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on Corporate Finance |
| By: | Bektemir Ysmailov (Nazarbayev University, Graduate School of Business) |
| Abstract: | This paper demonstrates that the precautionary role of cash depends critically on its composition. We show that, following the onset of the global financial crisis, firms with similar total cash reserves experience significantly different investment declines based on the proportion held in marketable securities. Consistent with theory, these results are driven by firms with a greater reliance on external capital. We conduct several tests to address potential endogeneity concerns. We conclude that firms with seemingly adequate precautionary savings in aggregate may still be highly exposed to shocks if their cash holdings are heavily invested in marketable securities. |
| Keywords: | crisis, cash, short-term investments, financial constraints, precautionary savings |
| JEL: | G01 G31 G32 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:asx:nugsbw:2025-04 |
| By: | Julian Atanassov (University of Nebraska); Gabriele Lattanzio (University of New Hampshire); Bektemir Ysmailov (Nazarbayev University, Graduate School of Business) |
| Abstract: | We document that during periods of heightened policy uncertainty, firms rebalance their cash portfolios away from riskier marketable securities and toward safer, more liquid assets. Our findings are robust to instrumental variable analyses, alternative model specifications, and varying definitions of policy uncertainty. The effect is stronger among financially constrained firms, firms with greater external financing needs, firms in highly competitive product markets, and highly intangible firms - consistent with precautionary motives. However, we also find evidence consistent with an investment-delay channel, whereby heightened policy uncertainty induces firms to postpone investment, creating temporary excess liquidity that may be allocated to marketable securities. By uncovering this nuanced behavior, our findings provide new insights into corporate financial decision-making under uncertainty and how firms manage liquidity and risk. |
| Keywords: | political risk, corporate cash, precautionary savings, real options, investment |
| JEL: | G30 G31 G32 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:asx:nugsbw:2024-03 |
| By: | Songyi Han (BI Norwegian Business School); Jaehyeon Kim (Nazarbayev University, Graduate School of Business); Sang Soo Park (Korea University) |
| Abstract: | Prior studies show that country-level board reforms, aimed at enhancing independence, positively affect firm value, but the channels remain unclear. This paper investigates improved corporate financing and investment as a channel. Using an estimation method robust to heterogeneous treatment effects, we find that board reforms increase external financing and investment, suggesting that they enhance investors' confidence about board oversight and willingness to provide capital. Subsample analyses reveal conditions where reforms are more effective. First, the positive impact on external financing is driven by comply-or-explain reforms vis-a-vis rule-based reforms. This indicates that flexible reforms work better and that strict board reforms disrupt optimally designed board structures. Second, financially constrained firms benefit more, reinforcing the role of reforms in raising investor capital provision. Finally, we document a complementary relation between board reforms and country-level investor protection and legal enforceability, underscoring the role of high-quality institutions in enhancing the effectiveness of board reforms. |
| Keywords: | board reforms, investor protection, legal enforcement, external financing, corporate investment, employment. |
| JEL: | G14 G18 M41 M48 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:asx:nugsbw:2025-01 |
| By: | Daisuke TSURUTA |
| Abstract: | This paper examines the relationship between managerial aging, succession prospects, and credit allocation to small and medium-sized enterprises (SMEs) in Japan. We focus on firms managed by elderly owners without designated successors, which we interpret as exhibiting weakened going-concern prospects. Using comprehensive firm-level data, we investigate firm performance, default risk, and bank lending behavior during normal periods and economic crises, particularly the Global Financial Crisis and the COVID-19 pandemic. We find that firms with elderly managers and those lacking successors exhibit lower profitability, slower growth, and higher probabilities of default and exit, with these adverse effects becoming more pronounced during crises. Despite their weak fundamentals, such firms experience increased reliance on bank borrowing during crisis periods, suggesting potential credit misallocation. This pattern was particularly strong during the COVID-19 crisis, likely reflecting extensive public financial support. Our findings highlight how population aging can distort credit allocation in SMEs and provide new evidence on crisis-driven misallocation in an aging economy. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:26039 |
| By: | Al-Mahdi Ebsim; Chen Lian; Yueran Ma; Pablo Ottonello; Diego J. Perez |
| Abstract: | In traditional macro-finance models, firms' debt contracts impose hard borrowing constraints, which require indiscriminate reductions of borrowing and investment when adverse shocks tighten these limits, giving rise to financial acceleration. We study the macroeconomic implications of "sophisticated borrowing constraints" akin to financial covenants among large U.S. nonfinancial firms, commonly specified based on firms' debt relative to operating earnings. We model these constraints as debt thresholds that trigger a transfer of control rights to creditors when they are violated, in which case creditors influence firms' decisions to maximize their value instead of cutting credit unconditionally to adhere to fixed ratios. At the micro level, our model is quantitatively consistent with empirical patterns of investment and earnings around covenant violations. At the macro level, sophisticated borrowing constraints do not generate financial acceleration, because constraint tightening and violations do not induce creditors to downscale firms indiscriminately. |
| JEL: | E32 E44 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35213 |
| By: | Bektemir Ysmailov (Nazarbayev University, Graduate School of Business) |
| Abstract: | I construct a new measure of financial constraints by applying a large language model to narrative disclosures in firms' Management's Discussion and Analysis from Form 10-K filings. The model evaluates each filing as a finance expert and classifies the firm's external financing difficulty on an ordered scale, producing the GenAI FC Index. The index captures contextual signals - such as nuanced liquidity discussions - that traditional accounting-based and prior text-based proxies often miss. It behaves sensibly in both the time series and cross-section and shows only moderate correlations with existing measures, indicating that it contains distinct information. Behavioral tests reveal that firms classified as constrained recycle far less equity and are substantially more likely to omit dividends, and less likely to initiate or increase them. Across these settings, the GenAI FC Index yields stronger and more consistent behavioral separation than benchmark text-based measures. The results demonstrate that generative AI can extract economically meaningful information about firms' financing frictions at scale. |
| Keywords: | financial constraints, generative AI (GenAI), large language models (LLMs), textual analysis, MD&A disclosures, corporate finance |
| JEL: | G30 G32 M41 C81 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:asx:nugsbw:2026-01 |
| By: | Rüdiger Fahlenbrach; Leandro Sanz; René M. Stulz |
| Abstract: | Many startups in the 2000s have remained private after achieving large valuations, a pattern that funding availability alone cannot explain. We propose that startups relying heavily on organization capital to achieve economies of scale and network effects through digital technologies are more likely to become large private firms than exit earlier via an IPO or acquisition. Using LinkedIn data, we construct a novel measure of organization capital intensity for startups. Exploiting a legal shock that strengthened organization capital protection, we provide causal evidence that organization-capital-intensive startups are more likely to remain private and grow large rather than exit early. |
| JEL: | G24 G32 G34 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35191 |