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on Corporate Finance |
| By: | Stylianos Asimakopoulos; James Malley; Apostolis Philippopoulos; Jim Malley |
| Abstract: | This paper presents a novel study on the significance of corporate payout policy in shaping firms' financial decision-making and, in turn, the macroeconomy. To this end, we add to the literature by allowing households and firms to choose share buybacks optimally. We then explore the implications of various shocks commonly facing them, such as dividend income, investment, and tax shocks. The latter include corporate income, capital gains, and dividend income taxes. We find that the model predictions cohere well with the data when applying the non-policy shocks. We also find that tax reform's aggregate and welfare effects are overstated when share buybacks are not optimally chosen as assumed in the relevant literature. |
| Keywords: | dividends, share repurchases, tax reforms, payout flexibility |
| JEL: | C68 E62 G30 G35 H25 H30 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11460 |
| By: | Leonardo Bortolan; Atreya Dey; Luca Taschini |
| Abstract: | We establish the financial materiality of temperature variability by demonstrating its impact on US firms and investors. A long-short strategy that sorts firms based on exposure earns a market-adjusted alpha of 39 basis points per month. This variability metric is related to aggregate decreases in firm profitability, with asymmetric effects across industries. These outcomes are driven by reductions in consumer demand and labor productivity coupled with changes in media and investor attention. The geographically scalable statistical framework provides a reference for assessing the quantitative effects of climate-related physical risks, offering a metric for improving the disclosure of material climate risks. |
| Keywords: | corporate climate reporting, climate attention, temperature variability, stock returns, firm performance |
| JEL: | C21 C23 G12 G32 Q54 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11438 |
| By: | Yuan, Boning |
| Abstract: | Using panel data from 35 listed banks' annual reports and corporate social responsibility reports from 2009 to 2022 as a sample, this study empirically examines the impact of green credit on the performance of commercial banks and takes China Merchants Bank as the case analysis object. Based on the theory of green finance, this paper discusses the function mechanism of the effect of green credit on commercial banks by empirical method, heterogeneity analysis and robustness test. Then, using the specific business data of China Merchants Bank in the field of green credit and its business performance data, the paper further reveals the specific impact of green credit on the business performance of the bank. The research shows that commercial banks have improved their asset income ability through green credit, significantly enhanced their operating efficiency in social responsibility and risk control, and positively impacted the overall operating effect. Finally, this paper suggests that green credit can positively promote commercial banks' performance and point out a new path for the sustainable development and social responsibility of commercial banks. This research has not only contributed to theory but also provided important reference for practice. |
| Date: | 2024–11–03 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:xk6ew |
| By: | Katarzyna Bilicka; Michael Devereux; İrem Güçeri; Katarzyna Anna Bilicka; Michael P. Devereux; Irem Guceri |
| Abstract: | Many multinational firms (MNEs) pay low or no corporation tax in high-tax countries because they shift taxable income to tax havens. We incorporate nonconvex costs of profit shifting and unobserved heterogeneity in profit-shifting ability in the MNEs’ value maximization problem to study responses of firms to tax policies. We estimate our model using UK corporate tax returns data and quantify: (i) the elasticities of tax base and capital stock with respect to tax rates, (ii) the fixed and variable components of profit-shifting costs for different firm types, and (iii) the government’s trade-off between raising tax revenue by reducing profit shifting and attracting investment. Accounting for extensive margin profit-reporting decisions, we reconcile most of the discrepancies between previous micro- and macro-level estimates of tax base elasticities. We test the predictions of the model using a quasi-natural experiment that restricted profit-shifting by Italian MNEs that operated in the UK and evaluate two types of tax policies that can be analyzed using our approach. |
| Keywords: | taxation, profit shifting, multinational firms, investment |
| JEL: | H25 H26 H32 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11458 |
| By: | Christina Brinkmann (University of Bonn) |
