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on Corporate Finance |
| By: | Peter Eppinger; Marcel Smolka |
| Abstract: | The exceptional export performance of foreign-owned firms is a well-established stylized fact, but the underlying mechanism is not yet fully understood. In this paper, we provide theory and empirical evidence demonstrating that this fact can be explained by ownership differences in access to finance. We develop a theoretical model of international trade featuring firm heterogeneity and credit market frictions in which foreign-owned firms can access foreign capital markets via their multinational parents. The model predicts a financial advantage of foreign ownership for exporting that gains importance as credit conditions deteriorate. To empirically identify this effect, we estimate a triple differences model using rich micro data from Spain that exploits the global financial crisis as an exogenous shock to credit supply. We find that foreign ownership significantly stabilized firm exports when liquidity dried out in the crisis, in particular among small and financially vulnerable firms. |
| Keywords: | firm exports, foreign ownership, multinational firms, financial frictions, financial crisis |
| JEL: | F10 F14 F23 G01 G32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8808&r=all |
| By: | Nicola Comincioli; Paolo Panteghini; Sergio Vergalli |
| Abstract: | In this article we introduce a stochastic model with a multinational company (MNC) that exploits tax avoidance practices. We focus on both transfer pricing (TP) and debt shifting (DS) activities and show how their optimal level is chosen by the shareholders. In addition, we perform an extensive numerical simulation, fine-tuned on empirical data, to measure the impact of tax avoidance practices on the MNC’s value and to study their sensitivity to exogenous variables. We will show that: an increase in risk sharply reduces leverage and slightly decreases a MNC’s value; the cost of TP leads to a sharp reduction in the MNC’s value, whereas it does not affect leverage; the impact on MNC’s decisions is increasing in the tax rate differential; finally, the cost of DS has always a relevant impact on both MNC’s value and leverage. |
| Keywords: | capital structure, default risk, business taxation and welfare |
| JEL: | H25 G33 G38 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8807&r=all |
| By: | Larry D. Wall |
| Abstract: | The Atlanta Fed recently helped organize a conference titled "Financial Stability and the Coronavirus Pandemic." The conference had three sessions devoted to problems focusing on various aspects of how the markets for corporate credits responded to the COVID-19 shock including corporate bond investment funds, the corporate bond market, and the corporate loan market. This article summarizes some of the important findings of the papers presented at the conference. |
| Keywords: | corporate bond mutual funds; corporate bond market; COVID-19 shock; Federal Reserve facilities; collateralized debt obligations; syndicated loans; lines of credit |
| JEL: | G01 G12 G18 G21 G23 |
| Date: | 2020–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:a00001:89437&r=all |
| By: | Iftekhar Hasan (Fordham University); Marco Navone (University of Technology Sydney); Thomas To (University of Sydney); Eliza Wu (University of Sydney) |
| Abstract: | This paper examines the impact of promotion-based tournament incentives on corporate acquisition performance. Measuring tournament incentives as the compensation ratio between the CEO and other senior executives, we show that acquirers with greater tournament incentives experience lower announcement returns. Further analysis shows that the negative effect is driven by the risk-seeking behavior of senior executives induced by tournament incentives. Our results are robust to alternative identification strategies. Our evidence highlights that senior executives, in addition to the CEO, play an influential role in acquisition decisions. |
| JEL: | G30 G34 G41 J31 J33 J62 |
| Date: | 2020–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:uts:ppaper:2020-3&r=all |
| By: | Lilas Demmou; Sara Calligaris; Guido Franco; Dennis Dlugosch; Müge Adalet McGowan; Sahra Sakha |
| Abstract: | This paper investigates the likelihood of corporate insolvency and the potential implications of debt overhang of non-financial corporations induced by economic shock associated with the outbreak of COVID-19. Based on simple accounting models, it evaluates the extent to which firms deplete their equity buffers and increase their leverage ratios in the course of the COVID-19 crisis. Next, relying on regression analysis and looking at the historical relationship between firms’ leverage and investment, it examines the potential impact of higher debt levels on investment during the recovery. Against this background, the discussion outlines a number of policy options to flatten the curve of crisis-related insolvencies, which could potentially affect otherwise viable firms, and to lessen the risk of debt-overhang, which could slow down the speed of recovery. |
| Keywords: | COVID-19, debt, equity, insolvency, investment |
| JEL: | D22 D24 G33 G34 |
| Date: | 2021–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1651-en&r=all |
| By: | Iwasaki, Ichiro; Kočenda, Evžen; Shida, Yoshisada |
| Abstract: | In this paper, we traced the survival status of 94,401 small businesses in 17 European emerging markets from 2007–2017 and empirically examined the determinants of their survival, focusing on institutional quality and financial development. We found that institutional quality and the level of financial development impact the survival probability of the researched SMEs in statistically significant and economically meaningful ways. The evidence holds even when we control for a set of firm-level characteristics such as ownership structure, financial performance, firm size, and age. The findings are also uniform across industries and country groups and robust beyond the difference in assumption of hazard distribution, firm size, region, and time period. |
| Keywords: | small business, institutions, financial development, survival analysis, European emerging markets |
| JEL: | C14 D02 D22 G33 M21 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2020-10&r=all |
| By: | Sirio Aramonte; Matthew Carl |
