|
on Corporate Finance |
| By: | Chahine, Salim (Banque du Liban); Daher, Mai (Bank of England) |
| Abstract: | We investigate the impact of ‘learning from peers’ on the fundraising abilities of start-up companies. Employing data on the financing rounds of privately owned portfolio companies, we find that companies observe the round amounts of their most successful peers and learn to negotiate higher round amounts with venture capital investors. We further show that the number of common directors or venture capital firms between portfolio companies and their most successful peers has a positive impact on the round amounts of these portfolio companies, which supports the existence of conversational learning. Moreover, observational learning from peers is higher in hot markets, where investors rely on less costly information on peers. Our findings confirm that both observational and conversational learning allow portfolio companies to be in a better negotiating position, thus enhancing their ability to secure funding and invest in their growth. |
| Keywords: | Peer effect; portfolio companies; learning; venture capital funding; exit |
| JEL: | G24 G32 G41 |
| Date: | 2025–02–28 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1121 |
| By: | Mara Faccio; Jin Xu |
| Abstract: | Using limitations to the deductibility of interest payments triggered by the introduction of interest ceiling rules globally, we show that affected private firms reduce leverage relative to unaffected firms. In support of a causal effect of taxes on corporate capital structure choices, we show that the results hold for firms near the thresholds triggering the limitations, in a propensity score matched sample, and in countries required to adopt the interest ceiling rules. In contrast, falsification tests show no reduction in leverage for affected firms around pseudo-reform years. Furthermore, within a country, firms with a higher fraction of nondeductible interest payments are less responsive to tax rate changes. More broadly, across 93 countries, we document that private firms tend to decrease leverage in response to tax rate cuts and increase leverage in response to corporate tax rate hikes. |
| JEL: | F30 G30 G32 G38 H2 H25 H26 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33685 |
| By: | Zare, Fatemeh |
| Abstract: | This thesis investigates the incorporation of behavioral and sustainable aspects in modern corporate finance and the financial decision-making process. Initially, the dissertation takes the perspective of classical corporate finance. Article 1 examines how the process of becoming a publicly-traded company influences subsequent acquisition activities for German IPOs between 1994 and 2018. The findings of this investigation demonstrate a significant likelihood of conducting an acquisition within the first three years following the IPO for German firms with substantial underpricing. Therefore, this underpricing strategy not only attracts a substantial pool of investors but also fosters available liquid capital, thereby, laying the foundation for future acquisitions. Secondly, this dissertation focuses on behavioral finance. Article 2 examines how analysts actively engage in public earnings conference calls and how both investors and analysts react. For this reason, a sample of 17, 201 earnings conference calls of U.S. firms between 2010 and 2019 is analyzed. It is observed that a minority of analysts show high levels of participation, referred to as „active analysts”, while the majority exhibit lower levels of participation, referred to as „less active analysts”. The findings indicate that the stock market positively reacts to the tone of conversations between active analysts and managers, but show no significant response to the specific topics discussed. Moreover, discussing certain topics and the tone of interactions between active analysts and managers lead to higher earnings surprises, increasing the likelihood of companies meeting or beating consensus estimates. Overall, these results demonstrate that active participation benefits managers, enabling smoother discussions and generating shareholder value by presenting a positive company image. The third section of this dissertation focuses on sustainable finance and consists of three research articles: Articles 3, 4, and 5. Article 3, which constitutes an intersection of behavioral finance and sustainable finance, examines the Goldman Sachs directive, which took effect in 2021. This directive requires from all companies that Goldman Sachs supervises during their IPO the inclusion of women and individuals of non-white ethnic backgrounds on the board of directors. In this context, a comprehensive sample of IPOs mandated by Goldman Sachs in the U.S. and Europe from 2014 to 2020 is analyzed. The findings indicate that there is no significant positive correlation between board diversity and IPO performance. This suggests that the incorporation of gender and cultural diversity within board of directors of U.S. and European firms is still in a state of development. Article 4 examines how the capital market reacts to the announcement of green bond issuance during the COVID-19 pandemic. It assesses a sample of green bond issuances in Europe from early 2019 to late May 2021. The findings suggest that announcements of green bond issuance during the pandemic negatively impacts the stock prices of companies. This effect is associated with increased business risk, particularly during weeks with higher COVID-19 incidences. The results indicate that, during uncertain periods like the COVID-19 pandemic, investors interpret green bond issuance as a signal that issuers are constrained in using liquidity from conventional corporate bonds, resulting in a negative reaction. Article 5 examines how the ESG performance of corporations affects their risk of credit default. It analyzes a comprehensive dataset of publicly listed European and U.S. firms from 2004 to 2020. The findings indicate that larger firms experience reduced default risk with improved ESG performance. In contrast, smaller firms face an increase in default risk associated with ESG performance. This detrimental impact on smaller firms has become more pronounced in recent years. These results underscore the challenges smaller public firms face in addressing ESG issues and highlight the need for measures that make ESG performance equally beneficial for all companies. |
| Date: | 2025–04–15 |
| URL: | https://d.repec.org/n?u=RePEc:dar:wpaper:154339 |
| By: | Boris Nikolov (University of Lausanne; Swiss Finance Institute; European Corporate Governance Institute (ECGI)); Norman Schuerhoff (Swiss Finance Institute - HEC Lausanne); Sam Wagner (University of Lausanne) |
| Abstract: | A key question in automating governance is whether machines can recover the corporate objective. We develop a corporate recovery theorem that establishes when this is possible and provide a practical framework for its application. Training a machine on a large dataset of firms' investment and financial decisions, we find that most neoclassical models fail to explain the data since the machine learns from managers to underestimate the shadow cost of capital. This bias persists even after accounting for financial frictions, intangible intensity, behavioral factors, and ESG. We develop an alignment measure that shows why managerial alignment with shareholder-value remains imperfect and how to debias managerial decisions. |
