nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒02‒27
thirteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Firms’ Financing Dynamics around Lumpy Capacity Adjustments By Christoph Görtz; Plutarchos Sakellaris; John D. Tsoukalas
  2. Nexus among Corporate Governance, Intellectual Capital Disclosure and Firm Performance By Aliyu Muhammad Nasir
  3. "Market Reaction to Capital Expenditure: Evidence from Company in Bankruptcy Risk " By Juniarti
  4. Taming Overconfident CEOs Through Stricter Financial Regulation By Bernhard Kassner
  5. Short-term Finance, Long-term Effects: Theory and Evidence from Morocco By Kenza Benhima; Omar Chafik; Min Fang; Wenxia Tang
  6. Globalization and Firm Performance By Catão, Luis A. V.; de Faria, Pedro; Martins, António; Portela, Miguel
  7. Is climate transition risk priced into corporate credit risk? Evidence from credit default swaps By Andrea Ugolini; Juan C. Reboredo; Javier Ojea-Ferreiro
  8. Green Accounting and Corporate Social Responsibility on Company Performance to Mining Companies in Indonesian By Arna Suryani
  9. Financing Innovation with Innovation By Zhiyuan Chen; Minjie Deng; Min Fang
  10. The long-term effects of self pledging in reward crowdfunding By Tobias Regner; Paolo Crosetto
  11. Policies for Revitalizing Venture Startups in the Post-COVID-19 Era: Focusing on the Promotion of Angel Investment By Yang, Hyun Bong
  12. The Capital Asset Pricing Model: A New Empirical Investigation By Zarifhonarvar, Ali
  13. Stress Relief? Funding Structures and Resilience to the Covid Shock By Kristin Forbes; Christian Friedrich; Dennis Reinhardt

  1. By: Christoph Görtz; Plutarchos Sakellaris; John D. Tsoukalas
    Abstract: We study how firms adjust their financial positions around the times when they undertake lumpy adjustments in capital or employment. Using U.S. firm level data, we document systematic patterns of cash and debt financing around lumpy adjustment, remarkably similar across capital and employment. Firm-specific fundamentals reflected in Tobin’s Q, profitability and productivity are leading indicators of the lumpy adjustment. Cash and debt capacity are actively manipulated, and contribute significantly quantitatively, to increase financial resources in anticipation of the expansion of firm capacity. Lumpy contractions in productive capacity follow years where firms reduce cash balances and hold above average levels of debt. During and after contractions, firms rebuild cash and reduce debt growth significantly in a concerted effort to restore financial resources by adjusting their productive operations.
    Keywords: Lumpy Adjustment, Firm Capital and Employment Dynamics, Leverage, Debt, Cash
    JEL: G30 G32 E32
    Date: 2023–01
  2. By: Aliyu Muhammad Nasir (Tunku Puteri Intan Shafinaz School of Accountancy, Universiti Utara Malaysia, Malaysia. Author-2-Name: Ifa Rizad Mustapa Author-2-Workplace-Name: Tunku Puteri Intan Shafinaz School of Accountancy, Universiti Utara Malaysia, Malaysia. Author-3-Name: Kashan Pirzada Author-3-Workplace-Name: Tunku Puteri Intan Shafinaz School of Accountancy, Universiti Utara Malaysia, Malaysia. Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: " Objective - This study conceptually examines a link between corporate governance, intellectual capital disclosure, and firm performance. With the support of signaling theory, this paper develops propositions for the relationship among corporate governance, intellectual capital disclosure, and firm performance. Methodology/Technique - The development and conclusion of this discursive paper as a conceptual one point out the possible relationship among corporate governance, intellectual capital disclosure, and firm performance. The underlying methodology of institutional discourse and integration with dynamic parameters is formalized. Findings - The results of the conceptual framework of this paper on corporate governance are contrasted with the approach to corporate governance in mainstream literature. Also examined is the theoretical and philosophical background of corporate governance, intellectual capital disclosure, and firm performance. Novelty - Although the importance of intellectual capital to firm performance is well established, the triple relationship between the board nomination and governance committee and the board remuneration committee, intellectual capital disclosure, and firm performance is exposed based on the effect of one on another. Type of Paper - Empirical."
    Keywords: Corporate Governance, Intellectual Capital Disclosure, Nomination Committee, and Firm Performance.
