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on Corporate Finance |
| By: | Jean-Paul Décamps (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Stéphane Villeneuve (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | We study a dynamic model of a firm whose shareholders learn about its profitability, face costs of external nancing and costs of holding cash. The shareholders' problem involves a notoriously challenging singular stochastic control problem with a two-dimensional degenerate diffusion process. We solve it by means of an explicit construction of its value function, and derive a corporate life-cycle with two stages: a "probation stage" where it is never optimal for the firm to issue new shares, and a "mature stage" where the firm resorts to the market whenever needed. The cash target level is non-monotonic in the belief about the profitability and reaches its highest value on the edge between the two stages. It follows new insights on the firm's volatility and its payout ratio which depend on the firm's stage in its life cycle. |
| Keywords: | Corporate cash management, Corporate life cycle, Learning, Singular control |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04164661&r=cfn |
| By: | Christos Genakos; Ioannis Kaplanis; Maria Theano Tagaraki; Aggelos Tsakanikas |
| Abstract: | The global financial crisis that burst in 2008 adversely affected business performance in many countries, especially in Europe. However, the impact of the crisis on entrepreneurship and business dynamics differed amongst countries, depending on their businesses resilience, the policies implemented, but also their predominant productive structure. The magnitude and length of the Greek depression have no precedent among modern middle and high-income economies. Still, to date, there is no systematic analysis of the impact of the crisis on entrepreneurship and business dynamism. This study attempts to fill this gap by examining individual firm, sectoral and regional level characteristics that might affect existing firm resilience and new firm survival rate. We use two sources of data with the most extensive coverage of small (sole proprietorship) and large (other legal status firms) firms containing information on entry and exit in Greece. Matching data from patents and trademarks allow us to examine the interplay between entrepreneurship and innovation. Our analysis focuses on the factors that help or hinder firm survival and growth. We find that the crisis increased the exit likelihood for a firm by 5% to 16%. Larger firms, with significant fixed assets, lower financial leverage, operating in concentrated industries, but also those that are innovation and export oriented tend to have better chances of survival compared to their counterparts. These results are important for designing business policies not only in Greece but also other countries facing similar crises. |
| Keywords: | Greece, entrepreneurship, business resilience, business dynamism, innovation, growth |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:hel:greese:186&r=cfn |
| By: | Schilling, Linda |
| Abstract: | I present a political economic theory, explaining bailouts for failing firms in the presence of non-voters (foreigners). The governing politician uses the bailout as a tool to sway voters for maximizing re-election chances. Bailouts partially leak to foreigners at the firm and are also financed by tax-paying foreigners outside the firm. I show, larger failing firms are granted larger bailouts even if the additional size is due to having more foreign stakeholders (``too-big-to-fail- lookalike''). Yet, among equally sized firms, the firm with more voting-stakeholders receives the larger bailout, contradicting social optimality. Besides firm size, also voting rights cause bailouts. |
| Keywords: | political finance, bailouts, economic voting, probabilistic voting, vote-share maximization, too-big-to-fail, socially optimal bailouts, partial suffrage |
| JEL: | D72 G3 G32 G33 G35 G38 P16 |
| Date: | 2023–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118146&r=cfn |
| By: | Höck, André; Bauckloh, Michael Tobias; Dumrose, Maurice; Klein, Christian |
| Abstract: | Demand for sustainable fixed-income investment solutions is surging but there is hardly research on the impact of sustainability on the risk characteristics of fixed-income portfolios. This study examines the impact of sustainability on the credit risk exposure of U.S. corporate bond portfolios between 2013 and 2020 by analyzing the returns of sustainable and non-sustainable portfolios using two different asset pricing models and environmental, social, and governance (ESG) ratings from different providers. Controlling for a set of portfolio characteristics, our results show that sustainable portfolios are significantly less exposed to credit risk than their non-sustainable peer portfolios. This finding implies that considering ESG criteria in portfolio management is a suitable means to systematically manage credit risk. Being the first study to investigate the relationship between sustainability and credit risk on portfolio level, this study contributes to the understanding of the effects of ESG criteria in portfolio management and provides academics and investment professionals with valuable insights. |
| Keywords: | Sustainability, Credit risk management, Corporate bonds |
| JEL: | G12 G32 Q56 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:2303&r=cfn |
| By: | Hiroyuki Kasahara (University of British Columbia); Yasuyuki Sawada (Faculty of Economics, The University of Tokyo); Michio Suzuki (Tohoku University, Cabinet Office, Government of Japan) |
