Corporate Finance Research Articles

The Marginal Value of Cash: Corporate Savings, Investment, and Financing

The fact that internal liquidity is a key source of corporate funding puts the marginal value of cash at the center of a variety of firm decisions, including investment, payout, financing, savings, and risk management policies. The marginal value of cash is inherently a dynamic concept, because a firm facing financing frictions has to be forward-looking, managing its asset and liability structures in a unified framework and carefully trading off the use of liquidity across time and states. We present a dynamic framework for corporate liquidity management and survey the related literature, with a focus on the determinants of the marginal value of cash and its ubiquitous role in firm decisions.

Does firm culture influence corporate financing decisions? Evidence from debt maturity choice

This study establishes a relation between corporate culture and debt maturity choice. Specifically, superior corporate culture is associated with the choice of shorter-term debt, supporting the notion that superior culture reduces managerial agency problems resulting in managers being more receptive to external monitoring through the choice of shorter-term debt. The culture subcomponents of integrity, teamwork, and innovation are found to have a meaningful influence on the debt maturity structure choice. The relation between culture and debt maturity is more pronounced in firms with higher managerial stock ownership and those that are financially constrained, but is weakened in firms with a greater CEO sensitivity to stock prices. Additionally, firms with superior culture are shown to have higher long-term credit ratings. These findings contribute at the confluence of corporate culture and debt financing literatures. A battery of robustness tests, including addressing endogeneity concerns, validate the findings.

Impact of AI Applications on Corporate Financial Reporting Quality: Evidence from UAE Corporations

The research aims to identify the use of artificial intelligence applications as a pivotal technology to improve the quality of financial reports in UAE Corporations, as these applications help process and analyze data quickly and accurately. the problem of the study was the lack of confidence and credibility in the quality of financial reports in Corporations through some fictitious transactions that can affect the profits or losses of those Corporations. due to the effective role provided by artificial intelligence systems in the massive and rapid analysis of data, it was necessary to use these applications and employ them to enhance confidence in financial reports and achieve their quality, the study used Partial least squares (PLS) software in the analysis of the study came to the following conclusions: There is a statistically significant relationship between the use of artificial intelligence applications (AIA) and the quality of financial reporting (QFR) in UAE business Corporations, The study also came up with the following recommendations: The need to highlight the importance of artificial intelligence applications in business Corporations within the UAE, by developing the role of their applications in carrying out various routine and complex tasks and activities

Effect of Economic Risk Sources on the Quality of the Business Environment in the SME Segment: A Case Study from the Slovak Republic

The aim of the article is to define and quantify the impact of specific economic risk sources on the quality of the business environment (QBE). The subject of the analysis was the evaluation of the impact of selected economic risk sources, including the macroeconomic environment, monetary policy and interest rates, and corporate financing on the QBE. Data was collected between 2018 and 2022 using an online survey method. A total of 480 SMEs from the Slovak Republic’s business environment completed the questionnaire. Advanced statistical techniques, including descriptive statistics, correlation analysis, and linear regression analysis, were employed to evaluate the statistical hypotheses. The empirical results yielded several significant findings. All examined sources of the macroeconomic environment, such as the level of basic macroeconomic indicators, the state of the macroeconomic environment in the context of starting a business, and innovation activities of SMEs, determine the QBE. Other key factors that positively influence the quality of the business environment include: stabilization of the business environment by the central bank's monetary policy; the level of bank interest rates on the innovation activities of companies and availability of bank loans. The findings are significant not only for the SME segment itself and their owners and top managers but also for national-level institutions along with non-profit organizations assisting in improving the entire SME segment in the business environment.

Supply chain finance on corporate debt financing behavior under uncertainty

At present, the world is undergoing a major change that has not been seen in a century. How to deal with the increase in environmental uncertainty has become an important problem facing the high-quality development of Chinese enterprises. Chinese enterprises generally face financing constraints, and weak debt financing channels hinder the process of high-quality development of enterprises. How to improve debt financing capabilities has become a practical problem that Chinese enterprises urgently need to solve in response to the increase in environmental uncertainty. This paper first introduces the concept, characteristics and common patterns of supply chain finance , and also explains the definition of uncertainty environment and its impact on corporate operations and financing. By systematically combing through relevant domestic and foreign literature, this paper summarizes the results of existing research on supply chain finance, uncertainty environment and corporate debt financing behavior, laying a theoretical foundation for subsequent analysis. Secondly, this paper demonstrates the specific application of supply chain finance in an uncertain environment and its impact on corporate debt financing behavior through case analysis. By analyzing the success factors of these cases, such as risk management, support from financial institutions and technological innovation, the application value of supply chain finance in an uncertain environment is revealed. It is hoped that theoretical support and practical guidance will be provided for policymakers, financial institutions and enterprises to promote the development of supply chain finance and promote sound financing of enterprises.

