteristics, and exploit the implementation of Basel III reforms in Italy to investigate the impact of higher risk-based capital requirements on credit supply. While we do not address the steady state impact of capital requirements, we find that the introduction of higher requirements is associated with credit tightening in the early years after the reform. Banks affected to a larger extent by the new requirements tighten credit supply towards risky firms in favour of sounder ones. We also show that banks with particularly strong or particularly weak pre-reform capital positions tighten the credit to a lesser extent, i.e., the lending supply response is U-shaped with respect to initial capital, as predicted by the forced safety effect (Bahaj and Malherbe 2020). Finally, firms borrowing more from less capitalized banks were only partially able to switch their lenders, experienced a worsening in lending conditions and invested less compared to other firms after Basel III implementation.
    Keywords: financial institutions, Basel III, capital requirements, forced safety effect, lending conditions
    JEL: G21 G28 G38
    Date: 2022–06
  7. By: Nandini E. S; Sudharani R; Suresh N
    Abstract: The study focuses on the Impact of Environmental Accounting on the Profitability of Companies listed on the Bombay Stock Exchange. The study has considered the Amount spent on Environmental protection as an Independent variable and Return on Capital Employed, Return on Assets, Return on Net worth/equity, Net Profit Margin, and Dividend per Share as the Dependent variable. The present study is to analyses the relationship between Amounts spent on Environmental protection costs and Return on Capital Employed, Return on Assets, Return on Net worth/equity, Net Profit Margin, and Dividend per Share. The data is collected from 18 companies listed on the Bombay Stock Exchange for 10 years from the Annual reports of companies. The data collected were analysed using Panel data Regression in E-Views. Results revealed that there is a significant Relationship between Environmental protection Cost and Return on Capital Employed, Return on Assets, Return on Net worth/equity, Net Profit Margin, and Dividend per Share. The study shows that Environmental accounting impact positively on Firms profitability.
    Date: 2022–07
  8. By: Tony Cavoli (University of South Australia); David Christian (Economic Research Institute for ASEAN and East Asia (ERIA)); Rashesh Shrestha
    Abstract: SMEs are the most important source of employment in all ASEAN countries, but a lack of access to external sources of finance may limit their expansion and growth. In particular, the existence of a trade finance gap can curtail their participation in international trade. Countries in ASEAN and East Asia need to address this issue to include SMEs in their export-oriented growth strategy. This paper provides a framework for understanding the trade finance gap by examining the nature and strength of relationships between different actors in the trade finance ecosystem. We present an overview of the literature that studied the relationship between financial development and trade, the availability and use of various trade finance instruments in international trade, and some stylised facts about trade finance in ASEAN.
    Keywords: Trade Finance; International Financial Institutions; trade; financial crisis
    JEL: F19 F34 G21
    Date: 2022–02–22

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