nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒10‒30
eight papers chosen by
Zelia Serrasqueiro, Universidade da Beira Interior

  1. Corporate Debt and Investment in the Post-Covid World By Heresi, Rodrigo; Powell, Andrew
  2. Enough liquidity with enough capital - And vice versa? By Gersbach, Hans; Haller, Hans; Zelzner, Sebastian
  3. Enhancing the Delivery of Financial Services in Pakistan By Wajhullah Fahim
  4. Sourcing Investment Targets for Venture and Growth Capital Using Multivariate Time Series Transformer By Lele Cao; Gustaf Halvardsson; Andrew McCornack; Vilhelm von Ehrenheim; Pawel Herman
  5. Borrower Technology Similarity and Bank Loan Contracting By Mingze Gao; Yunying Huang; Steven Ongena; Eliza Wu
  6. The Good, the Bad, and the Ugly of International Debt Market Data By Nina Boyarchenko; Leonardo Elias
  7. Tax planning and investment responses to dividend taxation By Aliisa Koivisto
  8. Options-based systemic risk, financial distress, and macroeconomic downturns By Bevilacqua, Mattia; Tunaru, Radu; Vioto, Davide

  1. By: Heresi, Rodrigo; Powell, Andrew
    Abstract: We study the relationship between corporate debt, corporate risk and firm-level investment, using a sample of 25, 000 listed companies across 47 countries over the last two decades. We find higher leverage reduces investment but show the effect varies with risk, as measured by firm time-varying distance to default. Firms with higher market valuations and lower volatility do not suffer a debt overhang at all, while the effect is exacerbated for riskier firms. Debt overhang effects worsen significantly in economic crises, and the effects may persist for two to three years after the shock. Given the rise in corporate leverage observed during the last decade and as a result of the Covid-19 pandemic, physical investment is expected to remain at low levels for some years to come, with impacts varying considerably depending on the economic sector and other risk determinants.
    Keywords: Firm Investment;Corporate Risk
    JEL: E22 F34 G32
    Date: 2022–09
  2. By: Gersbach, Hans; Haller, Hans; Zelzner, Sebastian
    Abstract: We study the interplay of capital and liquidity regulation in a general equilibrium setting by focusing on future funding risks. The model consists of a banking sector with long-term illiquid investment opportunities that need to be financed by short-term debt and by issuing equity. Reliance on refinancing long-term investment in the middle of the life-time is risky, since the next generation of potential short-term debt holders may not be willing to provide funding when the return prospects on the long-term investment turn out to be bad. For moderate return risk, equilibria with and without bank default coexist, and bank default is a self-fulfilling prophecy. Capital and liquidity regulation can prevent bank default and may implement the first-best. Yet the former is more powerful in ruling out undesirable equilibria and thus dominates liquidity regulation. Adding liquidity regulation to optimal capital regulation is redundant.
    Keywords: financial intermediation, funding risk, bank default, banking regulation, liquidity requirements, capital requirements
    JEL: G21 G33 G38
    Date: 2023
  3. By: Wajhullah Fahim (Pakistan Institute of Development Economics)
    Abstract: A robust financial system plays a vital role in economic growth, financial stability, easy access to finance, and capital market formation. A sound financial system gives people the confidence to invest in the economy, which underpins economic growth and development. It increases external relationships by helping payment across borders. Sound financial systems help in the reallocation of resources across different segments of society, improving all welfare levels and long-term financing in the economy. So a stable financial system helps in the efficient allocation of resources, forecasting financial risks, monetary stability, and maintaining the natural rate of unemployment in the economy.
    Date: 2023
  4. By: Lele Cao; Gustaf Halvardsson; Andrew McCornack; Vilhelm von Ehrenheim; Pawel Herman
