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on Corporate Finance |
| By: | Li, Shasha; Yang, Biao |
| Abstract: | We investigate how optimal attention allocation of green-motivated investors changes information asymmetry in financial markets and thus affects firms' financing costs. To guide our empirical analysis, we propose a model where investors with heterogeneous green preferences endogenously allocate limited attention to learn market-level or firm-specific fundamental shocks. We find that a higher fraction of green investors in the market leads to higher aggregate attention to green firms. This reduces the information asymmetry of green firms, leading to higher price informativeness and lower leverage. Moreover, the information asymmetry of brown firms and the market increases with the share of green investors. Therefore, greater green attention is associated with less market efficiency. We provide empirical evidence to support our model predictions using U.S. data. Our paper shows how the growing demand for sustainable investing shifts investors' attention and benefits eco-friendly firms. |
| Keywords: | capital structure, climate finance, information asymmetry, rational in-attention |
| JEL: | D82 G11 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:202023&r=cfn |
| By: | Samuel Bazzi; Marc-Andreas Muendler; Raquel F. Oliveira; James Rauch; James E. Rauch |
| Abstract: | We explore how financial constraints distort the entry decisions among otherwise productive entrepreneurs and limit growth of promising young firms. A model of liquidity-constrained entrepreneurs suggests that the easing of credit constraints can induce more entry of firms with greater long-run growth potential than the easing of conventional entry barriers would bring about. We explore this growth mechanism using a large-scale program to expand the supply of credit to small and medium enterprises in Brazil. Local credit supply shocks generate greater firm entry but also greater exit with no effect on short-run employment growth in the formal sector. However, credit expansions increase average capability among entering firms, which enter at larger size, survive longer, and grow faster. These firm dynamics are more pronounced in areas with weaker credit markets ex ante and consistent with local bank branches using cheap targeted credit lines to expand lending more broadly. Our findings provide new evidence on the general equilibrium effects of credit supply expansions. |
| Keywords: | credit constraints, entry barriers, growth barriers, startups |
| JEL: | D21 D22 D92 L25 L26 M13 O12 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10672&r=cfn |
| By: | Iftekhar Hasan (Fordham University [New York]); Suk-Joong Kim (The University of Sydney); Panagiotis N. Politsidis (Audencia Business School); Eliza Wu (The University of Sydney) |
| Abstract: | We examine the effect of sovereign credit impairments on the pricing of syndicated loans following rating downgrades in the borrowing firms' countries of domicile. We find that the sovereign ceiling policies used by credit rating agencies create a disproportionately adverse impact on the bounded firms' borrowing costs relative to other domestic firms following their sovereign's rating downgrade. Rating-based regulatory frictions partially explain our results. On the supply-side, loans carry a higher spread when granted from low-capital banks, non-bank lenders, and banks with high market power. We further document an operating demand-side channel, contingent on borrowers' size, financial constraints, and global diversification. Our results can be attributed to the relative bargaining power between lenders and borrowers: relationship borrowers and non-bank dependent borrowers with alternative financing sources are much less affected. |
| Keywords: | "Credit ratings" "Sovereign ceiling" "Syndicated loan pricing" "Rating-based regulation" "Firm credit constraints" "Bank dependency" "Bargaining power" |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04227054&r=cfn |
| By: | Maczulskij, Terhi; Nilsson Hakkala, Katariina |
| Abstract: | Abstract After the financial crisis, Finland’s exports have lagged behind Sweden’s exports. This study analyzes how firms with different financial strength respond to demand shocks in their export markets. We utilize unique administrative datasets of Swedish and Finnish firms matched with national customs data over a period of 15 years, which allows us to analyze the effects of several macroeconomic shocks affecting export product demand and performance of exporting firms. We find that financially stronger export firms are better positioned during both positive and negative demand shocks, suffering less from the negative shocks, benefiting more from the positive shocks. While our results suggest that Swedish and Finnish firms tend to respond similarly to different export demand shocks, there are some salient differences in their survival strategies. While the financially stronger Swedish firms expanded their product lines and market areas, the Finnish firms did not make such adjustments during the 2007–2014 period of negative export demand shocks. The differences in the survival strategies could provide one explanation why the growth of Finnish exports has diverged from the Swedish exports since the financial crisis. |
| Keywords: | Export competition, Financial strength, Firm-level, Trade flows |
| JEL: | F14 F61 L11 L25 D22 |
| Date: | 2023–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:rif:briefs:125&r=cfn |
| By: | Roberto Blanco (Banco de España); Elena Fernández (Banco de España); Miguel García-Posada (Banco de España); Sergio Mayordomo (Banco de España) |
