nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒05‒08
nine papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Debt Maturity Structure and Corporate Investment By Hong, Claire Yurong; Hou, Kewei; Nguyen, Thien Tung
  2. Institutional Blockholders and Corporate Innovation By Bing Guo; Dennis C. Hutschenreiter; David Pérez-Castrillo; Anna Toldrà-Simats
  3. Does Greater Public Scrutiny Hurt a Firm's Performance? By Bennett, Benjamin; Stulz, Rene M.; Wang, Zexi
  4. Collaborative financing and supply chain coordination for corporate social responsibility By Franck Moraux; Dinh Anh Phan; Thi Le Hoa Vo
  5. The SME-lender relationship network in Ireland By Gaffney, Edward; McGeever, Niall
  6. Banks vs. Firms: Who Benefits from Credit Guarantees? By Alberto Martin; Sergio Mayordomo; Victoria Vanasco
  7. Liquidity Constraints, Cash Windfalls, and Entrepreneurship: Evidence from Administrative Data on Lottery Winners By Hsuan-Hua Huang; Hsing-Wen Han; Kuang-Ta Lo; Tzu-Ting Yang
  8. The Interrelationship of Credit and Climate Risks By Henry Penikas
  9. Tax and sustainable development in sub-Saharan Africa: Beyond accountability and responsiveness By Alex Adegboye; Abrams M.E. Tagem

  1. By: Hong, Claire Yurong (SAIF, Shanghai Jiao Tong U); Hou, Kewei (Ohio State U); Nguyen, Thien Tung (Ohio State U)
    Abstract: We show that firms' debt maturity structure plays an important role in investment above and beyond that of leverage. Firms with a longer debt maturity structure tend to invest more. These results are stronger for firms with high leverage, profitability, and growth potential. We rationalize our results in a model in which debt maturity structure is determined by the trade-off between liquidity cost and the repayment flexibility of long-term debt. In our model, highly productive firms invest more and prefer to use long-term debt to free up funds for future investment. This mechanism is supported by the data. Our findings highlight the importance of debt maturity structure in understanding corporate investment decisions.
    JEL: E22 G11 G32 G33
    Date: 2023–02
  2. By: Bing Guo; Dennis C. Hutschenreiter; David Pérez-Castrillo; Anna Toldrà-Simats
    Abstract: Institutional investors’ ownership in public firms has become increasingly concentrated in the last decades. We study the heterogeneous effects of large versus more dispersed institutional owners on firms’ innovation strategies and their innovation output. We find that large institutional investors induce managers to increase spending in internal R&D by reducing short-term pressure. However, to avoid empire building and dilution, large institutional investors prevent acquisitions, which reduces firms’ investment in external innovation. The overall effect on firms’ future patents and citations is negative. By acquiring less innovation from external sources, firms reduce the returns of their investment in internal R&D, jeopardizing their total innovation output. We use the mergers of financial institutions as exogenous shocks on firms’ institutional ownership concentration. Our findings complement the previously found positive effects of institutional ownership on firm innovation and indicate that the effects become negative when institutional investors become large owners.
    Keywords: institutional ownership, blockholders, innovation, acquisitions
    JEL: G32 G24 O31
    Date: 2023–04
  3. By: Bennett, Benjamin (Tulane U); Stulz, Rene M. (Ohio State U and ECGI, Brussels); Wang, Zexi (Lancaster U)
    Abstract: Public attention to a firm may provide valuable monitoring, but it may also have a dark side by constraining management's decisions and distracting it. We use inclusion in the S&P 500 index as a positive shock to public attention. Media coverage, Google searches, SEC downloads, SEC comment letters, shareholder proposals, analyst coverage, and lawsuits increase following inclusion. Post-inclusion performance falls and is negatively related to the increase in attention. Included firms' investment and payout policies become more similar to those of index peers and the increase in similarity is positively related to the size of the attention increase.
    JEL: G24 G31 G32 G35
    Date: 2023–01
  4. By: Franck Moraux (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique); Dinh Anh Phan (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, The university of Danang); Thi Le Hoa Vo (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Recent research in supply chain (SC) management shows that collaborative financing and coordination can separately improve the SC's corporate social responsibility (CSR). This article examines how reverse factoring (RF) and cost-sharing (CS) contracts initiated by sizable creditworthy retailers interact and can help SCs address various challenges posed by CSR, especially for small-and medium-sized suppliers with limited working capital. RF can simultaneously lead to greater CSR effort and higher profits for all SC members compared to traditional bank financing. We highlight, nevertheless, how some factors, such as market demand uncertainty, the interest rate premia charged by the respective banks, and the supplier's or retailer's bankruptcy risks, determine the adoption and the benefits of the financing devices. Our managerial implications indicate that combining collaborative financing and coordination can simultaneously be profitable for all members of the SC and incentivize the supplier to raise the CSR efforts. Specifically, a CS contract associated with an appropriate financing mechanism can help to improve CSR and the SC's profitability.
