nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒10‒23
ten papers chosen by
Zelia Serrasqueiro, Universidade da Beira Interior

  1. Family Firms and Carbon Emissions By Marcin Borsuk; Nicolas Eugster; Paul-Olivier Klein; Oskar Kowalewski
  2. Debt Relief: The Day After, Financing Low-Income Countries By Grégory Donnat; Anna Tykhonenko
  3. SME internationalisation: Do the types of innovation matter? By Boumediene Ramdani; Fateh Belaid; Stéphane Goutte
  4. Research on the Impact of Executive Shareholding on New Investment in Enterprises Based on Multivariable Linear Regression Model By Shanyi Zhou; Ning Yan; Zhijun Li; Mo Geng; Xulong Zhang; Hongbiao Si; Lihua Tang; Wenyuan Sun; Longda Zhang; Yi Cao
  5. Financial asymmetries, risk sharing and growth in the EU By Eleonora Cavallaro; Ilaria Villani
  6. Imperfect Financial Markets and Investment Inefficiencies By Elias Albagli; Christian Hellwig; Aleh Tsyvinski
  7. The Market for Corporate Control as a Limit to Short Arbitrage By C. Meneghetti; Ryan Williams; S. C. Xiao
  8. When firms may benefit from sticking with an old technology By Li, Xu
  9. The Impossible Love of Fossil Fuel Companies for Carbon Taxes By Thomas Allen; Mathieu Boullot; Stéphane Dées*; Annabelle de Gaye; Noëmie Lisack; Camille Thubin; Oriane Wegner
  10. Financial Shock Transmission to Heterogeneous Firms: The Earnings-Based Borrowing Constraint Channel By Livia Chiţu; Magdalena Grothe; Tatjana Schulze; Ine Van Robays

