nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒11‒27
twelve papers chosen by
Zelia Serrasqueiro, Universidade da Beira Interior

  1. Heterogeneous macroprudential policies and corporate financing decisions By Bakkar, Yassine; Machokoto, Michael
  2. The signaling value of legal form in debt financing By Felix Bracht; Jeroen Mahieu; Steven Vanhaverbeke
  3. Managerial and financial barriers during the green transition By Ralph De Haas; Ralf Martin; Mirabelle Muuls; Helena Schweiger
  4. CEO compensation: evidence from the field By Edmans, Alex; Gosling, Tom; Jenter, Dirk
  5. Non-Financial Liabilities and Effective Corporate Restructuring By Becker, Bo; Josephson, Jens
  6. The leverage anomaly in U.S. bank stock returns By Venmans, Frank
  7. The kind of silence: managing a reputation for voluntary disclosure in financial markets By Gietzmann, Miles; Ostaszewski, Adam
  8. Closing the Investment Gap to Achieve Paris Agreement Goals By Fatih Yilmaz; Fahad A. Alswaina; Fateh Belaid; Mohamad Hejazi; Mari Luomi
  9. Roles of Stakeholders Towards Project Success: A Conceptual Study By Ullah, Nazim; Rashid, Mamun; Islam, Taufiqul; ayub, Md; Tanzi, Shariar; Utsho, Mohaiminul
  10. The Role of Bank-Fintech Partnerships in Creating a More Inclusive Banking System By Alan Chernoff; Julapa Jagtiani
  11. Curse and blessing: the effect of the dividend ban on euro area bank valuations and syndicated lending By Emiel Sanders; Mathieu Simoens; Rudi Vander Vennet
  12. Does sustainability matter in the credit ratings of public real estate companies? By Siq Huang; Anupam Nanda; Eero Valtonen

  1. By: Bakkar, Yassine; Machokoto, Michael
    Abstract: Utilizing data from 31, 336 firms across 69 countries over the period 2011-2017, we find evidence suggesting macroprudential policies have a significant negative impact on corporate debt, particularly long-term debt. We further find that macroprudential policies have heterogeneous effects, with a greater impact observed among firms facing binding credit constraints and high market competition, as well as those operating in countries with less developed institutions. These findings underscore the importance of institutional factors in determining the effectiveness of macroprudential policies.
    Keywords: Capital structure, debt maturity, macroprudential policies
    JEL: G20 G30 G32
    Date: 2023
  2. By: Felix Bracht; Jeroen Mahieu; Steven Vanhaverbeke
    Abstract: We examine if a startup's legal form choice is used as a signal by credit providers to infer its risk to default on a loan. We propose that choosing a legal form with low minimum capital requirements signals higher default risk. Arguably, small relationship banks are more likely to use legal form as a screening device when deciding on a loan. Using data from Orbis and the IAB/ZEW Start-up Panel for a sample of German firms, we find evidence consistent with our hypotheses but inconsistent with predictions of several competing explanations, including differential demand for debt or growth opportunities.
    Keywords: Legal form, Minimum Capital Requirements, Signaling, Access to Debt, Financial Constraint
    Date: 2022–12–15
  3. By: Ralph De Haas; Ralf Martin; Mirabelle Muuls; Helena Schweiger
    Abstract: We use data on 10, 852 firms across 22 emerging markets to analyse how credit constraints and deficient firm management inhibit corporate investment in green technologies. For identification, we exploit quasi-exogenous variation in local credit conditions. Our results indicate that both credit constraints and green managerial constraints slow down firm investment in more energy efficient and less polluting technologies. Complementary analysis of data from the European Pollutant Release and Transfer Register (E-PRTR) reveals the pollution impact of these constraints. We show that in areas where more firms are credit constrained and weakly managed, industrial facilities systematically emit more CO2 and other gases. This is corroborated by the finding that in areas where banks needed to deleverage more after the Global Financial Crisis, industrial facilities subsequently reduced their carbon emissions considerably less. On aggregate this kept CO2 emissions 5.6% above the level they would have been in the absence of credit constraints.
    Keywords: Credit constraints, green management, CO2 emissions, energy ei??ciency , Productivity
    Date: 2022–12–15
  4. By: Edmans, Alex; Gosling, Tom; Jenter, Dirk
    Abstract: We survey directors and investors on the objectives, constraints, and determinants of CEO pay. We find that directors face constraints beyond participation and incentives, and that pay matters not to finance consumption but to address CEOs’ fairness concerns. 67% of directors would sacrifice shareholder value to avoid controversy, leading to lower levels and one-size-fits-all structures. Shareholders are the main source of constraints, suggesting directors and investors disagree on how to maximize value. Intrinsic motivation and reputation are seen as stronger motivators than incentive pay. Even with strong portfolio incentives, flow pay responds to performance to fairly recognize the CEO's contribution.
