Economic policy uncertainty and cost of debt financing: International evidence

Prior research shows that economic policy uncertainty affects a wide range of corporate financial decisions; however, there is little research on the relationship between economic policy uncertainty and cost of debt financing across countries. In this paper, we argue that economic policy uncertainty affects cost of debt financing through two mechanisms including information asymmetry and default risk. With a sample of 163,243 firm-years across 17 countries from 2003 to 2016, we find that economic policy uncertainty positively affects cost of debt financing and this effect is stronger during the global financial crisis from 2008 to 2009. Moreover, our research findings show that large firms’ debt financing cost is less affected by economic policy uncertainty.     

Corporates' strategic responses to economic policy uncertainty in China

Using a novel news‐based index of economic policy uncertainty, this paper studies the impact of economic policy uncertainty on corporate strategic positioning and corporate risk in China from 2009 to 2015. The study also investigates the impact of corporate strategic positioning on corporate risk. The results show that corporate strategic positioning and economic policy uncertainty have a significant positive impact on corporate risk. The results also explain that economic policy uncertainty increases the market risk of the firms irrespective of their corporate strategy. However, it increases the business risk of prospector firms and decreases the business risk of defensive firms. The study may help the firms to formulate and improve their strategic positioning while considering economic policy uncertainty. Our results are robust to alternate proxies of economic policy uncertainty and corporate risk.     

自由贸易试验区建设影响企业外汇衍生品投资吗?

本文采用2010～2019年A股上市公司样本,探究自由贸易试验区建设对企业外汇衍生品投资的影响.研究发现,自贸试验区设立后,试验区内及其所在地上市公司外汇衍生品投资倾向显著提升.异质性检验结果表明,这一关系在面临风险更高、资产周转能力较差、多国化经营程度较低、处于激烈竞争行业以及面临融资约束的样本中更为明显;在经济发展...     

Targeted monetary policy and agriculture business loans

This study examines the effect of a Targeted Easing (TE) policy, an unconventional monetary policy tool initiated by the Chinese central bank to reduce reserve requirement ratios of agricultural financial institutions. Utilizing a longitudinal sample of Chinese agriculture companies and a matching sample of industrial firms between 2012 and 2017, we find that the TE policy successfully achieves its intended policy goal to boost lending to the agriculture sector. Results from our difference-in-differences estimations indicate that loan levels of agriculture firms increases significantly more than that of matching nonagricultural firms under TE relative to the non-TE period. We also document heterogeneous TE effects and find that agricultural firms with smaller agency costs, larger financing constraints, and larger loan intensity levels benefit significantly more from a TE policy than their counterparts. In addition, the TE policy effect is more salient during a contractionary period than in an expansionary period.     

CEO overconfidence and labor investment efficiency

We examine the impact of CEO overconfidence on labor investment efficiency (LIE). The findings suggest that firms with overconfident CEOs are more likely to have lower LIE. The findings are robust to alternative measures of CEO overconfidence and LIE and after accounting for endogeneity and CEO experience, age, managerial ability, high tech industry, and economic recession. Further analysis shows that: i) our findings are not due to the relation between net hiring and contemporaneous non-labor investments and the difference between high- and low-skilled labor, ii) firms with more analyst following, financially constrained firms, and firms located in states with wrongful discharge laws force CEOs to invest more efficiently in labor. In contrast, firms with dominant CEOs or facing high economic policy uncertainty are less efficient in labor investments, iii) firms with overconfident CEOs exhibit higher labor cost stickiness than those of non-overconfident CEOs, and iv) a lower LIE caused by CEO overconfidence has negative impacts on a firm's future profitability.     

The R&D Investment–Uncertainty Relationship: Do Strategic Rivalry and Firm Size Matter?

