We survey 1,050 Chief Financial Officers (CFOs) in the U.S., Europe, and Asia to directly assess whether their firms are credit constrained during the global financial crisis of 2008. We study ...whether corporate spending plans differ conditional on this survey-based measure of financial constraint. Our evidence indicates that constrained firms planned deeper cuts in tech spending, employment, and capital spending. Constrained firms also burned through more cash, drew more heavily on lines of credit for fear banks would restrict access in the future, and sold more assets to fund their operations. We also find that the inability to borrow externally caused many firms to bypass attractive investment opportunities, with 86% of constrained U.S. CFOs saying their investment in attractive projects was restricted during the credit crisis of 2008. More than half of the respondents said they canceled or postponed their planned investments. Our results also hold in Europe and Asia, and in many cases are stronger in those economies. Our analysis adds to the portfolio of approaches and knowledge about the impact of credit constraints on real firm behavior.
We study the effect of the recent financial crisis on corporate investment. The crisis represents an unexplored negative shock to the supply of external finance for non-financial firms. Corporate ...investment declines significantly following the onset of the crisis, controlling for firm fixed effects and time-varying measures of investment opportunities. Consistent with a causal effect of a supply shock, the decline is greatest for firms that have low cash reserves or high net short-term debt, are financially constrained, or operate in industries dependent on external finance. To address endogeneity concerns, we measure firms’ financial positions as much as four years prior to the crisis, and confirm that similar results do not follow placebo crises in the summers of 2003–2006. Nor do similar results follow the negative demand shock caused by September 11, 2001. The effects weaken considerably beginning in the third quarter of 2008, when the demand-side effects of the crisis became apparent. Additional analysis suggests an important precautionary savings motive for seemingly excess cash that is generally overlooked in the literature.
Many enterprises suffer from financial distress. Bank financing is a widely and traditional financing source. Recently, supply chain financing has emerged as an alternative, where capital-constrained ...enterprises could seek financial help from their upstream or downstream. In addition, crowdfunding is also risen as a novel financing source for innovative products, allowing the capital-constrained manufacturers to raise the initial funding from a crowd of investors. We study the capital-constrained manufacturer's optimal financing strategy when the new product requires a critical component from a monopoly and capital-abundant supplier. We conduct an equilibrium analysis to investigate the optimal component ready timing and wholesale pricing decisions under different financing strategies. Firstly, we find that the supplier's optimal component ready time is always later than the manufacturer's optimal preannounced time under crowdfunding. With information asymmetry under crowdfunding, both the manufacturer and supplier strive to release the product on time with high initial demand and low demand decay rate and encounter a Prisoner's Dilemma with low initial demand level and high demand decay rate under crowdfunding. Besides, our work shows that the supplier's optimal component ready time under bank financing is the earliest. We find that crowdfunding is a dominant strategy if the demand window and financing target are high while supplier financing interest is low. However, bank financing stands out when the demand window is short while the financing target is high or the demand window is large while the financing target is low. In addition, supply chain financing can outplay bank financing only when the sales window is minor while the financing target is lower. Moreover, our results suggest that the supplier will provide a supply chain financing service in two cases: the financing target is high while the interest rate is medium, or both the financing target and the interest rate are low. Our extended analysis presents that the main qualitative results hold continually when the manufacturer conducts a uniform wholesale price under different financing strategies.
Focusing on quarterly data of China’s publicly-listed firms from 2013Q1-2017Q3, this paper presents an exploratory analysis of the causes of corporate financing behavior through the channels of ...firm-level characteristics, country-level factors, and policy-related risks. The analysis uses multidimensional measures of policy-related risks, including economic policy uncertainty, geopolitical risk, and political risk. In addition, we assess whether the correlations between policy-related risks and financing activities vary under different financing strategies such as debt financing and equity financing. We also examine how financial constraints and industry differences influence firm financing. The empirical findings indicate policy-related risks can negatively affect corporate financing decisions. The effect of policy-related risk is larger on debt financing than on equity financing. Evidence also reveals that both firm- and country-level factors are essential determinants that guide corporate financing decisions. Finally, the inhibitory influence of policy-related risk is larger for the two separate subsamples of financially constrained firms and manufacturing firms. Knowledge of these impacts can help managers and policymakers to formulate more efficient strategies aimed at improving their economic performance.
