nep-cfn New Economics Papers
on Corporate Finance
Issue of 2024‒01‒15
five papers chosen by
Zelia Serrasqueiro, Universidade da Beira Interior

  1. Credit Allocation and Public Credit Guarantee Schemes for Small Businesses: Evidence from Japan By TSURUTA Daisuke
  2. Anatomy of Out-of-court Debt Workouts for SMEs By HONDA Tomohito; ONO Arito; UESUGI Iichiro; YASUDA Yukihiro
  3. The Cost of Climate Policy to Capital: Evidence from Renewable Portfolio Standards By Harrison Hong; Jeffrey D. Kubik; Edward P. Shore
  4. Real Effects of Corporate Cash Holdings: Evidence from Japan By HATTORI Masazumi; FUJITANI Ryosuke; NAKAJIMA Jouchi; YASUDA Yukihiro
  5. Measuring the ex-ante incentive effects of creditor control rights during bankruptcy reorganization By Agrawal, Ashwini; Gonzalez-Uribe, Juanita; Martinez-Correa, Jimmy

  1. By: TSURUTA Daisuke
    Abstract: In this paper, we investigate the relationship between the use of a public credit guarantee scheme for small businesses and the efficiency of credit allocation using region- and industry-level data from Japan for the period from 1968 to 2005. Studies argue that credit constraints are more severe for small businesses than for large firms. Therefore, a public credit guarantee scheme that mitigates this constraint could enhance social welfare. If credit guaranteed loans were allocated to firms with high value added, the public credit guarantee scheme would enhance the efficiency of credit allocation. Conversely, however, public credit guarantee schemes can squeeze credit allocations for small businesses. When financial institutions offer loans through credit guarantee schemes, they can offer loans to small businesses at low risk to themselves, even though small businesses are high-risk borrowers, which may reduce the incentives of the financial institutions to monitor the activity of small business borrowers. In addition, because the public credit guarantee scheme in Japan is a component of a broader set of social policies aiming to eliminate inequality, credit guaranteed loans can be offered to economically distressed firms. We identify a negative relationship between the amount of credit guaranteed and the value added. Moreover, we find that the greater the amount of credit guaranteed loans offered to firms, the larger the default rate among small businesses. We show that the public credit guarantee scheme reduced the efficiency of credit allocations, which has implications for industry and regional growth.
    Date: 2023–12
  2. By: HONDA Tomohito; ONO Arito; UESUGI Iichiro; YASUDA Yukihiro
    Abstract: In this study, we use a detailed and comprehensive dataset on out-of-court debt workouts for distressed small and medium-sized enterprises in Japan to describe characteristics of these workouts. We then investigate their determinants and the subsequent effects on firm performance. We find that most cases of debt restructuring involve a rescheduling (deferral of debt repayment). In contrast, firms infrequently use more drastic measures, some of which could reduce their debt overhang. For the determinants, firms with operating surpluses and negative net worth are more likely to take drastic measures to restructure debt, which is consistent with the debt overhang theory. Firms with operating surpluses are more likely to adopt measures to hold management responsible and to use new outside executives. In terms of performance, firms that use drastic debt restructuring strategies have better gross sales and profits. Firms that use restructuring to hold management more responsible reduce employment and improve profits. These results indicate that firms that use measures to reduce their debt overhang and limit their moral hazard improved their performance.
    Date: 2023–12
  3. By: Harrison Hong; Jeffrey D. Kubik; Edward P. Shore
    Abstract: Many US states have set ambitious renewable portfolio standards (RPS) that require utilities to switch from fossil fuels toward renewables. RPS increases the renewables capacity, bond issuance, maturity, and yield spreads of investor-owned utilities compared to municipal producers that are exempted from this climate policy. Contrary to stranded-asset concerns, the hit to overall firm financial health is moderate. Falling cost of renewables and passthrough of these costs to consumers mitigate the burden of RPS on firms. Using a Tobin’s q model, we show that, absent these mitigating factors, the impact of RPS on firm valuations would have been severe.
    JEL: G0 G18 G31 G35 H0 H23 H25 H41 Q42 Q50 Q54 Q56 Q58
    Date: 2023–12
  4. By: HATTORI Masazumi; FUJITANI Ryosuke; NAKAJIMA Jouchi; YASUDA Yukihiro
    Abstract: This study analyzes the real effects of cash holdings of Japanese companies. We quantitatively investigate whether differences in cash holdings immediately before a specific sample period after 2000 lead to differences in corporate behavior over the medium term. Specifically, we first investigate the period immediately after the Lehman shock in 2008 and analyze capital expenditures as real effects. The results clearly show that companies with high cash holdings immediately before the crisis make more capital investments in the post-crisis period than companies with low cash holdings. We also find that the difference is larger for tangible fixed assets than it is for intangible fixed assets. These results are similar to a preceding study in the UK that reported that differences in cash holdings create differences in companies' competitive advantage after the crisis. However, unlike in the UK, we also find that the real effects of cash holdings are almost equally apparent, regardless of the sample period chosen after 2000. Japanese companies experienced a domestic banking crisis in the late 1990s. It can be pointed out that the experience of the crisis motivated them to increase their tendency to hold cash, and that differences in the resulting cash holdings have led to differences in the real effects in Japan.
    Date: 2023–12
  5. By: Agrawal, Ashwini; Gonzalez-Uribe, Juanita; Martinez-Correa, Jimmy
    Abstract: A large theoretical literature studies the effects of creditor control during bankruptcy proceedings on firm outcomes. Empirical work in this area mainly examines reforms to creditor control rights during liquidation. In this paper, we use administrative microdata and exploit a legal reform in Denmark to provide the first causal estimates of creditor empowerment in reorganization-the complementary bankruptcy procedure to liquidation. We find that the Danish reform led to a sharp decline in liquidations. Although few insolvent firms make use of the new reorganization procedures, we show that solvent firms improved their financial management and increased employment and investment. The findings illustrate the empirical importance of reorganization rules on the incentives of stakeholders outside of bankruptcy.
    Keywords: bankruptcy; reorganization; liquidation; creditors; debtors; DFF1329- 00068; DFF1327-00244
    JEL: G33 G34 G18
    Date: 2022–01–01

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