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on Corporate Finance |
| By: | Adriano A. Rampini; S. Viswanathan |
| 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. |
| JEL: | D25 E22 G32 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33875 |
| By: | Danilo Stojanovic; Veljko Bojovic |
| Abstract: | This paper examines how profit volatility has influenced firms’ decisions over the past four decades. Using Compustat data, we document that: (1) high-investing firms cut their investment rate more sharply than other firms, implying that extensive margin investment decisions - whether to invest in new projects or not - are important for the uncertainty effects; (2) the interaction between firms’ financial and real conditions amplifies the negative impact of increased uncertainty on the investment rates. We also develop and calibrate a heterogeneous-firm model that incorporates both real and financial costs. In the model, higher capital adjustment costs increase the investment inaction rate by 31%, while higher financial costs reduce the investment spike rate by 46%. Incorporating irreversible capital into the collateral constraint reduces firms’ debt capacity, leading to an increase in the investment inaction rate, cash holdings, and net dividends. |
| Keywords: | Capital Investment, Adjustment Costs, Extensive Margin |
| JEL: | C31 E22 G31 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:cer:papers:wp793 |
| By: | Benjamin Bennett; René M. Stulz; Zexi Wang |
| Abstract: | We study the consequences of weakening shareholder primacy using Nevada Senate Bill 203 as a quasi-natural experiment. A difference-in-differences analysis shows that, instead of improving their governance in response to the Bill to reassure capital providers, affected firms experience a governance deterioration. As a result, the law’s adoption causes a drop in the valuation of firms incorporated in Nevada. These firms decrease the performance sensitivity of CEO pay, make more but worse acquisitions, and reduce the efficiency of their capital expenditures and R&D. Reducing shareholder primacy does not improve how stakeholders are treated, as ESG performance worsens. |
| JEL: | D22 G32 G34 K22 M14 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33828 |
| By: | Roman Kräussl; Joshua Rauh; Denitsa Stefanova |
| Abstract: | We study the effects of market ESG perceptions, as proxied by ESG ratings, on public firms’ security issuance and asset accumulation decisions. Higher ESG scores are followed by capital structure adjustments, specifically increases in equity issuance and decreases in net debt issuance of similar magnitude. These are driven completely by the “E” component of ESG. There are no effects of ESG assessments on capital expenditures or non-cash asset accumulation, supporting the hypothesis that ESG perceptions are a sideshow for capital investment. To address the endogeneity of firms' decisions to raise equity, we consider industry-wide rating changes and decompose the ESG ratings into an industry- and a firm-specific component. The response to the industry component of equity and debt issuance is highly significant, indicating that our findings are not explained by firms' decisions. As many ratings products use restated or backfilled ratings, our results focus on a point-in-time (PIT) ratings panel that we develop. We document that if using a standard ratings product instead of PIT data, researchers might falsely infer that higher ESG ratings lead to asset accumulation, due in particular to the use of restated ESG scores in standard ratings data products. |
| JEL: | G15 G31 G32 G34 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33770 |
| By: | Laurent Clerc; Sandrine Lecarpentier; Cyril Pouvelle |
| Abstract: | This paper examines the impact of multiple regulatory constraints on the financing of the economy in the context of the implementation of the Basel III regulation on capital and liquidity. We propose a simple theoretical model of bank lending decision to analyse the interactions between these various regulatory requirements and the conditions under which some constraints may bind while others may not. Building on the predictions of this theoretical model, we estimate the impact of these different regulatory requirements on lending growth, on a panel of 54 French banks since 2014. Our results indicate that four pairwise interactions, most of them involving the leverage ratio, have a significant effect on lending growth. We also emphasize that the regulatory ratios interact more for banks with lower regulatory ratios and in periods of financial stress. More specifically, our results highlight a significant relationship of partial substitutability between the leverage ratio, the LCR and the NSFR for such banks in such periods, resulting from the positive effect of bank own funds on liquidity. |
| Keywords: | Bank Capital Regulation, Bank Liquidity Regulation, Basel III, Stress Tests |
| JEL: | G28 G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:988 |
| By: | Othman Gaga (Faculty of Economics and Management of Settat Hassan First University of Settat); Karam Said (Faculty of Economics and Management of Settat Hassan First University of Settat); Nasredine Fathelkhir (Faculty of Economics and Management of Settat Hassan First University of Settat) |
