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on Corporate Finance |
| By: | Isabel Argimón (Banco de España); Irene Roibás (Banco de España) |
| Abstract: | The empirical literature on the debt overhang hypothesis has estimated the relationship between investment and leverage at the firm level, which does not allow to disentangle between a firm’s decision not to invest as it is highly indebted and its ability to obtain the necessary resources. Using annual Spanish credit data from the Central Credit Register and non-financial corporations’ annual accounts from the lntegrated Central Balance Sheet Data Office Survey for the period 2004-2019, we study the impact of corporate debt on non-financial firms’ demand for bank loans, as a proxy for their willingness to invest. We find a negative relationship between firms’ leverage and demand for bank credit, thus supporting the debt overhang hypothesis. We then study whether such relationship is affected by financial conditions and find that a reduction in short-term interest rates mitigates the effect of firms’ leverage on demand for credit. |
| Keywords: | credit demand, corporate investment, debt overhang, financial conditions, interest rates, leverage |
| JEL: | E22 E41 E43 E52 G21 G32 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2308&r=cfn |
| By: | Andrea Gamba; Alessio Saretto |
| Abstract: | If firms can issue debt only at discrete dates, debt maturity is an effective device against the commitment problem on debt and investment policies. With shorter maturities, debt dynamics are less persistent and more valuable because upward leverage adjustments are faster and long-run leverage lower. Debt maturities that are relatively shorter than asset maturities increase marginal q, and reduce underinvestment. A decomposition of the credit spread consistent with equilibrium shows that the component due to the commitment problem on future debt issuances is sizeable when leverage and default risk are low, and is lower for shorter maturity. |
| Keywords: | credit risk; debt-equity agency conflicts; leverage ratchet effect; financial contracting; debt maturity |
| JEL: | G12 G31 G32 E22 |
| Date: | 2023–04–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:96046&r=cfn |
| By: | Olasehinde, Noah; Yusuff, Olanrewaju |
| Abstract: | The study empirically investigated the effect of capital structure on firm performance among agro-allied firms listed on the Nigerian Stock Exchange from 2003 to 2017. Pooled OLS, random effect and fixed effect regressions were used to analyse the data. Performance was measured by return on investment, return on assets and earnings per share while capital structure was captured by leverage and equity finance. Equity finance was found to have a significant effect on returns on investment and assets while leverage impacted earnings per share. Also, firms’ growth and age were positively related to performance while size had an inverse relationship. Therefore, firms should adopt an efficient equity-debt ratio that significantly improves performance over a specific production period. |
| Date: | 2022–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:6jzan&r=cfn |
| By: | Miguel Duro (IESE Business School); Germán López-Espinosa (School of Economics - Universidad de Navarra and IESE Business School); Sergio Mayordomo (Banco de España); Gaizka Ormazabal (IESE Business School, CEPR and ECGI); María Rodríguez-Moreno (Banco de España) |
| Abstract: | This paper studies firm-level factors shaping the enforcement of financial reporting regulation on private firms and proposes bank lending as a particularly important one. Our tests are based on a rare combination of data sets, which allows us to construct unique measures of misreporting, notably in the form of underreporting of debt. We observe that private firms with bank debt are more likely to file mandatory financial reports and less likely to file information with irregularities. While we also find evidence that the need for bank financing can induce firms to misreport, this concern is mitigated by additional findings suggesting that banks detect reporting issues within private firms’ financial statements. Critically, we observe that firms with reporting issues obtain significantly less credit, especially when the bank has had previous exposure to debt misreporting and when the bank verifies debt information using the public credit registry. In short, our paper documents important firm-level determinants of private firms’ misreporting and highlights that banks play a significant role in the enforcement of mandatory financial reporting on these firms. |
| Keywords: | enforcement of financial reporting, private firms, debt underreporting, financial distress, public credit registries |
| JEL: | G21 M41 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2238&r=cfn |
| By: | Grijalva, Diego |
