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on Corporate Finance |
| By: | Burak Deniz; Ýbrahim Yarba |
| Abstract: | This study analyzes bank loan maturity and corporate investment linkage by using novel firm-level data covering the universe of all incorporated firms in Türkiye over the last decade. The results of the panel regression model with multi-dimensional fixed effects reveal that loan maturity has a significant positive association with investment, indicating that longer debt maturity fosters corporate investment. The results reveal that the positive linkage between longer debt maturity and investment is more pronounced for small and medium-sized enterprises (SMEs). This is also the case for young firms and firms with high growth opportunities. Considering the evidence provided in the literature that bank lending conditions, including maturity structure, are highly cyclical and vulnerable to financial conditions and economic policy uncertainties, our findings highlight the importance of reducing the policy uncertainties as well as the importance of policies that make equity financing more attractive and deepen the capital markets. |
| Keywords: | Bank loans, Corporate investment, Debt maturity structure |
| JEL: | C23 D22 E22 G31 G32 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2405&r= |
| By: | Ana Sasi-Brodesky (Bank of Israel) |
| Abstract: | This paper examines empirically the effect of concentrated ownership on resolving financial distress of public firms with large, publicly traded, corporate bond debt. Using a large sample of distressed firms in Israel over the course of a decade, I show that stronger financial ties of controlling owners to the firm, manifest in higher cash flow rights and the presence of previously extended related-party debt, are associated with a higher probability of resolving distress in an out-of-court reorganization without experiencing ownership turnover. I argue that these ownership characteristics are indicative of increased motivation of insiders to reorganize the firm and retain control, but in addition, they serve the controlling shareholders financially to ensure their continued holding of the company. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:boi:wpaper:2024.02&r= |
| By: | Ivan T. Ivanov; Luke Pettit; Toni Whited |
| Abstract: | We use variation in state corporate income tax rates to re-examine the relation between taxes and corporate leverage. Contrary to prior research, we find that corporate leverage rises after tax cuts for small private firms. An estimated dynamic equilibrium model shows that tax cuts make capital more productive and spur borrowing. Tax cuts also produce more distant default thresholds and lower credit spreads. These effects outweigh the lower interest tax deduction and lead to higher optimal leverage choices, especially for firms with flexible investment policies. The presence of the interest tax deduction raises consumer welfare in equilibrium. |
| JEL: | G31 G32 H25 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32398&r= |
| By: | Kolev, Atanas; Randall, Timothy |
| Abstract: | Using firm-level survey data combined with firm-level financial information, we investigate the effect of a subjective, firm-specific measure of uncertainty on firm investment and employment growth in the European Union. We find that uncertainty has an economically significant negative effect on investment. Uncertainty is found to have an economically significant negative effect on employment growth, as well. Firms perceiving uncertainty as a major investment impediment experience 1 p.p. lower employment growth compared to those that do not. Using our estimates, we find that non-financial corporate investment in the European Union in 2022 would have been higher by 1 p.p. of fixed assets, while employment growth would have been by 0.7 p.p. higher had uncertainty remained at its 2021 levels. |
| JEL: | D22 D84 G31 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:eibwps:296480&r= |
| By: | Peskes, Markus; Tang Zheng, Fabian |
| Abstract: | Although fallen into disrepute Corporate financing in the form of private equity has developed into a billion-dollar industry. Private equity arose from the need for alternative financing options and has had a long lasting impact on the economy and society. Companies of this sector, which is often described as non-transparent, regularly make headlines because of leveraged buy-outs (LBOs). This multifaceted industry provides various forms of equity capital outside regulated capital markets and should be viewed in a more differentiated manner, especially considering its growing significance for SMEs. The peculiarities of private equity extend beyond just conceptual delineation and its structures, reaching into the methods aimed at achieving excess returns over the public market. This excess return is offset by a range of value enhancement methods and private equity undoubtedly can exert significant influence on companies. Therefore, a holistic view of this industry seems warranted. Accordingly, this research paper examines private equity investments focusing on the mid-market in terms of their sustainable value contributions for investors and companies. It explores whether private equity is more of a blessing or a curse especially for SMEs. |
| Keywords: | SME, LBO, Finance, Private Equity, Leveraged Buy Out, Controlling, M&A |
| JEL: | G2 G23 G24 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:295101&r= |
| By: | Amberg, Niklas (Research Department, Central Bank of Sweden); Jacobson, Tor (Research Department, Central Bank of Sweden); Qi, Yingjie (Copenhagen Business School) |
