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on Corporate Finance |
| By: | Piergallini, Alessandro |
| Abstract: | I develop flexible- and sticky-price general equilibrium models that embody corporate financing decisions affecting firm value because of distortionary taxes. Nominal interest-rate variations impact costs of debt and equity capital asymmetrically and induce firms to modify the financial structure, altering the gap between the (optimization-based) weighted average cost of capital and the real interest rate. Under these circumstances, I demonstrate that passive or mildly active monetary policies ensure aggregate stability. Overly aggressive inflation-fighting actions are destabilizing under sticky prices. Macroeconomic dynamics following either interest-rate normalization or temporary monetary tightening critically depend upon the tax structure and the steady-state debt-equity ratio. |
| Keywords: | Corporate Finance; Firm Financial Structure; Corporate and Personal Taxation; Interest Rate Policy; Equilibrium Dynamics; Monetary Policy Shocks. |
| JEL: | E31 E52 G32 H24 H25 |
| Date: | 2024–09–12 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122021 |
| By: | Sommer, Christoph |
| Abstract: | SMEs are key to development, as they provide livelihoods and jobs for the majority of people in LMICs. Yet, their development is often hampered by constrained access to finance. SMEs mostly depend on bank loans for external finance. However, these have been insufficient to overcome SMEs' financing constraints, especially in LMICs, such that it seems pertinent to explore other financing sources. The World Bank and OECD have repeatedly pointed to capital markets (e.g. Thompson et al., 2018; World Bank, 2020a). Hence, this policy brief explores the role of capital markets for SME finance in LMICs. Numerous challenges, both on the supply and demand sides, impede SMEs' involvement with capital markets. SMEs struggle with the costs of issuing securities, reporting and corporate governance requirements and, in the case of equity, with concerns about dilution of ownership. Investors on the demand side are discouraged by imperfect information and limited exit options. Consequently, SMEs hardly use equity or market-based debt, especially in LMICs. However, capital markets can have an indirect positive effect on SME finance: Several financial instruments (e.g. securitisation, equity capital for banks) exploit the respective comparative advantages of banks (information-related activities) and markets (liquidity), and create interactions with benefit flows from markets to banks and vice versa, which result in their complementarity and co-evolution. Specifically, capital market development is associated with increases in bank lending, in particular to smaller and riskier firms (Sommer, 2024; Song & Thakor, 2010). Yet, this is not necessarily the first-best option to mitigate SMEs' financing constraints, since it often takes decade-long reforms to create suitable conditions for capital markets. This has the following implications for policymaking: Policymakers need to tailor their decisions to the most promising ways of fostering SME finance to local contexts. While SME promotion may involve capital market development in some middle-income countries, this is still way off for many LMICs, as it may take strenuous institutional and structural reforms over a prolonged period to create an environment for thriving capital markets. Policymakers should foster non-traditional instruments to provide SMEs with direct access to capital market financing. Receivables and lending platforms are especially promising for LMICs and can be promoted through specialised regulatory frameworks, information and capacity-building, as well as co-investments and tax incentives. Policymakers should scale up policies to improve SMEs' access to loans; this serves both as an immediate response to SMEs' financing constraints and as a complement to policies to ensure that banks' increased lending activities (spillovers from capital market development) can (also) be channelled towards SMEs. Depending on country-specific bottlenecks, this may include addressing well-known problems in SME lending through the establishment of credit bureaus and registries as well as moveable asset registries; strengthening contract enforcement and insolvency laws; and implementing a regulatory framework conducive to digitalisation. |
| Keywords: | structural change, economic development and employment, SMEs, capital markets |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:idospb:302799 |
| By: | Juhro, Solikin M.; Kuantan, Dhaha Praviandi; Oktaviandhi, Nadhil Auzan |
| Abstract: | This study explores the response of non-financial corporations and financial intermediaries to recent regulatory changes in Indonesia’s downstream sector. It examines their participation, constraints, and funding requirements. The research employs a qualitative descriptive design, incorporating both a structured questionnaire and network analysis based on detailed financial data. The focus is on key sectors driving the development of downstream industries in Indonesia, such as palm oil processing, nickel-aluminum smelting, and vehicle assembly. The findings reveal that downstream processing generally enhances corporate performance, but the benefits are disproportionately skewed toward large enterprises. Small firms, on the other hand, encounter significant challenges, including limited processing capacity, inadequate funding, and restricted access to loans, which hinder their active participation in downstream activities. To fully realize the potential benefits of downstream processing, the study suggests that financial policies must be reformed to support businesses of all sizes across different stages of the supply chain. Additionally, improving access to financing is essential to enable smaller firms to participate more effectively in these activities. These measures would provide critical support to companies, particularly those operating at the lower levels of the value chain, thereby fostering economic growth at the local level. |
| Keywords: | Downstreaming, Financing Policies, Industrial Manufacturing, Indonesia, Supply Chain Finance |