| Abstract: | This article investigates the role of financial reporting quality as a mechanism for strengthening corporate governance in emerging markets. While most governance studies emphasize internal structures—particularly the board of directors—this research highlights the external disciplinary function of accounting conservatism as shaped by the firm's institutional environment. Drawing on the methodology developed by Khan & Watts (2009), we construct two firm-year-level scores that capture opposing reporting strategies: timely loss recognition (C_SCORE) and aggressive accounting (G_SCORE). Using a sample of 38 non-financial firms listed on the Casablanca Stock Exchange over the 2011–2021 period, the study explores how structural characteristics— grouped under the Investment Opportunity Set (IOS)—influence firms' accounting behaviors. Empirical estimations are conducted using Fama-MacBeth regressions, Pooled OLS, and FGLS methods to ensure robustness. The findings reveal that two IOS variables—the market-to-book ratio and financial leverage—are significantly associated with conservative reporting practices. Firms with high growth opportunities and elevated debt levels tend to adopt more prudent accounting strategies, characterized by faster loss recognition and limited anticipation of gains. In contrast, firm size does not appear to be a relevant determinant in the Moroccan context. Additionally, the analysis shows a marked improvement in financial reporting quality after 2017, coinciding with regulatory reforms, including the establishment of the Moroccan Capital Market Authority (AMMC) and the adoption of Circular No. 03/19. The study contributes to the literature by emphasizing financial reporting quality as a governance mechanism shaped by institutional forces. It also demonstrates the relevance of the Khan & Watts model in an emerging market context and underlines the active role regulators can play in enhancing accounting discipline. Finally, the paper opens new avenues for cross-country comparisons and extensions into non-financial reporting domains. |
| Keywords: | Corporate governance, Financial reporting quality, Accounting conservatism, Timely loss recognition, Institutional environment |
| Date: | 2025–05–24 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05083845 |
| By: | Bruhn, Miriam; Hernandez Mansilla, Johan Rolando; Ortega, Claudia Ruiz |
| Abstract: | This paper conducts a meta-analysis of 24 studies evaluating the impact of formal loans on small and medium-sized enterprise performance. Using a Bayesian hierarchical model, the paper estimates that formal loans increase small and medium-sized enterprise employment by 12 percent, sales by 18.3 percent, and profits by 17.6 percent. Subgroup analyses show that the effects of credit on employment are larger when loans are issued by public rather than private banks, and the effects are broadly similar across firm size, country income levels, and guarantee structures. The larger impact of public bank loans suggests that private lenders’ profit-maximizing incentives may not always align with providing funds to the most credit-constrained firms that have the highest returns to capital. |
| Date: | 2025–06–05 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11140 |
| By: | Cui, Jun |
| Abstract: | This study examines how competition in the banking sector affects the financial capabilities of non-financial enterprises in China, with a particular focus on the moderating role of shadow banking's financial innovation. Using panel data from 7, 250 firm-year observations of Chinese private banks collected from CNRDS, Wind, and CSMAR databases from 2017 to 2022, we apply a fixed-effects model to investigate this relationship. Our findings indicate that increased banking competition significantly enhances non-financial enterprises' financial capabilities, particularly in terms of financing flexibility and capital allocation efficiency. Moreover, shadow banking's financial innovation positively moderates this relationship, strengthening the positive effect of banking competition on firms' financial capabilities. The results are robust across various alternative specifications and endogeneity tests. This study contributes to the literature on financial market competition, corporate finance, and the evolving role of shadow banking in China's financial ecosystem, providing important implications for policymakers and corporate financial management. |
| Date: | 2025–05–19 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:7jtwc_v1 |
| By: | Cui, Jun |
| Abstract: | This study examines how common institutional ownership influences the financialization of non-financial enterprises in China, with a specific focus on the moderating role of digital financial risk. Using a comprehensive dataset of 6, 250 firm-year observations from Chinese private banks between 2013 and 2023, we apply a fixed-effects panel regression model to analyze this relationship. Our findings reveal that common institutional ownership significantly enhances the financialization level of non-financial enterprises, particularly when digital financial risk is moderate. However, this positive relationship weakens when digital financial risk reaches high levels. Thus, these results contribute to the institutional ownership literature by highlighting the complex interplay between ownership structures, financialization strategies, and the emerging digital financial environment in China's banking sector. Our study provides important implications for corporate governance frameworks and regulatory policies in emerging financial markets. |
| Date: | 2025–05–19 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:6ydzp_v1 |
| By: | Rouvinen, Petri; Kässi, Otto; Pajarinen, Mika |
| Abstract: | Abstract Finland’s future prosperity hinges on intangible assets such as software, data, brands, and organizational capital. While research and development (R&D) is a central intangible asset, other types collectively hold greater significance. The growth trajectory of Finland’s intangible investments stalled with the 2008–2009 financial crisis and resumed only after the COVID-19 pandemic. This “lost decade” partly explains Finland’s sluggish economic and productivity performance. Innovation policy should broaden its focus beyond R&D to encompass other forms of intangible investment, as well as the adoption and diffusion of innovations. Policy should prioritize quality over quantity, encourage bold experimentation, and support scaling. This necessitates a shift towards equity financing and fostering skilled labor mobility. Mergers and acquisitions are vital for leveraging and disseminating intangible capital, but anti-competitive “killer acquisitions” are not in the national interest. |