| Abstract: | Buyers and suppliers have diverging interests about trade-credit maturities: buyers desire long payment periods as a source of cheap funding, while suppliers prefer swift payments to avoid locking up scarce liquidity in idle assets. A fast-growing financial product innovation—supply-chain finance (SCF)—offers to resolve these diverging interests, but its net effect on suppliers is a priori unclear. We study the effects of SCF programs on suppliers using unique invoice-level data from a large Swedish bank. We find that SCF programs relax suppliers’ liquidity constraints and thereby enable them to grow their sales, employment, and investments. |
| Keywords: | Trade credit; supply-chain finance; reverse factoring; financial constraints |
| JEL: | D22 G21 G32 |
| Date: | 2024–05–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0435&r= |
| By: | David Aristei; Manuela Gallo; Raoul Minetti |
| Abstract: | This study provides first empirical evidence on the impact of entrepreneurs' financial knowledge on borrower discouragement. Using novel survey data on Italian micro-enterprises, we find that less financially knowledgeable entrepreneurs are more likely to be discouraged from applying for new financing, due to higher application costs and expected rejection. Our main results are robust to several sensitivity checks, including accounting for potential endogeneity. Furthermore, we show that the observed self-rationing mechanism is rather inefficient, suggesting that financial knowledge might play a key role in reducing credit market imperfections. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.05891&r= |
| By: | Antonio Cabrales; Piero Gottardi |
| Abstract: | We study a new model to study the effect of contract externalities that arise through shock transmission. We model a financial network where good firms enjoy direct and indirect benefits from linking with one another. Bad risks benefit from having a connection with a good firm, but they are a cost to both direct and indirect connections. In efficient networks the good risks should form large connected components with very few bad risks attached. The equilibrium networks, on the other hand, have many more bad risks attached, they are core-periphery structures, and components are also smaller than the efficient ones. We also study extensions with heterogenous “bad risks, ” with diversity in the costs to good risk firms of linking with bad risks, and with incomplete information. |
| Keywords: | network formation, financial shocks, financial contagion, core periphery, efficiency and equilibrium |
| JEL: | D85 G21 G32 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11122&r= |
| By: | Alexandra Hüttel; Judith Lehner |
| Abstract: | The transition of the steel sector to carbon neutrality requires significant investment. In this study, we aim to better understand the scale of investment required for a transition to hydrogen-based steelmaking and the ability of listed steelmakers to finance this investment. First, we analyze how capital expenditures are estimated in the academic literature and compare them with reported investment costs of green steel projects. Second, we focus on how a targeted transition to carbon neutrality would affect the balance sheet and leverage of listed steelmakers operating in the EU-27 and compare the required investments with the companies’ past capital expenditures. The study concludes that capital expenditure may be underestimated in the academic literature and derives recommendations for referencing and contextualizing capital expenditure estimates. Based on the identified impacts at the company level, we conclude with a discussion of the capabilities of listed steel producers to achieve carbon-neutral production, also from an industrial policy perspective. |
| Keywords: | Steel, investment cost, capital expenditure, CAPEX, decarbonization |
| JEL: | G31 G32 L61 Q54 Q55 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp2082&r= |
| By: | Damane, Moeti; Ho, Sin-Yu |
| Abstract: | We examine the impact of financial inclusion of Sub-Saharan Africa (SSA) small and medium-sized enterprises (SMEs) on financial stability. Results show that financial inclusion of SMEs negatively affects stability in SSA countries, and the negative link is even stronger as levels of financial stability increase across countries. Our findings are consistent with the theory of excessive credit expansion or extreme financial inclusion theory, suggesting that to safely promote SME financial inclusion and foster financial sector stability, efforts should be directed toward improving banking sector risk mitigation efforts, financial sector supervision and strengthening coordination among regional financial sector regulators. |
| Keywords: | Sub-Saharan Africa; Financial Inclusion; Financial Stability; Small and Medium sized Enterprises, Fixed Effect Model; Quantile Regression |
| JEL: | G00 G2 G21 G28 |
| Date: | 2024–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:121093&r= |
| By: | Giulio Cornelli; Magdalena Erdem; Egon Zakrajsek |
| Abstract: | We investigate the relationship between the probability of a CEO forced-turnover and firm performance on several environmental dimensions. Our findings suggest that a higher risk of being terminated for the CEO is correlated with a lower environmental ranking, particularly on environmental innovation activities, and more ESG controversies for the firm. The inclusion of ESG-pay clauses in executives' compensation packages only marginally offsets such deterioration. Looking at data on Greenhouse gas (GHG) emissions, we consistently find that a rise in the probability of being terminated corresponds to an increase in scope 2 and 3 emissions ("carbon leakeage"), whereas scope 1 emissions remain unchanged. Through an instrumental variable approach, we trace the deterioration of firms' ESG controversies- and environmental innovation scores to a strategical re-orientation towards short-terminism. |
| Keywords: | corporate finance, ESG, emissions, environmental innovation, short-terminism |
| JEL: | D22 G30 G34 O31 Q55 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1190&r= |