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on Corporate Finance |
| By: | Maideu-Morera, Gerard |
| Abstract: | I study a dynamic cash flow diversion model between a risk neutral lender and a risk averse entrepreneur who has persistent private information about the firm’s productivity. In the optimal contract, the firm’s size is always distorted downwards and its distortions inherit the autoregressive properties of the type process. The entrepreneur’s compensation is smoothed and decoupled from the firm size dynamics. These results contrast those of equivalent models with risk neutrality. I use numerical simulations to study a quasi-implementation with simpler contracts, which highlights that this class of models is unable to generate realistic firm size and equity share dynamics simultaneously. |
| Keywords: | Firm dynamics; financing constraints; recursive contracts;persistent private information |
| JEL: | D82 G32 L14 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:129337&r= |
| By: | Heitor Almeida; Murillo Campello; Luciano I. de Castro; Antonio F. Galvao Jr |
| Abstract: | We develop a dynamic model of firm investment under uncertainty that captures firms’ risk attitude using quantile preferences. The firm maximizes its present value, defined as current profits and investment plus the discounted value of the τ-quantile of its value next period. In our framework, τ ∈ (0, 1) parametrizes the firm’s attitude toward downside risk. The model implies that the firm’s investment policy equates the marginal cost of capital with the τ-quantile of the discounted present value of future marginal profits — investment depends directly on the firm’s risk attitude. We further integrate our model into a “q-theory” of investment. Numerical solutions show how heterogeneity across τ-quantiles impacts the value of the firm and investment decisions. Empirical estimations of the quantile investment model show that the strength of the relation between investment and Tobin’s q increases as downside risk aversion decreases. Estimates of firms’ risk attitude reveal evidence of high levels of downside risk aversion. |
| JEL: | D21 D22 D25 E22 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32498&r= |
| By: | Francisco González (UNIVERSIDAD DE OVIEDO); José E. Gutiérrez (BANCO DE ESPAÑA); José María Serena (BANCO DE ESPAÑA) |
| Abstract: | This paper analyzes how lending relationships affect firms’ incentives to default, drawing on loan-level data in Spain. We provide new evidence showing that firms first default on loans from less important (“non-main”) banks to preserve their most valuable lending relationships. Our findings also indicate that banks integrate this borrower behavior into their credit risk management because the most important banks within a borrower’s set of lending relationships recognize lower discretionary loan impairments. The results are robust to alternative difference-in-difference (DID) analyses and control for potential bank forbearance, loan characteristics, and a variety of time-varying bank and firm fixed effects. |
| Keywords: | lending relationships, loan default, non-performing loans, loan-loss recognition, forbearance |
| JEL: | G21 G28 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2420&r= |
| By: | Roberto Blanco (BANCO DE ESPAÑA); Sergio Mayordomo (BANCO DE ESPAÑA) |
| Abstract: | After the outbreak of the COVID-19 pandemic, the economic authorities in many countries took steps to support firms’ liquidity and solvency. This article analyses the effects of two such measures implemented by the Spanish authorities: the public guarantee schemes and direct aid. The results show that public guarantees were essential in enabling many companies to cover their main liquidity needs. In particular, this scheme was especially useful for SMEs and for companies operating in the sectors hit more severely by the health crisis, although it did not significantly alleviate the increased funding needs of companies without prior credit relationships. For its part, direct aid appears to have contributed to a very moderate reduction in the business solvency problems generated by the COVID-19 crisis, since only a small part of the aid was allocated to those companies that needed solvency support. |
| Keywords: | business solvency, liquidity needs, public aid, COVID-19 crisis, bank credit |
| JEL: | G21 G28 G30 G33 H81 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2317e&r= |
| By: | Anne Duquerroy; Adrien Matray; Farzad Saidi |