    Keywords: Corporate social responsibility, Collaborative financing, Reverse factoring, Supply chain coordination
    Date: 2023
  5. By: Gaffney, Edward (Central Bank of Ireland); McGeever, Niall (Central Bank of Ireland)
    Abstract: In this Note, we examine the relationship between non-bank lenders and Irish small and medium enterprises (SMEs). We review the relevance of non-bank lending to financial stability. We then describe the SME-lender relationship network in Ireland. We find that 36 per cent of SME company borrowers owe money to a non-bank lender, with 15 per cent borrowing exclusively from nonbanks and 21 per cent borrowing from both banks and non-banks. We also show that 71 per cent of borrowers have only one lender. Finally, we characterise the firms that rely on non-bank lenders for credit. We find that SMEs that borrow from non-banks are younger, less liquid, and have higher leverage than SMEs that borrow from banks.
    Date: 2022–11
  6. By: Alberto Martin; Sergio Mayordomo; Victoria Vanasco
    Abstract: Many countries implemented large-scale programs to guarantee private credit in response to the outbreak of COVID-19. Yet the role of banks in allocating guarantees - and thus in shaping their effects - is not well understood. We study this role in an economy where entrepreneurial effort is crucial for efficiency but it is not contractible, giving rise to a debt overhang problem. In such an environment, credit guarantees increase efficiency to the extent that they allow firms to reduce their repayment obligations. We show that banks follow a pecking order when allocating guarantees, prioritizing riskier, highly indebted, firms, from whom they can extract more surplus. The competitive equilibrium is constrained inefficient: all else equal, the planner would tilt the allocation of guarantees towards more productive, safer firms, and would fully pass-through the benefits of guarantees to firms in the form of lower repayments. We confirm the model's main predictions on the universe of all credit guarantees granted in Spain following the outbreak of COVID.
    Keywords: credit guarantees, Debt Overhang, liquidations
    Date: 2023–04
  7. By: Hsuan-Hua Huang; Hsing-Wen Han; Kuang-Ta Lo; Tzu-Ting Yang
    Abstract: Using administrative data on Taiwanese lottery winners, this paper examines the effects of cash windfalls on entrepreneurship. We compare the start-up decisions of households winning more than 1.5 million NTD (50, 000 USD) in the lottery in a particular year with those of households winning less than 15, 000 NTD (500 USD). Our results suggest that a substantial windfall increases the likelihood of starting a business by 1.5 percentage points (125% from the baseline mean). Startup wealth elasticity is 0.25 to 0.36. Moreover, households who tend to be liquidity-constrained drive the windfall-induced entrepreneurial response. Finally, we examine how households with a business react to a cash windfall and find that serial entrepreneurs are more likely to start a new business but do not change their decision to continue the current business.
    Date: 2023–03
  8. By: Henry Penikas (Bank of Russia, Russian Federation)
    Abstract: The focus of our study is the environmental (E) risk score. For this paper, we have collected a unique database of public ESG ratings for the world largest companies in the Fortune Global 2000 list. The credit risk estimates are derived from publicly available credit ratings. The probability of default (PD) levels result from the use of historical default data. We control for the specifics of industries and sectors. The availability of E-risk data for half of the sample implies the need to apply the Heckman selection model. We show cases when the climate-credit risk relationship is robustly positive for a particular industry and region: in such cases, loan subsidies are indeed advisable to finance large green projects and green corporations (e.g. the 2021 Bank of Japan program Ð though it was tailored for SMEs). Otherwise Ð in the predominant number of cases Ð such a loan rate reduction may foster the accumulation of credit risks and pose a threat to financial stability. We contribute to the literature by showing that the revealed positive climate-credit risks dependence is not ubiquitous Ð which is argued by (Capasso, Gianfrate, & Spinelli, 2020).
    Keywords: green company, brown company, Sustainalytics, carbon dioxide emissions, Heckman.
    JEL: C24 E52 H23 O44
    Date: 2022–09
  9. By: Alex Adegboye; Abrams M.E. Tagem
    Abstract: This paper establishes how accountability quality might mediate the effect of tax revenue on sustainable development in 41 sub-Saharan African countries for the period 1990-2019. The empirical evidence is based on three empirical strategies: generalized method of moments, instrumental variable Tobit, and quantile regressions. The following findings are revealed. First, accountability dynamics influence tax revenue in ways that have favourable net effects on sustainable development.
    Keywords: Sub-Saharan Africa, Accountability, Revenue mobilization, Tax revenue, Sustainable development
    Date: 2023

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