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on Corporate Finance |
| By: | Sommer, Christoph |
| JEL: | G10 G21 G30 O16 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302340 |
| By: | Nicolas Piluso (CERTOP - Centre d'Etude et de Recherche Travail Organisation Pouvoir - UT2J - Université Toulouse - Jean Jaurès - UT - Université de Toulouse - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Many economists have demonstrated that shareholder return constraints can negatively affect investment managers' decisions. While most studies are empirical, their findings are mixed. The real options literature provides a theoretical foundation for why a simple net present value rule based on a firm's cost of capital could lead to either insufficient investment or excessive investment. This study analyzes how the pursuit of shareholder value impacts optimal investments using Tobin's Q model in perfect competition. The study demonstrates that Tobin's Q, modified by shareholder constraints, can either hinder or promote optimal investment, thereby explaining the divergent results of empirical studies on this issue. |
| Keywords: | Investment Choice, Shareholder value, Tobin's Q, CAPM |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04699405 |
| By: | Manish Jha; Jialin Qian; Michael Weber; Baozhong Yang |
| Abstract: | We create a firm-level ChatGPT investment score, based on conference calls, that measures managers' anticipated changes in capital expenditures. We validate the score with interpretable textual content and its strong correlation with CFO survey responses. The investment score predicts future capital expenditure for up to nine quarters, controlling for Tobin's $q$ and other determinants, implying the investment score provides incremental information about firms' future investment opportunities. The investment score also separately forecasts future total, intangible, and R\&D investments. Consistent with theoretical predictions, high-investment-score firms experience significant positive short-term returns upon disclosure, and negative long-run future abnormal returns. We demonstrate ChatGPT's applicability to measure other policies, such as dividends and employment. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.17933 |
| By: | Berle, Erika (UiS); Jørgensen, Kjell (BI); Ødegaard, Bernt Arne (University of Stavanger) |
| Abstract: | We investigate whether the sustainability profile of a firm affects the terms at which the firm list on a stock market. Given the evidence that sustainable firms have a lower cost of capital, we expect this to also be reflected in the issue terms at an IPO. The laboratory for our investigation is stock listings (IPOs) at Euronext Oslo. We find that firms which emphasize environmental issues (ESG) in their prospectus have lower implied cost of capital. We find no link between the degree of underpricing and ESG issues. We also provide evidence on recent changes in the IPO landscape, where pure listings are becoming more common, and stock exchanges introduce tiered markets that attract younger and smaller companies. |
| Keywords: | IPO; Cost of Capital; Underpricing; ESG; Euronext Oslo |
| JEL: | G12 G24 G30 |
| Date: | 2024–10–12 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:stavef:2024_001 |
| By: | Julien Albertini (Université Lumière Lyon 2, CNRS, Université Jean Monnet Saint-Etienne, emlyon business school, GATE, 69007, Lyon, France); Xavier Fairise (GAINS, Le Mans Université); Anthony Terriau (GAINS, Le Mans Université) |
| Abstract: | This paper explores the differentiated effects of corporate tax changes based on firm characteristics and evaluates the potential impact of a tax system modulated by both firm size and age. Using tax rate variations across U.S. states and comparing adjacent counties across state borders, we find that corporate taxes significantly reduce employment in small and young firms, while having no notable impact on large and older firms. We then develop a model to analyze firm dynamics throughout their life cycle under different tax regimes. Our simulations show that a corporate tax system adjusted by both firm size and age is more effective than one based solely on size (and even more so than a system with a single rate). This approach lightens the tax burden on highly productive young firms and shifts it toward less productive older firms, ultimately boosting employment and welfare without reducing the fiscal surplus. |
| JEL: | H25 H32 J21 J23 E61 E62 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:gat:wpaper:2410 |
| By: | Yang , Jiaqi (Sustainable Lab Inc.); Takahashi , Kotaro (Sustainable Lab Inc.); Yamadera, Satoru (Asian Development Bank); Tian, Shu (Asian Development Bank) |
