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on Corporate Finance |
| By: | Mauri Kotamaki (Turku School of Economics, University of Turku, Finland) |
| Abstract: | This paper estimates the causal effect of financial constraints on the short-term performance of Finnish SMEs using survey data from 2016-2024 and propensity score matching (PSM). We examine six outcomes: turnover, employment, investment, profitability, solvency, and innovation, and report effects on both odds and probability scales. Financial constraints significantly increase the likelihood of adverse outcomes: constrained firms face 10-30\% higher odds of reporting deterioration in core indicators, with the largest effects on solvency (29\% higher odds) and profitability, followed by investment and turnover; employment effects are smaller, and innovation effects modest. Marginal effects indicate up to a 4 percentage point reduction in the probability of improvement for key outcomes. Results are robust to multiple-testing adjustments, and alternative specifications. Heterogeneity analysis reveals that the effects vary by firm size, pointing to a dual mechanism: turnover and profitability effects are strongest for micro and small firms, reflecting immediate liquidity stress, while employment and investment effects intensify with firm size, suggesting real adjustments (growth obstacles) are more pronounced in mid-sized SMEs. Policy implications and directions for future research are discussed. |
| Keywords: | credit constraints, financing, impact analysis, propensity score matching |
| JEL: | G32 D22 L25 C21 O16 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tkk:dpaper:dp172 |
| By: | Kanis Saengchote |
| Abstract: | This paper examines how Thai firms utilize capital market debt – specifically, commercial papers (CPs) and bonds – to manage leverage, liquidity, and investment. Using a firm-quarter panel from 2001 to 2024, we find that firms with more diversified debt structures maintain higher leverage and invest more, consistent with financial flexibility theories. CP issuance is positively associated with both capital expenditures and working capital growth; firms adjust issuance dynamically in response to their liquidity needs. Notably, CPs are not merely used as bridge instruments but as a strategic financing tool. We further demonstrate that mutual fund holdings of CP, particularly by money market funds, are associated with higher firm-level investment. These findings highlight the role of non-bank financial intermediaries in facilitating access to credit, suggesting that monetary policy transmission increasingly depends on how liquidity is intermediated through capital markets. |
| Keywords: | Capital market debt; Commercial paper; Debt composition; Institutional investors; Investment |
| JEL: | G31 G32 G23 E44 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:pui:dpaper:242 |
| By: | Konrad Adler (University of St. Gallen - School of Finance; Swiss Finance Institute) |
| Abstract: | This paper studies how financial covenants, provisions included in most loan contracts, influence firm investment. I develop a structural model incorporating covenants and find that they allow for 4.7% higher aggregate investment relative to a no-covenants baseline. While covenants are beneficial overall, the model also reveals costs faced by firms attempting to avoid covenant violations. In two applications of the model, I find that, first, the transmission of aggregate shocks to firm financing crucially depends on firms' efforts to avoid covenant violations. Second, the model shows that earnings-based covenants allow for higher investment in industries with low asset pledgeability but offer no advantage when assets can be easily pledged. |
| Keywords: | Financial Constraints, Covenants, Investment, Heterogeneous Firms |
| JEL: | E44 G31 G32 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2570 |
| By: | Andrea Bellucci (Universita' degli Studi dell'Insubria and Mo.Fi.R.); Alexander Borisov (Lindner College of Business, University of Cincinnati and MoFiR); Alberto Zazzaro (University of Naples Federico II, CSEF and MoFiR) |
| Abstract: | We empirically examine the relationship between monitoring costs within a banking organization and the standardization of credit terms in lending to small businesses. We find that when senior bank managers are away from a branch and monitoring of branch activity is more costly, loan officers at the branch exercise less discretion and standardize contract terms (collateral and credit amount) more. The relationship is also weaker in more competitive credit markets. Our results are consistent with the idea that costs of delegation within banking organizations affect their lending practices and external market discipline interacts with internal monitoring. |
| Keywords: | bank structure, contract terms, soft information, small business lending |
| JEL: | D22 D83 G21 L22 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:anc:wmofir:194 |
| By: | Arunima Paul; John Chung |
| Abstract: | Credit access plays a pivotal role in enabling firms to participate in global markets and support broader economic growth. While large firms benefit from steady revenue streams and easier financing options, small and medium-sized enterprises (SMEs) frequently encounter substantial challenges in securing credit. This paper analyzes U.S. metropolitan area–level data to assess how local expansions in credit supply, particularly via Community Reinvestment Act (CRA) loans, influence export performance. Using the geographic dispersion of bank headquarters as an instrumental variable, we estimate that a 10% increase in credit availability results in a 4.5% increase in export volumes. Extending the analysis to a heterogeneous firm framework with credit frictions, we show that a 10% reduction in trade costs produces welfare gains from trade that are 18.75% larger when firms are unconstrained by credit. |
