Pub Date : 2010-08-01DOI: 10.1111/j.1467-9701.2010.01311.x
P. Egger, Simon Loretz
In most countries, profit taxation is probably much more relevant nowadays than trade liberalisation when it comes to firm-level decisions about investment. Empirically, firms are quite heterogeneous with regard to fixed costs: the composition of assets (tangible versus intangible; machinery versus buildings; etc.) and the financing of investments. Then, even uniform changes in profit tax instruments cause heterogeneous responses of firm-level effective tax rates and, hence, after-tax profits. We argue that, with similar profit margins, firms would then require pre-tax profits to differ as well. Governments change statutory profit tax rates and, by virtue of firms’ heterogeneity, they cause stark selection effects which are mainly related to heterogeneous fixed rather than variable costs. We compute costs of capital for a large sample of firms to illustrate how homogeneous changes in tax instruments hit firms differently. Using Bureau van Dijk’s ORBIS database, we illustrate that the effects of changes in statutory instruments have relatively large systematic variance components across industries within countries and also relatively large ones of firms within industries and countries.
{"title":"Homogeneous Profit Tax Effects for Heterogeneous Firms?","authors":"P. Egger, Simon Loretz","doi":"10.1111/j.1467-9701.2010.01311.x","DOIUrl":"https://doi.org/10.1111/j.1467-9701.2010.01311.x","url":null,"abstract":"In most countries, profit taxation is probably much more relevant nowadays than trade liberalisation when it comes to firm-level decisions about investment. Empirically, firms are quite heterogeneous with regard to fixed costs: the composition of assets (tangible versus intangible; machinery versus buildings; etc.) and the financing of investments. Then, even uniform changes in profit tax instruments cause heterogeneous responses of firm-level effective tax rates and, hence, after-tax profits. We argue that, with similar profit margins, firms would then require pre-tax profits to differ as well. Governments change statutory profit tax rates and, by virtue of firms’ heterogeneity, they cause stark selection effects which are mainly related to heterogeneous fixed rather than variable costs. We compute costs of capital for a large sample of firms to illustrate how homogeneous changes in tax instruments hit firms differently. Using Bureau van Dijk’s ORBIS database, we illustrate that the effects of changes in statutory instruments have relatively large systematic variance components across industries within countries and also relatively large ones of firms within industries and countries.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"44 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129704926","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Net external financing predicts cross-sectional returns in a large sample of firms drawn from 38 non-U.S. countries. In contrast, the proportion of net equity issues in total net financing, often used to measure the extent of managerial market timing, does not. With a strong cross-firm association between net external financing and investment growth rates, this suggests that firms’ real investment behavior rather than their strategic switching between equity and debt financings contains information relevant to future returns. Despite its popularity in the literature, the behavioral market-timing effect is absent globally even among countries with weak investor protection, limited corporate disclosure, and less developed financial markets.
{"title":"External Financing and Cross-Sectional Returns: A Global Analysis","authors":"Akiko Watanabe","doi":"10.2139/ssrn.1664768","DOIUrl":"https://doi.org/10.2139/ssrn.1664768","url":null,"abstract":"Net external financing predicts cross-sectional returns in a large sample of firms drawn from 38 non-U.S. countries. In contrast, the proportion of net equity issues in total net financing, often used to measure the extent of managerial market timing, does not. With a strong cross-firm association between net external financing and investment growth rates, this suggests that firms’ real investment behavior rather than their strategic switching between equity and debt financings contains information relevant to future returns. Despite its popularity in the literature, the behavioral market-timing effect is absent globally even among countries with weak investor protection, limited corporate disclosure, and less developed financial markets.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-07-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125802988","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2010-07-26DOI: 10.1111/j.1467-6281.2011.00333.x
Wen He
Habib (2008) shows that financial transparency, but not governance transparency, is related to efficiency in capital allocation. I argue that governance transparency is more likely to facilitate capital allocation in declining industries where agency problems intensify. Empirical evidence from a sample of 39 countries supports this argument.
