Credit Allocation when Borrowers are Economically Linked: An Empirical Analysis of Bank Loans to Corporate Customers
Iftekhar Hasan, Kristina Minnick, Kartik Raman
Journal of Corporate Finance,
June
2020
Abstract
Using detailed loan level data, we examine bank lending to corporate customers relying on principal suppliers. Customers experience larger loan spreads, higher intensity of covenants and greater likelihood of requiring collateral when they depend more on the principal supplier for inputs. The positive association between the customer’s loan spread and its dependence on the principal supplier is less pronounced when the bank has a prior loan outstanding with the principal supplier, and when the bank has higher market share in the industry. Longer relationships between the customer and its principal supplier, and between the bank and the principal supplier, mitigate lending constraints. The evidence is consistent with corporate suppliers serving as an informational bridge between the lender and the customer.
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Profit Shifting and Tax‐rate Uncertainty
Manthos D. Delis, Iftekhar Hasan, Panagiotis I. Karavitis
Journal of Business Finance and Accounting,
5-6
2020
Abstract
Using firm‐level data for 1,084 parent firms in 24 countries and for 9,497 subsidiaries in 54 countries, we show that tax‐motivated profit shifting is larger among subsidiaries in countries that have stable corporate tax rates over time. Our findings further suggest that firms move away from transfer pricing and toward intragroup debt shifting that has lower adjustment costs. Our results are robust to several identification methods and respecifications, and they highlight the important role of tax‐rate uncertainty in the profit‐shifting decision while pointing to an adjustment away from more costly transfer pricing and toward debt shifting.
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Intangible Capital and Productivity. Firm-level Evidence from German Manufacturing
Wolfhard Kaus, Viktor Slavtchev, Markus Zimmermann
IWH Discussion Papers,
No. 1,
2020
Abstract
We study the importance of intangible capital (R&D, software, patents) for the measurement of productivity using firm-level panel data from German manufacturing. We first document a number of facts on the evolution of intangible investment over time, and its distribution across firms. Aggregate intangible investment increased over time. However, the distribution of intangible investment, even more so than that of physical investment, is heavily right-skewed, with many firms investing nothing or little, and a few firms having very large intensities. Intangible investment is also lumpy. Firms that invest more intensively in intangibles (per capita or as sales share) also tend to be more productive. In a second step, we estimate production functions with and without intangible capital using recent control function approaches to account for the simultaneity of input choice and unobserved productivity shocks. We find a positive output elasticity for research and development (R&D) and, to a lesser extent, software and patent investment. Moreover, the production function estimates show substantial heterogeneity in the output elasticities across industries and firms. While intangible capital has small effects for firms with low intangible intensity, there are strong positive effects for high-intensity firms. Finally, including intangibles in a gross output production function reduces productivity dispersion (measured by the 90-10 decile range) on average by 3%, in some industries as much as nearly 9%.
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Private Debt, Public Debt, and Capital Misallocation
Behzod Alimov
IWH-CompNet Discussion Papers,
No. 7,
2019
Abstract
Does finance facilitate efficient allocation of resources? Our aim in this paper is to find out whether increases in private and public indebtedness affect capital misallocation, which is measured as the dispersion in the return to capital across firms in different industries. For this, we use a novel dataset containing industrylevel data for 18 European countries and control for different macroeconomic indicators as potential determinants of capital misallocation. We exploit the within-country variation across industries in such indicators as external finance dependence, technological intensity, credit constraints and competitive structure, and find that private debt accumulation disproportionately increases capital misallocation in industries with higher financial dependence, higher R&D intensity, a larger share of credit-constrained firms and a lower level of competition. On the other hand, we fail to find any significant and robust effect of public debt on capital misallocation within our country-sector pairs. We believe the distortionary effects of private debt found in our analysis needs a deeper theoretical investigation.
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Firm-level Employment, Labour Market Reforms, and Bank Distress
Moritz Stieglitz, Ralph Setzer
Abstract
We explore the interaction between labour market reforms and financial frictions. Our study combines a new cross-country reform database on labour market reforms with matched firm-bank data for nine euro area countries over the period 1999 to 2013. While we find that labour market reforms are overall effective in increasing employment, restricted access to bank credit can undo up to half of long-term employment gains at the firm-level. Entrepreneurs without sufficient access to credit cannot reap the full benefits of more flexible employment regulation.