| Keywords: | Credit access; Exports; SMEs; Community Reinvestment Act; Financial constraints; Trade; Welfare |
| JEL: | G21 F41 E44 F14 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:abn:wpaper:auwp2025-09 |
| By: | Corina Boar; Denis Gorea; Virgiliu Midrigan |
| Abstract: | We use firm-level data to document that private businesses experience large fluctuations in their profit shares. These are due to large, fat-tailed and transitory changes in output that are not fully accompanied by changes in their inputs. We interpret this evidence using a model of entrepreneurial dynamics. Because firms can limit their exposure to risk by operating at a smaller scale, our model predicts large macroeconomic losses from uninsurable business risk, much larger than those stemming from credit constraints. While self-financing allows entrepreneurs to quickly overcome credit constraints, even wealthy entrepreneurs remain considerably exposed to risk. |
| Keywords: | entrepreneurship, risk, credit constraints, misallocation |
| JEL: | E2 E44 G32 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1300 |
| By: | Ruiying Liu; Yuchi Li; Zhanli Li |
| Abstract: | The diversity of corporate social responsibility (CSR) disclosure is a crucial dimension of corporate transparency, reflecting the breadth and resilience of a firm's social responsibility. Using CSR reports of Chinese A-share firms from 2006 to 2023, this paper applies Latent Dirichlet Allocation (LDA) to extract topics and quantifies disclosure diversity using the Gini-Simpson index and Shannon entropy. Regression results show that corporate losses significantly compress CSR topic diversity, consistent with the slack resources hypothesis. Both external and internal governance mechanisms mitigate this effect: higher media attention, stronger executive compensation incentives, and greater supervisory board shareholding attenuate the loss-diversity penalty. Results are robust to instrumental variables estimation, propensity score matching, and placebo tests. Heterogeneity analyses indicate weaker effects in firms with third-party assurance, those disclosing work safety content, large firms, and those in less competitive industries. Our study highlights the structural impact of financial distress on non-financial disclosure and provides practical implications for optimizing CSR communication, refining evaluation frameworks for rating agencies, and designing diversified disclosure standards. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.23424 |
| By: | Francesco Celentano (University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute); Oliver Levine (University of Wisconsin - Madison - Department of Finance) |
| Abstract: | We quantitatively assess the role of activism in the market for corporate control by developing and estimating a model featuring both activism and M&A. We find that activism complements M&A, reducing the agency frictions associated with takeovers. However, activism simultaneously crowds out some M&A activity by substituting for disciplinary takeovers. Both the threat of activism and actual activist intervention create shareholder value by improving CEO incentives, while the value from reduced takeover frictions is primarily captured by acquirers. We find that activists have an information advantage, which is critical to overcoming the free rider problem in activist intervention. |
| Keywords: | Shareholder Activism, Mergers and Acquisitions (M&A), Agency Conflict, Corporate Governance |
| JEL: | G34 G32 G39 G23 G14 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2581 |
| By: | Tan Ke Wen, Carmen |
| Abstract: | This study is an analysis that attempts to investigate the determinants of operation efficiency throughout the context of National Industrialization Co. Analysing the impact of internal, external, and combined variables of National Industrialization Co. are the aim of this research project. The annual reports from 2013 to 2023 are examined as part of the research. The raw data for this investigation were analysed using a multiple linear regression model. Throughout this study, a results indicate that the four of all internal and external variables have a significant effect on the company's operation efficiency, which are Return on Equity (ROE), Cash Ratio (Cash), and Foreign Direct Investment (FDI). Additionally, the study provides valuable insights into the company's risk management practices, offering recommendations to enhance risk mitigation strategies, thereby ensuring the company's long-term financial stability and regulatory compliance. |
| Keywords: | National Industrialization Co, . risk determinants, regression analysis, internal factors, macroeconomics |
| JEL: | G32 L65 |
| Date: | 2025–01–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123238 |
| By: | Lukyanov, Georgy |
