nep-cfn New Economics Papers
on Corporate Finance
Issue of 2022‒11‒21
ten papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Corporate governance benefits of mutual fund cooperation By Renjie, Rex Wang; Verwijmeren, Patrick; Xia, Shuo
  2. Corporate sustainability, investment, and capital structure By Michi Nishihara
  3. Bank profitability measurements and its determinants: an empirical study of commercial banks in Iraq By Ghafar, Safeen; Abdullah, Hariem; Haji Rasul, Van
  4. Stayin’ alive? Government support measures in Portugal during the Covid-19 pandemic By Márcio Mateus; Katja Neugebauer
  5. Do Zombies Rise When Interest Rates Fall? A Relationship-Banking Model By Kaehny, Maximilian; Herweg, Fabian
  6. Basel III and SME bank finance in Germany By Marek, Philipp; Stein, Ingrid
  7. Trading away incentives By Colonnello, Stefano; Curatola, Giuliano Antonio; Xia, Shuo
  8. State-business relations and access to external financing By Tkachenko, Andrey
  9. Considerations for the allocation of non-default losses by financial market infrastructures By Daniele Costanzo; Radoslav Raykov
  10. Managing bank liquidity hoarding during uncertain times : The role of board gender diversity By Davydov, Denis; Garanina, Tatiana; Weill, Laurent

  1. By: Renjie, Rex Wang; Verwijmeren, Patrick; Xia, Shuo
    Abstract: Mutual fund families increasingly hold bonds and stocks from the same firm. We study the implications of such dual holdings for corporate governance and firm decision-making. We present evidence that dual ownership allows financially distressed firms to increase investments and to refinance by issuing bonds with lower yields and fewer restrictive covenants. As such, dual ownership reduces shareholder-creditor conflicts, especially when families encourage cooperation among their managers. Overall, our results suggest that mutual fund families internalize the shareholder-creditor agency conflicts of their portfolio companies, highlighting the positive governance externalities of intra-family cooperation.
    Keywords: corporate governance,debt overhang,investment,mutual funds
    JEL: G23 G32 G34
    Date: 2022
  2. By: Michi Nishihara (Graduate School of Economics, Osaka University)
    Abstract: This study develops a real options model in which a firm invests in either a sustainable project or an unsustainable project. The sustainable project requires a high investment cost and yields cash flows perpetually, whereas the unsustainable project requires a low investment cost and yields cash flows until a random maturity. The random termination of cash flows reflects the project fs environmental, social, and governance (ESG) risk. In the model, the optimal investment choice and timing are analytically derived, and the effects of key parameters on the choice are also examined. Higher ESG risk, growth rate, and volatility, and lower discount rate encourage sustainable investing mainly through their impacts on the net present value (NPV) and timing option value. The less sustainable firm chooses higher leverage to enjoy a greater benefit of debt financing. Therefore, access to debt financing and a higher corporate tax rate (tax shield) discourage sustainable investing.
    Keywords: sustainability; ESG; real options; capital structure.
    JEL: G13 G31 G32
    Date: 2022–11
  3. By: Ghafar, Safeen; Abdullah, Hariem; Haji Rasul, Van
    Abstract: The current study is an empirical attempt to measure the profitability of commercial banks in developing countries. It deals with aspects of understanding the impact of a number of firm-specific factors such as liquidity, debt leverage, retained earnings, bank size, growth rate and age of the bank on the profitability of commercial banks in Iraq for the period between 2009 and 2018. The sample study includes a number of commercial banks listed on the Iraq Stock Exchange. Data were collected from banks for the above period and analysed by using the multiple linear regression model and Brinson correlation coefficient using EVIEWS program. The results of the empirical analysis show that liquidity ratio, leverage ratio, retained earnings ratio, bank size and growth rate have a positive impact on the profitability of Iraqi commercial banks, with a negative impact from the age of the bank. The study recommends the necessity of conducting more in-depth studies in the field of profitability determinants, to include other non-financial sectors that have a distinctive position in the economic sectors in the Iraq Stock Exchange, to find out the extent of the variation in the determinants of profitability in the different sectors.
    Keywords: profitability measurement, profitability determinants, commercial banks, internal factors, Iraq.
    JEL: G21 G32 L25
    Date: 2021
  4. By: Márcio Mateus; Katja Neugebauer
    Abstract: During the Covid-19 crisis, the Portuguese government has provided a plethora of different support measures for firms. These included state-guaranteed loans and a public moratorium for existing loans. This paper examines the access to and uptake of these measures. What were the characteristics of firms being granted state-guaranteed loans? Were they different for firms accessing the moratorium? Did state-guaranteed loans potentially lead to an increase in zombie lending? We try to answer these questions using highly granular bank-, firm- and loan-level data for Portugal. We find that guaranteed loans went mostly to firms operating in the sectors most severely hit by the pandemic and to firms that previously had a credit relation and/or benefitted from a state guarantee. Furthermore, the Portuguese public guarantee scheme seems to mainly have supported lower-credit-risk firms. In addition to that, riskier firms also paid higher interest rates and obtained smaller guaranteed loans than more viable firms. However, in contrast to our results for the state guarantees, we find that riskier firms were more likely to benefit from the public moratorium.
