nep-cfn New Economics Papers
on Corporate Finance
Issue of 2022‒09‒12
ten papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Working Capital Management, Financial Constraints, and Exports. Evidence from European and US Manufacturers By Jose Manuel Mansilla-Fernandez; Juliette Milgram Baleix
  2. The features of equity capital increases by Italian corporates By Francesco Columba; Tommaso Orlando; Francesco Palazzo; Fabio Parlapiano
  3. Firm-Level Political Risk and Dividend Payout By Oskar Kowalewski; Muhammad Farooq Ahmad; Saqib Aziz; Rwan El-Khatib
  4. Financial frictions and productivity: Firm-level evidence from Kazakhstan By Zarina Adilkhanova
  5. The territorial gaps in the access of Italian firms to credit By Carlo Bottoni; Michele Cascarano; Iconio Garrí; Litterio Mirenda; Paolo Emilio Mistrulli; Dalia Maria Pizzillo; Davide Revelli; Tiziano Ropele
  6. Loan pricing in internal capital markets and the impact of the two-tier system: Finance groups in Germany By Busch, Ulrike; Khayal, Nuri; Klein, Melanie
  7. Is Finance Good for Growth? New Evidence from China By Jingzhu Chen; Yuemei Ji
  8. Is investing in safety detrimental to the financial health of the firm ? By Nicolas Piluso
  9. Information transmission between banks and the market for corporate control By Bittner, Christian; Fecht, Falko; Pala, Melissa; Saidi, Farzad
  10. Cracks in the Boards: The Opportunity Cost of Governance Homogeneity By Helene Maghin

  1. By: Jose Manuel Mansilla-Fernandez (Universidad Publica de Navarra); Juliette Milgram Baleix (Universidad de Granada, Departamento de Teoría e Historia Económica)
    Abstract: This paper investigates the effect of firms’ working capital management, measured by the cash conversion cycle (CCC) on exports, on both the intensive and extensive margins. By using Heckman’s two-stage model for the treatment of sample selection bias, we find that the longer the CCC, the lower firms’ likelihood of exporting and the lower the volume of their exports. This phenomenon is economically more relevant for financially constrained firms than for unconstrained firms. The results are robust to the propensity score matching, the transition sample and the placebo analyses. Finally, these results can be extrapolated in the context of the Covid-19 crisis because of the decline in trading conditions and firms’ shortage of liquidity.
    Keywords: Cash conversion cycle, Covid-19 crisis, exports, financial constraints, working capital management
    JEL: G01 G21 G32 H63
    Date: 2022–08–15
  2. By: Francesco Columba (Bank of Italy); Tommaso Orlando (Bank of Italy); Francesco Palazzo (Bank of Italy); Fabio Parlapiano (Bank of Italy)
    Abstract: The economic losses inflicted by the pandemic shock caused severe capital shortfalls for many corporates, which led to public measures being adopted to support firms’ recapitalization and the rebalancing of their financial structure. However, evidence about the dynamics and features of these capital increases is scarce. Our work attempts to fill this gap by studying capital increases by Italian non-financial corporations between 2008 and 2020. Stylized facts and insights on the economics of capital increases are provided and the implications for the design of public support programs are discussed. We found that, first, small firms are less likely to raise new equity funds than larger firms; second, capital increases by large and financially vulnerable firms produce countercyclical behaviour, as the amount of these increases rises during downturns; and third, financially sound firms use new capital mostly to finance investments, which in turn expands their sales, while fragile firms tend to rebalance their financial structure with positive outcomes for their likelihood of survival.
    Keywords: Capital increases, capital structure, corporate finance
    JEL: G1 G3 G32
    Date: 2022–07
  3. By: Oskar Kowalewski (IESEG School of Management, Univ. Lille, CNRS, UMR 9221 - LEM - Lille Économie Management, F-59000 Lille, France); Muhammad Farooq Ahmad (SKEMA Business School – Université Côte d'Azur, Avenue Willy Brandt, Euralille, Lille, 59777 France); Saqib Aziz (Rennes School of Business, 2 Rue Robert d'Arbrissel Cedex, Rennes, 35065 France); Rwan El-Khatib (College of Business, Zayed University, United Arab Emirates)
    Abstract: We use a novel measure of firm-level political risk based on a textual search technique on firms’ quarterly earnings conference transcripts to explain dividend payouts in publicly listed U.S. firms. We find a positive and significant effect of firm-level political risk on dividend payouts, particularly in uncertainties related to economics, institutions, technology, trade, and security. The effect is more pronounced in firms with better corporate governance, less analyst follow-up, and higher growth opportunities. These results support the signaling role of dividends rather than the role of agency theory in explaining dividend payouts when firms are associated with higher levels of political risk. We also find the effect to be prominent after controlling for an aggregate measure of economic policy uncertainty and in poor and recessionary economic conditions. We address endogeneity concerns and selection bias by running placebo tests and performing propensity score matching technique.
    Keywords: : Dividends; Firm-Level Political Risk; Agency Theory; Signaling Theory; Economic Policy Uncertainty
    JEL: G30 G35 G38
    Date: 2022–08
  4. By: Zarina Adilkhanova (NAC Analytica, Nazarbayev University)
    Abstract: This paper studies the effect of financial frictions on firm-level total factor productivity in Kazakhstan using a large data set on medium and large enterprises from 2009 to 2017. We explain the effect of financial frictions on productivity growth and the microeconomic channels through which they may transmit to the real economy. The results demonstrate that productivity growth is vulnerable to debt growth due to the rising financial friction, which is helpful in understanding of reasons why financial crises lead to a persistent decline in economic activity.
