nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒01‒23
twelve papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Theories of Financing for Entrepreneurial Firms: A Review By Miglo, Anton
  2. Optimal Capital structure and financial stability By Firano, Zakaria; Filali adib, Fatine
  3. Quantifying Reduced-Form Evidence on Collateral Constraints By Sylvain Catherine; Thomas Chaney; Zongbo Huang; David Sraer; David Thesmar
  4. The Role of Location in the Emergence of Crowdfunding By Miglo, Anton
  5. Voluntary Equity, Project Risk, and Capital Requirements By Haufler, Andreas; Lülfesmann, Christoph
  6. On the determinants of corporate default in the EU-27: Evidence from a large sample of companies By FATICA Serena; OLIVIERO Tommaso; RANCAN Michela
  7. Common Ownership, Competition, and Top Management Incentives By Miguel Anton; Florian Ederer; Mireia Gine; Martin C. Schmalz
  8. Corporate Social Responsibility By Harrison Hong; Edward P. Shore
  9. Institutional theory of financial inclusion By Ozili, Peterson K
  10. Profitability, Productivity and Growth By Marek Ignaszak; Petr Sedlacek
  11. Judge Bias in Labor Courts and Firm Performance By Pierre Cahuc; Stéphane Carcillo; Bérangère Patault; Flavien Moreau
  12. Differential corporate taxation and inter-asset investment distortions in South Africa By Mashekwa Maboshe; Matthew Stern; Yash Ramkolowan

  1. By: Miglo, Anton
    Abstract: This article provides an overview of literature related to capital structure theories for entrepreneurial firms. It identifies gaps and controversial areas in existing literature and also discusses potential directions for future research. Credit rationing, signalling by risk-bearing, the learning market demand idea, and the flexibility theory of capital structure are consistent with many patterns of financing of entrepreneurial firms. Credit rationing is the dominant area of research. Several directions have emerged that need answers such as for example which channel of credit rationing represents its main driving force. More empirical research is expected in signalling by risk-bearing. More theoretical and empirical research is expected regarding learning market demand and flexibility ideas. Pecking-order theory and trade-off theory play a significant role in large corporations but not so much in SMEs. More research is required investigating modified versions of each theory.
    Keywords: entrepreneurial finance, small business financing, capital structure, credit rationing, signalling by risk-bearing, flexibility theory, learning market demand
    JEL: G30 G32 L26 M13 M21
    Date: 2022
  2. By: Firano, Zakaria; Filali adib, Fatine
    Abstract: This paper attempts to answer the fundamental question of the choice of capital structure. The financial structure in Morocco raises several questions about the behaviour of firms, especially in relation to the banking system and the financial market. We tried to determine the factors that explain the choice of financial structure. In addition to the traditional known factors, we were able to introduce the effects of financial stability on the financial structure. The results obtained affirm that Moroccan companies are in a hierarchical conception of the choice of financing and they prefer the use of internal financing with a particularity where companies with long experience are less and less attracted by external financing. In addition, financial stability significantly affects the choice of financing method. Indeed, when the financial system is stable, companies prefer to use external financing, which results in over-indebtedness that negatively affects the stability of the Moroccan financial system in a second rank. We generalize this theoretical conception to assert that the degree of financial stability can have effects on the choice of the financial structure of companies.
    Keywords: financial structure; banking system; pecking order; financial stability
    JEL: G2 G3
    Date: 2022
  3. By: Sylvain Catherine (University of Pennsylvania [Philadelphia]); Thomas Chaney (USC - University of Southern California, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR); Zongbo Huang (The Chinese University of Hong Kong [Hong Kong], Shenzhen University [Shenzhen]); David Sraer (UC Berkeley - University of California [Berkeley] - UC - University of California, CEPR - Center for Economic Policy Research - CEPR, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research); David Thesmar (MIT - Massachusetts Institute of Technology, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research, CEPR - Center for Economic Policy Research - CEPR)
    Abstract: This paper quantifies the aggregate effects of financing constraints. We start from a standard dynamic investment model with collateral constraints. In contrast to the existing quantitative literature, our estimation does not target the mean leverage ratio to identify the scope of financing frictions. Instead, we use a reduced-form coefficient from the recent corporate finance literature that connects exogenous debt capacity shocks to corporate investment. Relative to a frictionless benchmark, collateral constraints induce losses of 7.1% for output and 1.4% for total factor productivity (TFP) (misallocation). We show these estimated losses tend to be more robust to misspecification than estimates obtained by targeting leverage.
