Journal of Corporate Finance最新文献

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The stock market reaction to bond refinancing issues with and without senior debt

IF 7.2 1区经济学 Q1 BUSINESS, FINANCE

Journal of Corporate Finance

Pub Date : 2025-01-29 DOI: 10.1016/j.jcorpfin.2025.102746

Axel Grossmann , Thanh Ngo

Using a sample of 3228 bond issues of U.S. publicly traded companies from 1990 to 2021, we find a statistically significant negative stock market reaction surrounding the announcements of debt issues aimed at refinancing outstanding debt when compared to debt issues for other purposes. The results are not driven by public debt being used to refinance “inside” debt, such as bank loans. This finding aligns with signaling theory, which suggests that replacing existing debt with new debt may indicate unfavorable conditions: difficulty servicing current debt obligations with existing resources or a lack of future growth opportunities. These negative market reactions are mitigated, however, when firms use less risky senior debt to refinance existing debt. Senior notes serve as a strategic move by firms to counter the negative market perception associated with debt refinancing issues. The findings are particularly more pronounced for the decades after 1999, albeit with a reduced magnitude in the 2010s, suggesting that the Global Financial Crisis in the 2000s made markets more sensitive to negative signals related to public debt refinancing. The main findings are robust to potential biases brought about by measurement errors, simultaneity, and endogeneity.

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引用次数: 0

Political corruption, Dodd–Frank whistleblowing, and debt financing

IF 7.2 1区经济学 Q1 BUSINESS, FINANCE

Journal of Corporate Finance

Pub Date : 2025-01-28 DOI: 10.1016/j.jcorpfin.2025.102745

Qingjie Du , Iftekhar Hasan , Yang Wang , K.C. John Wei

We investigate how a state's political corruption affects a resident firm's debt contracting and how a change in anti-corruption regulation alters the relation between corruption and loan contracting. Firms in more corrupt states are associated with significantly higher loan spreads and tighter loan covenants than firms in less corrupt states. Furthermore, the passage of the Dodd–Frank whistleblowing provision amplifies the conhcerns of banks about the detrimental impact of corruption due to the increased exposure of firms to whistleblowing threats. The detrimental impact of corruption is further amplified when a state has a higher level of whistleblowing involvement, when firms are located in more corrupt states or closer to the SEC office, and when the bank's state is less corrupt than the firm's state. In general, we document the externality of corruption in the debt financing of firms and the response of banks to changes in regulation.

引用次数: 0

Dark trading volume and market quality: A natural experiment

IF 7.2 1区经济学 Q1 BUSINESS, FINANCE

Journal of Corporate Finance

Pub Date : 2025-01-27 DOI: 10.1016/j.jcorpfin.2025.102742

Ryan Farley, Eric K. Kelley, Andy Puckett

We exploit an exogenous shock to dark trading volume to identify the effect of dark trading on market quality. Following a 34% reduction in trading on dark venues, we find no evidence that the cost of trade (e.g., effective spreads, realized spreads, price impact, and quoted spreads) changes in a statistically or economically meaningful manner. While our findings stand in contrast to those of several prior studies, supplemental tests confirm that contradictory inferences cannot be attributed to either low power or different stock samples or time periods. Instead, we argue that identification is a key driver in conflicting results. Our research highlights the benefit of structured experimentation from the Securities and Exchange Commission (SEC) for understanding causal effects in capital markets.

引用次数: 0

Risk-taking incentives and firm credit risk1

IF 7.2 1区经济学 Q1 BUSINESS, FINANCE

Journal of Corporate Finance

Pub Date : 2025-01-27 DOI: 10.1016/j.jcorpfin.2025.102738

Kevin Koharki , Luke Watson

Theoretically, increased risk-taking incentives should disproportionately benefit equity holders at the expense of creditors. However, we find that increases in CEO risk-taking incentives (vega) are associated with better outcomes for creditors. Specifically, credit ratings and credit default swaps both improve following increases in vega. This effect is magnified for firms close to default. Within the Merton (1974) framework, our findings suggest that increased risk-taking incentives induce managers to take on more positive net present value projects. Consequently, while higher vega increases the risk of the firm, our results imply that it also increases the expected value of the firm, reducing its credit risk.

引用次数: 0

Clawback adoptions and institutional investment decisions

IF 7.2 1区经济学 Q1 BUSINESS, FINANCE

Journal of Corporate Finance

Pub Date : 2025-01-25 DOI: 10.1016/j.jcorpfin.2025.102743

Kwok Tong Samuel Cheung , Simon Yu Kit Fung , K.K. Raman , Jianfu Shen

We examine whether voluntary adoptions of clawback (executive compensation recovery) provisions are followed by changes in market outcomes, specifically changes in institutional investment decisions. Institutional investors dominate the US capital markets and are generally viewed as informed investors. Using difference-in-differences (DID) research design, we find that clawback adoptions are followed by a decrease (increase) in transient (dedicated) institutional investors' equity holdings. Our findings are robust to both level and change specifications. Also, the decrease (increase) in holdings for transient (dedicated) investors is stronger for adopters who display reduced information asymmetry (increase in long-term orientation) following clawback adoption. The results are robust to several tests for endogeneity and alternative specifications. Collectively, our findings suggest that clawback adoptions make the firm potentially less attractive to transient institutions and more desirable to dedicated institutions. Our findings have implications for clawback adoptions that are now mandatory for all US public companies with an effective date (most recently) of December 1, 2023.