Diversification strategies for indirect real estate. Intersection of business, economics, and society in shanghai mixed-use developments

This study examines the impact of large mixed-use developments on the financial performance of publicly listed real estate firms in Shanghai from 2009 to 2019. The research uses a Multi-Criteria Decision Making (MCDM) approach, considering 14 key performance indicators (KPIs) across three categories: Corporate and Financial Information, Strategy Indicators, and Specifics of Mixed-Use Development. The article analyses the performance of large, listed investors on the Hong Kong, Shanghai, and Singapore Stock Exchanges, providing insights into their evolution over the past decade. The literature review highlights the relationship between companies’ performance and corporate finance, capital structure, and financial ratios. It identifies an existing gap in research related to mixed-use assets and indirect real estate. By using the MCDM framework, the study evaluates these assets and provides actionable insights for global investors, asset managers, and developers, helping them make informed decisions in indirect real estate investment. The findings contribute to understanding investment strategy formation in dynamic real estate markets and support informed diversification and urban policy development. This paper offers a useful appraisal framework for future MCDM risk assessments, assisting stakeholders in navigating the complexities of the real estate landscape in one of the world’s foremost metropolitan hubs. It also offers recommendations and insights on best practices for global listed firms while providing a framework for future research in the field of property investment.

International Transportation Infrastructure and China Enterprises Green Innovation: Evidence from the China Railway Express

The China Railway Express (CRExpress) is a vital international transportation infrastructure for the advancement of the Belt and Road Initiative and the expansion of international commerce, providing a significant opportunity for Chinese companies to undergo a sustainable transformation. We use a multi-period differences-in-differences model to investigate the relationship and mechanism between the opening of the CRExpress and green innovation of enterprises, based on the panel data of Chinese A-shared listed companies from 2007 to 2020. The results show that the opening of the CRExpress can significantly increase the logarithmic number of green patent applications by at least 5% in enterprises with a spoke radius of 250–450 km, and it also has a significant positive effect on different types of green patents to varying degrees. By examining the sub-items of ESG ratings, the opening of the CRExpress can promote the green innovation of enterprises through the improvement of E-score. Additionally, three pivotal mechanism pathways have been identified: the promotion of regional economic development, the alleviation of corporate financing constraints, and the reduction of corporate logistics expenses. Furthermore, we find that the effect of the CRExpress turns out larger on the green innovation of enterprises in the Secondary Industry and the Tertiary Industry, manufacturing industry, state-owned enterprises, and firms located in the eastern and central regions. Based on the empirical study, we provide policy implications for deepening the correlation between the CRExpress and green innovation.

The effects of takeover laws on corporate financing policies: global evidence

Using a cutting-edge estimation method to address heterogenous treatment effects arising from differential treatment timing, we examine the effect of international takeover laws on corporate financing. We find that firms reduce their equity financing in response to takeover laws. Further analyses indicate that takeover laws’ negative effect on equity financing is more pronounced for firms with higher financial constraints and for firms in countries with strong investor protections.

Pension Insurance Contribution and Corporate Maturity Mismatch of Investment and Financing: Evidence from Contribution Rate Reduction in China

ABSTRACT Pension insurance contribution is an important factor affecting corporate financial decision-making. This study investigates the influence of the pension insurance contribution rate reduction policy on the corporate maturity mismatch between investment and financing. We found that the pension contribution reduction policy reduces actual contribution burden of firms, and the average actual contribution rate decreases by 0.26% after the nominal rate is reduced by 1%. However, the policy also significantly aggravates the corporate maturity mismatch of investment and financing, which survives a battery of robustness tests. The positive effect of pension insurance contribution rate reduction on the maturity mismatch of investment and financing is more apparent in private, smaller-scale firms and in firms with higher ownership concentration and lower management incentive levels. The pension contribution reduction policy strengthens long-term investment tendency by reducing the actual contribution burden of companies and shortens debt maturity by increasing principal-agent costs. The results of this study provide a new perspective for understanding the mismatch between corporate investment and financing.

