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on Corporate Finance |
| By: | Paul Bergin; Ling Feng; Ching-Yi Lin |
| Abstract: | While the trade literature has tended to view export activity and innovation as complementary activities, we present evidence that financial constraints are a reason the two activities can act as substitutes for small exporters. In particular, we find that small exporters have lower expenditure on R&D than comparable non-exporters, and we find a corresponding pattern in the leverage ratio of the capital structure of small firms. A model that combines firm decisions regarding the amount of innovation, exporting, and endogenous financial capital structure is able to account for these empirical findings. The model implies that small firms are unable to fully reap the gains from exporting due to financial constraints, as they reduce R&D to finance the costs of export participation. |
| JEL: | E44 F41 G32 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32904 |
| By: | Dorgyles C.M. Kouakou (Univ Rennes, CNRS, CREM – UMR6211, F-35000 Rennes France) |
| Abstract: | Using a large firm-level dataset from the World Bank Enterprise Surveys, which covers 134 countries from 2006 to 2023 and includes over 134, 000 observations, 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, different specifications such as Linear Probability, Logit, and Probit models, and clustering standard errors at the country level. 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: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:tut:cremwp:2024-08 |
| By: | Livia Boerner (Paderborn University); Bernd Frick Author-2-Name-First: Bernd Author-2-Name-Last: Frick (Paderborn University); Thomas Fritz Author-3-Name-First: Thomas Author-3-Name-Last: Fritz (FH Aachen) |
| Abstract: | This study examines investment decision accuracy and founder-related bias of angel investors in startup pitch competitions. We use a unique dataset of N = 638 pitches and investment decisions from televised German format Die Höhle der Löwen and evaluate subsequent venture performance based on survival and product-market fit. Building upon signal detection theory, two types of decision error are distinguished to explore investor bias. Our results suggest that angel investors are more likely to make overconfident (false positive) investments when ventures are pitched by more attractive entrepreneurs or family-based teams. Additionally, ventures pitched by younger, female, or less attractive teams are systematically underestimated, resulting in missed opportunities (false negative). Our study contributes to the literature by highlighting the impact of founder-related investor bias on the quality of their investment decisions. |
| Keywords: | Entrepreneurial finance; Investor bias; Overconfidence; Missed opportunities; Shark tank |
| JEL: | D81 D91 G24 G41 L26 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:pdn:dispap:122 |
| By: | Bryan, Gharad; Karlan, Dean; Osman, Adam |
| Abstract: | We experimentally study the impact of relatively large enterprise loans in Egypt. Larger loans generate small average impacts, but machine learning using psychometric data reveals "top performers" (those with the highest predicted treatment effects) substantially increase profits, while profits drop for poor performers. The large differences imply that lender credit allocation decisions matter for aggregate income, yet we find existing practice leads to substantial misallocation. We argue that some entrepreneurs are overoptimistic and squander the opportunities presented by larger loans by taking on too much risk, and show the promise of allocations based on entrepreneurial type relative to firm characteristics. |
| Keywords: | entrepreneurship; enterprise credit; heterogenous treatment effects; psychometric data; small and medium enterprises |
| JEL: | D24 M21 O12 O16 |
| Date: | 2024–09–20 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:120637 |
| By: | Krishna Dasaratha (Boston University); Santosh S. Venkatesh (University of Pennsylvania); Rakesh Vohra (University of Pennsylvania) |
| Abstract: | Widespread default involves substantial deadweight costs which could be countered by injecting capital into failing firms. Injections have positive spillovers that can trigger a repayment cascade. But which firms should a regulator bailout so as to minimize the total injection of capital while ensuring solvency of all firms? While the problem is, in general, NP-hard, for a wide range of networks that arise from a stochastic block model, we show that the optimal bailout can be implemented by a simple policy that targets firms based on their characteristics and position in the network. Specific examples of the setting include core-periphery networks. |
| JEL: | C62 D85 F65 G32 G33 G38 |
| Date: | 2024–09–14 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:24-026 |
| By: | Laurent Loic Yves Bossavie; Erkan Duman; Aysenur Acar Erdogan; Mattia Makovec; Sirma Demir Seker |
