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on Corporate Finance |
| By: | Fulghieri, Paolo; Hu, Yunzhi; Varas, Felipe |
| Abstract: | Venture capital financing typically features complex securities and staging. We develop a dynamic contracting model where an entrepreneur seeks financing from active investors (who provide costly monitoring and screening) and passive investors (who offer cheaper capital). Under multilateral moral hazard, we show that the optimal contract can be implemented through a sequential offering of securities, including common and preferred equity, options, warrants, as well as a combination of senior debt and credit lines (venture debt). Our model predicts when entrepreneurs optimally separate monitoring and screening across multiple active investors ("rounds financing") versus consolidating these functions with a single active investor ("milestone financing"). Rounds financing dominates when informed capital is scarce. |
| Keywords: | Venture capital financing; Security design |
| JEL: | G32 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20966 |
| By: | Rabia Bashir (Management and Science University, Shah Alam, Malaysia Author-2-Name: Muhammad Ahmad Author-2-Workplace-Name: Management and Science University, Shah Alam, Malaysia Author-3-Name: Imran Arshad Author-3-Workplace-Name: Riphah School of Leadership, Riphah International University, Islamabad, Pakistan Author-4-Name: Sultan Rehman Sheri Author-4-Workplace-Name: Department of Management and Law, Faculty of Business Management and Professional Studies, Management and Science University, Shah Alam, Malaysia 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 - This study examines how financial constraints and financial resilience influence financial distress among Malaysian listed firms from 2015 to 2024. It additionally compares distressed and non-distressed firms to examine their performance with respect to financial constraints and financial resilience. Also, the study examines whether these patterns differ in large versus small firms. Methodology/Technique - Using panel data on Malaysian-listed firms, the study measures financial distress with the modified Altman Z-score and classifies firms as distressed or non-distressed. To examine differences in financial constraints and resilience, the research uses the Kruskal-Wallis test. Then, to further investigate the direct effects of financial constraints and financial resilience on financial distress, the study uses dynamic panel Generalized Method of Moments (GMM) estimation. Findings - Distressed firms face tighter financial constraints and show less resilience than their non-distressed counterparts. The dynamic GMM results further indicate that financial constraints increase financial distress, whereas financial resilience decreases it. The heterogeneous analysis shows that, for large firms, financial resilience matters most, whereas for small firms, financial constraints matter most. Contribution - This study contributes to the literature on financial distress by simultaneously testing the roles of financial constraints and financial resilience within a unified empirical framework, whereas past research has tended to focus separately on financing frictions, the prediction of distress, or indicators of resilience. Additionally, it provides new empirical evidence from an emerging market, Malaysia, where firms' financing structures, information asymmetry, and institutional environment differ considerably from those in developed economies. It extends previous findings by demonstrating that financial constraints and financial resilience affect firms differently across firm sizes. It shows that financial constraints influence financial distress more in small firms, while financial resilience influences financial distress in large firms. Type of Paper - Empirical" |
| Keywords: | Financial constraints; financial resilience, financial distress, Malaysia, GMM |
| JEL: | M13 M40 M49 |
| Date: | 2026–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:gtr:gatrjs:afr249 |
| By: | Hoffmann, Florian; Vladimirov, Vladimir |
| Abstract: | Impact investments that require industry-wide change often stall because firms wait for peers to move first, creating a coordination trap. We develop a theory showing a built-in conflict that aggravates this trap: insuring firms against cash-flow risk unlocks investment but exacerbates agency problems. To mitigate this tension, impact investors can target a critical mass of firms with tailored financing contracts, catalyzing competitive financing for others. Unlike uniform taxes or subsidies, optimal impact financing is firm-specific, and its cost critically depends on which firms investors target. Subsidized impact financing is best directed to smaller, less efficient, high-opportunity-cost firms, while the most promising firms are best left to conventional investors. |
| Keywords: | Impact financing; catalytic capital |
| JEL: | D21 D86 G23 G32 D62 Q56 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20861 |
| By: | Gryglewicz, Sebastian; Mayer, Simon; Morellec, Erwan |
| Abstract: | We develop a dynamic theory of large shareholders and firm policies, where a blockholder engages with the firm to improve asset productivity and influence decisions on investment, financing, and executive compensation. In equilibrium, the blockholder’s ownership stake may grow or shrink over time driven by gains from trade that result from the relationship between ownership, corporate policies, and control. A feedback loop emerges: as the blockholder increases their ownership, it boosts investment and the firm's debt capacity, while higher returns from debt and investment incentivize the blockholder to increase their stake. While firm policies need not maximize dispersed shareholder value when the blockholder is in control, limiting blockholder influence ultimately reduces blockholder ownership and firm value. |
