We study the role of trust in traditional finance in the consumer adoption of various fintech products, including cryptocurrencies, peer-to-peer lending, other crowdfunding, roboadvisors, and alternative payment solutions. Using an online lab experiment, an experiment on an investment website, and a representative survey of Dutch households, we find no consistent evidence that trust in banks affects fintech adoption in any of the product categories, although we find weak evidence suggesting that trust in banks positively affects interest in alternative payment apps. Our results do not support the narrative that trust in traditional finance is a major driver of fintech adoption. (JEL D14, G23, G41, G50)
{"title":"Trust in Traditional Finance and Consumer Fintech Adoption","authors":"Deniz Okat, Mikael Paaso, Vesa Pursiainen","doi":"10.1093/rcfs/cfae011","DOIUrl":"https://doi.org/10.1093/rcfs/cfae011","url":null,"abstract":"We study the role of trust in traditional finance in the consumer adoption of various fintech products, including cryptocurrencies, peer-to-peer lending, other crowdfunding, roboadvisors, and alternative payment solutions. Using an online lab experiment, an experiment on an investment website, and a representative survey of Dutch households, we find no consistent evidence that trust in banks affects fintech adoption in any of the product categories, although we find weak evidence suggesting that trust in banks positively affects interest in alternative payment apps. Our results do not support the narrative that trust in traditional finance is a major driver of fintech adoption. (JEL D14, G23, G41, G50)","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"212 1","pages":""},"PeriodicalIF":11.3,"publicationDate":"2024-04-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140631108","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 document important links between targets’ institutional ownership and takeover-bid outcomes. Firms’ institutional ownership increases the likelihood of receiving stock-for-stock bids. The impact becomes stronger when information asymmetries are higher, whereas we find little support for alternative channels, such as bidder misvaluation or target-side adverse selection. The information channel is further buttressed in our analyses of institutions’ share-retention decisions, targets’ demand for top-tier advisors, collar provisions, and targets’ share of expected synergies. Our findings suggest that institutions’ information advantage facilitates rational payment design and targets’ bargaining power gains, alleviating deadweight losses associated with stock-for-stock offers. (JEL G23, G32, G34)
{"title":"Do Institutional Investors Process and Act on Information? Evidence from M&A Targets","authors":"Kirak Kim, Ellie Luu, Fangming Xu","doi":"10.1093/rcfs/cfae006","DOIUrl":"https://doi.org/10.1093/rcfs/cfae006","url":null,"abstract":"We document important links between targets’ institutional ownership and takeover-bid outcomes. Firms’ institutional ownership increases the likelihood of receiving stock-for-stock bids. The impact becomes stronger when information asymmetries are higher, whereas we find little support for alternative channels, such as bidder misvaluation or target-side adverse selection. The information channel is further buttressed in our analyses of institutions’ share-retention decisions, targets’ demand for top-tier advisors, collar provisions, and targets’ share of expected synergies. Our findings suggest that institutions’ information advantage facilitates rational payment design and targets’ bargaining power gains, alleviating deadweight losses associated with stock-for-stock offers. (JEL G23, G32, G34)","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"49 1","pages":""},"PeriodicalIF":11.3,"publicationDate":"2024-04-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140568211","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}
Banks predominantly issue nondilutive CoCos, contrary to the suggestion that CoCos should be dilutive to reduce risk-taking. In an agency model of two moral hazards, we show that, although dilutive CoCos deter ex ante risk-taking and prevent banks from being undercapitalized, penalizing shareholders of a distressed bank with dilution leads to ex post risk-shifting. CoCos’ design and risk implications depend on bank capitalization: equity-constrained banks prefer nondilutive CoCos because they maximize the financing capacity by tackling ex post risk shifting only. Nondilutive CoCos can be used to implement the constrained social optimum for highly leveraged banks, and regulators can induce appropriate CoCo designs with capital regulations. (JEL G21, G28)
{"title":"Nondilutive CoCo Bonds: A Necessary Evil?","authors":"Andrea Gamba, Yanxiong Gong, Kebin Ma","doi":"10.1093/rcfs/cfae004","DOIUrl":"https://doi.org/10.1093/rcfs/cfae004","url":null,"abstract":"Banks predominantly issue nondilutive CoCos, contrary to the suggestion that CoCos should be dilutive to reduce risk-taking. In an agency model of two moral hazards, we show that, although dilutive CoCos deter ex ante risk-taking and prevent banks from being undercapitalized, penalizing shareholders of a distressed bank with dilution leads to ex post risk-shifting. CoCos’ design and risk implications depend on bank capitalization: equity-constrained banks prefer nondilutive CoCos because they maximize the financing capacity by tackling ex post risk shifting only. Nondilutive CoCos can be used to implement the constrained social optimum for highly leveraged banks, and regulators can induce appropriate CoCo designs with capital regulations. (JEL G21, G28)","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"25 1","pages":""},"PeriodicalIF":11.3,"publicationDate":"2024-03-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140202299","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}
