nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒03‒13
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Debt and Financial Fragility: Italian Non-Financial Companies after the Pandemic By Bassam Fattouh; Beniamino Pisicoli; Pasquale Scaramozzino
  2. The consequence of societal secrecy for financial constraints By Olayinka Oyekola; Samuel Odewunmi
  3. Who funds zombie firms: Banks or non-banks? By Tuuli, Saara
  4. Impact of business transfer on economic performance: The case of Italian family farms By Danilo Bertoni; Laure Latruffe; Daniele Cavicchioli
  5. A novel framework to evaluate changes in access to and costs of trade finance By Auboin, Marc; Bekkers, Eddy; De Quarti, Dario
  6. Blinded by Familiarity? Institutional Investors under Adverse Performance Shocks By Wayne Wan
  7. Online Appendix to "Credit Markets, Relationship Lending, and the Dynamics of Firm Entry" By Qingqing Cao; Paolo Giordani; Raoul Minetti; Pierluigi Murro

  1. By: Bassam Fattouh (SOAS University of London); Beniamino Pisicoli (Università di Roma ‘Tor Vergata’); Pasquale Scaramozzino (Università di Roma ‘Tor Vergata’ & SOAS University of London)
    Abstract: This paper analyses the evolution of debt of Italian firms from 2010 to 2020 with special focus on the first year of the Covid-19 pandemic. By means of quantile regressions, our approach investigates several heterogeneities to assess the vulnerabilities of the most fragile firms. We find that, on average, Italian non-financial companies (NFCs) reduced their indebtedness over the sample period, a trend which did not get interrupted during the first year of the pandemic. By exploiting the high heterogeneity in the data, however, we find that the turmoil affected the most indebted firms and the trend of declining indebtedness for these firms was reversed. Moreover, sectors that were suspended ex lege during the first lockdown: i) already had the highest levels of the debt-to-assets ratios over our sample period, and ii) experienced the steepest increase in debt in 2020 relative to the previous year. Finally, our results show that highly indebted firms exhibit a qualitative different behaviour compared to the rest of the sample and that excessively piling up debt severely increases the likelihood of exiting the market.
    Keywords: leverage, corporate debt, debt ratio, quantile regression
    JEL: G30 G31 G32
    Date: 2023–02–08
  2. By: Olayinka Oyekola (Department of Economics, University of Exeter); Samuel Odewunmi (Department of Economics, University of Exeter)
    Abstract: Does the level of societal secrecy aggravate or alleviate access to finance? We explore this question for over 50, 000 firms in around 40, predominantly developing, countries, from 2006 to 2015. We find a strong positive relationship between cultural orientation towards secrecy in a country and financial constraints faced by its firms. Our results are robust to several considerations and emphasise the adverse consequence of societal secrecy for perpetuating financing obstacles for firms.
    Keywords: financial constraints, access to credit, societal secrecy, national culture, firm-level data
    JEL: G20 G30 O16 Z1
    Date: 2023–02–21
  3. By: Tuuli, Saara
    Abstract: Analyses of zombie firms have emphasised the role of bank financing as the reason for zombie survival. This conclusion was made despite no comparative analysis of the sources of external finance for zombie firms. This paper provides the first analysis of that sort using Finnish data. Surprisingly, the results show quite clearly that there is no connection between zombie survival and bank financing; this result is robust to various measurement and specification issues. Instead, a role is found for owners (i.e. equity funders) in keeping zombies alive in the (often correct) anticipation of the firm recovering.
    Keywords: zombie firms, banks, credit constraints, firm-level data, panel data
    JEL: D25 E51 G2 G3
    Date: 2023
  4. By: Danilo Bertoni; Laure Latruffe (BSE - Bordeaux Sciences Economiques - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique); Daniele Cavicchioli
    Abstract: The impact of business transfer on family business performance is widely explored in the literature but is neglected for agriculture although family farms are key players in the economy. We investigate whether the succession changes the economic performance of family firms for Italian family farms during the period 2008–2014. Our results show that succession on these family businesses has a negative effect on their economic performance related to capital, due to an increase in capital after succession. One policy implication is that support for investment by new farmers should be improved.
    Keywords: Family business, Succession, Economic performance, Propensity score matching, PSM, Italian farms
    Date: 2023–01–18
  5. By: Auboin, Marc; Bekkers, Eddy; De Quarti, Dario
    Abstract: In this paper we integrate the costs of trade finance in a computable general equilibrium (CGE) model to evaluate the trade and output effects of counterfactual policy experiments on costs of and access to trade finance. The costs of financing international trade consist of two components: the financial costs and the costs associated with the risk of goods not being delivered, considering risk aversion of traders. These costs are determined for four ways to finance international trade (cash-in-advance, trade loans, letters of credit, and exports financed with internal working capital). Trade finance costs are a weighted average of the costs under the four different ways of financing. The framework is applied to trade of four ECOWAS countries employing data collected on financial costs, costs of risk and trade finance instrument shares through a comprehensive bank survey in these countries complemented with data from the literature. Counterfactual experiments on increases in the availability of letters of credit and trade loans and the costs of these instruments show that raising the shares and costs to African averages would increase trade of the four ECOWAS countries by about 11%. The framework is generic and can be applied to other countries.
    Keywords: Trade credit, international trade, financial institutions, general equilibrium simulations
    JEL: F10 F14 F39 G21
    Date: 2023
  6. By: Wayne Wan
    Abstract: Institutional investors’ irrational familiarity bias can dominate their information advantage under adverse performance shocks to the home assets in their portfolios. Using data of U.S. REITs from 1993 to 2015 and the events of public non-REIT firm acquisitions, this paper investigates how institutional investors react to the geography-specific shocks to home assets. Equity REITs perform worse if they hold more properties in counties where the acquired non-REIT firms are located. Ifthe value of properties that a REIT owns in the target county increases by 10 percentage points, its abnormal return (alpha) decreases by 14.7% in one month after the acquisition announcement. This negative impact is more prominent if the REIT owns more offices than other types of properties in the county, or if the acquired firms are larger than other remaining public firms in the county. Also, the REIT’s return on asset and dividend yield decrease by 6.4% and 5.4% in the next quarter. However, using a difference-in-differences model, I find that institutional home investors are less likely than institutional non-home investors to lower the holdings of affected REITs after the acquisitions. This familiarity bias is stronger if the investors are closer to the affected properties or implement more active investment strategies.
    Keywords: familiarity bias; Institutional Investors; Mergers and acquisitions; REIT
    JEL: R3
    Date: 2022–01–01
  7. By: Qingqing Cao (Michigan State University); Paolo Giordani (LUISS University); Raoul Minetti (Michigan State University); Pierluigi Murro (LUISS University)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2023

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