The purpose of this paper is to investigate the impact of managerial (Chief Executive Officer) overconfidence on corporate financing decision with the mediating role of risk perception. This study ...indicates that psychological biases affect the risk perception and ultimately financing decision of top management of an organization. The research design is causal and primary data has been used to test the proposed relationship. Among all the companies listed in the Pakistan Stock Exchange, researchers have selected top executives of 200 companies as a sample. E-Questionnaire has been used to collect the required data through LinkedIn and other mailing sources. Researcher has done a linear regression to find the relationship between independent variable overconfidence and dependent variable that is leverage. Baron and Kennys four-step mediation has been used to test the mediation effect of risk perception. Results of this study conclude that there is a significant positive relationship between overconfidence of CEO and leverage while there is a significant negative relationship between CEO overconfidence and risk perception. However, there is an insignificant result for the mediating role of risk perception between CEO overconfidence and leverage. Extensive research work is available on basic topic of how dividend policy and capital structure affect corporate performance; however, we found insufficient literature on psychological forces (behavioural biases) for financial decision making. The gap is covered by this study through explaining the impact of behavioural biases on corporate financial decisions which further distresses corporate performance. The results are significant for company top management, regulators and policy makers. This study as an empirical evidence is also helpful for researchers, academicians, and practitioners to understand and implement the notions coined by behavioural finance, regarding the effects of behavioural biases on corporate financial decisions that ultimately affects the corporate performance. The results are in line with previous studies on emerging economies.
Institutional cross-owners, specifically institutional investors with significant stakes in multiple firms in the same industry, are becoming increasingly common in the United States. In this paper, ...we investigate and find that the presence of institutional cross-owners facilitates a firm's financing of its investment opportunities, consistent with institutional cross-owners reducing the adverse selection concerns of those who provide capital for the investment opportunities. We then examine the conditions under which the presence of institutional cross-owners is likely to more significantly reduce adverse selection and thereby have even more of a positive effect on the financing of investment opportunities. We document that relative to transient institutional cross-owners, dedicated institutional cross-owners facilitate more financing of investment opportunities. We also find that institutional cross-owners facilitate the financing of investment opportunities even more for firms with greater dependence on external financing, those with an opaque financial reporting environment, and those with more product market competition. Our paper offers novel insight into how a firm can benefit from the presence of institutional cross-owners.
•We find that the presence of institutional cross-owners facilitates a firm's financing of its investment opportunities.•The results suggest institutional cross-owners reducing the adverse selection concerns of those who provide capital.•Relative to transient institutional cross-owners, dedicated ones facilitate more financing of investment opportunities.•The effect is stronger for firms with more external financing, opaque financial reporting, and product market competition.
Emerging market corporations have significantly increased their borrowing in international debt markets since 2008. We provide a detailed dive into this borrowing by showing that it happened in one ...particular market segment. Firms significantly increased their large bond issuances, mostly above US$500 million, which became cheaper to issue. We find a strong clustering of issuances with a face value of exactly $500 million after 2008 compared to developed markets. This suggests increased willingness from investors, especially cross-over investors, to purchase emerging market bonds included in newly created bond indexes, which require a minimum face value of $500 million. However, not all firms could issue such large bonds. Firms large enough to do so faced a trade-off. Issuing index-eligible bonds allowed them to borrow at a lower cost at the expense of accumulating cash. Because of this “size yield discount,” many companies increased their issuances of index-eligible bonds, accumulating cash holdings.
•Study of emerging market corporate borrowing in international markets after 2008.•This borrowing happened in one particular market segment: large bonds above $500 M.•Strong clustering of issuances of exactly $500 M bonds compared to developed markets.•Higher willingness from cross-over investors to purchase bonds included in indexes.•Firms that could issue large bonds faced a trade-off: lower cost but more cash held.
This study investigates the impact of borrower-lender distance on credit availability for private firms. Utilizing an extensive loan record history, we categorize loans into initial and subsequent ...borrowings. Our analysis reveals a consistent trend: loan size diminishes with increasing distance, even after accounting for Fintech effects. A noteworthy finding is the divergent role of financial connections. During initial borrowings, they mitigate the adverse effects of distance, while in subsequent borrowings, they become a positive signal to lenders, particularly post-soft information insights. These insights highlight intricate dynamics in credit availability, emphasizing the evolving roles of technology and financial connections in shaping lending relationships for private firms.
