nep-cfn New Economics Papers
on Corporate Finance
Issue of 2022‒09‒19
eight papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. COVID-19 and Corporate Finance By Marco Pagano; Josef Zechner
  2. The Impact of Leverage on the Firm Performance: A Case of Fertilizers Sector of Pakistan By Alim, Wajid; Ali, Amjad; Minhas, Amna Shafiq
  3. Patent collateral and access to debt By Bracht, Felix; Czarnitzki, Dirk
  4. Uncertainty, Shock Prices and Debt Structure: Evidence from the U.S.-China Trade War By Ali K. Ozdagli; Jianlin Wang
  5. Liquidity and credit problems and the effect on the soundness of Tunisian groups (GDA ) By Neily, Oussama; Neily, Mohamed
  6. Investment Cost Specifications Revisited By Mathias Mier; Jacqueline Adelowo
  7. First-to-default and second-to-default options in models with various information flows By Gapeev, Pavel V.; Jeanblanc, Monique
  8. Financial Failure and Depositor Quality: Evidence from Building and Loan Associations in California By Todd Messer

  1. By: Marco Pagano (University of Naples Federico II, CSEF, EIEF, and CEPR.); Josef Zechner (WU Vienna University of Economics and Business, the Vienna Graduate School of Finance (VGSF), and CEPR.)
    Abstract: We distill evidence about the effects of COVID-19 on companies. Stock price reactions to the shock differed greatly across firms, depending on their resilience to social distancing, financial flexibility, and corporate culture. The same characteristics affected the response of firms’ sales, employment, and asset growth. Despite the shock, firms expanded their balance sheets and liquidity by raising funds from banks, bonds, and equity markets. While listed firms reduced their leverage, unlisted ones, especially small and medium enterprises, increased it. Government support programs helped firms access external funding. We conclude by identifying unexplored research issues regarding the long-run effects of COVID-19 on companies.
    Keywords: COVID-19, pandemic, firm resilience, social distancing, financial flexibility, corporate culture, credit supply, leverage, government support, public loan guarantees, Paycheck Protection Program.
    JEL: G11 G12 G13 G21 G24 G28 G32 G33 G35 G38 H81 H84
    Date: 2022–08–09
  2. By: Alim, Wajid; Ali, Amjad; Minhas, Amna Shafiq
    Abstract: The main aim of the study is to investigate the impact of leverage on financial performance. To maximize the wealth of the organization or for the shareholders is critical whereas its effects are due to the financial decision of management related to the optimal level. Moreover, managers use debt to maximize the return of shareholders, and if a high amount of debt is used by the manager of the firm it enhances the financial cost and financial risk as well. Therefore, this study examines the impact of leverage on the performance in the case of the fertilizers sector of the firm in which operating leverage, financial leverage, and combined leverage are included. The study includes the sample size from the annual report of five companies with 25 observations. The data was collected from 2016 to 2020. A descriptive study was used as well regression analysis examined the impact of leverage on profitability. The result showed that a company's leverage has significant results with Return on asset as companies should follow the return on asset for measuring the financial performance. While companies do not show significant relation with Return on Equity. It indicates that the debt ratio increased and it will make the lowest profit for companies. Results show negative relation with operating leverage as well as a positive relation with financial leverage and combine leverage of listed firms in the fertilizer sector of Pakistan.
    Keywords: financial leverage, operating leverage, combined leverage, financial performance
    JEL: D22 L2
    Date: 2022
  3. By: Bracht, Felix; Czarnitzki, Dirk
    Abstract: We investigate how intangible capital in form of intellectual property, such as patents, might mitigate financing constraints. While scholars have already argued that patents might have a signalling value reducing information asymmetries between borrowers and lenders, we quantify the value of using patents as collateral with regard to capital access. Although this mechanism of patents in financing further R&D is not new, we are the first to provide a treatment effects study of patent collateral and access to capital. We make use of mandatory collateral registry data in Sweden and the Netherlands to construct panels combining firm-level financial data and patent measures. Estimating conditional difference-in-difference regressions on firms' debt allows deducting treatment effects of using patents as collateral. We find that patent pledging enables Swedish (Dutch) firms to borrow about 21% (26%) more than in the counterfactual situation in which no patents would have been used as collateral. We also find that the collateral value of patents is higher than their signalling value, and a back-of-the-envelope scenario calculation shows that Dutch (Swedish) firms could raise more than € 7 (€ 10) billion additional debt capital if the complete patent portfolios would be pledged, all else constant.
