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on Corporate Finance |
| By: | Hackbarth, Dirk; Stahmer, Axel |
| Abstract: | This paper develops a novel trade-off theory of capital structure. When frequent re-balancing of firm leverage is restricted due to capital structure stickiness (or refinancing frictions), optimal capital structure reflects current and future investment profitability. That is, optimal leverage crucially depends on the asset growth and tax rate, and yields various capital structure equilibria, such as all-debt, all-equity, and debt-equity financing, by balancing the tax benefits of debt and the cash benefits of equity. Notably, the model endogenously generates low and zero leverage and also offers insights into the determinants of leverage life-cycle patterns observed in practice |
| Keywords: | Capital structure; Firm investment; Firm's leverage |
| JEL: | G13 G31 G32 G33 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20511 |
| By: | Oskar Kowalewski (IESEG School of Management); Oleksandr Talavera (University of Birmingham); Thanh Nam Vu (University of Birmingham) |
| Abstract: | This study examines whether family ownership is associated with lower firm-level dependence on ecosystem services. Using a panel of U.S. listed firms from 2010 to 2023, we find that family firms exhibit lower nature dependence than their non-family counterparts. The results are more consistent with long-term orientation than with generic risk aversion: the dependence-reducing effect of family ownership is stronger among firms with higher capital expenditure, unrelated to leverage, and shaped by governance structure. In particular, the effect is stronger among firms with a corporate governance committee and weaker among firms with politically connected boards. These findings are consistent with stewardship theory and support a context-dependent view of family firm behaviour. Overall, our results suggests that ownership structure is an important determinant of firms' exposure to physical nature risk, and that family ownership may mitigate such exposure through long-horizon strategic choices that reduce reliance on vulnerable ecosystem services. |
| Keywords: | Temperature; nature dependence; family ownership; corporate governance. |
| JEL: | G30 M14 Q57 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:bir:birmec:26-03 |
| By: | Kwok, Tsz Chun; Spiro, Daniel; van Benthem, Arthur |
| Abstract: | We provide a theoretical micro foundation for how much pollution (negative externalities) a firm will internalize based on the ownership distribution of its shareholders. Small shareholders, compared to large ones, want the firm to spend more on avoiding pollution since they suffer less profit loss for the same environmental benefit. In particular, if a shareholder holds a share of 1/N, where N is the population in society, that shareholder's preferences align with a social planner's. Three theoretical predictions arise. First, small shareholders will systematically vote for a greener corporate profile. Second, firms with a smaller weighted median shareholder will pollute less. Third, countries with concentrated corporate wealth holdings and/or more individualized firm ownership pollute more. This implies that standard models of externalities in environmental economics and macroeconomics containing representative agents are either internally inconsistent or not fully specified. |
| JEL: | Q50 Q52 G32 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20595 |
| By: | Pascale Combes Motel (Laboratoire d'Economie d'Orléans, University Clermont Auvergne); Aimé Okoko (Laboratoire d'Economie d'Orléans, University Clermont Auvergne); Sonia Schwartz (Laboratoire d'Economie d'Orléans, University Clermont Auvergne) |
| Abstract: | This study investigates the impact of the European Union Emissions Trading System (EU-ETS) on the capital structure, namely the debt ratio, of French firms from 2007 to 2018. To do this, we construct an original database linking French firms subject to the ETS to their financial variables. Using a matching method, we show that firms participating in the ETS have a higher debt ratio than non-participating ones. To consider the effect of the initial allocation of allowances, we divide our sample of treated firms according to their initial allocation quartile. We find that firms with the lowest initial allowances have the highest debt ratio. Furthermore, the ETS's effect on firms' capital structure is observed during Phase 2 (2008-2012) as opposed to Phase 3 (2013-2020) and concerns firms operating on domestic markets. The effect also differs according to the sectors selected. Our results suggest that, faced with the ETS, firms anticipated the future tightening of environmental constraints. Firms that received the fewest free-of-charge allowances complied by investing in pollution-reduction technologies relying on debt financing. Environmental policy variables, therefore, have an impact on the financial structure of firms. |
| Keywords: | EU-ETS, capital structure, initial allocation, propensity scores, entropy balancing |
| JEL: | C33 D22 G32 Q53 Q58 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:fae:wpaper:2024.05 |
| By: | Gormsen, Niels; Huber, Kilian; Oh, Sangmin S. |
| Abstract: | In theory, a cost of capital channel can incentivize green investments like a carbon tax. This channel requires that firms perceive the cost of green capital as lower than that of brown capital. Using hand-collected data, we show that green firms have indeed perceived their cost of capital to be 1 percentage point lower since 2016, when climate concerns by financial investors and governments surged. Moreover, some energy firms have used a lower cost of capital for their green divisions. The findings suggest that the cost of capital can incentivize capital reallocation toward greener investments across firms and within firms. |
| Keywords: | ESG |
| JEL: | G10 G12 G31 G32 G41 Q54 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20406 |
| By: | Peter, Alessandra |
| Abstract: | In this paper, I document systematic heterogeneity in ownership and financing of firms across Eurozone countries. To rationalize these differences, I build a quantitative general equilibrium model of workers and entrepreneurs who choose debt and equity financing of their firms, subject to rich country-specific financial frictions. The novel data on firm ownership and financing, combined with the structure of the model, allows me to quantify the level of debt and equity frictions in each country. Quantitatively, I find much larger output effects from equity frictions: harmonizing them across countries would lead to nearly four times larger output effects compared to debt frictions, and removing them would increase aggregate output by 75% more. The larger impact on output is due not only to the estimated levels and dispersion of equity frictions, but also to the fact that equity provides greater risk sharing, which further incentivizes entrepreneurs to expand their firms. Through their effect on risk sharing, equity frictions also rationalize the observed negative relationship between equity financing and wealth inequality. Quantitatively, they are responsible for over 70% of the explained variation in top wealth shares across countries. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20667 |