Joern Block, Young Soo Jang, Steven N Kaplan, Anna Schulze
Despite its large and increasing size in the United States and Europe, the private debt (PD) market, compared to the bank and syndicated loan markets, has been researched little. In this paper, we survey U.S. and European investors with private debt assets under management (AuM) of over $390 billion. These investors are primarily direct lending funds. We ask the general partners (GPs) how they source, select, and evaluate deals; how they think of private debt relative to bank and syndicated loan financing; how they monitor their investments; how they interact with private equity (PE) sponsors; and how they view the future of the market. Respondents provide primarily cash-flow-based loans and believe that they finance companies and leverage levels that banks would not fund. Direct lending funds target unlevered returns that appear high relative to their risk. They use leverage in their funds, but appreciably less than banks and collateralized loan obligation funds (CLOs). They use and negotiate for both financial and negative covenants to monitor their investments. The presence of PE sponsors helps them lend more and craft more effective covenants. U.S. and European funds are similar along many dimensions, but European funds rely less on PE sponsors and compete more with banks. Overall, the private debt market is both different from and shares characteristics with bank loan and syndicated loan markets. (JEL G23, G30, G32)
{"title":"A Survey of Private Debt Funds","authors":"Joern Block, Young Soo Jang, Steven N Kaplan, Anna Schulze","doi":"10.1093/rcfs/cfae001","DOIUrl":"https://doi.org/10.1093/rcfs/cfae001","url":null,"abstract":"Despite its large and increasing size in the United States and Europe, the private debt (PD) market, compared to the bank and syndicated loan markets, has been researched little. In this paper, we survey U.S. and European investors with private debt assets under management (AuM) of over $390 billion. These investors are primarily direct lending funds. We ask the general partners (GPs) how they source, select, and evaluate deals; how they think of private debt relative to bank and syndicated loan financing; how they monitor their investments; how they interact with private equity (PE) sponsors; and how they view the future of the market. Respondents provide primarily cash-flow-based loans and believe that they finance companies and leverage levels that banks would not fund. Direct lending funds target unlevered returns that appear high relative to their risk. They use leverage in their funds, but appreciably less than banks and collateralized loan obligation funds (CLOs). They use and negotiate for both financial and negative covenants to monitor their investments. The presence of PE sponsors helps them lend more and craft more effective covenants. U.S. and European funds are similar along many dimensions, but European funds rely less on PE sponsors and compete more with banks. Overall, the private debt market is both different from and shares characteristics with bank loan and syndicated loan markets. (JEL G23, G30, G32)","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"64 1 1","pages":""},"PeriodicalIF":11.3,"publicationDate":"2024-02-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139909830","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}
Benjamin Bureau, Anne Duquerroy, FranceFrédéric Vinas
We show both theoretically and empirically how trade credit financing may magnify the impact of activity shocks on corporate liquidity. Using unique daily data on payment defaults on suppliers in France, we quantify the magnitude of the short-term cyclical liquidity stress induced by trade payment obligations, exploiting the COVID-19 crisis as an exogenous shock. A one-standard-deviation rise in net trade credit position increases firms’ default probability by 10% during the lockdown. We find higher impacts for downstream sectors – up to 30% increase in the retail trade – for financially constrained firms, and a contraction in investment. (JEL E32, G32, G33, H12, H32)
{"title":"Activity Shocks and Corporate Liquidity: the Role of Trade Credit","authors":"Benjamin Bureau, Anne Duquerroy, FranceFrédéric Vinas","doi":"10.1093/rcfs/cfae002","DOIUrl":"https://doi.org/10.1093/rcfs/cfae002","url":null,"abstract":"We show both theoretically and empirically how trade credit financing may magnify the impact of activity shocks on corporate liquidity. Using unique daily data on payment defaults on suppliers in France, we quantify the magnitude of the short-term cyclical liquidity stress induced by trade payment obligations, exploiting the COVID-19 crisis as an exogenous shock. A one-standard-deviation rise in net trade credit position increases firms’ default probability by 10% during the lockdown. We find higher impacts for downstream sectors – up to 30% increase in the retail trade – for financially constrained firms, and a contraction in investment. (JEL E32, G32, G33, H12, H32)","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"29 1","pages":""},"PeriodicalIF":11.3,"publicationDate":"2024-02-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139769679","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}