    JEL: G21 G30 G38
    Date: 2022
  5. By: Kaehny, Maximilian; Herweg, Fabian
    JEL: D82 D86 G21 G33
    Date: 2022
  6. By: Marek, Philipp; Stein, Ingrid
    Abstract: This paper examines how Basel III capital reforms affected bank lending in Ger- many. We focus on the increase of minimum risk-based capital requirements and the introduction of the leverage ratio. The announcement of stricter risk-based capital regulation significantly affected low capitalized banks. The impact depends on a bank's credit risk model, i.e. whether a bank applies the standardized approach (SA) or an internal ratings-based approach (IRBA) to determine risk weights. Low capitalized SA banks significantly cut lending whereas IRBA banks did not ad- just lending volumes. By contrast, low capitalized IRBA banks significantly in- creased collateralization while low capitalized SA banks adjusted collateralization only marginally. Moreover, the impact on SMEs and large companies also differs. In terms of lending, SMEs were affected more strongly, whilst in terms of collateralization the impact on large companies was bigger. The announcement of the leverage ratio had, however, a rather limited impact. We find some evidence that low capitalized banks reduced lending. Furthermore, low capitalized banks somewhat tightened collateral requirements, especially for large companies.
    Keywords: Basel III,bank lending,nancial regulation,small and medium-sizedenterprises (SMEs)
    JEL: D22 E58 G21
    Date: 2022
  7. By: Colonnello, Stefano; Curatola, Giuliano Antonio; Xia, Shuo
    Abstract: Equity pay has been the primary component of managerial compensation packages at US public firms since the early 1990s. Using a comprehensive sample of top executives from 1992-2020, we estimate to what extent they trade firm equity held in their portfolios to neutralize increments in ownership due to annual equity pay. Executives accommodate ownership increases linked to options awards. Conversely, increases in stock holdings linked to option exercises and restricted stock grants are largely neutralized through comparable sales of unrestricted shares. Variation in stock trading responses across executives hardly appears to respond to diversification motives. From a theoretical standpoint, these results challenge (i) the common, generally implicit assumption that managers cannot undo their incentive packages, (ii) the standard modeling practice of treating different equity pay items homogeneously, and (iii) the often taken for granted crucial role of diversification motives in managers' portfolio choices.
    Keywords: dynamic contracting,equity incentives,executive compensation,hedging,insider trading
    JEL: G32 G34 J33 M12 M52
    Date: 2022
  8. By: Tkachenko, Andrey
    Abstract: Firms' contractual relations with a state may give lenders a positive signal and facilitate access to debt. This paper studies the impact of public procurement contracts on firms' access to debt using an extensive survey of Russian manufacturing firms combined with accounting and procurement data. It shows that earnings from state-to-business contracts increase the short-term debt twice as much as revenue from private contracts. Long-term debt is not affected by public contracts differently compared to private contracts. The debt sensitivity to public contracts is four times larger for politically connected firms, although it is still positive and significant for non-connected and small firms. The paper concludes that political connection does not entirely suppress the beneficial access to debt that public contracts create.
    JEL: G18 G32 H57
    Date: 2022–10–25
  9. By: Daniele Costanzo; Radoslav Raykov
    Abstract: Non-default losses of financial market infrastructures (FMIs) have gained attention due to their potential impacts on FMIs and FMI participants, and the lack of a common approach to address them. A key question is, who should absorb these losses?
    Keywords: Financial markets; Financial system regulation and policies
    JEL: G32 G33 G23 G28
    Date: 2022–11
  10. By: Davydov, Denis; Garanina, Tatiana; Weill, Laurent
    Abstract: This paper examines the effect of executive board gender diversity on the relationship between economic policy uncertainty (EPU) and bank liquidity hoarding (LH). We focus on the Russian banking sector, which, relative to most of the world, has a high share of women on bank executive boards. Using the news-based EPU index developed by Baker, Bloom, and Davis (2016) and LH measures proposed by Berger, Guedhami, Kim, and Li (2022), we exploit a unique dataset from the Russian banking sector. While higher economic policy uncertainty tends to increase liquidity hoarding, we find this effect diminishes as gender diversity of the board increases. We attribute this finding to the moderating influence of gender diversity on stability and overreaction in decision-making. Additionally, we find that the channel through which board gender diversity affects the impact of economic policy uncertainty on liquidity hoarding takes place via the hoarding of liquid assets. Our findings are robust to the use of alternative measures for economic policy uncertainty and gender diversity. As women are still significantly under-represented on bank boards in most countries, these results argue for policies to promote gender diversity of bank boards as a means of limiting detrimental effects of economic policy uncertainty.
    JEL: G18 G21 G34 P26
    Date: 2022–11–02

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