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on Corporate Finance |
| By: | Pajarinen, Mika; Ylhäinen, Ilkka |
| Abstract: | Abstract We examine how entrepreneurial capital—wealth, experience, skills, and networks—released through acquisitions is reallocated to new and existing firms. We combine Finnish administrative data on firm exits, owners, board members and executives, and financial statements. We identify acquisitions from worker flows and estimate the performance of destination firms using difference-in-differences and doubly robust augmented inverse probability weighting (AIPW) estimators. Entrepreneurs who sell their firms often continue in active ownership, board, and executive roles, especially in existing firms. Acquisition counterparties—acquirers and merger partners—experience substantially faster sales growth than control firms, but their labor productivity develops less favorably, particularly in the first post-acquisition years. Profitability improves relative to controls in the existing firms that former owners join. Newly founded destination firms have substantially higher sales than control firms. We find no evidence that reallocated entrepreneurial capital generates systematic productivity gains or increases the likelihood of equity financing relative to control firms. |
| Keywords: | Mergers and acquisitions, Entrepreneurial capital, Serial entrepreneurship, Firm dynamics, Firm Performance, Difference-in-differences |
| JEL: | C23 G32 G34 L25 L26 |
| Date: | 2026–08–03 |
| URL: | https://d.repec.org/n?u=RePEc:rif:report:179 |
| By: | Amberg, Niklas; Jacobson, Tor; Quadrini, Vincenzo; Rogantini Picco, Anna |
| Abstract: | We use a comprehensive Swedish credit register to document that firms across the size distribution have access to substantial borrowing capacity via credit lines. However, most firms choose not to use all available credit, even though interest rates are low compared to their return on equity. The low utilization of credit is consistent with a theoretical model in which utilization rates decrease with both real and financial uncertainty. We estimate the model structurally at the firm level and find that financial uncertainty driven by liquidity shocks is much more important than real uncertainty driven by cash flow shocks for explaining the low utilization of credit. |
| Keywords: | Uncertainty; Credit lines |
| JEL: | D22 E44 G21 G32 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19968 |
| By: | Maria Elena Bontempi; Laura Bottazzi |
| Abstract: | We view debt covenants as monitoring technologies that differ in intensity and allocation of control rights, thereby shaping corporate financial behaviour. We construct a novel dataset combining Compustat information with covenant data extracted from EDGAR filings through automated Python-based text analysis over 1995Q3-2020Q3. We classify covenants into maintenance capital covenants, maintenance performance covenants, and covenant-lite incurrence covenants, and firms according to their dominant financing behaviour, distinguishing leverage-adjustment-oriented firms from firms relying more heavily on financial flexibility through internal financing and debt maturity management. To account for the resulting heterogeneity, we estimate firm-level dynamic models and summarize the resulting parameters using a multivariate meta-analytic framework. We find that performance and limitation covenants are associated with greater financial flexibility, whereas capital covenants are associated with faster leverage adjustment. These findings suggest that covenant design shapes not only creditor protection but also firms' dynamic capital structure choices.dynamic capital structure choices. |
| JEL: | C23 C30 G21 G30 D22 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bol:bodewp:wp1230 |
| By: | Rampini, Adriano A.; Viswanathan, S. |
| Abstract: | We argue that firms’ assets, especially their tangible assets, serve as collateral restricting both secured and unsecured debt. Secured debt is explicitly collateralized, placing a lien on specific assets, which facilitates enforcement. Unsecured debt is backed by unencumbered assets and thus implicitly collateralized. The explicit collateralization of secured debt entails costs but enables higher leverage. Therefore, financially constrained firms use more secured debt both across and within firms. Our dynamic model is consistent with stylized facts on the relation between secured debt and measures of financial constraints and between leverage and tangible assets, and with evidence from a causal forest. |
| Keywords: | Collateral; Tangible assets; Intangible capital; Leasing |
| JEL: | D25 E22 G32 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20313 |
| By: | Nikolov, Boris; Schürhoff, Norman; Wagner, Sam |