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引用次数: 0

Does commercial reform embracing digital technologies mitigate stock price crash risk?

IF 7.2 1区经济学 Q1 BUSINESS, FINANCE

Journal of Corporate Finance

Pub Date : 2025-01-23 DOI: 10.1016/j.jcorpfin.2025.102741

Guanming He , Zhichao Li , Ling Yu , Zhanqiang Zhou

Over the recent decade or so, the Chinese government implemented a commercial reform that features governmental application of digital technologies to acquire and process firm information. The core objective of commercial reform is to improve information transparency and monitoring on corporate commercial activities. To explore the economic effectiveness of the reform, we examine how it impacts firms' stock price crash risk. We find robust evidence that the commercial reform that digitalizes government regulatory activities mitigates stock price crash risk and achieves so via enhancing information environment and monitoring for firms. This finding is more prominent for firms with higher levels of digitalization and innovation and those with weaker internal governance. Overall, our findings highlight a potential benefit of applying digital technologies to regulatory reform, encouraging governments to adopt digital tools to improve information environments and monitoring for firms, and thereby promoting a more stable and efficient capital market.

引用次数: 0

The economics of Constant Function Market Makers

IF 7.2 1区经济学 Q1 BUSINESS, FINANCE

Journal of Corporate Finance

Pub Date : 2025-01-22 DOI: 10.1016/j.jcorpfin.2025.102737

Michele Fabi , Julien Prat

We use microeconomic theory to describe the inner workings of Constant Function Market Makers (CFMMs). We show that standard results from consumer theory apply in this new context, endowing us with powerful tools to characterize the optimal design of CFMMs. We employ them to analyze the externalities that traders and liquidity providers exert on each other when interacting through a CFMM. Liquidity providers reduce the execution costs by flattening the bonding curve on which trades are executed. Arbitrageurs impose an adverse selection cost on liquidity providers by unfavorably rebalancing their portfolio. We show that the strengths of these two externalities are pinned down by the curvature of the bonding curve and are inversely related to each other, thereby identifying the fundamental economic tradeoff that market designers have to address.

引用次数: 0

Environmental liabilities, borrowing costs, and pollution prevention activities: The nationwide impact of the Apex Oil ruling

IF 7.2 1区经济学 Q1 BUSINESS, FINANCE

Journal of Corporate Finance

Pub Date : 2025-01-17 DOI: 10.1016/j.jcorpfin.2025.102739

Jianqiang Chen , Pei-Fang Hsieh , Po-Hsuan Hsu , Ross Levine

The 2008 Apex Oil court decision reduced the circumstances under which specific environmental cleanup obligations were dischargeable in Chapter 11, potentially affecting the securities prices, credit conditions, and pollution practices of corporations not in Chapter 11. We discover that among financially stressed firms with those specific environmental liabilities, bond and stock prices dropped after Apex. Moreover, those firms (1) experienced a tightening of credit conditions (e.g., paying higher risk premia on debts and receiving lower bond ratings), (2) intensified pollution prevention activities, and (3) reduced the emissions of pollutants causing environmental damages no longer dischargeable in Chapter 11. These findings hold among firms nationwide, not only those within the jurisdiction of the Seventh Circuit court, which issued the Apex decision, suggesting that Apex had a nationwide impact.

引用次数: 0

Zombie lending due to the fear of fire sales

IF 7.2 1区经济学 Q1 BUSINESS, FINANCE

Journal of Corporate Finance

Pub Date : 2025-01-14 DOI: 10.1016/j.jcorpfin.2024.102731

Kaushalendra Kishore , Nirupama Kulkarni , Saurabh Roy

This paper provides evidence of a new cost of fire sales: zombie lending by banks. Banks with high market share are more likely to internalize the negative spillovers of falling collateral prices during a fire sale. To prevent prices from falling further during a fire sale, these banks do not liquidate defaulted firms and instead give zombie loans to keep them alive. Using structural breaks in real estate prices to identify periods of fire sales in different MSAs, we provide evidence that banks with high market share give zombie loans to firms with relatively higher real estate assets during a fire sale. Further, congestion due to zombie firms in an industry reduces the investment and profitability of healthier firms. Overall, we highlight a new mechanism for zombie lending resulting from reduced collateral liquidation in markets prone to fire sales.

引用次数: 0

Foundation ownership and sustainability

IF 7.2 1区经济学 Q1 BUSINESS, FINANCE

Journal of Corporate Finance

Pub Date : 2025-01-13 DOI: 10.1016/j.jcorpfin.2025.102740

David Schröder , Steen Thomsen

Concerns about the sustainability of contemporary capitalism have inspired a search for organizational forms that are more concerned with solving environmental and social problems. We examine whether one such model – foundation ownership – where a non-profit foundation owns and controls business companies, is associated with better sustainability outcomes. We hypothesize that foundations prioritize environmental and social objectives over profit maximization, resulting in stronger ESG performance in the companies they own. Using data on listed foundation-owned companies over the period 2003–2020 matched with control groups by firm size and industry, we find that foundation-owned firms have higher environmental, social, and governance (ESG) performance, particularly in the environmental and social dimensions. They maintained ESG activities during the financial crisis and committed to more significant emission reductions in the post-Paris Agreement period. Collectively, our findings highlight the potential of purposeful ownership in promoting corporate sustainability.

引用次数: 0

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