    Date: 2022–08
  4. By: Miglo, Anton
    Abstract: Crowdfunding is an innovative and fastly growing way of financing for entrepreneurial firms. England is the leading country in crowdfunding. Yet no research exists that compare different cities of UK with regard to the conditions of crowdfunding emergence. In this article we shed some light on this question. We have found that cities with better access to ultrafast broadband among households and cities with greater number of people with higher education have significantly better results in crowdfunding. Further we find that entrepreneurs in these cities select lower crowdfunding targets and are more likely to publish a spotlight about their ideas suggesting that entrepreneurs in these cities understand the importance of imperfect information and signalling (direct and indirect) in crowdfunding. We also discuss these findings in light of crowdfunding theories.
    Keywords: crowdfunding, reward-based crowdfunding, crowdfunding in technology sector, digital entrepreneurship, information asymmetry, signalling, factors of crowdfunding success, campaign target
    JEL: G32 L26 M21
    Date: 2022
  5. By: Haufler, Andreas (LMU Munich); Lülfesmann, Christoph (Simon Fraser University)
    Abstract: We introduce a model of the banking sector that formally incorporates a buffer function of capital. Heterogeneous banks choose their portfolio risk, bank size, and capital holdings. Banks voluntarily hold equity when the buffer effect against the risk of default outweighs the cost advantages of debt financing. In this setting, banks with lower monitoring costs are larger, choose riskier portfolios, and have less equity. Moreover, binding capital requirements or levies on bank borrowing are shown to make higher-risk portfolios more attractive. Accounting for banks' interior capital choices can thus explain why higher capital ratios incentivize banks to undertake riskier projects.
    Keywords: voluntary equity; capital requirements; bank heterogeneity;
    JEL: G28 G38 H32
    Date: 2022–12–27
  6. By: FATICA Serena (European Commission - JRC); OLIVIERO Tommaso; RANCAN Michela
    Abstract: We analyze a large sample of companies operating in the EU-27 in the period 2007-2018 to gain new insights on the determinants of corporate defaults. The sample includes micro, small, medium and large enterprises, both active and defaulting. We document significant differences in the drivers of insolvency across firm size categories. Micro and small firms are significantly more vulnerable to sectoral shocks and to disruptions along the supply chain than larger companies. Instead, the default probability for all firms is significantly larger when companies experience in the previous year negative end-of-the year equity, that is a measure of prolonged financial distress. By exploiting institutional differences in judicial efficiency among EU-27 countries, we find financial distress is more likely to predict default in jurisdictions with more efficient insolvency procedures. Finally, we derive potential implications of our findings, especially with regard to the recent crises hitting European firms and the harmonisation of national insolvency regimes in the EU-27 towards most efficient legal practices, as foreseen under the Capital Markets Union Action Plan.
    Keywords: bankruptcy, financial distress, SMEs, EU-27, judicial efficiency
    Date: 2022–12
  7. By: Miguel Anton; Florian Ederer; Mireia Gine; Martin C. Schmalz
    Abstract: We present a mechanism based on managerial incentives through which common ownership affects product market outcomes. Firm-level variation in common ownership causes variation in managerial incentives and productivity across firms, which leads to intra-industry and intra-firm cross-market variation in prices, output, markups, and market shares that is consistent with empirical evidence. The organizational structure of multiproduct firms and the passivity of common owners determine whether higher prices under common ownership result from higher costs or from higher markups. Using panel regressions and a difference-in-differences design we document that managerial incentives are less performance-sensitive in firms with more common ownership.
