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on Corporate Finance |
| By: | Giorgio Meucci (Bank of Italy); Fabio Parlapiano (Bank of Italy) |
| Abstract: | This work analyses the main trends in bond financing by Italian non-financial firms and its role in relation to bank credit across different economic phases. The first part of the analysis refers to the 2008-2019 period, characterized by both crisis and recovery episodes, while the second part focuses on the specific effects of the recent pandemic crisis. The corporate bond market experienced substantial growth over the years, with an increasing number and more diverse types of issuers tapping the market. At the same time, not all crises episodes have had similar effects for bond financing. The 2008 and 2012 crises encouraged non-financial firms, especially the larger ones, to use bond instruments as an alternative to (rationed) bank credit, highlighting substitutability between market and bank-based financing channels. Instead, during the 2020 pandemic crisis, both bond issuances and bank credit expanded at unprecedentedly high rates, highlighting complementarities. |
| Keywords: | non-performing loans, firm distress, firm recovery |
| JEL: | G1 G3 G32 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_655_21&r= |
| By: | Christophe J. GODLEWSKI (LaRGE Research Center, Université de Strasbourg); Nhung Hong LE (International University – Vietnam National University & LaRGE Research Center, Université de Strasbourg) |
| Abstract: | We investigate the impact of family firms on the cost of borrowing in East Asia. We find consistent evidence that family firms pay significantly higher loan spreads than nonfamily firms. This effect is stronger in environments with weaker investor protection. Furthermore, covenants help reduce the cost of debt while collateral is embedded in relatively riskier borrowers. We also find that small, highly leveraged borrowers pay higher loan spreads, while they are lower for firms with more tangible assets and lower probability of default risk. Our results survive several robustness checks related to family firm classification and endogeneity issues. |
| Keywords: | Family firm, loan spread, East Asia. |
| JEL: | G21 G32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2021-06&r= |
| By: | Caroline PERRIN (LaRGE Research Center, Université de Strasbourg); Laurent WEILL (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | We examine the effect of CEO gender on the relation between economic policy uncertainty (EPU) and corporate investment. Using the newspaper-based EPU index developed by Baker, Bloom, and Davis (2016), we perform an empirical investigation on firm-level data of more than 38,000 firms from eight European countries for 2010-2019. We find evidence that higher EPU is associated with higher corporate investment. However, we show that this beneficial effect of economic policy uncertainty is lower when the firm CEO is a woman. We explain this finding by the higher risk aversion of women relative to men. Our main results are robust to a battery of sensitivity tests. Our work contributes to the debate on the impact of EPU on firm corporate decisions by bringing upfront the influence of CEO gender. |
| Keywords: | Economic policy uncertainty, firm investment, CEO gender. |
| JEL: | G30 G32 J16 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2021-04&r= |
| By: | Florian LEON (FERDI, Clermont-Ferrand); Laurent WEILL (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | We investigate whether the occurrence of elections affect access to credit for firms. We perform an investigation using firm-level data covering 44 developed and developing countries. We find that elections have a detrimental influence on access to credit: firms are more credit-constrained in election years but also in pre-election years. We explain this finding by the fact that elections exacerbate political uncertainty. The negative effect of elections takes place through lower credit demand, whereas the occurrence of elections does not affect credit supply. We further establish that the design of political and financial systems affects how elections influence access to credit. |
| Keywords: | Elections, access to credit, credit constraints. |
| JEL: | G21 D72 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2021-03&r= |
| By: | Guillaume Horny (Banque de France); Supriya Kapoor (Technological University Dublin) |
| Abstract: | We study how an easing in corporate bond funding conditions affect the asset structure of firms’ fixed assets. This paper employs ECB's Corporate Sector Purchase Program as a quasi-natural experiment that reduces bond yields for firms eligible to ECB purchases. We identify eligible firms using information on their bond ratings. Using consolidated balance sheet information on non-financial firms in France, we find that firms increase investment expenses but only to replace existing assets, whether tangible and intangible, instead of investing in new equipment to grow in scale. This replacement is however not homogeneous across asset classes, since intangible assets increase in importance relative to tangible ones. The shift towards intangible assets is stronger for firms with a BBB rating than for safer firms (AAA-A rating). This suggest that while BBB rated firms were to some extent constraint in their funding, they do not use the proceeding to reinforce the collateral value of their assets. These effects are robust to the inclusion of several fixed effects. We conclude that an easier access to market debt can have an effect on the mix of fixed assets used by firms to produce. This raises questions as to whether firms eligible to CSPP purchases increased their productivity since new equipment can be more efficient than the deprecated ones. |
| Keywords: | CSPP, bond issuances, monetary policy, credit risk, investment |
| JEL: | D24 E52 G01 G32 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep1121&r= |