{"title":"Governance Transparency and Capital Allocation: A Note","authors":"Wen He","doi":"10.1111/j.1467-6281.2011.00333.x","DOIUrl":"https://doi.org/10.1111/j.1467-6281.2011.00333.x","url":null,"abstract":"Habib (2008) shows that financial transparency, but not governance transparency, is related to efficiency in capital allocation. I argue that governance transparency is more likely to facilitate capital allocation in declining industries where agency problems intensify. Empirical evidence from a sample of 39 countries supports this argument.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-07-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133340905","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2010-07-19DOI: 10.1111/j.1467-9396.2010.00886.x
Itai Agur
Recent empirical findings indicate that when trade is liberalized both firm selection takes place and product variety increases. Each of these two stylized facts has its own seminal theory. But how can they arise together? This paper presents a model of heterogeneous, multi-variety firms that provides an intuitive explanation. When trade is liberalized efficient foreign exporters enter and push out the least efficient domestic firms. Fewer firms remain in total. But exporters endogenously offer more variety than domestic firms. The entry of variety-rich foreign firms unambiguously dominates the decrease in the number of firms. Thus, total variety increases.
{"title":"Trade Liberalization, Firm Selection, and Variety Growth","authors":"Itai Agur","doi":"10.1111/j.1467-9396.2010.00886.x","DOIUrl":"https://doi.org/10.1111/j.1467-9396.2010.00886.x","url":null,"abstract":"Recent empirical findings indicate that when trade is liberalized both firm selection takes place and product variety increases. Each of these two stylized facts has its own seminal theory. But how can they arise together? This paper presents a model of heterogeneous, multi-variety firms that provides an intuitive explanation. When trade is liberalized efficient foreign exporters enter and push out the least efficient domestic firms. Fewer firms remain in total. But exporters endogenously offer more variety than domestic firms. The entry of variety-rich foreign firms unambiguously dominates the decrease in the number of firms. Thus, total variety increases.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"32 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-07-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115653269","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Haitham Nobanee, Modar Abdullatif, Maryam Al Hajjar
Purpose - The purpose of this paper is to investigate the relation between a firm's cash conversion cycle and its profitability. Design/methodology/approach - The relation between the firm's cash conversion cycle and its profitability is examined using dynamic panel data analysis for a sample of Japanese firms for the period from 1990 to 2004. The analysis is applied at the levels of the full sample and divisions of the sample by industry and by size. Findings - A strong negative relation between the length of the firm's cash conversion cycle and its profitability is found in all of the authors’ study samples except for consumer goods companies and services companies. Originality/value - Traditional focus in corporate finance was on the long-term financial decisions, particularly capital structure, dividends, and company valuation decisions. However, the recent trend in corporate finance is the focus on working capital management. Most of working capital management literature is based on the US experience. This study investigates the relation between the firm's cash conversion cycle and its profitability of Japanese firms where the organizational structure is totally different from that of the US firms; most of the Japanese firms are interconnected and related through corporate groups (
{"title":"Cash Conversion Cycle and Firm’s Performance of Japanese Firms","authors":"Haitham Nobanee, Modar Abdullatif, Maryam Al Hajjar","doi":"10.2139/ssrn.1645118","DOIUrl":"https://doi.org/10.2139/ssrn.1645118","url":null,"abstract":"Purpose - The purpose of this paper is to investigate the relation between a firm's cash conversion cycle and its profitability. Design/methodology/approach - The relation between the firm's cash conversion cycle and its profitability is examined using dynamic panel data analysis for a sample of Japanese firms for the period from 1990 to 2004. The analysis is applied at the levels of the full sample and divisions of the sample by industry and by size. Findings - A strong negative relation between the length of the firm's cash conversion cycle and its profitability is found in all of the authors’ study samples except for consumer goods companies and services companies. Originality/value - Traditional focus in corporate finance was on the long-term financial decisions, particularly capital structure, dividends, and company valuation decisions. However, the recent trend in corporate finance is the focus on working capital management. Most of working capital management literature is based on the US experience. This study investigates the relation between the firm's cash conversion cycle and its profitability of Japanese firms where the organizational structure is totally different from that of the US firms; most of the Japanese firms are interconnected and related through corporate groups (","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-07-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122391358","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates the channels through which the global crisis of 2008-2009 spread to economic activity of an emerging, fast growing economy with sound macroeconomic fundamentals. On the basis of Polish firm-level data we find that a number of individual firm characteristics account for a heterogeneous response. In particular, foreign ownership appears to have provided a higher degree of resilience to the crisis. Our results indicate that this effect might be due to intra-group lending mechanisms supporting affiliates facing external credit constraints.
