nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒02‒06
twelve papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Managerial and financial barriers during the green transition By De Haas, Ralph; Martin, Ralf; Muûls, Mirabelle; Schweiger, Helena
  2. Disclosing the Undisclosed: Commercial Paper As Hidden Liquidity Suffers By Sven Klingler; Olav Syrstad
  3. Does VC Investor Type Matter? Determinants and effects of VC backing for new firms in Japan By KATO Masatoshi; Nicolas LEGENDRE; YOSHIDA Hiroki
  4. Proprietorship Structure and Firm Performance in the Context of Tunneling: An Empirical Analysis of Non-Financial Firms in Pakistan By Sulehri, Fiaz Ahmad; Ali, Amjad
  5. The Information Value of Past Losses in Operational Risk By Filippo Curti; Marco Migueis
  6. Gender Diversity in Ownership and Firm Innovativeness in Emerging Markets. The Mediating Roles of R&D Investments and External Capital By Vartuhi Tonoyan; Christopher Boudreaux
  7. The Financing Structure of NonFinancial Corporations and MacroFinancial Implications in France By Stéphane Dees; Stefan Gebauer; Thomas Goncalves; Camille Thubin
  8. Executive Labor Market Frictions, Corporate Bankruptcy and CEO Careers By Morten Grindaker; Andreas R. Kostøl; Kasper Roszbach
  9. Gender quotas, board diversity and spillover effects. Evidence from Italian banks By Silvia Del Prete; Giulio Papini; Marco Tonello
  10. Too Many Managers: The Strategic Use of Titles to Avoid Overtime Payments By Lauren Cohen; Umit Gurun; N. Bugra Ozel
  11. Debt-Ridden Borrowers and Persistent Stagnation By Keiichiro KOBAYASHI; Daichi SHIRAI
  12. Corporate Finance Facility and Resource Allocation: Research Trends and Developments during the Spread of COVID-19 By Kotone Yamada; Yukio Minoura; Jouchi Nakajima; Tomoyuki Yagi

  1. By: De Haas, Ralph; Martin, Ralf; Muûls, Mirabelle; Schweiger, Helena
    Abstract: We use data on 10, 852 firms across 22 emerging markets to analyse how credit constraints and deficient firm management inhibit corporate investment in green technologies. For identification, we exploit quasi-exogenous variation in local credit conditions. Our results indicate that both credit constraints and green 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) reveals the pollution impact of these constraints. We show that in areas where more firms are credit constrained and weakly managed, industrial facilities systematically emit more CO2 and other gases. This is corroborated by the finding that in areas where banks needed to deleverage more after the Global Financial Crisis, industrial facilities subsequently reduced their carbon emissions considerably less. On aggregate this kept CO2 emissions 5.6% above the level they would have been in the absence of credit constraints.
    Keywords: credit constraints; green management; CO2 emissions; energy efficiency
    JEL: L23 G32 L20 Q52 Q53
    Date: 2022–03–07
  2. By: Sven Klingler; Olav Syrstad
    Abstract: Using new transaction-level data for non-financial commercial paper (CP) in the U.S., we show that companies systematically reduce their outstanding short-term debt on quarterly and annual disclosure dates. Constraints on CP lending supply cannot explain this pattern. Instead, companies optimize their disclosed liquidity buffers and strategically repay CP debt if doing so strengthens common accounting ratios, such as the current ratio. Unlike other CP issuers, firms that repay their CP debt neither hold lower cash buffers nor use CP as bridge financing, suggesting an alternative role of CP debt as "hidden liquidity buffer".
    Keywords: Commercial paper, balance sheet management, disclosure, cash management, window dressing
    JEL: G32 G23 G14
    Date: 2021–12–16
  3. By: KATO Masatoshi; Nicolas LEGENDRE; YOSHIDA Hiroki
    Abstract: This study examines venture capital (VC) backing among new firms in Japan, exploring how the determinants and effects of VC backing vary depending on the VC investor type. We estimate the determinants of VC backing and find that new firms receiving investments from independent VCs tend to be larger, younger, and more innovative than non-VC-backed firms. However, the factors affecting investments from corporate, finance-affiliated, and government-funded VCs significantly differ from those affecting independent VCs. To explore the effect of VC backing, we construct a matched sample using propensity score matching. Furthermore, we estimate the average treatment effect of receiving VC investments to clarify whether new VC-backed firms achieve superior growth and innovation performance. The results indicate that investments from independent VC firms enhance the performance of new firms. However, we find no significant effect on new firm performance for other VC investor types.
