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on Corporate Finance |
| By: | Miguel H. Ferreira (QMUL and CEPR); Timo Haber (De Nederlandsche Bank); Christian Rörig (QuantCo) |
| Abstract: | Using a unique dataset covering the universe of Portuguese firms and their credit situation we show that financially constrained firms are found across the entire firm size distribution, even in the top 1%. Incorporating a richer, empirically supported, productivity process into a standard heterogeneous firms model generates a joint distribution of size and credit constraints in line with the data. The presence of large constrained firms in the economy, together with their elevated capital share, explains about 66% of the response of output to a financial shock. We conclude by providing micro-evidence in support of the model mechanism. |
| Keywords: | Firm size, business cycle, financial accelerator |
| JEL: | E62 E22 E23 |
| Date: | 2023–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:948&r=cfn |
| By: | Michi NISHIHARA (Graduate School of Economics, Osaka University); Takashi SHIBATA (Graduate School of Management, Tokyo Metropolitan University) |
| Abstract: | This paper derives the optimal capital structure of a firm whose earnings follow a geometric Brownian motion with a lower reflecting barrier. The barrier can be interpreted as a market intervention threshold (e.g., a price floor) by the government or an exit threshold of weak competitors in the market. Unlike in the standard model with no barrier, the firm is able to issue riskless debt to a certain capacity determined by the barrier. The higher the barrier, the larger the riskless debt capacity, and the firm prefers riskless capital structure rather than risky capital structure. Notably, with intermediate barrier levels, the firm can choose riskless capital structure with lower leverage than the level with no barrier. This mechanism can help explain debt conservatism observed in practice. The paper also entails several implications of public intervention by examining the lowest barrier (i.e., the weakest intervention) to achieve riskless capital structure. |
| Keywords: | Capital structure; Real options; Regulated market; Price floor; Competitive advantage. |
| JEL: | G13 G28 G32 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:2309&r=cfn |
| By: | Jarkko Harju (Tampere University, Finnish Centre of Excellence in Tax Systems Research (FIT), VATT Institute for Economic Research and CESifo); Ilpo Kauppinen (VATT Institute for Economic Research and CESifo); Olli Ropponen (Etla Economic Research) |
| Abstract: | This paper studies the effects of an interest barrier (IB) that was introduced in Finland to restrict the profit-shifting opportunities of multinational enterprises (MNEs). We employ Orbis database on Finnish, Swedish and Danish MNEs and a difference-in-differences methodology, where Swedish and Danish MNEs serve as a control group. We find that Finnish MNEs responded to IB by decreasing their financial expenses. We also find that the most affected firms decreased their debt levels due to the reform. Our results suggest that the financial expense response is followed by a change in the use of transfer pricing as a method to shift profits between tax jurisdictions. We do not find evidence of total output changes among treated firms, suggesting that the IB did not affect the real activity of MNEs. |
| Keywords: | Corporate income tax, Multinational firms, Capital structure, Profit shifting, Interest barrier |
| JEL: | H25 H26 G32 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:fit:wpaper:7&r=cfn |
| By: | Pierre-Olivier Gourinchas; Şebnem Kalemli-Özcan; Veronika Penciakova; Nicholas Sander |
| Abstract: | We study the effects of financial frictions on firm exit when firms face large liquidity shocks. We develop a simple model of firm cost-minimization that introduces a financial friction that limits firms’ borrowing capacity to smooth temporary shocks to liquidity. In this framework, firm exit arises from the interaction between this financial friction and fluctuations in cash flow due to aggregate and sectoral changes in demand conditions, as well as more traditional shocks to productivity. To evaluate the implications of our model, we use firm-level data on small and medium-sized enterprises (SMEs) in 11 European countries. We confirm that our framework is consistent with official failure rates in 2017–2019, a period characterized by standard business cycle fluctuations in demand. To capture a large liquidity shock, we apply our framework to the COVID-19 crisis. We find that, in the absence of government support, SME failure rates would have increased by 6.01 percentage points, putting 3.1 percent of employment at risk. Our results are consistent with the premise that financial frictions lead to inefficient exit as, without government support, the firms failing due to COVID-19 have similar productivity and past growth to firms that survive the COVID-19 crisis. |
| Keywords: | Firm dynamics; International topics; Coronavirus disease (COVID-19) |
| JEL: | D22 E65 H81 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:23-32&r=cfn |
| By: | yeboah, samuel |
