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on Corporate Finance |
| By: | Aysan, Ahmet Faruk; Babacan, Mehmet; Gür, Nurullah; Süleyman, Selim |
| Abstract: | This paper examines how small and medium-size enterprises (SMEs) in Istanbul managed their financial needs during the COVID-19 pandemic. A unique survey was conducted in May–June 2021 to analyze the effect of the pandemic on financial conditions and access to finance. The paper maps the differences between firms in terms of their financing conditions and behavior based on their size during the pandemic. The novel data set helps to conceptualize the impact of the COVID-19 pandemic on SMEs. The paper makes a contribution to the literature through using a large number of variables related to firms’ financial conditions and opportunities (e.g., credit restructuring, debt postponing, capital injection). The paper hypothesizes that SMEs are less likely than large firms to access formal finance opportunities, but they tend to rely more on informal financing. The empirical findings suggest that, during the pandemic, micro and small firms tend to borrow more from their acquaintances, such as relatives and friends. Micro firms are less likely to restructure their outstanding loans, borrow from banks, or inject capital. Furthermore, micro firms tend to cut their costs more to avoid further difficulty in their financial positions. Micro and small firms tend to apply for bank loans less than large firms, while medium-size firms are more likely to apply. Micro and small firms are more inclined to report difficulty in accessing credit. |
| Keywords: | COVID-19, emerging markets, finance, small and medium-size enterprises (SMEs) |
| JEL: | D22 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116300&r=cfn |
| By: | Luca Benzoni; Lorenzo Garlappi; Robert S. Goldstein; Chao Ying |
| Abstract: | We investigate equilibrium debt dynamics for a firm that cannot commit to a future debt policy and is subject to a fixed restructuring cost. We formally characterize equilibria when the firm is not required to repurchase outstanding debt prior to issuing additional debt. For realistic values of issuance costs and debt maturity, the no-commitment policy generates tax benefits that are similar to those obtained by a benchmark policy with commitment. For positive but arbitrarily small issuance costs, there are maturities for which shareholders extract essentially the entire claim to cash-flows. |
| Keywords: | capital structure; debt dynamics; commitment; Issuance Costs; debt maturity |
| JEL: | G12 G32 G33 |
| Date: | 2022–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:95476&r=cfn |
| By: | Pham, Thu Phuong; Singh, Harminder; Vu, Van Hoang |
| Abstract: | We examine the impact of bank loan announcements on stock liquidity. Using a comprehensive loan announcement sample over 14 years in Australia, we find that effective spreads and realised spreads of borrowers' stocks fall after the announcements. The findings suggest these announcements send positive signals about borrowers to the market that increases liquidity provision, and reduce transaction costs, leading to improved liquidity for borrowers’ stocks. This liquidity improvement is more pronounced following announcements of new loans than loan renewals. Overall, our findings provide practical implications for firm managers in the financing decision-making process and market participants in trading strategy adjustment. |
| Keywords: | Loans announcements; Stock liquidity; Transaction costs, Corporate decisions |
| JEL: | G10 G14 G20 G24 |
| Date: | 2023–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116398&r=cfn |
| By: | Andreas G. F. Hoepner (Smurfit Graduate Business School, University College Dublin; European Commission's Platform on Sustainable Finance); Johannes Klausmann (ESSEC Business School); Markus Leippold (University of Zurich; Swiss Finance Institute); Jordy Rillaerts (University of Zurich - Department of Banking and Finance; Swiss Finance Institute) |
| Abstract: | This paper examines the impact of the EU Taxonomy's non-climate environmental criteria on the corporate credit risk term structure. We focus on infrastructure firm-level credit risk transmitted through CDS with differential maturities (e.g., ten-year minus one-year) in relation to biodiversity, water risks, and pollution prevention to understand the incentives created by these criteria for green infrastructure investments. Where these criteria describe risks of the environment for the firm (i.e., conventional materiality), we find that firms managing any of these three risks best have up to 93bps better relative long-term refinancing conditions than the worst ones. With respect to the second part of double materiality (i.e., the impact of the firm on the environment), we find statistically significant results only for pollution prevention of up to 70bps. Unexpected political right-wing shocks, such as the Trump election, had reversing effects on biodiversity and pollution prevention but not on water risks. These reversals were evident on the short end of the CDS curve but modest on the long end. Overall, our results suggest that investors appear to credit better management of the environmental criteria beyond climate with improved long-term financing conditions on infrastructure investments. |
| Keywords: | Double materiality, EU Taxonomy, infrastructure, term structure. |
| JEL: | G12 G18 G32 M14 Q52 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2310&r=cfn |
| By: | McKay Price; Vladimir A. Gatchev; Nandkumar Nayar; Ajai Singh |
| Abstract: | DeAngelo, Gonçalves, and Stulz (2018) offer a “credit-card” perspective of debt and document that firms periodically deleverage to restore financial flexibility. However, the valuation consequences of deleveraging have been left unexplored. Lines of credit, closely monitored by the associated lending institutions, represent the closest analog to corporate credit-cards. Employing a sample of equity issuances, we find that deleveraging via repayments of credit lines is viewed favorably by markets. We posit that repayments replenish credit lines and restore financial flexibility, while preserving bank monitoring (Acharya, Almeida, Ippolito, Perez, 2014). We refer to the integrated beneficial effect as Monitored Financial Flexibility. |