•We examine the impact of policy-related risks on corporate financing behavior.•Policy uncertainty, geopolitical risk, and political risk are used in the analysis.•Results show that corporate financing decreases with the policy-related risks.•Policy-related risk has larger influence on debt financing than equity financing.•The adverse effect is larger for financially constrained and manufacturing firms.
This article examines the relation between a borrowing firm's ownership structure and its choice of debt source using a novel data set on corporate ownership, control, and debt structures for 9,831 ...firms in 20 countries from 2001 to 2010. We find that the divergence between the control rights and cash-flow rights of a borrowing firm's largest ultimate owner has a significant negative impact on the firm's reliance on bank debt financing. In addition, we show that the control-ownership divergence affects other aspects of debt structure including debt maturity and security. Our results indicate that firms controlled by large shareholders with excess control rights may choose public debt financing over bank debt as a way of avoiding scrutiny and insulating themselves from bank monitoring.
We explore the effect of green credit policy on firm performance of listed firms in China. We find that green credit policy reduces firm performance in heavily polluting industries. This effect is ...more prominent in state-owned enterprises, firms with large size, high institutional ownership, high analyst coverage and during high economic policy uncertainty period. Moreover, we observe that green credit policy decreases heavily polluting firms' performance by increasing firm financing constraints and decreasing investment level. Our results help to restrain heavily polluting enterprises and promote industrial transformation in developing markets.
•We explore the effect of green credit policy on firm performance in China.•Green credit policy reduces firm performance in heavily polluting industries.•This policy effect is more prominent in SOEs and large-cap firms.•This policy effect is more significant in firms with stronger external supervision.•EPU enhances the restraining effect of green credit policy.•Financial constraints and investment level play crucial economic channels.
We develop a dynamic model of corporate investment and financing decisions in which corporate insiders have superior information about the firm's growth prospects. We show that firms with positive ...private information can credibly signal their type to outside investors using the timing of corporate actions and their debt-equity mix. Using this result, we show that asymmetric information induces firms with good prospects to speed up investment, leading to a significant erosion of the option value of waiting to invest. Additionally, we demonstrate that informational asymmetries may not translate into a financing hierarchy or pecking order over securities. Finally, we generate a rich set of testable implications relating firms’ investment and financing strategies, abnormal announcement returns, and external financing costs to a number of managerial, firm, and industry characteristics.
The COVID-19 outbreak seriously affected all economies, especially the operations of listed companies, around the world. This article studies the impact of COVID-19 on firm-level cash holdings using ...the difference-in-differences method. It finds that COVID-19 has a significant positive impact on cash holdings in serious-impact industries. Goodwill and goodwill impairment can weaken this positive impact, which may be related to higher business risks in these firms. Therefore, managers should raise firms' cash holding level during the pandemic to protect firms against contingencies. Managers should also be aware of financing constraints due to risks.
The work describes the existing in the Russian Federation the system of financing projects megascience. By the example of legislative regulation, the authors analyze the current situation of these ...projects and the prospects for their further development. The foregoing allows acknowledging that legal control basis on regulation of megascience projects exists in the Russian Federation. The research was accomplished with financial support of the Russian Fundamental Research Fund in the framework of scientific project № 18-29-15036 mk «Models of legal regulation of unique scientific facilities of megascience class in the national and international level in conditions of technological development of the Russian Federation».
The notion that firms have a debt ratio target that is a primary determinant of financing behavior is influential in finance. Yet, how definitive is the evidence? We address this issue by generating ...samples where financing is unrelated to a firm's current debt ratio or a target. We find that much of the available evidence in favor of target behavior based on leverage ratio changes can be reproduced for these samples. Taken together, our findings suggest that a number of existing tests of target behavior have no power to reject alternatives.
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