nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒04‒10
nineteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Does family matter? Venture capital cross-fund cash flows By Kräussl, Roman; Rinne, Kalle; Sunc, Huizhu
  2. Determinants of Cost of Capital: Kenyan context By KENGERE, GEORGE ONYIEGO; Njagi, Manasseh Mwai; Kamau, Charles Guandaru; Chonga, Luvuno
  3. Interaction between Ownership Structure and Systemic Risk in the European financial sector By Carlo Bellavite Pellegrini; Rachele Camacci; Laura Pellegrini; Andrea Roncella
  4. Financial Development and Export Concentration By Florian Unger
  5. Are sustainability-linked loans designed to effectively incentivize corporate sustainability? A framework for review By Auzepy, Alix; Bannier, Christina E.; Martin, Fabio
  6. Growth, Intellectual Capital, Financial Performance And Firm Value : Evidence From Indonesia Automotive Firms By Putri, Indah Ayu Johanda
  7. Resolving financial distress where property rights are not clearly defined: The case of China By Franks, Julian R.; Miao, Meng; Sussman, Oren
  8. Sovereign wealth fund investment in venture capital, private equity, and real asset funds By Cumming, Douglas J.; Monteiro, Pedro
  9. Is acquisition-FDI during an economic crisis detrimental for domestic innovation? By Maria Garcia-Vega; Apoorva Gupta; Richard Kneller
  10. Partial Ownership, Financial Constraint, and FDI By ITO Tadashi; Michael RYAN; TANAKA Ayumu
  11. Does capital bear the burden of local corporate taxes? Evidence from Germany By Aria Ardalan; Sebastian G. Kessing; Salmai Qari; Malte Zoubek
  12. Equity Crowdfunding: The Influence of Perceived Innovativeness on Campaign Success * By Benjamin Le Pendeven; Armin Schwienbacher
  13. Overcoming Financial Challenges for Small and Medium Enterprises: Strategies for Entrepreneurial Success By Amoa-Gyarteng, Karikari
  14. Doing Less, with Less: Capital Misallocation, Investment and the Productivity Slowdown in Australia By Jonathan Hambur; Dan Andrews
  15. On the Origin of IPO Profits By David Brown; Sergey Kovbasyuk; Tamara Nefedova
  16. Biodiversity Finance By Caroline Flammer; Thomas Giroux; Geoffrey Heal
  17. Public versus Private Cost of Capital with State-Contingent Terminal Value By Mariano Moszoro; Luciano Greco
  18. Global Sourcing and Firm Inventory during the Pandemic By ZHANG Hongyong; DOAN Thi Thanh Ha
  19. Tax planning and investment responses to dividend taxation By Koivisto, Aliisa

  1. By: Kräussl, Roman; Rinne, Kalle; Sunc, Huizhu
    Abstract: Venture capital (VC) funds backed by large multi-fund families tend to perform substantially better due to cross-fund cash flows (CFCFs), a liquidity support mechanism provided by matching distributions and capital calls within a VC fund family. The dynamics of this mechanism coincide with the sensitivity of different stage projects owing to market liquidity conditions. We find that the early-stage funds demand relatively more intra-family CFCFs than later-stage funds during liquidity stress periods. We show that the liquidity improvement based on the timing of CFCF allocation reflects how fund families arrange internal liquidity provision and explains a large part of their outperformance.
    Keywords: Venture capital, Fund family, Subsidization, Liquidity, Performance
    JEL: G24 G23 G34
    Date: 2023
  2. By: KENGERE, GEORGE ONYIEGO; Njagi, Manasseh Mwai; Kamau, Charles Guandaru (Technical University of Mombasa); Chonga, Luvuno
    Abstract: The purpose of this paper was to look at the determinants of the cost of capital for a firm. The study conducted a literature review with the goal of identifying the factors that influence the cost of capital for a firm. The research showed that profitability, liquidity, tax, growth, size, and age of the company are among the major determinants that influence the cost of capital for a firm. Further the research showed a positive correlation between the cost of capital and profitability, liquidity, growth, size, and age of the company. The capital arrangement of a firm is determined on account of the pecking order theory and trade-off theory while bearing in mind the cost elements associated with it. In Kenya, economic stability and political stability are the primary determinants that determine the cost of capital for a firm. This determining factor influences the availability and cost of credit offered by financial institutions in Kenya.