| Abstract: | A key question in automating governance is whether machines can recover the corporate objective. We develop a corporate recovery theorem that establishes when this is possible and provide a practical framework for its application. Training a machine on firms’ investment and financial decisions, we find that most neoclassical models fail since machines learn from managers to underestimate the shadow cost of capital. This bias persists even after accounting for financial frictions, intangible intensity, behavioral factors, and ESG. We develop an alignment measure that shows why managers deviate from shareholder-value and guides how AI can debias managerial decision-making. |
| JEL: | D22 G30 L21 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20244 |
| By: | Fabisik, Kornelia |
| Abstract: | I study the quality of the governance pillar of environmental, social, and corporate governance (ESG) ratings. Since 2018, ESG integration strategies, many of which rely on ESG ratings, have dominated the ESG investing sphere. I examine the governance ratings’ ability to provide useful information to shareholders. My results not only suggest rather limited success in predicting relevant firm outcomes (such as financial-statement restatements, governance incidents, class action lawsuits, operating performance, firm value, stock returns, and credit ratings), but in the case of most raters, I identify multiple instances of counterintuitive results, that is, with the opposite direction of the effect. |
| Keywords: | Corporate governance; ESG ratings; Governance quality |
| JEL: | G24 G32 G34 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20031 |
| By: | D'Andrea, Angelo; Fabiani, Andrea; Piersanti, Fabio Massimo; Segura, Anatoli |
| Abstract: | We show that inflation affects stock returns through a long-term leverage channel. Using a high-frequency identification strategy, we analyze stock returns in response to inflation surprises for non-financial firms in the U.S. and the Euro Area from 2020 to 2022. We rely both on survey-based and market-based measures of inflation surprises. We find that firms with higher leverage experience larger stock returns following positive inflation surprises, and this is driven by long-term debt. The effect is stronger in countries with inefficient corporate debt resolution. Our findings align with a Fisherian mechanism, where inflation reduces the real value of long-term debt. |
| Keywords: | Inflation; Leverage; Bankruptcy; High-frequency cash flow news |
| JEL: | E31 E50 G12 G30 G32 G33 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19966 |
| By: | Colla, Paolo; Nagler, Florian |
| Abstract: | We empirically study the corporate propensity to save from bonds versus loans. Our findings indicate that firms save approximately 14 cents of every dollar borrowed through bonds, while they do not exhibit similar savings behavior with loans. Saving from bonds is pervasive over time, and in the cross-section pledgeability is a key driver of this behavior. Specifically, we find that lower asset tangibility and shorter asset maturities are linked to substantial increases in saving rates from bond borrowings. We show that our results align with a model that incorporates external financing frictions and costly default. |
| JEL: | G32 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20118 |
| By: | José-Víctor Ríos-Rull; Josef Schroth; Tamon Takamura; Yaz Terajima |
| Abstract: | The empirical literature emphasizes the importance of protecting shareholder rights by encouraging managers to deliver a high present value of payouts. We show that this alignment is dynamically self-defeating: whenever access to outside equity is possible, even if costly, and commitment is limited, compensation tied to total payouts inadvertently generates endogenous managerial short-termism through time inconsistency. Paradoxically, a manager who cannot commit to restrain future equity issuance raises substantial outside funding yet invests too little today. When managers cannot commit ex ante, they rationally discount the marginal benefit of investment at a rate below the subjective discount factor, even though managers and shareholders share the same information and discount factor. The resulting wedge raises the manager’s perceived cost of capital and reduces long-run investment. Rewarding the manager for per-share rather than total payouts removes the incentive to dilute incumbent shareholders and restores efficient issuance and investment. Among implementable contracts it maximizes the value accruing to incumbent shareholders and converges to the first-best steady state, so per-share indexing dominates absolute-payout pay for the firm’s existing shareholders. |
| Keywords: | Financial markets and funds management; Market functioning; Models and tools; Economic models |
| JEL: | G G3 G32 G34 J J3 J33 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:26-25 |