| Abstract: | This paper examines the ramification of government capital injections into financially distressed banks during the 1997 Japanese banking crisis. By leveraging a unique dataset merging firm-level financial statements and bank balance sheets, the study aims to examine whether the capital injections primarily benefited high-productivity firms or were misallocated to struggling "zombie" firms. The empirical results suggest that banks, post-injection, increased lending to both high-productivity non-zombie firms and low-productivity zombie firms. While the former is in line with conventional theories that prioritize high-productivity firms for investment and productivity enhancement, the latter suggests credit misallocation towards struggling firms mainly for debt servicing. Intriguingly, the study finds no evidence that these injections promoted investments among firms, irrespective of their productivity or financial health status. In particular, we provide suggestive evidence that zombie firms even reduced investments, especially in infrastructure, while high-productivity non-zombie firms did not exhibit a significant investment boost despite receiving more loans. However, these high-productivity firms displayed positive growth in labor productivity and total factor productivity, potentially driven by sales growth and increased advertisement expenses rather than employment and wage adjustments. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2023cf1218&r=cfn |
| By: | Kris J. Mitchener; Angela Vossmeyer; Kris James Mitchener |
| Abstract: | We examine how financial crises redistribute risk, employing novel empirical methods and micro data from the largest financial crisis of the 20th century – the Great Depression. Using balance-sheet and systemic risk measures at the bank level, we build an econometric model with incidental truncation that jointly considers bank survival, the type of bank closure (consolidations, absorption, and failures), and changes to bank risk. Despite roughly 9, 000 bank closures, risk did not leave the financial system; instead, it increased. We show that risk was redistributed to banks that were healthier prior to the financial crisis. A key mechanism driving the redistribution of risk was bank acquisition. Each acquisition increases the balance-sheet and systemic risk of the acquiring bank by 25%. Our findings suggest that financial crises do not quickly purge risk from the system, and that merger policies commonly used to deal with troubled financial institutions during crises have important implications for systemic risk. |
| Keywords: | Bayesian inference, financial crises, sample selection, mergers, banking networks |
| JEL: | G21 C30 N12 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10597&r=cfn |
| By: | Luis Fernández Lafuerza (BANCO DE ESPAÑA); Matías Lamas (BANCO DE ESPAÑA); Javier Mencía (BANCO DE ESPAÑA); Irene Pablos (BANCO DE ESPAÑA); Raquel Vegas (BANCO DE ESPAÑA) |
| Abstract: | This paper analyses the ability of banks to use voluntary and regulatory capital buffers, taking advantage of the experience of the COVID-19 pandemic. In the first place, we find that the usability of macroprudential buffers is not hampered in Spain by other parallel banks’ requirements. Additionally, we find that the existing voluntary buffers over capital requirements at the beginning of the pandemic have had significant effects on the financial markets, affecting the evolution of European bank stock prices, as well as the holdings of bank shares by investment funds. Lastly, we find no significant aggregate effect of voluntary capital buffers on the provision of financing to non-financial companies in Spain. However, we do identify negative effects in the supply of credit from banks with lower voluntary buffers to companies with which they had more recent relationships. Likewise, if the analysis is carried out exclusively on credit operations without public guarantees, we observe that those banks with lower voluntary capital buffers reduced credit more. |
| Keywords: | capital usability, voluntary capital buffers, bank stock prices, provision of credit |
| JEL: | G20 G21 G28 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2223e&r=cfn |
| By: | Asano, Koji |
| Abstract: | This study examines whether the threat of exit by blockholders can alleviate managers' moral hazard problems when they have reputation concerns in stock markets. When future cash flows decline over time, the threat of exit and reputation concerns both discipline managers. However, when future cash flows rise over time, blockholders trade based on information about the managers' commitment ability rather than their past performance, thereby weakening reputational discipline. |
| Keywords: | exit, reputation concerns, governance |
| JEL: | G10 G30 G34 |
| Date: | 2023–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118158&r=cfn |
| By: | Anik Ashraf (LMU Munich); Elizabeth Lyons (University of California San Diego) |
| Abstract: | In this paper, we study the complementarity between business training and access to financial capital for small and medium enterprises (SMEs) in Kenya. All participants in a business training program are offered training. One-third of participants are offered loans immediately after training (Concurrent Loan group), one-third are offered loans six weeks after training (Delayed Loan group), and the remaining third are offered loans after another four weeks (Control group). While a long delay between training and loans may reduce knowledge retention and application by SMEs in the presence of complementarity, concurrent access to loans and associated business spending may crowd out the entrepreneurs' attention from improving business practices. We find evidence for the latter in both intention-to-treat and treatment-on-the-treated estimates. While SMEs in both Control and Delayed Loan groups improve their business practices, SMEs in the Concurrent Loan group who take loans do not improve their practices at all. Moreover, entrepreneurs who take loans spend less time on their businesses and their business revenue falls. Our evidence is consistent with the entrepreneurs in our study using loans to substitute for their income. |
| Keywords: | business training; access to finance; |
| JEL: | O12 L26 M53 |
| Date: | 2023–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:416&r=cfn |