    Date: 2022–12
  4. By: Sulehri, Fiaz Ahmad; Ali, Amjad
    Abstract: This study has investigated the majority shareholder's practice to use minority shareholders’ wealth without their consent which influence the performance of firms in Pakistan from 2009 to 2020. The firm performance has been taken as an explained variable, whereas ownership concentration, inside ownership, firm size, leverage, and investment growth are considered explanatory variables. Descriptive statistics, correlation matrix, Hausman test, and random effect model have been used for empirical analysis. The study used a sample of 24 firms with a total of 288 observations to look at how ownership concentration, inside ownership, leverage, and sales growth affect firm performance. The ownership concentration, firm size, and investment growth have a positive and significant impact on firm performance, whereas inside ownership and leverage have a negative and significant influence on the performance of selected non-financial firms. The larger the gap between ownership and control, the more likely it is that company resources will be tunneled. So, it has been suggested to the securities and exchange commission of Pakistan to frame strict rules and regulations to stop the role of inside ownership because it influences firm performance adversely.
    Keywords: firm performance, insider ownership, tunneling
    JEL: D73 L25
    Date: 2022–12
  5. By: Filippo Curti; Marco Migueis
    Abstract: Operational risk is a substantial source of risk for US banks. Improving the performance of operational risk models allows banks’ management to make more informed risk decisions by better matching economic capital and risk appetite, and allows regulators to enhance their understanding of banks’ operational risk. We show that past operational losses are informative of future losses, even after controlling for a wide range of financial characteristics. We propose that the information provided by past losses results from them capturing hard to quantify factors such as the quality of operational risk controls, the risk culture, and the risk appetite of the bank.
    Keywords: Banking; Operational risk; Risk management
    JEL: G15 G18 G19 G21 G32
    Date: 2023–01–06
  6. By: Vartuhi Tonoyan; Christopher Boudreaux
    Abstract: Despite recent evidence linking gender diversity in the firm with firm innovativeness, we know little about the underlying mechanisms. Building on and extending the Upper Echelon and entrepreneurship literature, we address two lingering questions: why and how does gender diversity in firm ownership affect firm innovativeness? We use survey data collected from 7, 848 owner-managers of SMEs across 29 emerging markets to test our hypotheses. Our findings demonstrate that firms with higher gender diversity in ownership are more likely to invest in R&D and rely upon a breadth of external capital, with such differentials explaining sizeable proportions of the higher likelihood of overall firm innovativeness, product and process, as well as organizational and marketing innovations exhibited by their firms. Our findings are robust to corrections for alternative measurement of focal variables, sensitivity to outliers and subsamples, and endogenous self-selection concerns.
    Date: 2023–01
  7. By: Stéphane Dees; Stefan Gebauer; Thomas Goncalves; Camille Thubin
    Abstract: How does the corporate funding mix affect economic and financial stability in France? To address this question, we develop a model for the financing structure of French non-financial corporations (NFCs) and incorporate it in the Banque de France's semi-structural macroeconomic model (FR-BDF). We document that while on average more than half of external financing for French NFCs is provided by bank credit, the share of bond financing has increased markedly after the great Financial Crisis of 2008/2009. We then use the augmented model to simulate several macro-financial stress scenarios and show that the new macro-financial linkages imply a non-negligible financial accelerator effect that affects corporate investment decisions and matters for the transmission of monetary policy. In particular, corporate leverage plays a key role for investment, and we discuss the relative strength of shocks affecting the leverage ratio via corporate credit and equity.
    Keywords: Semi-Structural Models, Non-Financial Corporation Financing, Corporate Debt.
    JEL: E51 C32
    Date: 2022
  8. By: Morten Grindaker; Andreas R. Kostøl; Kasper Roszbach
    Abstract: CEOs of large firms filing for bankruptcy are more likely to exit the executive labor market after bankruptcy and experience substantial compensation losses (Eckbo et al., 2016). While the fear of reputational scarring can lead to lower risk-taking and manifest itself as lower rates of entrepreneurship and job growth, the mechanisms through which bankruptcy affects CEO careers are not well understood. In this paper, we examine the effect of "random bankruptcy" decisions on small and medium-sized business CEOs’ careers. By random, we mean job separation for reasons unrelated to a firm or CEO quality but rather through a court’s bankruptcy decision. We control for the unobserved ability of bankrupt and non-bankrupt CEOs by using randomly assigned judges’ propensity to liquidate firms as an instrument. We then combine our sample of CEOs with administrative records containing granular information on income, wealth, new employers and job titles. Our results show that bankrupt CEOs find new employment quickly, but that a large share exits the executive labor force. On average, bankruptcy reduces CEOs’ variable income components. While the net present value of CEOs’ loss of future capital income equals more than 60 percent of annual pre-bankruptcy income, we observe no effect on wage income. We find that displaced CEOs are more likely to reallocate to new industries and new geographic areas, suggesting that managerial skills are portable. We explore how the income and employment effects of bankruptcy vary with industry conditions. Consistent with the executive labor market using bankruptcy as a noisy signal of managerial ability, we find the displacement effect is stronger when industry conditions are good. Our evidence is consistent with the presence of information frictions that could entail important social costs.