  1. By: Marcin Borsuk (Narodowy Bank Polski, Poland; Institute of Economics, Polish Academy of Sciences, Poland; University of Cape Town, South Africa.); Nicolas Eugster (University of Queensland, Australia.); Paul-Olivier Klein (University of Lyon.); Oskar Kowalewski (IESEG School of Management, Univ. Lille, CNRS, UMR 9221 – LEM – Lille Économie, France.)
    Abstract: This study examines the relationship between family firms and carbon emissions using a large cross-country dataset comprising 6, 610 non-financial companies over the period 2010-2019. We document that family firms display lower carbon emissions, both direct and indirect, when compared to non-family firms, suggesting a higher commitment to environmental protection by family owners. We show that this differential effect started following the 2015 Paris Agreement. Differences in governance structure, familial values, and higher R&D expenditures partly explain our results. Paradoxically, we find that family-owned firms and family CEOs commit less publicly to a reduction in their carbon emissions and have lower ESG scores, although polluting less. This suggests a lower participation in the public display of such an outcome and a lower tendency to greenwashing.
    Keywords: carbon emission, ESG, governance, family firms, greenwashing, climate change.
    JEL: G3 G38 M14
    Date: 2023
  2. By: Grégory Donnat (Université Côte d’Azur); Anna Tykhonenko
    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: H
    Date: 2023
  3. By: Boumediene Ramdani; Fateh Belaid (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique); Stéphane Goutte (SOURCE - SOUtenabilité et RésilienCE - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines - IRD [France-Nord] - Institut de Recherche pour le Développement)
    Abstract: Existing evidence suggest that innovative Small and Medium-sized Enterprises (or SMEs) are more likely to internationalise (i.e. have a greater propensity to export) than non-innovative SMEs. However, it is not yet clear whether and to what extent different types of innovation (i.e. product, service, and process) affect SME internationalisation. To address this issue, this study uses a research model that integrates the resource and institutional perspectives and empirically test it using data from the United Kingdom (UK) Longitudinal Small Business Survey. Our results confirm that SME internationalisation is more likely to occur in firms undertaking product innovation than process and/or service innovation, and a specific configuration of resource and institutional drivers influence SME internationalisation depending on the innovation type. These results lead to major policy and managerial implications in relation to promoting SME internationalisation through different types of innovation, given the UK withdrawal from the European Union.
    Keywords: Export, Innovation, Internationalisation, SME, UK
    Date: 2023
  4. By: Shanyi Zhou; Ning Yan; Zhijun Li; Mo Geng; Xulong Zhang; Hongbiao Si; Lihua Tang; Wenyuan Sun; Longda Zhang; Yi Cao
    Abstract: Based on principal-agent theory and optimal contract theory, companies use the method of increasing executives' shareholding to stimulate collaborative innovation. However, from the aspect of agency costs between management and shareholders (i.e. the first type) and between major shareholders and minority shareholders (i.e. the second type), the interests of management, shareholders and creditors will be unbalanced with the change of the marginal utility of executive equity incentives.In order to establish the correlation between the proportion of shares held by executives and investments in corporate innovation, we have chosen a range of publicly listed companies within China's A-share market as the focus of our study. Employing a multi-variable linear regression model, we aim to analyze this relationship thoroughly.The following models were developed: (1) the impact model of executive shareholding on corporate innovation investment; (2) the impact model of executive shareholding on two types of agency costs; (3)The model is employed to examine the mediating influence of the two categories of agency costs. Following both correlation and regression analyses, the findings confirm a meaningful and positive correlation between executives' shareholding and the augmentation of corporate innovation investments. Additionally, the results indicate that executive shareholding contributes to the reduction of the first type of agency cost, thereby fostering corporate innovation investment. However, simultaneously, it leads to an escalation in the second type of agency cost, thus impeding corporate innovation investment.
    Date: 2023–09
  5. By: Eleonora Cavallaro (University of Rome, Sapienza); Ilaria Villani (European Central Bank)
    Abstract: We focus on the structural and stability dimensions of financial development and build an index to benchmark EU financial systems against their potential to enhance resilient growth and international risk sharing. We have the following results. (i) Based on the transitional dynamics of the index over 2000-2019, EU financial systems are converging towards a clustered pattern; (ii) our measure of financial development is highly significant in growth regressions, suggesting that greater openness, market-based financing, and equity positions, longer debt maturities, and enhanced stability are key to stable growth; (iii) financial asymmetries have implications for the heterogeneous vulnerability to domestic output shocks: the risk sharing mechanism is more effective in financially resilient economies that benefit by the contribution of the capital market channel, while a larger fraction of the GDP shocks remains unsmoothed in less resilient economies that feature a considerable down-seizing of the saving channel in the post-global financial crisis.
    Keywords: Financial resilience, financial asymmetries, growth, volatility, risk sharing
    JEL: F
    Date: 2023
  6. By: Elias Albagli (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); Christian Hellwig (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); Aleh Tsyvinski (Yale University [New Haven])
    Abstract: We analyze the consequences of noisy information aggregation for investment. Market imperfections create endogenous rents that cause overinvestment in upside risks and underinvestment in downside risks. In partial equilibrium, these inefficiencies are particularly severe if upside risks are coupled with easy scalability of investment. In general equilibrium, the shareholders' collective attempts to boost value of individual firms leads to a novel externality operating through price that amplifies investment distortions with downside risks but offsets distortions with upside risks.
    Date: 2023
  7. By: C. Meneghetti (CSU - Colorado State University [Fort Collins]); Ryan Williams (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique); S. C. Xiao (UT Dallas - University of Texas at Dallas [Richardson])
    Abstract: We hypothesize that corporate takeover markets create significant constraints for short sellers. Both short sellers and corporate bidders often target firms with declining economic prospects. Yet, a target firm's stock price generally increases upon a takeover announcement, resulting in losses for short sellers. Therefore, short sellers should require higher rates of return when takeover likelihood is higher. Consistent with this prediction, the return predictability of monthly short interest increases with industry-level takeover probability and decreases as takeover defenses are implemented. Our results suggest that efficient takeover markets create trading frictions for short sellers and can therefore inhibit overall market efficiency.
    Keywords: Market for Corporate Control, Short Selling, Limit to Arbitrage
    Date: 2022
  8. By: Li, Xu
    Abstract: Research Summary How should firms respond to technological discontinuities in order to achieve greater performance? In contrast to most studies that advocate a timely transition from the old to the new technology, this paper posits that in markets where a discontinuous technology exposes customers' latent preference heterogeneity for certain old technology attributes, firms may ultimately experience a performance surge by adhering to the old technology during technological change. Explicitly, I theorize a U-shaped relationship within such a market between competitors' increasing adoption of the new technology and the performance of firms that stick with the old technology. This prediction is thoroughly examined using comprehensive data from the traditional Chinese medicine industry in China during the 1990s and receives robust empirical support. Managerial Summary In some markets, the rise of a discontinuous technology, besides posing a substitute threat to the old technology, further exposes niche segments where customers continue to favor the old technology. This paper predicts that within such a market, as competitors increasingly adopt the new technology for varied motives, firms sticking with the old technology may see their performance declining before rebounding and potentially reaching new heights. Analyses using archival data from the traditional Chinese medicine industry in China during the 1990s provide robust support for this prediction. The arguments and findings of this paper offer an “existence proof” that when confronted with a technological discontinuity, adhering to the old technology may also represent an effective strategy that ultimately improves firm performance.
    Keywords: demand heterogeneity; firm performance; old technology; technological discontinuity; Wiley deal
    JEL: J50
    Date: 2023–09–21
  9. By: Thomas Allen; Mathieu Boullot; Stéphane Dées*; Annabelle de Gaye; Noëmie Lisack; Camille Thubin; Oriane Wegner
    Abstract: This paper proposes a set of short-term scenarios that reflect the diversity of climate transition shocks -- increase in carbon and energy prices, increase in public or private investment in the low-carbon transition, increase in the cost of capital due to uncertainty, deterioration of confidence, accelerated obsolescence of part of the installed capital, etc. Using a suite-of-model approach, we assess the implications of these scenarios for the dynamics of activity and inflation. By considering multiple scenarios, we therefore account for the uncertainty around future political decisions regarding climate change mitigation. The results show that the magnitude and duration of the macroeconomic effects of the transition to carbon neutrality will depend on the transition strategy chosen. While a number of short-term scenarios being inflationary or even stagflationary, there are also factors that could curb inflation and boost economic growth.
    Keywords: Climate Transition, Scenario Analysis, Macroeconomic Modelling
    JEL: C60 E44 E50 G32 Q40 Q54
    Date: 2023
  10. By: Livia Chiţu; Magdalena Grothe; Tatjana Schulze; Ine Van Robays
    Abstract: We study the heterogeneous impact of jointly identified monetary policy and global risk shocks on corporate funding costs. We disentangle these two shocks in a structural Bayesian Vector Autoregression framework and investigate their respective effects on funding costs of heterogeneous firms using micro-data for the US. We tease out mechanisms underlying the effects by contrasting traditional financial frictions arising from asset-based collateral constraints with the recent earnings-based borrowing constraint hypothesis, differentiating firms across leverage and earnings. Our empirical evidence strongly supports the earnings-based borrowing constraint hypothesis. We find that global risk shocks have stronger and more heterogeneous effects on corporate funding costs which depend on firms' position within the earnings distribution.
    Keywords: Corporate spreads; earnings-based borrowing constraint; heterogeneous firms; monetary policy shocks; global risk shocks
    Date: 2023–09–15

This nep-cfn issue is ©2023 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.