    Date: 2023–03–21
  3. By: Carlo Bellavite Pellegrini (Dipartimento di Politica Economica, DISCE, & Centro Studi Economia Applicata (CSEA), Università Cattolica del Sacro Cuore, Milano, Italy); Rachele Camacci (Centro Studi Economia Applicata (CSEA), Università Cattolica del Sacro Cuore, Milano, Italy); Laura Pellegrini (Dipartimento di Scienze Aziendali, Università di Bergamo, Bergamo, Italy - Centro Studi Economia Applicata (CSEA), Università Cattolica del Sacro Cuore, Milano, Italy); Andrea Roncella (Centro Studi Economia Applicata (CSEA), Università Cattolica del Sacro Cuore, Milano, Italy)
    Abstract: This paper aims to empirically test the interaction between systemic risk and corporate governance factors in the European banking framework on a balance panel data of 96 listed banks from 19 countries during the period 2011-2020. The purpose is to understand the role of a corporate governance’s specific issue for the systemic risk, throughtout a period that saw Europe been signed by financial turmoil’s long tail and the ‘whatever it takes’ recovery. Among the available possible governance features we focus on the ownership structure, as the literature shows that it affects the performance of the firm, both on profitability and risk. We choose the European context since its eterogeneity and the presence of a high level of institutional ownership. To measure systemic risk, we will adopt the CoVaR approach (Adrian and Brunnermeier, 2016). Our results show that ownership concentration decreases systemic risk over the period analized, meanwhile institutional investors’ high presence increases it.
    Keywords: Corporate Governance, Ownerhsip Structure, Institutional Investors, Systemic Risk
    JEL: G10 G21 G32
    Date: 2023–02
  4. By: Florian Unger
    Abstract: This paper analyzes the impact of financial development on export concentration. I incorporate credit constraints into a trade model with heterogeneous exporters and endogenous quality choice. The model predicts that financial development increases innovation activity and export shares of larger firms. In contrast, a model variant in which exporters have to finance production costs instead of investments suggests a negative impact of financial development on export concentration as smaller firms benefit more from relaxing credit constraints. These opposing predictions are tested using export data for 70 countries over the period 1997-2014 and exploiting variation in external finance dependence across sectors. I find strong support for the predictions of the investment model that higher financial development increases export concentration among top firms, especially in sectors with high external finance dependence and large scope for quality differentiation. This effect is also present within firms: financial development induces exporters to skew their sales towards the top performing products. I finally show in a counterfactual analysis that financial frictions are quantitatively important to explain the variation in the skewness of exports across countries and sectors.
    Keywords: international trade, superstar firms, export concentration, external finance, credit constraints, financial development, innovation
    JEL: F12 F14 G32 L11
    Date: 2023
  5. By: Auzepy, Alix; Bannier, Christina E.; Martin, Fabio
    Abstract: The issuance of sustainability-linked loans (SLLs) has grown exponentially in recent years. Using a scoring methodology, we examine the underlying key performance indicators of a large sample of SLLs and analyze whether their design creates effective incentives for improving corporate sustainability performance. We demonstrate that the majority of loans fails to meet key requirements that would make them credible instruments for generating effective sustainability incentives. These findings call into question the actual sustainability impact that may be achieved through the issuance of ESG-linked debt.
