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on Corporate Finance |
| By: | Young Soo Jang; Steven N. Kaplan |
| Abstract: | We study venture capital (VC) selection using the deal flow and investment decisions for more than 8, 000 sourced deals from one early-stage VC in detail. The (unconditional) likelihood that a sourced start-up raises at least $1 million in VC funding from some VC firm is roughly 30%. The deals the VC scored and invested in perform better than the deals the VC scored and did not invest which perform better than the deals the VC did not score, suggesting that the VC has selection ability. At the same time, the selection is noisy as only 32% (13%) of the invested firms have raised more than $10 ($25) million in VC funding. The VC evaluated the deals it scored on team, market, product and exit characteristics. Team is most successful at explaining VC funding of at least $1 million, but does not explain larger financings or success. Market and product have more explanatory power for VC funding of more than $10, $25 and $50 million as well as longer term outcomes. Consistent with other recent work, this is consistent with VCs overweighting team in their initial investment decision. |
| JEL: | G23 G32 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33483 |
| By: | di Giovanni, Julian; Garcia Santana, Manuel Jose; Jeenas, Priit; Moral Benito, Enrique; Pijoan-Mas, Josep |
| Abstract: | This paper provides a framework to study how different allocation systems of public procurement contracts affect firm dynamics and long-run macroeconomic outcomes. It builds a novel panel dataset for Spain that merges public procurement data, credit register loan data, and quasi-census firm-level data. The paper provides evidence consistent with the hypothesis that procurement contracts act as collateral for firms and help them grow out of their financial constraints. The paper then builds a model of firm dynamics with asset- and earnings-based borrowing constraints and a government that buys goods and services from private sector firms, and uses it to quantify the long-run macroeconomic consequences of alternative procurement allocation systems. The findings show that policies which promote the participation of small firms have sizeable macroeconomic effects, but the net impact on aggregate output is ambiguous. While these policies help small firms grow and overcome financial constraints, which increases output in the long run, these policies also increase the cost of government purchases and reduce saving incentives for large firms, decreasing the effective provision of public goods and output in the private sector, respectively. The relative importance of these forces depends on how the policy is implemented and the type and strength of financial frictions. |
| Date: | 2023–07–24 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10522 |
| By: | Islam, Asif Mohammed; Rodriguez Meza, Jorge Luis |
| Abstract: | This study develops a measure of firm-level credit constraints by leveraging refinements in survey instruments for a widely used database. Using data on more than 65, 000 firms across 109 economies, the study uncovers several insights. Around 30 percent of firms in the formal private sector are credit constrained. Firms that are credit-constrained tend to be smaller and negatively correlated with performance. The more developed the economy, the lower the share of credit-constrained firms. One striking finding is that 52 percent of firms do not apply for loans as they have sufficient credit. For some economies, this may be more indicative of poor opportunities for the expansion of firms and thus the lack of demand for credit. The findings suggest that for policies that improve access to credit to be effective, they should go hand in hand with interventions that provide opportunities for firms to expand. |
| Date: | 2023–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10502 |
| By: | Paul Gertler; Brett Green; Renping Li; David Sraer |
| Abstract: | Pay-as-you-go (PAYGo) financing is a novel contract that has recently become a popular form of credit, especially in low- and middle-income countries (LMICs). PAYGo financing relies on lockout technology that enables the lender to remotely disable the flow benefits of collateral when the borrower misses payments. This paper quantifies the welfare implications of PAYGo financing. We develop a dynamic structural model of consumers and estimate the model using a multi-arm, large scale pricing experiment conducted by a fintech lender that offers PAYGo financing for smartphones. We find that the welfare gains from access to PAYGo financing are equivalent to a 3.4% increase in income while remaining highly profitable for the lender. The welfare gains are larger for low-risk consumers and consumers in the middle of the income distribution. Under reasonable assumptions, PAYGo financing outperforms traditional secured loans for all but the riskiest consumers. We explore contract design and identify variations of the PAYGo contract that further improve welfare. |
| JEL: | D14 D86 G21 G23 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33484 |
| By: | Calice, Pietro |
| Abstract: | Access to finance is a key obstacle for the growth and development of small and medium-sized enterprises in fragile and conflict affected situations. This paper provides empirical evidence on the key macrofinancial and institutional drivers of financial inclusion of small and medium-sized enterprises in a large sample of countries, highlighting the comparative importance of factors affecting countries with and without fragile and conflict affected situations. The results show that macroeconomic and institutional stability, along with reduced informality, banking sector soundness, and improved credit information environment, are associated with higher financial inclusion of small and medium-sized enterprises. The results also show that strengthening the rule of law, government effectiveness, and control of corruption while increasing financial depth and reducing public sector borrowing and banking market concentration could help close the small and medium-sized enterprise financial inclusion gap between fragile and conflict affected situation countries and the best performing countries. These effects are generally stronger in middle-income countries with fragile and conflict affected situations than in low-income countries with fragile and conflict affected situations. The results point to the importance of adopting comprehensive macrofinancial and institutional strategies to improve financial inclusion of small and medium-sized enterprises in countries with fragile and conflict affected situations, tailoring reforms to country contexts. |
| Date: | 2023–03–14 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10363 |
| By: | Amin, Mohammad; Khalid, Usman |
