nep-cfn New Economics Papers
on Corporate Finance
Issue of 2024‒02‒19
seven papers chosen by
Zelia Serrasqueiro, Universidade da Beira Interior

  1. SME Relationship Banking and Loan Contracting: Survey-based Evidence from China By Lu, Shun; Glushenkova, Marina; Huang, Wei; Matthews, Kent
  2. Making the grass greener: The role of firm’s financial and managerial capacity in paving the way for the green transition By Hélia Costa; Lilas Demmou; Guido Franco; Stefan Lamp
  3. Do non-bank lenders mitigate credit supply shocks? Evidence from a major bank exit By McCann, Fergal; McGeever, Niall; Peia, Oana
  4. Relationship Lending: Characteristics and Real Effects By Miguel Acosta-Henao; Sangeeta Pratap; Manuel Taboada
  5. Open innovation in family-owned firms By Valentina Peruzzi
  6. Determinants and Consequences of Bank Borrowings of Small Businesses: Is the COVID-19 crisis special? By TSURUTA Daisuke
  7. The City of Glasgow Bank failure and the case for liability reform By Goodhart, C. A. E.; Postel-Vinay, Natacha

  1. By: Lu, Shun (Nottingham University Business School China, University of Nottingham Ningbo, China); Glushenkova, Marina (Nottingham University Business School China, University of Nottingham Ningbo, China); Huang, Wei (Nottingham University Business School China, University of Nottingham Ningbo, China,); Matthews, Kent (Cardiff Business School)
    Abstract: This study explores the impact of relationship banking on the financial constraints and loan conditions of small and medium-sized enterprises (SMEs) in China. Our research contributes to the literature in several ways. First, we examine both the financial costs and loan benefits associated with SME relationship banking, extending the scope of existing literature. Second, our study is unique in its focus on micro-enterprises, rather than large-scale listed companies in China. Lastly, we enhance the quality of the analysis by using direct measures of firms’ spending on bank relationships and their financial constraints, drawn from a recent survey on SMEs in China. Our findings are twofold. On one hand, bank relationship spending significantly reduces financial constraints for SMEs by facilitating access to loans. On the other hand, while this spending enables SMEs to secure more bank credit and longer-term loans, it also results in higher interest rates, increased guarantee requirements, and overall dissatisfaction with loan services. Our research provides new insights into the role of 'guanxi' in China's credit market and its consequences.
    Keywords: SME Financing, Relationship Banking, China, Financial Constraints
    JEL: G21 L14 O53
    Date: 2024–01
  2. By: Hélia Costa; Lilas Demmou; Guido Franco; Stefan Lamp
    Abstract: Despite the ambitious carbon reduction targets set by policy makers worldwide, current investments fall well short of the net-zero emissions scenario. This paper analyses the factors holding back corporate green investment, with a particular focus on the role of firm capacity – specifically financing constraints and weak green management practices – and its interaction with environmental policy. Combining a variety of econometric techniques, including panel data models, difference-in-differences settings and instrumental variable approaches, our cross-country analysis on large listed companies shows that: i) both financing constraints and a lack of green managerial capacity reduce firms’ probability of investing in green technologies, leading to higher emission intensity; ii) well-designed environmental policies can mitigate these impacts. A case study using more granular data on Portuguese firms further shows that: iii) green investment is more elastic to financing conditions than other types of investment; iv) investment in integrated technologies is more sensitive to financing conditions and to managerial capacity compared to end-of-pipe solutions. Lastly, the paper discusses a wide range of policy options that may be considered to foster the green transition through upgrading firms’ capacity.
    Keywords: Environmental policy, Financing constraints, Green investment, Green management
    JEL: D22 G32 Q52 Q58
    Date: 2024–02–08
  3. By: McCann, Fergal (Central Bank of Ireland); McGeever, Niall (Central Bank of Ireland); Peia, Oana (University College Dublin)
    Abstract: We study the transmission of credit supply shocks to firms by exploiting the unexpected exit of the third-largest lender in the Irish business lending market in 2020 and a unique matched firm-lender dataset that covers both banks and nonbank financial institutions. We find that borrowers of the exiting bank receive less credit along both the extensive and intensive margin in the period after the announcement, highlighting that credit supply is not perfectly substitutable across lenders. However, we show that this negative credit supply shock is partly mitigated by non-bank lenders. Borrowers of the exiting bank are more likely to borrow from non-banks following the shock, with the effects driven by business loan facilities, and stronger among riskier firms.
