nep-cfn New Economics Papers
on Corporate Finance
Issue of 2022‒10‒17
twelve papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Corporate Acquisitions and Bank Relationships By Steven Poelhekke; Razvan Vlahu; Vadym Volosovych
  2. Government Procurement and Access to Credit: Firm Dynamics and Aggregate Implications By Julian di Giovanni; Manuel García-Santana; Priit Jeenas; Enrique Moral-Benito; Josep Pijoan-Mas
  3. The Impact of Public Procurement on Financial Barriers to Green Innovation: Evidence from European Community Innovation Survey By Dorothea Schäfer; Andreas Stephan; Sören Fuhrmeister
  4. Once bitten, twice shy: Failed deals and subsequent M&A cautiousness By Campbell, Robert J.; Limbach, Peter; Reusche, Johannes
  5. The consequences of COVID-19 crisis on firms’ liquidity needs By Chiara Bellucci; Silvia Carta; Sara De Tollis; Federica Di Giacomo; Donato Curto; Fabrizio De Grandis; Paolo Pavone
  6. Explaining the Low Level of Investment in Slovenia By Jože Damijan; Jozef Konings; Črt Kostevc; Katja Zajc Kejžar
  7. Venture Capital for the development of smart cities: the Italian case By Anna Gervasoni; Cristina De Silva; Michele Lertora; Andrea Odille Bosio
  8. Effect of Research and Development on Firm Value: Cross-country Evidence from the Technological Sector By Qadir, Diary
  9. Mavericks, Universal, and Common Owners - The Largest Shareholders of U.S. Public Firms By Amir Amel-Zadeh; Fiona Kasperk; Martin C. Schmalz
  10. Collateral value and entrepreneurship: Evidence from a property tax reform By Miguel A. Ferreira; Joao Pereira dos Santos; Ines Venancio
  11. The Impact of Firm-level Covid Rescue Policies on Productivity Growth and Reallocation By Jozef Konings; Glenn Magerman; Dieter Van Esbroeck
  12. Digitalisation and corporate governance By Carl Magnus Magnusson; Daniel Blume

  1. By: Steven Poelhekke; Razvan Vlahu; Vadym Volosovych
    Abstract: Using a large dataset of firm-bank and ownership information for 23 European countries over 2008-2015, we study the dynamics of bank relationships after corporate acquisitions and the effects of changing banks on firm performance. Foreign acquirers do not rely on internal capital markets but keep targets' domestic banks. With more domestic banks, firms increase fixed capital and trade credit. In contrast, domestic acquirers remove domestic but add foreign banks. The latter mainly help reduce the cost of financing. We further explore firm and bank heterogeneity and confirm cost of financing and information asymmetry as plausible reasons to change banks.Â
    Keywords: Acquisitions; Firm-bank relationships; Firm financing; Operating performance
    JEL: D82 E51 F36 G21 G34
    Date: 2021–09
  2. By: Julian di Giovanni; Manuel García-Santana; Priit Jeenas; Enrique Moral-Benito; Josep Pijoan-Mas
    Abstract: We provide a framework to study how different allocation systems of public procurement contracts affect firm dynamics and long-run macroeconomic outcomes. We start by using a newly created panel dataset of administrative data that merges Spanish credit register loan data, quasi-census firm-level data, and public procurement projects to study firm selection into procurement and the effects of procurement on credit growth and firm growth. We show evidence consistent with the hypotheses that there is selection of large firms into procurement, that procurement contracts provide useful collateral for firms -more so than sales to the private sector- and that procurement contracts facilitate firm growth beyond the contract duration. We next build a model of firm dynamics with both asset-based and earnings-based borrowing constraints and a government that buys goods and services from private sector firms. We use the calibrated model to quantify the long-run macroeconomic consequences of alternative procurement allocation systems. We find that granting procurement contracts to small firms, either by directly targeting them or by slicing large contracts into smaller ones, helps these firms grow and overcome financial constraints in the long run. However, we also find that reducing the average size of contracts |or making it less likely for large firms to access them| removes saving incentives for large firms, whose negative effects on capital accumulation can overcome the expansionary consequences for small firms and hence generate a drop in aggregate output.
