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on Corporate Finance |
| By: | Yini Liu (UWO - University of Western Ontario); Di Lu (SZU - Shenzhen University [Shenzhen] = 深圳大学, Audencia Business School); Suhua Tian (Fudan University [Shanghai]) |
| Abstract: | Abstract In this article, we investigate how the participation of firms' existing shareholders affects the pricing and valuation of private investments in public equity (PIPEs). Using a large sample of PIPEs issued by Chinese listed firms from 2006 to 2019, we find that the effective discount and long‐term buy‐and‐hold abnormal stock returns of PIPEs with existing shareholder participation are significantly higher than those with only new investor participation, after controlling for heterogeneous types of PIPE investors. However, the superior post‐PIPE stock performance of deals with existing shareholders is not driven by improved operating performance but by tunneling activities such as frequent dividend announcements, related‐party transactions, and positive earnings management during the lock‐up period. Our findings suggest that the effect of existing shareholders' participation in private equity placements is more consistent with the tunneling hypothesis than the certification hypothesis. We document that the tunneling incentives are stronger when firms face greater financial constraints and can be mitigated when the firm's corporate governance is stronger. |
| Abstract: | This paper investigates how the participation of firms' existing shareholders affects the pricing and valuation of private investments in public equity (PIPEs). Using a large sample of PIPEs issued by Chinese listed firms from 2006 to 2019, we find that the effective discount and long-term buy-and-hold abnormal stock returns of PIPEs participated by existing shareholders are significantly higher than those participated only by new investors, after controlling heterogeneous types of PIPE investors. However, the superior post-PIPE stock performance of deals with existing shareholders is not driven by improved operating performance but tunneling activities such as frequent dividend announcements, related-party transactions, and positive earnings management during the lock-up period. Our findings suggest that the effect of existing shareholders presence in private equity placements is more consistent with the "Tunneling Hypothesis" than the "Certification Hypothesis". We document that the tunneling incentives are stronger when firms face greater financial constraints and can be mitigated when the firm's corporate governance is stronger. |
| Keywords: | Existing shareholder, Private equity placement, Tunneling effect, Corporate governance, Private equity placements, PIPEs, Existing shareholders, Pricing and valuation effects, Tunneling incentives |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05133550 |
| By: | Mahdi Ebsim; Miguel Faria-e-Castro; Julian Kozlowski |
| Abstract: | We study how aggregate shocks shape the joint dynamics of credit spreads, debt, and liquid asset holdings for nonfinancial firms, focusing on the Great Financial Crisis (GFC) and COVID-19. Both episodes saw sharp credit spread increases and investment declines, but debt and liquidity fell during the GFC and rose during COVID-19. Cross-sectionally, leverage drove spreads and investment in the GFC, while liquidity dominated during COVID-19. We build a macro-finance model of firm capital structure with a liquidity motive for working capital. Calibrated to data, it attributes the GFC to real and financial shocks, and COVID-19 to an additional liquidity shock. |
| Keywords: | credit spreads; liquidity; Great Recession; COVID-19 |
| JEL: | E6 G2 |
| Date: | 2025–08–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:101435 |
| By: | Xing Guo; Pablo Ottonello; Thomas Winberry; Toni Whited |
| Abstract: | We study the macroeconomic consequences of asymmetric information between firms and external investors. To do so, we develop a heterogeneous firm macro model in which firms have private information about their quality. Private information creates a lemons problem in the market for external finance, depressing investment relative to the full information benchmark. We measure the distribution of private information, and therefore the magnitude of this lemons problem, using high-frequency stock price changes when firms raise new funding (revealing their quality to the market). We find that changes in distribution of private information are a quantitatively important determinant of aggregate fluctuations. For example, a spike in private information accounts for 40% of the decline in aggregate investment during the 2007-2009 financial crisis and made monetary stimulus significantly less effective at that time. |
| Keywords: | Business fluctuations and cycles; Financial market; Firm dynamics; Monetary policy |
| JEL: | D82 E22 E32 E52 G30 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-20 |
| By: | Ferreira, Daniel; Kirchmaier, Tom; Metzger, Daniel; Ye, Shiwei |
| Abstract: | Bank board directors are highly independent but possess limited prior banking experience. Using a sample of banks from 90 countries between 2000 and 2020, we find that country-specific characteristics explain most of the cross-sectional variation in bank board independence. In contrast, country characteristics have little explanatory power for boards’ banking experience. While we document evidence of international convergence in bank board independence, U.S. banks lag behind their global counterparts in director banking experience. The data suggest that country-specific laws and regulations primarily shape bank board composition through requirements for director independence. |
| JEL: | F3 G3 J1 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128425 |
| By: | Chen Yujia; Ding Zhenghong; Barbaglia Luca (European Commission - JRC); Calabrese Raffaella; Fatica Serena (European Commission - JRC) |
| Abstract: | "This paper assesses the impact of floods on credit to European small and medium-sized enterprises (SMEs) using a discrete-time survival model. We find a statistically significant relationship between the default probability of loans to SMEs and floods occurring in the region where the firm is located. We propose a micro-level stress testing exercise to assess the performance of small business loans under different climate scenarios.Our results allow us to identify the European regions with heightened vulnerability under a stressed climate scenario and to quantify the impacts upon individual firms in terms of increases in loan default probability." |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:jrs:wpaper:202506 |