    Keywords: Sustainability-Linked Loans, sustainability KPIs, ESG lending, ESG loans, sustainable finance
    JEL: G21 G32 M14
    Date: 2023
  6. By: Putri, Indah Ayu Johanda
    Abstract: This study analyzes and explains empirical evidence of the effect of growth and Intellectual Capital respectively on financial performance and firm value, as well as the role of Financial Performance in mediating the influence of company growth and Intellectual Capital respectively on firm value. The benefits of this research are expected to be a reference that enriches the literature of Management Science, especially related to signaling theory and Resource Based Theory. In addition, this research is expected to provide benefits for automotive company managers in developing strategies that can improve financial performance and firm value, investors in automotive companies in making the right decisions in investing in automotive companies and the government in formulating policies related to automotive companies so that more investors invest in automotive companies. To test the hypothesis used Partial Least Square (PLS) analysis. The results of the hypothesis test show that: (1) the company's growth has a positive and insignificant effect on financial performance, (2) Intellectual Capital has a positive and significant effect on financial performance, (3) company growth has a positive and insignificant effect on firm value, (4) Intellectual Capital has a positive and insignificant effect on firm value, (5) financial performance has a positive and significant effect on firm value, (6) financial performance does not mediate the company's growth to the company's value and (7) financial performance mediates Intellectual Capital to the value of the company.
    Date: 2023–03–14
  7. By: Franks, Julian R.; Miao, Meng; Sussman, Oren
    Abstract: We use data on financially distressed Chinese companies in order to study a debt market where property rights are crudely defined and poorly enforced. To help with identification we use an event where a business-friendly province published new guidelines regarding the administration and enforcement of assets pledged as collateral. Although by no means a comprehensive reform of bankruptcy law or property rights, by instructing courts to enforce existing, albeit rudimentary, contractual rights the new guidelines virtually eliminated creditors runs and produced a sharp increase in the survival rate of financially-distressed companies. These changes illustrate how piecemeal reforms of property rights and their enforcement may have a significant impact on economic outcomes. Our analysis and results challenge the view that a fully fledged system of private property is a precondition for economic development.
    Keywords: Finance and development, property rights, financial distress, creditors runs
    JEL: G21 G23 G33 N25 O43
    Date: 2022
  8. By: Cumming, Douglas J.; Monteiro, Pedro
    Abstract: This paper examines the performance of 538 sovereign wealth fund (SWF) investments into venture capital, private equity, and real asset funds ("alternative asset funds") from 52 countries around the world over the years 1995-2020. The data indicate SWFs are significantly slower to fully liquidate and earn lower returns from their investments, particularly from their investments in venture capital funds. The longer duration and lower performance of SWFs is more pronounced for strategic SWFs than savings SWFs. We show that venture capital fund investments are more likely to be in countries with lower quality disclosure indices. SWFs are more often in buyout funds, and in larger funds with a greater number of limited partners. SWF performance is enhanced by having different types of institutional investors in the same limited partnership. Overall, the data indicate sovereign wealth funds make large investments in alternative asset funds with a longer-term view and earn a lower financial return consistent with strategic and political SWF investment motives.
    Keywords: Sovereign wealth funds, Strategic investors, Active investors, Delegated portfolio management, Limited partnerships
    Date: 2023
  9. By: Maria Garcia-Vega; Apoorva Gupta; Richard Kneller
    Abstract: This paper examines how acquisition-FDI during a financial crisis, or fire-sale FDI, affects the R&D investments of target firms. We compare these effects with acquisitions that occur during periods of strong economic growth. Using a panel of Spanish firms from 2004 to 2014, we find that irrespective of when in the business cycle the acquisition occurs, the best domestic firms are cherry-picked by foreign multinationals. Using propensity score matching and difference-in-difference regressions, we find that firms acquired during crises experience smaller declines in domestic R&D than firms acquired during periods of robust growth. To explain why fire-sale FDI does not result in large declines in R&D in target firms, we rely on the macroeconomic literature on the opportunity cost of R&D over the business cycle. Consistent with this theory, we find that firms acquired during crises search for new markets and technologies by becoming more exploratory in their innovation than firms acquired during non-crisis periods.
    Keywords: foreign acquisition; recession; innovation; business cycle
    Date: 2023
  10. By: ITO Tadashi; Michael RYAN; TANAKA Ayumu
    Abstract: Using matched firm-bank-FDI data, this study explores the possibility that firms with stricter financial constraints tend to choose joint ventures with a lower ownership ratio for their foreign subsidiaries. In addition, this study tests the hypothesis that parent firms with banks as their largest shareholders have a lower stake in their foreign subsidiaries because banks are risk averse. The empirical analysis confirms that foreign subsidiary ownership ratios are negatively associated with parent firms' debt ratios. Moreover, this study finds that the greater the degree to which the parent firm has bank shareholders, the lower the parent firm's ownership share in its subsidiaries. However, this tendency weakens when a bank has an overseas subsidiary in the host country, presumably because the information asymmetry is mitigated.