We use Chinese listed firms from 2011 to 2018 to explore whether and how financial technology impacts corporate debt-financing constraints and costs. Using two forms of financial technology cases in ...China, we explain why technology innovation in the financial industry flourishes and contributes to alleviating debt-financing constraints and reducing debt-financing costs. We empirically document that financial technology helps alleviate firms' financing constraints and reduce firms' debt-financing costs. We also find that financial technology plays a more significant role for private-owned firms, small firms, growth-stage firms, and firms under intense financial supervision.
The acquisition of external financing is an important factor affecting the development of enterprises and even the economic growth of a country. However, changes in the external environment often ...expose enterprises to uncertainties in obtaining external financing. Taking China’s initial public offering (IPO) suspension policy as a setting, this paper examines the impact of the associated external financing uncertainty on firms. The empirical results show that firms that are unable to secure planned financing due to the IPO suspension policy engage in greater tax avoidance activities than successful IPOs during the IPO suspension period; this phenomenon is mainly concentrated in firms that are not state-owned, have no venture capital or private equity backing, have lower debt servicing capacity and have lower tax avoidance risk. Moreover, the tax avoidance activities of enterprises positively influence their fixed asset investment and innovation investment during the IPO suspension period. Evidence based on IPO price performance indicates that investors respond positively to firms’ tax avoidance practices during IPO suspensions.
We exploit the exogenous Covid-19 shock in a bicultural area of Italy to identify cultural differences in the way companies respond to economic shocks. Firms with managers of diverse cultural ...backgrounds resort to different forms of government aid, diverge in their investment decisions, and have different growth rates. These findings are consistent with cultural differences in time preferences and debt aversion. Specifically, we find that the response of managers belonging to a more long-term oriented culture is characterized by a lower recourse to debt, more investments and higher growth rates. Overall, our results show that the cultural origin of managers significantly affects firms' reaction to economic shocks and real economic outcomes.
The syndicated lending market is one of the main financing sources for the development of the Russian economy. This article is dedicated to the processes managerial decision-making within the ...framework of syndicated lending transactions by borrowers, lenders and investors. Thanks to the use of market tools, borrowers get the opportunity to form an optimal structure for solving various tasks of corporate finance. Taking into account the adoption of managerial decisions by borrowers, the analysis of the following options for such decisions is presented: the choice of a bank for the role of a credit manager and the appointment of a legal adviser to the borrower. Lenders of syndicated lending transactions, making decisions on participation in transactions in the primary syndicated lending market, use the opportunity to share the specialized risks of syndicated transactions within the syndicate. Decisions that are made by the lenders include determining the commercial terms of participation in a syndicated loan in the primary market and approving these terms in accordance with the bank’s business processes. Investors active in the secondary syndicated lending market form their portfolios by making decisions regarding the following financial parameters of their transactions: the amount of the acquired/assigned interest in the syndicated lending participation and the transaction price. The paper concludes The article concludes that it is important for syndicated lending market participants to make optimal decisions, taking into account the role of market instruments in financing development projects of Russian corporations.
This paper examines how bank taxation affects the financing decisions and investment activities of corporates. Exploiting exogenous tax variation at the bank level, we show that taxing banks' gross ...profits leads to higher bank leverage, and results in lower risk and credit supply. The contraction in credit supply has implications for corporate debt financing and investment activity. Corporates more exposed to banks subject to gross profit tax exhibit lower leverage and rely less on bank debt. Corporates partly offset lower bank financing by switching to bond financing. The cost of bond financing increases with corporate exposure to the tax. A greater exposure also impacts negatively on corporate investment activity. Overall, our results highlight the importance of bank taxation for corporate financing and investment decisions.
•We investigate the impact of bank taxation on bank lending, and corporate financing and investment using the Ishihara tax as a source of exogenous variation.•Bank taxation leads to higher bank leverage,lower risk, and reduces credit supplied to corporate borrowers.•Corporates more exposed to bank taxes via existing banking relationships exhibit lower leverage, rely less on bank debt and increase bond financing.•The cost of bond financing increases for corporates more exposed to the tax.•Bank taxation also leads to a reduction in corporate investment activity.
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