| By: | De Sanctis, Alessandro; Kapp, Daniel; Vinci, Francesca; Wojciechowski, Robert |
| Abstract: | This study evaluates the effectiveness of EU Cohesion Policy as an investment programme, employing a novel dataset that links firm-level data from Orbis with project-level information from the Kohesio database. It focuses on two key questions: (1) Which firms receive EU funding? (2) How does receiving EU funding affect firm performance? By applying a logit model and a local projection difference-in-differences approach, we provide new insights into the allocation mechanisms of EU Cohesion Policy funds and their firm-level impact. Our findings show that funding tends to be allocated to firms that already perform relatively well, and that firms receiving EU funding experience a persistent productivity increase of approximately 3% after 4 years, with smaller and more financially constrained firms experiencing relatively greater improvements. Moreover, funding targeting “SME investment” tends to enhance firm performance disproportionately more than other categories, whereas projects directed the “green transition” appear comparatively less beneficial. JEL Classification: E22, D24, H54, O38, O52 |
| Keywords: | corporate investment, European Structural and Investment Funds, fiscal policy, place-based policy, productivity |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253099 |
| By: | Amberger, Harald; Gallemore, John; Wilde, Jaron |
| Abstract: | Effective policymakers must balance the demands of formulating a corporate tax system that raises revenue and spurs economic activity (e.g., investment) while promoting a "level playing field" across firms. Balancing these tradeoffs has likely caused tax systems to become more complex over time, increasing firms' difficulty in understanding and complying with tax regulations. We investigate the impact of tax system complexity on the responsiveness of firm-level investment to tax policy changes. Exploiting staggered tax rate changes and variation in tax system complexity across countries, we document two key findings. First, firm-level investment is less sensitive to changes in the corporate tax rate when tax system complexity is higher, suggesting that such complexity can undermine the ability of tax policy to affect economic growth. Second, the impact of tax complexity on the sensitivity of investment to tax rate changes varies significantly across firms, with domestic-owned, smaller, and private firms being more affected. These cross-sectional disparities are consistent with tax system complexity potentially reducing tax system parity. Collectively, our findings suggest that corporate tax system complexity can negatively impact the ability of fiscal policy to affect investment and lead to heterogeneous tax policy responses across firms. |
| Keywords: | tax complexity, tax rates, investment, employment |
| JEL: | D25 F23 H23 H25 G31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:arqudp:323939 |
| By: | Braun, Anna-Sophie; Koch, Reinald; Sureth, Caren |
| Abstract: | This study examines the effect of tax complexity on the market value of publicly traded firms. Using firm-level measures of tax complexity, we find that a one standard deviation increase in tax complexity-comparable in magnitude to the rise following the U.S. Tax Cuts and Jobs Act-is associated with a 2.6% decline in Tobin's Q. The effect is particularly pronounced for complexity arising from anti-avoidance regulations and post-filing procedures. The negative valuation effect is more substantial for firms with limited opportunities for international profit shifting, weak governance, or low internal information quality. Further analyses reveal that tax system complexity is associated with a reduced growth potential of firms and less R&D and thus negative real responses that go beyond negative investment effects. Overall, our findings provide novel evidence of the economic costs of tax complexity and contribute to the debate on the design of efficient and equitable tax systems. |
| Keywords: | tax complexity, tax avoidance, firm value, tax code complexity, tax framework complexity, cost of complexity |
| JEL: | M12 H26 H25 H32 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:arqudp:323938 |
| By: | Yumeng Shi; Zhongliang Yang; DiYang Lu; Yisi Wang; Yiting Zhou; Linna Zhou |
| Abstract: | Corporate credit rating serves as a crucial intermediary service in the market economy, playing a key role in maintaining economic order. Existing credit rating models rely on financial metrics and deep learning. However, they often overlook insights from non-financial data, such as corporate annual reports. To address this, this paper introduces a corporate credit rating framework that integrates financial data with features extracted from annual reports using FinBERT, aiming to fully leverage the potential value of unstructured text data. In addition, we have developed a large-scale dataset, the Comprehensive Corporate Rating Dataset (CCRD), which combines both traditional financial data and textual data from annual reports. The experimental results show that the proposed method improves the accuracy of the rating predictions by 8-12%, significantly improving the effectiveness and reliability of corporate credit ratings. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.02738 |
| By: | Lundberg, Jacob (Research Institute of Industrial Economics (IFN)); Massenz, Gabriella (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We use a natural experiment and administrative data to study the effect of corporate tax cuts on business activity. For identification, we exploit the abolition of municipal corporate income taxation in Sweden in 1985, which created variation in corporate tax changes faced by different municipalities. Our findings indicate an expansion of business activity and employment in large firms following a tax cut. However, we find no significant impact on these outcomes for small firms. In addition, firm entry rates increase in municipalities experiencing the largest tax cuts. |
| Keywords: | Corporate taxation; Business activity; Employment; Firm entry |
| JEL: | G31 G38 H21 H25 |
| Date: | 2025–08–14 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:iuiwop:1531 |