{"title":"Firms in the Great Global Recession: The Role of Foreign Ownership and Financial Dependence","authors":"Marcin Kolasa, Michał Rubaszek, D. Taglioni","doi":"10.2139/ssrn.1744005","DOIUrl":"https://doi.org/10.2139/ssrn.1744005","url":null,"abstract":"This paper investigates the channels through which the global crisis of 2008-2009 spread to economic activity of an emerging, fast growing economy with sound macroeconomic fundamentals. On the basis of Polish firm-level data we find that a number of individual firm characteristics account for a heterogeneous response. In particular, foreign ownership appears to have provided a higher degree of resilience to the crisis. Our results indicate that this effect might be due to intra-group lending mechanisms supporting affiliates facing external credit constraints.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129261056","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We propose a novel approach to assess whether banks' financial conditions, as reflected by bank-level information, matter for the transmission of monetary policy, while reconciling the micro and macro levels of analysis. We include factors summarizing large sets of individual bank balance sheet ratios in a standard factor-augmented vector autoregression model (FAVAR) of the French economy. We first find that factors extracted from banks' liquidity and leverage ratios predict macroeconomic fluctuations. This suggests a potential scope for macroprudential policies aimed at dampening the procyclical effects of adjustments in banks' balance sheets structure. However, we also find that fluctuations in bank ratio factors are largely irrelevant for the transmission of monetary shocks. Thus, there is little point monitoring the information contained in bank balance sheets, above the information already contained in credit aggregates, as far as monetary policy transmission is concerned.
{"title":"Banks' Financial Conditions and the Transmission of Monetary Policy: A Favar Approach","authors":"Ramona Jimborean, JEAN‐STÉPHANE Mésonnier","doi":"10.2139/ssrn.1690563","DOIUrl":"https://doi.org/10.2139/ssrn.1690563","url":null,"abstract":"We propose a novel approach to assess whether banks' financial conditions, as reflected by bank-level information, matter for the transmission of monetary policy, while reconciling the micro and macro levels of analysis. We include factors summarizing large sets of individual bank balance sheet ratios in a standard factor-augmented vector autoregression model (FAVAR) of the French economy. We first find that factors extracted from banks' liquidity and leverage ratios predict macroeconomic fluctuations. This suggests a potential scope for macroprudential policies aimed at dampening the procyclical effects of adjustments in banks' balance sheets structure. However, we also find that fluctuations in bank ratio factors are largely irrelevant for the transmission of monetary shocks. Thus, there is little point monitoring the information contained in bank balance sheets, above the information already contained in credit aggregates, as far as monetary policy transmission is concerned.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"36 9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125686892","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Climate policy spillovers can be either positive or negative since firms change their production processes in response to climate policies, which may either increase or decrease emissions of other pollutants. Understanding these ancillary benefits or costs has important implications for climate policy design, modeling, and benefit-cost analysis. This paper shows how spillovers can be decomposed into output effects (which have ancillary benefits) and substitution effects (which may have ancillary benefits or ancillary costs). The ambiguous net effect highlights the importance of polluters' responses to climate policy. I then test for climate policy spillovers in electricity power generation. The estimates are consistent with ancillary benefits from climate policy arising primarily from reductions in output (primarily at older plants) rather than from changes in emissions rates.