I show how aggregate risk influences credit default swap (CDS) markets and CDS regulation in an analytically tractable general equilibrium framework. For low aggregate risk, the equilibrium with unregulated CDS markets is efficient with bondholders being fully insured. A general efficient allocation can be implemented via transfers alone. For intermediate aggregate risk, a margin requirement on CDS sellers is also necessary to implement the general efficient allocation. If aggregate risk is sufficiently high, unregulated CDS markets break down. A margin requirement on CDS sellers restores equilibrium and efficiency, but it must be maximally stringent and accompanied by constraints on CDS purchases by buyers.
{"title":"Credit Risk Sharing and Credit Market Regulation","authors":"Ajay Subramanian","doi":"10.1093/rcfs/cfad026","DOIUrl":"https://doi.org/10.1093/rcfs/cfad026","url":null,"abstract":"I show how aggregate risk influences credit default swap (CDS) markets and CDS regulation in an analytically tractable general equilibrium framework. For low aggregate risk, the equilibrium with unregulated CDS markets is efficient with bondholders being fully insured. A general efficient allocation can be implemented via transfers alone. For intermediate aggregate risk, a margin requirement on CDS sellers is also necessary to implement the general efficient allocation. If aggregate risk is sufficiently high, unregulated CDS markets break down. A margin requirement on CDS sellers restores equilibrium and efficiency, but it must be maximally stringent and accompanied by constraints on CDS purchases by buyers.","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"13 1","pages":""},"PeriodicalIF":11.3,"publicationDate":"2023-12-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139056240","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 examine the relation between venture capital (VC) investments, M&A activity, and merger competition laws in 45 countries around the world. We find evidence of a strong positive association between VC investments and lagged M&A activity, consistent with an active M&A market providing viable exit opportunities for VC companies and therefore incentives for venture capitalists to invest. We also explore the effects of country-level merger competition laws and pro-takeover legislation passed internationally on VC activity. We find significant reductions in VC activity in countries with stricter competition laws and find that VC activity intensifies after the enactment of country-level takeover-friendly legislation. (JEL G15, G24, D43, K21, L26)
{"title":"Venture Capital Investments, Merger Activity, and Competition Laws around the World","authors":"Gordon M Phillips, Alexei Zhdanov","doi":"10.1093/rcfs/cfad025","DOIUrl":"https://doi.org/10.1093/rcfs/cfad025","url":null,"abstract":"We examine the relation between venture capital (VC) investments, M&A activity, and merger competition laws in 45 countries around the world. We find evidence of a strong positive association between VC investments and lagged M&A activity, consistent with an active M&A market providing viable exit opportunities for VC companies and therefore incentives for venture capitalists to invest. We also explore the effects of country-level merger competition laws and pro-takeover legislation passed internationally on VC activity. We find significant reductions in VC activity in countries with stricter competition laws and find that VC activity intensifies after the enactment of country-level takeover-friendly legislation. (JEL G15, G24, D43, K21, L26)","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"55 1","pages":""},"PeriodicalIF":11.3,"publicationDate":"2023-11-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138543099","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}
A. Ellul, Isil Erel, Camelia M. Kuhnen, R. Marquez
{"title":"Finance for the Greater Good","authors":"A. Ellul, Isil Erel, Camelia M. Kuhnen, R. Marquez","doi":"10.1093/rcfs/cfad021","DOIUrl":"https://doi.org/10.1093/rcfs/cfad021","url":null,"abstract":"","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":" ","pages":""},"PeriodicalIF":11.3,"publicationDate":"2023-08-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43816820","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}
Funding contagion is the impaired ability of a firm to raise external funds when negative shocks hit other firms under the same owner. We study this possibility with pairs of private firms in unrelated industries that share a large common shareholder. We find that a firm’s debt growth and financial leverage go down when the partner firm experiences negative shocks. Our results are consistent with creditors contracting the credit supply because of cash flow cross-pledging between related firms. Funding contagion increases when control rights are strong, and the credit market is less developed.
