nep-cfn New Economics Papers
on Corporate Finance
Issue of 2022‒10‒10
fourteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Improving MSMEs’ access to start-up financing in ASEAN countries By Maran, Raluca
  2. The real effects of FinTech lending on SMEs: Evidence from loan applications By Afonso Eca; Miguel A. Ferreira; Melissa Porras Prado; A. Emanuele Rizzo
  3. Debt Overhang, Risk Shifting and Zombie Lending By Nicolas Aragon
  4. Supporting small firms through recessions and recoveries By Diana Bonfim; Cláudia Custódio; Clara Raposo
  5. Liquidity and Investment in General Equilibrium By Nicolas Caramp; Julian Kozlowski; Keisuke Teeple
  6. Technology policy evaluation: The interaction between the financial constraint of firms and level of financial additionality By Sancho-Bosch, Diego; Guerrero, Alex J.; Heijs, Joost
  7. Corporate ownership and concentration By Alejandra Medina; Adriana de la Cruz; Yun Tang
  8. Do IMF Programs Stimulate Private Sector Investment? By Rima Turk-Ariss; Pietro Bomprezzi; Silvia Marchesi
  9. Economic impact of climate change By Claudia Custodio; Miguel A. Ferreira; Emilia Garcia-Appendini; Adrian Lam
  10. Race and Gender in Entrepreneurial Finance By Michael Ewens
  11. The economic costs of financial distress By Claudia Custodio; Miguel A. Ferreira; Emilia Garcia-Appendini
  12. Which entrepreneurs are financially constrained? By Miguel A. Ferreira; Marta C. Lopes; Francisco Queiro; Hugo Reis
  13. Investment and access to external finance in Europe: Does analyst coverage matter? By Sébastien GALANTI; Aurélien LEROY; Anne-Gaël VAUBOURG
  14. The role of board-level committees in corporate governance By Marie-Estelle Rey

  1. By: Maran, Raluca
    Abstract: Lack of access to finance constitutes a major setback to the development of the MSME sector in ASEAN countries. MSMEs are confronted with stringent funding constraints in traditional lending and capital markets, in particular at the early stages of their activity. Demand and supply of capital to MSMEs thus entails more complex issues compared to the larger firms. This paper presents a number of policy actions that have the potential to mitigate the financing challenges faced by MSMEs in ASEAN at the start-up stage by enhancing the potential of alternative funding sources such as business angel investment, crowdfunding, venture capital investment and SME stock markets.
    Keywords: MSMEs; ASEAN; start-up financing; business angels; crowdfunding; venture capital; MSME stock markets; loans and guarantees
    JEL: G32
    Date: 2022–09–02
  2. By: Afonso Eca; Miguel A. Ferreira; Melissa Porras Prado; A. Emanuele Rizzo
    Abstract: We examine the effects of FinTech lending on firm policies using proprietary data on loan applications and loans granted from a peer-to-business platform. We find that FinTech serves high quality and creditworthy small businesses who already have access to bank credit. Firms access FinTech to obtain long-term unsecured loans and reduce their exposure to banks with less liquid assets, stable funds, and capital. We find that firms with access to FinTech loans significantly increase investment, employment, and sales growth relative to firms that get their loan application rejected. We identify these effects by exploiting the number of banks in each municipality as a source of exogenous variation in the probability of obtaining a FinTech loan. Our findings suggest that FinTech allows firms to improve their financial flexibility and reduce bank dependence.
    Keywords: FinTech, SMEs, Small business lending, Lending relationships, Firm growth, Investment, Leverage, Debt structure
    JEL: G21 G23 O33
    Date: 2022
  3. By: Nicolas Aragon (National Bank of Ukraine; Universidad Carlos III de Madrid; Kyiv School of Economics)
    Abstract: After bubbles collapse, banks have often rolled-over debt at subsidized rates to insolvent borrowers or "zombie firms." This paper explores the incentives to restructure debt in a game with risk shifting under debt overhang. We provide conditions under which it is privately optimal to zombielend even when it is socially ineffcient. When a farm becomes insolvent, the firm loses access to competitive funding and its bank can exert monopoly power. The bank prefers to zombie-lend given that owing funds for investment is not profitable due to risk shifting and liquidation entails costs. The model explains the inefficiency of traditional policies in the presence of zombies such as bank recapitalization and monetary policy and highlights the necessity of debt haircuts.