    Keywords: Government procurement, financial frictions, capital accumulation, aggregate productivity
    JEL: E22 E23 E62 G32
    Date: 2022–02
  3. By: Dorothea Schäfer; Andreas Stephan; Sören Fuhrmeister
    Abstract: The purpose of this study is to identify whether an innovative company’s likelihood of facing financial constraints is different when the company possesses a public procurement contract (PP). Theory suggests that the treatment effects of public procurement, particularly when mediated by the demand-pull effect, may lower a company’s funding constraints for innovation. We test this theory and apply extended probit models (eprobit) with treatment and selection to control for an omitted variable bias. Our findings indicate that the treatment effect of PP on the likelihood of facing financial constraints is highly significant and positive. The increased prefunding requirements that usually come along with PP may actually overcompensate the possibly constraint-reducing effects from a demand-pull or certification effect of PP. The treatment effect of PP is particularly strong for internal financial constraints backing the notion, that PP increases the need for upfront funding.
    Keywords: Public procurement, green public procurement, financial constraints, green innovation, sustainable finance, small and medium-sized enterprises
    JEL: G30 O16 O31 Q56
    Date: 2022
  4. By: Campbell, Robert J.; Limbach, Peter; Reusche, Johannes
    Abstract: Companies occasionally are unable to finalize publicly announced M&A bids-a phenomenon we refer to as failed deals. Despite their commonality, the implications of failed deals for bidding firms are not well understood. We thus theorize about and empirically investigate the relationship between failed deals and subsequent M&A behavior. In doing so, we present multiple reasons for what we term "the once bitten, twice shy effect," whereby firms act more cautiously in the M&A context following failed deals. In a sample of M&As across North American and European firms, we find empirical support consistent with our theorizing suggesting the cautiousness following failed deals results in a longer time-period between M&A bids, smaller target firm size, and a greater likelihood of advisor usage.
    Keywords: mergers and acquisitions,corporate strategy,failed deals,risk and decision making,M&A activity
    Date: 2022
  5. By: Chiara Bellucci (Ministry of Economy and Finance); Silvia Carta (Ministry of Economy and Finance); Sara De Tollis (Ministry of Economy and Finance); Federica Di Giacomo (Ministry of Economy and Finance); Donato Curto (Soluzioni per il Sistema Economico S.p.A. (Sose)); Fabrizio De Grandis (Soluzioni per il Sistema Economico S.p.A. (Sose)); Paolo Pavone (Soluzioni per il Sistema Economico S.p.A. (Sose))
    Abstract: The economic recession triggered by the Covid-19 pandemic has generated a negative impact on firms’ liquidity needs, induced both by the rigidity of costs and financial commitments and by the drop in sales linked to the restrictions on economic activities imposed during the periods of pandemic propagation. This paper analyzes these effects on the liquidity needs of Italian firms, before and after the government support interventions, focusing on non-financial firms with revenues up to EUR 50 million and with fewer than 250 employees. By constructing a new dataset that integrates information from multiple sources, we show that government measures have strongly contributed to mitigate the effects of the crisis, almost halving the percentage of companies in liquidity crisis at the end of 2020 (from 38.1% to 18.2%) and limiting the liquidity requirements of companies from 83.7 to 26.5 billion. The access to public guarantee schemes on loans would have further reduced the deficit to EUR 18.5 billion. Debt standstills and fixed cost refunds have been very effective in supporting firms, that have actually recorded a liquidity deficit due to pandemic crisis.
    Keywords: COVID-19, Firms, Liquidity
    JEL: H32 G01 G33
    Date: 2022–09
  6. By: Jože Damijan; Jozef Konings; Črt Kostevc; Katja Zajc Kejžar
    Abstract: This report analyses business investment in Slovenia and offers an explanation of why investment was hit more and longer after the global financial crisis relative to other European countries. Using macroeconomic data for all EU countries, Norway and Switzerland we find that Slovenian corporate investment was less responsive to the business cycle after the global financial crisis. In addition, the high deleveraging process in the Slovenian private sector has contributed to the lower investment in Slovenia compared to other European countries. This pattern is confirmed using a sector level approach. Furthermore, using confidential firm level data we find evidence of the granular nature of investment, where the largest Slovenian firms dominate the aggregate investment pattern. These are also the firms with a large debt overhang, which invest less, explaining the aggregate picture.
    JEL: E22 C23 G30 L25 O40 O52
    Date: 2022–07
  7. By: Anna Gervasoni; Cristina De Silva; Michele Lertora; Andrea Odille Bosio
    Abstract: Urban transformation represents an increasingly urgent goal in accelerating the transition towards innovative, sustainable and digital cities to make them more efficient and smarter. An extraordinary availability of public funding is currently mobilized to this effect; however, it is not sufficient to pursue sustainability goals. Since the acceleration of smart city growth requires a huge amount of investment, venture capital could play a key role in launching the smart city of the future. In our research we analyse the role of venture capital as a promoter and accelerator of industrial sectors through the financing of innovative start-ups and funding disruptive technologies, which impact the smart city. Descriptive analysis was conducted based on data collected through venture capital deals carried out in Italy during the period 2015 to 2021, as monitored by 〖VeM〗^TM, selecting specific industries which impact the smart city: digitalization, ecological transition, financial services, healthcare and mobility. The results suggest that there is an overall growth of interest from venture capitalists in investing in the smart city, which makes the market more dynamic and ready to accelerate urban transformation. This represents an impressive trend that may be good groundwork for further growth in the years ahead.
