|
on Corporate Finance |
| By: | Bustos, Emil (Research Institute of Industrial Economics (IFN)); Engist, Oliver (Stockholm School of Economics); Martinsson, Gustav (Royal Institute of Technology); Thomann, Christian (Royal Institute of Technology) |
| Abstract: | We study the impact of financing constraints on corporate risk management. Using data on credit scores matched with unique information on firm level commercial insurance purchases, we find that financing constraints lead to higher insurance spending. We adopt a regression discontinuity design and show that financially constrained firms spend 5–14% more on insurance than otherwise similar unconstrained firms. Our findings add new insights to the longstanding empirical puzzle of whether financially constrained firms engage more in risk management. Furthermore, our results shed light on risk management in smaller, mostly private firms. |
| Keywords: | Financing Constraints; Risk Management; Insurance Demand; Credit Scores |
| JEL: | D22 D25 G22 G32 |
| Date: | 2022–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1452&r=cfn |
| By: | Kun Mo; Michel Soudan |
| Abstract: | Distortions in capital markets can create financial constraints that deter firms from pursuing optimal investment plans. This paper explores how much these constraints affect investment by ownership type in China, using a panel data model estimated with observations on listed firms for the period 2005–2017. We find that privately owned enterprises (POEs) in China face greater financial constraints than state-owned enterprises (SOEs), as POE investment plans depend more on the availability of internally generated cash. Correspondingly, we find evidence that Chinese lenders appear less concerned about the credit risk of SOEs, and that an expansion in credit correlates with a disproportionally larger increase in investment for SOEs. |
| Keywords: | Financial markets; Firm dynamics |
| JEL: | E22 G1 G3 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:22-22&r=cfn |
| By: | Julian di Giovanni (Federal Reserve Bank of New York); Manuel García-Santana (Universitat Pompeu Fabra); Priit Jeenas (Universitat Pompeu Fabra); Enrique Moral-Benito (Bank of Spain); Josep Pijoan-Mas (CEMFI, Centro de Estudios Monetarios y Financieros) |
| 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, quasicensus 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 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2022_2203&r=cfn |
| By: | Miglo, Anton |
| Abstract: | In this paper we analyze a firm choice between crowdfunding and bank financing. For many entrepreneurs it is an important issue. We analyze a model where the choice of financing is affected by moral hazard problem regarding the choice of production scale that favors bank financing, and by the uncertainty about market demand that favors crowdfunding. We argue that long crowdfunding campaigns or campaigns with large targets usually are less efficient in mitigating moral hazard problem than small/short campaigns. We also argue that high-quality firms and firms with potentially large markets will tend to select bank financing while projects with largest amount of investment should select mixed financing where the firm uses a short crowdfunding campaign and a bank loan. Most of our model empirical predictions have not been directly tested sofar while they are indirectly consistent with available evidence. |
| Keywords: | crowdfunding, debt financing, moral hazard, reward-based crowdfunding, demand uncertainty |
| JEL: | D82 G32 L26 M13 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:115761&r=cfn |
| By: | Anastasia N. Stepanova (National Research University Higher School of Economics); Polina A. Khmeleva (National Research University Higher School of Economics) |
| Abstract: | This paper investigates the impact of family participation and founder involvement in business on innovation in high-tech companies from the S&P500 index over the period 1999–2017. We demonstrate that the family firm paradox (family firms tend to invest less in innovation while remaining more efficient in innovation output) is not so obvious for technological companies. We conclude that founder involvement and CEO ownership leads to higher R&D expenditures and income margins in the pharma and IT sectors. However, consistent with previous studies of family participation, family ownership and holding the offices of CEO and chairman, has a negative impact on amounts spent on innovation. |
| Keywords: | Family firms, founder, risk-taking, behavioral finance, corporate governance |
| JEL: | G30 G39 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:91/fe/2022&r=cfn |
| By: | Aparicio, Gabriela; Bobicì, Vida; De Olloqui, Fernando; Fernández Díez, María Carmen; Gerardino, María Paula; Mitnik, Oscar A.; Vargas, Sebastián |