Analysis of payment methods in merger and acquisition deals within the United Kingdom

Purpose This study aims to examine the effects of payment methods used in mergers and acquisitions (M&A) conducted by UK companies spanning the period from 2007 to 2019. Design/methodology/approach The study used the estimated expected returns method to identify abnormal returns during the deal announcement period, applying event study analysis with both univariate and multivariate regression models to detect cumulative abnormal returns around the announcement timeframe. Findings The results show a short-term positive return increase for acquiring firms, controlling for deal-specific characteristics like target firm location and payment methods. The authors observed a preference for cash financing across domestic and cross-border transactions. Multivariate analysis revealed insignificance between payment methods and deal characteristics like cross-border acquisitions and diversification. Research limitations/implications The study’s focus on publicly traded firms in the UK and the absence of a comparative analysis across different regions and markets limits the sample size and may impact the generalizability of findings. Practical implications The study proposes three practical implications. Firstly, firms should tailor payment methods to each transaction, aligning with strategic goals to optimize value and mitigate risks. Secondly, decision-makers must prioritize comprehensive due diligence and strategic alignment throughout M&A processes to enhance success and maximize synergies. Finally, analysing broader strategic contexts and regulatory landscapes when structuring transactions enables goal attainment, such as market expansion or value creation. Social implications The study’s findings can promote transparency and accountability among corporate decision-makers in M&A transactions. Stakeholders can advocate for transparent decision-making processes, enhancing trust in corporate governance. Originality/value This study provides valuable insights into the impact of payment methods on shareholder value in M&A transactions involving UK companies, informing strategic decision-making and contributing to the understanding of corporate finance dynamics.

Financial-industrial integration and corporate financialization: Evidence from China

This paper investigates the impact of financial-industrial integration on firm financialization. The findings indicate that financial-industrial integration negatively influences firm financialization, particularly in enterprises with high reliance on external financing, low credit differentiation, and digital transformation. Furthermore, financial-industrial integration inhibits corporate financialization by optimizing expectations, alleviating financing constraints, and mitigating risk. These research findings offer empirical evidence for solving the problems related to corporate financialization.

The impact of data elements marketization on corporate financing constraints: Quasi-experimental evidence from the establishment of data trading platforms in China

Utilizing data from Chinese A-share listed companies from 2010 to 2022, this paper develops a multi-time difference-in-differences model to explore the impact of data elements marketization on corporate financing constraints. Furthermore, we also explore the mediating roles of management effect and information effect and the heterogeneity effect across different companies. The research findings indicate that the marketization of data elements alleviates corporate financing constraints, and the effect varies across companies at different stages of the corporate life-cycle. The research conclusion offers insights for companies, especially those facing financing constraints, to actively engage in the data elements trading market.

The effect of corporate executives’ academic experience on firm financialization — Evidence from listed manufacturing firms in China

This paper studies the impact of corporate executives’ early academic experience on corporate financialization using the data from 2010 to 2019 of A-share listed manufacturing firms on the Shanghai and Shenzhen stock exchanges. The results show that the personal characteristics developed in early academic career experience significantly inhibit their decision-making on corporate financialization. This inhibitory effect is more obvious among the non-state-owned firms and those firms in the regions with a high level of marketization. Meanwhile, this inhibitory effect enhances with the implementation of equity incentive policies for corporate executives, but not with the employee stock ownership plan (ESOPs). The results reveal the value of early academic career experiences of executives in corporate governance.

Does local government debt management affect cross-border M&As? Evidence from China

The rapid expansion of government debt exacerbates systemic risks and tightens the credit transmission channels of monetary policy, posing a severe threat to the healthy development of firms. Existing literature mainly examines the impact of government debt on corporate financing behavior, innovation, and total output. Using data from a sample of Chinese A-share listed firms covering the period from 2001 to 2022, we investigate the impact of local government debt management on corporate cross-border mergers and acquisitions (M&As). Our analysis reveals that effective local government debt management promotes cross-border M&As by alleviating corporate financing constraints, intensifying market competition, and enhancing corporate risk-taking capacity. The findings offer fresh insights into achieving the dual objectives of risk prevention and stable growth through local government debt management and provide significant implications for boosting the high-quality development of the real economy.