    Abstract: This paper addresses the growing application of data-driven approaches within the Private Equity (PE) industry, particularly in sourcing investment targets (i.e., companies) for Venture Capital (VC) and Growth Capital (GC). We present a comprehensive review of the relevant approaches and propose a novel approach leveraging a Transformer-based Multivariate Time Series Classifier (TMTSC) for predicting the success likelihood of any candidate company. The objective of our research is to optimize sourcing performance for VC and GC investments by formally defining the sourcing problem as a multivariate time series classification task. We consecutively introduce the key components of our implementation which collectively contribute to the successful application of TMTSC in VC/GC sourcing: input features, model architecture, optimization target, and investor-centric data augmentation and split. Our extensive experiments on four datasets, benchmarked towards three popular baselines, demonstrate the effectiveness of our approach in improving decision making within the VC and GC industry.
    Date: 2023–09
  5. By: Mingze Gao (University of Sydney); Yunying Huang (University of Sydney); Steven Ongena (University of Zurich; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Eliza Wu (University of Sydney)
    Abstract: Do banks accumulate knowledge about corporate technology, and does it matter for their lending? To answer this question, we combine corporate innovation with syndicated loan data. We find that loans to firms sharing similar technologies with banks’ prior borrowers obtain lower loan spreads. We can rule out product market competition, the value of their technology and ability to innovate, and/or numerous other firm characteristics as alternative explanations. By exploiting the adoption of intellectual property protection laws and the consummation of bank mergers and acquisitions, we can show that shocks to banks’ technology knowledge causally affect loan spreads.
    Keywords: technology similarity, loan contracting, matching model, relationship lending
    JEL: G21 G32 O33
    Date: 2023–09
  6. By: Nina Boyarchenko; Leonardo Elias
    Abstract: Comprehensive granular data on firms’ access to international credit markets and its determinants is instrumental to answering a wide set of questions in international macroeconomics and finance. We describe how to put together data on primary market issuance and secondary market pricing, how to track debt securities over their lifetimes on firms’ balance sheets, and how to collect data on issuers’ financial statements. We argue that choices that need to be made in collating comprehensive information on debt market activity have non-trivial consequences for the measurement of key credit market outcomes.
    Keywords: debt market; corporate capital structure; Bond spreads
    JEL: G15
    Date: 2023–10–01
  7. By: Aliisa Koivisto (Finnish Centre of Excellence in Tax Systems Research, VATT Institute for Economic Research)
    Abstract: This study explores empirically how business owners respond to dividend taxes in a range of diferent margins including tax planning and investment. Using administrative tax data on all privately held Finnish corporations, I fnd exceptionally clear dividend payment responses to tax rate discontinuities and changes. Heterogeneity analysis suggests that more experienced owners and owners with lower income have higher tax base elasticities. Studying the income composition of owners around tax changes reveals clear income shifting between wage and dividends with negligible efect on gross income received from the frm. Evidence on the asset composition of frms indicates that a notable part of the payment response is due to inter-temporal income-smoothing, while changes in the tax schedule did not cause signifcant real responses in output or investment.
    Keywords: Dividend taxation, investment, income shifting, bunching
    JEL: G38 H21 H24 H25
    Date: 2023–09
  8. By: Bevilacqua, Mattia; Tunaru, Radu; Vioto, Davide
    Abstract: We extract an option-implied measure for systemic risk, the Systemic Options Value-at-Risk (SOVaR), from put option prices that can capture the buildup stage of systemic risk in the financial sector earlier than the standard systemic risk measures (SRMs). Our measure exhibits more timely early warning signals of main events around the global financial crisis than the main SRMs. SOVaR shows significant predictive power for macroeconomic downturns as well as future recessions up to one year ahead. Our results are robust to various specifications, breakdowns of financial sectors, and controlling for other main risk measures proposed in the literature.
    Keywords: financial distress; financial stability; macro-finance; options prices; systemic risk; funding the Systemic Risk Centre is gratefully acknowledged [grant number ES/K002309/1 and ES/R009724/1
    JEL: G14 G20
    Date: 2023–09–01

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