| Keywords: | Corporate Purpose, Inverse Reinforcement Learning |
| JEL: | D22 G30 L21 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2523 |
| By: | Aggarwal, Reena (Georgetown U and ECGI); Briscoe-Tran, Hoa (U of Alberta); Erel, Isil (Ohio State U and ECGI); Starks, Laura T. (U of Texas at Austin and ECGI) |
| Abstract: | Employing a novel approach with unique data on public sentiment and a new metric on shareholder concerns, we establish an association between shareholder actions and public sentiment about a firm. The number of shareholder proposals effectively captures investor dissatisfaction, particularly since it includes firms with no shareholder proposals. We find that negative public sentiment about financial, governance, environmental or social issues is associated with more shareholder proposals, and we establish causality through a creative instrumental variable approach. Further, shareholder actions have real consequences as a larger number of shareholder proposals appears to result in higher turnover for CEOs and directors. |
| JEL: | G32 G34 G38 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:ohidic:2024-26 |
| By: | Domnisoru, Ciprian (Aalto University); Miller, Robert A. (Carnegie Mellon University) |
| Abstract: | Sons succeed their exiting CEO parents more often than daughters. How do entrepreneurial families reach this gender imbalance, and how does it affect the prospects of their firms and their offspring? Using Finnish administrative data on firms linked to population register data on shareholders and their extended families, we trace the steps leading to the succession decision, and its outcomes. We examine fertility patterns, finding evidence of son preference in natural births and adoptions by entrepreneurs. In families that appear to follow son-biased fertility stopping rules, we also find noticeable differences in human capital accumulation between sons and daughters. The transmission of human capital is also mediated by the extent to which women are employed in the industry of the entrepreneur parent. Gaps in income, board membership, and share ownership between sons and daughters of exiting CEOs emerge well before succession. Turning to firm outcomes, we find evidence that other family members, but not the children of exiting CEOs, appear to diminish firm performance relative to the results of professional CEOs. Overall, our results show family succession is a protracted process that begins with the birth of the first child. |
| Keywords: | gender differences, CEO transition, son preference, family firms, human capital |
| JEL: | G32 L25 J13 J24 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17800 |
| By: | Yin, Cynthia (Ohio State U) |
| Abstract: | Prior studies focus on how investors' sustainability preferences incentivize firms to reallocate resources from dirty to clean physical capital. However, the impact of investors' preferences on capital allocation depends critically on whether clean capital and dirty capital are substitutable. I develop a novel empirical strategy showing that dirty capital and clean capital are highly complementary. Theoretically, I explore firms' investment decisions, assuming that investors dislike carbon emissions through both risk and nonpecuniary utility channels. Given the current level of complementarity, investors' preferences have a limited impact on investment decisions, underscoring the need for technological innovation to address this production friction. |
| JEL: | C61 G11 G32 L21 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:ohidic:2024-25 |
| By: | Fangfang Wang (Autonomous University of Barcelona); Florina Silaghi (Autonomous University of Barcelona); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Miguel García-Cestona (Autonomous University of Barcelona) |
| Abstract: | We investigate the impact of ESG rating changes and daily ESG news sentiment on firm credit risk. We document a significant increase in CDS spreads following ESG rating downgrades, especially for the social pillar, while we find a muted reaction to ESG upgrades. A similar asymmetrical effect is documented for ESG news. We further show that the adverse effect of ESG downgrades on the CDS market is mitigated in the presence of positive ESG sentiment, a transparent information environment and higher rating disagreement. Lastly, the reaction is stronger for firms with lower creditworthiness, higher bankruptcy probability and tighter financial constraints. |
| Keywords: | ESG ratings, Credit default swaps, Event study, ESG news sentiment |
| JEL: | G14 G32 M14 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2524 |
| By: | Gary B. Gorton; Ye Li; Guillermo Ordoñez |
| Abstract: | When the value of a pledgeable asset (or project) is uncertain, investors are tempted to examine it. The asset owner ultimately bears the information cost, reducing her financing capacity. A pecking order emerges. Debt generates a greater financing capacity than equity: unlike equity investors who own the asset directly, creditors own the asset only if the borrower defaults and, therefore, have weaker incentives to acquire information. Probabilistic asset ownership can be further diluted by introducing intermediaries between the borrower and the creditor, leading to a new theory of financial intermediation and credit chains. We demonstrate that the optimal financial architecture involves systematically sequencing multiple intermediaries with heterogeneous information costs and asset correlations, rationalizing the seemingly excessive complexity of intermediated credit flows. |
| JEL: | D82 D85 G23 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33658 |
| By: | Yueran Ma; Andrei Shleifer |
| Abstract: | The analysis of corporate governance begins with a central feature of modern capitalism—the separation of ownership and control in large corporations—first empirically documented by Berle and Means (1932). Such separation entails several agency problems reflecting conflicts between managers and shareholders, such as self-dealing by managers, low effort, consumption of perquisites, and excessive growth and diversification. Berle and Means saw self-dealing as the central agency problem and stressed the law as the fundamental mechanism of addressing it. Jensen and Meckling (1976) considered the consumption of perquisites and emphasized private mechanisms, such as financial incentives for managers, to counter wasteful perks. Jensen (1986) instead focused on excessive growth and diversification, which led him to count on leverage and takeovers. The combination of public corporate governance mechanisms, mostly the law, and market governance shaped both theory and practice. |
| JEL: | G0 G3 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33710 |