| By: | Dirk Czarnitzki; Marek Giebel |
| Abstract: | We utilize a new survey experiment to evaluate the existence and degree of financial constraints for R&D in the economy. The experiment does not only allow to deduct the presence of financial constraints, but also to evaluate their economic significance. Using data on German companies, we find that financial constraints for R&D exist but that their relevance might have been overestimated in the literature. Most R&D projects that have not been implemented because of financial constraints turn out to have low expected marginal rates of return. While this findings stands in some contrast to other studies, we also find several results that are in line with the literature: young firms are most constrained and the constraints occur at the intensive margin, i.e. our results do not suggest that non-innovative companies are deterred from innovation. Instead, highly innovative companies are restricted by the capital market. |
| Keywords: | Innovation, Financial Constraints, Survey Experiment |
| Date: | 2021–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:ete:msiper:683800&r= |
| By: | Carlo Altavilla (European Central Bank, CSEF and CEPR.); Andrew Ellul (Indiana University, CSEF, CEPR and ECGI.); Marco Pagano (University of Naples Federico II, CSEF, EIEF, CEPR and ECGI.); Andrea Polo (Luiss University, EIEF, CEPR and ECGI.); Thomas Vlassopoulos (European Central Bank.) |
| Abstract: | We investigate whether government credit guarantee schemes, extensively used after the onset of the Covid-19 pandemic, led to substitution of non-guaranteed with guaranteed credit rather than fully adding to the supply of lending. We study this issue using a unique euro-area credit register data, matched with supervisory bank data and establish two main findings. First, guaranteed loans were mostly extended to small but comparatively creditworthy firms in sectors severely affected by the pandemic, borrowing from large, liquid and well-capitalized banks. Second, guaranteed loans partially substitute pre-existing non-guaranteed debt. For firms borrowing from multiple banks, the substitution arises from the lending behavior of the bank extending guaranteed loans, whose drop in non-guaranteed lending is about 9 times larger than for other banks that lend to the same firm. Substitution was highest for funding granted to riskier and smaller firms in sectors more affected by the pandemic, and borrowing from larger and stronger banks. Overall, the evidence indicates that government guarantees contributed to the continued extension of credit to relatively creditworthy firms hit by the pandemic, but also benefited banks’ balance sheets to some extent. |
| Date: | 2021–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:629&r= |
| By: | Jean-Christophe STATNIK (Université de Lille, Yncréa Lille); Thi-Le Giang VU (Université de Lille); Laurent WEILL (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | There is evidence of a gender gap in access to finance. In this paper, we test the hypothesis that corruption discourages more female than male entrepreneurs from applying for credit. We use data on access to credit and corruption at the firm level for a large dataset of firms from 68 countries worldwide. We demonstrate that female entrepreneurs are more discouraged by corruption to ask for credit than male borrowers. We find evidence for two explanations for the gendered impact of corruption on borrower discouragement: women have less experience in management than men and as such can have less experience to deal with corruption, and gender inequality in society enhances the discouragement of female borrowers. Thus, our findings provide evidence that corruption enhances the gender gap in access to finance, enhancing gender inequality in participation in economic activity. |
| Keywords: | gender, access to credit, borrower discouragement, corruption. |
| JEL: | D73 G21 J16 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2021-05&r= |
| By: | Marco Pelosi (Bank of Italy); Giacomo Rodano (Bank of Italy); Enrico Sette (Bank of Italy) |
| Abstract: | In this paper, we analyse the incidence of zombie firms, how they have been affected by the pandemic, and their take-up of economic support measures. While balance sheet data for 2020 are not available yet, we find that in 2019, they represented 3 to 5 per cent of all corporations. In 2020, they were more likely to experience liquidity deficits and spikes in their default probability, as well as to exit the market. Importantly, we also find that they were less likely to take up the economic support measures. Overall, as fewer firms exited the market in 2020 than in 2019, the pandemic is likely to have boosted the zombie share. However, compared with other firms, zombies have exited the market more and had a lower take-up of support measures. Thus, the Government’s policies are unlikely to have amplified such a trend. |
| Keywords: | zombie firms, Covid-19. |
| JEL: | L25 E61 G38 H32 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_650_21&r= |
| By: | Sumit Agarwal; Slava Mikhed; Barry Scholnick; Man Zhang |
| Abstract: | We document that increasing penalties for default reduces strategic default in financial crises by exploiting the 2009 changes to Canadian consumer insolvency regulations. Our novelty is that the incentives from increasing penalties for default operate in the opposite direction from incentives in more typical financial crisis policy interventions, which increase the liquidity of debtors. We can identify strategic default because our policy intervention is independent of debtors’ liquidity and initial selection into long-term debt contracts. Our results imply that even insolvent debtors can be incentivized to reduce default during financial crises without the typical interventions, which increase debtors’ liquidity |
