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on Corporate Finance |
| By: | Fliers, Philip T. |
| Abstract: | This study explores how market power and financial flexibility shape corporate investment policies among U.S. large and mature corporations, by estimating firm-specific, time-varying investment-to-added-value sensitivities. We find that firms with market power exhibit lower investment sensitivities, and this effect is more pronounced for the most financially flexible firms. We show that the firm's debt capacity is an important moderator in the relationship between market power and investment sensitivities. Our findings support theoretical predictions that market power and financial flexibility jointly influence investment decisions. The implication is that a lack of competition impedes corporate investments. For investors, these findings highlight the need to monitor both the competitive landscape and financial flexibility of firms in their portfolios. |
| Keywords: | Investments, market power, financial flexibility, added-value, debt capacity |
| JEL: | D40 G31 G32 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:qmsrps:202407 |
| By: | Schito, Marco; Klimavičiūtė, Luka; Pál, Rozália |
| Abstract: | Does increasing inflation affect firms' investment decisions? This article employs the European Investment Bank Investment Survey (EIBIS) dataset to explore the association between the increased inflation that the EU countries have experienced since 2021, and firms' investment decisions. We find evidence that very high rates of inflation (over 20%) are associated with higher probabilities of investment, likely driven by measures to improve energy efficiency (particularly for SMEs) and a desire to avoid the devaluation of cash reserves (for large firms). We further find a positive association between SMEs' ability to pass costs onto consumers (the so-called pass-through rate) and investment decision, suggesting a higher degree of reliance on the generation of continuous revenues for investment purposes compared with large firms. Inflation's by-products (increased interest rates, difficulties in accessing external financing, increasing uncertainty) are found to be important negative factors in investment decisions. (146 words) |
| Keywords: | EIBIS, inflation, investment, cost pass-through rate, financial tightening, SMEs |
| JEL: | D22 D25 E31 E43 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:eibwps:301874 |
| By: | KOUAKOU, Dorgyles C.M. |
| Abstract: | Using firm-level data from the World Bank Enterprise Surveys, covering 159 countries from 2006 to 2023, we examine whether past informality affects the credit constraints of registered firms. Estimations, based on the entropy balancing method, indicate that registered firms that began operations informally are more likely to be credit-constrained than those that started in the formal sector. This finding is extremely robust to a variety of robustness tests, including instrumental variables, propensity score matching, potential omitted variables, restricted samples, alternative measures of credit constraints, and different specifications such as Linear Probability, Logit, and Probit models. Heterogeneity analysis reveals that the detrimental impact of past informality lessens with firm size, firm age, and better structural factors like regulatory quality, trade openness, entrepreneurial dynamism, and public spending. Productivity, competition from the informal sector, and the quality of financial statements are key channels through which past informality increases credit constraints for registered firms. |
| Keywords: | Past informality status; Credit constraints; Entropy balancing |
| JEL: | G20 O12 O16 O17 |
| Date: | 2024–08–19 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121766 |
| By: | Dogan, Aydan (Bank of England); Hjortsoe, Ida (Bank of England) |
| Abstract: | Through what channels do fluctuations in the financial costs of exporting affect exports, and how important are financial conditions for export dynamics over the business cycle? We first establish, using balance sheet data for UK manufacturing firms, that exporting firms have more short-term liabilities than non-exporting firms. We find evidence consistent with exporting firms taking on these short-term loans to (partly) cover labour costs. We then build a model with heterogeneous firms in which exporters need to access external finance to export, in line with the evidence, and parameterise it to UK data. We use rich firm level data to inform the calibration of the financial costs facing exporting firms, and estimate the shock processes in our model with Bayesian methods. Our estimations show that global shocks to the financial costs of exporting are the main driver of UK export dynamics over the business cycle, alongside shocks to productivity. These two shocks each contribute to around a third of UK export dynamics. Moreover, we find that global shocks to the financial costs of exporting played a crucial role in explaining the fall in UK exports in the early stages of the Global Trade Collapse, and slowed the recovery. |