    Date: 2023–03
  11. By: Aria Ardalan; Sebastian G. Kessing; Salmai Qari; Malte Zoubek
    Keywords: Otax incidence, corporate tax, event study
    JEL: H22 H25
    Date: 2023
  12. By: Benjamin Le Pendeven (Audencia Recherche - Audencia Business School); Armin Schwienbacher (SKEMA Business School)
    Abstract: This article examines the impact of perceived innovativeness on the success of equity crowdfunding campaigns. Building on the investor perspective, we hypothesize a positive impact of perceived innovativeness on the campaign outcome. Our database covers 191 campaigns launched in France on different platforms, drawing on over 2, 000 individual assessments of the perceived innovativeness of the start-ups involved, carried out by 176 participants with diverse backgrounds. We find support for our hypothesis from the investor perspective in that highly innovative projects attract more crowd investors and, in turn, raise more capital. We contribute to the understanding of how the crowd makes investment choices.
    Keywords: equity crowdfunding, entrepreneurial finance, start-ups, innovativeness
    Date: 2023
  13. By: Amoa-Gyarteng, Karikari
    Abstract: The article discusses the challenges faced by small and medium-sized enterprises (SMEs) in obtaining finance, which is a critical issue for their growth and profitability. It highlights that SMEs often lack collateral and financial history, which makes it difficult for them to obtain loans from traditional financial institutions. The article then explores two approaches to entrepreneurship, Effectuation and Bricolage, which focus on internal resourcefulness and making the most of what is available, regardless of long-term returns. The paper lists ten strategies that entrepreneurs can adopt including embracing affordability logic, engaging in networking and collaboration among others. By implementing these strategies, SMEs can overcome funding challenges and achieve sustainable growth.
    Keywords: Effectuation, Bricolage, SMEs, Financial Challenges, Strategies
    Date: 2023
  14. By: Jonathan Hambur (Reserve Bank of Australia); Dan Andrews (e61 Institute)
    Abstract: Productivity growth has slowed in Australia in recent decades. Previous research highlighted the roles of persistently weak non-mining investment and a pervasive decline in economic dynamism, including slower reallocation of labour from low- to high-productivity firms. While these facts have so far been considered separately, this paper attempts to connect them by documenting investment patterns for firms with different levels of productivity. We find that more productive firms are more likely to invest and expand their capital stock than less productive firms, but the extent to which this is true has declined over time. This has weighed on productivity, output and incomes through lower aggregate investment, and also through a less efficient allocation of that investment. We find evidence that capital reallocation slowed more in sectors that were more dependent on external finance, pointing to financing frictions as potentially playing a role. Declines have also been more pronounced in sectors with increasing mark-ups, suggesting that weaker competition may have blunted incentives for firms to expand and improve or exit.
    Keywords: productivity; dispersion; firm-level; BLADE
    JEL: C23 C55 D22 D30 E23 E24
    Date: 2023–03
  15. By: David Brown; Sergey Kovbasyuk; Tamara Nefedova (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique)
    Abstract: By combining investors' portfolio holdings with trading and commissions data, we analyze the determinants of IPO allocations. We distinguish among common explanations for investors' IPO profits: information revelation, quid pro quo arrangements (related to commissions), and post-IPO trading behaviors. We find that information proxies explain the majority of the variation in IPO profits, while commissions and post-IPO trading behaviors explain relatively little. Commissions and post-IPO trading matter at the extensive, but not intensive, margins, while information matters at both. Different explanations matter for allocations and IPO profits to Investment Managers, Hedge Funds, and Banks, Pension Funds and Insurers.
