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on Corporate Finance |
| By: | Miriam Bruhn; Federico Alfonso Diaz Kalan; Nicolo Fraccaroli; Claudia Ruiz Ortega |
| Abstract: | This paper studies the impact of a World Bank program aimed at promoting access to finance for micro, small, and medium-size enterprises in Ecuador. A staggered difference-in-differences method is used to estimate the impact of the program on 2, 035 participant firms during 2019–23. The findings show that the program had a positive effect on these firms, by boosting their financing, number of workers, short-term assets, and sales. This effect is similar when enterprises are female-led and is larger for firms that had no previous access to finance. |
| Date: | 2025–05–13 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11121 |
| By: | Tatsuo USHIJIMA; Takafumi SASAKI |
| Abstract: | This study investigates the value of corporate diversification in Japanese firms with particular attention to its dynamics. Our analysis, based on a panel of listed nonfinancial firms, indicates that the value of diversification increases substantially when external capital is costlier or more difficult to access. Moreover, this tendency is more pronounced for firms in which divisional cash flows are less positively correlated. This pattern implies that coinsurance is instrumental to the observed association between the value of diversification and capital market conditions. We also find that this association is stronger for firms with higher bankruptcy risk, which is consistent with the notion that the financing advantages of diversified firms improve their ability to fulfill contractual obligations. These results suggest that the value of corporate diversification fluctuates because macroeconomic shocks change the relative value of the internal and external capital markets. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:25058 |
| By: | Enriques, Luca; Nigro, Casimiro A.; Tröger, Tobias |
| Abstract: | A vast literature has examined the contractual technology that venture capital (VC) funds and entrepreneurs deploy in the U.S. to define an agency cost-minimising structure of their relationship, leading many to conclude that U.S. VC contracts are the best real-world solution to the challenges bedeviling the financing of high-tech innovative startups and a model for VC transactional practice worldwide. Yet, whether VC funds and entrepreneurs can replicate the allocation of cash-flow and control rights resulting from U.S. VC contracts in non-U.S. jurisdictions has long been open to discussion. Research by financial economists and legal scholars have reached diverging conclusions. The existing literature exhibits three limitations, though. First, it has generally investigated at most only how a subset of the individual components of U.S. VC contracts fare under non-U.S. corporate laws. Second, it has typically considered the law on the books as opposed to the law in action. Third, it has relied on a loose definition of what qualifies as an effective substitute. This article examines how U.S. VC contracts fare under the corporate law regimes in force in two important European jurisdictions: Germany and Italy. It does so by taking a new approach to the matter. First, it considers the entire set of arrangements included in U.S. VC contracts rather than a sample. Second, it assesses the legality of those arrangements in the light of the applicable corporate law in action rather than the law on the books. Third, in assessing arrangements that deviate from U.S. private ordering solutions due to restrictive corporate law, it focuses on contract functionality rather than contract design. The results of the inquiry are straightforward: German and Italian corporate laws literally crash contracting parties' ambition to transplant U.S. VC contracts into their own jurisdictions and only allow for alternative arrangements that, if available at all, are costlier and/or less functional. |
| Keywords: | Comparative Corporate Law, Comparative Corporate Governance, Entrepreneurship, Financial Contracting, Private ordering, Start-ups, Venture Capital |
| JEL: | G38 K22 L26 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:lawfin:319632 |
| By: | Reiko FUKAYA; Kazuo YAMADA |
| Abstract: | The purpose of this paper is to examine the investment behavior of firms that have gone public through initial public offerings (IPOs). In doing so, the analysis incorporates the increasing diversity of recent IPO firms and employs a multifaceted set of investment indicators, including not only traditional tangible fixed asset investment but also intangible assets (intangible fixed assets, organizational capital, and R&D investment) and corporate acquisitions. The main findings are as follows. First, while investment behavior varies over time, IPO firms have shown an increasing trend in investment in intangible assets. Compared to existing listed firms, IPO firms exhibit higher levels of investment in both organizational capital and intangible fixed assets. Second, there is no evidence that IPO firms are underinvesting compared to existing listed firms (defined here as firms that have been listed for more than five years). Although the results differ depending on the matching method used, IPO firms were found to invest at levels comparable to—or in some areas exceeding—those of existing listed firms. The combined results from the matching analyses suggest that many IPO firms are characterized by investment patterns that rely heavily on intangible assets, which distinguishes them from conventional types. Third, the analysis examines heterogeneity within IPO firms. It was found that investment sensitivity within IPO firms is relatively high. This suggests that firms with more investment opportunities tend to invest accordingly. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:eti:rdpsjp:25014 |
