|
on Corporate Finance |
| By: | Yao Lu; Gordon M. Phillips; Jia Yang |
| Abstract: | We examine the rise of cloud computing and AI in China and their impacts on industry dynamics after the shock to the cost of Internet-based computing power and services. We find that cloud computing is associated with an increase in firm entry, exit and the likelihood of M&A in industries that depend more on cloud infrastructure. Conversely, AI adoption has no impact on entry but reduces the likelihood of exit and M&A. Firm size plays a crucial role in these dynamics: cloud computing increases exit rates across all firms, while larger firms benefit from AI, experiencing reduced exit rates. Cloud computing decreases industry concentration but AI increases concentration. On the financing side, firms exposed to cloud computing increase equity and venture capital financing, while only large firms increase equity financing when exposed to AI. |
| JEL: | D25 G3 G34 L20 L23 L25 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32811 |
| By: | Covi, Giovanni (Bank of England); Huser, Anne-Caroline (Bank of England) |
| Abstract: | How do interdependent economic shocks impact the financial system and reverberate within it? To model the financial system, we start with a two-sector microstructural model of the financial system that includes banks and insurers. We develop a stress testing methodology that stochastically computes economic profits and losses at banks and insurers following correlated corporate default shocks. Taking into account the feedback and amplification of the initial shock though the financial system, we quantify its impact on firms’ capital positions. This methodology is applied to a very rich panel data set of UK banks and insurers. Our approach enables us to distil the contribution of initial economic shocks and the feedback and amplification mechanisms to extreme tail events. Overall, we find that, since the Covid pandemic (2020–21), the UK financial system has experienced an improvement in both profit expectations and tail losses. Comparing sectoral losses in an extreme stress scenario, we find that insurers are more affected than banks by economic credit and traded risk losses, while fire sale losses affect banks more than insurers. |
| Keywords: | Credit risk portfolio; systemic risk; financial contagion; financial network; system‑wide stress testing |
| JEL: | D85 G21 G32 L14 |
| Date: | 2024–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1081 |
| By: | Ferrando, Annalisa; Holton, Sarah; Parle, Conor |
| Abstract: | Using a novel dataset linking firm level data from the Survey on Access to Finance of Enterprises (SAFE) and bank level data from the Bank Lending Survey (BLS), we explore how changes in credit standards pass through to firms at a granular level. We find that tighter credit standards decrease loan availability reported by firms, increase the likelihood they report access to finance as the worst problem and decrease their investment. After controlling for country-sector-time fixed effects that capture cyclical macroeconomic conditions, effects only remain for firms that need finance. Moreover, we find that a more diversified funding base insulates firms from the negative impacts of tighter credit standards on availability of bank loans and access to finance, although there is little evidence of such an effect forinvestment. Effects are asymmetric, with stronger impacts recorded for a tightening than an easing. Our results underscore the importance of demand conditions when interpreting the credit conditions and we thus propose a new indicator of demand adjusted credit standards at a euro area level, which can be used to analyse broader credit dynamics. JEL Classification: D22, E22, E52 |
| Keywords: | credit conditions, finance, firm-bank relationships, surveys |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242975 |
| By: | Dessaint, Olivier (INSEAD); Foucault, Thierry (HEC Paris); Frésard, Laurent (Universita della Svizzera italiana (USI Lugano)) |
| Abstract: | We show that the quality of investors’ information across horizons has real effects. When managers focus on current stock prices, they under-invest if their price imperfectly reflects the value of their projects. We posit that this under-investment is larger when the horizon at which investors obtain information does not match the horizon of firms’ investment projects. Using a new hand-collected measure of projects' horizon, we test and confirm this hypothesis: Empirically, improvements in the quality of investors' information about long-term (short-term) cash flows induce firms with long-term (short-term) projects to invest more, particularly when managers prioritize current stock prices. |
