nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒04‒03
twelve papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. External Financing and Firm Growth: Evidence from Micro, Small, and Medium Enterprises in Iran By Iman Cheratian; Saleh Goltabar; Hassan Gholipour Fereidouni; Mohammad Reza Farzanegan
  2. Dynamic Credit Constraints: Theory and Evidence from Credit Lines By Amberg, Niklas; Jacobson, Tor; Quadrini, Vincenzo; Rogantini Picco, Anna
  3. Trusting the crowd: Effects of crowdfunding on venture capital syndicates By Thies, Ferdinand; Huber, Alexander; Bock, Carolin; Benlian, Alexander
  4. Corporate Governance: Compliance with the Selection Criteria of Board of Directors in Public Sector Companies By Anjeela Khurram
  5. Greenhouse gas emissions and bank lending By Koji Takahashi; Junnosuke Shino
  6. Uncertainty in firm valuation and a cross-sectional misvaluation measure By Bottazzi, Giulio; Cordoni, Francesco; Livieri, Giulia; Marmi, Stefano
  7. Stock Market Responses to Monetary Policy Shocks: Universal Firm-Level Evidence By Samuel Federico Kaplan; Arin Kerim Peren Kaplan; Polyzos Efstathios Kaplan; Spagnolo Nicola Kaplan
  8. Wages and the Role of Intangibles in Finance By Adnan Velic
  9. The financial health of a company and the risk of its default: Back to the future By Gianmarco Bet; Francesco Dainelli; Eugenio Fabrizi
  10. Financial Distress Prediction For Small And Medium Enterprises Using Machine Learning Techniques By Yuan Gao; Biao Jiang; Jietong Zhou
  11. How should performance signals affect contracts? By Chaigneau, Pierre; Edmans, Alex; Gottlieb, Daniel
  12. The Asymmetric Response of Dividends to Earnings News By JIN SEO CH; MATTHEW GREENWOOD-NIMMO; YONGCHEOL SHIN

  1. By: Iman Cheratian (Tarbiat Modares University); Saleh Goltabar (Tarbiat Modares University); Hassan Gholipour Fereidouni (Western Sydney University); Mohammad Reza Farzanegan (Marburg University)
    Abstract: This study examines the relationship between access to finance and growth in sales for Micro, Small, and Medium Enterprises (MSMEs) in Iran. Using data from 486 firms in five provinces, our findings indicate that external financing positively impacts sales growth for MSMEs. The results suggest that financing for research and development expenditures, production diversification, new employment and advertising can significantly contribute to increased sales growth. We also find that spending on intellectual property, labor training and land and building acquisition have a negative moderating effect on the relationship between finance and sales growth.
    Keywords: Finance-sale growth nexus; Micro, Small, and Medium Enterprises (MSMEs); Iranian economy; External financing
    JEL: G21 G32 G38 O16 O53
    Date: 2023
  2. By: Amberg, Niklas (Research Department, Central Bank of Sweden); Jacobson, Tor (Research Department, Central Bank of Sweden); Quadrini, Vincenzo (University of Southern California, Marshall School of Business); Rogantini Picco, Anna (Research Department, Central Bank of Sweden)
    Abstract: We use a comprehensive Swedish credit register to document that firms throughout the size distribution have access to fairly large and reasonably priced credit lines, but borrow relatively little from them. We rationalize this using a theoretical framework in which the expected cost of financial distress increases with current borrowing and lower credit-line utilization reflects tighter ‘dynamic’ credit constraints. Consistently with the predictions of the model, the data shows that there is a negative relation between firm-level uncertainty and credit-line utilization. We also find that firms increase borrowing in response to credit-limit increases, even when their current debt is far from the limit.