| By: | Cascino, Stefano; Széles, Máté; Veenman, David |
| Abstract: | Recent studies conclude that CEO debt-like incentives, such as defined benefit pensions and deferred compensation (“inside debt”), improve financial reporting quality. We challenge this result on conceptual grounds and evaluate its sensitivity to empirical specification. We reexamine the relation between accrual-based measures of financial reporting quality and CEO inside debt variables and find that it is an artifact of correlated omitted factors that prior studies do not effectively control for. Specifically, we show that the relation disappears when we control for factors related to the volatility and uncertainty of firms’ operating environments. Using a two-step approach, we illustrate how the relation between inside debt and accrual-based financial reporting quality measures is driven entirely by the portion of inside debt that is correlated with these factors, rather than a direct effect of inside debt itself. Our findings challenge the prevailing consensus on the incentive effects of inside debt and suggest that prior evidence is likely confounded by omitted variable bias. |
| Keywords: | inside debt; pensions; deferred compensation; executive compensation; incentives; financial reporting quality; accrurals; earnings management; reexamination; replication |
| JEL: | M41 G32 G33 |
| Date: | 2025–05–28 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128078 |
| By: | Jin-Wook Chang; Grace Chuan |
| Abstract: | The isolated effects of collateral reuse on financial stability are ambiguous and understudied. While greater collateral reuse can guarantee more payments with fewer assets, it can also increase the exposure to potential drops in collateral price. To analyze these tradeoffs, we develop a financial network model with endogenous asset pricing, multiple equilibria, and equilibrium selection. We find that more collateral reuse decreases the likelihood of the worst equilibrium (crisis), with varying effects depending on the network structure. Therefore, collateral reuse can unambiguously improve financial stability for a fixed degree of risk-taking behavior. However, with endogenous risk-taking, we show that a higher degree of collateral reuse can worsen financial stability through greater risk-taking. As a result, while crises may occur less frequently, their severity would increase, leading to a lower social surplus during crises. |
| Keywords: | Collateral; Collateral reuse; Financial network; Fire sale; Multiple equilibria; Equilibrium selection; Systemic risk |
| JEL: | D49 D53 G01 G21 G33 |
| Date: | 2025–05–20 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-35 |
| By: | Ferreira, Bianca; Ndiaye, Fatima; Silva, Costa |
| Abstract: | This paper examines the application of financial ratios and panel data analysis in evaluating firm performance and socio-economic dynamics. Through a systematic review of recent literature, we highlight how financial ratios—such as liquidity, profitability, and leverage metrics—serve as critical diagnostic tools for assessing corporate health, particularly in crisis contexts. Meanwhile, panel data analysis enhances longitudinal insights, enabling researchers to identify causal relationships and long-term trends across industries and economies. Our synthesis reveals methodological gaps, including the underutilization of hybrid approaches that integrate ratio analysis with advanced econometric techniques. By bridging these analytical approaches, researchers can generate more robust insights for financial decision-making and policy formulation. |
| Keywords: | Financial Ratios, Panel Data Analysis, Firm Performance, Corporate Resilience |
| JEL: | M41 |
| Date: | 2025–05–08 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124723 |
| By: | Yoichiro NISHIMURA; Katsushi SUZUKI |
| Abstract: | This study examines the impact of bank–firm relationships on innovation outcomes by utilizing patent data from Japanese firms. Our results reveal that compared with other firms, (1) firms with closer relationships with banks are less likely to engage in high-risk innovation and that (2) firms that receive board member appointments or equity investment from banks tend to pursue exploitative innovation rather than exploratory innovation. Conversely, firms with greater dependence on loans from specific banks tend to exhibit greater R&D investment but produce fewer patents than do other firms. These findings suggest that while banks with close relationships with firms may encourage higher levels of R&D investment, they simultaneously impede the pursuit of high-quality and exploratory innovation. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:25051 |
| By: | Jonathan S. Hartley; Kevin A. Hassett; Joshua D. Rauh |
| Abstract: | The Tax Cuts and Jobs Act of 2017 (TCJA) marked the first time in three decades that material changes were made to the corporate tax code of the United States. We use TCJA as a quasi natural experiment to estimate the impact of changes in user cost of capital on investment. Following the method of Auerbach and Hassett (1991), using cross-sectional data we find that the user cost is associated with higher rates of investment consistent with previous studies. BEA asset types with greater reductions in user cost of capital and marginal effective tax rate (METR) after the 2017 TCJA had greater statistically significant increases in their investment rates several years after the tax reform. Specifically, we find the magnitude of a 1 percentage point decrease in user cost is associated with a 1.68 to 3.05 percentage point increase in the rate of investment, larger than prior estimates of the responsiveness of investment with respect to user cost of capital. |
| JEL: | E22 H20 H25 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33914 |