| Abstract: | This review aims to provide a comprehensive analysis of the macroeconomic determinants of credit risks in low-income countries. The study explores the factors that influence credit risks, including macroeconomic indicators, institutional frameworks, and external shocks. By examining existing literature and empirical evidence, this review highlights the crucial role of these determinants in shaping credit risk levels in low-income economies. The findings can help policymakers and financial institutions devise appropriate strategies to manage credit risks and promote financial stability in these countries. |
| Keywords: | credit risks, low-income countries, macroeconomic determinants, review, evidence. |
| JEL: | G21 G32 O16 |
| Date: | 2023–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117501&r=cfn |
| By: | Ozili, Peterson K |
| Abstract: | Credit markets around the world are undergoing digital transformation which has led to the rise in Fintech and Bigtech lending. Fintech and Bigtech lending is the provision of credit by Fintech and Bigtech providers who have more capital, cutting-edge IT systems, worldwide recognition, greater online presence and are able to handle more big data on computers and mobile phones than traditional banks. Fintech and Bigtech lending is growing in importance, but the determinants of Fintech and Bigtech lending have received little attention in the literature. This study investigates the determinants of Fintech and Bigtech lending. The study focused on the effect of financial inclusion and financial development on Fintech and Bigtech lending. Using data for 18 countries from 2013 to 2019 and employing the difference-GMM and 2SLS regression methods, the findings reveal that financial inclusion and financial development are significant determinants of Fintech and Bigtech lending. Financial development is a positive determinant of Fintech and Bigtech lending while financial inclusion has a significant effect on Fintech and Bigtech lending. Also, Fintech and Bigtech lending lead to greater banking sector stability and also poses the risk of rising nonperforming loans. There is also a significant positive correlation between financial development and Fintech and Bigtech lending. These findings add to the emerging literature on the role of Fintech and Bigtech in financial intermediation. This research is significant because it provides insights into the role of financial inclusion and financial development in digital transformation of credit markets. |
| Keywords: | financial inclusion, financial development, Fintech, Bigtech, lending, ATM, bank branch, access to finance |
| JEL: | G21 G23 |
| Date: | 2023–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117465&r=cfn |
| By: | KANAGUCHI Takehisa (Bank of Japan); KAWAKAMI Takehito (Bank of Japan); HASEBE Akira (Bank of Japan); OGAWA Yoshiya (Bank of Japan) |
| Abstract: | The funds see an increase in their financing demand, depending on their own investment stage, as the inflow into private equity funds and other funds continues. Under these circumstances, financial institutions promote their businesses based on the high profitability of Fund Finance. In addition, they have established a risk management system that pays attention to the risk characteristics associated with such finance. On the other hand, the funds lengthen loan terms and increase the leverage of Fund Finance in order to boost investment returns to investors, and increasing risks associated with Fund Finance have been identified. Therefore, it is important to understand the real picture of Fund Finance and carefully monitor its potential risks. |
| Date: | 2023–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojrev:rev23e05&r=cfn |
| By: | Grégory Donnat (Université Côte d'Azur, France; GREDEG CNRS); Grégory Donnat (Université Côte d'Azur, France; GREDEG CNRS); Anna Tykhonenko (Université Côte d'Azur, France; GREDEG CNRS) |
| Abstract: | In this paper, we investigate the factors of external public indebtedness for Low-Income Countries (LICs) and, as a modeling technique, we employ the iterative Bayesian shrinkage procedure to handle the differences between countries in panel data. Some LICs have benefited from two debt relief programs, the Heavily Indebted Poor Countries (HIPC) initiatives and the Multilateral Debt Relief Initiative (MDRI). We explore whether these debt reductions affect the access to external financing and credit markets of HIPCs. First, our estimation method highlights various debt dynamics across LICs from 1988 to 2018. Second, our results highlight a change in the relationships between external public indebtedness and its factors after the HIPC and MDRI. Unlike past debt reductions, most HIPCs keep borrowing, mainly from private creditors, even if the debt-to-GDP ratio increases. HIPCs' access to credit markets does not suffer from a potential risk-aversion on the part of lenders and is facilitated by their attractiveness to private investors. |
| Keywords: | Debt Relief; External financing; Low-Income Countries; Bayesian shrinkage estimator |
| JEL: | F34 H63 O16 O38 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2023-07&r=cfn |