    Keywords: Total Factor Productivity (TFP); Financial Frictions; Debt Growth
    JEL: D24 G30 O16
    Date: 2021–12
  5. By: Carlo Bottoni (Bank of Italy); Michele Cascarano (Bank of Italy); Iconio Garrí (Bank of Italy); Litterio Mirenda (Bank of Italy); Paolo Emilio Mistrulli (Bank of Italy); Dalia Maria Pizzillo (Bank of Italy); Davide Revelli (Bank of Italy); Tiziano Ropele (Bank of Italy)
    Abstract: The work analyzes the territorial divides in the access to credit for Italian firms in the period 2010-2019. As already documented by previous studies, the econometric analysis shows that, after controlling for a bunch of characteristics, Southern firms provide more frequently a collateral and face a higher cost of credit (by about 70 basis points, on average) than in the Center North. The conditions of access to credit affect loan demand, which is lower among Southern firms. Negative externalities, which are more marked in Southern Italy, such as the inefficiency of justice, the spread of crime and the lack of social capital, contribute to explaining part of the observed gaps.
    Keywords: territorial gaps, access to credit, cost of credit
    JEL: R11 G21
    Date: 2022–07
  6. By: Busch, Ulrike; Khayal, Nuri; Klein, Melanie
    Abstract: This paper sheds light on the functioning of internal capital markets by analysing money market transactions within the German cooperatives and savings banks finance groups. Using a unique dataset, the money market statistical reporting, this is the first paper to explicitly analyze the determinants of loan rates and volumes in internal capital markets. We find that the functioning of internal capital markets diverges substantially from the non-group interbank money market. Head institutes lend larger amounts at lower spreads to their affiliated banks than to banks outside their internal capital markets. Our findings also suggests that relationship lending is associated with lower spreads in the unsecured market in general but it plays only a minor role in internal capital markets. This finding indicates that counterparty credit risk and information asymmetries are less relevant within internal capital markets. We find an almost full immediate pass-through of the reduction of the deposit facility rate in 2019 to internal capital markets, but not to the rest of the interbank money market. The introduction of the two-tier system led to a slight transitory increase in rates and to a persistent increase in loan volumes within internal capital markets but not in the rest of the interbank money market.
    Keywords: internal capital markets,monetary policy,interbank money market,relationship lending
    JEL: E44 E43
    Date: 2022
  7. By: Jingzhu Chen; Yuemei Ji
    Abstract: We study the relationship between finance and growth using a sample of 275 Chinese cities during 2009-2018. We exclude a large amount of bank loans to local governments through the local government financing vehicles (LGFVs). This allows us to construct a new and better financial development index which measures the level of loans extended by banks to enterprises and households. Estimates from both GMM and Instrument Variables approaches indicate that financial development in the form of higher loan to GDP ratio leads to lower economic growth rate. We find that discrimination in bank lending, housing market bubbles and an unbalanced growth between real and financial sectors account for this negative relationship between finance and growth.
    Keywords: China, financial development, economic growth, banks, city
    JEL: O16 O18 O53 G21 N25
    Date: 2022
  8. By: Nicolas Piluso (CERTOP - Centre d'Etude et de Recherche Travail Organisation Pouvoir - UT2J - Université Toulouse - Jean Jaurès - UT3 - Université Toulouse III - Paul Sabatier - Université Fédérale Toulouse Midi-Pyrénées - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The article attempts to analyze the effects of an investment in safety of the production process on the dynamics of the distributed dividends. The aim is to answer the question of whether a risky industry has an incentive to invest in safety independently of the decrease in the probability of accidents generated by the safety measures. Although there is an obvious tension between safety and profitability, it appears that the firm may, in certain cases that we identify, have an interest in investing insofar as capital accumulation and dividend distribution are not durably affected by safety.
    Date: 2022–08–01
  9. By: Bittner, Christian; Fecht, Falko; Pala, Melissa; Saidi, Farzad
    Abstract: This paper provides evidence of deliberate private-information disclosure within banks' international business networks. Using supervisory trade-level data, we show that banks with closer ties to a target advisor in a takeover buy more stocks of the target firm prior to the deal announcement, enabling them to benefit from the positive announcement return. We do not find such effects for bank connections to acquirer advisors or for trades in acquirer stocks. Target advisors benefit from leaking information about takeover bids to connected banks, as it drives up the final offer price without compromising the probability of bid success.
    Keywords: bank networks,trading,information spillovers,mergers and acquisitions,syndicated lending
    JEL: G11 G15 G21 G24
    Date: 2022
  10. By: Helene Maghin
    Abstract: Does the composition of governance affect firm outcomes? We exploit the timings and thresholds of a gender quota in boards of directors and supervisory boards to causally determine the impact of a change in leadership on performance. Using a novel design and data on boards, we find that firms forced to comply with the 2011 gender quota in France increased their profit margin by 5.4 percent relative to firms with unchanged boards thereby limiting diminishing profitability. We identify a shift in their cost structure away from purchasing of services such as out-sourcing and sub-contracting. In particular, we find evidence that firms change the type and the amount of external short-contract workers they hire. The decision to employ a lower amount of more qualified temporary workers is optimal as the firms’ revenue grows. This in part reflects the importance of using domestic labour outsourcing to flexibly adjust to demand changes. We show that our effects are nearly entirely explained by the first newcomer in the board. The persistence of our estimates provide evidence for its role in updating knowledge. We find that the law is associated with the diversification of boards in terms of gender but also of nationality, age and links with other firms. The added value of within-board and network diversity suggest a sizable opportunity cost of governance homogeneity for performance.
    Date: 2022

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