Political Ties and Raising Capital in Global Markets: Evidence from Yankee Bonds
Gene Ambrocio, Xian Gu, Iftekhar Hasan
Journal of Corporate Finance,
June
2022
Abstract
This paper examines whether state-to-state political ties help firms obtain better terms when raising funds in global capital markets. Focusing on the Yankee bonds market, we find that issuances by firms from countries with close political ties with the US feature lower yield spreads, higher issuance amounts, and longer maturities. Such an association is more pronounced for firms located in low income and highly indebted countries as well as firms in government-related industries, first-time issuers, and relatively smaller firms. Our study provides evidence supporting the notion that country-level political relationship is an important factor when raising capital in international markets.
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13.04.2022 • 8/2022
From Pandemic to Energy Crisis: Economy and Politics under Permanent Stress
The German economy is steering through difficult waters and faces the highest inflation rates in decades. In their spring report, the leading German economic research institutes revise their outlook for this year significantly downward. The recovery from the COVID-19 crisis is slowing down as a result of the war in Ukraine, but remains on track. The institutes expect GDP to increase by 2.7% and 3.1% in 2022 and 2023 respectively. In the event of an immediate interruption to Russian gas supplies, a total of 220 billion euros in German economic output would be at risk in both years.
Oliver Holtemöller
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Revealing Corruption: Firm and Worker Level Evidence from Brazil
Emanuele Colonnelli, Spyridon Lagaras, Jacopo Ponticelli, Mounu Prem, Margarita Tsoutsoura
Journal of Financial Economics,
No. 3,
2022
Abstract
We study how the disclosure of corrupt practices affects the growth of firms involved in illegal interactions with the government using randomized audits of public procurement in Brazil. On average, firms exposed by the anti-corruption program grow larger after the audits, despite experiencing a decrease in procurement contracts. We manually collect new data on the details of thousands of corruption cases, through which we uncover a large heterogeneity in our firm-level effects depending on the degree of involvement in corruption. Using investment-, loan-, and worker- level data, we show that the average exposed firms adapt to the loss of government contracts by changing their investment strategy. They increase capital investment and borrow more to finance such investment, while there is no change in their internal organization. We provide qualitative support to our results by conducting new face-to-face surveys with business owners of government-dependent firms.
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Stock Liquidity and Corporate Labor Investment
Mong Shan Ee, Iftekhar Hasan, He Huang
Journal of Corporate Finance,
February
2022
Abstract
Labor is among the most crucial factors of production that maintain a firm's competitiveness. Given its economic importance, drivers of firms' labor investment policy have gained increasing attention in the financial economics literature. This study investigates the relation between stock liquidity and labor investment efficiency. We establish a causal relation between the two phenomena using an exogenous shock to liquidity: the 2001 decimalization of stock trading. We find that labor investment efficiency improves following an increase in stock liquidity, and the effect is prevalent in firms experiencing overinvestment in labor. Our findings further support the argument that stock liquidity improves the efficiency of labor investment by enhancing governance through shareholder exit threat.
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Political Uncertainty and Bank Loan Contracts: Does Government Quality Matter?
Iftekhar Hasan, Ying-Chen Huang, Yin-Siang Huang, Chih-Yung Lin
Journal of Financial Services Research,
December
2021
Abstract
We investigate the relation between political uncertainty and bank loan spreads using a sample of loan contracts for the G20 firms during the period from 1982 to 2015. We find that banks charge firms higher loan spreads and require more covenants during election years when domestic political risks are elevated. Greater differences in the support ratios of opinion polls on candidates lead to the lower cost of bank loans. This political effect also lessens when the government quality of the borrower’s country is better than that of the lender’s country. Better quality government can lower the political risk component of bank loan spreads.
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Do Banks Value Borrowers' Environmental Record? Evidence from Financial Contracts
I-Ju Chen, Iftekhar Hasan, Chih-Yung Lin, Tra Ngoc Vy Nguyen
Journal of Business Ethics,
December
2021
Abstract
Banks play a unique role in society. They not only maximize profits but also consider the interests of stakeholders. We investigate whether banks consider firms’ pollution records in their lending decisions. The evidence shows that banks offer significantly higher loan spreads, higher total borrowing costs, shorter loan maturities, and greater collateral to firms with higher levels of chemical pollution. The costly effects are stronger for borrowers with greater risk and weaker corporate governance. Further, the results show that banks with higher social responsibility account for their borrowers’ environmental performance and charge higher loan spreads to those with poor performance. These results support the idea that banks with higher social responsibility can promote the practice of business ethics in firms.
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COVID-19 Financial Aid and Productivity: Has Support Been Well Spent?
Carlo Altomonte, Maria Demertzis, Lionel Fontagné, Steffen Müller
Bruegel-Policy Contributions,
No. 21,
2021
Abstract
Most European Union countries have made good progress with vaccinating their populations against COVID-19 and are now seeing a rebound in economic activity. While the scarring effects of the crisis and the long-term implications of the pandemic are only partially understood, the effects of support given to firms can be evaluated in order to help plan the removal of crisis support. An analysis of France, Germany and Italy shows the potential for ‘cleansing effects’ in that it was the least-productive firms that have been affected most by the crisis. While support was generally not targeted at protecting good firms only, financial support went by and large to those with the capacity to survive and succeed. Labour schemes have been effective in protecting employment.
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07.09.2021 • 22/2021
IWH Bankruptcy Update: Ongoing Decline in Bankruptcy Statistics
After hitting an all-time low in July, the number of firms declaring bankruptcy in Germany fell yet again in August. A new low was also registered in the number of impacted jobs. These are the headline findings of the IWH Bankruptcy Report, published by the Halle Institute for Economic Research (IWH), which provides a monthly update on German bankruptcy statistics.
Steffen Müller
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08.06.2021 • 14/2021
IWH Bankruptcy Update: Still No Bankruptcy Wave in Sight; Number of Impacted Jobs Reaches New Low
In May the number of corporate bankruptcies once again fell significantly. A jump in June is also unlikely, according to early indicators assessed by IWH. The number of jobs impacted by bankruptcy has fallen to the lowest level witnessed since the Corona outbreak. The IWH Bankruptcy Report, published by the Halle Institute for Economic Research (IWH), provides a monthly update on German bankruptcy statistics.
Steffen Müller
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Agency Cost of CEO Perquisites in Bank Loan Contracts
Chia-Ying Chan, Iftekhar Hasan, Chih-Yung Lin
Review of Quantitative Finance and Accounting,
May
2021
Abstract
This study investigates the association between CEO perquisites and bank loan spreads. We collect detailed data on CEO perquisites from the proxy statements of S&P 500 firms between 1993 and 2015 to study this issue. The empirical evidence supports the agency cost view that the lending banks demand significantly higher returns (spread), more collateral, and stricter covenants from firms with higher CEO perquisites. We further confirm that the effect of these perquisites remains after we control for various corporate governance and agency cost factors. We conclude that banks consider CEO perquisites as a type of agency cost when they make lending decisions.
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