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on Corporate Finance |
| By: | Mario Cerrato; Hormoz Ramian; Shengfeng Mei |
| Abstract: | We show that European firms, at the peak of the COVID-19 shock in 2020:Q2, went into a “panic borrowing” status and drew down €87bn in a very short period. We show that firms that drew down credit lines had less stringent solvency and liquidity constraints. Our study exploits the implications of the social distancing policies to corporate operations across Europe. The novel aspect of our study is that we focus on shocks unrelated to firms’ fundamentals and investigate how firms manage their cash flow risk. It is an important novel aspect of this study as a large part of the literature has studied cash flow risk management follow ingendogenous shocks due to bad management decisions. In doing so, we use COVID-19 infection data and proxies for social distancing policies in Europe as a natural laboratory. Finally, we show that European firms during the pandemic crisis increased drawdowns, on average, by 3.35 percentage points in response to an unexpected one percentage point fall in their cash flows, butonly when firms’earnings are negative.This result is driven by the lockdown policies introduced in Europe. |
| Keywords: | Corporate credit lines, cashholding, investment, default risk |
| JEL: | G21 G32 G33 |
| Date: | 2023–02 |
| URL: | https://d.repec.org/n?u=RePEc:gla:glaewp:2023_05 |
| By: | Martin Beraja; Wenwei Peng; David Y. Yang; Noam Yuchtman |
| Abstract: | Venture capital plays an important role in funding and shaping innovation outcomes, characterized by investors’ deep knowledge of the technology, industry, and institutions, as well as their long-running relationships with the entrepreneurship and innovation community. China, in its pursuit of global leadership in AI innovation and technology, has set up government venture capital funds so that both national and local governments act as venture capitalists. These government-led venture capital funds combine features of private venture capital with traditional government innovation policies. In this paper, we collect comprehensive data on China’s government and private venture capital funds. We draw three important contrasts between government and private VC funds: (i) government funds are spatially more dispersed than private funds; (ii) government funds invest in firms with weaker ex-ante performance signals but these firms exhibit growth rates exceeding those of firms in which private funds invest; and (iii) private VC funds follow government VC investments, especially when hometown government funds directly invest on firms with weaker ex-ante performance signals. We interpret these patterns in light of VC funds’ traditional role overcoming information frictions and China’s unique institutional environment, which includes important frictions on mobility and information. |
| JEL: | G18 G24 G28 G30 H19 O3 O38 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32701 |
| By: | Alessandro Chiari (Institute of Economic Studies, Charles University, Prague, Czech Republic) |
| Abstract: | This study examines whether the use of tax haven subsidiaries by U.S. multinational corporations (MNCs) is associated with more intense use of share buybacks and with improvement in management's ability to generating revenues. I find that MNCs' more intensive tax haven subsidiary use is positively associated with a higher management score, a higher buyback ratio, and a higher level of free cash flow. I also find a higher increase in the buyback ratio of U.S. companies following the sales of U.S. stocks from entities located in tax havens. In cross-sectional analyses, I identify channels through which the positive association between tax haven intensity and share buybacks is more pronounced. I also test the share buyback execution of U.S. MNCs affected by recent legislation promulgated in the U.S. (2017 corporate tax cut, 2017 repatriation tax). Our findings reveal a higher sensitivity to this legislation by MNCs with more presence in tax havens. |
| Keywords: | Tax Havens, Subsidiaries, U.S. Multinational Corporations, Share Buybacks |
| JEL: | G23 G28 G32 G35 H26 K34 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2024_25 |
| By: | Mr. Nathaniel G Arnold; Guillaume Claveres; Jan Frie |
| Abstract: | Relative to the US, productivity growth and investment in R&D in lagging in the EU, where it is more difficult to finance and scale up promising, innovative startups. Many of the most successful EU startups move elsewhere for financing, causing the EU to lose out on both the direct growth benefits and positive spillovers from these innovative firms. The EU could nurture innovative startups by accelerating the development of its venture capital (VC) ecosystem. Reducing regulatory frictions, especially ones that deter pensions funds and insurers from investing in VC, combined with well-designed tax incentives for R&D investments could help accelerate the development of the VC sector. These and other key CMU initiatives, such as the consolidation of stock markets and reforming and harmonizing insolvency regimes, will take time. Given the urgency to boost innovation, giving public financial institutions like the European Investment Fund a more active and expanded role in kickstarting VC markets where needed and in familiarizing investors with the VC asset class can be a helpful interim step. |
| Keywords: | Startups; Venture capital; Productivity; Capital Markets Union |
| Date: | 2024–07–12 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/146 |
| By: | Chong Yu (Graduate School of Business Administration, Kwansei Gakuin University); Masatoshi Kato (School of Economics & Research Center for Entrepreneurship (RECENT), Kwansei Gakuin University) |
| Abstract: | This study explores whether firms founded by user entrepreneurs have an advantage in raising external capital at start-up, distinguishing between end-user and professional user entrepreneurs. Drawing on the concept of user entrepreneurship in combination with the resource-based view of the firm, we argue that being user entrepreneurs serves as a positive signal to external providers of capital under information asymmetry. Using data based on original questionnaire survey for start-ups in Japan, it is shown that firms founded by user entrepreneurs, especially professional user entrepreneurs, are more likely to raise external capital at start-up. Furthermore, the advantage of user entrepreneurs is found to be more pronounced in firms that engaged in business-to-consumer (B2C) than in business-to-business (B2B). |
| Keywords: | User entrepreneur, end-users, professional users, resource-based view, B2C |
| JEL: | L26 M13 G30 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:275 |