| Abstract: | Ethnic fractionalization has both positive and negative consequences. It is contended that the positive effects due to skill complementarity in the production process apply to large firms that have more complex and diversified production structures. Because small businesses rely more on public goods and have less access to institutions, the negative effects of lower quality public goods and higher transaction costs have a greater impact on them. Consistent with this viewpoint, it is found that a larger firm size significantly mitigates the negative impact of higher ethnic fractionalization on the level and growth rate of labor productivity in manufacturing firms across 84 developing countries. There is no robust and significant impact of ethnic fractionalization on large firms for the main and most of the other firm size categorizations considered. The results are confirmed by the instrumental variables estimation method, which uses the duration of early human settlement in each country to instrument ethnic fractionalization. Evidence is provided on the potential mechanisms by which ethnic fractionalization affects small versus large firms. The findings have significant policy implications, which are discussed in detail. |
| Date: | 2023–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10375 |
| By: | Othman Gaga (Faculty of Economics and Management of settat, Hassan First University of Settat, Morocco); Said Karam (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 study examines the role of financial reporting quality as a corporate governance mechanism in the Moroccan context. Drawing on Shleifer and Vishny's (1997) definition of corporate governance, which emphasizes investor protection, the research focuses on the agency relationship between creditors and firms. In a setting where ownership concentration reduces the traditional conflict between managers and shareholders, creditor protection becomes a key concern. This paper investigates conditional conservatism, particularly the timely recognition of losses, as a mechanism to mitigate information asymmetry and limit opportunistic behavior. Empirically, we test this hypothesis using an econometric model applied to a sample of 38 listed firms over the 2012–2021 period. The results indicate an asymmetric recognition of economic losses, while economic gains are not significantly reflected in accounting earnings. These findings confirm the adoption of a prudence-based accounting approach that aligns with creditor expectations. The study underscores the importance of financial reporting quality in corporate governance in Morocco and opens new avenues for future research on the institutional factors influencing this asymmetry. |
| Abstract: | Cet article analyse le rôle de la qualité du reporting financier comme mécanisme de gouvernance dans le contexte marocain. En s'appuyant sur la définition de la gouvernance de Shleifer et Vishny (1997), qui met l'accent sur la protection des investisseurs, l'étude s'intéresse particulièrement à la relation d'agence entre les créanciers et l'entreprise. Dans un contexte où la concentration de la propriété réduit le conflit traditionnel entre dirigeants et actionnaires, la protection des créanciers devient un enjeu central. L'article explore ainsi le conservatisme conditionnel, et plus précisément la reconnaissance opportune des pertes, comme mécanisme permettant de réduire l'asymétrie d'information et de limiter les comportements opportunistes. Sur le plan empirique, nous testons cette hypothèse à travers un modèle économétrique appliqué à un échantillon de 38 entreprises cotées sur la période 2012-2021. Les résultats révèlent une reconnaissance asymétrique des pertes économiques, tandis que les gains économiques ne sont pas significativement intégrés dans le résultat comptable. Ces résultats corroborent l'existence d'une stratégie de prudence comptable, alignée avec les attentes des créanciers. L'étude met ainsi en évidence l'importance de la qualité du reporting financier dans la gouvernance des entreprises marocaines et ouvre des perspectives de recherche sur les déterminants institutionnels de cette asymétrie. |
| Keywords: | Corporate Governance, Conditional Conservatism, Financial Reporting Quality, Timely Loss Recognition, Information asymmetry, Gouvernance d’entreprise, Conservatisme conditionnel, Qualité du reporting financier, Reconnaissance opportune des pertes, Asymétrie d’information |
| Date: | 2025–02–25 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04968743 |
| By: | Di Filippo, Mario; Panizza, Ugo G. |
| Abstract: | This paper uses a unique dataset with matched information at the firm-bank level covering 13, 000 firms and 550 banks in 36 emerging and developing economies over 2012–20. The analysis tests whether government-owned banks fulfill their social mandate by targeting credit constrained firms or firms that are more likely to generate positive externalities. The findings show that credit constrained firms are more likely to borrow from government-owned banks, and that this is especially the case in countries with good institutions. However, the paper does not find any evidence that government-owned banks target innovative firms or “green” firms. The findings show that in firms that borrow from government-owned banks, employment reacts less to business cycle conditions relative to firms that borrow from private banks. The paper further shows that employment is more stable in credit constrained firms that have a relationship with a government-owned banks with respect to credit constrained firms that borrow from a private bank. |
| Date: | 2023–03–28 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10384 |
| By: | De Nicola, Francesca; Melecky, Martin; Iootty De Paiva Dias, Mariana |
| Abstract: | This paper studies the effect of bank ownership on product innovation by borrowing firms, highlighting the role of the state, foreign, and combined foreign-state bank ownership. It uses Enterprise Survey data for more than 22, 000 firms in 49 countries from 2016 to 2020, linked to Fitchconnect data on banks: their ownership, soundness indicators, and legal origins. The paper confirms that a firm's access to bank credit is associated with a greater probability of product innovation, even when adjusting for possible reverse causality. If the credit is provided by a state-owned bank, the probability that the borrowing firm will innovate increases. The analysis does not find a similarly positive effect for foreign bank ownership. But when considering the combined effect of foreign state ownership, the results are most statistically and economically significant. Although the results ma y not be extendable to research and development spending (a key input to innovation), the findings show that foreign state banks can serve as an additional financing vehicle to stimulate radical innovation alongside equity financiers. |
| Date: | 2023–05–30 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10458 |