| Keywords: | Open economy macroeconomics; small open economy; exports; trade finance; heterogeneous firms |
| JEL: | F41 F44 F47 |
| Date: | 2024–08–05 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1072 |
| By: | Joachim Jungherr; Matthias Meier; Timo Reinelt; Immo Schott |
| Abstract: | We provide novel empirical evidence that firms’ investment is more responsive to monetary policy when a higher fraction of their debt matures. In a heterogeneous firm New Keynesian model with financial frictions and endogenous debt maturity, two channels explain this finding: (1.) Firms with more maturing debt have larger roll-over needs and are therefore more exposed to fluctuations in the real interest rate (roll-over risk). (2.) These firms also have higher default risk and therefore react more strongly to changes in the real burden of outstanding nominal debt (debt overhang). Unconventional monetary policy, which operates through long-term interest rates, has larger effects on debt maturity but smaller effects on output and inflation than conventional monetary policy. |
| Keywords: | monetary policy; investment; corporate debt; debt maturity |
| JEL: | E32 E44 E52 |
| Date: | 2024–08–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:98708 |
| By: | Lora Dufresne; Mark M. Spiegel |
| Abstract: | Using bank-level U.S. Call Report data, we examine the longer-term effects of the Paycheck Protection Program (PPP) and the PPP Liquidity Facility on small business (SME) lending. Our sample runs through the end of 2023H1, by which time almost all PPP loans were forgiven or repaid. To identify a causal impact of program participation, we instrument based on historical bank relationships with the Small Business Administration and the Federal Reserve discount window prior to the onset of the pandemic. Elevated bank participation in both programs was positively associated with a substantial cumulative increase in small business lending growth. However, we find a negative impact of both programs during the final year of our sample, suggesting that the increase may not prove permanent. Our results are driven by the small and medium-sized banks in our sample, which are not stress-tested and hence not included in Y-14 banking data, illustrating the importance of considering small and medium-sized banks in evaluating the performance of SME lending programs. |
| Keywords: | PPP; PPPLF; small business; bank lending; relationship lending |
| JEL: | E58 E63 G14 G18 G32 |
| Date: | 2024–08–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:98688 |
| By: | Fatima, Kiran; Azam, Habiba; Sulehri, Fiaz Ahmad; Bukhari, Syeda Ambreen Fatima; Virk, Hafiz Khalique Ur Rehman; Geng, Yunjiang; Audi, Marc; Ashraf, Muhammad Saleem |
| Abstract: | Since the beginning of the twenty-first century, corporate social responsibility (CSR) has emerged as a global phenomenon in the business sector, capturing the attention of all stakeholders. Both early-stage and established firms often engage in high levels of voluntary disclosure, thereby reducing their cost of capital. This study synthesizes existing literature related to the impact of CSR on the cost of capital, focusing on sustainability and environmental disclosure. Utilizing the Scopus database, we conducted a bibliometric analysis through VOSviewer, analyzing 76 research articles from reputable academic journals published between 2002 and 2022. Our analysis identified three primary clusters: (1) the red cluster, titled "CSR and ESG disclosure and its impact on cost of capital" with 43 articles examining corporate social performance strategies, environmental risks, and green support; (2) the green cluster, titled "CSR activities and environmental or voluntary disclosure" with 21 articles focusing on corporate social investment, greenhouse gas emissions, voluntary disclosure, and their impact on cost of capital; and (3) the blue cluster, titled "sustainability disclosure or toxic release" with 12 articles centered on corporate social decoupling and toxic release. Our findings provide valuable insights for enhancing a firm's environmental and economic performance and offer guidance for decision-makers, lenders, investors, shareholders, and policymakers on reducing a firm's cost of capital through sustainability policies and strategies. Additionally, we highlight unexplored dimensions for future research, including forecasting firm investments using decoupling techniques, exploring the mediating role of CSR on the cost of capital, and examining the relationship between carbon intensity, greenhouse gases, and toxic release. |