| JEL: | L60 L70 |
| Date: | 2024–08–29 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121844 |
| By: | Niels Joachim Gormsen; Kilian Huber; Sangmin Simon Oh |
| Abstract: | Firms' perceived cost of green capital has decreased since the rise of sustainable investing. Green and brown firms perceived their cost of capital to be the same before 2016, but after the post-2016 surge in sustainable investing, green firms perceived their cost of capital to be on average 1 percentage point lower. This difference has widened as sustainable investing has intensified. Within some of the largest energy and utility firms, managers have started applying a lower cost of capital to greener divisions. The changes in the perceived cost of green capital incentivize cross-firm and within-firm reallocation of capital toward greener investments. |
| JEL: | D24 E22 G10 G12 G31 G32 G41 Q50 Q51 Q54 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32933 |
| By: | Ernest Liu (Princeton University); Vladimir Smirnyagin (University of Virginia); Aleh Tsyvinski (Yale University) |
| Abstract: | We empirically and quantitatively study the impact of supply chain disruptions on U.S. businesses. Leveraging granular shipment- level data on the universe of U.S. seaborne imports with nearly 200 million observations, we construct a measure of disruptions at the individual firm level for the time period 2013-2023. We document a significant heterogeneity in disruption rates among U.S. public firms, with a notable increase observed in recent years. We introduce a notion of supplier capital and investigate the effect of supply disruptions on firms’ investment decisions. In the data, firms tend to increase investment in supplier capital following the shock, however, financially distressed firms exhibit a much weaker response. We develop a general equilibrium model with heterogeneous firms and with investment in supplier capital. We show that firms’ ability to accumulate supplier capital by making costly investment is an important margin of adjustment in the aftermath of such crises. Financial constraints help account for the heterogeneous treatment effect observed in the data. Two supply chain initiatives proposed by the U.S. government to mitigate disruptions are evaluated. Finally, we document a significant rise in supply disruptions in sectors critical to the U.S. economy and build an index of critical supply disruptions. We show quantitatively that firms relying heavily on imports of critical products experience a much larger decline in output following a disruption shock relative to firms which are not engaged in critical supply chains. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2402 |
| By: | Roberto Frota Decourt (UNISINOS); Heitor Almeida (UIUC); Philippe Protin (UGA INP IAE); Matheus R. C. Gonzalez (UNISINOS) |
| Abstract: | The purpose of the research was to build an index of informational asymmetry with market and firm proxies that reflect the analysts' perception of the level of informational asymmetry of companies. The proposed method consists of the construction of an algorithm based on the Elo rating and captures the perception of the analyst that choose, between two firms, the one they consider to have better information. After we have the informational asymmetry index, we run a regression model with our rating as dependent variable and proxies used by the literature as the independent variable to have a model that can be used for other researches that need to measure the level of informational asymmetry of a company. Our model presented a good fit between our index and the proxies used to measure informational asymmetry and we find four significant variables: coverage, volatility, Tobin q, and size. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.06272 |
| By: | Francesco Marchionne (Indiana University, Kelley School of Business); Noemi Giampaoli (Polytechnic University of Marche, Department of Economics and Social Sciences,); Matteo Renghini (LUISS "Guido Carli" University, Department of Economics and Finance) |
| Abstract: | This paper examines how institutional quality affects the probability of banking and twin crises using a panel of 138 countries from 1996 to 2017. We find that better institutions mitigate the probability of financial distress. Such a shielding effect occurs unambiguously only when a synthetic index is extracted from different proxies of institutional quality aspects. On the contrary, specific measures of institutional quality show some heterogeneities. In particular, dimensions more closely related to regulatory quality and corruption mitigation decrease the probability of financial instability, while measures oriented toward social capital may have null or perverse effects. Financial structure, cultural differences, and international agreements do not affect our findings. Results are robust to several econometric exercises. |
| Keywords: | crises, banks, institutions, governance |
| JEL: | G01 G21 G28 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:anc:wmofir:187 |
| By: | Yuechen Wu |
| Abstract: | The analysis of determinants of a company's financial performance has aroused significant attention, particularly, the environmental, social, and governance (ESG) has been the research focus in recent years. In addition to increasing revenue, the cruise industry has actively embraced the initiative of "green shipping". This study investigates the relationship between ESG and corporate financial performance (CFP) in the global cruise sector. This paper utilizes the sample data from the world's largest cruise companies over 2012-2023, to examine the ESG-CFP relationship by a regression model. The results indicate that ESG practices in cruise companies negatively influence CFP, which is further impacted by financial constraints. Furthermore, the heterogeneity analysis suggests that the high time interest earned (TIE) ratios and low total annual greenhouse gas (GHG) emissions worsen the adverse impacts of ESG on CFP. These findings contribute to the theoretical research on ESG and provide practical guidance for cruise industry operators and investors in their decision-making. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.00758 |