| Abstract: | In this paper we analyze the on-impact effect of the Covid-19 pandemic on Ecuadorian firms and, conditional on this, we analyze firms' short-run performance. We estimate various econometric models on a combined dataset of almost 5, 000 firms that includes fiscal-year performance variables from the Ecuadorian Superintendencia de Compañías and results from a survey conducted by a major financial institution in Ecuador at the beginning of the pandemic. Our main result is that micro women-led firms and women-led firms outside of the main Ecuadorian cities were more affected at the onset of the pandemic. Despite this impact, their performance by the end of 2020 was not worse compared to less affected firms. We also find that smaller firms as well as firms in the hospitality sector were both more affected and performed worse than other firms. Finally, younger firms were less affected and performed better than older firms, but at the cost of increased debt and less cash. |
| Keywords: | Firms' performance, Covid-19, emerging economies |
| JEL: | D22 G32 J16 L25 L26 O54 |
| Date: | 2023–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117225&r=cfn |
| By: | Anil K. Jain |
| Abstract: | We analyze relational contracts between a lender and borrower when borrower cash flows are not contractible and the costs of intermediation vary over time. Because lenders provide repayment incentives to borrowers through the continuation value of the lending relationship, borrowers will condition loan repayment on the likelihood of receiving loans in the future. Therefore, the borrower's beliefs about the lender's future liquidity and profitability become an important component of the borrower's repayment decision. Consequently, the possibility of high lending costs in the future weakens repayment incentives and can cause the borrower to strategically default in some states and an inefficient under-provision of credit. We characterize the optimal relational contract and discuss the application of our model to the case of microfinance and trade credit. |
| Keywords: | trade credit; dynamic incentives; relationship lending; microfinance; repeated games |
| JEL: | O16 G33 G21 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1364&r=cfn |
| By: | Anne Duquerroy (Banque de France); Adrien Matray (Princeton University, NBER and CEPR); Farzad Saidi (University of Bonn & CEPR) |
| Abstract: | We quantify how banks’ funding costs affect their lending behavior and the real economy. For identification, we exploit banks’ heterogeneous liability structure and the existence of regulated deposits in France whose rates are set by the government. Using administrative credit-registry and regulatory bank data, we find that a one-percentage point increase in funding costs reduces credit by 17%. To insulate their profits, banks reach for yield and rebalance their lending towards smaller and riskier firms. These changes are not compensated for by less affected banks at the aggregate city level, with repercussions for firms’ investment. |
| Keywords: | bank funding costs, deposits, credit supply, SMEs, savings |
| JEL: | E21 E44 G20 G21 O16 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:309&r=cfn |
| By: | Said Kaawach (University of Huddersfield); Oskar Kowalewski (IESEG School of Management); Oleksandr Talavera (University of Birmingham) |
| Abstract: | Using unique data from a leading peer-to-peer (P2P) lending platform, we investigate the link between past investment performance and choice of auto-investing tool. Our results suggest that investors with poorly performing loan portfolios are more likely to switch automatically. This negative relationship can be explained by algorithmic aversion or investor inattention. In other words, the results suggest that good-performing investors who pay close attention to their loan portfolios or are not interested in using automated services are more likely to rely on themselves in manual mode. These results are robust to alternative specifications. |
| Keywords: | FinTech; Peer-to-Peer Lending; Investor Switching; Automatic Bidding |
| JEL: | G11 G40 G51 D90 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:23-04&r=cfn |
| By: | Klaus Friesenbichler; Agnes Kügler; Julia Schieber-Knöbl (Statistics Austria) |
| Abstract: | We examine the role of intangible capital as a production factor using Austrian firm-level register data. Descriptive statistics show that intangible investment has increased over time. The intensive and extensive margins of firms' investments are highly skewed. They differ across sectors. A series of sample splits show that the components of intangible capital play different roles as inputs in the production function. Software and especially licenses are important for SMEs and exporters. Research and development play an important role in production in all specifications. For firms that continuously invest in intangible capital, all components of intangible capital gain importance in the production functions. These patterns differ from those found in previous studies and have implications for the strategic orientation of industrial and innovation policy. |