| Keywords: | corporate social responsibility, sustainability, cost of capital |
| JEL: | Q5 Q50 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121777 |
| By: | Yann Decressin; Steven N. Kaplan; Morten Sorensen |
| Abstract: | Using more than 4, 900 assessments, we study changes in the characteristics and objectives of CEOs and top executives since 2001. The same four factors explain roughly half of the variation of assessed CEO characteristics in this larger sample of executive assessments as in Kaplan and Sorensen (2021). After the global financial crisis (GFC), the average interviewed CEO candidate has lower overall ability, is more execution oriented / less interpersonal, less charismatic and less creative/strategic than pre-GFC. Except for overall ability and execution oriented/interpersonal, these differences persist in hired CEOs. Interpersonal or “softer” skills do not increase over time, either for CEO candidates or hired CEOs. Pre- and post-GFC, we find a positive correlation between the ability of assessed CEOs and other C-level executives assessed at the same company, suggesting that higher-ability executives complement each other. Finally, we look at the relation between the objectives for which the CEOs are interviewed and CEO characteristics. |
| JEL: | G3 J4 M5 M51 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32854 |
| By: | Neifar, Malika |
| Abstract: | Purpose: The scope of this paper is to see if the aggregate information and communications technology index (ICT) drives firm performance (profitability and efficiency) for BRICS countries from a des-aggregate panel data of the firm-yearly level (by country) during 2014-2022, from an aggregate monthly time series data and a panel data of country-monthly level during 2014-01-2014-12, all covering the Covid outbreak event. Design/methodology/approach: Through static and dynamic long-run (LR) panel models, the Bayesian VAR-X short-run (SR) approach, and the time series and the panel (LR and SR) ARDL models, we investigate the stability of the linkage between firm performance and the aggregate ICT vis à vis the Covid outbreak. Findings: Using an international sample of 316 FinTech firms from BRICS countries, we find that ICT mechanisms on their own are in general negatively associated with firm performance (profitability and efficiency) with some exceptions. We also find that the ICT and the firm-performance relationship is more significant among countries with respect to the considered pre ou post Covid 19 outbreak period. Originality: The novelty of this research is based on the idea of studying the effect of the aggregate ICT on firm performance by using several dynamic approaches so that we can estimate the SR adjustments that arise from the impact of ICT to the LR relationship. |
| Keywords: | FinTech Firm performance and ICT; BRICS area; Dynamic Panel Regressions and GMM for firm level panel data; Bayesian VAR-X and ARDL models for TS data; PARDL for macro panel data; Covid 19 outbreak |
| JEL: | C11 C22 C23 O33 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121772 |
| By: | Arnone, Massimo; Laureti, Lucio; Costantiello, Alberto; Anobile, Fabio; Leogrande, Angelo |
| Abstract: | This paper explores the critical role of the banking sector in facilitating the ecological transition through the integration of ESG (Environmental, Social, and Governance) factors. By analyzing the intersection of ESG considerations and access to credit globally, the study highlights how banks can catalyze sustainable investments while balancing financial risks. Using a systematic literature review and k-Means clustering analysis, we assess the global landscape of credit access, emphasizing the implications of ESG adoption on financial stability and economic growth. The findings suggest that while ESG integration presents challenges, it offers significant opportunities for banks to enhance their competitiveness and foster resilient financial systems. The paper concludes by proposing policy recommendations aimed at improving the incorporation of ESG factors within credit risk management and promoting sustainable finance. |
| Keywords: | ESG, Access to Credit, Sustainable Finance, Banking Sector, k-Means Clustering |
| JEL: | G20 G21 G22 G23 G24 G28 |
| Date: | 2024–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121618 |