    Date: 2022–09
  8. By: Qadir, Diary
    Abstract: The trend of research and development trend has been dramatically upward over the last few decades. Companies, particularly from the technological sectors, invest huge amount of resources on R&D. It is seen as a key competition factor in the sector. In this project it has three big companies which are Apple and Microsoft, Huawei companies. This project’s aim is comparison between stock price and research and development costs, the method of this project is secondary data in 2011-2021 years then calculation descriptive statistic and regression analysis and correlation and coefficient among those three companies. The result shows Apple and Microsoft Company is higher in stock price and research & development than Huawei Company and significant, and Huawei Company is less than the Apple and Microsoft and Non-significant.
    Keywords: Research and development, firm value, stock price and technological sector
    JEL: G32 O3
    Date: 2022
  9. By: Amir Amel-Zadeh; Fiona Kasperk; Martin C. Schmalz
    Abstract: We construct a novel data set to show that, between 2003-2020, up to one-fifth of America’s largest firms had a non-financial blockholder or insider as their largest shareholder. Blockholders and insiders tend to be less diversified than institutional investors. Measures of “universal” and “common” ownership of firms are therefore lower than previously believed based on analyses of institutional investors’ holdings alone, and the heterogeneity in ownership structures across firms is greater. Consolidation in the asset management industry increases universal ownership and common ownership of industry rivals. Extant results claiming indexing alone explains the rise of universal ownership cannot be confirmed with the new, more comprehensive data.
    Keywords: common ownership, institutional ownership, blockholders, insiders, antitrust, governance
    JEL: G23 G34 L21 L40
    Date: 2022
  10. By: Miguel A. Ferreira; Joao Pereira dos Santos; Ines Venancio
    Abstract: We study the role of property taxes on entrepreneurial activity using a quasi-natural experiment, which unexpectedly reduced the upper bound of the Portuguese property tax rate for urban properties in 2008. Using a diffrence-in-differences approach, we nd that treated municipalities (i.e., municipalities that had a property tax rate above the new upper bound) experienced higher entry rates in the manufacturing sector vis-a-vis control municipalities (i.e., municipalities that had a property tax rate at or below the new upper bound). Taking advantage of rm-level data, we show that start-ups created as a response to the decrease in property taxes in treated municipalities use more debt, invest more, and are more likely to survive.
    Keywords: Entrepreneurship, Property taxes, Savings, Portugal
    JEL: L26 H20 R30
    Date: 2022
  11. By: Jozef Konings (Nazarbayev University, Graduate School of Business, KU Leuven and CEPR); Glenn Magerman (ECARES, ULB and CEPR); Dieter Van Esbroeck (KU Leuven)
    Abstract: We analyze the impact of Covid-19 rescue policies on both firm-level and aggregate productivity growth and reallocation. Using administrative data on the universe of firms' subsidies in Flanders, we estimate the causal impact of these subsidies on firm-level outcomes. Firms that received subsidies saw a 7% increase in productivity, compared to firms that applied for, but did not obtain subsidies. Furthermore, the propensity to exit the market was 43% lower for treated firms. Aggregate productivity growth, a share-weighted sum of firms' productivity evolutions, amounted to 6% in 2020. While within-firm productivity growth was similar for both subsidized and non-subsidized firms, there is a reallocation of market shares from subsidized firms to non-subsidized firms. These results suggest that Covid rescue policies helped firms to sustain and preserve productivity, while not obstructing allocative efficiency gains to non-subsidized firms.
    Keywords: Productivity, productivity growth, aggregate productivity, allocative efficiency
    JEL: D22 D24 O4
    Date: 2022–06
  12. By: Carl Magnus Magnusson (OECD); Daniel Blume (OECD)
    Abstract: This paper addresses the implications of digitalisation on corporate governance. It focuses in particular on the potential for digitalisation to improve market supervision and enforcement of corporate governance related requirements and the efficiency of disclosure; its use for remote and hybrid participation in general shareholder meetings; the implications of digital security risks and the role of the board in their management; and how digitalisation can encourage the development of primary public equity markets.
    Date: 2022–09–19

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