    JEL: G2 G21 G28 G33 G32
    Date: 2022–01
  4. By: Diana Bonfim; Cláudia Custódio; Clara Raposo
    Abstract: We use variation in the access to a government credit certification program to estimate the financial and real effects of supporting small firms. This program has been implemented during the global financial crisis, but has remained active ever since, allowing us to analyze its effects both during recessions and recoveries. Eligible firms have access to government loan guarantees and a credit quality certification. We estimate real effects using a multidimensional regression discontinuity design. We find that eligible firms borrow more and at lower rates than non-eligible firms, allowing them to increase investment and employment during crises. Industry-level analysis shows reduced productivity heterogeneity in more exposed industries, which is consistent with improved credit allocation. However, when the economy is recovering the effects of the program are less pronounced and centered on the certification component.
    Keywords: Small Firms’ Financing, Credit Rating, Credit Certification, Cost of Debt, Investment
    JEL: G38 G30 G01
    Date: 2022–09
  5. By: Nicolas Caramp; Julian Kozlowski; Keisuke Teeple
    Abstract: This paper studies the implications of trading frictions in financial markets for firms' investment and dividend choices and their aggregate consequences. When equity shares trade in frictional asset markets, the firm's problem is time-inconsistent, and it is as if it faces quasi-hyperbolic discounting. The transmission of trading frictions to the real economy crucially depends on the firms' ability to commit. In a calibrated economy without commitment, larger trading frictions imply lower capital and production. In contrast, if firms can commit, trading frictions affect asset prices but have no effect on capital and production. Our findings rationalize several empirical regularities on liquidity and investment.
    Keywords: liquiditiy; investment; Present bias
    JEL: E44 G32 G12
    Date: 2022–09–14
  6. By: Sancho-Bosch, Diego; Guerrero, Alex J.; Heijs, Joost
    Abstract: This study analyses the differentiated effects of the public support for private R&D and innovation considering the financial situation of the firm. Two main questions are analyzed. Firstly, do the firms that have less access to funds for RDI –and therefore could depend more on the public support- get more frequently support? And, secondly, do such firms show a higher level of financial additionality than the firms with less financial restrictions? Despite of the fact that market failures imply basically that firms underinvest in R&D and often lack access to financial markets, only a few papers were detected that analyze the above-mentioned questions and present contradictory non-conclusive results. All of them used only one or two –often dummy- variables as indicator to measure the financial restrictions. Moreover, only four studies analyzed the intermediating role of the financial restriction on the policy impact in terms of the financial additionality and five measures its effect on the degree of participation. The main novelty of this paper is the simultaneous use of a broad set 17 different indicators (reflecting quantitative data on the firm’s liabilities or indebtedness, assets, and liquidity) directly derived from the firms’ balance sheet. These were clustered by a factor analysis in 7 synthetic indicators, which are used in an innovation policy evaluation framework based on the Propensity Score Matching Method. The main findings show that in Spain financial constraints negatively affect the access to public funds. There are significant differences between the level and cost of debt for both probability and financial additionality. Solvency indicators report that solvent firms are negatively discriminated for the likelihood of participation, however we find different effects for the impact depending on the public support that firms receive and their size.
    Keywords: Public policy, innovation, financial constraints, evaluation, financial additionality
    JEL: G32 H25 M48 O38
    Date: 2022–06–03
  7. By: Alejandra Medina (OECD); Adriana de la Cruz (OECD); Yun Tang (OECD)
    Abstract: This working paper documents the trends in the ownership structures of listed companies around the world and the rise in ownership concentration. It identifies three major trends in corporate ownership: the dominance of company group structures, in particular in a number of emerging markets; the growth of state ownership through various state controlled investors; and the re concentration of ownership in the hands of large institutional investors, in particular investors that follow passive index investment strategies. The paper also discusses the implications for corporate governance of corporate ownership by private companies, states and institutional investors in global public equity markets.
    Date: 2022–09–19
  8. By: Rima Turk-Ariss; Pietro Bomprezzi; Silvia Marchesi
    Abstract: This paper provides new evidence on the role of IMF programs in stimulating private sector investments. Using detailed firm-level data on tangible fixed assets and a local projection methodology, we first estimate the dynamic response of firm investments to the approval of an IMF arrangement. We find that distinguishing between GRA and PRGT financing matters for the path of firm investment and its growth, and we also document the presence of two financial channels; the degree of firms’ external financial dependence and firms’ sectoral uncertainty. Exploiting these firm-level characteristics, we employ a difference-in-differences approach to understand the mechanisms through which the approval of an IMF arrangement propagates in the private sector. We find that the more firms rely on external finance and the more they are subject to uncertainty, the less binding these financial frictions become, and hence the more firms invest following a program approval. Finally, using ownership data, we find that private investments are stimulated more for domestic firms. The presence of a private investment transmission channel could help improve our understanding of what factors could affect the success and effectiveness of IMF programs.