| Keywords: | Project Horizon; Short-termism; Information Quality; Forecasting horizon; Forecasts’ informativeness; Managerial Incentives |
| JEL: | D84 G14 G17 M41 |
| Date: | 2022–11–15 |
| URL: | https://d.repec.org/n?u=RePEc:ebg:heccah:1462 |
| By: | Alati, Andrea (Bank of England); Fischer, Johannes J (Deutsche Bundesbank); Froemel, Maren (Bank of England); Ozturk, Ozgen (University of Oxford) |
| Abstract: | How do firms adjust their investment in response to sales shocks and what determines the response? Using a unique firm‑level survey, we propose a novel approach to estimate UK firms’ marginal propensity to invest (MPI) out of additional income: the forecast error of their sales growth expectations. Investment responds significantly to these sales surprises, with a 1 percentage point unexpected growth in sales translating into a 0.31 percentage point increase in capital expenditure. Firms that are more attentive to the state of the economy are more responsive, consistent with sales growth surprises providing firms with information about their demand. Sales growth surprises also cause firms to increase their prices, supporting this interpretation. We do not find evidence that these results are driven by financial frictions, uncertainty, or productivity shocks. |
| Keywords: | Investment; survey data; corporate finance; financial frictions; learning |
| JEL: | D22 D25 D84 |
| Date: | 2024–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1087 |
| By: | Filippo Bontadini; Francesco Filippucci; Cecilia Jona-Lasinio; Giuseppe Nicoletti; Alessandro Saia |
| Abstract: | The paper presents novel indicators to measure financial sector digitalisation that cover 21 OECD countries over the 1995-2018 period, showing a significant increase in digital penetration though at different speeds and intensities across countries. The indicators are used to study the impact of financial sector digitalisation on economic activity, highlighting significant positive effects on the productivity of downstream industries. A 10% increase in financial sector digitalisation is associated with a 0.1 percentage point increase in productivity growth for the average industry, with a stronger impact in intangible-intensive industries. Digitalisation in finance is also associated with an easing of credit constraints, particularly benefiting intangible-intensive industries and SMEs, via an improvement in credit allocation and market conditions. Results suggest that policy actions aimed at supporting digital infrastructure, promoting competition in communications, fostering finance innovation, and encouraging high-level skill formation (especially in STEM fields) could sustain and enhance productivity growth through financial sector digitalisation. |
| Keywords: | Credit Allocation, Financial Sector Digitalisation, Intangibles, Productivity |
| JEL: | G00 O33 G38 |
| Date: | 2024–08–09 |
| URL: | https://d.repec.org/n?u=RePEc:oec:ecoaaa:1818-en |
| By: | Coen, Jamie (Imperial College London); Coen, Patrick (Toulouse School of Economics); Hüser, Anne-Caroline (Bank of England) |
| Abstract: | Repo markets are systemically important funding markets, but are also used by firms to obtain the assets provided as collateral. Do these two functions complement each other? We build and estimate a model of repo trade between heterogeneous firms, and find that the answer is no: volumes and gains to trade would both be higher absent collateral demand. This is because on average the firms that need funding are also those that value the collateral to speculate or hedge interest rate risk. These results have implications for policies that affect collateral demand in repo markets, including rules on short selling. |
| Keywords: | Repo; collateral demand; intermediation; financial crises |
| JEL: | G01 G11 G21 G23 L14 |
| Date: | 2024–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1082 |
| By: | Magnus Saß |
| Abstract: | The Basel credit-to-GDP gap is the single most popular measure of excessive credit growth and the financial cycle in general. It is based, however, on a purely statistical understanding of excessiveness: Growth is excessive if the credit-to-GDP ratio (i.e. the ratio of credit to nominal GDP) is significantly above its long-term trend. This paper presents an alternative approach where variation in the credit-to-GDP ratio is decomposed into its structural economic drivers. Some of these economic drivers are assumed to be non-excessive (aggregate demand and supply shocks), and others to be potentially excessive (all other shocks). Based on this identification, I construct a more structural credit gap measure that quantifies the impact of excessive drivers. In an early-warning exercise, I show that this gap measure performs particulary well in predicting financial crises at relatively short horizons. |