    Keywords: Occupational Choice, Bankruptcy, CEO, Organizations, Executive Compensation
    JEL: G33 J24 K22 L29 M12
    Date: 2021–12–16
  9. By: Silvia Del Prete (Bank of Italy); Giulio Papini (Bank of Italy); Marco Tonello (Bank of Italy)
    Abstract: We study the impact of a 2011 law on the diversity of bank boards. The law required all listed companies in Italy (including banks) to increase the share of female representatives on their boards up to one third of total seats. We look at listed banks (the ones directly targeted by the law), but also test whether the law led to spillover effects on non-listed banks belonging to listed groups. Using administrative data on board composition between 2007 and 2019, we compare some measures of diversity of boards of listed and unlisted banks belonging to listed groups with those of institutions included in non-listed groups, before and after the introduction of the law. We find that female representation increased only for listed banks, with no spillover effects of the law on those belonging to listed groups, while the economic performance of listed banks remained broadly unchanged.
    Keywords: bank board composition, diversity, gender, corporate governance
    JEL: G21 G38 J48 J78
    Date: 2022–12
  10. By: Lauren Cohen; Umit Gurun; N. Bugra Ozel
    Abstract: We find widespread evidence of firms appearing to avoid paying overtime wages by exploiting a federal law that allows them to do so for employees termed as “managers” and paid a salary above a pre-defined dollar threshold. We show that listings for salaried positions with managerial titles exhibit an almost five-fold increase around the federal regulatory threshold, including the listing of managerial positions such as “Directors of First Impression, ” whose jobs are otherwise equivalent to non-managerial employees (in this case, a front desk assistant). Overtime avoidance is more pronounced when firms have stronger bargaining power and employees have weaker rights. Moreover, it is more pronounced for firms with financial constraints and when there are weaker labor outside options in the region. We find stronger results for occupations in low-wage industries that are penalized more often for overtime violations. Our results suggest broad usage of overtime avoidance using job titles across locations and over time, persisting through the present day. Moreover, the wages avoided are substantial - we estimate that firms avoid roughly 13.5% in overtime expenses for each strategic “manager” hired during our sample period.
    JEL: G30 G38 M51 M54
    Date: 2023–01
  11. By: Keiichiro KOBAYASHI; Daichi SHIRAI
    Abstract: Persistent stagnation often follows a financial crisis. We construct a model in which a debt buildup in the corporate sector can persistently depress the economy, even when there are no structural changes. We consider endogenous borrowing constraints on short-term and long-term debt. A firm is referred to as debt-ridden when its long-term debt is so large that it can never decrease even though the firm pays all income in each period to the lender. A debt-ridden firm continues inefficient production permanently, and the emergence of a substantial number of debt-ridden firms causes a persistent recession. Further, if the initial debt exceeds a certain threshold, the firm intentionally chooses to increase borrowing and, thus, becomes debt-ridden. We numerically show successive productivity shocks or a large wealth shock can generate debt-ridden firms. The relief of debt-ridden borrowers from excessive debt may be effective for economic recovery.
    Date: 2023–01
  12. By: Kotone Yamada (Bank of Japan); Yukio Minoura (Bank of Japan); Jouchi Nakajima (Hitotsubashi University); Tomoyuki Yagi (Bank of Japan)
    Abstract: Since the outbreak of COVID-19, governments and central banks in major countries have implemented large-scale corporate finance facilities. While a series of policy actions seemingly have served well to rein in bankruptcies in the short run, more than a few have remarked that the facility measures could hamper business dynamics and distort resource allocation in the medium to long run. Based on these discussions, this paper provides a literature survey of existing studies on the effects of corporate facility measures of banks and governments on resource allocation in the economy. It mainly focuses on Japan after the collapse of its bubble economy, European countries after the global financial crisis and the sovereign debt crises, China under debt expansion, and developed countries during the spread of COVID-19. We also identify so-called "zombie firms, " which survive with banks' and governments' support despite performing poorly without the prospect of recovery, using firms' financial data. We set the criteria of the zombie firms by arranging methodologies proposed by the existing studies. The analysis shows that the number of zombie firms surged after the collapse of the bubble economy in the early 1990s in Japan. It decreased in the early 2000s and remained relatively lower in recent years for both large and small-and-medium enterprises. At least based on the currently available data in fiscal 2020 after the spread of COVID-19, we do not detect a problematic growth in the number of zombie firms as in the 1990s. Still, we need to be cautious about the development of zombie firms because we have data constraints on the recent data.
    Keywords: Business dynamics; Resource allocation; Zombie firms; COVID-19
    JEL: D22 D24 D30
    Date: 2023–01–20

This nep-cfn issue is ©2023 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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