    JEL: M40 M41 M49
    Date: 2022–12–31
  3. By: Juniarti (Petra Christian University, Jl. Siwalankerto 121-131, 60236, Surabaya, Indonesia Author-2-Name: Yulius Jogi Christiawan Author-2-Workplace-Name: Petra Christian University, Jl. Siwalankerto 121-131, 60236, Surabaya, Indonesia Author-3-Name: Hendri Kwistianus Author-3-Workplace-Name: Petra Christian University, Jl. Siwalankerto 121-131, 60236, Surabaya, Indonesia Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: " Objective - This study aims to examine whether the condition of the bankruptcy risk of a company will influence the market response to capital expenditure. The main hypothesis of this research is that the positive market reaction to the level of capital expenditure issued will be different in companies with a high level of bankruptcy risk and companies with low bankruptcy risk. Methodology/Technique - The study was conducted on 56 companies with large capitalization on the Indonesia Stock Exchange for 2018-2021. Findings - The results of hypothesis testing indicate that the market responds positively to capital expenditures and the company's bankruptcy risk conditions. In addition, it is proven that in companies at risk of bankruptcy, the market reacts positively to capital expenditures made by companies. In contrast, in companies that are not in a state of bankruptcy, the market does not respond to capital expenditures made by companies. The results of this study are expected to be used by market participants when they analyze the information on capital expenditures made by the company. Novelty - This study contributes to the literature by providing empirical evidence which explores a company's bankruptcy risk as the unique factor that affects the relationship between capital expenditure and market response. Type of Paper - Empirical."
    Keywords: Capital Expenditure, Bankruptcy Risk, Market Response, Capital Investment
    JEL: G30 G31
    Date: 2022–12–31
  4. By: Bernhard Kassner (LMU Munich)
    Abstract: A large body of literature finds that managerial overconfidence increases risk-taking by financial institutions. This paper shows that financial regulation can be effective at mitigating this type of risk. Exploiting regulatory changes introduced after the financial crisis as a natural experiment, I find that overconfidence-induced risk-taking decreases in financial institutions subject to stricter regulation. Following the easing of these regulations, overconfidence-induced risk-taking increases again. These findings confirm the effectiveness of financial regulation at correcting overconfident behavior, but also suggest that the impact fades away quickly once removed.
    Keywords: overconfidence; risk; regulation; financial sector;
    JEL: G28 G32 G38 G40
    Date: 2023–01–27
  5. By: Kenza Benhima (Department of Economics, University of Lausanne); Omar Chafik (Bank Al-Maghrib); Min Fang (Department of Economics, University of Florida); Wenxia Tang (Department of Economics, University of Lausanne)
    Abstract: We study the effect of working capital loan guarantee programs on firm growth and their aggregate implications. Using a Moroccan firm-level dataset, we show that firms with guaranteed short-term loans (i) decrease their cash ratio, (ii) expand their production scale homogeneously and persistently, and that (iii) participation in the guarantee program is humped- shaped in firm size. We rationalize these findings in a heterogeneous-firm model with collateral and working capital constraints. First, we show that while relaxing collateral constraints on short-term loans always has a positive short-term effect on firm growth as firms reallocate cash to capital, persistent effects on firm scale depend on the existence and size of intertemporal distortions. Second, the combination of a flat fixed participation cost and size-dependent collateral constraints explain the non-monotonous participation rate. The interaction of the collateral constraint with these two frictions is crucial to determine the aggregate effect of a loan guarantee program. We parameterize the model to our Moroccan firm-level data. We show that the growth and welfare gains of expanding credit guarantee programs through a higher guaranteed amount or a lower participation cost are substantial, with the former generating relatively more growth while also increasing participation.
    JEL: E22 E27 E44 G28 G38
    Date: 2022–05
  6. By: Catão, Luis A. V. (Inter-American Development Bank); de Faria, Pedro (University of Groningen); Martins, António (ISEG); Portela, Miguel (University of Minho)
    Abstract: Using a new panel dataset of about 140 thousand Portuguese firms during 2006-2019, we measure the effects of globalization on firm-level performance along four dimensions: ownership of capital, employment of foreign-seasoned managers, and participation in export and import markets. Once at least one of these channels is active, firms are larger, less leveraged, employ better qualified workers, and pay higher hourly wages. We also uncover a pecking order of effects, with export-market participation having generally larger positive effects on productivity and negative effects on unit labor costs. All four channels interact, sometimes complementing, sometimes substituting one another. For instance, foreign ownership boosts exports at the extensive margin while being an importer and/or having a foreign-experienced manager help at the intensive margin; conversely, the marginal productivity gains of foreign-ownership are greatly reduced when the firm is already an exporter. Breaking down the effects of each channel by firm size, we show that smaller firms stand the most to gain from export market participation and foreign-ownership.
