nep-cfn New Economics Papers
on Corporate Finance
Issue of 2022‒11‒28
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Do personal taxes affect investment decisions and stock returns? By Kontoghiorghes, Alex
  2. Information Asymmetry, External Certification, and the Cost of Bank Debt By Andrea Bellucci; Alexander Borisov; Germana Giombini; Alberto Zazzaro
  3. Financial Intermediation and the Funding of Biomedical Innovation: A Review By Andrew W. Lo; Richard T. Thakor
  4. Cross Ownership, Loan Commitment, Managerial Delegation and the “Prisoner’s Dilemma” By Ma, Jie; Wang, Leonard F.S.; Sun, Ji
  5. Lifting Women Up: Gender Quotas and the Advancement of Women on Corporate Boards By Alexandra Fedorets; Anna Gibert
  6. What is productive investment? Insights from firm-level data for the United Kingdom By Karmakar, Sudipto; Melolinna, Marko; Schnattinger, Philip
  7. Trade secret protection and R&D investment of family firms By Hussingera, Katrin; Issahd, Wunnam

  1. By: Kontoghiorghes, Alex (Bank of England)
    Abstract: This paper studies the causal effects of personal investment taxes on stock demand, stock returns, and the financial decisions of companies. I exploit a change in legislation in 2013 which allowed stocks listed on the Alternative Investment Market, a sub-market of the London Stock Exchange, to be held in a capital gains and dividend tax-exempt investment account for the first time. Using a difference-in-differences approach, I find that stock demand temporarily doubled, long-run stock returns decreased by 2 percentage points per month, dividend payments increased by 29%, and that the capital structure and shareholder composition permanently changed post-legislation.
    Keywords: Personal investment taxes; tax capitalisation; dividend policy; capital structure
    JEL: G11 G12 G18 G32 G35 H24
    Date: 2022–07–21
  2. By: Andrea Bellucci (Universita' degli Studi dell'Insubria and MoFiR); Alexander Borisov (Lindner College of Business, University of Cincinnati and MoFiR); Germana Giombini (Department of Economics, Society and Politics, University of Urbino Carlo Bo and MoFiR); Alberto Zazzaro (Department of Economics and Statistics, University of Naples Federico II, CSEF, and MoFiR)
    Abstract: This paper examines how the cost of bank debt reflects public information about borrower quality, and whether such information complements or substitutes the private information of banks. Using a sample of small business loans, and the award of a competitive public subsidy as an observable positive signal of external certification, we find that a certification is associated with a lower cost of debt for the recipients if the amount of private information of the lender is low. As the bank accumulates more information over the course of the lending relationship with a borrower, public information loses importance and no longer has a significant effect. Our results highlight a potential positive effect of external certification, and suggest that public and private information can be substitutes in the pricing of bank debt.
    Keywords: Information, Financial Contracting, Interest rate, SMEs Financing
    JEL: D83 D21 G21 G30 L11
    Date: 2022–11
  3. By: Andrew W. Lo; Richard T. Thakor
    Abstract: We review the literature on financial intermediation in the process by which new medical therapeutics are financed, developed, and delivered. We discuss the contributing factors that lead to a key finding in the literature—underinvestment in biomedical R&D—and focus on the role that banks and other intermediaries can play in financing biomedical R&D and potentially closing this funding gap. We conclude with a discussion of the role of financial intermediation in the delivery of healthcare to patients.
    JEL: D21 G21 G24 G31 G32 L65
    Date: 2022–10
  4. By: Ma, Jie; Wang, Leonard F.S.; Sun, Ji
    Abstract: This paper investigates the relationship between cross ownership, sales delegation and loan commitment. We find that under sales delegation, a higher degree of cross ownership decreases the optimal bank loan interest rate, which is beneficial to the firm profits. However, cross ownership reduces the firm output, leading a lower consumer surplus and social welfare. The policy implication is that antitrust authority and banking regulatory bureau should “coordinate” policies to mitigate the concerned stakeholders’ conflicts.
    Keywords: Cross ownership; Sales delegation; Loan commitment
    JEL: G32 G34 J53 L21
    Date: 2022–07–25
  5. By: Alexandra Fedorets; Anna Gibert
    Abstract: The introduction of gender quotas on corporate boards may be a shock to the status-quo that produces externalities to the advancement of women in the company. In this paper, we investigate whether boardroom quotas contribute to lift more women further up the corporate ladder and to a wider range of positions. We use a legislative change in Germany as a natural experiment. Quotas increase female representation on the affected board but may have a negative impact on executive careers for women. They also fail short of eliminating the glass ceiling and do not level the playfield across women insiders and outsiders. Quotas can not be tasked with achieving gender equality in corporations on their own.
    Keywords: gender quota, boards of directors, Corporate Governance, female leadership
    JEL: J16 G32 G34 M14
    Date: 2022–11
  6. By: Karmakar, Sudipto (Bank of England); Melolinna, Marko (Bank of England); Schnattinger, Philip (Bank of England)
    Abstract: This paper studies the effects of different types of investment and levels of debt on productivity in the UK, using firm-level data. We set out a stylised model of a dynamic firm profit-maximisation problem, and augment this model with an external financing option in a novel way. We use the model to illustrate why productivity-enhancing investment differs from other uses of company funds in terms of its effects on total factor productivity (TFP), and how these positive effects can be stronger for firms that have higher indebtedness. We then examine the issue empirically with data on listed firms in the UK. Our main finding is that intangibles investment are a good proxy for productivity-enhancing investment, as they have a positive effect on TFP, and in those firms that have high debt and high levels of intangibles, these effects are even more pronounced. On the other hand, we find no consistent evidence of positive TFP effects for other uses of funds, like tangible capital expenditure or dividends and equity buybacks. The effects of debt on TFP are smaller and more tenuous, but we find no evidence of a negative TFP effect of debt in firms that have high levels of intangibles intensity.
    Keywords: Dynamic programming; firm-level productivity; intangible assets; panel regression
    JEL: C61 D22 D24 O30
    Date: 2022–07–15
  7. By: Hussingera, Katrin; Issahd, Wunnam
    Abstract: Family firms are known for their reluctance to invest in research and development. We show that strengthened trade secret protection is associated with higher R&D investment by family firms. More specifically, we show that the association between the strength of trade secret protection through the U.S. Uniform Trade Secrets Act and R&D investment is positively moderated by family control. Our results further show that the positive moderation of family control on the association between the strength of trade secret protection and R&D investment varies with the industry context, being stronger in high tech industries and weaker in discrete product industries.
    Keywords: Family firms,intellectual property protection,trade secret protection,UTSA,R&Dinvestment,socioemotional wealth
    JEL: O34 O32 G32 M14
    Date: 2022

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