|
on Corporate Finance |
| By: | Broner, Fernando; Cortina, Juan J.; Schmukler, Sergio L.; Williams, Tomas |
| Abstract: | This paper examines how shifts in investor demand influence firm financing and investment decisions. For identification, the paper exploits a large-scale MSCI methodological reform that mechanically redefined the stock weights in major international equity benchmark indexes, changing the portfolio allocation of 2, 508 firms across 49 countries. Because benchmark-tracking investors closely follow these indexes, the rebalancing constituted a clean shock to equity demand. The results show that portfolio rebalancing by benchmark-tracking investors generated significant capital inflows and outflows at the firm level. Firms experiencing larger inflows increased equity issuance, even more so debt financing, and real investment. The paper complements the empirical analysis with a simple model of firm financing in which a decline in the cost of equity increases the value of equity and relaxes borrowing constraints. Higher equity valuations allow firms to expand borrowing even without issuing substantial new equity, so debt financing responds more strongly than equity issuance. |
| Keywords: | investment |
| JEL: | F33 G00 G01 G15 G21 G23 G31 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21311 |
| By: | Murillo Campello; Guilherme Junqueira |
| Abstract: | Do tax subsidies prompt investors to take on risk? We address this question by looking at investors' responses to changes to the Qualified Small Business Stock (QSBS) program, which reduces capital gains taxes on startup investing. We do so under a framework in which some startup investors — venture capitalists (VCs) — combine outside funding with incentive-based compensation, while others invest their own funds. Using bunching, triple-differences, and matching designs that exploit industry eligibility, investment vintage, and holding-period requirements, we analyze data from 158 thousand investor–firm pairings over two decades. We identify strategic investment timing, with subsidies prompting bunching at tax-eligible holding-period thresholds. Most notably, when and where tax subsidies apply, VCs shift their project selection toward riskier ventures: they invest more in pre-commercial stage startups, become more likely to provide startups with their initial capital, and invest more in startups with pre-existing debt, while becoming less likely to co-syndicate their investments. Tax-subsidized VC-backed ventures show higher failure rates, but on the flip side, attain higher valuations at exit and are more likely to reach "unicorn status." None of these patterns are observed for comparable non-VC investors in startups exposed to the same tax subsidies. Our tests further show that tax incentives lead to reallocation toward more innovative industries, yielding more impactful patents. Our study is the first to show that tax policy can shift entrepreneurial financing toward riskier, more innovative, and valuable startups. |
| Keywords: | tax policy, venture capital, risk-taking, entrepreneurial financing, innovation |
| JEL: | G24 G23 H25 O31 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12776 |
| By: | Murillo Campello; Guilherme Junqueira |
| Abstract: | Do tax subsidies prompt investors to take on risk? We address this question by looking at investors' responses to changes to the Qualified Small Business Stock (QSBS) program, which reduces capital gains taxes on startup investing. We do so under a framework in which some startup investors — venture capitalists (VCs) — combine outside funding with incentive-based compensation, while others invest their own funds. Using bunching, triple-differences, and matching designs that exploit industry eligibility, investment vintage, and holding-period requirements, we analyze data from 158 thousand investor–firm pairings over two decades. We identify strategic investment timing, with subsidies prompting bunching at tax-eligible holding-period thresholds. Most notably, when and where tax subsidies apply, VCs shift their project selection toward riskier ventures: they invest more in pre-commercial stage startups, become more likely to provide startups with their initial capital, and invest more in startups with pre-existing debt, while becoming less likely to co-syndicate their investments. Tax-subsidized VC-backed ventures show higher failure rates, but on the flip side, attain higher valuations at exit and are more likely to reach "unicorn status." None of these patterns are observed for comparable non-VC investors in startups exposed to the same tax subsidies. Our tests further show that tax incentives lead to reallocation toward more innovative industries, yielding more impactful patents. Our study is the first to show that tax policy can shift entrepreneurial financing toward riskier, more innovative, and valuable startups. |
| JEL: | G23 G24 H25 O31 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35418 |
| By: | Xu, Mofu |
| Abstract: | This study investigates the association between firm-level climate risk exposure and corporate cash holdings, drawing on transcript-based climate measures constructed from earnings conference calls. These measures track the relative frequency of climate-related bigrams in quarterly transcripts, providing a forward-looking and firm-specific view of climate exposure that distinguishes between overall, regulatory, and physical dimensions. We further exploit the release of the Stern Review in 2006 as a common shock to climate awareness, using it as a conceptual test of whether greater climate salience amplifies the link between firm-level exposure and precautionary liquidity accumulation. Our findings show that firms with higher climate risk exposure maintain significantly larger cash reserves, consistent with a precautionary savings motive. Financially constrained firms exhibit a stronger response than their unconstrained counterparts, reflecting the interaction between climate uncertainty and financing frictions. The results also demonstrate how text-based alternative data derived from managerial disclosures can uncover firm-level climate exposure that aggregate proxies may fail to capture, with direct implications for research in emerging markets where conventional climate data are often limited. |
| Keywords: | climate risk; cash holdings; alternative data; earnings calls; financial constraints; emerging markets |
| JEL: | G31 G32 |
| Date: | 2026–06–17 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:138697 |
| By: | González, Xulia; Lach, Saul; Miles, Daniel; Pazó Martínez, María Consuelo |
| Abstract: | This paper examines how managerial type shapes firms’ investment decisions, focusing on the distinction between owner (family)-managed firms and professionally-managed firms. We estimate a flexible investment policy function which depends on productivity, capital, labor and on other firm-level state variables, and is allowed to vary systematically with managerial type. Since firm-level productivity is not directly observed, we estimate it in a first step, addressing both the endogeneity of input choices and the lack of information on physical quantities. Our analysis draws on a rich panel of Spanish manufacturing firms from 1993 to 2016 that identifies whether firm owners, or their relatives, hold managerial positions. We find that, after controlling for state variables, family-managed firms invest more on average than professionally-managed firms. Managerial type also matters for how investment responds to changes in its determinants. In particular, family-managed firms exhibit stronger investment responses to changes in productivity and capital and display more procyclical investment behavior. |
| Keywords: | Family firms; Productivity |
| JEL: | L11 L60 D22 D24 D25 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21383 |