    Keywords: CEO incentives; contract theory; executive compensation; fairness; survey; STICERD grant
    JEL: J1 F3 G3 J50
    Date: 2023–12–01
  5. By: Becker, Bo (Stockholm School of Economics); Josephson, Jens (Stockholm University)
    Abstract: Many countries’ insolvency systems focus on restructuring financial liabilities, and ignore operational liabilities such as leases and long-term supplier contracts. We model insolvency procedures with and without operational restructuring options. Such options avoid excessive liquidation of firms with significant non-financial obligations. Ex-ante, this option should increase debt capacity, especially in industries with inputs supplied under executory contract. We test this hypothesis around the introduction of a new law in Israel which facilitated the rejection of contracts, and by comparing capital structures for industries with high lease obligations between the U.S. and other countries. Empirical results confirm that operating restructuring is a key aspect of insolvency.
    Keywords: Bankruptcy; Restructuring; Executory contracts
    JEL: G32 G33
    Date: 2023–10–30
  6. By: Venmans, Frank
    Abstract: This article examines the relationship between capital ratios and returns on US bank stocks between 1973 and 2019. Banks with low capital ratios do not have higher, but rather lower returns than banks with intermediate levels of capital. This is not explained by standard risk factors. As a result, risk-adjusted returns (alphas) of lowcapital banks are negative. Moreover, the stock returns exhibit a delayed reaction to changes in capital ratios. Low-capital banks that further increase their debt have high abnormal returns on the day of announcement, but tend to have low risk-adjusted returns in the 9 months that follow. The paper uncovers several explanations for this leverage anomaly: under-priced default risk, under-priced systematic risk and sensitivity to idiosyncratic volatility.
    Keywords: asset pricing anonaly; bank regulation; capital requirements; leverage
    JEL: G12 G14 G21 G32
    Date: 2021–11–01
  7. By: Gietzmann, Miles; Ostaszewski, Adam
    Abstract: We create a continuous-time setting in which to investigate how the management of a firm controls a dynamic choice between two generic voluntary disclosure decision rules (strategies) in the period between two consecutive mandatory disclosure dates: one with full and transparent disclosure termed candid, the other, termed sparing, under which values only above a dynamic threshold are disclosed. We show how parameters of the model such as news intensity, pay-for-performance and time-to-mandatory-disclosure determine the optimal choice of candid versus sparing strategies and the optimal times for management to switch between the two. The model presented develops a number of insights, based on a very simple ordinary differential equation characterizing equilibrium in a piecewise-deterministic model, derivable from the background Black–Scholes model and Poisson arrival of signals of firm value. It is shown that in equilibrium when news intensity is low a firm may employ a candid disclosure strategy throughout, but will otherwise switch (alternate) between periods of being candid and periods of being sparing with the truth (or the other way about). Significantly, with constant pay-for-performance parameters, at most one switching can occur.
    Keywords: asset-price dynamics; voluntary disclosure; dynamic disclosure policy; Markov piecewise-deterministc modelling; corporate transparency reputation; Springer deal
    JEL: G32 D82
    Date: 2023
  8. By: Fatih Yilmaz; Fahad A. Alswaina; Fateh Belaid; Mohamad Hejazi; Mari Luomi (King Abdullah Petroleum Studies and Research Center)
    Abstract: This study aims to assess the alignment of global sustainable financial flows with transition investment priorities. First, we identify investment gaps based on the difference between the required annual investment to meet global net-zero emissions (NZE) targets and current investment flows. Our assessment reveals that nearly all countries must significantly accelerate their efforts, as their current investment levels fall short of what is required. Second, and perhaps more importantly, investment gaps are particularly large for non-Annex I (developing) countries. Financing these large-scale investments continues to be a major global challenge. The size of global environmental, social and governance (ESG) finance remains low. Specifically, despite their large investment gaps, developing countries receive only a minor share of global ESG funds, where access to conventional finance is already limited.
