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on Corporate Finance |
| By: | Giovanni Favara; Camelia Minoiu; Amber Perez-Orive |
| Abstract: | We show that U.S. banks do not engage in zombie lending to firms of deteriorating profitability, irrespective of capital levels and exposure to such firms. In contrast, unregulated financial intermediaries do, originating more and cheaper loans to these firms. We establish these results using supervisory data on firm-bank relationships, syndicated lending data for banks and nonbanks, and an empirical setting with quasi-random shocks to firm profitability. Although credit migrates from banks to nonbanks, zombie firms file for bankruptcy at an elevated rate, suggesting that nonbanks’ zombie lending does not enhance the survival rate of distressed and unprofitable firms. |
| Keywords: | zombie lending; zombie firms; banks; nonbanks |
| JEL: | G21 G32 G33 |
| Date: | 2024–08–15 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedawp:99033 |
| By: | Lars Hornuf; Matthias Mattusch |
| Abstract: | Fintech startups have set out to revolutionize the financial world. However, little is known about how successful and innovative these firms actually are. This paper investigates firm failure, funding success, and innovation capacity using a hand-collected dataset of 892 German fintechs founded between 2000 and 2021. We find that founders with a business degree and entrepreneurial experience have a better chance of obtaining funding, while founder teams with science, technology, engineering, or mathematics backgrounds file more patents. Early third-party endorsements and foreign partnerships substantially increase firm survival. We also establish the following stylized facts: (1) fintechs focusing on business-to-business models and which position themselves as technical providers prove to be more effective; and (2) fintechs competing in segments traditionally reserved for banks are generally less successful and less innovative. These results have important implications for the early-stage success management of fintech firms and the investment decisions of venture capital funds and government startup programs. |
| Keywords: | Fintech industry, firm funding, firm failure, innovation capacity |
| JEL: | G24 M13 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11301 |
| By: | Marius Berger; Antoine Dechezleprêtre; Milenko Fadic |
| Abstract: | Government Venture Capital (GovVC) has emerged as a policy tool to complement private venture capital (Private VC) by funding innovation-driven firms that might not attract traditional VC investment. This study analyses GovVC's role in OECD Member countries using comprehensive data on entrepreneurial firms, investors, and patents, with GovVC entities identified through surveys of ministry experts. The analysis shows that GovVC-funded firms are typically riskier than Private VC funded ones and generally demonstrate lower performance in securing follow-on funding and innovation output. However, when GovVCs partner with Private VC investors, these performance gaps diminish significantly. In co-investment scenarios, firms show comparable innovation and exit performance to those funded solely by Private VC. The findings indicate that GovVC can effectively direct capital to overlooked firms, particularly when working in partnership with private investors. |
| Keywords: | Entrepreneurship, Government Policy, Innovation, Venture Capital |
| JEL: | G24 O38 O31 |
| Date: | 2024–11–12 |
| URL: | https://d.repec.org/n?u=RePEc:oec:stiaaa:2024/10-en |
| By: | Gokkaya, Sinan (Ohio U); Liu, Xi (Miami U of Ohio); Stulz, Rene M. (Ohio State U and ECGI) |
| Abstract: | For many firms, the acquisition process begins with the development of an acquisition plan that is communicated to investors. We construct a comprehensive sample of acquisition plans to provide novel perspectives on the acquisition process and find that acquisition plans are informative to investors and incrementally predict subsequent acquisition activity. These results are more pronounced for firms announcing their commitment to acquisitions from an internal pipeline. Acquisition plans improve acquisition performance due to learning from market feedback and alleviate acquisition-related market uncertainty. Communication of acquisition plans does not increase takeover premiums but is less common in more competitive industries. |
| JEL: | G14 G24 G30 G34 |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:ohidic:2024-04 |
| By: | Alberto Montagnoli (School of Economics, University of Sheffield, Sheffield S1 4DT, UK); Karl Taylor (School of Economics, University of Sheffield, Sheffield S1 4DT, UK) |
| Abstract: | The aim of this paper is twofold. Firstly, we investigate the determinants of individual’s attitudes towards investing responsibly, based upon Environmental, Social, and Governance (ESG) considerations. Secondly, we look at how important ESG considerations are, over and above socio-economic characteristics including financial literacy and risk attitudes, in explaining whether individuals hold shares and/or equity, and the amount invested in financial assets. Using the UK Financial Lives Survey data which is collected by the Financial Conduct Authority, our analysis reveals that, firstly, individual characteristics have little explanatory power in terms of explaining responsible investments, except for: education; gender; age; and financial literacy. Secondly, those individuals who are interested in future responsible invest- ments are approximately 7 percentage points more likely to hold shares/equity, and have around 77% more money invested in financial assets (i.e. just under twice the amount). We also undertake several sensitivity checks, including the role of selection on unobservables and the extent to which the exogeneity assumption regarding interest in future responsible investments can be relaxed, as well as matching estimation techniques to move beyond mere statistical associations. |
| Keywords: | ESG Attitudes; Financial Literacy; Portfolio Investment |
| JEL: | D81 G11 D14 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:shf:wpaper:2024010 |
| By: | Rosalind L. Bennett; Manju Puri; Paul E. Soto |
| Abstract: | Community banks are critical for local economies, yet research on their corporate governance has been scarce due to limited data availability. We explore a unique, proprietary dataset of board membership and meeting minutes of failed community banks to present several stylized facts regarding their board structure and meetings. Community bank boards have fewer members and a higher percentage of insiders than larger publicly traded banks, and experience little turnover during normal times. Their meetings are held monthly and span about two hours. During times of distress, community bank boards convene less often in regularly scheduled meetings in lieu of impromptu meetings, experience higher turnover, particularly among their independent directors, and their meeting tone switches from neutral to significantly negative. Board attention during distressed times shifts towards discussion of capital and examination oversight, and away from lending activities and meeting formalities. |
