|
on Corporate Finance |
| By: | Oskar Kowalewski (IESEG School of Management, Univ. Lille, CNRS, UMR 9221 - LEM - Lille Économie Management, F-59000 Lille, France); Tat-Kei LAI (IESEG School of Management, Univ. Lille, CNRS, UMR 9221 - LEM - Lille Économie Management, F-59000 Lille, France); Prabesh LUITEL (IESEG School of Management, Univ. Lille, CNRS, UMR 9221 - LEM - Lille Économie Management, F-59000 Lille, France); Pawel WNUCZAK (Department of Finance, Kozminski University, Jagiellońska 59, Warsaw 03-301, Poland) |
| Abstract: | Casual empiricism points to the relative reluctance of senior management of Italian companies to raise equity financing for fear of dilution and relinquishing effective control. Our econometric analysis based on panel data for a sample of listed companies demonstrates that investment outlays of analyzed companies are strongly associated with debt rather than equity issuances. In turn, the size and likelihood of equity issuances are negatively associated with the tenure of both CEOs and supervisory board members. After controlling for firm-level fundamentals and time effects, we find that firms with the highest average tenure of senior management exhibit a relative preference for debt financing over equity except for periods, when a company records negative operating cash flows. Generally, firms with higher average tenure of CEOs and supervisory boards implement more conservative financial management strategies preferring to accumulate cash reserves in good times and slashing them or recuring to debt financing when facing operational difficulties. Importantly, the average age of officers is found to exhibit no similar link with the choice of external financing mode. The observed choices of the modes of external financing may be conducive to slowing the growth of Italian companies, reducing the career mobility of officers, creating entrenched boards, and increasing the average level of indebtedness of the corporate sector. |
| Keywords: | : tenure; capital structure; agency problem; Italy |
| JEL: | G30 G32 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ies:wpaper:f202501 |
| By: | Probowo Erawan Sastroredjo; Marcel Ausloos; Polina Khrennikova |
| Abstract: | Through its initiative known as the Climate Change Act (2008), the Government of the United Kingdom encourages corporations to enhance their environmental performance with the significant aim of reducing targeted greenhouse gas emissions by the year 2050. Previous research has predominantly assessed this encouragement favourably, suggesting that improved environmental performance bolsters governmental efforts to protect the environment and fosters commendable corporate governance practices among companies. Studies indicate that organisations exhibiting strong corporate social responsibility (CSR), environmental, social, and governance (ESG) criteria, or high levels of environmental performance often engage in lower occurrences of tax avoidance. However, our findings suggest that an increase in environmental performance may paradoxically lead to a rise in tax avoidance activities. Using a sample of 567 firms listed on the FTSE All Share from 2014 to 2022, our study finds that firms associated with higher environmental performance are more likely to avoid taxation. The study further documents that the effect is more pronounced for firms facing financial constraints. Entropy balancing, propensity score matching analysis, the instrumental variable method, and the Heckman test are employed in our study to address potential endogeneity concerns. Collectively, the findings of our study suggest that better environmental performance helps explain the variation in firms tax avoidance practices. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.08450 |
| By: | Chaigneau, Pierre; Edmans, Alex; Gottlieb, Daniel |
| Abstract: | This paper studies executive pay with fairness concerns: if the CEO's wage falls below a perceived fair share of output, he suffers disutility that is increasing in the discrepancy. Fairness concerns do not always lead to fair wages; instead, the firm threatens the CEO with unfair wages for low output to induce effort. The contract sometimes involves performance-vesting equity: the CEO is paid a constant share of output if it is sufficiently high, and zero otherwise. Even without moral hazard, the contract features pay-for-performance, to address fairness concerns and ensure participation. This rationalizes pay-for-performance even if effort incentives are unnecessary. |
| Keywords: | moral hazard; executive compensation; fairness |
| JEL: | D86 G32 J33 G34 |
| Date: | 2025–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:125993 |
| By: | Olivier De Jonghe, Tong Zhao (National Bank of Belgium, Research Department) |
| Abstract: | This paper studies the role of collateral using the euro area corporate credit registry, Ana-Credit. We document key facts about the importance, distribution, and composition of collateral, including its presence, types, and values. On average, 70 % of credit amounts are collateralized. Real estate and financial assets are the most pledged, while physical movable assets and other intangible assets are less present. In addition, we show that the aggregate collateral value pledged to the banking sector is substantial, driven mainly by real estate in most countries. For the first time, we examine the collateral channel in bank credit using the actual value of individual collateral. By exploiting within- firm and within-bank variations for newly issued secured loans, we find that the elasticity of collateral value to loan commitment amounts is around 0.7-0.8. This collateral value elasticity exhibits substantial country and time heterogeneity, which can be explained by legal, financial, and macro conditions. |
| Keywords: | Collateral channel, Corporate financing, Secured debt, Bank credit. |
| JEL: | E32 G21 G33 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202509-482 |
| By: | Joshua S. Gans |
| Abstract: | This paper examines firm ownership structures in competitive general equilibrium by introducing a model where ownership rights emerge endogenously rather than being assumed. By embedding the property rights theory of the firm into general equilibrium analysis, the model demonstrates how market forces determine both initial firm formation by entrepreneurs and subsequent trading of ownership rights. The key finding is that, in equilibrium, firms are created by managers who have long-term importance to performance, but these founder-managers then sell ownership to outside investors. This pattern emerges because managers can capture value through both the sale price and their ongoing employment relationship, while outside owners can only benefit through ownership. The model thus provides a novel theoretical foundation for observed patterns of entrepreneurial exit and reconciles competing approaches to firm ownership in general equilibrium theory. Additionally, it identifies a distinct economic definition of an entrepreneur as an agent whose human capital is valuable for firms even when they do not remain long-term owners. The framework generates insights into firm formation, ownership dynamics, and the nature of entrepreneurship while maintaining the core structure of competitive general equilibrium analysis. |