| Keywords: | financial cycles, conditional forecasting, time series, Bayesian VAR |
| JEL: | C11 C32 C53 C61 G01 G32 |
| Date: | 2024–08–19 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0046 |
| By: | Soane, Emma |
| Abstract: | The capability to vary risk-taking is an important aspect of performance in organizations where behavioral adjustments are required to suit changing objectives. Incentive schemes are one way to influence risk-taking. Yet, evidence indicates incentives do not have their intended effects and may encourage excessive risk-taking. To examine this issue, we draw on compensation activation theory that proposes individual motives are activated by specific features of compensation schemes and expressed in behaviors. We extend compensation activation theory by focusing on (1) responses to a sequence of tasks designed to activate risk-taking and (2) the effects of incentive schemes on these relationships. We conducted a laboratory experiment with 173 participants who were allocated randomly to one of three bonus schemes. The linear scheme has a linear relationship between returns from risk-taking and rewards. The bonus cap scheme operates similarly up to a point where no further rewards are paid. The outcome-adjusted scheme, with a two-year hypothetical time frame, requires realized gains for the first year of investment and no losses in next year. Results support our hypotheses that these incentive schemes have differential effects on the strength and direction of relationships between risk-taking across a sequence of tasks. The linear scheme strengthens the relationships between risk-taking across sequential tasks. Conversely, the bonus cap scheme weakens the relationships between risk-taking across sequential tasks. The outcome-adjusted scheme creates variability by decreasing risk-taking when the connections between risk-taking and rewards are less salient and increasing risk-taking when connections between risk-taking and rewards are more salient. We contribute to the literature concerning compensation activation and incentives by deepening our understanding of the roles played by tasks and incentives in activation processes and by explaining the variability of risk-taking in terms of changes in connections between behavior and rewards. |
| Keywords: | risk-taking; activation; incentives; variability; Taylor & Francis deal |
| JEL: | G32 J50 |
| Date: | 2024–08–08 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:124339 |
| By: | Wenting Ma |
| Abstract: | Large firms in the U.S. financial system achieve substantial economic gains. Their dominance sets them apart while also raising concerns about the suppression of worker earnings. Utilizing administrative data, this study reveals that the largest financial firms pay workers an average of 30.2% more than their smallest counterparts, significantly exceeding the 7.9% disparity in nonfinance sectors. This positive size-earnings relationship is consistently more pronounced in finance, even during the 2008 crisis or compared to the hightech sector. Evidence suggests that large financial firms� excessive gains, coupled with their workers� sought-after skills, explain this distinct relationship. |
| JEL: | G20 J31 J42 L11 L12 L13 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cen:wpaper:24-41 |
| By: | Nguyen, T.H.N.; Dang, C.D.; Nguyen, P.L.; Nguyen, M.D. |
| Abstract: | Diversification of rural livelihood through the development of non-farm activities is one of important policies for holistic rural development in Vietnam. However, non-farm households in general and pottery households in particular have faced with capital shortage in production process. One of reasons for their capital limitation is difficulties in formal credit access. This paper aimed to identify factors that influence pottery households’ access to formal credit in Bat Trang village, Hanoi city. By using Yamane’s formula, sample size of 167 households was determined. Descriptive statistics and Probit regression model were applied in quantitative data analysis. The results showed that households’ credit access was influenced by factors including age, educational level, collateral value asset, and return from ceramic production after tax. This study recommended that policy makers should implement a specific credit support for non-farm households in rural areas. In addition, commercial banks should loose credit requirements on collateral value assets in order to help rural non-farm households to access to formal credit, particularly banking loan. |
| Keywords: | Agricultural Finance, Consumer/Household Economics |
| Date: | 2024–04–28 |
| URL: | https://d.repec.org/n?u=RePEc:ags:asea24:344449 |