nep-cfn New Economics Papers
on Corporate Finance
Issue of 2023‒12‒18
twelve papers chosen by
Zelia Serrasqueiro, Universidade da Beira Interior

  1. Common Ownership and the Market for Technology By Hutschenreiter, Dennis
  2. Internal finance, financial constraint and pollution emissions: evidence from China By Thomas Pernet; Mathilde Maurel; Zhao Ruili
  3. Trade Uncertainty and U.S. Bank Lending By Ricardo Correa; Julian di Giovanni; Linda S. Goldberg; Camelia Minoiu
  4. The Comovement between Credit Spreads, Corporate Debt and Liquid Assets in Recent Crises By Miguel Faria-e-Castro; Samuel Jordan-Wood; Julian Kozlowski
  5. Quest for the General Effect Size of Finance on Growth: A Large Meta-Analysis of Worldwide Studies By Ichiro Iwasaki; Evžen Kočenda; Evžen Kocenda
  6. Value Creation in M&A Transactions, Conference Calls, and Shareholder Protection By Fraunhoffer, Robert; Kim, Ho Young; Schiereck, Dirk
  7. Tickets to the global market: First US patent awards and Chinese firm exports By Robin Kaiji Gong; Yao Amber Li; Kalina Manova; Stephen Teng Sun
  8. Productivity Booms, Bank Fragility, and Financial Crises By Artur Doshchyn
  9. Asymmetric Models of Sales By David P. Myatt; David Ronayne
  10. Predictive AI for SME and Large Enterprise Financial Performance Management By Ricardo Cuervo
  11. Exploratory Analysis of Cost Variation in Unlisted Companies : Focusing on Cost Stickiness and Cost Anti-stickiness By SHINKAI, Takahide
  12. Financing cost impacts on cost competitiveness of green hydrogen in emerging and developing economies By Deger Saygin; Moongyung Lee

  1. By: Hutschenreiter, Dennis
    JEL: G23 G32 G34 L20 L25 O32 O33 O34
    Date: 2023
  2. By: Thomas Pernet (Centre d'Economie de la Sorbonne, Université Paris 1 Panthéon-Sorbonne); Mathilde Maurel (CNRS, Centre d'Economie de la Sorbonne); Zhao Ruili (Shangaï University of International Business and Economics, China)
    Abstract: This study explores the role of internal finance on firms' environmental behavior, focusing specifically on sulfur dioxide (SO2) emissions in China's rapidly growing industrial sector. Using a rich and unique dataset provided by the Ministry of Environmental Protection (MEP), our baseline results find a statistically significant positive relationship between asset tangibility and SO2 emissions intensity, revealing that credit-constrained firms with higher tangible assets contribute to elevated pollution levels. Additionally, we observe that firms with stronger internal finances experience a significant reduction in SO2 emissions. Our empirical analysis uncovers two key mechanisms through which internal finance influences firm behavior. First, firms with stronger internal financial health, as measured by metrics like cash flow, current ratio, and coverage ratio, are more inclined to invest in Research & Development and Total Factor Productivity, especially in credit-constrained sectors. Second, these financially robust firms are more proactive in adopting SO2 abatement technologies, an effect that becomes more pronounced in the context of credit-constrained firms. Our findings offer a nuanced understanding of how internal financial resources can serve as a dual lever for both innovation and sustainability, particularly in settings where external financing is limited
    Keywords: China; Pollution emissions; Financial constraints; Internal financing; TFP
    JEL: G2 G32 L25 L6 Q53
    Date: 2023–10
  3. By: Ricardo Correa; Julian di Giovanni; Linda S. Goldberg; Camelia Minoiu
    Abstract: This paper uses U.S. loan-level credit register data and the 2018–2019 Trade War to test for the effects of international trade uncertainty on domestic credit supply. We exploit cross-sectional heterogeneity in banks’ ex-ante exposure to trade uncertainty and find that an increase in trade uncertainty is associated with a contraction in bank lending to all firms irrespective of the uncertainty that the firms face. This baseline result holds for lending at the intensive and extensive margins. We document two channels underlying the estimated credit supply effect: a wait-and-see channel by which exposed banks assess their borrowers as riskier and reduce the maturity of their loans and a financial frictions channel by which exposed banks facing relatively higher balance sheet constraints contract lending more. The decline in credit supply has real effects: firms that borrow from more exposed banks experience lower debt growth and investment rates. These effects are stronger for firms that are more reliant on bank finance.