    Keywords: Credit constraints; banks; uncertainty; credit lines; precautionary behavior
    JEL: D22 E44 G21 G32
    Date: 2023–03–01
  3. By: Thies, Ferdinand; Huber, Alexander; Bock, Carolin; Benlian, Alexander
    Date: 2023
  4. By: Anjeela Khurram (Pakistan Institute of Development Economics)
    Abstract: Safeguarding the interests of shareholders and stakeholders from managerial misconduct and fraud is one of the core domains of corporate governance. Corporate governance activities can be classified into five broad areas: Board Effectiveness, Audit and Risk/External Accountability, Remuneration and Reward, Shareholder Relations and Stakeholder Relations. Adhering to the Code of Corporate Governance (CCG) can facilitate the success of the company by achieving effective and prudent management.
    Date: 2022
  5. By: Koji Takahashi; Junnosuke Shino
    Abstract: This paper investigates the effect of the greenhouse gas (GHG) emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018. Previous findings suggest that climate risks priced in corporate bonds or syndicated loans are statistically significant but economically minor. This paper investigates bank lending behavior in terms of the loan amount, which we consider to have a more direct effect on firm investment decisions. This paper finds that banks significantly decrease loans to firms with higher GHG emissions. Moreover, this GHG emissions effect appears to have prevailed even before the signing of the Paris Agreement, which the existing literature considers as the starting point where GHG emissions are incorporated in the pricing of debt instruments as credit risk. Finally, banks with greater leverage and a lower return on assets are more likely to decrease loans to firms with high GHG emissions.
    Keywords: greenhouse gas, bank lending, leverage, loan-level data
    JEL: E51 G21 Q54
    Date: 2023–03
  6. By: Bottazzi, Giulio; Cordoni, Francesco; Livieri, Giulia; Marmi, Stefano
    Abstract: The degree of uncertainty associated with the value of a company plays a relevant role in valuation analysis. We propose an original and robust methodology for company market valuation, which replaces the traditional point estimate of the conventional Discounted Cash Flow model with a probability distribution of fair values that convey information about both the expected value of the company and its intrinsic uncertainty. Our methodology depends on two main ingredients: an econometric model for company revenues and a set of firm-specific balance sheet relations that are estimated using historical data. We explore the effectiveness and scope of our methodology through a series of statistical exercises on publicly traded U.S. companies. At the firm level, we show that the fair value distribution derived with our methodology constitutes a reliable predictor of the company’s future abnormal returns. At the market level, we show that a long-short valuation (LSV) factor, built using buy-sell recommendations based on the fair value distribution, contains information not accessible through the traditional market factors. The LSV factor significantly increases the explanatory and the predictive power of factor models estimated on portfolios and individual stock returns.
    Keywords: Kalman filter; Stochastic discounted cash flow; valuation factor; valuation uncertainty
    JEL: J1 C1 F3 G3
    Date: 2023–01–17
  7. By: Samuel Federico Kaplan; Arin Kerim Peren Kaplan; Polyzos Efstathios Kaplan; Spagnolo Nicola Kaplan
    Abstract: Using a universal firm-level data set for the U.S., we investigate the stock price responses to unanticipated and unconventional monetary policy shocks. Our results show that indebtedness/ leverage is more important than size or age in explaining the cross-firm variation in responses to monetary policy. We also show that the magnitude of the indebtedness is important while the debt structure is not, and our results are driven by the third quartile of firms in terms of their leverage. Finally, our results are robust to the use of different measures of monetary policy shocks.
    JEL: E5 G1 C4
    Date: 2022–11
  8. By: Adnan Velic (Technological University Dublin)
    Abstract: This paper investigates the role of intangible and ICT capital in the growth of relative finance wages. Within a multi-level nested production framework, we find that the degree and effects of complementarity between skilled labor and different categories of capital are much more pronounced in finance than in the rest of the market economy. The stronger positive effects of such complementarity on finance skill premia are further reinforced by relatively stronger technical change in the sector. Controlling for various factors, subsequent reduced-form analysis also indicates that rising intangible or ICT capital in finance relative to that in non-finance increases corresponding relative aggregate and skilled finance wages through complementarity and volume effects. This implies that skill composition matters for relative finance wage growth. While skilled labor, compared to unskilled labor, predominantly drives finance wages, we also find that the finance sector contributes to income inequality by disproportionately affecting the market economy skill premium. Despite accounting for under a tenth of overall economic activity, finance offsets up to almost a third of declines in skilled-unskilled wage disparities nationally. Intensified intangible capital growth in the industry stands to exacerbate this trend. Finally, our study suggests that financial deregulation, globalization, banking competition, and domestic credit expansion positively affect finance relative to non-finance wages, while relative skilled labor supply increases and labor market rigidity impart negative effects. We obtain strong evidence that stricter labor market protection dampens the impact of banking competition.