This paper uses a real options perspective to augment a standard research and development (R&D) investment model and implement a firm‐level empirical analysis to assess the practical significance of market uncertainty and its interactions with strategic rivalry and firm size. We use a measure of firm‐relevant market uncertainty along with panel data and find that firms invest less in current R&D as uncertainty about market returns increases. The effect of firm‐specific uncertainty on R&D investment is smaller in markets where strategic rivalry is likely to be more intense. Furthermore, holding access to financing constant, the effect of uncertainty on R&D investment is attenuated for large firms. Copyright © 2012 John Wiley & Sons, Ltd.     

The impact of venture capital financing method on SME performance and internationalization

One of the basic premises of venture capital is leverage, which often means adding money and other resources to speed up growth. As a result, small- to medium-sized venture funded firms are expected to show significant growth at an early stage. Our research examines how equity based-venture funding methods affect SME performance and internationalization. We divide venture capital financing into several categories: incremental financing where firms receive their venture capital funding in portions, lump-sum funding where firms receive their funding in one lump-sum, syndication where two or more external investors participate in a single financing round and non-syndicated financing where one investor participates in a single financing round. The results show that type of equity-based venture capital financing affect performance and internationalization. Annual sales growth rate and annual turnover are used as proxies for performance. Export ratio is used as a proxy for internationalization. Staged financing and financing through a syndicate has a positive effect on performance and internationalization when used separately. We observe a negative effect when syndication and staged financing are used in combination.     

Economic policy uncertainty,oil price volatility and stock market returns: Evidence from a nonlinear model

This paper investigates the nonlinear relationship between economic policy uncertainty, oil price volatility and stock market returns for 25 countries by applying the panel smooth transition regression model. We find that oil price volatility has a negative effect on stock returns, and this effect increases with economic policy uncertainty. Furthermore, there is pronounced heterogeneity in responses. First, oil-exporting countries whose economies depend more on oil prices respond more strongly to oil price volatility than oil-importing countries. Second, stock returns of developing countries are more susceptible to oil price volatility than that of developed countries. Third, crisis plays a crucial role in the relation between oil price volatility and stock returns.     

Interactions between Preemptive Competition and a Financing Constraint

We develop an investment and financing model in which two identical firms compete for first‐mover advantage in an opportunity to invest. We investigate the interactions between preemptive competition and a financing constraint. We show that a medium‐intensity financing constraint can play a positive role in mitigating the preemptive competition and improving firm value in equilibrium. This positive effect is in sharp contrast with the conventional negative effects of the financing constraint. The positive effect is strong, especially for IT venture businesses because of the following characteristics: severe preemptive competition, a lack of internal funds, high uncertainty regarding future project value, and high bankruptcy costs.     

How does a firm's life cycle influence the relationship between carbon performance and financial debt?

In a progressively more stringent regulatory context concerning greenhouse gas emissions derived from a growing awareness of how economic activity affects our environment, this study analyzes how the firm's life cycle affects the relationship between carbon performance and financial debt. Using panel data on a sample of European listed firms during the 2005–2018 period, we find evidence suggesting that firms with better carbon performance have greater access to external financing during their growth stages and lesser access during maturity, although it has no effect during the shake-out stage. Furthermore, carbon performance has a strong positive effect during growth, maturity, and shake-out when firms need to finance additional tangible investments. We also find that the negative relationship between liquidity and debt is reversed during innovative stages for firms with better carbon performance. Our results are robust to the use of alternative measures of life cycle stages and to the consideration of industrial, legal, and cultural contexts.     

Global Engagement and Returns Volatility

This paper finds that a greater reliance on foreign market sales increases the volatility of firms’ stock returns, using high‐frequency data for publicly listed Japanese manufacturing firms over the period 2000–10. The two margins of global engagement we consider, namely, exports and sales via foreign affiliates (horizontal foreign direct investment), have both a positive and economically significant effect on firm‐level volatility. We find, however, that increasing the intensity of sales through foreign affiliates has a stronger effect on volatility than a similar change in export intensity. We also uncover evidence consistent with the notion that firms’ need to use external finance to cover the substantial costs involved in reaching foreign consumers can be an important channel through which firms’ participation in international markets increases their exposure to economic uncertainty.     