| Abstract: | We quantify how banks' funding-related expenses affect their lending behavior. For identification, we exploit banks' heterogeneous liability composition and the existence of regulated deposits in France whose rates are set by the government. Using administrative credit-registry and regulatory bank data, we find that a one-percentage-point increase in average funding costs reduces banks' credit supply by 17%. To insulate their profits, affected banks also reach for yield and rebalance their lending towards smaller and riskier firms. These changes are not compensated for by less affected banks at the aggregate city level, which implies that large firms have to reduce their investment. |
| Keywords: | bank funding costs, deposits, credit supply, SMEs, savings |
| JEL: | E21 G20 G21 G28 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_551&r= |
| By: | Lars Van Cutsem; Marleen Willekens; Koenraad Debackere |
| Abstract: | In this study, we leverage the Discounted Cash Flow (DCF) valuation methodology to reexamine how innovation links to economic value estimates of firms, and how size moderates this relationship. As DCF valuation can be applied to a complete spectrum of firm sizes, ranging from small privately-held to large publicly-listed firms, our study provides more exhaustive evidence on the link between innovation and economic firm value across for all types of firms. This contrasts prior studies that typically draw inferences based on market valuations of publicly listed firms. We show that innovation is positively and statistically significantly related to the economic value in both large and small firms, and that firm size negatively moderates this link. Notably, innovation is more substantially linked to the economic value estimates of small firms than larger ones. These findings are robust to various controls, alternative operationalisations, including survey-reported innovation in the Community Innovation Survey (CIS), and a battery of robustness tests for the DCF valuation approach. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ete:msiper:742970&r= |
| By: | Debnath, Pabitra; Dinda, Soumyananda |
| Abstract: | This study investigates the risk-return spectrum of investment for going green and sustainability practice in India. This paper analyses three sustainability focused index from Indian equity market viz. S&P BSE GREENEX, S&P BSE CARBONEX and S&P BSE ESG 100. Statistical and financial rates, ratios and latest five-factor model of asset pricing are used for the said purpose. ESG 100 index turned out to be outperformer whereas the other two gave slightly less return than the market benchmark. Volatility is found to be similar to that of the market for all the indexes. Significant increment of wealth of green investors during and after the COVID-19 pandemic period is another notable finding of the study. Results of this paper indicate that investors are getting more return compared to market if they invest in stocks that perform well in sustainability criterion. |
| Keywords: | Beta, CAGR, Carbon neutrality, Five-factor model, Jensen’s Alpha, Sustainability, Sharpe Ratio, Treynor Ratio, S&P BSE GREENEX, S&P BSE CARBONEX, S&P BSE ESG 100 |
| JEL: | C20 G20 M14 M21 Q42 |
| Date: | 2022–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121116&r= |
| By: | Hackmann, Angelina |
| Abstract: | In recent decades, biodiversity has declined significantly, threatening ecosystem services that are vital to society and the economy. Despite the growing recognition of biodiversity risks, the private sector response remains limited, leaving a significant financing gap. The paper therefore describes marketbased solutions to bridge the financing gap, which can follow a risk assessment approach and an impact-oriented perspective. Key obstacles to mobilising private capital for biodiversity conservation are related to pricing biodiversity due to its local dimension, the lack of standardized metrics for valuation and still insufficient data reporting by companies hindering informed investment decisions. Financing biodiversity projects poses another challenge, mainly due to a mismatch between investor needs and available projects, for example in terms of project timeframes and their additionality. |
| Keywords: | Biodiversity, Green Finance, Financing Gap |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewh:296481&r= |
| By: | Alice Da Fonseca; Peter Lake; Ariana Barrenechea |
| Abstract: | This project is a collaboration between industry and academia to delve into Finance Social Networks, specifically the Board of Directors of public companies. Knowing the connections between Directors and Executives in different companies can generate powerful stories and meaningful insights on investments. A proof of concept in the form of a Data Visualization tool reveals its strength in investigating corporate governance and sustainability, as well as in the partnership between industry and academic institutions. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2405.20522&r= |