    Keywords: foreign direct investment, entrepreneurship, trade, productivity, wages, labor costs, leverage, firm size distribution
    JEL: D22 D24 F23 G34 J3 L20 M10
    Date: 2023–01
  7. By: Andrea Ugolini; Juan C. Reboredo; Javier Ojea-Ferreiro
    Abstract: We study whether climate transition risk is reflected in the credit default swap (CDS) spreads of firms. Using information on the vulnerability of a firm’s value to the transition to a low carbon economy, we construct a climate transition risk (CTR) factor, and document how this factor shifts the term structure of the CDS spreads of more vulnerable firms but not of less vulnerable firms. Considering the impact of different climate transition policies on the CTR factor, we find that they have asymmetric and significant economic impacts on the credit risk of more vulnerable firms, and negligible effects on the remaining firms.
    Keywords: Climate transition risk, CDS spreads, credit risk.
    JEL: C24 G12 G32 Q54
    Date: 2023–01
  8. By: Arna Suryani (Universitas Batanghari Jl. Slamet Riyadi No.1, Sungai Putri, Kec. Danau Tlk. Jambi, 36122, Kota Jambi, Indonesia Author-2-Name: Sespi Jumaida Author-2-Workplace-Name: Universitas Batanghari Jl. Slamet Riyadi No.1, Sungai Putri, Kec. Danau Tlk. Jambi, 36122, Kota Jambi, Indonesia Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: " Objective - The research aims to analyze company performance by applying corporate social responsibility and green accounting. Methodology/Technique - This study employs a descriptive quantitative method with secondary sources originating from mining companies' financial statements on the Indonesian Stock Exchange 2019-2021 period. The instance is selected using the method of purposeful sampling. The analytical tool in this study uses simple and multiple regression analysis. Findings - The application of green accounting partially does not affect company performance, while Corporate social responsibility affects financial performance. It shows that green accounting has not been considered in improving the company's financial performance, and social responsibility at work has been taken into consideration in improving its performance. A positive corporate image will increase the interest of stakeholders in businesses with increased performance. Simultaneously corporate social responsibility and green accounting impact the company's performance. It shows that CSR combined optimizing environmental costs can enhance company performance in concert. Novelty - The results indicate that CSR combined optimizing environmental costs can synergistically boost the performance of the business. Companies must boost the quality and quantity of social responsibility in business projects because it has been demonstrated that these projects benefit the community and the company financially. Companies can use this research to manage the environmental cost and fulfill their social obligations to build environmentally friendly businesses. Type of Paper - Empirical. "
    Keywords: Green Accounting, Corporate Social Responsibility, Company Performance
    JEL: F64 L50 M14 Q52 Q56
    Date: 2022–12–31
  9. By: Zhiyuan Chen (School of Business, Renmin University of China); Minjie Deng (Department of Economics, Simon Fraser University); Min Fang (Department of Economics, University of Florida)
    Abstract: This paper documents that firms are increasingly financing innovation using their stock of innovation, measured as patents. We refer to this behavior as financing innovation with in- novation. Drawing on patent collateral data from both the US and China, we first show that (1) in both countries, the total number and share of patents pledged as collateral have been rising steadily, (2) Chinese firms employ patents as collateral on a smaller scale and with a lower intensity than US firms, (3) firms increase their borrowing and innovation after they start to use patent collateral. We then construct a heterogeneous firm general equilibrium model featuring idiosyncratic productivity risk, innovation capital investment, and borrow- ing constrained by patent collateral. The model emphasizes two barriers that hinder the use of patent collateral: high inspection costs and low liquidation values of patent assets. We parameterize the model to firm-level panel data in the US and China and find that both barriers are significantly more severe in China than in the US. Finally, counterfactual analyses show that the gains in innovation, output, and welfare from reducing the inspection costs in China to the US level are substantial, moreso than enhancing the liquidation value of patent assets.