    JEL: D21 G32 J33 L13 L21 M12
    Date: 2022–12
  8. By: Harrison Hong; Edward P. Shore
    Abstract: Is shareholder interest in corporate social responsibility driven by pecuniary motives (abnormal rates of return) or non-pecuniary ones (willingness to sacrifice returns to address various firm externalities)? To answer this question, we categorize the literature into seven tests: (1) costs of capital, (2) performance of portfolios, (3) ownership by types of institutions, (4) surveys and experiments, (5) managerial motives, (6) shareholder proposals, and (7) firm inclusion in responsibility indices. These tests and the most recent proposals data predominantly indicate that shareholders are driven by non-pecuniary motives. To stimulate further research on welfare implications for global warming, we assess whether estimates of the returns shareholders are willing to sacrifice (or, ‘greeniums’), along with the increasing amounts of assets pledged to firms that become sustainable, are consistent with the growth of aggregate investments in the decarbonization sector.
    JEL: G1 G10 G12 G14 G17 G19 G2 G20 G21 G23 G3 G31 G35 G39 G4
    Date: 2022–12
  9. By: Ozili, Peterson K
    Abstract: This article advocates a new addition to the theories of financial inclusion which is the institutional theory of financial inclusion. The case for a new theory arises from the role of institutions or non-market structures in influencing the level of financial inclusion. Postulating an institutional theory of financial inclusion is important due to the need to understand financial inclusion from the context of institutions and non-market structures that people have a great deal of trust in. The institutional theory of financial inclusion has the capacity to generate a wide range of testable hypotheses, and can provide the social scientist with tools that are relevant for understanding the broad spectrum of financial inclusion in society.
    Keywords: financial inclusion, institutions, institutional theory, access to finance, non-market structure, culture, unbanked adults, financial exclusion.
    JEL: G21 I31 P37
    Date: 2023
  10. By: Marek Ignaszak (Goethe University Frankfurt); Petr Sedlacek (University of Oxford; Centre for Economic Policy Research (CEPR))
    Abstract: Recent empirical evidence suggests that firm selection and growth are largely demand-driven. We incorporate this feature into a model of endogenous growth in which heterogeneous firms innovate and survive based on profitability, rather than productivity alone. We show analytically that firm-level demand variation impacts aggregate growth by changing firms’ incentives to innovate. Estimating our model on U.S. Census firm data, we quantify that 20% of aggregate growth is demand-driven and that the macroeconomic impact of growth policies is fundamentally different compared to a model driven by productivity variation alone. We find empirical support for our model mechanism in firm-level data.
    Date: 2021–05
  11. By: Pierre Cahuc (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics, CEPR - Center for Economic Policy Research - CEPR); Stéphane Carcillo (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics); Bérangère Patault (UvA - University of Amsterdam [Amsterdam]); Flavien Moreau (IMF - "Research Department International Monetary Fund (IMF)" - International Monetary Fund (IMF))
    Abstract: Does judge subjectivity in labor courts influence firm performance? We study the economic consequences of judge decisions by collecting information on Appeal court rulings, combined with administrative firm-level records covering the whole universe of French firms. The quasi-random assignment of judges to cases reveals that judge bias, defined as judge-specific differences on granting compensation for wrongful dismissal, has statistically significant effects on the survival and employment of small firms, especially among very small and low-performing ones. When compensation for wrongful dismissal is instrumented by judge bias, an increase in compensation of 1 percent of the payroll reduces employment growth by 5 percentage points after 3 years for those firms.
    Keywords: Dismissal compensation, Judge bias, Firm survival, Employment
    Date: 2022–03
  12. By: Mashekwa Maboshe; Matthew Stern; Yash Ramkolowan
    Abstract: South Africa has since the 1990’s actively reformed its corporate tax policy to stimulate investment in various assets and industries. While the investment impact of corporate taxation has been evaluated in various studies, no effort has been made to assess the potential inter-asset distortions due to differential taxation. Using a unique asset-industry level dataset, we […]
    Keywords: Africa, corporate taxation, fiscal policy, South Africa
    JEL: D22 F14 L25 O12 O32 O55
    Date: 2021–07–01

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