| By: | Sadun, Raffaella; Schuh, Rachel; Hartley, Jonathan; Van Reenen, John; Bloom, Nicholas |
| Abstract: | We show better-managed firms are more dynamic in plant acquisitions, disposals, openings and closings in U.S. Census and international data. Better-managed firms also birth better-managed plants and improve the performance of the plants they acquire. To explain these findings we build a model with two key elements. First, management is a combination of firm-level management ability (e.g. CEO quality), which can be transferred to all plants, and plant-level management practices, which can be changed through intangible investment (e.g. consulting or training). Second, management both raises productivity and also reduces the operational costs of dynamism: buying, selling, opening and closing plants. We structurally estimate the model on Census microdata, fitting our key dynamic moments, and then use it to establish three additional results. First, mergers and acquisitions raise economy-wide management and productivity by reallocating plants to firms with higher management ability. Banning M&A would depress GDP and management by about 15%. Second, greater product market competition improves both management and productivity by reallocating away from badly managed plants. Finally, management practices account for about 20% of the cross-country productivity differences with the US. |
| Keywords: | Management; Mergers and acquisitions; Productivity; Competition |
| JEL: | L2 M2 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20602 |
| By: | Englmaier, Florian; Galdón Sánchez, José Enrique; Gil, Ricard; Kaiser, Michael; Strandt, Helene |
| Abstract: | This paper examines how management practices affect firm productivity over the business cycle. Using Spanish plant-level survey data and unsupervised machine learning, we identify a “structured†management style positively correlated with performance before the 2008 financial crisis. Interestingly, this correlation turns negative during the crisis and positive again in the post-2013 recovery. Our evidence suggests structured firms focus on long-run profitability and innovation, prioritizing intangible investments. This strategy leads to higher short-run adjustment costs, evidenced by more fixed assets and lower employee turnover, making them less resilient during a severe downturn. |
| Keywords: | Culture; Productivity |
| JEL: | M12 D22 C38 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20749 |
| By: | Becker, Bo; Josephson, Jens; Xu, Hongyi |
| Abstract: | Non-financial obligations created by long-term contracts such as leases are often large, exceeding financial debts in around a third of US firms. Their treatment in insolvency varies: Chapter 11 allows firms to freely reject or assume contracts, but many other restructuring regimes do not allow rejection. We model regimes with and without the rejection option. This option prevents excessive liquidation of insolvent firms and increases firms’ debt capacity. Using novel measures of executory contracts by industry, and two difference-in-difference settings, we confirm that leverage and loan flow increase when the rejection option is available. |
| Keywords: | Restructuring |
| JEL: | G32 G33 G21 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20735 |
| By: | Giray Gozgor; Thang Ho; Jing Li |
| Abstract: | This paper examines how local opioid exposure affects firms’ debt structure. Motivated by evidence that the opioid crisis weakens labor supply, impairs human capital, and increases operating uncertainty, we argue that firms exposed to greater local opioid distress rely more heavily on bank debt because bank lenders provide monitoring, private information production, and renegotiation flexibility that become more valuable when borrower risk is harder to assess. Using a panel of 5, 424 U.S. public firms from 2003 to 2020, we find that greater local opioid exposure, measured by county-level opioid-related mortality, is associated with a greater share of bank debt and a lower share of public debt. To strengthen identification, we exploit the staggered adoption of state-level Prescription Drug Monitoring Programs (PDMPs) in a stacked difference-in-differences design. PDMP adoption is followed by reductions in local opioid exposure and a subsequent decline in firms’ reliance on bank debt. The effect is stronger among labor-intensive firms, firms located in tighter local labor markets, firms with higher R&D intensity, and firms facing greater bankruptcy and information risk. Overall, our findings suggest that opioid-related local distress alters corporate financing choices by increasing the relative attractiveness of bank debt. |
| Keywords: | opioid crisis, debt structure, bank debt, public debt, labor market frictions, corporate financing |
| JEL: | G32 G21 J21 I18 R11 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12831 |
| By: | Cody Kallen |
| Abstract: | A substantial portion of corporate debt remains hidden from balance sheets. I document two forms of off-balance-sheet leverage in nonfinancial corporations: operating leases (pre-2019) and intraperiod borrowing—short-term debt issued and repaid within reporting periods, which I am the first to study in nonfinancial firms. Approximately 29 percent of publicly traded firms used substantial operating leases and 12 percent show evidence of substantial intra-period borrowing, with a disproportionate subset using both types of hidden debt. Firms using substantial hidden leverage are generally smaller, more reliant on short-term funding, are less monitored by sophisticated market participants, and report lower leverage, suggesting they use off-balance-sheet debt to project false leverage profiles. When accounting changes in 2019 revealed substantial operating leases, affected firms subsequently cut capital expenditures by 25 percent and R&D by 14 percent, faced heightened risks of executive turnover and stakeholder scrutiny, and experienced more frequent accounting problems. Critically, revelation of substantial operating leases caused these exposed firms to curtail their intra-period borrowing and to raise their reported non-lease leverage. |
| Keywords: | off-balance-sheet; lease financing; capital structure; disclosure of off-balance-sheet financing |
| JEL: | G14 G32 M48 |
| Date: | 2026–07–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:103561 |
| By: | Degryse, Hans; De Jonghe, Olivier; Laeven, Luc; Zhao, Tong |
| Abstract: | This paper studies the role of collateral using the euro area corporate credit registry, AnaCredit. 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 to 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; Bank credit |
| JEL: | E32 G21 G33 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20639 |