    Keywords: Financing Constraints,Collateral,Intangible Assets,Patents,Treatment Effects Estimation
    JEL: O30 O34 G31
    Date: 2022
  4. By: Ali K. Ozdagli; Jianlin Wang
    Abstract: Using the recent U.S.-China trade war as a laboratory, we show that policy uncertainty shocks have a significant impact on stock prices. This impact is less negative for firms that heavily rely on bank debt whereas non-bank debt does not have a mitigating effect. Moreover, the mitigating effect of bank debt is concentrated among zombie firms. A zombie firm that derives half of its capital from bank debt has no negative stock price reaction to increased uncertainty. These results are consistent with bank debt providing insurance for zombie firms in bad economic times.
    Keywords: Policy uncertainty; asset prices; debt structure; zombie firms; trade war
    JEL: E44 F13 G12 G20 G30
    Date: 2022–08–19
  5. By: Neily, Oussama; Neily, Mohamed
    Abstract: Many failures in water distribution groups (GDA) have been induced. We will try through this research to explore the main sources of groups fragility. We will use as a sample, 10 commercial groups operating in The Tunisian territory. Our research covers a 10-year study period from 2011-2021. It discusses the relationship between liquidity risk and credit risk as well as the implications for the strength of GDA groups during the same period. Most academic research validates that credit risk and liquidity risk do not have a contemporary or temporally significant reciprocal relationship economically and the idea of the relationship between the two risk categories is positive and can amplify other risk categories.
    Keywords: GDA, drinking water distribution, liquidity and credit problems, solidity, Tunisian groups.
    JEL: G2 G20 G23
    Date: 2022–08
  6. By: Mathias Mier; Jacqueline Adelowo
    Abstract: Policymakers misjudge results of technology-rich optimization models because those models specify investment cost differently and thus are not equally sensitive towards changing financing cost and discount rates. We apply an intertemporally optimizing power market model to analyze three different investment cost specifications. The three specifications lead to a substantially different pace and rate of adoption for specific generation technologies and diverging carbon prices. The first assumes that an investment is financed by equity only, the second one applies a mix of equity and debt, and the third one assumes complete debt financing. The equity specification is completely insensitive towards changing financing cost, fosters early wind power deployment, and finally yields lowest carbon prices. The mixed capital one is extremely sensitive towards changing financing cost and postpones wind power deployment towards later periods. The debt specification is also insensitive towards changing discount rates and in general yields lowest investments and highest carbon prices.
    Keywords: Investment cost, discounting, financing cost, optimization model, power market model
    JEL: C61 C68 Q40 Q41
    Date: 2022
  7. By: Gapeev, Pavel V.; Jeanblanc, Monique
    Abstract: We continue to study a credit risk model of a financial market introduced recently by the authors, in which the dynamics of intensity rates of two default times are described by linear combinations of three independent geometric Brownian motions. The dynamics of two default-free risky asset prices are modeled by two geometric Brownian motions that are not independent of the ones describing the default intensity rates. We obtain closed form expressions for the no-arbitrage prices of some first-to-default and second-to-default European style contingent claims given the reference filtration initially and progressively enlarged by the two successive default times. The accessible default-free reference filtration is generated by the standard Brownian motions driving the model.
    Keywords: successive default times; first-to-default and second-to-default options; geometric Brownian motion; initial and progressive enlargements of filtrations
    JEL: F3 G3
    Date: 2021–08–06
  8. By: Todd Messer
    Abstract: Flightiness, or depositor sensitivity to liquidity needs, can be an important determinant of financial distress. I leverage institutional differences that attract depositors with varying flightiness across building and loan associations in California during the Great Depression. A new type of plan, the Dayton plan, involved less restrictive savings plans and lower withdrawal penalties. Dayton plans in California were more likely to close during the Great Depression. Archival evidence on lending rates and returns supports the flightiness mechanism.
    Keywords: Bank Failures; Banks, credit unions, and other financial institutions; Building and Loan; Great Depression
    JEL: N22 G23 G21
    Date: 2022–08–08

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