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on Corporate Finance |
| By: | Yuan, Mingqing |
| Abstract: | This study examines the relationship between economic policy uncertainty (EPU) and corporate investment by employing the two-step system generalized method of moments approach and panel data from 4619 listed firms in China spanning 2003–2022. We comprehensively analyze EPU’s impact on various timelines of investment and show non-linear dynamics within the EPU–investment nexus. Our findings suggest that EPU negatively affects total and short-term investments, but positively influences long-term investment. Total and short-term investments demonstrate a U-shaped association with EPU, while long-term investment follows an inverted U-shaped pattern. Additionally, we explore the effects of ownership and capital structures. Ownership concentration and institutional ownership amplify the negative impact of EPU on total and short-term investment but alleviate it for long-term investment. State ownership exacerbates the adverse effects on total and short-term investments, with no significant impact on long-term investment. We find that increased debt financing and equity financing intensify the adverse impact of EPU on total and short-term investments, while not significantly affecting long-term investment. This study offers policy implications based on investment horizon, ownership structure, and financial leverage, guiding policymakers and corporate decision-makers. |
| Keywords: | Economic policy uncertainty, Corporate investment, Ownership structure, Capital structure |
| JEL: | C23 D81 E22 G32 P34 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119992&r=cfn |
| By: | Gödecke, Timm |
| Abstract: | The objective of this dissertation is to deepen our understanding of how large shareholders make decisions, since we recently experienced a significant increase in concentration of voting rights around the world, which has amplified their influence in corporate governance. Accordingly, this dissertation investigates the impact of the largest shareholder’s voting stake on corporate decisions across three distinct studies. The first study focuses on capital structure decisions, revealing a negative relationship between the voting stake of the largest shareholder and leverage. Family-controlled firms show a weaker association, emphasizing their desire to maintain control over the firm. The second study finds that a high concentration of voting rights decreases the likelihood of undertaking an acquisition, which aligns with the risk-reduction motive of large shareholders. While family identity influences capital structure decisions, no significant differences are observed in acquisition behavior. The third study examines how concentration of voting rights affects acquisition financing and reveals an aversion of large shareholders towards equity to prevent dilution. This aversion towards equity financing is particularly pronounced in the intermediate ownership range, where shareholders are most susceptible to a potential loss of control. Overall, the findings underscore the significance of risk reduction and control motives for large shareholders that potentially limit corporate growth. Considering the proposed reintroduction of multiple-vote shares by the European Commission, which are expected to result in an increased concentration of voting rights, these insights are particularly relevant. |
| Date: | 2024–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:144201&r=cfn |
| By: | Nakatani, Ryota |
| Abstract: | Multifactor productivity (MFP) growth is an imperative economic engine. MFP dynamism across five advanced and seven developing countries from 1996 to 2015 is analyzed, elucidating its association with financing and intangible assets. Debt is manifested by its inverted U-shaped nonlinear relationship with MFP advancement, while corporate cash holdings are negatively (positively) associated with MFP development in five (three) countries. The heterogeneous relationships between intangible assets and MFP growth are identified across industries, countries, and time; intangible assets are requisite MFP growth enhancers for manufacturing in developing countries, for service businesses in advanced countries, and for the period after the global financial crisis. The greater the productivity effect of intangible assets is, the higher a country’s per-capita income and/or governance quality becomes. Additionally, the results evince the catching-up of MFP to the technological frontier. Moreover, older firms exhibit slower MFP growth than their peers, whilst the positive effects of firm size on MFP growth are larger in high-tech and knowledge-intensive industries. |
| Keywords: | Industrial Analysis; Multifactor Productivity Growth; Cash Holding; Debt Financing; Knowledge and Technology Intensive Sectors; Intangible Assets |
| JEL: | D22 D24 G32 L25 L6 L8 M21 O34 O57 |
| Date: | 2024–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120503&r=cfn |
| By: | Victoria Ivashina; Ṣebnem Kalemli-Özcan; Luc Laeven; Karsten Müller |
| Abstract: | Using a new dataset on sectoral credit exposures covering financial and non-financial sectors in 115 economies over the period 1940–2014, we document the following evidence that corporate debt plays a key role in explaining boom-bust cycles, financial crises, and slow macroeconomic recoveries: (i) corporate debt accounts for two thirds of the aggregate credit expansion before crises and three quarters of total nonperforming loans during the bust; (ii) expansions in corporate debt predict crises similarly to household debt; (iii) a measure of imbalance in credit growth flowing disproportionately to some sectors, such as construction and non-bank financial intermediation, is associated with crises; and (iv) the recovery from financial crises is slower after a boom in corporate debt, especially when backed by procyclical collateral values, due to higher nonperforming loans. |
