State Ownership and Financial Statement Comparability
William Francis, Xian Gu, Iftekhar Hasan, Joon Ho Kong
Journal of Business Finance and Accounting,
forthcoming
Abstract
This paper investigates how state ownership affects financial reporting practices in China. Using several measures of state (government) ownership, we show that a one-standard-deviation increase in state ownership decreases financial statement comparability by 36.61%, and the impact is more pronounced when the central authority has majority control of the company. Moreover, lower earnings quality and lower levels of accounting conservatism among state-owned enterprises (SOEs) may explain the lower accounting comparability between SOEs and non-SOEs (NSOEs). Additionally, similar (different) managerial objectives converge (diverge) financial statement comparability between SOEs and NSOEs. Last, the geographical locations of firms also contribute to financial statement comparability. We employ a difference-in-differences design, changes regression and entropy balancing to mitigate potential endogeneity bias.
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Creditor-control Rights and the Nonsynchronicity of Global CDS Markets
Iftekhar Hasan, Miriam Marra, Eliza Wu, Gaiyan Zhang
Review of Corporate Finance Studies,
forthcoming
Abstract
We analyze how creditor rights affect the nonsynchronicity of global corporate credit default swap spreads (CDS-NS). CDS-NS is negatively related to the country-level creditor-control rights, especially to the “restrictions on reorganization” component, where creditor-shareholder conflicts are high. The effect is concentrated in firms with high investment intensity, asset growth, information opacity, and risk. Pro-creditor bankruptcy reforms led to a decline in CDS-NS, indicating lower firm-specific idiosyncratic information being priced in credit markets. A strategic-disclosure incentive among debtors avoiding creditor intervention seems more dominant than the disciplining effect, suggesting how strengthening creditor rights affects power rebalancing between creditors and shareholders.
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05.09.2024 • 24/2024
Moderate economic growth in the world – German economy continues to stagnate
Production in Germany has been stagnating for two years and is roughly the same level as shortly before the outbreak of the pandemic. Investment of firms is particularly weak. An important reason for fewer investments is the sluggish export business. Private households are also holding back on consumption, mainly due to concerns about the longer-term economic outlook. According to the autumn forecast of the Halle Institute for Economic Research (IWH), gross domestic product in Germany is likely to stagnate in 2024 and to increase by 1.0% in 2025 as capacity utilisation normalises. In June, the IWH forecast had still assumed a growth of 0.3% in 2024 and of 1.5% in 2025. In East Germany, gross domestic product will increase by 0.3% this year and by 0.9% in 2025.
Oliver Holtemöller
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Optimal Monetary Policy in a Two-sector Environmental DSGE Model
Oliver Holtemöller, Alessandro Sardone
IWH Discussion Papers,
No. 18,
2024
Abstract
In this paper, we discuss how environmental damage and emission reduction policies affect the conduct of monetary policy in a two-sector (clean and dirty) dynamic stochastic general equilibrium model. In particular, we examine the optimal response of the interest rate to changes in sectoral inflation due to standard supply shocks, conditional on a given environmental policy. We then compare the performance of a nonstandard monetary rule with sectoral inflation targets to that of a standard Taylor rule. Our main results are as follows: first, the optimal monetary policy is affected by the existence of environmental policy (carbon taxation), as this introduces a distortion in the relative price level between the clean and dirty sectors. Second, compared with a standard Taylor rule targeting aggregate inflation, a monetary policy rule with asymmetric responses to sector-specific inflation allows for reduced volatility in the inflation gap, output gap, and emissions. Third, a nonstandard monetary policy rule allows for a higher level of welfare, so the two goals of welfare maximization and emission minimization can be aligned.
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Financial Debt Contracting and Managerial Agency Problems
Björn Imbierowicz, Daniel Streitz
Financial Management,
No. 1,
2024
Abstract
This paper analyzes if lenders resolve managerial agency problems in loan contracts using sweep covenants. Sweeps require a (partial) prepayment when triggered and are included in many contracts. Exploiting exogenous reductions in analyst coverage due to brokerage house mergers and closures, we find that increased borrower opacity significantly increases sweep use. The effect is strongest for borrowers with higher levels of managerial entrenchment and if lenders hold both debt and equity in the firm. Overall, our results suggest that lenders implement sweep covenants to mitigate managerial agency problems by limiting contingencies of wealth expropriation.
