nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒03‒06
six papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Zero-Leverage Puzzle By Mykola Pinchuk
  2. Exporting and Investment Under Credit Constraints By Kim Huynh; Robert Petrunia; Joel Rodrigue; Walter Steingress
  3. ESG Incentives and Attracting Socially Responsible Capital By Meg Adachi-Sato; Osamu Sato
  4. Leverage and Interest Rates By Giovanna Nicodano; Luca Regis
  5. Revisiting the relationship between firm strategic capabilities and productivity in a multilevel analysis: Do labor market conditions matter? By Fernando Cárdenas Echeverri; Andres García-Suaza; Juan Esteban Garzon Restrepo
  6. Business Training with a Better-Informed Lender: Theory and Evidence from Microcredit in France By Renaud Bourlès; Anastasia Cozarenco; Dominique Henriet; Xavier Joutard

  1. By: Mykola Pinchuk
    Abstract: In this paper, I examine why some firms have zero leverage. I fail to find evidence that firms are unlevered because of managerial entrenchment since these firms do not have weaker corporate governance. I reject the hypothesis that firms become zero-leverage after prolonged periods of high market valuation, since before levering these firms do not suffer from declining valuations and continue to issue large amounts of equity. I find strong evidence in favor of the financial constraints explanation of the zero-leverage puzzle. Zero-leverage firms appear to be financially constrained using three different measures of financial constraints. I obtain mixed evidence on the financial flexibility hypothesis since all-equity firms increase investments and acquisitions after levering, but the probability of their levering decreased during the financial crisis. My results suggest that financial constraints are the first-order the driver of zero-leverage behavior and are more important than less obvious explanations such as managerial entrenchment.
    Date: 2023–02
  2. By: Kim Huynh; Robert Petrunia; Joel Rodrigue; Walter Steingress
    Abstract: We examine the relationship between firms’ performance and credit constraints affecting export market entry. The existing research assumes that variation in firms’ financial conditions identifies credit constraints. A critical assumption is that financial conditions do not affect real outcomes (performance, exporting, or investment). To relax this assumption, we focus on the direct effect of firms’ fundamentals and financial conditions on firms’ performance. This approach distinguishes between firms that choose not to export because it is unprofitable from firms that do not export because of binding credit constraints. Our empirical specification allows firms’ characteristics to enter both the selection into exporting and return from exporting regressions. The leverage response heterogeneity identifies the presence of credit constraints. Using administrative Canadian firm-level data, our findings show that new exporters (a) increase their productivity, (b) raise their leverage ratio and (c) increase investment. We estimate that 48 percent of Canadian manufacturers face binding credit constraints when deciding whether to enter export markets. Alleviating these constraints would increase aggregate productivity by 0.97–1.04 percentage points.
    Keywords: Econometric and statistical methods; Firm dynamics; International topics; Productivity
    JEL: F10 F14 F36 G20 G28 G32
    Date: 2023–02
  3. By: Meg Adachi-Sato (Research Institute for Economics & Business Administration, Kobe University Faculty of Business Administration, JAPAN and Accountancy, Khon Kaen University, THAILAND); Osamu Sato (Department of Management, Tokyo University of Science, JAPAN)
    Abstract: This study examines how for-profit firms finance capital from investors through environmental, social, and governance (ESG) efforts. We examine a situation with two types of investors: socially responsible and for-profit investors. In this scenario, firms outnumber all investors in the market, and they must attract socially responsible investors to successfully obtain the capital they require. We show that when a firm makes a positive ESG investment, regulators aiming to promote ESG should encourage investors to prioritize ESG performance in their investment choices. Meanwhile, strengthening shareholders' rights or promoting corporate governance reform may not necessarily be ideal for them.
    Keywords: ESG; Matching intensity; Search; Social impact; Socially responsible investors
    JEL: D83 G23 G32 M14
    Date: 2023–02
  4. By: Giovanna Nicodano; Luca Regis
    Abstract: We study the sensitivity of optimal leverage to the level of the risk-free interest rate. Our trade-off model implies a heterogeneous response depending on the presence of a sponsor backing company debt. A highly-leveraged, backed company optimally increases debt when interest rates fall, while a company without a sponsor reduces it despite having lower initial leverage. This heterogeneity implies divergent bankruptcy probability and recovery-upondefault, in the same interest rate scenarios, for the two company types. We also show that a lower risk-free rate reduces the sponsor’s incentive to issue debt.
    Keywords: capital structure, tax-bankruptcy trade-off, default, LBO, subsidiaries, securitization, restructurings, risk transfer
    Date: 2023
  5. By: Fernando Cárdenas Echeverri; Andres García-Suaza; Juan Esteban Garzon Restrepo
    Abstract: This paper studies the relationship between managerial capital, social capital and firm productivity in Colombia, and explores whether this relationship depends on labor quality and formality. Results confirm a positive and significant effect of firm capabilities (managerial and social capital) on TFP (total factor productivity) and suggest a substitution effect between them. A positive effect of labor quality and formality on firm productivity is documented. Even though results are not conclusive, labor quality appears to increase the effect of managerial capital and reduce that for social capital, while labor formality seems to have no impact on their marginal effect. This is important for policy makers reinforcing the importance of quality education, labor formality and the relevance of programs promoting adoption of managerial practices and development of networks.
    Keywords: Productivity, Managerial Capital, Social Capital, Labor formality, Developing countries
    JEL: L10 L25 M21 O40
    Date: 2023–02–15
  6. By: Renaud Bourlès (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, IUF - Institut Universitaire de France - M.E.N.E.S.R. - Ministère de l'Education nationale, de l’Enseignement supérieur et de la Recherche); Anastasia Cozarenco (CERMi - Centre for European Research in Microfinance, MRM - Montpellier Research in Management - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School - UM - Université de Montpellier); Dominique Henriet (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Xavier Joutard (LEST - Laboratoire d'économie et de sociologie du travail - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique, OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)
    Abstract: In the microfinance sector, experienced lenders enjoy an information advantage over first-time entrepreneurs. Our study proposes an analysis of the business training provided on a par with microloans and its potential effect on borrowers'behavior. First, we present a simple theoretical mechanism showing that an information advantage concerning borrower risk can lead to a non-monotonic relationship between risk and business training provision. Second, using a hand-collected data set of loan applications to a French MFI, we empirically examine the relationship between business training provision and borrower risk, controlling for selection bias and endogeneity. The collected evidence supports the existence of a non-monotonic relationship and shows that business training significantly increases the survival time of loans. Our results are robust to alternative econometric models.
    Keywords: Business training, Microcredit, Informed lender
    Date: 2022–12

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