Regulatory risk, market uncertainties, and firm financing choices: Evidence from U.S. Electricity Market Restructuring

Based on the universe of rate-regulated electric utilities in the U.S., we examine why firms alter their financing decisions when transitioning from a regulated to a competitive market regime. We find that the significant increase in regulatory risk after the passage of the Energy Policy Act, state-level restructuring legislations, and divestiture policies have reduced leverage by 15 percent. Policies that encouraged competition, and hence increased market uncertainty, lowered leverage by another 13 percent on average. The ability to exercise market power allowed some firms to counter this competitive threat. In aggregate, regulatory risk and market uncertainty variables reduce leverage between 24.6 and 26.7 percent. We also confirm findings in the literature that firms with higher profitability and higher asset growth have lower leverage, and those with more tangible assets are more levered. Firms with greater access to internal capital markets and those with a footloose customer segment use less debt, while those actively involved in trading power in the wholesale market use more debt.     

Untangling the relationships among growth,profitability and survival in new firms

The performance of new firms is important for economic development but research has produced limited knowledge about the key relationships among growth, profitability, and survival for new firms. Based on evolutionary theory, we develop a model about how new firms resolve uncertainty about their ability to prosper in a market by monitoring changes in profitability. Our model predicts selection pressures to weed out underperforming firms and learning in order to allow survivors to improve performance and grow. We test our theory using a unique panel of knowledge-intensive new firms in Sweden. We find strong support for the notion that profitability enhances both survival and growth, and growth helps profitability but has a negative effect on survival. Implications are discussed.     

Economic policy uncertainty and enterprise value: Evidence from Chinese listed enterprises

In this paper, we investigate how economic policy uncertainty (EPU) influences enterprise value based on China’s EPU index and financial data on A-share listed enterprises from 2004 to 2018. Our empirical results show that uncertainty in economic policy has a significant restraining effect on enterprise value in general and that the degree of the impact is closely related to enterprise characteristics, including financial leverage, scale, R&D intensity, the degree of marketization, ownership, and location. More precisely, an increase in financial leverage and scale can mitigate the restraining effect of EPU on enterprise value, while an increase in R&D intensity and marketization degree will exacerbate the restraining effect. In addition, non-state-owned enterprises (non-SOEs) and firms located in first-tier cities are more vulnerable to rising EPU. The evidence indicates that policymakers should pay attention to stability in macroeconomic policy and micro-enterprises should be concerned about the impact of uncertainty in economic policy, plan ahead, and take precautions.     

Overinvestment,inflation uncertainty,and managerial overconfidence: Firm level analysis of Chinese corporations

We study corporate investment by considering both external economic factor and managerial behavior, in particular the dynamic interaction between inflation uncertainty and managerial overconfidence by employing a sample of Chinese companies. The empirical findings demonstrate that lower inflation uncertainty increases over-investment, and managerial overconfidence exacerbates such effect. Further analysis shows that over-investment in state-owned enterprises (SOEs) is mainly driven by managerial overconfidence, and the negative association between inflation uncertainty and overinvestment is due to managerial overconfidence. The effect of managerial overconfidence is mute in non-state-owned enterprises (non-SOEs). In addition, we find asymmetric impact of inflation uncertainty on corporate over-investment during different economic cycles.     

Labor's liquidity service and firing costs

This paper studies the specific effect that firing costs can have on firms facing liquidity constraints. When firing costs are zero and a time gap exists between production and its associated revenues, firing allows firms to hold on to their liquid assets by saving on wages, and thus, allows firms to cope better with liquidity shocks when external financing is too costly or unavailable. I refer to this feature as labor's liquidity service. Higher firing costs reduces the value of labor's liquidity service, and thus, increases firms' incentive for hoarding liquidity and reduces firms' demand for production inputs. In addition to this negative effect at the creation margin of production, firing costs have a relatively higher positive effect on the destruction margin of production of financially restricted firms. This paper presents a model that develops these ideas and shows that the presence of firing costs has a stronger negative effect on the output of firms facing liquidity constraints. Regression analysis, based on country-industry panel data sets, provides empirical evidence consistent with the liquidity service effect of firing costs. I find a relatively stronger negative effect of firing costs on the output of industries with higher liquidity requirements and a relatively stronger negative effect of firing costs on the output of small, and more likely financially constrained, firms.     