    Keywords: Carbon, Carbon capture and storage, Carbon neutrality
    Date: 2023–10–09
  9. By: Ullah, Nazim; Rashid, Mamun; Islam, Taufiqul; ayub, Md; Tanzi, Shariar; Utsho, Mohaiminul
    Abstract: Stakeholder plays significant roles in project success. They ensure clear communication of project goals, contribute to decision-making, and demonstrate commitment, increasing the likelihood of successful outcomes. They also act as advocates within their organizations, generating buy-in and support. The main purpose of this paper is to identify and discuss the roles of shareholders in a project success. The paper is conceptual in nature and uses a number literatures ranging from 2007 to 2023 from a good number of journals. After scrutinized the literature review, the paper concludes a number of findings. The findings implies that stakeholders in a project is crucial for its success and sustainability. They play a significant role in ensuring the performance of the project. Project managers need to acquire stakeholder management skills to address the communication requirements of stakeholders. This is important for the success of the project. The paper recommend that policymakers, practitioners and academia have to ensure the expectations and make a balance among the stakeholders.
    Keywords: Stakeholders, Project Management, Stakeholder Theory, Project Outcome
    JEL: G32
    Date: 2023–09–28
  10. By: Alan Chernoff; Julapa Jagtiani
    Abstract: Fintech firms are often viewed as competing with banks. Instead, more recently, there has been growth in partnership and collaboration between fintech firms and banks. These partnerships have allowed banks to access more information on consumers through data aggregation, artificial intelligence/machine learning (AI/ML), and other tools. We explore the demographics of consumers targeted by banks that have entered into such partnerships. Specifically, we test whether banks are more likely to extend credit offers (by mail) and/or credit originations to consumers who would have otherwise been deemed high risk either because of low credit scores or lack of credit scores altogether. Our analysis uses data on credit offers based on a survey conducted by Mintel, as well as data on credit originations based on the Federal Reserve’s Y-14M reports. Additionally, we analyze a unique data set of partnerships between fintech firms and banks compiled by CB Insights to identify the relevant partnerships. Our results indicate that banks are more likely to offer credit cards and personal loans to the credit invisible and below-prime consumers — and are also more likely to grant larger credit limits to those consumers — after the partnership period. Similarly, we find that fintech partnerships result in banks being more likely to originate mortgage loans to nonprime homebuyers and that they increase the mortgage loan amounts that banks grant to nonprime buyers as well. Overall, we find that these partnerships could help to move us toward a more inclusive financial system.
    Keywords: Fintech; alternative data; fintech partnership; financial inclusion; credit invisible
    JEL: G21 G28 G18 L21
    Date: 2023–10–04
  11. By: Emiel Sanders; Mathieu Simoens; Rudi Vander Vennet (-)
    Abstract: At the outbreak of the Covid-19 pandemic, the European Central Bank issued a strong recommendation towards banks to halt dividend payouts. The goal of this de facto dividend ban was to boost banks’ capital to ensure the supply of new credit. However, given the importance of dividends for stock market investors, this unprecedented measure is likely to have impacted bank valuations. Hence, banks may have chosen to preserve their higher capital buffers to boost payouts after the lifting of the ban, rendering the intended positive effect on credit supply a priori uncertain. We first investigate the effect of the dividend ban announcement on euro area banks’ valuations and find a significantly negative impact. Second, we assess the effect of the dividend ban on syndicated lending, including potential heterogeneity depending on the stock market reaction. We show that credit supply significantly increased, without counteracting effect of the negative stock market reaction.
    Keywords: Covid-19; dividend, euro area banks; market valuation; syndicated lending
    JEL: E51 G21 G28
    Date: 2023–11
  12. By: Siq Huang; Anupam Nanda; Eero Valtonen
    Abstract: Research on ESG and real estate suggests that the industry can contribute to mitigating climate change by improving the “sustainability” of their property portfolio while also gaining better financial performance. However, the challenges of sustainable property investments (SPI) still exist due to the diffused causal chain between the high initial costs of investment and the resultant benefits in the long run. The aim of this study is to identify and model the impacts of SPI on the credit rating of Real Estate Investment Trusts (REITs), providing insight into the motivating factors that influence investors’ decisions to invest in properties with sustainability characters. The study was based on the panel data of 84 US equity REITs over 2014–2021. The regression analysis demonstrates a significant positive correlation between the sustainability of REITs’ property portfolio and their credit ratings, and that the advantages of SPI overshadow saving operational expenditures alone. The sub-period analysis also indicates that the marginal benefits of SPI may diminish over time, which, however, needs the support of further research. For robustness check, the type-year average of portfolio sustainability is used as an instrument variable in a two-stage model, and the results support previous findings. In short, this study supports the outlook that ESG-related investments are crucial parts of rating agencies’ assessment of REITs’ creditworthiness, and can enhance corporate financial performance through lowering firms’ debt financing costs.
    Keywords: Credit Rating; REITs; sustainability
    JEL: R3
    Date: 2023–01–01

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.
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