| Keywords: | Credit lines; Deleveraging; Monitored financial flexibility; Real Estate Investment Trusts (REITs) |
| JEL: | R3 |
| Date: | 2022–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:arz:wpaper:2022_121&r=cfn |
| By: | Chen, Zhenzhu; Li, Li; Tang, Yao |
| Abstract: | We constructed an Actuary Climate Index to measure extreme weather risks in China. Analyzing macroeconomic data through a structural vector auto-regression model suggests that a negative weather shock leads to persistently low GDP and credit obtained by non-financial firms. In our regression analysis of a panel of firms listed in China, the negative effects of weather shocks on firm level loans were statistically and practically significant. Further analysis suggests that credit risk and expectations are two important impact channels. A high existing credit risk or low confidence among firm managers, amplifies the negative effects of extreme weather on loans. |
| Keywords: | extreme weather shocks, credit risk, expectations, Chinese economy |
| JEL: | E32 E44 G32 Q54 |
| Date: | 2023–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116472&r=cfn |
| By: | Hussain, Adam (National Institute of Public Finance and Policy) |
| Abstract: | Does a reduction in the corporate income tax rate trigger investments in developing countries? This paper answers this question in a difference in differences framework. Using firm-level data on Indian manufacturing firms. I study the effect of the 2019 and 2020 Indian tax reform that reduced the corporate income tax rate for domestic firms by 5%. I find that the reduction in corporate income tax led to a significant increase in the investments of domestic firms. The magnitude of the effect is found to be stronger for large domestic firms than the smaller ones. These results imply that the corporate income tax cuts can increase investment in developing countries and large domestic firms benefit more than small firms from a tax cut. |
| Keywords: | Investment ; Corporate tax ; Indian manufacturing firms |
| JEL: | G31 H25 H71 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:23/390&r=cfn |
| By: | Valentina Peruzzi (Sapienza University of Rome); Pierluigi Murro (LUISS University); Stefano Di Colli (Confindustria Research Department) |
| Abstract: | This paper investigates whether local cooperative banks mitigated income inequality in Italian municipalities after the two main crises that characterized the European landscape between 2008 and 2015, i.e. the financial and sovereign-debt crises. Estimation results reveal that, although in the post-crisis periods income inequality increased, this increase was lower in municipalities with at least one cooperative bank branch. The same result, that is a mitigation of income inequality, is not found for non-cooperative banks. Also the size of the cooperative banking system mattered after the crises: where cooperative banks extended more loans and collected more deposits income inequality was lower. The distributional impact of cooperative banks after the two crises was particularly relevant in small municipalities, and where the level of industrial and financial development was higher. |
| Keywords: | Cooperative banking; income inequality; financial development; financial crisis; municipalities |
| JEL: | G21 G38 O15 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:lui:casmef:2301&r=cfn |
| By: | Richard Ruble; Dimitrios Zormpas |
| Abstract: | We study how overlapping ownership affects the timing and size of capacity investments in duopoly. In addition to standard accommodation and delay strategies, internalization allows a leader to block follower entry. Follower timing and capacity reactions are less aggressive, making outcomes less competitive ex-post. Positional competition is more intense, and entry occurs earlier in equilibrium. Internalization raises a leader's incentive to delay follower entry rather than accommodate, and we show with an example that this strategic shift can benefit consumers. |
| Keywords: | ownership, cross-ownership, dynamic competition, Stackelberg leadership, strategic capacity investment |
| JEL: | D25 G32 L13 |
| Date: | 2022–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:crt:wpaper:2201&r=cfn |
| By: | Pablo Garcia Sanchez (Banque centrale du Luxembourg, Département Economie et Recherche); Luca Marchiori (Banque centrale du Luxembourg, Département Economie et Recherche); Olivier Pierrard (Banque centrale du Luxembourg, Département Economie et Recherche) |
| Abstract: | Long-term care (LTC) expenditures of the elderly are high in developed countries and will grow further with population aging. In addition, LTC costs are heterogeneous across individuals and unknown early in life. In this paper, we add uncertainty over the arrival and magnitude of future LTC costs into a life-cycle model with endogenous aging, and we analyze how this affects the optimal behavior of agents. We show that uncertainty boosts precautionary savings, lowers investment in preventive care, and weakens the effectiveness of subsidies to encourage prevention. Our results therefore suggest that uncertainty should not be ignored in models that study positive or normative aspects of health investment. |
| Keywords: | health; long-term care costs; uncertainty; stochastic model |
| JEL: | C60 D15 D81 I12 I18 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2023006&r=cfn |
| By: | Antonio De Vito; Martin Jacob; Dirk Schindler; Guosong Xu |
| Abstract: | This paper studies how corporate tax hikes transmit across countries through multinationals’ internal networks of subsidiaries. We build a parsimonious multicountry model to underscore two opposing spillover effects: While tax competition between countries generates positive investment spillover, intra-firm production linkages predict negative spillover. Using subsidiary-level data and exogenous corporate tax hikes, we find that local business units cut investment by 0.4% for a 1% increase in foreign corporate tax. This result highlights the importance of production linkages in propagating foreign tax shocks, as the supply-chain-induced negative spillover dominates the positive spillover effect suggested by the conventional wisdom of tax competition. |
| Keywords: | tax hike, investment, internal networks, multinationals, spillover effects |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10272&r=cfn |