| By: | Jan Janku; Tomas Karhanek; Simona Malovana; Ivan Trubelik |
| Abstract: | This paper examines whether chronic physical climate risk affects corporate credit allocation. We focus on drought, one of the most salient climate-related risks for the Czech economy, and combine granular AnaCredit data with district-level measures of drought-related agricultural losses. Using almost 6 million bank-firm-month observations for nearly 140, 000 firms between 2019 and 2023, we show that long-term drought exposure is associated with a significant contraction in new corporate lending. The effect is concentrated at the origination margin: newly originated credit declines by about 12 percent in drought-affected regions, while outstanding credit volumes adjust more gradually. The impact varies across bank-firm relationships, credit-exposure characteristics, and sectors, consistent with banks incorporating chronic physical climate risk primarily into new lending decisions rather than immediately reducing existing exposures. |
| Keywords: | Bank lending, Climate risk, Corporate credit, Drought, Loan origination, AnaCredit |
| JEL: | E51 G21 G32 Q54 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:cnb:wpaper:2026/11 |
| By: | Andriy Tsapin (National Bank of Ukraine; National University of Ostroh Academy) |
| Abstract: | This paper examines the role of corporate governance and prudential supervision in mitigating the detrimental effects of the initial russian military invasion on the financial health of Ukrainian banks. We find that shock exposure depends on the scale of banking activity and pre-war credit risk assessments in the affected regions. This research provides evidence that enhanced governance and prudential supervision contributed positively to restoring bank financial positions following the initial attacks. Our findings demonstrate that central bank supervision yields a health-restoring effect primarily for war-sensitive banks, provided that these banks comply with regulatory requirements. Conversely, independent supervisory boards contribute more significantly to the recovery of unaffected banks. These results are robust and offer practical policy implications for both bankers and regulators. |
| Keywords: | banks, war, financial health, supervisory board, prudential supervision |
| JEL: | G21 G28 G32 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:ukb:wpaper:01/2026 |
| By: | Casado, Alejandro; Martinez-Miera, David |
| Abstract: | We document the geographical and sectoral specialization of banks' lending activities using comprehensive data on the universe of loans to corporate borrowers in Spain. Our analysis highlights how specific sources of specialization are more relevant for evaluating different types of borrowers. Specifically, loans to micro and small firms exhibit reduced probabilities of non-performance in geographical markets where banks specialize, whereas loans to medium and large firms experience lower non-performance in sectors in which banks specialize. Crucially, we provide the first evidence of a direct link between bank specialization and enhanced banks' private information by leveraging confidential data on banks’ private risk assessments reported to regulators. We corroborate our findings by analyzing the relevance of relationship lending, a well-established proxy for firm-specific private information. |
| JEL: | D82 E58 G21 G32 L10 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20033 |
| By: | Keusch, Thomas; Timmermans, Oscar |
| Abstract: | We examine whether financial performance metrics in CEO compensation contracts provide incentives for environmental performance improvement, and the conditions under which such incentives arise. Using toxic pollution as our primary outcome, we find that relative financial performance evaluation (RPE) is negatively associated with future pollution in firms whose environmental impacts are subject to greater scrutiny, whereas other financial incentives, such as equity portfolio delta and new equity grants, show no such association. This pattern is consistent with theories of corporate social responsibility and, as supported by complementary tests, with the idea that stronger environmental performance can improve a firm’s relative financial position by attracting customers, employees, and shareholders from less responsible peers. We further show that the RPE-pollution relation varies predictably with various RPE plan characteristics and stakeholder switching costs, persists when we instrument for the use of RPE, and operates in part through increased environmental innovation. |
| Keywords: | CEO compensation;relative performance evaluation;corporate social responsibility;sustainability;ESG;stakeholder monitoring |
| JEL: | G34 M41 M52 Q52 Q56 |
| Date: | 2026–12–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:139003 |