    JEL: F34 F42 G21
    Date: 2023–11
  4. By: Miguel Faria-e-Castro; Samuel Jordan-Wood; Julian Kozlowski
    Abstract: Credit spreads rose sharply during the 2008 financial crisis and the COVID-19 crisis. But their movement with corporate debt and liquid assets differed during those two periods.
    Keywords: Financial Crisis of 2008; COVID-19; corporate debt; liquid assets; credit spreads
    Date: 2021–11–09
  5. By: Ichiro Iwasaki; Evžen Kočenda; Evžen Kocenda
    Abstract: We analyze diverse and heterogenous literature to grasp the general effect size of financial development on economic growth on a world scale. For that, we perform by far the largest available meta-analysis of the finance–growth nexus using 3561 estimates collected from 177 studies. Our meta-synthesis results show that large heterogeneity in empirical evidence is, in fact, driven by only a limited number of variables (moderators). By using advanced techniques, we also document the existence of the publication selection bias that is propagated in the literature in a nonlinear fashion. We account for uncertainty in moderator selection by employing model-averaging techniques. After adjusting for the publication bias, the results of our meta-regression provide evidence of a small but genuine positive effect of the financial development on growth that very mildly declines over time. Finance channeled via capital markets seems to be more beneficial for economic growth than that provided in the form of private credit. Our evidence goes against arguments about the damaging role of financial development and is in line with century-old theoretical foundations that favor the positive role of finance on economic growth.
    Keywords: financial development, economic growth, meta-analysis, publication selection bias
    JEL: C12 D22 G21 G33
    Date: 2023
  6. By: Fraunhoffer, Robert; Kim, Ho Young; Schiereck, Dirk
    Abstract: This study investigates whether conference calls accompanying M&A announcements in Europe provide valuable information for capital market participants and hence induce an abnormal stock price revaluation on the bidder’s equity. Based on handpicked data for transactions between 2008 and 2012 we focus on the five most acquisitive country markets in Europe. Overall, our results show that bidders are more likely to conduct conference calls with increasing transaction value, for transactions with public targets and non-diversifying transactions. Further, the decision for voluntary disclosure is positively influenced by increased bidder size and the comparably weaker governance systems for German and Swiss firms. After controlling for self-selection bias and other determinants of stock returns around mergers and acquisitions (M&A) announcement, evidence is in strong support that firms with merger-related conference calls yield a higher abnormal return than firms merely publishing a press release. However, significant favourable investor reaction is only present in the UK and French subsamples and in the subsamples of industries with a focus on research and development (R&D).
    Date: 2023–11–21
  7. By: Robin Kaiji Gong; Yao Amber Li; Kalina Manova; Stephen Teng Sun
    Abstract: We investigate how international patent activity enables firms from emerging economies to thrive in the global marketplace. We match Chinese customs data to US patent records and leverage the quasi-random assignment of USPTO patent examiners to identify the causal effect of a US patent grant on the subsequent export performance of Chinese firms. Successful first-time patent applicants achieve significantly higher export growth, compared to otherwise similar first-time applicants that failed. This effect operates only in small part through market protection for technologically patent-related products in the US and is largely driven by expansion in other markets. The response across destinations and products reveals that a US patent award signals the Chinese firm's capacity to produce high-quality products and credibility to honor contracts, mitigating information frictions in international trade. There is little evidence for the relaxation of financial constraints or the promotion of follow-on innovation.
    Keywords: patent rights, innovation, export performance, trade, market protection, asymmetric information, signalling
    Date: 2023–11–21
  8. By: Artur Doshchyn
    Abstract: While financial crises tend to be preceded by economic booms, most booms do not end with crises. Crises typically occur when booms are interrupted by persistent slowdowns in productivity growth. I develop a model in which risk of crisis emerges endogenously during boom because of increased fragility of the banking sector. Banks raise financing from households to invest in long-term projects, but their ability to do so is hindered by moral hazard, since bankers can misappropriate investors’ funds. Demandable deposits create discipline by exposing misbehaving banks to runs, and thus help them increase external financing. Normally, banks finance themselves with a mix of equity and deposits that maximizes discipline, but ensures that they always remain solvent. But when growth prospects become sufficiently strong, worsening agency problems induce banks to intensify deposit financing, which enables a boom in credit, asset prices, and investment. If the anticipated growth fails to materialise, however, the excessive deposit financing leads to a systemic banking crisis.