| Abstract: | By gathering and analyzing the textual information in eXtensible Business Reporting Language format from the annual securities reports of around 3, 800 Japanese listed companies from 2013 to 2023, this study aims to uncover the trend of Japanese corporate environmental, social, and governance (ESG) materiality disclosure, particularly the environmental aspects. Furthermore, this research explores the potential of self-disclosed ESG information based on eXtensible Business Reporting Language technology as an alternative source for predicting companies' sustainability and financial performance. An upward trend in environmental information disclosure was identified, suggesting a deepening corporate commitment to sustainability practices. Second, our correlation analysis indicated that E, S, and G materialities are increasingly disclosed in a unified manner rather than in isolation. Third, our analysis found limited evidence of a relationship between self-disclosed ESG materiality and corporate financial and ESG performance, which indicates that corporates’ self-disclosure of ESG materiality is not yet sufficient to use as a standalone measure to evaluate and predict financial profitability and climate performance. |
| Keywords: | XBRL; ESG materiality; ESG disclosure; fixed panel regression |
| JEL: | C23 M41 O16 Q56 |
| Date: | 2024–10–09 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:0744 |
| By: | Gormsen, Niels Joachim; Huber, Kilian; Oh, Sangmin S. |
| 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 Classification: G10, G12, G31, G32, G41, Q54 |
| Keywords: | cost of capital, discount rates, ESG, sustainable investing |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242990 |
| By: | Bernardo Caldarola; Luca Fontanelli |
| Abstract: | Recent empirical evidence finds positive associations between digitalisation and industry concentration. However, ICT may not be all alike. We investigate the effect of the purchase of cloud services on the long run size growth rate of French firms. Our findings suggest that cloud services positively impact firm growth rates, with smaller firms experiencing more significant benefits compared to larger firms. This evidence suggests that the diffusion of cloud technologies may help mitigate concentration in the era of the digital transition by favouring the digitalisation and growth of smaller firms, especially when the cloud services provided are more advanced. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.17035 |
| By: | Peijun Liu (Graduate School of Economics, Osaka University) |
| Abstract: | This paper investigates the association between ownership structure with business risk disclosure in Japan, and the relationship between information content of risk disclosure and investors' risk perception. In the sample of Japanese firms over the period 2014-2021, the main results indicate a significant and nonmonotonic relationship between managerial ownership and annual modification in business risk disclosure. In particular, the modification of business risk disclosure decreases as managerial ownership increases for both high and low levels of management share holdings, while it increases for intermediate levels of it. In addition, I find that the annual increase in business risk disclosure is negatively associated with changes in daily stock return volatility and trading volume, suggesting a greater opinion convergence among investors after the release of business risk disclosure. This study contributes to existing literature in support of the nonboilerplate argument and informativeness of risk disclosure. |
| Keywords: | Managerial Ownership, Business Risk Disclosure, Narrative Financial Disclosure, Information Content, Market Reactions |
| JEL: | M41 M48 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2411 |
| By: | Bora Durdu; Sergio Villalvazo |
| Abstract: | This paper investigates the impact of loan-to-value (LtV) borrowing constraints in models with occasionally binding credit constraints. These constraints give rise to a Fisherian debt-deflation mechanism, where exogenous shocks can trigger cascading effects resulting in significant declines in consumption, asset prices, and borrowing reversals—characteristic of financial crises. However, recent literature challenges traditional view by suggesting that collateral constraints may not always exacerbate financial disturbances but could instead foster dynamics leading to multiple equilibria. Building on this discussion, the paper explores equilibrium asset pricing models with LtV collateral constraints, identifying critical thresholds that govern asset price dynamics, consumption patterns, and current account behaviors. Our analysis uncovers that when the LtV limit is close to zero, tighter constraints induce smaller drops in consumption during crises. Conversely, when the LtV limit is close to one, we observe that tighter constraints induce larger drops in consumption during crises. The nonlinear relationship between the LtV ratio and adverse effects on macroeconomic outcomes aligns with cross-country evidence regarding the relationship between the level of financial development and the severity of consumption declines during crises. |
| Keywords: | Financial crises; Loan-to-value constraints; Debt-deflation |
| JEL: | E31 E37 E52 F41 G01 |
| Date: | 2024–09–20 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2024-81 |