    Keywords: IPOs, Allocations, Institutional Investors, Underwriters, Money Left on the Table
    Date: 2021–12
  16. By: Caroline Flammer; Thomas Giroux; Geoffrey Heal
    Abstract: The use of private capital to finance biodiversity conservation and restoration is a new practice in sustainable finance. This study sheds light on this new practice. First, we provide a conceptual framework that lays out how biodiversity can be financed by i) pure private capital and ii) blended financing structures. In the latter, private capital is blended with public or philanthropic capital, whose aim is to de-risk private capital investments. The main element underlying both types of financing is the “monetization” of biodiversity, that is, the extent to which investments in biodiversity can generate a financial return for private investors. Second, we provide empirical evidence using deal-level data from a leading biodiversity finance institution. We find that projects with higher expected returns tend to be financed by pure private capital. Their scale is smaller, however, and so is their expected biodiversity impact. For larger-scale projects with a more ambitious biodiversity impact, blended finance is the more prevalent form of financing. While these projects have lower expected returns, their risk is also lower. This suggests that the blending—and the corresponding de-risking of private capital—is an important tool for improving the risk-return tradeoff of these projects, thereby increasing their appeal to private investors. Finally, we examine a set of projects that did not make it to the portfolio stage. This analysis suggests that, in order to be financed by private capital, biodiversity projects need to meet a certain threshold in terms of both their financial return and biodiversity impact. Accordingly, private capital is unlikely to substitute for the implementation of effective public policies in addressing the biodiversity crisis.
    JEL: G11 G23 G3 Q14 Q2 Q5 Q57
    Date: 2023–03
  17. By: Mariano Moszoro; Luciano Greco
    Abstract: The economic debate underlines the reasons why discount rates of infrastructure projects should be similar, regardless the public or private source of financing, during the forecast period when flows are risky but predictable. In contrast, we show that the incompleteness of contracts between governments and private firms beyond the forecast period (i.e., when flows of net social benefits are state-contingent) entails expected terminal values that are systematically larger under government rather than private financing. This effect provides a new rationale for applying a lower discount rate in the assessment of projects under public financing as compared to private financing.
    Keywords: Social discount rate; public utilities; private financing of infrastructures; public-private partnerships
    Date: 2023–03–10
  18. By: ZHANG Hongyong; DOAN Thi Thanh Ha
    Abstract: Firms hold inventory to manage input shortages and stockout risks. This is particularly true for firms relying on international supply chains and imported inputs. Using a large-scale quarterly government survey of Japanese manufacturing firms (Q1 2015 – Q2 2021), we examine firm-level inventory adjustments to supply chain shocks and focus on firms that sourced inputs globally during the pandemic. We find that before the pandemic, relative to firms that purchase inputs only domestically, importing firms tend to have larger inventories (inventories over sales) in materials, work-in-process (intermediate goods), and finished goods, even after controlling for firm size. After the pandemic, importers significantly and persistently increased their inventories of intermediate inputs, especially in the case of firms with ex-ante higher import intensity and multinational firms that experienced supply chain disruptions in China. These results suggest the possibility of a shift from just-in-time to just-in-case production during the pandemic. We then discuss the role of inventories as a buffer against input shortages and other factors affecting inventory holdings, such as the prefecture-level severity of COVID-19 infections, industry-level input and output prices, and firm-level financial constraints and uncertainties regarding the economic and business outlook.
    Date: 2023–03
  19. By: Koivisto, Aliisa
    Abstract: This study explores how business owners respond to dividend taxes in different margins including tax planning and investment. I use administrative tax data on all privately held Finnish corporations and their main owners in 2006–2016. By using tax schedule discontinuities and changes in the schedule as variation, I find exceptionally clear dividend payment responses to tax rates. Evidence on the asset composition of firms indicates that a notable part of the payment response is due to inter-temporal income-smoothing, while changes in the tax schedule did not cause significant real responses in output or investment. Hence, dividend taxes capitalize into share values, as earnings are left in the firms to avoid higher dividend tax. In addition, studying the income composition of owners around tax changes reveals income-shifting between wage and dividends with negligible effect on gross income received from the firm.
    Keywords: dividend taxation, investment, income-shifting, bunching, Business taxation and regulation, G38, H21, H24, H25, fi=Verotus|sv=Beskattning|en=Taxation|,
    Date: 2023

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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