{"title":"Spillovers from Climate Policy","authors":"S. Holland","doi":"10.3386/W16158","DOIUrl":"https://doi.org/10.3386/W16158","url":null,"abstract":"Climate policy spillovers can be either positive or negative since firms change their production processes in response to climate policies, which may either increase or decrease emissions of other pollutants. Understanding these ancillary benefits or costs has important implications for climate policy design, modeling, and benefit-cost analysis. This paper shows how spillovers can be decomposed into output effects (which have ancillary benefits) and substitution effects (which may have ancillary benefits or ancillary costs). The ambiguous net effect highlights the importance of polluters' responses to climate policy. I then test for climate policy spillovers in electricity power generation. The estimates are consistent with ancillary benefits from climate policy arising primarily from reductions in output (primarily at older plants) rather than from changes in emissions rates.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"32 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129549061","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Better measurement of the output produced and capital employed by firms substantially improves the ability to explain capital structure variation in the cross section. For every firm, we construct the set of other firms producing the same output using the set of product market competitors listed in the firm's public Securities and Exchange Commission filings. In addition, we improve measurement of capital structure by explicitly accounting for leased capital. These two steps increase the explanatory power of the average capital structure of other firms producing similar output on a firm's capital structure by 50% compared to using only the average unadjusted debt ratio of other firms in the same three-digit Standard Industrial Classification (SIC) code. We provide evidence that the large explanatory power of the capital structure of other firms producing similar output is related to the assets used in the production process. Our findings suggest that what a firm produces and the assets used in production are the most important determinants of capital structure in the cross section. Copyright 2011, Oxford University Press.
{"title":"Explaining Corporate Capital Structure: Product Markets, Leases, and Asset Similarity","authors":"Joshua D. Rauh, Amir Sufi","doi":"10.2139/ssrn.1592463","DOIUrl":"https://doi.org/10.2139/ssrn.1592463","url":null,"abstract":"Better measurement of the output produced and capital employed by firms substantially improves the ability to explain capital structure variation in the cross section. For every firm, we construct the set of other firms producing the same output using the set of product market competitors listed in the firm's public Securities and Exchange Commission filings. In addition, we improve measurement of capital structure by explicitly accounting for leased capital. These two steps increase the explanatory power of the average capital structure of other firms producing similar output on a firm's capital structure by 50% compared to using only the average unadjusted debt ratio of other firms in the same three-digit Standard Industrial Classification (SIC) code. We provide evidence that the large explanatory power of the capital structure of other firms producing similar output is related to the assets used in the production process. Our findings suggest that what a firm produces and the assets used in production are the most important determinants of capital structure in the cross section. Copyright 2011, Oxford University Press.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"59 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-06-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115798072","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the broader effects of the US financial crisis on global lending to retail customers. In particular we examine retail bank lending in Germany using a unique data set of German savings banks during the period 2006 through 2008 for which we have the universe of loan applications and loans granted. Our experimental setting allows us to distinguish between savings banks affected by the US financial crisis through their holdings in Landesbanken with substantial subprime exposure and unaffected savings banks. The data enable us to distinguish between demand and supply side effects of bank lending and find that the US financial crisis induced a contraction in the supply of retail lending in Germany. While demand for loans goes down, it is not substantially different for the affected and nonaffected banks. More important, we find evidence of a significant supply side effect in that the affected banks reject substantially more loan applications than nonaffected banks. This result is particularly strong for smaller and more liquidity-constrained banks as well as for mortgage as compared with consumer loans. We also find that bank-depositor relationships help mitigate these supply side effects.
{"title":"Global Retail Lending in the Aftermath of the Us Financial Crisis: Distinguishing between Supply and Demand Effects","authors":"M. Puri, Jörg Rocholl, Sascha Steffen","doi":"10.2139/ssrn.1397557","DOIUrl":"https://doi.org/10.2139/ssrn.1397557","url":null,"abstract":"This paper examines the broader effects of the US financial crisis on global lending to retail customers. In particular we examine retail bank lending in Germany using a unique data set of German savings banks during the period 2006 through 2008 for which we have the universe of loan applications and loans granted. Our experimental setting allows us to distinguish between savings banks affected by the US financial crisis through their holdings in Landesbanken with substantial subprime exposure and unaffected savings banks. The data enable us to distinguish between demand and supply side effects of bank lending and find that the US financial crisis induced a contraction in the supply of retail lending in Germany. While demand for loans goes down, it is not substantially different for the affected and nonaffected banks. More important, we find evidence of a significant supply side effect in that the affected banks reject substantially more loan applications than nonaffected banks. This result is particularly strong for smaller and more liquidity-constrained banks as well as for mortgage as compared with consumer loans. We also find that bank-depositor relationships help mitigate these supply side effects.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-06-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131288459","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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