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on Corporate Finance |
| By: | Fernando Leibovici; David Wiczer |
| Abstract: | This paper studies the role of credit constraints in accounting for the dynamics of firm exit during the Great Recession. We present novel firm-level evidence on the role of credit constraints on exit behavior during the Great Recession. Firms in financial distress, with tighter access to credit, are more likely to default than firms with more access to credit. This difference widened substantially in the Great Recession while, in contrast, default rates did not vary much by size, age, or productivity. We identify conditions under which standard models of firms subject to financial frictions can be consistent with these facts. |
| Keywords: | Firm exit; Great Recession; Credit constraints; Financial distress |
| JEL: | E32 G01 |
| Date: | 2023–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmoi:96367&r=cfn |
| By: | Ralph De Haas (European Bank for Reconstruction and Development, CEPR and KU Leuven); Ralf Martin (Imperial College London); Mirabelle Muûls (Research and Economics Department, NBB and Imperial College London); Helena Schweiger (European Bank for Reconstruction and Development) |
| Abstract: | Using data on 10, 769 firms across 22 emerging markets, we show that both credit constraints and weak green management hold back corporate investment in green technologies embodied in new machinery, equipment and vehicles. In contrast, investment in measures to explicitly reduce emissions and other pollution, is mainly determined by the quality of a firm’s green management and less so by binding credit constraints. In addition, data from the European Pollutant Release and Transfer Register reveal the climate impact of these organizational constraints. In areas where more firms are credit constrained and weakly managed, industrial facilities systematically emit more CO2 and other greenhouse gases. A counterfactual analysis shows that credit constraints and weak management have respectively kept CO2 emissions 4.8% and 2.2% above the levels that would have prevailed without such constraints. This is further corroborated by our finding that in localities where banks had to deleverage more due to the Global Financial Crisis, carbon emissions by industrial facilities remained 5.7% higher a decade later. |
| Keywords: | Green management, credit constraints, CO2 emissions, energy efficiency |
| JEL: | D22 L23 G32 L20 Q52 Q53 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:202306-439&r=cfn |
| By: | Sander Lammers (CPB Netherlands Bureau for Economic Policy Analysis); Massimo Giuliodori (UVA); Robert Schmitz; Adam Elbourne (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | European companies heavily rely on bank credit to finance their operations and investments. Therefore, it is crucial for banks to take risks on corporate loans, although excessive risk-taking can have negative consequences for banks. There are indications in the literature that the financing structure used by banks plays a role in determining the risks they take. However, the economic literature does not provide clear consensus on how different elements of a bank's financing structure are related to risk. In this exploratory study, we investigated this relationship specifically focusing on corporate loans. This contributes to a better understanding of which companies receive funding and how a bank's financing structure itself can become a risk, particularly when riskier companies face bankruptcy. The financing structure of banks primarily consists of equity (capital buffer), deposits (savings from households and businesses), market financing (funds raised from international investors), and interbank loans (loans between banks, including central bank loans). We analyzed the extent to which these individual financing elements contribute to the risks banks take on loans to companies. |
| JEL: | G21 G32 E52 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:447&r=cfn |
| By: | Tibor Hanappi; Valentine Millot; Sébastien Turban |
| Abstract: | Business investment in OECD countries has remained weak, in particular since the 2008 global financial crisis. At the same time, the cost of capital has significantly and steadily decreased over the last thirty years, reflecting a fall in both interest rates and corporate tax rates. This raises the question of whether business investment still responds to the cost of capital and thus whether corporate tax policy can support investment. This paper analyses trends in business investment and in the cost of capital in OECD countries over the past three decades. Then, it investigates empirically the sensitivity of business investment to corporate taxation, and how this sensitivity varies across firm, investment and tax-design characteristics. Panel regressions at the firm and industry levels confirm that business investment rates are negatively related to corporate taxation, measured by country-level forward-looking effective tax rates. However, the tax sensitivity of business investment has fallen significantly since the global financial crisis. It also differs significantly across firms, assets, and corporate tax design characteristics. Overall, the estimation results suggest that a nuanced and granular approach to corporate tax policy, accounting for heterogeneity in tax sensitivity, is needed to support investment effectively. The paper discusses possible policy options, including the reduction of non-profit taxes, the use of targeted corporate income tax instruments, and the use of more generous capital allowances where they may induce strong investment responses. |
| Keywords: | capital allowances, corporate taxation, fiscal policy, investment, non-profit taxes |
| JEL: | D22 D24 E22 E62 H25 H32 |
| Date: | 2023–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1765-en&r=cfn |
| By: | Pietro Bomprezzi; Silvia Marchesi; Rima Turk-Ariss |
| Abstract: | This paper investigates the dynamic aggregate response of firm investments to the approval of an IMF arrangement. Using a local projection methodology, we Â…nd that distinguishing between General Resource Account (GRA) and Poverty Reduction and Growth Trust (PRGT) Â…nancing matters for the path of investment. Following a GRA arrangement, investments start to increase after two years, while the effect is quite limited after a PRGT. Adopting a stacked difference-in-differences estimator and exploiting firm-level characteristics, we find that firms having a domestic ownership, relying more on external finance, or which are more subject to uncertainty, invest more following a GRA agreement. |
| Keywords: | IMF, Firm investment, Local Projection, Financial Frictions, Difference-in-Differences |
| JEL: | E22 F33 O19 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:520&r=cfn |
| By: | Carlo Drago (University of Niccolò Cusano); Fabio Fortuna (University of Niccolò Cusano) |
| Abstract: | Sustainability is a business strategy combining economic, social, and environmental issues. This paper examines the corporate governance and sustainability literature. So we consider a new bibliometric database focusing on the network of keywords appearing in the literature. The quantitative approach is also new: we combine the information from different community detection algorithms to find the most important results and relationships in the literature. The final results show that the literature on corporate governance and sustainability raises an essential strategic question: for long-term sustainability if there needs to be a strong link between stakeholders and corporate social responsibility (CSR). So, considering a company’s actions’ social, economic, and environmental effects can help figure out how much corporate responsibility is needed. Also, companies that consider CSR and sustainability in their businesses find it easier to keep long-term relationships with customers, employees, and other stakeholders, which can be considered vital. Last, a strategic view of corporate governance should emphasize the importance of intellectual capital and the Triple-Bottom-Line approach to sustainable growth in a strategic view of corporate governance. In this sense, a more wholesome view of value creation aims to provide companies with better financial results while also serving society’s environment and social well-being. By addressing these issues, governments and other groups can make the business world more sustainable and responsible. |
| Keywords: | Corporate Governance, Sustainability, Bibliometric Analysis, Community Detection, Ensamble Community Detection |
| JEL: | L21 G34 Q56 C19 C38 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2023.12&r=cfn |