| Abstract: | Following periods of intense technological innovation, R&D is a critical driver of technology diffusion, but it is subject to frictions that can lower it below the level firms would undertake otherwise. We study whether sentiment can counterbalance these frictions and thus strengthen the link between firm-level R&D and lagged aggregate innovation. We find a positive answer for low-tech firms, which represent the main conduit for technology diffusion. The effect is stronger in the presence of informational externalities, that is when the results of experimentation funded by a company are observable by competitors. In contrast to the literature on sentiment and capital expenditures, the effect is weaker for financially constrained firms. |
| Keywords: | investor sentiment, technological innovation, R&D |
| JEL: | G02 G31 O32 O33 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:916&r=all |
| By: | Hendriock, Mario |
| Abstract: | This study provides evidence for a positive association between mutual fund holdings'implied cost of capital (ICC) and future performance. Consistent with large transactioncosts of ICC-based investments impeding their exploitation and employing a ICC-basedstrategy reflecting skill, family-level trading efficiency and manager-level SAT scorepositively correlate with fund-level ICC. A negative association between ICC and mid-year risk shifting corroborates the notion of fund managers decisively choosing andrelying on high-ICC strategies. Institutional investors able to identify funds with highICC direct their investments accordingly, whereas flows of retail funds are unaffected,consistent with limited investor attention and financial literacy. |
| Keywords: | implied cost of capital,mutual funds,portfolio choice,financial forecasting |
| JEL: | G11 G14 G17 G23 G31 M41 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:2011&r=all |
| By: | K. Peren Arin; Kevin Devereux; Mieszko Mazur |
| Abstract: | We investigate the firm level investment responses to narrative shocks to average personal and corporate tax rates using a universal micro dataset of publicly traded U.S firms for the post- 1962 period. By allowing for heterogeneous effects over the business cycle and accompanying monetary policy regime, as well as over firm-level characteristics, we show that : (i) corporate tax multipliers are negative overall, but this result is driven by smaller firms who face larger borrowing constraints, especially during high-unemployment periods or when the accompanying monetary policy is contractionary; (ii) while the magnitude and the significance of personal income tax multipliers are smaller on the aggregate, there is some evidence of positive personal tax multipliers in high-unemployment state by large (dividend-paying) firms, which is consistent with the recent literature. |
| Keywords: | Investment; Taxation; Fiscal policy; Fiscal multiplier |
| JEL: | C33 C53 E62 G32 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:202102&r=all |
| By: | Nicola Comincioli (University of Brescia and Fondazione Eni Enrico Mattei); Paolo M. Panteghini (University of Brescia and CESifo); Sergio Vergalli (University of Brescia and Fondazione Eni Enrico Mattei) |
| Abstract: | In this article we introduce model to describe the behavior of a multinational company (MNC) that operates transfer pricing and debt shifting, with the purpose of incrementing its value, intended as the sum of equity and debt. We compute, in a stochastic environment and under default risk, the optimal shares of profit and debt to be shifted and show how they are a ected by exogenous features of the market. In addition, by means of a numerical analysis, we simulate and quantify the benefit arising from the exploitation of tax avoidance practices and study the corresponding impact on MNC's fundamental indicators. A wide sensitivity analysis on model's parameters is also provided. |
| Keywords: | Capital Structure, Default Risk, Business Taxation and Welfare |
| JEL: | H25 G33 G38 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2020.16&r=all |
| By: | Surender Kumar (Centre for Development Economics, Delhi School of Economics); Pritika Dua (Department of Business Economics,University of Delhi,South Campus) |
| Abstract: | Large enterprises have been at forefront of environmental management with active participation in industry wide programs and adoption of ‘beyond compliance’ approach with more resources at their disposal. The present study revisits the premise of environmental-financial linkage in the Indian context with focus on large listed enterprises. We develop a comprehensive dataset of 459 large listed Indian companies covering major manufacturing and service sectors of the economy over a eleven year period from 2008-09 to 2018-19. Static and dynamic regression models are used to gauge the impact of environmental management practices adoption on firm profitability (Return on Assets and Return on Equity) and market valuation (Tobin Q, Market to Book Value Ratio and Excess Valuation to sales ratio). Empirical results suggest a positive impact of environmental management on firm profitability and market valuation in context of large listed enterprises. These results are of interest to corporate and policy makers for recognizing the financial implications of corporate environmental management. Key Words: Environmental Management Practices, Dynamic panel data models, Firm Valuation, Firm Profitability, Large Enterprises, India |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:314&r=all |
| By: | Pierre Durand; Gaëtan Le Quang |
| Abstract: | Prudential regulation is supposed to strengthen financial stability and banks' resilience to new economic shocks. We tackle this issue by evaluating the impact of leverage, capital, and liquidity ratios on banks default probability. To this aim, we use logistic regression, random forest classification, and artificial neural networks applied on the United-States and European samples over the 2000-2018 period. Our results are based on 4707 banks in the US and 3529 banks in Europe, among which 454 and 205 defaults respectively. We show that, in the US sample, capital and equity ratios have strong negative impact on default probability. Liquidity ratio has a positive effect which can be justified by the low returns associated with liquid assets. Overall, our investigation suggests that fewer prudential rules and higher leverage ratio should reinforce the banking system's resilience. Because of the lack of official failed banks list in Europe, our findings on this sample are more delicate to interpret. |
| Keywords: | Banking regulation ; Capital requirements ; Basel III ; Logistic ; Statistical learning classification ; Bankruptcy prediction models. |
| JEL: | C44 G21 G28 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2021-2&r=all |