{"title":"Funding Contagion through Common Owners","authors":"B. Larrain, Giorgo Sertsios, F. Urzúa I.","doi":"10.1093/rcfs/cfad019","DOIUrl":"https://doi.org/10.1093/rcfs/cfad019","url":null,"abstract":"\u0000 Funding contagion is the impaired ability of a firm to raise external funds when negative shocks hit other firms under the same owner. We study this possibility with pairs of private firms in unrelated industries that share a large common shareholder. We find that a firm’s debt growth and financial leverage go down when the partner firm experiences negative shocks. Our results are consistent with creditors contracting the credit supply because of cash flow cross-pledging between related firms. Funding contagion increases when control rights are strong, and the credit market is less developed.","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":" ","pages":""},"PeriodicalIF":11.3,"publicationDate":"2023-08-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48823968","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}
Bhavya Aggarwal, Nirupama Kulkarni, S. Ritadhi, Abhay P. Aneja, P. Bardhan, A. Basu, Pallavi Chavan, D. Mukherjee, P. Mukherjee, Abhinav Narayanan, Satish Rath, R. Ravikumar, Raghuram Rajan, A. Srinivasan, Carly Trachtman
This paper examines whether a one-time, extensive, but temporary shock to cash supply can affect the adoption of digital payments. We exploit the 2016 demonetization episode in India, which overnight discontinued 86% of cash in circulation. Using novel administrative data from retail debit card transactions, we identify a 12% increase in digital payments in areas adversely affected by the cash shortage, which persisted well after the restoration of cash supply. Examining mechanisms, we find a limited role for social networks and stronger support for learning by doing. Further, information frictions hinder the immediate adoption of digital payments.
{"title":"Cash Is King: The Role of Financial Infrastructure in Digital Adoption","authors":"Bhavya Aggarwal, Nirupama Kulkarni, S. Ritadhi, Abhay P. Aneja, P. Bardhan, A. Basu, Pallavi Chavan, D. Mukherjee, P. Mukherjee, Abhinav Narayanan, Satish Rath, R. Ravikumar, Raghuram Rajan, A. Srinivasan, Carly Trachtman","doi":"10.1093/rcfs/cfad018","DOIUrl":"https://doi.org/10.1093/rcfs/cfad018","url":null,"abstract":"\u0000 This paper examines whether a one-time, extensive, but temporary shock to cash supply can affect the adoption of digital payments. We exploit the 2016 demonetization episode in India, which overnight discontinued 86% of cash in circulation. Using novel administrative data from retail debit card transactions, we identify a 12% increase in digital payments in areas adversely affected by the cash shortage, which persisted well after the restoration of cash supply. Examining mechanisms, we find a limited role for social networks and stronger support for learning by doing. Further, information frictions hinder the immediate adoption of digital payments.","PeriodicalId":44656,"journal":{"name":"Review of Corporate Finance Studies","volume":"52 1","pages":""},"PeriodicalIF":11.3,"publicationDate":"2023-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90818936","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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