| Abstract: | Firms often choose between concentrated, renegotiable bank claims and dispersed, arm’s-length market debt. I develop a tractable adverse-selection model in which both financiers can take collateral, but they differ in enforcement and coordination efficiency at default. The single primitive wedge—a higher effective liquidation rate for concentrated creditors—is sufficient to generate coexistence, a sharp cutoff in the bank–bond partition, and distinctive comparative statics. A marginal improvement in bankruptcy/insolvency efficiency or bondholder coordination reallocates issuance toward bonds, compresses loan–bond pricing gaps for safe types, and shifts default incidence and collateral intensity in predictable ways. The welfare decomposition clarifies when strengthening bank enforcement reduces deadweight liquidation losses (by moving marginal types into monitored finance) versus when improving market-side coordination dominates (by accelerating dispersed-creditor resolution). The model delivers stability-relevant predictions for default rates, recovery, covenant stringency, and issuance composition around reforms that move liquidation efficiency on either side, and it provides a disciplined mapping to empirical proxies (recoveries, covenant strength, creditor dispersion). |
| Keywords: | Bank–bond choice; Collateral and enforcement; Liquidation efficiency; Creditor coordination; Adverse selection; Financial stability. |
| JEL: | G21 G32 G33 D82 K22 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131006 |
| By: | Konrad Adler (University of St. Gallen - School of Finance; Swiss Finance Institute); JaeBin Ahn (International Monetary Fund (IMF)); Mai Dao (International Monetary Fund (IMF)) |
| Abstract: | We study how trade liberalization affects financial and innovation decisions of large firms across major G7 countries. We document how firms increase their cash holdings when their country's trading partners lower their import tariffs, while we find no effect of a decrease in the country's own import tariffs. Specifically, we find that the increase in cash holdings occurs before tariff cuts by trading partners and is associated with higher R&D spending and patent filing after the cuts. Our results are consistent with the predictions of a model in which higher expected returns to innovation from enhanced export market access lead to higher cash buffers. |
| Keywords: | Trade, MFN tariff, Cash Holdings, R&D, Patents |
| JEL: | F12 G31 O32 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2571 |
| By: | Clemens Possing (University of Waterloo); Andreea Rotarescu (Wake Forest University, Department of Economics); Kyungchul Song (University of British Columbia) |
| Abstract: | This paper investigates feedback effects between bank health and zombie firms—financially distressed firms receiving subsidized credit. The literature focuses on how banks create zombies, overlooking zombies’ impact on bank health. Using Spanish firm-bank data (2005-2014), we document a vicious cycle: lower bank capital ratios are associated with higher zombie activity in served industries, while higher zombie prevalence is associated with reduced bank capital. We link this to a previously unexplored mechanism where banks respond appropriately to observable financial distress through higher provisioning, but overlook risks from relationship borrowers receiving subsidized rates. Our findings suggest that this feedback stems not from financial distress alone, but from the combination of distress with interest rate subsidies. |
| Keywords: | Zombie Lending; Bank-Firm-Industry Feedback; Capital Misallocation; Networks; Cross-Sectional Dependence |
| JEL: | C23 E44 G21 G32 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ris:wfuewp:021682 |
| By: | Sahab Zandi; Kamesh Korangi; Juan C. Moreno-Paredes; Mar\'ia \'Oskarsd\'ottir; Christophe Mues; Cristi\'an Bravo |
| Abstract: | Small and Medium-sized Enterprises (SMEs) are known to play a vital role in economic growth, employment, and innovation. However, they tend to face significant challenges in accessing credit due to limited financial histories, collateral constraints, and exposure to macroeconomic shocks. These challenges make an accurate credit risk assessment by lenders crucial, particularly since SMEs frequently operate within interconnected firm networks through which default risk can propagate. This paper presents and tests a novel approach for modelling the risk of SME credit, using a unique large data set of SME loans provided by a prominent financial institution. Specifically, our approach employs Graph Neural Networks to predict SME default using multilayer network data derived from common ownership and financial transactions between firms. We show that combining this information with traditional structured data not only improves application scoring performance, but also explicitly models contagion risk between companies. Further analysis shows how the directionality and intensity of these connections influence financial risk contagion, offering a deeper understanding of the underlying processes. Our findings highlight the predictive power of network data, as well as the role of supply chain networks in exposing SMEs to correlated default risk. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.09407 |
| By: | Zoltan Bartha; Adam Bereczk |
| Abstract: | Our study presents a model of factors influencing the financial viability of Hungarian social enterprises, and tests the model on a sample of 220 Hungarian firms involved in social entrepreneurship. In the model we suggest that the most important factors for financial viability are the Regulatory environment (the transparency of regulations); the Entrepreneurial attributes of the entrepreneur (business orientation, business skills and experience, business planning tendencies); the Financial support provided by the environment (the ratio of grants, donations and subsidies within the total revenues of the firm); and the Strategy followed by the firms (the presence of such generic strategies as cost leadership or differentiation). We find that only two of the model's four factors are significantly associated with Financial viability: Entrepreneurial attributes and Financial support. The results suggest that the best way of strengthening the viability of social enterprises is through entrepreneurship training (to enhance the business skills and experience of the entrepreneurs, and to propagate business planning), and to provide grants and subsidies to these firms. As no significant association was found between Financial viability and Strategy, we can conclude that the role of market competition is probably relatively week among Hungarian social enterprises. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.21415 |