| Keywords: | Corporate governance; Board of directors; Banking; Machine learning; Natural language processing |
| JEL: | G21 G34 C81 |
| Date: | 2024–10–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2024-85 |
| By: | Yikai Zhao; Jun Nagayasu; Xinyi Geng |
| Abstract: | This study examines the impact of climate policy uncertainty (CPU) on credit spreads using data from corporate bonds listed on the Chinese exchange market between 2008 and 2022. We innovatively apply large language models (LLMs) to construct a firm-level CPU index based on disclosure texts and validateits effectiveness. We find that a CPU rise widens a firm’s credit spreads by exacerbating financial distress. Although disclosing environmental, social, and governance (ESG) information moderate CPU’s effect on credit spreads, controversies in ESG ratings amplify it. Finally, heterogeneity analyses reveal that CPU’s effect on wideningbond spreads is more pronounced for traditional bonds, short- to medium-term bonds, nonstate-owned enterprises, and issuing firms with dispersed supply chains. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:toh:dssraa:143 |
| By: | Davydova, Daria (Ecole Polytechnique Federale de Lausanne); Fahlenbrach, Rudiger (Ecole Polytechnique Federale de Lausanne and ECGI); Sanz, Leandro (Ohio State U); Stulz, Rene M. (Ohio State U and ECGI) |
| Abstract: | Unicorns are startups that choose to stay private even though they are large enough to go public. We propose an efficiency explanation for their existence. Startups relying highly on organization capital are more vulnerable to expropriation of their organization capital if they go public before their position is sufficiently secure. Our main empirical findings are that shocks to the fragility of organization capital decrease the IPO likelihood, unicorn status enables startups to stay private longer by giving them access to new sources of capital, and unicorns and their industries have higher organization capital intensity than other startups. |
| JEL: | G24 G32 G34 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:ohidic:2024-10 |
| By: | Stylianos Asimakopoulos; James Malley; Apostolis Philippopoulos |
| Abstract: | This paper presents a novel study on the significance of corporate payout policy in shaping firms financial decision-making and, in turn, the macroeconomy. To this end, we add to the literature by allowing households and firms to choose share buybacks optimally. We then explore the implications of various shocks commonly facing them, such as dividend income, investment, and tax shocks. The latter include corporate income, capital gains, and dividend income taxes. We find that the model predictions cohere well with the data when applying the non-policy shocks. We also find that tax reform's aggregate and welfare e¤ects are overstated when share buybacks are not optimally chosen as assumed in the relevant literature. |
| Keywords: | dividends, share repurchases, tax reforms, payout exibility |
| JEL: | C68 E62 G30 G35 H25 H30 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:gla:glaewp:2024_13 |
| By: | Prachi Srivastava; Nicholas Bloom; Philip Bunn; Paul Mizen; Gregory Thwaites; Ivan Yotzov |
| Abstract: | We analyse the importance of climate-related investment using a large economy-wide survey of UK firms. Over half of firms expect climate change to have a positive impact on their investment in the medium term, with around a quarter expecting a large impact of over 10%. Around two-thirds of these investments are expected to be in addition to normal capital expenditure, with some firms investing less elsewhere. These investments will be driven by larger firms as well as those in more energy-intensive sectors. Climate investments are expected mainly in switching to green energy sources and improving energy efficiency, and firms expect to finance these mainly using internal cash reserves. Overall, although firms are expecting to invest more resources in adapting to climate change, under reasonable assumptions, these investments are still not sufficient to meet the estimated targets implied by the UK Net Zero Pathway. |
| JEL: | C83 D22 D25 D84 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33081 |
| By: | Erel, Isil (Ohio State U and ECGI); Flanagan, Thomas (Ohio State U); Weisbach, Michael S. (Ohio State U and ECGI) |
| Abstract: | Private debt funds are the fastest growing segment of the private capital market. We evaluate their risk-adjusted returns, applying a cash-flow based method to form a replicating portfolio that mimics their risk profiles. Using both equity and debt benchmarks to measure risk, a typical private debt fund produces an insignificant abnormal return to its investors. However, gross-of-fee abnormal returns are positive, and using only debt benchmarks also leads to positive abnormal returns as funds contain equity risks. The rates at which private debt funds lend appear to be high enough to offset the funds’ fees and risks, but not high enough to exceed both their fees and investors’ risk-adjusted rates of return. |
| JEL: | G12 G21 G23 |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:ohidic:2024-06 |
| By: | Rodrigo Sekkel; Tamon Takamura; Yaz Terajima |
| Abstract: | This paper analyzes the dynamic and heterogeneous responses of loan performance to a monetary-policy shock using loan-level panel data for small-scale private firms in Canada. Our dataset contains detailed loan characteristics information that allows us to distinguish the effects of the aggregate-demand channel, which affects loan performance through general-equilibrium effects, and the cash-flow channel that directly impacts debt service of firms through variable rates. We find that the effects on loan performance through both channels materialize with a delay and are persistent over time. The peak effect of the cash-flow channel is as large as that of the aggregate-demand channel. Moreover, we investigate whether collateral can reduce the sensitivity of variable-rate loan performance to a policy-rate shock through an ex post disciplinary effect that incentivizes loan repayment by small firms. We find that collateral induces repayment incentives of borrowers relative to unsecured loans but only for ex ante safe loans that are used for investment rather than for other purposes such as working capital. This implies that collateral has a limited impact on reducing financial frictions of small firms. |
| Keywords: | Monetary policy transmission; firm dynamics |
| JEL: | C32 E17 E37 E52 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-41 |