| Abstract: | I study how firms’ labor hoarding, driven by their reliance on firm-specific human capital, affects their hedging of other business risks. Leveraging German administrative data on short-time work, combined with matched employer-employee data and firm financial information, I develop a firm-level measure of hoarded labor. I formalize the hypothesized risk trade-off in a stylized model featuring demand uncertainty and uncertainty around an unrelated price risk that can be hedged at a cost. Empirically, labor-hoarding firms exhibit larger comovements of their cash flows (CF) with demand fluctuations, illustrating the upside potential of hoarded labor functioning as a capacity increase. However, labor hoarding is not linked to higher overall CF volatility; instead, it is linked to reduced foreign-exchange (FX) risk as one specific price risk. FX risk can substantially contribute to CF volatility, especially for smaller, globally exporting firms that are sensitive to the driving forces of labor hoarding suggested by the model: idiosyncratic demand risk and reliance on firm-specific human capital. I instrument hoarded labor with proxies for firm-specific human capital and find that firms hedge their FX risk more in response to greater labor hoarding. These findings offer a new perspective on firms’ willingness to assume risk in the context of labor market rigidities and institutions. |
| Keywords: | Labor hoarding, human capital, risk management, FX risk |
| JEL: | J01 J24 G00 G32 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:343 |
| By: | Piyapas Tharavanij (College of Management, Mahidol University, Bangkok, Thailand Author-2-Name: Author-2-Workplace-Name: Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:) |
| Abstract: | " Objective - This study revisits Tobin's q by offering a theoretically derived empirical model based on the Ohlson framework, aiming to correct the misapplications found in existing literature. Methodology/Technique - While Tobin's q has been extensively used as a measure of firm value, the traditional empirical models often assume a linear relationship with variables such as growth, leverage, and profitability. Finding - This paper demonstrates that even in a basic model, such as the Gordon growth model, this linearity does not hold. In fact, this paper shows that a linear relationship will hold only under restricted conditions and only with certain explanatory variables. Novelty - By introducing a theoretically sound equation for Tobin's q, this study highlights the limitations of current empirical methods and provides a new perspective for firm valuation research. The results contribute significantly to improving the accuracy of business valuation models, particularly in settings with varying capital structures and market dynamics. Type of Paper - Theoretical" |
| Keywords: | Tobin's q; Ohlson model; Firm value; Valuation |
| JEL: | G12 G19 |
| Date: | 2024–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:gtr:gatrjs:gjbssr653 |
| By: | Saul Estrin; Andrea Herrmann; Moren Levesque; Tomasz Mickiewicz; Mark Sanders |
| Abstract: | We present a Schumpeterian growth model with new venture creation, under uncertainty, which explains the tradeoff between speed-to-breakeven, revenue-at-breakeven and relates this to the level of innovation. We then explore the tradeoffs between these outcomes empirically in a unique sample of 331 information and communication technology (ICT) ventures using a multi-input, multi-output stochastic frontier model. We estimate the contribution of financial capital and labor input to the outcomes and the tradeoffs between them, as well as address heterogeneity across ventures. We find that more innovative (and therefore more uncertain) ventures have lower speed-to-breakeven and/or lower revenue-at-breakeven. Moreover, for all innovativeness levels, new ventures face a tradeoff between speed-to-breakeven and revenue-at-breakeven. Our results suggest that it is the availability of proprietary resources (founder equity and labor) that helps ventures overcome bottlenecks in the innovation process, and we propose a line of research to explain the (large) unexplained variation in venture creation efficiency. Plain English Summary. This study examines how new businesses deal with uncertainty, focusing on the tradeoff between how quickly they become profitable (speed-to-breakeven) and how much revenue they generate when they do. We analyze data from 331 ICT ventures to understand these tradeoffs better, considering factors like financial resources and labor inputs. We find that more innovative ventures, which tend to be more uncertain, often take longer to reach profitability and may earn less when they do. Moreover, regardless of their level of innovation, all new ventures face a tradeoff between speed-to-breakeven and revenue. The study highlights that unique resources, such as founder equity and founder labor, help businesses overcome challenges in the innovation process. It also suggests further research to understand why some ventures are more efficient than others in the early stage of creating new businesses. |
| Keywords: | entrepreneurship, innovation, new venture creation, proprietary resources, stochastic frontier analysis, Schumpeterian growth model |
| Date: | 2024–11–15 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2054 |