| By: | Mukasa, Stanley; Sangwa, Sixbert |
| Abstract: | Background. African startups operate amid acute capital scarcity and fragmented institutions, which complicates credible quality revelation to investors. Purpose. Focusing on the venture as the unit of analysis, this study investigates how milestones pursued inside university-affiliated accelerators function as signals of venture quality under scarcity, and how entrepreneurial behaviors shape the clarity and credibility of those signals. Design/methodology/approach. We track 17 technology ventures across East- and West-African university accelerators over 185 venture-quarters, combining venture-level panel regressions, event-study analysis, and fuzzy-set QCA. Two composite measures—the Governance-Readiness Index and the Signal-Portfolio Index—capture internal capability building and externally legible signals. Findings. Ventures graduating from university-affiliated accelerators secured roughly three times more equity than matched non-accelerated peers, with heterogeneity explained by milestone attainment and the breadth/strength of signal portfolios. We articulate a signal–noise paradox: effectuation/bricolage behaviors enable survival and progress under constraint yet can appear ambiguous to investors, attenuating signal clarity unless paired with governance readiness and externally validated milestones. Originality/value. The paper elevates signaling theory as the primary lens for early-stage ventures in emerging-market contexts, treats effectuation/bricolage as behavioral mechanisms, and situates staged financing as process logic and triple-helix/institutional-voids as contextual moderators. In doing so, it refines entrepreneurial signaling theory for scarcity contexts and offers actionable diagnostics for accelerators and policymakers designing inclusive, quality-assuring programs. |
| Date: | 2025–10–08 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:6jafg_v1 |
| By: | Qu Feng; Shang-Jin Wei; Guiying Laura Wu; Mengying Yuan |
| Abstract: | Capital controls and other policy distortions in the capital market are costly to entrepreneurs. We propose a structural estimation approach to quantify the effect using IPO locational choices. We estimate the willingness-to-pay to bypass these distortions by the Chinese entrepreneurs with overseas listed firms to be a haircut in firm value by 50-60%. We infer that the welfare for the entrepreneurs could rise by 22% from the relevant capital market reforms. |
| JEL: | F30 O16 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34341 |
| By: | Ayres, Ian; Adler, Barry |
| Abstract: | Issues of corporate finance become most critical when a firm encounters financial distress. In this case, there may be insufficient assets to go around, and the question of valuation comes to the fore. Valuation is central to the resolution of distress because distributions consistent with the hierarchy of investor priority (called "absolute priority") depend on the amount available to distribute. A firm with little value may belong entirely to its most senior creditors, while a firm with much value may belong in part to its junior creditors, or perhaps even its shareholders. Not surprisingly, therefore, valuation is the most hotly contested and debated topic in the realm of corporate bankruptcy law. In this Article, we enter this debate with a new "dilution" approach for valuation. The dilution approach begins with the issuance of some new shares to investors at a particular level of priority, and then, to the extent that absolute priority requires, "dilutes" the value of those shares with the issuance of additional shares, or new claims against the firm, to investors at a different level of priority. This process, which is implemented through a stylized auction at a fixed price, not quantity, harnesses information available among a corporation's investors and the capital market as a whole in order to implement better the absolute priority rule. |
| Date: | 2025–10–08 |
| URL: | https://d.repec.org/n?u=RePEc:osf:lawarc:7vfce_v1 |
| By: | Bertoni, Fabio; Colombo, Massimo G.; Montanaro, Benedetta; Quas, Anita; Tenca, Francesca |
| Abstract: | This working paper assesses the economic impact of EIF-supported equity investments in the Lower Mid-Market (LMM) segment across Europe between 2007 and 2023. Using advanced causal inference techniques, the study compares over 1, 700 investee firms with a matched control group to isolate the effects of private equity financing backed by the EIF. The findings show that EIF-supported LMM investments significantly boost company growth - especially in total assets, intangible assets (a key proxy for innovation), and employment costs. A short-term drop in productivity (measured by turnover per employee cost) suggests that firms may initially prioritize scaling up and improving human capital over immediate efficiency gains. The study reveals how different deal types (majority vs. minority stakes), company sizes, sectors, and locations influence growth outcomes. This report is part of the EIF's broader Impact Assessment Framework which serves as an important pillar for the strategic development of the institution. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:eifwps:328254 |