nep-cfn New Economics Papers
on Corporate Finance
Issue of 2024‒04‒01
ten papers chosen by
Zelia Serrasqueiro, Universidade da Beira Interior

  1. Women director interlocks and firm performance: Evidence from India By Shreya Biswas; Jayati Sarkar; Ekta Selarka
  2. Venture Debt By Adair Morse
  3. What Gets Measured Gets Managed: Investment and the Cost of Capital By He, Zhiguo; Liao, Guanmin; Wang, Baolian
  4. Is There Information in Corporate Acquisition Plans? By Sinan Gokkaya; Xi Liu; René M. Stulz
  6. Tokenism in Gender Diversity among Board of Directors By Kan Nakajima; Yoko Shirasu; Eiji Kodera
  7. Collateral Effects: The Role of FinTech in Small Business Lending By Paul Beaumont; Huan Tang; Éric Vansteenberghe
  8. Standardization and Innovation in Venture Capital Contracting: Evidence from Startup Company Charters By Bartlett, Robert P.
  9. Innovation: The Bright Side of Common Ownership? By Miguel Antón; Florian Ederer; Mireia Giné; Martin C. Schmalz
  10. Fighting for the Best, Losing with the Rest: The Perils of Competition in Entrepreneurial Finance By Hernández, Juan; Wills, Daniel

  1. By: Shreya Biswas (Birla Institute of Technology and Science, Pilani, Hyderabad Campus); Jayati Sarkar (Indira Gandhi Institute of Development Research); Ekta Selarka (Madras School of Economics)
    Abstract: This paper empirically examines the impact of network ties of women directors on firm value and sheds light on the unaddressed issue of whether such ties can serve as one of the channels through which women on board affect firm performance. In doing so, the study also seeks to provide a gendered perspective of the performance effects of interlocking directorates on which empirical evidence is scant. Using a panel of listed firms in India for the period 2010-2020 covering periods of pre and post institution of gender quota on company boards, our study finds that women director connectedness, as captured in select network centrality measures, has a positive and robust effect on firm value. We further find evidence that the positive relationship with firm value is driven by the information advantage and influence of women director networks. Finally, based on a director level analysis, we find that more connected women directors, including those who are independent, contribute to corporate governance through higher meeting attendance, and through their memberships in important committees. The findings of the paper highlight the unique role of women director interlocks in firm governance and performance.
    Keywords: Interlocking directors, Firm value, Woman directors, Network centrality, India, Emerging markets
    JEL: G32 G34 G38
    Date: 2023–12
  2. By: Adair Morse
    Abstract: The provision of venture debt financing to growth-oriented startups which are backed by venture capital (VC) equity has been a bit of a puzzle given the lack of positive cash flows or traditional collateral of such startups. This short paper lays out the hurdles for debt to overcome to be a viable source of finance and casts the three types of venture debt – patent loans, venture leverage, and bridge loans – as solutions to such hurdles, casting the literature in terms of financial innovation. Finally, the paper addresses the risks implied by venture debt and discusses whether the demise of Silicon Valley Bank speaks to whether innovation ecosystem risk transmutes to the financial system through debt and the extent to which innovation ecosystem risk remains unstudied.
    JEL: G24
    Date: 2024–03
  3. By: He, Zhiguo (U of Chicago); Liao, Guanmin (Renmin U of China); Wang, Baolian (U of Florida)
    Abstract: We study the impact of government-led incentive systems by examining a staggered reform in the Chinese state-owned enterprise (SOE) performance evaluation policy. To improve capital allocative efficiency, regulators switched from using return on equity (ROE) to economic value added (EVA). However, this EVA policy takes a one-size-fits-all approach by stipulating a fixed cost of capital for virtually all SOEs, neglecting the potential heterogeneity of firm-specific costs of capital. We show that SOEs responded to the evaluation reform by altering their investment decisions, particularly when the actual borrowing rate deviated further from the stipulated rate. Besides providing an estimate of the cost of capital's impact on investment, our paper offers causal evidence that incentive schemes affect real investment and sheds new light on economic reform challenges in China.