Do tax reductions stimulate firm productivity? A quasi-natural experiment from China

Tax reductions for firms in the real economy are important reforms to address slowdowns in economic development in the complex current social and economic situation. To deeply explore the influence of tax reductions on firm development, this article considers firm total factor productivity as an indicator. A policy allowing accelerated depreciation of fixed assets implemented in 2014 and 2015 is taken as a policy shock to construct a gradual difference in difference (DID) model. Based on data from listed companies in China from 2010 to 2018, this article studies the influence of the policy on firm total factor productivity. The empirical results show that the policy significantly and sustainably improved the total factor productivity of the pilot firms. The policy improved productivity mainly by increasing corporate investment in fixed assets, stimulating R&D spending, and alleviating internal financing constraints. Further results reveal that the productivity effect of the policy is more prominent in non-state-owned enterprises and labor-intensive or growth-oriented enterprises. The research in this article helps deepen the understanding of the micro-foundations of the effects of tax reductions and provides a reference to leverage the micro-effects of such policies.     

Information content of unexpected dividends under a semi-mandatory dividend policy: An empirical study of China

We examine the information content of unexpected dividend changes under China’s unique semi-mandatory dividend policy, which requires firms to pay a minimum amount of cash dividends before they can undertake seasoned equity offerings (SEO). The cumulative abnormal returns (CARs) are significantly positive in response to unexpected dividend increase for non-SEO firms, but they are not significantly different from zero for SEO firms. For non-SEO firms, there is a significant positive relation between future earnings and unexpected dividend increases, but the relation is not significant for SEO firms. However, when considering additional refinancing costs for SEO firms caused by the mandatory dividend policy, higher dividend payments are associated with lower future earnings. Overall, our findings are consistent with both the dividend signaling theory and the negative effects of SEOs on a firm’s value.     

Staatliche Gründungsfinanzierung: Stand der Forschung und offene Fragen

This paper provides a survey on the current status of research in the field of public entrepreneurial financing. Most importantly, we investigate the economic justification of public activities in the market for start-up financing by addressing four research questions. First, the paper evaluates whether start-ups support macroeconomic growth at all. Second, we look for evidence of imperfections and market failure in the market for entrepreneurial finance. Third, the paper investigates whether public financing of start-ups is effective in the sense that subsidized firms perform better than non-subsidized ones. Fourth, it needs to be analyzed if existing measures of public financial support for start-ups are efficient, i.e. reach their economic goals cheaper than other measures. The answers to these questions are mostly negative which shows that economic research has no justification to offer for public entrepreneurial financing.     

Towards a Democratic New Normal? Investor Reactions to Interim-Regime Dominance during Violent Events

Although interim regimes in former autocracies are generally tasked with initiating a democratic ‘new normal’, they may privately intend to become their country’s new autocratic rulers. We argue that, to cope with the uncertainty stemming from this possibility, investors infer an interim regime’s intentions from the dominance displayed by the regime during government-related violence, as reflected in the share of civilian fatalities. Specifically, we propose that investors interpret higher interim-regime dominance as a signal of weaker democratic intentions and associate such weaker intentions with a gloomier political outlook for local firms. We therefore hypothesize that investors react more negatively to violent events characterized by higher interim-regime dominance. We also hypothesize a less negative effect of such dominance for firms with larger foreign footprints, lower indebtedness, or more concentrated ownership, since investors will likely consider such firms more resilient to political deterioration. Applying event study methodology to 94 spells of violence in Egypt during the Arab Spring, we find substantial support for our hypotheses, thus contributing to management research on investor decision-making, violence, and political uncertainty.