    JEL: E22 G32 O31 O33
    Date: 2022–09
  10. By: Tobias Regner (Friedrich-Schiller-Universität = Friedrich Schiller University Jena [Jena, Germany]); Paolo Crosetto (GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes)
    Abstract: Crowdfunding recently emerged as an alternative funding channel for start-ups, creative artists and social endeavors. While it succeeded in establishing itself as a major player in entrepreneurial finance, its rather informal setup sparked concerns about its resilience to exploitative behavior by project creators. In this paper we explore one form of such opportunistic behavior: self pledging and its potential effect on the post-campaign development of crowdfunded projects. If project creators use own funds to reach the funding target in order to collect the crowd's funds, they end up with less fresh capital than needed, and might hence face problems in delivering on the promises made. Most reward crowdfunding platforms explicitly prohibit self pledges. Startnext, the biggest German platform, allows them. We exploit Startnext data to shed light on effects of self funding on post-campaign performance. We single out 140 substantially self-funded projects, and, by propensity score matching, a corresponding sample of 140 projects that did not receive any self pledges. For each of these projects we collect information about the project development three or more years after their campaigns ended. Projects may have failed to deliver, have run into severe delays, have delivered but then disappeared, or might have given rise to recurring events or led to the founding of a company/organization. Results indicate no structural long-term impact of substantial self funding.
    Keywords: Crowdfunding, Entrepreneurial finance, Self funding, Survival, Long-term viability
    Date: 2021–04
  11. By: Yang, Hyun Bong (Korea Institute for Industrial Economics and Trade)
    Abstract: The Korean economy faces serious difficulties in the global economic recession due to the COVID-19 pandemic (a global pandemic). The government is actively responding to COVID-19, including supporting emergency disaster subsidies for all citizens and promoting a Korean-style New Deal. In order to minimize the impact of corporate restructuring due to the prolonged COVID-19 pandemic going forward and see the Korean economy take a leap forward, it is most important to create quality jobs by activating venture startups in new technologies and new industries. To this end, measures to resolve the funding shortage faced by venture startups (identified as such firms’ biggest hurdle) should be prepared. This paper proposes a serious of measures to promote technology-knowledge-intensive start-ups through private venture capital (VC), it is necessary to prepare a plan to revitalize angel investment, which plays an important role in the stage prior to VC investment.
    Keywords: angel investment; venture business; start-ups; venture capital; startup funding; Korea; COVID-19
    JEL: H25 L25 M13
    Date: 2021–06–01
  12. By: Zarifhonarvar, Ali
    Abstract: In financial economics, numerous theoretical models explain the relationship between investment risk and return in the capital market, one of the most common being the Capital Asset Pricing Model (CAPM). After reviewing the literature in this area, this study discusses the theoretical background of the CAPM model. After explaining the relationship between systematic corporate risk in different industries, the hypotheses for a positive linear correlation between stock returns and systematic risk and the relation of these coefficients to the CAPM model predictions are tested. Thus, after data sampling to obtain the monthly rate of return of stocks in the Tehran Stock Exchange, the monthly rate of return of the market portfolio and the return on risk-free investment are obtained from April 2008 to March 2013. Finally, it will be shown that the systematic risk variable and its square are also crucial to explaining stock return fluctuations. A nonlinear quadratic correlation is confirmed between the rate of return and systematic risk in the stock data of companies sampled from the obtained sample of the Tehran Stock Exchange.
    Keywords: CAPM, Beta, Stock Market, Premium, Risk
    JEL: G10 G11 G12
    Date: 2023
  13. By: Kristin Forbes; Christian Friedrich; Dennis Reinhardt
    Abstract: This paper explores whether different funding structures—including the source, instrument, currency, and counterparty location of funding—affected the extent of financial stress experienced in various countries and sectors during the Covid-19 spread in early 2020. We measure financial stress using a new dataset on changes in credit default swap spreads for sovereigns, banks, and corporates. Then we use country-sector and country-sector-time panels to assess if these different funding structures mitigated—or amplified—the impact of this risk-off shock. A higher share of funding from non-bank financial institutions (NBFI) or in US dollars was correlated with significantly greater stress, while a higher share of funding in debt instruments (instead of loans) or cross-border (instead of domestic) did not significantly impact resilience. The results suggest that macroprudential regulations should broaden their current focus to take into account exposures to NBFI and dollar funding, giving less priority to regulations focused on residency (i.e., capital controls). After the sharp increase in financial stress in early 2020, policy responses targeting these structural vulnerabilities (i.e., US$ swap lines and policies focused on NBFIs) were more effective at mitigating stress related to these funding structures than policies supporting banks, even after controlling for macroeconomic policy responses.
    Keywords: Coronavirus disease (COVID-19); Exchange rates; Financial institutions; Financial stability; Financial system regulation and policies; International topics
    JEL: E44 E65 F31 F36 F42 G18 G23 G38
    Date: 2023–01

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