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on Corporate Finance |
| By: | Tommaso Oliviero (Università di Napoli Federico II and CSEF); Sandro Rondinella (University of Calabria.); Alberto Zazzaro (University of Naples Federico II, CSEF and MoFiR.) |
| Abstract: | Green investment by private companies is essential to sustainable growth paths in the advanced economies. Whether, and to what extent, investments by green firms are hampered by lack of external finance is an open question. Here we estimate the sensitivity of investment to internal finance in firms engaging in green innovation, finding that the elasticity of investment to cash flow is four times less for green than for non-green firms. This result is stronger among smaller firms and robust to alternative definitions of “green firms.” Our findings indicate that green firms are less financially constrained, consistent with the growing perception of the importance of the green transition, which potentially affects financial investors outside the company. |
| Keywords: | Green investment; cash flow; external finance; financial constraints. |
| JEL: | E22 G30 Q55 |
| Date: | 2024–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:700&r=cfn |
| By: | Singh, Sachin; Singh, Bhanu Pratap |
| Abstract: | The present study investigates the impact of environmental, social, and governance (ESG) on firms' profitability in the Indian setting on a sample of 23 firms from 2015 to 2020. The bootstrap corrected fixed effects estimation and inference in the dynamic panel method is employed to investigate the relationship. The dynamic panel results show that the relationship between ESG score and firms' profitability is inconclusive in the short run. However, governance conditions affect firms' investment decisions and the nexus between ESG and firm financial performance in the long run. Therefore, institutional reforms are warranted to stabilize property rights and check parent-client politics for the long-run effects of sustainable environmental governance on firms' profitability. |
| Keywords: | ESG scores, Indian firms, firms' profitability, dynamic panel |
| JEL: | O10 O30 O33 O38 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120704&r=cfn |
| By: | Luis Férnandez Lafuerza (Banco de España); Jorge E. Galán (Banco de España) |
| Abstract: | We provide compelling evidence of the association between credit standards at loan origination in the corporate sector and default risk, a topic that has received little attention in the literature in comparison to the study of this relationship in the mortgage market. Using data from the Spanish credit register merged with corporate balance sheet information spanning the last financial cycle, we demonstrate that leverage and debt burden ratios at loan origination are key predictors of future corporate loan defaults. We also show that the deterioration in lending standards is strongly correlated to the build-up of cyclical systemic risk during periods of financial expansions. Specifically, limits on the debt-to-assets ratio and the interest coverage ratio could serve as effective tools to mitigate credit risk during economic expansions. We identify that the strength of these associations varies significantly across different sectors and is dependent on firms’ size, age and the existence of prior relationships with the bank. Real estate firms and small and medium-sized enterprises exhibit the strongest relationship between credit standards and future default. Overall, our findings provide strong support for the effectiveness of macroprudential measures targeting the corporate sector and contribute to providing guidance for the implementation of borrower-based measures in key segments of corporate credit. |
| Keywords: | bank credit, defaults, lending standards, macroprudential policy, non-financial corporations |
| JEL: | C32 E32 E58 G01 G28 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2413&r=cfn |
| By: | Buhui Qiu; Teng Wang |
| Abstract: | This paper examines corporate mergers and acquisitions (M&A) outcomes under lender scrutiny. Using the unique shocks of U.S. supervisory stress testing, we find that firms under increased lender scrutiny after their relationship banks fail stress tests engage in fewer but higher-quality M&A deals. Evidence from comprehensive supervisory data reveals improved credit quality for newly originated M&A-related loans under enhanced lender scrutiny. This improvement is further evident in positive stock return reactions to M&A deals financed by loans subject to enhanced lender scrutiny. As companies engage in fewer but higher-quality deals, they also experience higher returns on assets. Our findings highlight the importance of lender scrutiny in corporate M&A activities. |
| Keywords: | Mergers and acquisitions; Lender scrutiny; Stress tests |
| JEL: | G21 G34 |
| Date: | 2024–04–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2024-25&r=cfn |
| By: | Tiago Pinheiro |
| Abstract: | We analyze the effects of the Portuguese COVID-19 sovereign loan guarantee scheme on financial stability using a DSGE model. Sovereign loan guarantees decrease the default rate of banks, increase credit, and speed up economic recovery. On the other hand, guarantees increase the leverage and default rate of firms. These effects are larger the lower the sensitivity of the capital of banks to capital requirements. Behind these results are the reduction in regulatory risk-weights and the transfer of loan losses from banks to the sovereign brought by sovereign loan guarantees. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202313&r=cfn |
| By: | Valentina Bruno; Michele H. Dathan; Yuriy Kitsul |
| Abstract: | We use a merged global data set of security-level corporate bond issuance and firm-level financial statement data to show that, in contrast to earlier periods of financial stress, during the COVID pandemic nonfinancial firms around the world were more likely to issue bonds, driven by a boom in local-currency-denominated issuance. We observe a distinct cross-regional difference in the characteristics of issuing firms, finding that in advanced economies issuance during COVID was driven by less risky firms, as predicted by existing theories; in emerging markets, only issuance of U.S. dollar denominated bonds came from larger or less risky firms. |
| Keywords: | Corporate bonds; Issuance; COVID; Crises |
| JEL: | F30 G15 G30 |
| Date: | 2024–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1390&r=cfn |
| By: | Matthias Raddant; Fariba Karimi |
| Abstract: | Diversity in leadership positions and corporate boards is an important aspect of equality. It is important because it is the key to better decision-making and innovation, and above all, it paves the way for future generations to participate and shape our society. Many studies emphasize the importance of the visibility of role models and the effect that connectivity has on the success of minorities in leadership. However, the connectivity of firms, the dynamics of the adoption of minorities, and the long-term effects have not been well understood. Here, we present a model that shows how these effects work together in a dynamic model that is calibrated with empirical data of firm and board networks. We show that homophily -- the appointment of minorities is influenced by the presence of minorities in a board and its neighboring entities -- is an important effect shaping the trajectory towards equality. We further show how perception biases and feedback related to the centrality of minority members influence the dynamic. We find that reaching equality can be sped up or slowed down depending on the distribution of minorities in central firms. These insights bear significant implications for policy-making geared towards fostering equality and diversity within corporate boards. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.11334&r=cfn |
| By: | Tim Kaiser; Annamaria Lusardi |
| Abstract: | This article provides a concise narrative overview of the rapidly growing empirical literature on financial literacy and financial education. We first discuss stylized facts on the demographic correlates of financial literacy. We next cover the evidence on the effects of financial literacy on financial behaviors and outcomes. Finally, we review the evidence on the causal effects of financial education programs focusing on randomized controlled trial evaluations. The article concludes with perspectives on future research priorities for both financial literacy and financial education. |
| Keywords: | financial education, financial literacy, financial behavior |
| JEL: | G53 D14 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11070&r=cfn |