    Keywords: skill premium, inequality, intangiblecapital, finance, factor-substitutionelasticities, factor-biasedproductivitygrowth, factor-income shares, multi-level nesting
    JEL: G2 J2 J3 O3 O4
    Date: 2023–03
  9. By: Gianmarco Bet; Francesco Dainelli; Eugenio Fabrizi
    Abstract: We theorize the financial health of a company and the risk of its default. A company is financially healthy as long as its equilibrium in the financial system is maintained, which depends on the cost attributable to the probability that equilibrium may decay. The estimate of that probability is based on the credibility and uncertainty of the company's financial forecasts. Accordingly, we develop an equilibrium model establishing ranges of interest rates as a function of predictable corporate performance and of its credit supply conditions. As a result, our model estimates idiosyncratic default risk and provides intrinsically forward-looking PD.
    Date: 2023–02
  10. By: Yuan Gao; Biao Jiang; Jietong Zhou
    Abstract: Financial Distress Prediction plays a crucial role in the economy by accurately forecasting the number and probability of failing structures, providing insight into the growth and stability of a country's economy. However, predicting financial distress for Small and Medium Enterprises is challenging due to their inherent ambiguity, leading to increased funding costs and decreased chances of receiving funds. While several strategies have been developed for effective FCP, their implementation, accuracy, and data security fall short of practical applications. Additionally, many of these strategies perform well for a portion of the dataset but are not adaptable to various datasets. As a result, there is a need to develop a productive prediction model for better order execution and adaptability to different datasets. In this review, we propose a feature selection algorithm for FCP based on element credits and data source collection. Current financial distress prediction models rely mainly on financial statements and disregard the timeliness of organization tests. Therefore, we propose a corporate FCP model that better aligns with industry practice and incorporates the gathering of thin-head component analysis of financial data, corporate governance qualities, and market exchange data with a Relevant Vector Machine. Experimental results demonstrate that this strategy can improve the forecast efficiency of financial distress with fewer characteristic factors.
    Date: 2023–02
  11. By: Chaigneau, Pierre; Edmans, Alex; Gottlieb, Daniel
    Abstract: The informativeness principle states that a contract should depend on informative signals. This paper studies how it should do so. Signals indicating that the output distribution has shifted to the left (e.g., weak industry performance) reduce the threshold for the manager to be paid; those indicating that output is a precise measure of effort (e.g., low volatility) decrease high thresholds and increase low thresholds. Surprisingly, “good” signals of performance need not reduce the threshold. Applying our model to performance-based vesting, we show that performance measures should affect the strike price, rather than the number of vesting options, contrary to practice.
    JEL: D86 G34 G32 J33
    Date: 2022–01–01
  12. By: JIN SEO CH (Yonsei University); MATTHEW GREENWOOD-NIMMO (University of Melbourne); YONGCHEOL SHIN (University of York)
    Abstract: We provide new evidence of sign-asymmetry in dividend payout policy in the postwar period in the U.S. Using a nonlinear autoregressive distributed lag model, we show that managers: (i) smooth the time-path of dividends relative to earnings; (ii) target a higher long-run payout ratio when earnings increase than when they decrease; and (iii) cut dividends faster than they raise dividends. Our findings are consistent with existing research on the implications of agency problems and signalling effects for payout policy.
    Keywords: Payout policy; dividend-smoothing; sign-asymmetry; two-step estimation.
    JEL: C22 C58 G35
    Date: 2023–03

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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