    Date: 2022–12–09
  9. By: David P. Myatt (London Business School); David Ronayne (ESMT Berlin)
    Abstract: We broaden and develop the classic captive-and-shopper model of sales. Firstly, we allow for asymmetric marginal costs as well as asymmetric captive audiences. These asymmetries jointly determine the identities of the two or more firms we find compete (via randomized sales) to serve shoppers. In a leading case, the prices paid by shoppers fall following a cost rise for the firm that serves most of them. Secondly, we study asymmetric price adjustment opportunities via a two-stage game in which firms may cut but not raise their initial prices. In this setting (and in scenarios with risk aversion or endogenous move order) we predict the play of pure strategies and that a unique firm serves the shoppers. Despite the different pricing predictions across games, firms’ profits are equivalent. Welfare properties depend on whether firm asymmetry is predominantly on the supply side (costs) or on the demand side (captive audiences). Thirdly, we allow firms to choose production technologies via process innovations. One firm innovates distinctly more than others, attains a lower marginal cost, and ultimately serves the shoppers. We connect the distinctive asymmetric pattern of innovations to demand-side asymmetries and the shape of technology opportunity.
    Keywords: model of sales; captives; shoppers; price dispersion; clearinghouse models;
    JEL: D43 L11 M3
    Date: 2023–11–13
  10. By: Ricardo Cuervo
    Abstract: Financial performance management is at the core of business management and has historically relied on financial ratio analysis using Balance Sheet and Income Statement data to assess company performance as compared with competitors. Little progress has been made in predicting how a company will perform or in assessing the risks (probabilities) of financial underperformance. In this study I introduce a new set of financial and macroeconomic ratios that supplement standard ratios of Balance Sheet and Income Statement. I also provide a set of supervised learning models (ML Regressors and Neural Networks) and Bayesian models to predict company performance. I conclude that the new proposed variables improve model accuracy when used in tandem with standard industry ratios. I also conclude that Feedforward Neural Networks (FNN) are simpler to implement and perform best across 6 predictive tasks (ROA, ROE, Net Margin, Op Margin, Cash Ratio and Op Cash Generation); although Bayesian Networks (BN) can outperform FNN under very specific conditions. BNs have the additional benefit of providing a probability density function in addition to the predicted (expected) value. The study findings have significant potential helping CFOs and CEOs assess risks of financial underperformance to steer companies in more profitable directions; supporting lenders in better assessing the condition of a company and providing investors with tools to dissect financial statements of public companies more accurately.
    Date: 2023–09
  11. By: SHINKAI, Takahide
    Abstract: The purpose of this study is to focus on cost stickiness and cost anti-stickiness and, by using financial data from unlisted companies to conduct quantitative analysis, to uncover aspects of cost variation and their underlying mechanisms among the group of unlisted companies that previous research has yet to clarify. Analyzing a large-scale financial data set from unlisted companies, it was confirmed that the results, both for samples excluding the construction and financial sectors and for samples including only the construction sector, did not contradict the findings of Anderson et al. (2003) and Banker et al. (2014). It was also concurrently verified that these results are consistent with the estimated outcomes of empirical studies focusing on publicly listed companies in Japan. This research, which analyzed a large-scale financial panel data set of unlisted companies, is likely the first of its kind in the world. Through this study, it is believed that we have been able to present the potential for expanding existing research on cost variability, which has predominantly been analyzed using published data from listed companies.
    Keywords: cost stickiness, anti-cost stickiness, unlisted companies, cost behavior
    Date: 2023–11
  12. By: Deger Saygin; Moongyung Lee
    Abstract: Green hydrogen, produced from water and renewable power through the electrolysis process, can play a crucial role in the low-carbon transition to achieve the net-zero emission targets. Currently, the production cost of green hydrogen is not competitive when compared to hydrogen produced from natural gas. High capital costs are a major factor constraining its cost-competitiveness. This working paper utilises financial market data to address the knowledge gap concerning the range of Weighted Average Cost of Capital (WACC) for green hydrogen projects. It also conducts a survey among investors and financiers to identify key risk factors contributing to the high WACC. The key risks that have been identified include offtaker risks, lack of credible offtakers, price uncertainty of green hydrogen, and the absence of hydrogen trading markets. These risks are closely connected to the available risk mitigation strategies and tools. The paper summarises key risk mitigation strategies identified through case studies of lighthouse green hydrogen projects that have either reached or are nearly point of reaching financial investment decisions.
    Keywords: cost competitiveness of green hydrogen, cost of capital, green hydrogen, industry decarbonisation, levelised cost of hydrogen
    JEL: L20 O14 O25 Q42 Q48
    Date: 2023–11–29

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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