| By: | Sara Boukaidi Laghzaoui (USMBA - Université Sidi Mohamed Ben Abdellah); Youssra Dkier (USMBA - Université Sidi Mohamed Ben Abdellah) |
| Abstract: | The global financial crisis of 2007, triggered by the failure of risky mortgage loans, drew governments' attention to the need for improving their citizens' financial literacy. This growing concern stems from increased individual responsibility, driven by factors such as longer life expectancy, rising education costs, and reductions in social benefits. Additionally, there has been a significant expansion in the supply and demand of financial products and services. Financial literacy, especially among bank customers, plays a pivotal role in shaping the behavior of bank directors. It influences the mechanisms for provisioning loan losses and opportunistic actions. Clients with strong financial literacy represents more stable sources of funding and contribute to more predictable loan loss provisions, thus fostering more consistent bank revenues. Furthermore, financial literacy enhances clients' ability to monitor banking performance and assess risk-taking, reducing the opportunities for opportunistic profit manipulation by bank directors. This article serves as a theoretical synthesis aiming to provide a comprehensive perspective on key concepts while shedding new light on the understanding of financial literacy among clients of the Banque Populaire and the financial support extended to small and medium-sized enterprises. In addition to offering financial advice, banks should actively engage in community initiatives aimed at bolstering the financial literacy of their clients. This commitment significantly impacts the enhancement of citizens' financial skills, leading to a better understanding of financial issues and an accumulated stability in the banking sector. Ultimately, the financial literacy of client's benefits society as a whole. |
| Abstract: | La crise financière mondiale de 2007, déclenchée par l'échec des prêts hypothécaires à risque, a attiré l'attention des gouvernements quant à l'amélioration de la littératie financière de leurs citoyens. Cette préoccupation s'accumule découle de la responsabilité individuelle grandissante, motivée par une espérance de vie prolongée, des coûts d'éducation en augmentation et des réductions des prestations sociales. De plus, l'offre et la demande de produits et services financiers ont connu une expansion significative. La littératie financière, notamment chez les clients des banques, joue un rôle déterminant dans les comportements des directeurs de banque. Elle influence les mécanismes de provisionnement des pertes sur prêts ainsi que les actions opportunistes. Les clients dotés d'une littératie financière solide représentent des sources de financement plus stables et contribuent à des provisions de pertes sur prêts plus prévisibles, favorisant des revenus bancaires plus constants. De plus, la littératie financière renforce la capacité des clients à surveiller les performances bancaires et à évaluer les prises de risque, notamment les possibilités de manipulations opportunistes des bénéfices par les directeurs de banque. Cet article constitue une synthèse théorique visant à offrir une perspective globale sur les principaux concepts, tout en apportant un nouvel éclairage sur la compréhension de la littératie financière chez les clients de la Banque populaire, ainsi que sur le soutien financier accordé aux petites et moyennes entreprises. Les banques, en plus de fournir des conseils financiers, devraient s'engager activement dans des initiatives communautaires visant à renforcer la littératie financière de leurs clients. Cet engagement a un impact significatif sur l'amélioration des compétences financières des citoyens, ce qui contribue à une meilleure compréhension des enjeux financiers et à une stabilité accumulée dans le secteur bancaire. En fin de compte, la littératie financière des clients profite à l'ensemble de la société. |
| Keywords: | Littératie financière Performance Secteur Financier Gestion de la Dette Investissement. JEL Classification : G53 Type du papier : Recherche Théorique Financial Literacy Performance Financial Sector Debt Management Investment. Classification JEL: G53 Paper type: Theoretical Research, Littératie financière, Performance, Secteur Financier, Gestion de la Dette, Investissement. JEL Classification : G53 Type du papier : Recherche Théorique Financial Literacy, Financial Sector, Debt Management, Investment. Classification JEL: G53 Paper type: Theoretical Research |
| Date: | 2023–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04563461&r= |