Promoting corporate financing efficiency through digital finance and sustainable practices

ABSTRACT This paper explores the impact of digital finance (DFI) and environmental performance (EP) on corporate financing efficiency (FE) in China's property sector. The research addresses two main questions: How do digital finance and environmental performance influence corporate financing efficiency? What are the policy implications of these influences for enhancing green transformation in the sector? Employing robust techniques, including fixed-effect regression and a difference-in-differences (DID) approach. The study reveals that DFI and EP have a significant positive effect on FE. The analysis demonstrates that higher levels of DFI and improved EP lead to more effective allocation and utilization of financial resources. The DID results further indicate that an increase in DFI contributes to a significant enhancement in FE with a one-year lag, without violating the parallel trends assumption. The study shows that integrating digital finance and environmental sustainability improves financial efficiency. It urges policymakers to promote investments in digital financial technologies.

Corporate financialization and overseas investment efficiency: Evidence from China

This study examines the relationship between corporate financialization and outbound investment effectiveness based on empirical data from Chinese companies listed on the Shanghai and Shenzhen Stock Exchanges from 2010 to 2022. The study finds that corporate financialization greatly improves investment efficiency by alleviating financial constraints and reducing operating costs. The study provides insight into the implications of financialization for firms’ investment efficiency in foreign markets and generates significant guidance for practitioners.

The Impact of Investor Sentiment on Corporate Tax Avoidance from a Behavioral Finance Perspective

ABSTRACT This paper delves into the intersection of investor behaviors and corporate strategies from a corporate finance perspective, thus broadening the scope of research on how investor sentiment influences corporate tax avoidance. Focusing on A-share listed companies as its primary dataset, the study explores the relationship between investor sentiment and corporate tax avoidance strategies. It reveals a notable finding: heightened investor sentiment significantly escalates corporate tax avoidance activities. Companies tend to indulge in more tax avoidance practices to align with investor expectations and secure stakeholder support as investor sentiment rises. Moreover, the research uncovers that this positive correlation between investor sentiment and tax avoidance is particularly pronounced in private sector industries and companies experiencing substantial financing constraints. This insight offers a novel perspective on behavioral finance by examining it through the lens of micro-level corporate behavior. It also provides valuable guidance for future research in corporate finance, suggesting new pathways for integrating and enhancing theoretical frameworks in this field.

Government R&D Subsidies, Environmental regulation and corporate green innovation performance

Through empirical analysis, this study proves that government R&D subsidies play a positive role in promoting enterprises' green innovation activities, and the strengthening of environmental regulation further amplifies this impact. Meanwhile, financing constraints and financing costs, acting as mediating variables, reveal the pathway by which government subsidies indirectly promote green innovation by improving the corporate financing environment. The research provides a basis for the government to formulate fiscal support policies to promote corporate green innovation.

The Economic Impact of Water Vulnerability on Corporate Sustainability: A Perspective of Corporate Capital Cost

Studies have argued that water risk affects corporate sustainability, but few of them have fully explored whether or not and how water resources have a direct impact on corporate finance and strategy. This study takes the listed companies in the Chinese A-share market from 2019 to 2023 as a sample to understand the threat of water vulnerability to corporate sustainability from the perspective of capital cost. This study argues that water vulnerability positively relates to corporate capital cost by increasing corporate financing constraints. Meanwhile, this study also examines the role of water regulation and water investment in the relationship between water vulnerability and corporate capital cost. Water regulation brings legitimate pressure to corporations and increases the transformation risks faced by them, so it has a positive moderating effect. Water investment can alleviate the vulnerability of local water resources and reduce the physical water risk faced by corporations, so it has a negative moderating effect. The study finds that the two measures mainly play a significant moderating effect on the cost of debt. In addition, the study finds that the positive relationship between water vulnerability and capital cost has industrial and firm-level heterogeneity, while the moderating effect of government water governance has only industrial heterogeneity.

Project finance or corporate finance for renewable energy? an agent-based insight

State-of-the-art macroeconomic agent-based models (ABMs) include an increasing level of detail in the energy sector. However, the possible financing mechanisms of renewable energy are rarely considered. In this study, an investment model for power plants is conceptualized, in which energy investors interact in an imperfect and decentralized market network for credits, deposits and project equity. Agents engage in new power plant investments either through a special purpose vehicle in a project finance (PF) structure or via standard corporate finance (CF). The model portrays the growth of new power generation capacity, taking into account technological differences and investment risks associated with the power market. Different scenarios are contrasted to investigate the influence of PF investments on the transition. Further, the effectiveness of a simple green credit easing (GCE) mechanism is discussed. The results show that varying the composition of the PF and CF strategies significantly influences the transition speed. GCE can recover the pace of the transition, even under drastic reductions in PF. The model serves as a foundational framework for more in-depth policy analysis within larger agent-based integrated assessment models.