Financial crises,debt overhang,and firm growth in transition economies

ABSTRACT

We examine the effects of the global financial crisis of 2008 and the European debt crisis of 2011 on the relationship between capital structure, investments, and performance for Eastern European companies. While the existing literature documents how firms’ investments are sensitive to the availability of internal funds and to debt holdings, we further investigate whether this investment sensitivity also translates in different levels of performance, and document that capital structure indeed has both a direct and an indirect effect, mediated by the capital expenditure channel. We show that firms with higher financial flexibility experience higher investments and returns on capital. Over-levered firms instead suffer from a debt overhang condition, forcing them to curb investments, and consequently experiencing lower performance. Overall, we provide evidence on the importance of capital structure and financial flexibility on investments and performance, showing the real consequences of the debt overhang condition on firm value creation. Firms should therefore aim at maintaining adequate financial flexibility in order to be able to pursue future profitable investment opportunities, and avoid the under-investment problem arising from a debt overhang situation.     

The capital market spillover effect of product market advertising: Evidence from stock price synchronicity

We analyze whether product market advertising has a spillover effect on stock price synchronicity by transmitting firm-specific information to the capital market and attracting more investor attention. Using a sample of Chinese listed firms from 2009 to 2017, we find that firms with greater advertising expenditures have lower stock price synchronicity. The results are robust after we address endogeneity concerns. In accord with our hypothesis that product market advertising increases the amount of firm-level information capitalized into stock prices through the information channel, we find that the impact of advertising on synchronicity is more pronounced for firms with a higher degree of information asymmetry and firms in the consumer-product industry. Further tests show that product market advertising enhances the ability of current period returns to reflect future earnings, and thus rules out that the negative relationship between advertising and synchronicity is driven by noise trading. Our results imply that product market advertising plays an informative role and improves information efficiency in a capital market.     

Financing Technological Innovation: Evidence from Patent-Intensive Firms

ABSTRACT

Equityholders of firms with high debt loads have an incentive to underinvest, a distortion that can be most costly for firms with attractive growth options. Using a novel patent-based measure of a firm's growth options, we find that firms issue more equity and shy away from debt financing when they have larger investment opportunities sets. The results are more pronounced among firms in patent-intensive industries. The findings suggest the existence of conflicts of interest between debtholders and equityholders. Our results are consistent with the use of conservative debt policies by technology-intensive firms to mitigate the debt overhang associated with their future growth options.     

技术创业型企业孵化资本投入的风险管控——来自多案例对比

待孵化的技术创业型企业同时具有概念性技术向差异化产品转化的高风险与产品异质性被认同后溢价评估的高收益特点，导致其投资者多处于隔岸观火却欲罢不能的的孵化投资矛盾中。对孵化资本实施有效的风险管控，成为吸引外部资本投入的关键。基于此，选择在可创概念选育与技术创业孵化领域探索出高成功率路径的概念证明中心、YCombinator和创新工场为研究案例，分析其在创业项目筛选、孵化资金运营等关键环节的风险管控方式，以期完善我国孵化资本管控理论、助力我国商业孵化器提高资金风险管控能力、促进外部资本投入。     

发明人角色识别及二元创新能力差异分析——社会资本视角的解释

发明人的创新活动嵌入在合作创新网络中。基于社会资本视角，从结构资本和认知资本两个维度辨识并定义4类发明人角色，包括“明星”、“纽带”、“平庸”和“活跃”发明人。以人工智能领域在德温特专利数据库（DII）授权的专利数据为样本，运用负二项模型，对4类发明人的二元创新能力进行实证对比分析。结果表明，不同角色发明人的二元创新能力显著不同。其中，“明星”发明人的二元创新能力最高，“平庸”发明人的二元创新能力最低，“活跃”发明人的二元创新能力高于“纽带”发明人，即认知资本对二元创新的影响大于结构资本。结论对提升发明人二元创新能力具有重要参考价值。     

Capital accumulation through studying abroad and return migration

This paper examines the interplays among studying abroad, return migration and capital accumulation, in a dynamic general equilibrium model featuring heterogeneous ability. Households invest in education and make two migration decisions: whether to study abroad and subsequently whether to return home. The model predicts that the highest, middle and lowest-ability people choose respectively permanent migration, return migration and no migration. More interestingly, we find a novel migration cycle: returnees bring back learned-knowledge and over time, capital accumulates, attracting more return migration. Further, the usual “brain drain” in the literature can be turned into “brain gain”, by providing a subsidy to studying abroad and returning home.     

Institutional quality and corporate financing decisions around the world

We investigate the influence of the recent comprehensive institutional quality dimensions of Karolyi (2015), such as market capacity, operational efficiency, foreign accessibility, corporate transparency, legal protection, and political stability, on financing decisions of firms across 56 countries between 2000 and 2015. We find that stronger institutional quality or lower fundamental risks in a country ease firms' access to long-term debt, and equity financing. We attribute our results to institutional environments influencing financing decisions by shaping the severity of market frictions, such as agency conflicts and information asymmetry, and transaction costs. As a result, we conclude that any improvement in a country's institutional environment will boost firms' access to long-term financing, and thus longer-term investments that promote countries' economic growth will be more feasible. Our findings are robust to potential endogeneity issues.     

Freeing Greece from capital controls: Were the restrictions enforced in time?

Recent developments in Greece have caused for the implementation of banking capital controls on the outflow of funds, a policy decision not uncommon, especially in emerging markets. However, the issues of the Greek economy, which seem to stem from the public sector but have been passed on to the banking sector, pose a unique challenge to researchers. In this paper, we employ VBanking, an object-oriented model for banking simulations to examine whether capital controls in Greece were enforced at the appropriate time. Additionally, we propose that the banking sector will not purge this regulation soon. Finally, we demonstrate the destructive effects of capital controls both on the financial system and on the real economy. We present the empirical results of our work, which suggest that the Greek authorities’ response to the deterioration of the banking sector was lagged.     

Financing investment in East Asia: Regional or global savings?

This paper investigates the extent to which domestic investment in East Asian countries is financed by domestic, (East Asian) regional and global savings in order to infer the relative importance of regional vs. global capital markets in East Asia. Panel regression results show that regional saving in East Asia plays a much more important role than global saving in financing investment in the region. The results suggest that global capital flows, despite its huge volume in East Asia, does not contribute to proper investment financing. The results also show that Japanese saving has significant effects on regional investment but Chinese saving does not.     

The role of inventories and capacity utilization as shock absorbers

We examine the role of inventories and capacity utilization (of both capital and labor) for the propagation of business cycle fluctuations. We document a new set of facts regarding the U.S. cyclical regularities of inventories and capacity utilization. First, we find that capital utilization and the flows of services from both capital and labor are procyclical, and comove with the holdings of inventories. Second, we find that labor utilization is procyclical as well, but is weakly negatively correlated with inventories. We build a model that accounts for these facts, and also accounts for the stylized inventory facts, i.e., inventory holdings are procyclical, while the inventory-to-sales ratio is countercyclical. The analysis is centered on the effects of two possible shocks: preference (demand) shocks and technology shocks. Our model shows that inventories and the rate of capital utilization are mostly complements, while inventories and the rate of labor utilization are mostly substitutes. It further shows that temporary demand shocks emphasize the role of inventories as being a “shock absorber,” whereas high-persistence demand shocks, as well as technology shocks of any persistence, emphasize the role of inventories as being a complement to consumption.