Long-run Competitive Spillovers of the Credit Crunch
William McShane
IWH Discussion Papers,
No. 10,
2023
Abstract
Competition in the U.S. appears to have declined. One contributing factor may have been heterogeneity in the availability of credit during the financial crisis. I examine the impact of product market peer credit constraints on long-run competitive outcomes and behavior among non-financial firms. I use measures of lender exposure to the financial crisis to create a plausibly exogenous instrument for product market credit availability. I find that credit constraints of product market peers positively predict growth in sales, market share, profitability, and markups. This is consistent with the notion that firms gained at the expense of their credit constrained peers. The relationship is robust to accounting for other sources of inter-firm spillovers, namely credit access of technology network and supply chain peers. Further, I find evidence of strategic investment, i.e. the idea that firms increase investment in response to peer credit constraints to commit to deter entry mobility. This behavior may explain why temporary heterogeneity in the availability of credit appears to have resulted in a persistent redistribution of output across firms.
Read article
The Impact of Delay: Evidence from Formal out-of-Court Restructuring
Stjepan Srhoj, Dejan Kovač, Jacob N. Shapiro, Randall K. Filer
Journal of Corporate Finance,
February
2023
Abstract
Different types of bankruptcy restructuring procedures are used in most legal systems to decide the fate of businesses facing financial hardship. We study how bargaining failures in an under-researched type of restructuring procedure, a formal out-of-the court procedure impacts the economic performance of participating firms. Croatia introduced a “pre-bankruptcy settlement” (PBS) process in the wake of the Great Recession of 2007–2009. A novel dataset provides us with annual financial statements for both sides of more than 180,000 debtor–creditor pairs, enabling us to address selection into failed negotiations by matching a rich set of creditor and debtor characteristics. Failures to settle at the PBS stage due to idiosyncratic bargaining problems, which effectively delay entry into the standard bankruptcy procedure, lead to a lower rate of survival among debtors as well as reduced employment, revenue, and profits. We are the first study to track how bargaining failures diffuse through the network of creditors, finding a significant negative effect on small creditors, but not others. Our results highlight the impact of delay and the importance of structuring bankruptcy procedures, to rapidly resolve uncertainty about firms’ future prospects.
Read article
Climate Change Concerns and Information Spillovers from Socially-connected Friends
Maximilian Mayer
IWH Discussion Papers,
No. 2,
2023
Abstract
This paper studies the role of social connections in shaping individuals’ concerns about climate change. I combine granular climate data, region-level social network data and survey responses for 24 European countries in order to document large information spillovers. Individuals become more concerned about climate change when their geographically distant friends living in sociallyconnected regions have experienced large increases in temperatures since 1990. Exploring the heterogeneity of the spillover effects, I uncover that the learning via social networks plays a central role. Further, results illustrate the important role of social values and economic preferences for understanding how information spillovers affect individual concerns.
Read article
Financial Linkages and Sectoral Business Cycle Synchronization: Evidence from Europe
Hannes Böhm, Julia Schaumburg, Lena Tonzer
IMF Economic Review,
December
2022
Abstract
We analyze whether financial integration leads to converging or diverging business cycles using a dynamic spatial model. Our model allows for contemporaneous spillovers of shocks to GDP growth between countries that are financially integrated and delivers a scalar measure of the spillover intensity at each point in time. For a financial network of ten European countries from 1996 to 2017, we find that the spillover effects are positive on average and much larger during periods of financial stress, pointing towards stronger business cycle synchronization. Dismantling GDP growth into value added growth of ten major industries, we observe that spillover intensities vary significantly. The findings are robust to a variety of alternative model specifications.
Read article
Productivity, Managers’ Social Connections and the Financial Crisis
Iftekhar Hasan, Stefano Manfredonia
Journal of Banking and Finance,
August
2022
Abstract
This paper investigates whether managers’ personal connections help corporate productivity to recover after a negative economic shock. Leveraging the heterogeneity in the severity of the financial crisis across different sectors, the paper reports that (i) the financial crisis had a negative effect on within-firm productivity, (ii) the effect was long-lasting and persistent, supporting a productivity-hysteresis hypothesis, and (iii) managers’ personal connections allowed corporations to recover from this productivity slowdown. Among the possible mechanisms, we show that connected managers operating in affected sectors foster productivity recovery through higher input cost efficiency and better access to the credit market, as well as more efficient use of labour and capital.
Read article
The Value of Firm Networks: A Natural Experiment on Board Connections
Ester Faia, Maximilian Mayer, Vincenzo Pezone
SAFE Working Papers,
No. 269,
2022
Abstract
We present causal evidence on the effect of boardroom networks on firm value and compensation policies. We exploit a ban on interlocking directorates of Italian financial and insurance companies as exogenous variation and show that firms that lose centrality in the network experience negative abnormal returns around the announcement date. The key driver of our results is the role of boardroom connections in reducing asymmetric information. The complementarities with the input-output and cross-ownership networks are consistent with this channel. Using hand-collected data, we also show that network centrality has a positive effect on directors’ compensation, providing evidence of rent sharing.
Read article
Firm Social Networks, Trust, and Security Issuances
Ming Fang, Iftekhar Hasan, Zenu Sharma, An Yan
European Journal of Finance,
No. 4,
2022
Abstract
We observe that public firms are more likely to issue seasoned stocks rather than bonds when theirs boards are more socially-connected. These connected issuers experience better announcement-period stock returns and attract more institutional investors. This social-connection effect is stronger for firms with severe information asymmetry, higher risk of being undersubscribed, and more visible to investors. Our conjecture is this social-network effect is driven by trust in issuing firms. Given stocks are more sensitive to trust, these trusted firms are more likely to issue stocks than bonds. Trustworthiness plays an important role in firms’ security issuances in capital markets.
Read article
Homepage
Blathering managers harm their company If a senior executive refuses to give information to professional investors, the...
See page
Macroeconomic Reports
Macroeconomic Reports Local and global: IWH regularly provides current economic...
See page