| Abstract: | We model the one-year ahead probability for default of Spanish non-financial corporations using data for the period 1996-2019. While most previous literature considers that a firm is in default if it files for bankruptcy, we define default as having non-performing loans during at least three months of a given year. This broader definition allows us to predict firms’ financial distress at an earlier stage that cannot generally be observed by researchers, before their financial conditions become too severe and they have to file for bankruptcy or engage in private workouts with their creditors. We estimate, by means of logistic regressions, both a general model that uses all the firms in the sample and six models for different size-sector combinations. The selected explanatory variables are five accounting ratios, which summarise firms’ creditworthiness, and the growth rate of aggregate credit to non-financial corporations, to take into account the role of credit availability in mitigating the risk of default. Finally, we carry out two applications of our prediction models: we construct credit rating transition matrices and evaluate a programme implemented by the Spanish government to provide direct aid to firms severely affected by the COVID-19 crisis. |
| Keywords: | default, financial distress, non-performing loans, logistic regression |
| JEL: | G30 G33 G21 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2319&r=cfn |
| By: | El-Sahli, Zouheir; Maczulskij, Terhi; Nilsson Hakkala, Katariina |
| Abstract: | Abstract This paper analyzes how firms with different financial strength levels respond to demand shocks in their export markets. We utilize unique administrative datasets of Swedish and Finnish firms matched with national customs data from 1999 to 2014, which allows us to analyze the effects of several macroeconomic shocks affecting the export product demand and performance of exporting firms. We find that financially stronger export firms are better positioned during both positive and negative demand shocks—suffering less from the negative shocks, benefiting more from the positive shocks. While our results suggest that Swedish and Finnish firms tend to respond similarly to different export demand shocks, there are some salient differences in their survival strategies. While the financially stronger Swedish firms expanded their product lines and market areas, the Finnish firms did not make such adjustments during the 2007–2014 period of negative export demand shocks. By analyzing the firm-level survival strategies on export markets, we provide new insights into the divergent export growth trends of the two countries. |
| Keywords: | Export competition, Financial strength, Firm-level, Trade flows |
| JEL: | F14 F61 L11 L25 D22 |
| Date: | 2023–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:rif:wpaper:108&r=cfn |
| By: | Marta Arroyabe (University of Essex, UK); Katrin Hussinger (DEM, Université du Luxembourg) |
| Abstract: | The winner’s curse describes the behavioral phenomenon that the winner of a bidding contest pays a price which is too high. This paper shows that experiential learning cannot prevent a winner’s curse on the market of corporate control as acquiring firms with acquisition experience still pay a higher price for the target in a bidding contest. Acquisition experience, however, is related to a superior post-acquisition performance of the winning firm after acquisitions associated with a bidding contest. |
| Keywords: | Firm acquisitions, winner’s curse, bidding contest, acquisition experience, experiential learning. |
| JEL: | G34 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:23-07&r=cfn |
| By: | Noora Alzayed (University of Bahrain, Accounting Department, Kingdom of Bahrain); Bernardo Batiz-Lazo (Universidad Anahuac Mexico, Business and Economics School (Mexico); Newcastle Business School, Northumbria University (United Kingdom)); Rasol Eskandari (Salford Business School, University of Salford, Salford (United Kingdom)) |
| Abstract: | This study examines the effect of board diversity and social networks on risk in US financial institutions for the period from 2010 to 2018. The econometric strategy involved structural equations models, where risk as dependent variable was measured by two latent variables and a total of five measures of risk. Several aspects of board diversity were utilised including gender, social, experience and educational backgrounds. Results suggest that age and gender diversity had a minor effect to mitigate risk of financial institutions. National diversity had a significant and positive effect while appearing strongest when compared with other variables. Two education measures had mixed results while suggesting that financial education is associated with greater risk. Also, social networks have a significant effect on risk-taking especially on market risk. These results imply that financial institutions need to have a sensible level of board diversity in all aspects. |
| Keywords: | Board diversity, financial institutions, risk taking, social networks, structural equation model. |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:amj:wpaper:23006:n:fenwp006&r=cfn |
| By: | Ullah, Nazim; Showrav, Ifthakarul; Eram, Mubarrat |
| Abstract: | Effective project management requires an understanding of how stakeholders are impacted by project failure. It draws attention to the effects on those involve finances, reputations, and emotions, assisting organizations in risk avoidance and fostering stakeholder satisfaction, trust, and long-term success. The purpose of this study is to provide proactive risk management, stakeholder involvement, and project result strategies. In order to compile this study, we have used a number literature reviews ranging from 2004 to 2023. The study's findings show that project failure results in significant financial losses, harms reputation, has legal ramifications, affects employee wellbeing, stifles relationships with stakeholders, stifles innovation, and endangers communities and the environment. By Adopting proactive risk management, strong governance, open communication, employee support, stakeholder involvement, strategic resource allocation, and social and environmental responsibility to reduce these negative effects and achieve sustainable project outcomes. The policymakers, practitioners and academia should focus risk factors those are associated with the project failure and hance manage a good harmony among the stakeholders. |
| Keywords: | Project Failure, Stakeholders, Risk Factors, Project Management |
| JEL: | G32 |
| Date: | 2023–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118721&r=cfn |