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Labor Market Power and Between-Firm Wage (In)Equality
Matthias Mertens
International Journal of Industrial Organization,
December
2023
Abstract
I study how labor market power affects firm wage differences using German manufacturing sector firm-level data (1995-2016). In past decades, labor market power increasingly moderated rising between-firm wage differences. This is because high-paying firms possess high and increasing labor market power and pay wages below competitive levels, whereas low-wage firms pay competitive or even above competitive wages. Over time, large, high-wage, high-productivity firms generate increasingly large labor market rents while charging comparably low product markups. This provides novel insights on why such top firms are profitable and successful. Using micro-aggregated data covering most economic sectors, I validate key results for multiple European countries.
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Green Investing, Information Asymmetry, and Capital Structure
Shasha Li, Biao Yang
IWH Discussion Papers,
No. 20,
2023
Abstract
We investigate how optimal attention allocation of green-motivated investors changes information asymmetry in financial markets and thus affects firms‘ financing costs. To guide our empirical analysis, we propose a model where investors with heterogeneous green preferences endogenously allocate limited attention to learn market-level or firm-specific fundamental shocks. We find that a higher fraction of green investors in the market leads to higher aggregate attention to green firms. This reduces the information asymmetry of green firms, leading to higher price informativeness and lower leverage. Moreover, the information asymmetry of brown firms and the market increases with the share of green investors. Therefore, greater green attention is associated with less market efficiency. We provide empirical evidence to support our model predictions using U.S. data. Our paper shows how the growing demand for sustainable investing shifts investors‘ attention and benefits eco-friendly firms.
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People
People Doctoral Students PhD Representatives Alumni Supervisors Lecturers Coordinators Doctoral Students Afroza Alam (Supervisor: Reint Gropp ) Julian Andres Diaz Acosta…
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Declining Business Dynamism in Europe: The Role of Shocks, Market Power, and Technology
Filippo Biondi, Sergio Inferrera, Matthias Mertens, Javier Miranda
IWH-CompNet Discussion Papers,
No. 2,
2023
Abstract
We study changes in business dynamism in Europe after 2000 using novel micro-aggregated data that we collected for 19 European countries. In all countries, we document a broad-based decline in job reallocation rates that concerns most economic sectors and size classes. This decline is mainly driven by dynamics within sectors, size, and age classes rather than by compositional changes. Large and mature firms experience the strongest decline in job reallocation rates. Simultaneously, the employment shares of young firms decline. Consistent with US evidence, firms’ employment has become less responsive to productivity shocks. However, the dispersion of firms’ productivity shocks has decreased too. To enhance our understanding of these patterns, we derive and apply a novel firm-level framework that relates changes in firms’ sales, market power, wages, and production technology to firms’ responsiveness and job reallocation.
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Declining Business Dynamism in Europe: The Role of Shocks, Market Power, and Technology
Filippo Biondi, Sergio Inferrera, Matthias Mertens, Javier Miranda
IWH Discussion Papers,
No. 19,
2023
Abstract
We study changes in business dynamism in Europe after 2000 using novel micro-aggregated data that we collected for 19 European countries. In all countries, we document a broad-based decline in job reallocation rates that concerns most economic sectors and size classes. This decline is mainly driven by dynamics within sectors, size, and age classes rather than by compositional changes. Large and mature firms experience the strongest decline in job reallocation rates. Simultaneously, the employment shares of young firms decline. Consistent with US evidence, firms’ employment has become less responsive to productivity shocks. However, the dispersion of firms’ productivity shocks has decreased too. To enhance our understanding of these patterns, we derive and apply a novel firm-level framework that relates changes in firms’ sales, market power, wages, and production technology to firms’ responsiveness and job reallocation.
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