| Keywords: | Activism |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21226 |
| By: | Amiti, Mary; Kashyap, Anil K; Kovner, Anna; Weinstein, David |
| Abstract: | We document significant variation in interest rates among similar commercial and industrial loans using confidential supervisory data on the largest US banks. This dispersion does not appear to be due to risk. We rationalize the data using a search cost model and find that search costs are highest for smaller and riskier borrowers and lower for public firms, consistent with predictable differences in the costs of screening and monitoring. We find that search costs are substantial. Over a third of firms behave as if they do not comparison shop; half of all firms appear to only obtain two quotes before picking a lender; while the remaining firms behave as if they search widely. |
| JEL: | E51 G21 G32 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21166 |
| By: | Bilicka, Katarzyna; Traini, Simone |
| Abstract: | We examine whether the public revelation of sensitive tax information prompts firms to adopt reputation repair policies targeting shareholders. Between 2013 and 2021, the International Consortium of Investigative Journalists (ICIJ) released leaked information on over 800, 000 offshore entities incorporated in tax havens, publicly revealing their use by multinational firms to avoid taxes. Leveraging this setting, we investigate whether firms implicated in the leaks improve their governance, increase investor remuneration, and reorganize their activities to restore shareholder trust relative to unaffected firms. We find that, after the leaks, firms appoint more directors, especially in operations, audit, and finance and accounting, pay higher dividends, and reduce their presence in tax havens, without increasing effective tax rates. Additional analyses suggest that concerns about managerial diversion and public scrutiny may drive these responses. Overall, data leaks appear to change the cost-benefit trade-off of tax strategies in ways that are, on net, favorable to shareholders. |
| Keywords: | Offshore Subsidiaries; Tax havens; Data Leaks; Corporate governance; Dividend payouts; Reputation Repair |
| JEL: | G30 H25 L14 M41 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21107 |
| By: | Chen, Nan; Giroud, Xavier; Qin, Ling; Wang, Neng |
| Abstract: | We study the determinants of corporate cash holdings by extending the standard q theory of investment with financing frictions and productivity shocks. While existing models predict a low propensity to hold cash, we show that realistic cash holdings arise only when three ingredients are combined: 1.) costly external financing, 2.) persistent productivity shocks, and 3.) contemporaneous productivity shocks. With costly external financing, persistent productivity shocks generate predictable cash flows and investment opportunities, but yield little need for savings since the internally generated cash flows are aligned with the investment needs. Contemporaneous shocks make internally generated cash flows random, inducing firms to hold cash at levels consistent with those observed empirically. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20965 |
| By: | Azevedo, Eduardo; Scheuer, Florian; Smetters, Kent; Yang, Min |
| Abstract: | Recent proposals to tax unrealized capital gains or wealth have sparked a debate about their impact on entrepreneurship. We show that accrual-based taxation creates two opposing effects: successful founders face greater dilution from advance tax payments, whereas unsuccessful founders receive tax credits that effectively provide insurance. Using comprehensive new data on U.S. venture capital deals, we find that founder returns remain extremely skewed, with 84% receiving zero exit value while the top 2% capture 80% of total value. Moving from current realization-based to accrual-based taxation would reduce founder ownership at exit by 25% on average but would also increase the fraction receiving positive payoffs from 16% to 47% when tax credits are refunded. Embedding these distributions in a dynamic career choice model, we find that founders with no or moderate risk aversion prefer the current realization-based tax system, while more risk-averse founders prefer accrual-based taxation. We estimate that a 2% annual wealth tax has a similar impact on dilution as taxing unrealized capital gains, but produces no risk-sharing benefits due to the absence of tax credits in case of down rounds. |
| Keywords: | Capital taxation; Venture capital; Dilution; Wealth tax |
| JEL: | G3 H2 J3 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20879 |
| By: | Lóránth, Gyöngyi; Morrison, Alan; Zeng, Jing |
| Abstract: | We study how firms can design their organizational structures to overcome dynamic commitment problems when entering new markets or technologies. A manager exerts costly effort to first develop and subsequently manage an investment opportunity. Ex post, the firm underinvests in projects that generate high management rents. However, the prospect of those rents helps offset the manager’s initial project development cost, making ex ante commitment to invest optimal. Levered subsidiaries mitigate this time-consistency problem by introducing risk-shifting incentives that counteract underinvestment. Subsidiaries are most valuable for projects that are costly to develop, have moderate management costs, and yield returns uncorrelated with existing business. |
| JEL: | G32 G34 L22 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20963 |