    Keywords: credit supply, non-bank lending, banking relationships.
    JEL: G21 G23 G30 G32
    Date: 2023–10
  4. By: Miguel Acosta-Henao; Sangeeta Pratap; Manuel Taboada
    Abstract: We evaluate the mechanisms behind relationship lending and its macroeconomic consequences. Using confidential credit registry data merged with firm tax records in Chile, we find that a closer relationship with a bank gives firms access to more credit at better terms. More productive and larger firms have closer relationships with banks. We build a dynamic model of firm behavior where firms choose their relationship status jointly with investment and borrowing decisions. Calibrating the model to Chilean data, we find that borrowing in relationships allows for greater screening and monitoring of firms, provides implicit guarantees to other creditors and necessitates a lower amount of collateral. More productive firms select into relationships, and relationship lending allows for larger loans at lower interest rates. Counterfactual experiments indicate that the effects of relationship lending are large. Extending these benefits to all firms results in an increase of almost 30 percent in aggregate output, capital and TFP.
    Date: 2023–11
  5. By: Valentina Peruzzi (Sapienza University of Rome)
    Abstract: This paper investigates the impact of family ownership on firms’ adoption of open innovation strategies. Using data from the VIII UniCredit survey on medium-sized enterprises, we find that family ownership is positively and significantly associated with the adoption of open innovation models by firms. The propensity to engage in open innovation by family firms is particularly pronounced in firms involved in product innovation and in collaborations with suppliers. The paper also delves into the inherent characteristics of family owners, emphasizing that the positive association between family ownership and open innovation is largely driven by their long-term perspective and relational abilities.
    Keywords: open innovation; family firms; product innovation; process innovation; relational capital
    JEL: O36 G32 D22
    Date: 2024–01
  6. By: TSURUTA Daisuke
    Abstract: We investigate what types of small businesses use bank loans during crisis periods, focusing on the global financial crisis (GFC) and the economic crisis caused by the coronavirus pandemic (COVID-19 crisis). Using comprehensive data on small businesses in Japan, we obtain the following results. First, during these two crisis periods, small businesses with low cash flow, high credit risk, and low sales growth borrowed more from banks. Second, these firms borrowed more during the COVID-19 crisis than during the GFC. Furthermore, ex post profitability of these firms was lower during the COVID-19 crisis, which was special in that vulnerable firms borrowed more from banks. Third, the increases in probability of default were not large during the early stages of the COVID-19 crisis but were economically significant in 2021. These results imply that massive financial support during the COVID-19 crisis delayed firm defaults.
    Date: 2024–01
  7. By: Goodhart, C. A. E.; Postel-Vinay, Natacha
    Abstract: The City of Glasgow Bank failure in 1878, which led to large numbers of shareholders becoming insolvent, generated great public concern about their plight, and led directly to the 1879 Companies Act, which paved the way for the adoption of limited liability for all shareholders. In this paper, we focus on the question of why the opportunity was not taken to distinguish between the appropriate liability for ‘insiders, ’ i.e. those with direct access to information and power over decisions, as contrasted with ‘outsiders.’ We record that such issues were raised and discussed at the time, and we report why proposals for any such graded liability were turned down. We argue that the reasons for rejecting graded liability for insiders were overstated, both then and subsequently. While we believe that the case for such graded liability needs reconsideration, it does remain a complex matter, as discussed in Section 4.
    Keywords: corporate governance; limited liability; bank risk-taking; financial regulation; financial crises; senior management regime; banks; banking
    JEL: G21 G28 G30 G32 G39 N23 K22 K29 L20
    Date: 2024–02–01

This nep-cfn issue is ©2024 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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