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on Corporate Finance |
| By: | Ralph De Haas; Martin, Ralf; Muûls, Mirabelle; Schweiger, Helena |
| Abstract: | We use data on 11,233 firms across 22 emerging markets to analyze how credit constraints and low-quality firm management inhibit corporate investment in green technologies. For identification we exploit quasi-exogenous variation in local credit conditions and in exposure to weather shocks. Our results suggest that both financial frictions and managerial constraints slow down firm investment in more energy efficient and less polluting technologies. Complementary analysis of data from the European Pollutant Release and Transfer Register (E-PRTR) corroborates some of this evidence by revealing that in areas where banks deleveraged more after the global financial crisis, industrial facilities reduced their carbon emissions by less. On aggregate this kept local emissions 15% above the level they would have been in the absence of financial frictions. |
| Keywords: | Financial frictions,management practices,CO2 emissions,energy efficiency |
| JEL: | D22 L23 G32 L20 Q52 Q53 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofitp:bdp2021_006&r=cfn |
| By: | Ganau, Roberto; Rodríguez-Pose, Andrés |
| Abstract: | We analyse the investment-to-cash flow relationship in Europe using a sample of manufacturing small- and medium-sized enterprises (SME) over the period 2009–2016. We investigate the effect of regional institutional quality on the investment-to-cash flow sensitivity, finding that, although credit constraints remain a serious problem for European SMEs, high-quality regional institutions contribute to mitigate the dependency on internally-generated resources to finance new investments. Improvements in local institutional quality can therefore facilitate SMEs’ access to credit–e.g. through inter-firm trade credit relationships –, but are insufficient to overcome the credit restrictions faced by European SMEs. |
| Keywords: | credit constraints; small- and medium-sized firms; manufacturing industry; institutional quality; Europe |
| JEL: | C23 R50 |
| Date: | 2022–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112487&r=cfn |
| By: | Kang, Shulong; Dong, Jianfeng; Yu, Haiyue; Cao, Jin; Dinger, Valeriya |
| Abstract: | This paper investigates how government-led banking liberalization affects credit allocation by banks using as a quasi-natural experiment the establishment of city commercial banks (CCBs) in China. Based on more than three million corporate financial statements spanning over 16 years, we find that the establishment of CCBs led to a 6-14 % drop in debt funding for private firms, as well as a 1-2 % rise in their funding costs. At the same time, private infrastructure firms enjoyed a nearly 6 % increase in debt funding and more than 100-basis-point drop in interest costs despite their inferior credit quality. The debt financing of private firm appears most severely affected in municipalities where officials face high promotional pressures or fiscal constraints. |
| Keywords: | banking liberalization,city commercial banks,bank lending,credit allocation,political economy in banking |
| JEL: | D7 G21 G32 G38 P2 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofitp:bdp2021_004&r=cfn |
| By: | Masanori Orihara (University of Tsukuba); Yoshiaki Ogura (Waseda University); Yue Cai (Gakushuin University) |
| Abstract: | We find firms which successfully obtained a bank loan in a crisis reduced their cash holdings post-crisis, using Japanese data from the 2008 financial crisis. Firms received loans primarily from non-main banks. This substitution between borrowing and cash holdings applies to firms with an executive who had served as a CEO or financial officer in the crisis. This resulted in a substantial reduction in borrowing costs after the crisis. These findings are consistent with theories of relationship banking that managerial confidence in the availability of non-main bank loans reduces their precautionary cash holdings both to address a liquidity shortage and to mitigate a hold-up by their main bank. We also find that, in the post-crisis period, firms that obtained bank loans during the crisis spent more (over time and in comparison to other firms) on equity investments in their affiliates as well as on R&D among firms with pre-crisis R&D expenses. |
| Keywords: | Financial Crisis; Cash Holdings; Relationship Banking; Hold-up Problem; Bank Consolidation |
| JEL: | G21 G31 G32 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:wap:wpaper:2207&r=cfn |
| By: | Alon Brav; Nadya Malenko; Andrey Malenko |
| Abstract: | Passively managed funds have grown to become some of the largest shareholders in publicly traded companies, but there is considerable debate about the effects of this growth on corporate governance. The goal of this paper is to review the literature on the governance implications of passive fund growth and discuss directions for future research. In particular, we present a framework to understand the incentives of passive and actively managed funds to engage in governance, review the empirical evidence in the context of this framework, and highlight the questions that remain unanswered. |
| JEL: | G23 G32 G34 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30718&r=cfn |
| 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 ftrms' access to debt using an extensive survey of Russian manufacturing ftrms 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 ftrms, although it is still positive and signiftcant for non-connected and small ftrms. The paper concludes that political connection does not entirely suppress the beneftcial access to debt that public contracts create. |