    JEL: G31 G34 M12 M52 P31
    Date: 2023–08
  4. By: Sinan Gokkaya; Xi Liu; René M. Stulz
    Abstract: For many firms, the acquisition process begins with the development of an acquisition plan that is communicated to investors. We construct a comprehensive sample of acquisition plans to provide novel perspectives on the acquisition process and find that acquisition plans are informative to investors and incrementally predict subsequent acquisition activity. These results are more pronounced for firms announcing their commitment to acquisitions from an internal pipeline. Acquisition plans improve acquisition performance due to learning from market feedback and alleviate acquisition-related market uncertainty. Communication of acquisition plans does not increase takeover premiums but is less common in more competitive industries.
    JEL: G14 G24 G30 G34
    Date: 2024–03
  5. By: Christophe J. GODLEWSKI (LaRGE Research Center, Université de Strasbourg); Malgorzata OLSZAK (Wydzial Zarzadzania, Uniwersytet Warszawski)
    Abstract: We analyze the impact of macroprudential policies on corporate loans. We utilize a dataset of over 4, 800 syndicated loans from 1999-2017, matched with detailed macroprudential policy data from the European Central Bank. We investigate how overall policy stance and specific tools influence key loan terms at origination, including the amount, maturity, collateral, and covenants. Drawing upon hypotheses related to credit growth, risk-taking, and efficiency transmission channels, we show that a tighter macroprudential policy leads to an increase in loan amounts and collateralization. These effects are most prominent for tools that tighten lending standards and capital buffers, particularly in domestic credit markets. Additionally, we provide insights into the influence of loan, borrower, and lender characteristics on the impact of macroprudential policy on loan terms. Our findings offer novel empirical evidence of macroprudential transmission occurring through risk-shifting and compensating behaviors in private debt markets.
    Keywords: macroprudential policy, bank loans, financial contracting, Europe
    JEL: G21 G28 G32
    Date: 2024
  6. By: Kan Nakajima; Yoko Shirasu; Eiji Kodera
    Abstract: This study examines the existence of tokenism in Japanese companies after the implementation of corporate governance reforms. We focus on the appointment of female outside directors. The existence of tokenism in corporate boards is an important issue for companies worldwide because it deals with gender diversity in the appointment of board members. Following the Abenomics policy of empowering women, Japan introduced ``Japan's Corporate Governance Code'' (the Code), which included board reforms such as appointing at least two outside directors. Using a quasi-natural experiment, we examine whether tokenism occurs in Japan, a country with a low female participation level in business. Empirical analysis reveals the occurrence of tokenism at the start of the Code¡Çs introduction. Companies appoint two outside directors to meet the formal requirements of the Code. They appoint a male outside director first and a female director later as a token. However, tokenism is not observed when busy female directors with a lot of experience are appointed to the board because they presumably have the expertise and skill.
    Date: 2024–03
  7. By: Paul Beaumont; Huan Tang; Éric Vansteenberghe
    Abstract: This paper investigates the impact of introducing junior unsecured loans via FinTech crowdlending platforms in the small business lending market. Using French administrative data, we find that FinTech borrowers experience a 20% increase in bank credit following FinTech loan origination. We establish causality using a shift-share instrument exploiting firms’ differential exposure to banks’ collateral requirements. The credit expansion only occurs when FinTech borrowers invest in new assets, and Fintech borrowers are subsequently more likely to pledge collateral to banks. This suggests that firms use FinTech loans to acquire assets that they then pledge to banks, thereby increasing their total borrowing capacity. <p> Cet article examine l'impact de l'introduction de prêts non garantis juniors via les plateforme FinTech de crowdlending sur le marché du prêt aux petites entreprises. En utilisant des données administratives françaises, nous constatons que les emprunteurs FinTech connaissent une augmentation de 20% de leur crédit bancaire suite à l'origination du prêt FinTech. Nous établissons la causalité en utilisant un instrument dit shiftshare qui exploite l'exposition différentielle des entreprises aux exigences de garantie des banques. L'expansion du crédit ne se produit que lorsque les emprunteurs FinTech investissent dans de nouveaux actifs, et ces emprunteurs FinTech sont par la suite plus susceptibles de mettre en gage des garanties aux banques. Cela suggère que les entreprises utilisent les prêts FinTech pour acquérir des actifs qu'elles mettent ensuite en gage aux banques, augmentant ainsi leur capacité d'emprunt totale.