| Abstract: | The central hypothesis of this research is that there is a strong, positive correlation between good management practices and firm performance, for which we find strong evidence in a survey on management practices of Turkish manufacturing firms. To better understand this relationship, we investigated the drivers of firm heterogeneity in management practices. We find that product market competition and firm-level factors such as size, multinational status, work effort in the workforce, the level of managerial hierarchy, and ownership are significant determinants of management practices. We also find that family ownership and management are significant deterrents to good management practices and are strongly associated with declines in firm performance. Through this study, we also explored whether the adoption of better management practices comes at the expense of a good work-life balance. In this regard, we find that better-managed firms, in addition to attaining higher performance levels, provide better working conditions for their employees, resulting in improved employee well-being. |
| Date: | 2024–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:hdnspu:193764 |
| By: | Thiemo Fetzer (University of Warwick & University of Bonn); Christina Palmou (Office for National Statistics (ONS), UK); Jakob Schneebacher (Competition and Markets Authority (CMA), UK & King’s College London) |
| Abstract: | We study how businesses adjust to significant rises in energy costs. This matters for both the current energy crisis and the longer-term shift towards Net Zero. Using firm-level real-time survey and administrative data backed by a pre-registered analysis plan, we examine how firms respond to the energy price shock triggered by Russia's invasion of Ukraine along output, price, input, process and survival margins. We find that, on average, firms pass on some cost increases, build up cash reserves, and face higher debt, but do not yet see layoffs or bankruptcies. However, effects are highly heterogeneous by size and industry: for instance, small firms tend to increase cash reserves and prices, while large firms invest more in capital. We estimate separate elasticities for many small industry cells and subsequently use k-means clustering techniques on the estimated effects to identify high-dimensional firm-adaptation archetypes. These estimates can help tailor firm support in the energy transition both in the short and the long term. More generally, the machinery developed in this paper enables policymakers to evaluate and adjust economic policy in near-real time. |
| Keywords: | Energy price shock, firm dynamics, climate change, high-dimensional analysis |
| JEL: | D22 D24 H23 L11 O30 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:337 |
| By: | Hans Degryse (KU Leuven and CEPR); Olivier De Jonghe (National Bank of Belgium, Economics and Research Department, European Central Bank, Tilburg University and Ghent University); Leonardo Gambacorta (Bank for International Settlements and CEPR); Cédric Huylebroek (KU Leuven and FWO) |
| Abstract: | Theory offers conflicting predictions on whether and how lenders’ sectoral specialization would affect firms’ innovation activities. We show that the sign and magnitude of this effect vary with the degree of “asset overhang” across sectors, which is the risk that a new technology has negative spillovers on the value of a bank’s legacy loan portfolio. Using both patent data and micro-level innovation survey data, we find that lenders’ sectoral specialization improves innovation for firms operating in sectors with low asset overhang, but impedes innovation for firms operating in sectors with high asset overhang. These results hold for two distinct measures of asset overhang and using bank mergers as a source of exogenous variation in bank specialization. We further show that these heterogeneous effects arise through financial contracting. Overall, our findings provide novel insights into the dual facets of bank specialization and, more broadly, the link between banking and innovation |
| Keywords: | Bank specialization, Bank lending, Corporate innovation, Asset overhang, Financial frictions |
| JEL: | G20 O30 L20 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202410-458 |
| By: | Birthal, Pratap S.; Hazrana, Jaweriah; Roy, Devesh; Satyasai, KJS |
| Abstract: | Climate change is one of the biggest challenges to sustainable development of agriculture, and consequently to the livelihood of farming communities, and the governments’ efforts to improve food and nutrition security and reduce poverty, especially in countries more exposed to climate risks and dominated by small-scale producers who often lack finance for investment in risk management. During the past two decades, climate finance for agriculture has attracted considerable attention in policy debates, yet agriculture’s share in the total climate finance has remained minimal. Empirical evidence presented in this paper distinctly highlight the role of finance in building resilience of agriculture. These provide a basis for a change in policy stance to emphasize climate finance in investment and credit planning in agriculture, and the need for innovative approaches to deliver finance that is climate sensitive. Climate risks are predicted to be severe in plausible future climate scenarios; hence, the need for climate finance for agriculture cannot be understated. Current level of climate finance for agriculture is not commensurate with its requirement. Today’s investments in climate actions will shape future trajectory of agricultural growth, and its economic and social outcomes. I hope this paper will be useful for policymakers, financial institutions and other stakeholders to take informed decisions on financing agriculture for risk management. |
| Keywords: | Agribusiness, Agricultural Finance, Climate Change, Food Consumption/Nutrition/Food Safety, Food Security and Poverty, Risk and Uncertainty, Sustainability |
| Date: | 2024–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:ags:icar24:344992 |