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on Corporate Finance |
| By: | Vesa Pursiainen (University of St. Gallen; Swiss Finance Institute); Hanwen Sun (University of Bath, School of Management); Qiong Wang (Southeast University); Guochao Yang (School of Accounting, Zhongnan University of Economics and Law; IIDPF, Zhongnan University of Economics and Law) |
| Abstract: | A unique natural experiment in China – the city-level staggered introduction of administrative approval centers (AAC) – reduces bank loan processing times by substantially speeding up the process of registering collateral without affecting credit decisions. Following the establishment of an AAC, firms significantly reduce their cash holdings. State-owned enterprises are less affected. Cash flow sensitivity of cash holdings decreases, as does the cash flow sensitivity of investment. The share of short-term debt increases, while inventory holdings and reliance on trade credit decrease. Defaults also decrease. These results suggest that timely access to credit has important implications on firms' financial management. |
| Keywords: | banking, efficiency, precautionary cash holdings, capital management, corporate loans |
| JEL: | D25 G21 G28 G32 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2517 |
| By: | Abhishek Bhardwaj; Abhinav Gupta; Sabrina T. Howell |
| Abstract: | We study the causal effect of a large increase in firm leverage. Our setting is dividend recapitalizations in private equity (PE), where portfolio companies take on new debt to pay investor returns. After accounting for positive selection into more debt, we show that large leverage increases make firms much riskier, dramatically raising exit and bankruptcy rates but also IPOs. The debt-bankruptcy relationship is in line with Altman-Z model predictions for private firms. Dividend recapitalizations increase deal returns but reduce: (a) wages among surviving firms; (b) pre-existing loan prices; and (c) fund returns, which seems to reflect moral hazard via new fundraising. These results suggest negative implications for employees, pre-existing creditors, and investors. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:cen:wpaper:25-12 |
| By: | Grover, Arti Goswami; Pereira Lopez, Mariana De La Paz |
| Abstract: | Using three rounds of the World Bank's Business Pulse Surveys in South Asia, this paper quantifies the relationship between informality and firms' investment and employment decisions. Accounting for multidimensionality in definition and the margins of informality, the analysis suggests that first, informal firms remain credit and liquidity constrained before and during the crisis, especially the necessity firms. In the pre-crisis period, access to finance is correlated with the extensive margin of informality, while during the crisis, both margins of informality matter. Second, informal firms perceive uncertainty to be higher because of pessimistic expectations on recovery and lower ability to predict future sales, especially the necessity firms. Third, credit constraints and accentuated uncertainty among informal firms discourage investments. Finally, while employment growth is slow and gradual for formal firms as they begin to recover sales, job growth in informal firms does not correspond to the recovery. The results suggest that countries with a large informal sector may face unusually depressed investments and jobs recovery and may have to deploy additional policy levers to accelerate recovery in the post-crisis period. |
| Date: | 2023–10–03 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10580 |
| By: | Julian Caballero; Sebastian Doerr; Aaron Mehrotra; Fabrizio Zampolli |
| Abstract: | Small and medium-sized enterprises (SMEs) in emerging market economies struggle to access credit, partly due to firms' short financial histories and lack of collateral. The rise of big tech and fintech lenders that make better use of data and digital innovation could reduce the need for collateral and improve SMEs' access to credit. However, big tech and fintech lending so far constitutes only a small share of the total. Digital innovation by itself may not be enough to substantially improve SME lending without further progress in overcoming more deep-seated obstacles. |
| Date: | 2025–02–27 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:99 |
| By: | Thomas Ruchti; Andrew Bird; Michael Hertzel; Stephen A. Karolyi |
| Abstract: | Lenders decide whether to enforce upon borrower breach of covenants. These decisions imply that lenders value borrower relationships at 11% of loan principal. |
| Keywords: | syndicated lending, financial covenants, lending relationships, intangible capital |
| Date: | 2024–03–06 |
| URL: | https://d.repec.org/n?u=RePEc:ofr:ofrblg:24-02 |
| By: | Guadalupe, Maria; Rappoport, Veronica; Salanie, Bernard; Thomas, Catherine |
| Abstract: | We interpret M&A deals in Western Europe during the 2010s as the equilibrium of a matching model. Merger surplus arises from complementarities between multiple firm pre-merger characteristics. Large, productive firms prefer to merge with similarly productive but smaller partners, suggesting positive complementarity in productivities and negative cross complementarity between productivity and scale. We use post-merger data to show that estimated complementarities are strong predictors of merged firm performance. Our results inform the empirical relevance of different theories of mergers. |
| JEL: | G34 |
| Date: | 2024–12–04 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:126749 |
| By: | James Bessen; Xiupeng Wang |
| Abstract: | Investments in software, R&D, and advertising have surged, nearing half of U.S. private nonresidential investment. Yet just a few hundred firms dominate this growth. Most firms, including large ones, regularly invest little in capitalized software and R&D, widening this “intangible divide” despite falling intangible prices. Using comprehensive US Census microdata, we document these patterns and explore factors associated with intangible investment. We find that firms invest significantly less in innovation-related intangibles when their rivals invest more. One firm’s investment can obsolesce rivals’ investments, reducing returns. This negative pecuniary externality worsens the intangible divide, potentially leading to significant misallocation. |
| Keywords: | intangibles, R&D, software, innovation, obsolescence |
| JEL: | E22 O31 O32 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:cen:wpaper:25-15 |
| By: | Nicholas Bloom; Philip Bunn; Paul Mizen; Prachi Srivastava; Gregory Thwaites; Ivan Yotzov |
| Abstract: | We analyse the importance of climate-related investment using a large economy-wide survey of UK firms. Over half of firms expect climate change to have a positive impact on their investment in the medium term, with around a quarter expecting a large impact of over 10%. Around two-thirds of these investments are expected to be in addition to normal capital expenditure, with some firms investing less elsewhere. These investments will be driven by larger firms as well as those in more energy-intensive sectors. Climate investments are expected mainly in switching to green energy sources and improving energy efficiency, and firms expect to finance these mainly using internal cash reserves. Overall, although firms are expecting to invest more resources in adapting to climate change, under reasonable assumptions, these investments are still not sufficient to meet the estimated targets implied by the UK Net Zero Pathway. |
| Keywords: | UK Economy, investment, climate change, Green Growth |
| Date: | 2025–02–20 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2077 |
| By: | Cusolito, Ana Paula; Fattal Jaef, Roberto N.; Mare, Davide Salvatore; Singh, Akshat Vikram |
| Abstract: | This paper leverages the novel methodology by Whited and Zhao (2021) to identify financial distortions and applies it to a sample of 24 European countries. The analyses reveal that less developed economies face more severe financial misallocation. Distortions in the allocation of financial resources raise the relative cost of finance for younger, smaller, and more productive firms. Counterfactual analysis indicates that alleviating financial distortions could boost aggregate productivity by approximately 30-70 percent. On average, 75 percent of these gains across countries result from better access to finance, with the remainder from optimizing the debt-to-equity ratio. The paper also quantifies the link between financial misallocation and real-input allocative inefficiency, showing that reducing financial misallocation from the median to the 25th percentile of the cross-industry distribution can increase aggregate productivity by an average of 5.2 percent. The effect is larger, at 6.4 percent, for industries heavily reliant on external finance. |
| Date: | 2024–06–20 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10811 |