| Keywords: | Intangible capital, R&D, Firm level productivity, Investment, Production function, Austria |
| Date: | 2023–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2023:i:660&r=cfn |
| By: | José E. Gutiérrez (Banco de España); Luis Fernández Lafuerza (Banco de España) |
| Abstract: | As noted in recent literature, firms can run on credit lines due to fear of future credit restrictions. We exploit the 2011 stress test supervised by the European Banking Authority (EBA) and the Spanish Central Credit Register to explore: 1) the occurrence and magnitude of these runs after the release of negative stress test results; and 2) banks’ behaviour before and after the release of this information. We find that, following the release of the results, firms drew down approximately 10 pp more available funds from lines granted by banks that had a worse performance in the stress test. Moreover, before the release date, poorer performing banks were more likely to reduce the size of credit lines, while those with more significant balances of undrawn credit lines were more likely to cut term lending. |
| Keywords: | credit lines, bank runs, stress tests, bank risk management |
| JEL: | G01 G14 G21 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2245&r=cfn |
| By: | Evzen Kocenda (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague; Institute of Information Theory and Automation of the CAS, Prague; CESifo Munich; IOS Regensburg.); Shivendra Rai (Institute of Economic Studies, Charles University, Prague, Czech Republic) |
| Abstract: | We investigate the key macroeconomic and institutional determinants of fundraising and investment activities and compare them across Europe, covering 13 Central and Eastern European (CEE) and 16 Western European (WE) countries. Five macroeconomic variables and nineteen institutional variables are selected. These variables are studied using panel data analysis with fixed effects and random effects models over an eleven-year observation period (2010-2020). Bayesian Model Averaging (BMA) is applied to select the key variables. Our results suggest that macroeconomic variables have no significant impact on fundraising and investment activity in either region. Investment activity is a significant driver of fundraising across Europe. Similarly, fundraising and divestment activity are significant drivers of investments across Europe. Institutional variables, however, affect fundraising and investment activity differently. While investment freedom has a significant effect on funds raised in the WE and CEE countries, government integrity and trade freedom are both significant determinants of investments in both European regions. In addition, the results demonstrate that, in contrast to the WE region, fundraising in the CEE region is not country specific. |
| Keywords: | Private equity (PE), Fundraising, Investment, Central and Eastern Europe (CEE), Western Europe (WE), Bayesian Model Averaging (BMA) |
| JEL: | C11 C23 C52 E22 G15 G24 G28 O16 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2023_14&r=cfn |
| By: | Héloïse Berkowitz (LEST - Laboratoire d'Economie et de Sociologie du Travail - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique, AMU - Aix Marseille Université); Antoine Souchaud (NEOMA - Neoma Business School, i3-CRG - Centre de recherche en gestion i3 - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Crowdlending is an investment tool that appeared in the early 2000s. This tool allows individuals and companies, via an online platform, to finance directly, in the form of remunerated loans and in a traceable way, projects which are presented to them and on which they can interact publicly. This tool therefore encourages the development of direct financing decided by a crowd of contributors who place their trust in project leaders via an extremely transparent, rapid and cheap online selection and subscription process. This chapter aims to analyze the potential of this new financing tool to induce the necessary transformation the financial system required in order to achieve the SDGs. Financing is indeed at the heart of Agenda 2030. It is also an issue that explicitly touches on two SDGs: SDG 8.3 (development of SMEs) and SDG 9.3 (access to financial services for all enterprises). Crowdfunding is indeed one of the answers identified by the August 2020 United Nations report "Citizen's Money: Harnessing digitalization to finance a sustainable future". It is now a question of truly developing this tool, which aims to put the human being and sustainable development at the heart of the lending relationship. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04072362&r=cfn |