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on Corporate Finance |
| By: | Estrin, Saul; Hanousek, Jan; Shamshur, Anastasiya |
| Abstract: | We explore how the type of owner affects private enterprise investment decisions in Europe. In contrast to the literature, we analyze firms with concentrated (>95%) ownership stakes to reduce the potential that agency problems contaminate our results. We consider four types of supermajority owners – family, institutional, corporate, and state and use detailed ownership and financial information from a large sample of private firms from 24 European countries from 2001 to 2018. We find that family-owned firms exhibit higher gross investment rates and substantially higher sensitivity to investment opportunities, profitability, cash flow, and value-added growth compared to corporate and institutional owners. At the same time, and more consistent with the literature, family-owned firms invest significantly less in intangible assets than other ownership types. To demonstrate the robustness of our results, we employ matching samples complemented by analysis of owner-type transitions from family owners to corporate and institutional owners. |
| Keywords: | private firms; panel data; Europe; ownership types; investments; cash flow sensitivity; profitability; business opportunities; Elsevier deal |
| JEL: | G31 G32 |
| Date: | 2024–10–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:124030 |
| By: | Berg, Tobias; Heider, Florian |
| Abstract: | This paper examines the dynamic relationship between firm leverage and risktaking. We embed the traditional agency problem of asset substitution within a multi-period model, revealing a U-shaped relationship between leverage and risktaking, evident in data from both the U.S. and Europe. Firms with medium leverage avoid risk to preserve the option of issuing safe debt in the future. This option is valuable because safe debt does not incur the expected cost of bankruptcy, anticipated by debt-holders due to future risk-taking incentives. Our model offers new insights on the interaction between companies' debt financing and their risk profiles. |
| Keywords: | leverage, risk-taking incentives, dynamic model |
| JEL: | G3 G31 G32 G33 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewp:300645 |
| By: | Davaasukh Damdinjav (Bank of Mongolia); Dulamzaya Batjargal (Bank of Mongolia); Ninjin Batmunkh (Bank of Mongolia) |
| Abstract: | This paper investigates the resilience of non-financial firms in Mongolia against financial distress. Utilizing firm-level financial data from 2013 to 2022, we employed a LASSO variable selection technique and logistic regression analysis to develop a distress prediction model for these firms. Among the 54 calculated financial ratios and indexes, the key indicators predictive of financial distress were identified as three profitability ratios, one liquidity ratio, one leverage ratio, and two financial indexes. Furthermore, our micro stress tests revealed that reductions in sales revenue significantly increase the likelihood of financial distress, with the probability rising to 32% under scenarios involving a 50% decline in sales. Additionally, sensitivity to income and expenditure shocks varies by firm size and economic sector. Firms in the mining and transportation sectors exhibit a higher probability of distress compared to those in the services sector. Similarly, micro and small firms are more vulnerable to distress than medium and large firms when subjected to stress scenarios. |
| Keywords: | Distress prediction; corporate distress; non-financial firms; stress testing; Mongolia |
| JEL: | C50 C52 D22 L25 |
| Date: | 2024–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp16-2024 |
| By: | Vojtĕch Bartŏs; Silvia Castro; Kristina Czura; Timm Opitz; Vojtech Bartos |
| Abstract: | We analyze gender bias in entrepreneurship finance. Access to finance is crucial for entrepreneurial success, yet women are particularly constrained. We structurally unpack whether loan officers evaluate business ideas and implementation constraints differently for male and female entrepreneurs, for both individual entrepreneurs and for entrepreneurial teams. In a lab-in-the-field experiment with Ugandan loan officers, we document gender bias against individual female entrepreneurs, but no bias for entrepreneurial teams. The bias is not driven by animus but by differential beliefs about women’s implementation constraints in running a business. Policies aimed at team formation and alleviating family-related constraints may help to promote equal access to finance, ultimately stimulating growth. |
| Keywords: | gender bias, access to finance, entrepreneurship finance, business evaluations, teams, lab-in-the-field experiment |
| JEL: | C90 D91 G21 J16 L25 L26 O16 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11205 |
| By: | Seungho Choi; Ross Levine; Raphael Park; Simon Xu |
| Abstract: | Although corporate finance theory suggests how adverse shocks influence shareholder preferences toward corporate risk-taking and executive compensation, few researchers explore this relationship empirically. We construct a firm-year measure of unexpected shocks to environmental regulatory stringency. We find that adverse environmental regulatory shocks typically prompt corporate boards to reduce the risk-taking incentives of CEO compensation. However, this pattern is not uniform. Financially distressed firms exhibit milder reductions in compensation convexity, with some even increasing it, suggesting a “gambling for resurrection” strategy. Moreover, the strength of corporate governance influences shareholders’ capacity to align executive incentives with changing shareholder risk preferences. |
| JEL: | G34 G38 M52 Q53 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32663 |