| Keywords: | public procurement,political connection,leverage,short-term debt,long-term debt,capital structure,Russia |
| JEL: | G18 G32 H57 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofitp:bdp2022_010&r=cfn |
| By: | Murillo Campello; Gaurav Kankanhalli |
| Abstract: | Uncertainty over future business conditions lies at the heart of firm decision-making. Uncertainty can arise from a myriad of sources and is difficult to measure. We present a simple conceptual framework showing how several key corporate decisions are affected by uncertainty. We also highlight recent advances in the measurement of uncertainty, distinguishing between approaches that gauge aggregate uncertainty and those that capture different dimensions of firm-specific uncertainty. These approaches incorporate information obtained from market prices, big data, machine learning techniques, surveys, and more. We then review the growing body of empirical work that studies the role played by uncertainty in shaping outcomes ranging across corporate investment, asset base composition, innovation, liquidity management, payouts, and mergers. Our review outlines several opportunities for future research. |
| JEL: | G31 G32 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30733&r=cfn |
| By: | Edward I. Altman; Marco Balzano; Alessandro Giannozzi; Stjepan Srhoj |
| Abstract: | SME default prediction is a long-standing issue in the finance and management literature. Proper estimates of the SME risk of failure can support policymakers in implementing restructuring policies, rating agencies and credit analytics firms in assessing creditworthiness, public and private investors in allocating funds, entrepreneurs in accessing funds, and managers in developing effective strategies. Drawing on the extant management literature, we argue that introducing management- and employee-related variables into SME prediction models can improve their predictive power. To test our hypotheses, we use a unique sample of SMEs and propose a novel and more accurate predictor of SME default, the Omega Score, developed by the Least Absolute Shortage and Shrinkage Operator (LASSO). Results were further confirmed through other machine-learning techniques. Beyond traditional financial ratios and payment behavior variables, our findings show that the incorporation of change in management, employee turnover, and mean employee tenure significantly improve the model’s predictive accuracy. |
| Keywords: | Default prediction modeling; small and medium-sized enterprises; machine learning techniques; LASSO; logit regression |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2022-19&r=cfn |
| By: | Pierfederico Asdrubali; Issam Hallak; Péter Harasztosi |
| Abstract: | In this paper we provide estimates of financial constraints in all EU sectors. Our empirical strategy consists in using the Orbis firm-level dataset to construct financial constraint measures for each of the firms in our sample, and then aggregate the results either by NACE code, or by business similarity. We use two main – somewhat complementary – financial constraint indices proposed by Ferrando et al (2015), and then submit them to a battery of robustness tests, including the alternative financial constraints estimators developed by Kaplan and Zingales (1997), Whited and Wu (2006), and Hadlock and Pierce (2010). We also establish correlations between a sector’s degree of financial constraints and other sectoral characteristics, such as firm size, TFP, capital intensity, and innovativeness. Among the 10 Target Sub-sectors identified as vulnerable a priori to financial constraints, smaller firms in Marine Fishing and larger firms in Urban Regeneration and Agricultural SMEs stand out as financially constrained by one of our measures. Larger firms in Urban Regeneration even appear in the top ten financially constrained 2-digit NACE sectors (Divisions). When ranking the 88 Target Sectors, NACE Divisions in mining, sports, transports and media and cultural services stand out as particularly financially constrained. A possible explanation is that activities like mining and sports do not belong to public goods typically supported by public grants – or at least not enough in proportion to the massive investments required. As for media and cultural services, these activities suffer from the “curse of intangibles” – the limited access to finance due to the difficulty of valuing the activities and the underlying assets. More generally, tighter sectoral financial constraints tend to be associated with a lower firm size, a capital intensity much higher than average, and a total factor productivity lower than average. Another policyrelevant finding is that different factors for financial constraints apply to different industries: servicesdriven industries are affected by different financially constraining factors than manufacturing or resource extraction related industries. Finally, an unweighted averaging of our measures across countries brings up partially different results than the standard weighted averaging, thus showing that smaller countries may suffer from financial constraints drivers different from larger countries. |
| JEL: | G32 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:173&r=cfn |
| By: | Panagiotis Karavitis; Pantelis Kazakis; Tianyue Xu |