| Keywords: | strategic default; financial crisis |
| JEL: | G01 G21 G51 |
| Date: | 2021–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:93327&r= |
| By: | Ilyas El Ghordaf (UCD, IAE - UCA); Abdelbari El Khamlichi (UCD, IAE - UCA) |
| Abstract: | There is an important literature focused on profit warnings and its impact on stock returns. We provide evidence from Moroccan stock market which aims to become an African financial hub. Despite this practical improvement, academic researches that focused on this market are scarce and our study is a first investigation in this context. Using the event study methodology and a sample of companies listed in Casablanca Stock Exchange for the period of 2009 to 2016, we examined whether the effect of qualitative warning is more negative compared to quantitative warnings in a short event window. Our empirical findings show that the average abnormal return on the date of announcement is negative and statistically significant. The magnitude of this negative abnormal return is greater for qualitative warnings than quantitative ones. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.06655&r= |
| By: | Larry Cordell; Michael R. Roberts; Michael Schwert |
| Abstract: | We study the performance of collateralized loan obligations (CLOs) to understand the market imperfections giving rise to these vehicles and their corresponding economic costs. CLO equity tranches earn positive abnormal returns from the risk-adjusted price differential between leveraged loans and CLO debt tranches. Debt tranches offer higher returns than similarly rated corporate bonds, making them attractive to banks and insurers that face risk-based capital requirements. Temporal variation in equity performance highlights the resilience of CLOs to market volatility due to their closed-end structure, long-term funding, and embedded options to reinvest principal proceeds. |
| JEL: | G12 G14 G23 G24 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29410&r= |
| By: | Dupuy, Arnaud (University of Luxembourg); Kennes, John (Aarhus University); Lyng, Ran Sun (University of Toronto) |
| Abstract: | We develop a two-sided multidimensional matching model of the market for CEOs that allows for both pecuniary and non-pecuniary (amenity) compensation. The model is estimated by maximum likelihood estimation using matched CEO-firm data from Denmark. We show that CEOs have preferences for building legacy and gaining empowerment. The legacy mechanism explains why there is low mobility in the CEO market, even though firms demand general CEO skills. The empowerment mechanism explains why CEOs are willing to sacrifice significant pecuniary income to manage high equity firms. The overall conclusion is that job amenities matter in the market for CEOs. |
| Keywords: | multidimensional matching, observed transfers, structural estimation, value of job amenities, taxation, CEO compensation, CEO performance |
| JEL: | G30 M12 C78 C35 D22 D31 J3 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14803&r= |
| By: | Jeanne Amar (Université Côte d'Azur, CNRS, GREDEG.); Jean-François Carpantier (Université Catholique de Louvain); Christelle Lecourt (Aix-Marseille University, CNRS, EHESS) |
| Abstract: | We examine the determinants of equity shares purchased by Sovereign Wealth Funds (SWFs). Based on the literature of cross-border acquisitions and entry mode choice theory, we shed light on the real drivers of these state-owned funds when they buy small or large stakes in cross-border target firms, for example: is the decision based on the target firm's characteristics? At a country-level? Is the decision sector-oriented? Or, are there financial, economic or political motives for the entry mode choice decision? Using a two-part fractional regression model together with an original dataset of SWF acquisitions and a control group of 6551 observations over 2000-2015, we find that the decision to invest and the decision on the share of equity to be acquired are two distinct processes. Therefore, ignoring the two-stage nature of the investment decision would lead to serious misspecification problems. Our results support most hypotheses derived from cross-border acquisition theory, which indicates that SWFs take the investment decision in cross-border target firms by trying to reduce transaction costs and information asymmetry, and also by taking the legal and institutional environment of the country into consideration. However, the fact that they do not hesitate to take large shares or to acquire targeted firms that are considered to be strategic and located in politically unstable countries suggests that their motives may go beyond pure profit maximization. |
| Keywords: | Sovereign Wealth Funds; Cross-Border Acquisitions; Fractional Regression Models; Entry Mode Choice. |
| JEL: | F31 F31 G15 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:21-21&r= |
| By: | Guglielmo Maria Caporale; Anamaria Sova; Robert Sova |
| Abstract: | This paper analyses the impact of the Covid-19 pandemic on exports and imports in the case of 35 OECD countries during the 2019Q1-2021Q2 period using a dynamic panel approach, specifically the system Generalized Method of Moments (GMM). In contrast to earlier studies, the empirical specification incorporates not only an index for the restrictive (and fiscal) measures adopted by national governments, but also an interaction term with private credit which captures the role of the financial sector in the context of the current crisis. The findings suggest that the negative effects of the Covid-19 pandemic on international trade can be attenuated through (policies supporting) private credit, which confirms the importance of the trade-finance nexus. |
| Keywords: | Covid-19 pandemic, stringency index, overall government response index, credit to the private non-financial sector, dynamic panel models, GMM |
| JEL: | C25 E61 F13 F15 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9400&r= |