| Keywords: | Intangible capital, Investments, Productivity, Innovation policy, Economic growth, Spillovers |
| JEL: | D24 E22 G32 O34 |
| Date: | 2025–06–05 |
| URL: | https://d.repec.org/n?u=RePEc:rif:report:164 |
| By: | Lin Li (Audencia Business School) |
| Abstract: | Using an intangible intensity factor that is orthogonal to the Fama–French factors, we compare the role of intangible investment in predicting stock returns over the periods 1963–1992 and 1993–2022. For 1963–1992, intangible investment is weak in predicting stock returns, but for 1993–2022, the predictive power of intangible investment becomes very strong. Intangible investment has a significant impact not only on the MTB ratio (Fama–French high minus low [HML] factor) but also on operating profitability (OP) (Fama–French robust minus weak [RMW] factor) when forecasting stock returns from 1993 to 2022. For intangible asset‐intensive firms, intangible investment is the main predictor of stock returns, rather than MTB ratio and profitability. Our evidence suggests that intangible investment has become an important factor in explaining stock returns over time, independent of other factors such as profitability and MTB ratio. |
| Keywords: | Market-to-book ratio intangible investment profitability stock returns factor analysis, Market-to-book ratio, intangible investment, profitability, stock returns, factor analysis |
| Date: | 2025–05–19 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05074264 |
| By: | Lins, Karl V.; Roth, Lukas; Servaes, Henri; Tamayo, Ane |
| Keywords: | ESG; women in leadership; investor preferences; #MeToo; gender equality; sexism; corporate culture; institutional ownership; valuation |
| JEL: | J50 L81 |
| Date: | 2025–05–26 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128200 |
| By: | Sang Hu; Zihan Zhou |
| Abstract: | This paper studies the dividend and capital injection problem under a diffusion risk model with general discount functions. A proportional cost is imposed when injecting capitals. For exponential discounting as time-consistent benchmark, we obtain the closed-form solutions and show that the optimal strategies are of threshold type. Under general discount function which leads to time-inconsistency, we adopt the definition of weak equilibrium and obtain the extended HJB equation system. An explicit solution is derived under pseudo-exponential discounting where three cases of the dividend and capital injection thresholds are obtained. Numerical examples show that large capital injection cost may lead to no capital injection at all, while larger difference in group discount rate leads to higher equilibrium value function. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.23511 |
| By: | Frédéric Vinas |
| Abstract: | I study the impact of oil price shocks to non-financial firms over two decades using a highly granular firm-level dataset. I show the impact of these price shocks to key financial and operational metrics, including value added, employment, real wages, labor share, profit margins, dividend payments, productivity, and credit risk. I highlight the asymmetric effects of oil price increases and decreases. A one standard deviation increase in the weighted oil price shocks leads to a €396 decrease in per capita productivity (in 2024 euros), and a 0.30 percentage point increase in the probability of default, while there is no significant effect in the case of oil price decreases, leading to persistent effects of oil price increases in the medium term. I also show heterogeneous effects of oil price increases across firm size and energy intensity. This paper has implications for policymakers, especially those concerned with financial stability (bank stress-testing, climate stress-testing, macro-financial modeling), and competitiveness, and more generally for those studying climate transition risks. |
| Keywords: | Oil Shock, Oil Price, Raw Materials, Value Added, Wage Bill, Labor Share, Profit Margin, Default, Productivity, Climate Risk, Transition Risk, Physical Risk, Credit Risk |
| JEL: | D33 E32 G3 G33 G35 Q41 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:989 |
| By: | Ioannis Branikas; Briana Chang; Harrison Hong; Nan Li |
| Abstract: | Most S&P 500 corporations disclose that their profits depend on non-wage competition for worker talent via workplace amenities like work-life balance. We quantify this dependence using a labor market matching model with endogenous amenities. When productive (unproductive) firms provide the amenities demanded by workers at a lower cost, firm quality becomes more (less) dispersed relative to worker quality, which results in higher (lower) firm profits due to competition. This cost advantage is identified with data on wages, worker satisfaction, and firm scale. Calibrating our model to Glassdoor surveys, a 1% increase in workers’ non-pecuniary preferences raises firm profits by 0.6%. |
| JEL: | G0 G3 G39 J3 J31 J33 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33870 |
| By: | Zihan Zhang; Jan Hannig |
| Abstract: | Gender pay equity remains an open challenge in academia despite decades of movements. Prior studies, however, have relied largely on descriptive regressions, leaving causal analysis underexplored. This study examines gender-based wage disparities among tenure-track faculty in the University of North Carolina system using both parametric and non-parametric causal inference methods. In particular, we employed propensity score matching and causal forests to estimate the causal effect of gender on academic salary while controlling for university type, discipline, titles, working years, and scholarly productivity metrics. The results indicate that on average female professors earn approximately 6% less than their male colleagues with similar qualifications and positions. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.24078 |