| JEL: | D23 D50 L22 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34187 |
| By: | Mohammad Azhar Hossain (Southeast Business School (SBS), Southeast University, Bangladesh 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 - The primary aim of this research is to examine the bank-specific variables that impact the profitability of banks in Bangladesh. Methodology/Technique – The present study demonstrates the ways in which bank-specific variables have affected the profitability of Bangladeshi banks. Only state-owned commercial banks (SCBs) were considered for this purpose. The study selected six operational SCBs as the sample size, using panel data from 2015 to 2024 to conduct a random effects regression model. Findings – The research examined internal characteristics like size, liquidity risk, operational efficiency, credit risk, financial risk, and capital sufficiency. According to the empirical inquiry, operating efficiency, financial risk, and liquidity risk are the most important bank-specific features that bank managers may use to formulate future strategies. Novelty – Numerous previous investigations have offered diverse insights for the variables affecting bank profitability, including both external and internal factors. This research examined the bank-specific variables that contribute to the profitability of the Bangladeshi banking system, a rising country in South Asia. Furthermore, in this paper, the factors affecting only the SCBs' profitability are clarified, which provides some useful empirical insights in this field. Type of Paper - Empirical" |
| Keywords: | State-Owned Commercial Banks, Profitability, Panel Regression, Internal Factors, Bangladesh |
| JEL: | C23 G21 |
| Date: | 2025–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:gtr:gatrjs:jfbr229 |
| By: | Dibiasi, Andreas; Erhardt, Katharina |
| Abstract: | This paper studies heterogeneous firm responses to a sudden trade-induced profitability shock - the 2015 Swiss franc appreciation. Using firm-level investment data and a novel measure of exposure, we document that this trade shock causes large and persistent investment declines among affected firms. Examining heterogeneous responses among firms with similar exposure, we find that differences in responsiveness are not explained by economic fundamentals but are strongly linked to firm age and managerial experience. Younger firms and those led by less experienced managers react substantially more strongly. We argue that these empirical patterns are consistent with a model of Bayesian learning, in which firms update their beliefs about profitability over time. The results provide important insights into the long-lasting effects of trade shocks on business dynamism, capital investment, and local employment. |
| Keywords: | Trade shocks, Firm-level investment, Exchange rate shocks |
| JEL: | F14 D22 G31 L25 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:dicedp:324872 |
| By: | Zhi Chen; Zachary Feinstein; Ionut Florescu |
| Abstract: | Environmental, Social, and Governance (ESG) factors aim to provide non-financial insights into corporations. In this study, we investigate whether we can extract relevant ESG variables to assess corporate risk, as measured by logarithmic volatility. We propose a novel Hierarchical Variable Selection (HVS) algorithm to identify a parsimonious set of variables from raw data that are most relevant to risk. HVS is specifically designed for ESG datasets characterized by a tree structure with significantly more variables than observations. Our findings demonstrate that HVS achieves significantly higher performance than models using pre-aggregated ESG scores. Furthermore, when compared with traditional variable selection methods, HVS achieves superior explanatory power using a more parsimonious set of ESG variables. We illustrate the methodology using company data from various sectors of the US economy. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.18679 |
| By: | Jonas Heim; Thomas Nitschka |
| Abstract: | This paper evaluates whether CO2 emission levels or emission intensities are firm characteristics that drive Swiss firms’ stock returns. We show that standard characteristics such as size and the book-to-market equity ratio are more important determinants of firm-level stock returns than are CO2 levels (intensities). Brown firms (high CO2 levels or intensities) tend to be large and exhibit low book-to-market equity ratios, whereas their green counterparts are small and exhibit high book-to-market equity ratios. This explains why return differences between brown and green firms are statistically indistinguishable from zero after controlling for exposures to standard risk factors. |
| Keywords: | Climate change, CO2 emissions, Event study, Risk premium |
| JEL: | G12 Q54 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2025-13 |
| By: | Jonathan Adams; Cheng Chen; Min Fang; Takahiro Hattori; Eugenio Rojas |
| Abstract: | How do information frictions and investment frictions interact? We use a continuous-time model to analytically characterize how incomplete information distorts firms’ decision rules and stationary distribution when investment is irreversible. The two frictions interact in rich and substantial ways. At the firm level, noisier information shrinks a firm’s inaction region and reduces the elasticity of investment to productivity. In the aggregate, incomplete information increases steady-state capital, exacerbates capital misallocation, and mitigates the impact of productivity shocks on aggregate investment. We test and quantify these predictions using Japanese administrative data that match firms’ forecasts with their balance sheets, incomes, and expenditures. In the data, firms underreact to news as if they face information frictions; those with more extreme underreaction are less inactive, as predicted. |
| Keywords: | heterogeneous firms; Incomplete information; irreversibility; heterogeneous beliefs; misallocation; investment; volatility |
| JEL: | D25 D84 E22 E32 |
| Date: | 2025–09–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedkrw:101729 |