| Abstract: | This paper evaluates the effectiveness of easing credit constraints for rural producers in Mexico through loans provided by a national public development finance institution. In contrast to most of the existing literature, the study focuses on the effect of medium-sized loans over a two- to four-year time horizon. This paper looks at the effects of such loans on production and investment decisions, input use, and yields. Using a multiple treatment methodology, it explores the differential impacts of providing liquidity for working capital versus providing credit for investments in fixed assets. It finds that loans increased the likelihood that producers grow and sell certain key annual crops, in particular among recipients of working capital loans. It also finds significant effects on production value and sales (per hectare), with similar impacts for recipients of both types of loans, with gains in yields driven by changes in labor quality and more intensive use of key inputs. There is no evidence of significant effects on the purchase of large machinery, but there are impacts on the acquisition of cattle. Overall, the results reported in this paper suggest that lack of liquidity is at least as important as lack of funding for new investment in capital for rural producers in Mexico. Producers benefit from easing their credit constraints, regardless of the type of loan used for that purpose. |
| Keywords: | agricultural finance;credit constraints;development finance institutions;investmentcapital;working capital |
| JEL: | O13 G21 O16 Q14 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:11332&r=cfn |
| By: | Sam Njinyah (Manchester Metropolitan University, UK); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | The purpose of this paper is to examine the relationship between a firm starting operation informally and its future innovation and whether this relation is moderated by institutional support (having access to finance from financial institutions to run their business). Data from the World Bank Enterprise Survey on 30 Eastern European and South-East Asian countries were analysed using probit regression analysis. The findings show that there is a positive significant relationship between firms that start operations informally and the firms’ innovation and that such effect persists over time. We found that this relationship is stronger if the firms can gain access to finance to expand their business activities. Finally, our result shows that such a relationship is based on the type of innovation being pursued by the firm. By examining the moderation effect of access to finance on starting a business informally, we provide an alternative explanation to policymakers on how to deal with informal firms to benefit from their contribution to growth. |
| Keywords: | Informality/unregistered firms, Innovation, Institutions, and Eastern European and South East Asia |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:22/099&r=cfn |
| By: | Forcadell, Francisco Javier; Lorena, Antonio; Aracil, Elisa |
| Abstract: | Since stakeholders cannot directly observe corporate social responsibility (CSR) efforts, companies attempt to back up their increasing sustainability claims by sending CSR signals. The environment in which signaling takes place influences the credibility of the signals. Among the factors that make up the signaling environment, the overall exposure of the company to different stakeholders (i.e., stakeholder scrutiny) has been neglected by the literature. Using signaling and stakeholder theories, we argue how stakeholder scrutiny shapes CSR signals' credibility. We empirically analyze a sample of 5762 firms across several sectors from 23 developed countries from 2013 to 2017. Stakeholder scrutiny exercises a positive effect on the credibility of CSR signals through a mediated-moderated impact of CSR (across environmental, social, and governance dimensions) on firm performance. |
| Keywords: | corporate financial performance; corporate social responsibility; ESG; signaling theory; stakeholder engagement; stakeholder theory |
| JEL: | J50 |
| Date: | 2022–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:117536&r=cfn |
| By: | Ralph de Haas (CEPR - Center for Economic Policy Research - CEPR); Sergei Guriev (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR); Alexander Stepanov |
| Abstract: | Does state ownership hinder or help rms access credit? We use data on almost 4 million rms in 89 countries to study the relationship between state ownership and corporate leverage. Controlling for country-sector-year xed eects and conventional rm-level determinants of leverage, we show that state ownership is robustly and negatively related to corporate leverage. This relationship holds across most of the rm-size distributionwith the important exception of the largest companiesand is stronger in countries with weak political and legal institutions. A panel data analysis of privatized rms and a comparison of privatized with matched control rms yield similar qualitative and quantitative eects of state ownership on leverage. |
| Keywords: | State ownership privatization corporate debt state banks, State ownership, privatization, corporate debt, state banks |
| Date: | 2022–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03878686&r=cfn |
| By: | Chetty, V. K. (Boston University); Heckman, James J. (University of Chicago) |
| Abstract: | This paper considers the consequences of a two-sector vertically-integrated model of firms producing output using firm-specific capital with a second sector producing firm-specific capital by adapting raw capital purchased in the market. Analysts rarely observe each sector separately. Aggregating over both sectors produces short-run and long-run factor demand functions that appear to be perverse, but when disaggregated obey standard neoclassical properties. Adjustment costs create the appearance of static inefficiency in the presence of dynamic efficiency. |
| Keywords: | adjustment costs, factor demand, frontier production theory, firm-specific capital |
| JEL: | D21 L11 E13 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15744&r=cfn |