    Keywords: IMF; Firm investment; Local Projection; Financial Frictions; Difference-in-Differences; IMF arrangement; IMF working papers; firm investment response; AIPW estimate; program approval; Private investment; Financial statements; Balance of payments need; Sub-Saharan Africa
    Date: 2022–07–29
  9. By: Claudia Custodio; Miguel A. Ferreira; Emilia Garcia-Appendini; Adrian Lam
    Abstract: We estimate the economic impact of climate change by exploiting variation in local temperature across suppliers of the same client. We find that suppliers experiencing a 1°C increase in average daily temperature decrease their sales by 2%. The effect is more pronounced among suppliers in manufacturing and heat-sensitive industries, which is consistent with lower labor productivity and supply when temperatures are higher. Financially constrained suppliers are more affected due to their lack of financial flexibility to adapt to changes in temperatures. We also find that episodes of extremely hot and cold weather lead to large drops in sales.
    Keywords: Climate change, Climate finance, Economic costs, Firm sales, Production networks, Productivity, Financial constraints
    JEL: G31 G32 L11 L14 Q54
    Date: 2022
  10. By: Michael Ewens
    Abstract: Economic frictions pervade the founding, financing, growing, and exiting of high-growth entrepreneurial firms. This article considers one friction that currently affects a small, but important, set of entrepreneurs: racial and gender discrimination. I first collect facts from a large empirical literature that show clear gender and race gaps in participation and financing of startups. Female founders manage 16-25% of all startups, while Black entrepreneurs rarely exceed 3% of the startup population. Conditioning on startups that successfully raise external finance has little impact on these gaps. The complexity of the entrepreneurial process presents several opportunities for discrimination to manifest itself and produce this gap. The article details the major discrimination theories and the empirical methods used to test for their presence. It then provides an extensive review of a growing empirical literature in entrepreneurial finance that tests these models. The pattern of evidence reveals a nuanced and incomplete story about bias, information asymmetry, and differential treatment of underrepresented founders. The article ends with an extensive set of research ideas motivated by the gaps in the entrepreneurship literature and recent developments in theory and measurement of discrimination.
    JEL: G24 J7 L26
    Date: 2022–09
  11. By: Claudia Custodio; Miguel A. Ferreira; Emilia Garcia-Appendini
    Abstract: We estimate the economic costs of financial distress due to lost sales, by exploiting cross-supplier variation in real estate assets and leverage and the timing of real estate shocks. We show that for the same client buying from different suppliers, its purchases from distressed suppliers decline by an additional 10% following a drop in real estate prices. The effect is more pronounced in more competitive industries, manufacturing, durable goods, less-specific goods, and when the costs of switching suppliers are low. Our results suggest that clients reduce their exposure to suppliers in financial distress.
    Keywords: Financial distress, Economic distress, Real estate prices, Supply chain
    JEL: G31 G32 G33 L11 L14
    Date: 2022
  12. By: Miguel A. Ferreira; Marta C. Lopes; Francisco Queiro; Hugo Reis
    Abstract: We study what type of entrepreneurs are a ected by financial constraints by exploiting age-based discontinuities in the amount of funding available through a public program for unemployed workers. Our sample links administrative data on 2.1 million eligible workers to the firms they create, spanning a wide range of skills, sectors and outcomes. We find that access to funding increases the rate of entrepreneurship and that the e ect is stronger for entrepreneurs who incorporate their business, especially for those who were in the top decile of the wage distribution before unemployment. Among incorporated entrepreneurs, the effect is strongest in the information and communication sector, followed by manufacturing. In terms of ex-post outcomes, we find that the effect is more pronounced for businesses in the upper half of the size, growth and profitability distributions. Our findings suggest that financial constraints hamper growth-oriented entrepreneurship.
    Keywords: Entrepreneurship, Unemployment insurance, Financial constraints, Incorporated firms
    JEL: G38 H74 J65 J68 L26
    Date: 2022
  13. By: Sébastien GALANTI; Aurélien LEROY; Anne-Gaël VAUBOURG
    Date: 2022
  14. By: Marie-Estelle Rey (OECD)
    Abstract: This paper presents a review of the different committees set up by the boards of directors of companies to support their functions. It first focuses on the role of and trends in board committees, their contribution to corporate governance and their evolving role in light of the impact of the COVID 19 crisis and emerging issues. It then addresses the functioning, composition and accountability of committees, notably in terms of risk management and sustainability, and their impact on the effectiveness of boards.
    Date: 2022–09–15

This nep-cfn issue is ©2022 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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