| Abstract: | We ask whether CFO's managerial skills affect corporate tax avoidance using a sample of Chinese-listed companies. To that end, we develop a CFO managerial skills index based on four dimensions of the CFO's work experience: (1) the number of current positions a CFO holds, (2) the number of functional departments a CFO has worked in during his career, (3) the number of firms he has worked for, and (4) whether the CFO has political connections. We find that CFOs with high managerial skills are more likely to engage in aggressive tax avoidance. This effect is weakened when CFOs are in their first year of employment, approaching retirement, and are too busy. Moreover, we find that CFOs with general management skills are more likely to adjust corporate tax avoidance to levels similar to their peers. |
| Keywords: | Chief Financial Officer (CFO); work experience; managerial skills; tax avoidance |
| JEL: | G30 H26 J24 M41 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2022_14&r=cfn |
| By: | Laura Bonacorsi; Vittoria Cerasi; Paola Galfrascoli; Matteo Manera |
| Abstract: | We study the relationship between the risk of default and Environmental, Social and Governance (ESG) factors using Machine Learning (ML) techniques on a cross-section of European listed companies. Our proxy for credit risk is the z-score originally proposed by Altman (1968).We consider an extensive number of ESG raw factors sourced from the rating provider MSCI as potential explanatory variables. In a first stage we show, using different SML methods such as LASSO and Random Forest, that a selection of ESG factors, in addition to the usual accounting ratios, helps explaining a firm’s probability of default. In a second stage, we measure the impact of the selected variables on the risk of default. Our approach provides a novel perspective to understand which environmental, social responsibility and governance characteristics may reinforce the credit score of individual companies. |
| Keywords: | credit risk, z-scores, ESG factors, Machine learning. |
| JEL: | C5 D4 G3 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:507&r=cfn |
| By: | Erel, Isil (Ohio State University and ECGI, Brussels); Jang, Yeejin (UNSW Sydney); Weisbach, Michael S. (Ohio State University and ECGI, Brussels) |
| Abstract: | One of the most consequential events in any firm’s lifetime is a major acquisition. Because of their importance, mergers and acquisitions (M&As) have been an enormous area of research. However, the vast majority of this research and survey papers summarizing this research have focused on domestic deals. Cross-border ones, however, constitute about 30% of the total number and 37% of the total volume of M&As around the world since the early 1990s. We survey the literature on cross-border M&As, focusing on international factors that can lead firms to acquire a firm in another country. Such factors include differences in economic development, laws, institutions, culture, labor rights, protection of intellectual property, taxes, and corporate governance. |
| JEL: | F00 G32 G34 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2022-11&r=cfn |
| By: | Laura Bonacorsi (Department of Social and Political Sciences, Bocconi University); Vittoria Cerasi (Italian Court of Auditors and CefES & O-Fire, University of Milano-Bicocca); Paola Galfrascoli (Department of Economics, Management and Statistics and CefES & O-Fire, University of Milano-Bicocca); Matteo Manera (Department of Economics, Management and Statistics, University of Milano-Bicocca and Fondazione Eni Enrico Mattei) |
| Abstract: | We study the relationship between the risk of default and Environmental, Social and Governance (ESG) factors using Supervised Machine Learning (SML) techniques on a cross-section of European listed companies. Our proxy for credit risk is the z-score originally proposed by Altman (1968). We consider an extensive number of ESG raw factors sourced from the rating provider MSCI as potential explanatory variables. In a first stage we show, using different SML methods such as LASSO and Random Forest, that a selection of ESG factors, in addition to the usual accounting ratios, helps explaining a firm’s probability of default. In a second stage, we measure the impact of the selected variables on the risk of default. Our approach provides a novel perspective to understand which environmental, social responsibility and governance characteristics may reinforce the credit score of individual companies. |
| Keywords: | Credit risk, Z-scores, ESG factors, Machine learning |
| JEL: | C5 D4 G3 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2022.36&r=cfn |
| By: | Pablo Gutierrez Cubillos (University of Chile) |
| Abstract: | We assess firms’ taxable income response to a dividend tax credit increase whencorporate and personal taxes are integrated. First, we theoretically show that, in anintegrated tax system, welfare changes stemming from a rise in corporate taxes dependon two parameters: the elasticity of taxable income with respect to the corporate taxrate and with respect to the dividend tax credit. Second, to estimate both parameters, we propose an identification strategy that relies on the bunching methodology and theexcess bunching difference before and after a tax reform that increased the dividendtax credit. Using Canadian administrative tax data and the presence of a kink inthe corporate tax system, we estimate these elasticities and empirically show that theincrease in the dividend tax credit reduced the deadweight loss associated with anincrease in the corporate tax by more than 50%. Our results are robust to a battery ofrobustness checks, including nonparametric estimates of the counterfactual densityin the bunching procedure. |
| Keywords: | Bunching Estimation, Corporate taxation, Dividend taxation, Elasticity of taxable income, Small business, Tax integration |
| JEL: | H25 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2022-630&r=cfn |