| JEL: | E30 F34 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32225&r=cfn |
| By: | Cavallaro, Eleonora (University of Rome, Sapienza, Department of Economics and Law); Villani, Ilaria (Banking Supervision, European Central Bank) |
| Abstract: | This paper proposes an index to benchmark EU financial systems against their potential to enhance resilient growth and international risk sharing. It finds that the risk sharing mechanism is more effective in more stable financial environments, whereas a larger fraction of shocks remains unsmoothed in the lower financial clusters, especially in the aftermath of the global financial crisis, when the credit channel is significantly downsized. |
| Keywords: | financial structure, financial heterogeneity, growth, volatility, risk sharing |
| JEL: | F15 F36 O16 E44 G1 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bda:wpsmep:wp2024/21&r=cfn |
| By: | Isha Agarwal (Sauder School of Business/University of British Columbia); David Jaume (Bank of Mexico); Everardo Tellez de la Vega (Sauder School of Business/University of British Columbia); Martin Tobal (Bank of Mexico) |
| Abstract: | We provide the first empirical evidence that the “type” of bank lending to the government affects the extent of crowding out in an Emerging Market and Developing Economy (EMDE). For this purpose, we build a new dataset combining proprietary information on all loans granted by commercial banks to non-financial private firms and the government in Mexico, along with data on government bonds held by these banks. By exploiting heterogeneity in firms’ exposure to different types of bank lending to the government within this unique dataset, we show for the first time that the size of crowding out of credit to small and medium-sized firms (SMEs) varies significantly across debt instruments. Specifically, we find that the crowding-out effect is around three times larger for bank loans than for bank holdings of government bonds. This reduced crowding-out effect of bonds is linked to banks’ ability to use them as collateral in the interbank market, which helps them raise secured funding and reduces the need to curtail credit supply to firms. Our findings underscore the importance of welldeveloped sovereign bond markets in mitigating the adverse effects of government borrowing on credit access for SMEs, particularly in EMDEs where credit markets are underdeveloped and these firms are more credit-constrained. |
| Keywords: | Crowding Out, Firm Credit, Public Sector Financing |
| JEL: | E44 H63 G20 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:314&r=cfn |
| By: | Cavalcanti, Tiago; Kaboski, Joseph P.; Martins, Bruno; Santos, Cezar |
| Abstract: | Most aggregate theories of financial frictions model credit available at a cost of financing equal to the savings rate but rationed. However, using a comprehensive firm-level credit registry, we document both high levels and high dispersion in ex post credit spreads to Brazilian firms. We develop a quantitative dynamic general equilibrium model in which dispersion in spreads arises from intermediation costs and market power. Calibrating to the Brazilian data, we show that, for equivalent levels of external financing, spreads have profound impacts on aggregate development indeed moreso than credit rationing does and spreads yield firm dynamics that are more consistent with observed patterns. |
| Keywords: | Financial Frictions;Credit spreads;Aggregate misallocation |
| JEL: | O11 O16 E22 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:13186&r=cfn |
| By: | Alex Hsu; Indrajit Mitra; Yu Xu; Linghang Zeng |
| Abstract: | We present evidence that the Fed's private information about economic conditions revealed through Federal Open Market Committee announcements affect firm investment. We use firm-level investment data and analyst forecasts of firm fundamentals to document three facts. First, the investment rate sensitivity to Fed information is greater for more cyclical firms. Second, revisions in analyst forecasts of firm fundamentals are greater for more cyclical firms. Third, the investment response is consistent with changes in firm profitability following Fed announcements. We propose a HANK model to explain these patterns. Our model rationalizes the slow decline in inflation in 2022–23 despite aggressive policy rate hikes. |
| Keywords: | E22; E52; G31 |
| JEL: | E22 E52 G31 |
| Date: | 2023–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:97980&r=cfn |
| By: | Alex Hsu; Indrajit Mitra; Yu Xu; Linghang Zeng |
| Abstract: | We present evidence that the Fed's private information about economic conditions revealed through Federal Open Market Committee announcements affect firm investment. We use firm-level investment data and analyst forecasts of firm fundamentals to document three facts. First, the investment rate sensitivity to Fed information is greater for more cyclical firms. Second, revisions in analyst forecasts of firm fundamentals are greater for more cyclical firms. Third, the investment response is consistent with changes in firm profitability following Fed announcements. We propose a HANK model to explain these patterns. Our model rationalizes the slow decline in inflation in 2022–23 despite aggressive policy rate hikes. |
| Keywords: | monetary policy; Fed information effect; heterogeneous investment response |
| JEL: | E22 E52 G31 |
| Date: | 2023–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:97979&r=cfn |