    Keywords: FinTech, SMEs, small business lending; FinTech, PMEs, prêts aux petites entreprises
    JEL: G21 G23 G33
    Date: 2024
  8. By: Bartlett, Robert P. (Stanford U)
    Abstract: This study examines the standardization of venture capital (VC) contracts since the release of the National Venture Capital Association (NVCA) model charter in 2003. Using nearly 5, 000 charters issued in connection with a startup's Series A financing, the paper finds a significant increase in the model's adoption from less than 3% of charters in 2004 to nearly 85% by 2022. Adoption of the Delaware-oriented charter has also been accompanied by the growing dominance of Delaware incorporation, with Delaware charters growing from 54% of sample charters in 2004 to 100% in 2022. High adoption rates among the six most active law firms servicing U.S. startups largely explain the success of the standardization project. While cosine similarity analysis reveals charters are overall more similar in 2022 than in 2004, the capital structures of Series A startups have also become substantially more complex. Series A charters authorizing only a single class of common stock and a single series of "Series A" preferred stock constituted 86% of charters in 2004 but constituted just 5% of 2022 charters, while 30% of 2022 charters had either 2 classes of common stock or 3 or more series of preferred stock. The additional complexity arises almost entirely from multiple securities reflecting prior seed stage financing. In contrast, efforts to add founder-friendly capital securities--such as dual class common stock and founder preferred stock--have made only modest inroads. Overall, the story of VC contracting over the past two decades is largely one of standardization, albeit with growing complexity around startup capital structures due to the increasing importance of seed stage capital and changing expectations regarding what constitutes a "Series A" startup.
    JEL: G24 G32 K22 M13
    Date: 2023–09
  9. By: Miguel Antón; Florian Ederer; Mireia Giné; Martin C. Schmalz
    Abstract: Firms have inefficiently low incentives to innovate when other firms benefit from their inventions and the innovating firm therefore does not capture the full surplus of its innovations. We show that common ownership of firms mitigates this impediment to corporate innovation. By contrast, without technological spillovers, innovation has the effect of stealing market share from rivals; in that case, more common ownership reduces innovation. Empirically, the association between common ownership and innovation inputs and outputs decreases with product market proximity and increases with technology proximity. The sign and magnitude of the overall relationship between common ownership and corporate innovation thus varies considerably across the universe of firms depending on their relative proximity in technology and product market space. These results persist if we use only variation from BlackRock's acquisition of BGI. Our results inform the debate about the welfare effects of increasing common ownership among U.S. corporations.
    JEL: G30 L20 L40 O31
    Date: 2024–03
  10. By: Hernández, Juan; Wills, Daniel
    Abstract: Financiers in early-stage entrepreneurial finance are known for their “spray-and-pray” approach, where they fund multiple start-ups expecting profits on a few to compensate losses on a lot of failed ones. We develop a theoretical framework in which financiers compete to fund entrepreneurs in an environment featuring risk, adverse selection, and limited liability. Financiers use steep payoff schedules to screen entrepreneurs, but limited liability implies they can only do so by giving more to all entrepreneurs. In equilibrium, competition for the best entrepreneurs forces intermediaries to offer better terms to all customers, there is cross-subsidization among entrepreneurs, and intermediation profits are zero. Competition among financial intermediaries always forces them to fund projects with negative expected returns both from a private and from a social perspective. This is an extensive margin inefficiency, as all projects are funded at their efficient scale. The three main features of our framework (competition, adverse selection, and limited liability) are necessary to get the inefficient laissez-faire outcome and a role for regulation. The inefficiency shrinks, but some part will always persist, when firms can collateralize some portion of the credit as long as there is still an unsecured fraction. Additional imperfect information, like a credit score, may increase inefficiency. Crucially, a small externality on financiers exacerbates the extensive margin inefficiency, yielding a negative social surplus in the entrepreneurial financing market.
    Keywords: Adverse selection;Entrepreneurial Finance;Competition;Extensive margin inefficiency
    JEL: D82 G14 G28
    Date: 2024–01

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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