nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒10‒02
five papers chosen by
Zelia Serrasqueiro, Universidade da Beira Interior

  1. Occupational Choice, Human Capital, and Financial Constraints By Rui Castro; Pavel Sevcik
  2. Gender differences in management styles during crisis and the effect on firm performance By Valerija Botric; Sonja Radas; Bruno Skrinjaric
  3. Interest Expenses, Coverage Ratio, and Firm Distress By Falk Bräuning; Gustavo Joaquim; Hillary Stein
  4. Board conduct in banks By Agarwal, Samanvaya; Kamath, Saipriya; Subramanian, Krishnamurthy; Tantri, Prasanna
  5. Do investors overvalue startups? Evidence from the junior stakes of mutual funds By Agarwal, Vikas; Barber, Brad M.; Cheng, Si; Hameed, Allaudeen; Shanker, Harshini; Yasuda, Ayako

  1. By: Rui Castro (McGill University); Pavel Sevcik (University of Quebec in Montreal)
    Abstract: We study the aggregate productivity effects of firm-level financial frictions. Credit constraints affect not only production decisions, but also household level schooling decisions. In turn, entrepreneurial schooling decisions impact firm-level productivities, whose cross-sectional distribution becomes endogenous. In anticipation of future constraints, entrepreneurs under-invest in schooling early in life. Frictions lower aggregate productivity because talent is misallocated across occupations, and capital misallocated across firms. Firm level productivities are also lower due to schooling distortions. These effects combined account for between 36 and 68 percent of the U.S.-India aggregate productivity difference. Schooling distortions are the major source of aggregate productivity differences.
    Keywords: Aggregate Productivity, Financial Frictions, Entrepreneurship, Human Capital, Misallocation
    JEL: E24 I25 J24 O11 O15 O16 O47
    Date: 2023–08
  2. By: Valerija Botric (The Institute of Economics, Zagreb); Sonja Radas (The Institute of Economics, Zagreb); Bruno Skrinjaric (The Institute of Economics, Zagreb)
    Abstract: This paper aims to shed light on gender differences in firm performance in a period that entails an unprecedented crisis with specific effects on gender roles, i.e., COVID-19. The analysis focuses on Croatian high-tech manufacturing and knowledge-intensive service sector SMEs. Previous literature indicates that the obstacles the SMEs face may be even more significant for women-owned firms. Specifically, women entrepreneurs find it more challenging to secure social and financial capital. Women often face restrictions on their working hours due to societal pressure and family obligations, and they are rarely well-connected because they are often not members of influential business networks. Literature also suggests that the usual pressures on female working hours have disproportionally increased during the COVID-19 imposed lockdowns, so the general expectation is that women entrepreneurs were not able to cope equally with the changed market circumstances. In this study, we consider a causation-effectuation management framework to investigate how women- and men-owned SMEs used these management styles to address the business challenges in the COVID-19 crisis. Our contribution aims explicitly to answer the invitation made in recent literature to explore how gender influences the effects of the four dimensions of effectuation on firm performance.
    Keywords: women entrepreneurship; firm performance; management styles; COVID-19
    JEL: B54 J16 L26
    Date: 2023–07
  3. By: Falk Bräuning; Gustavo Joaquim; Hillary Stein
    Abstract: Historically, the pass-through of federal funds rate increases into firms’ interest expenses has been incomplete and delayed, with the peak responses occurring about one year after a policy rate increase. These findings indicate that current corporate interest rate expenses will continue to increase, even absent any additional rate hikes going forward. Higher interest expenses can lead to firm distress and defaults, which have adverse effects on employment and investment. These effects can be amplified through the financial accelerator channel.
    Keywords: monetary policy; interest expenses; firm distress
    JEL: E32 E52 G32
    Date: 2023–08–29
  4. By: Agarwal, Samanvaya; Kamath, Saipriya; Subramanian, Krishnamurthy; Tantri, Prasanna
    Abstract: We examine the minutes of Indian banks' board meetings and offer insights into the issues tabled and discussed in bank boards. We find that risk issues account for only 10% of the issues tabled with regulation and compliance accounting for the most (41%), followed by business strategy (31%). Majority of the issues are not deliberated in detail. We interpret the evidence as suggestive of under-investment in risk and over-investment in regulation and compliance by bank boards.
    Keywords: bank failure; banks; board minutes; board of directors; corporate governance; risk; risk-taking
    JEL: G30 L20
    Date: 2022–05–01
  5. By: Agarwal, Vikas; Barber, Brad M.; Cheng, Si; Hameed, Allaudeen; Shanker, Harshini; Yasuda, Ayako
    Abstract: We show that mutual funds report their junior stakes in startups at 43% higher valuation than model fair values that consider multi-tier capital structures of startups. The latest-issued and most senior security is worth 48% per share than junior securities held by mutual funds, implying that mutual funds mark junior securities close to par with the senior securities. Our findings are robust to model assumptions. Identical valuations reported for dual holdings of senior and junior securities imply 37% discrepancy in implied values of the firm. Overvaluation is lower for fund families with longer experience in private startup investments, and higher for junior securities purchased in secondary transactions. Overvaluation declines after down rounds (new financing rounds with purchase prices lower than previous rounds) and near IPOs. The results are consistent with mutual funds neglecting the probability of negative outcomes in which junior securities are paid less than senior securities and overweighting successful exits where all securities convert to common equity and are valued equally.
    Keywords: Startup valuation, Mutual funds, Venture capital, Fair value, Private valuation
    JEL: G23 G24 G28 G32
    Date: 2023

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