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Import Competition and Firm Productivity: Evidence from German Manufacturing
Richard Bräuer, Matthias Mertens, Viktor Slavtchev
Abstract
This study analyses empirically the effects of import competition on firm productivity (TFPQ) using administrative firm-level panel data from German manufacturing. We find that only import competition from high-income countries is associated with positive incentives for firms to invest in productivity improvement, whereas import competition from middle- and low-income countries is not. To rationalise these findings, we further look at the characteristics of imports from the two types of countries and the effects on R&D, employment and sales. We provide evidence that imports from high-income countries are relatively capital-intensive and technologically more sophisticated goods, at which German firms tend to be relatively good. Costly investment in productivity appears feasible reaction to such type of competition and we find no evidence for downscaling. Imports from middle- and low-wage countries are relatively labour-intensive and technologically less sophisticated goods, at which German firms tend to generally be at disadvantage. In this case, there are no incentives to invest in innovation and productivity and firms tend to decline in sales and employment.
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Firm-level Employment, Labour Market Reforms, and Bank Distress
Ralph Setzer, Moritz Stieglitz
Abstract
We explore the interaction between labour market reforms and financial frictions. Our study combines a new cross-country reform database on labour market reforms with matched firm-bank data for nine euro area countries over the period 1999 to 2013. While we find that labour market reforms are overall effective in increasing employment, restricted access to bank credit can undo up to half of long-term employment gains at the firm-level. Entrepreneurs without sufficient access to credit cannot reap the full benefits of more flexible employment regulation.
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Price-cost Margin and Bargaining Power in the European Union
Ana Cristina Soares
IWH-CompNet Discussion Papers,
No. 4,
2019
Abstract
Using firm-level data between 2004 and 2012 for eleven countries of the European Union (EU), we document the size of product and labour market imperfections within narrowly defined sectors including services which are virtually undocumented. Our findings suggest that perfect competition in both product and labour markets is widely rejected. Levels of the price-cost margin and union bargaining power tend to be higher in some service sectors depicting however substantial heterogeneity. Dispersion within sector and across countries tends to be higher in some services sectors assuming a less tradable nature which suggests that the Single Market integration is partial particularly relaxing the assumption of perfect competition in the labour market. We report also figures for the aggregate economy and show that Eastern countries tend to depict lower product and labour market imperfections compared to other countries in the EU. Also, we provide evidence in favour of a very limited adjustment of both product and labour market imperfections following the international and financial crisis.
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The Effect of the Single Currency on Exports: Comparative Firm-level Evidence
Tibor Lalinsky, Jaanika Meriküll
IWH-CompNet Discussion Papers,
No. 1,
2019
Abstract
We investigate how adopting the euro affects exports using firm-level data from Slovakia and Estonia. In contrast to previous studies, we focus on countries that adopted the euro individually and had different exchange rate regimes prior to doing so. Following the New Trade Theory we consider three types of adjustment: firm selection, changes in product varieties and changes in the average value of the exports that compose the exports of individual firms. The euro effect is identified by a difference in differences analysis comparing exports by firms to the euro area countries with exports to the EU countries that are not members of the euro area. The results highlight the importance of the transaction costs channel related to exchange rate volatility. We find the euro has a strong pro-trade effect in Slovakia, which switched to the euro from a floating exchange rate, while it has almost no effect in Estonia, which had a fixed exchange rate to the euro prior to the euro changeover. Our findings indicate that the euro effect manifested itself mainly through the intensive margin and that the gains from trade were heterogeneous across firm characteristics.
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The Role of Auditors in Merger and Acquisition Completion Time
Salim Chahine, Iftekhar Hasan, Mohamad Mazboudi
International Journal of Auditing,
No. 3,
2018
Abstract
Using a sample of 664 merger and acquisition (M&A) transactions and office‐level audit data, this study investigates the role of auditors in M&A completion time. We find that having a common auditor for both acquirer and target firms in M&A transactions increases the completion time of such transactions because the exposure to higher litigation and reputational costs outweighs the information‐access advantage of common auditors. However, auditors' past experience in M&A transactions helps reduce completion time and costs. These results are robust to having Big N auditors at both ends as well as to various acquirer, target, and deal characteristics.
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