Unlisted Firms Research Articles

Bank credit, microfinance and female ownership: Are women more disadvantaged than men?

Using a comprehensive dataset on unlisted firms in 22 developing countries this paper analyses the relationship between gender, microfinance and access to bank credit. Using heckprobit to control sample selection bias, we reveal evidence of discrimination against female-owned and female-led firms. Also, we find that a mechanism for microfinance to empower women is facilitating loan applications and loan approvals for female-owned firms. Our paper highlights the importance of addressing gender discrimination in the credit market in order to facilitate the development of female-owned firms.

Bank Credit and Market-Based Finance for Corporations: The Effects of Minibond Issuances

We study the effects of the diversification of funding sources on the financing conditions for firms. We exploit a regulatory reform which took place in Italy in 2012, i.e., the introduction of “minibonds”, which opened a new market-based funding opportunity for unlisted firms. Using the Italian Credit Register, we investigate the impact of minibond issuance on bank credit conditions for issuer firms, both at the firm-bank and firm-level. We compare new loans granted to issuer firms with new loans concurrently granted to similar non-issuer firms. We find that issuer firms obtain lower interest rates on bank loans of the same maturity than non-issuer firms, suggesting an improvement in their bargaining power with the banks. In addition, issuer firms reduce the amount of used bank credit but increase the overall amount of available external funds, pointing to a substitution with bank credit and to a diversification of corporate funding sources. Studying their ex-post performance, we find that issuer firms expand their total assets and fixed assets, and also raise their leverage.

Private Equity Buyouts in Japan: Effects on Employment Numbers

We examine the effects of majority buyout investments on employment numbers in unlisted firms and businesses taken private in Japan between 1998 and 2015. In our sample (n=184), regular employment grows at an uncorrected average of 12.3% during a mean holding period of 4.3 years, and an annual growth differential of +1.7pp relative to a matched-pairs sample. Evidence from field interviews indicates that the positive growth differential primarily results from funds not cutting jobs beyond a certain threshold for reputational concerns. These concerns moderate the decisions of funds at two stages in the investment process: funds tend to avoid investing in businesses with major restructuring needs, and to prefer growth-centred to cost-cutting strategies. The effect on employment differs neither between foreign and domestic investors, nor between domestic funds owned by management and domestic funds owned by large financial or corporate groups. This implies that the reputational concerns outweigh differences in ownership and origin.

Firm Performance and Corporate Social Environmental Initiatives in the Wake of a Health Pandemic

The study re-examines the relationship between firm share price performance and Corporate Social Environmental Reporting (CSER) initiatives in the wake of a global health pandemic. A comparative analysis was done between the contributions made by listed and non-listed firms in Nigeria towards the pandemic. A comparative analysis of the share price (SP) of listed companies was carried out before the announcement of the pandemic, after the announcement of the pandemic and COVID -19 contributions. A panel regression analysis was conducted. It involved a sample of 70 listed firms in the Nigerian Stock Exchange over a five-year period (2013-2017). The comparative analysis of contributions revealed that listed firms though fewer in number made significantly more contributions than unlisted firms. The study found significant drop in SP after the announcement of a pandemic by the World Health Organisation (WHO). The study also found that SP performance and firm size has a positive and significant relationship with CSER initiatives. The analysis of contributors from listed and non- listed firms in Nigeria towards COVID-19 reveal that only corporate organizations with adequate resource slack can make significant contributions to curtail the spread of the epidemic. The study recommends that corporate organizations should pursue financial capacity in other to make significant CSER investments and expect a change in societal demands and stakeholder expectations in the no distant future.

Bank Credit and Market-based Finance for Corporations: The Effects of Minibond Issuances

We study the effects of the diversification of funding sources on the financing conditions for firms. We exploit a regulatory reform which took place in Italy in 2012, i.e., the introduction of “minibonds”, which opened a new market-based funding opportunity for unlisted firms. Using the Italian Credit Register, we investigate the impact of minibond issuance on bank credit conditions for issuer firms, both at the firm-bank and firm-level. We compare new loans granted to issuer firms with new loans concurrently granted to similar non-issuer firms. We find that issuer firms obtain lower interest rates on bank loans of the same maturity than non-issuer firms, suggesting an improvement in their bargaining power with the banks. In addition, issuer firms reduce the amount of used bank credit but increase the overall amount of available external funds, pointing to a substitution with bank credit and to a diversification of corporate funding sources. Studying their ex-post performance, we find that issuer firms expand their total assets and fixed assets, and also raise their leverage.

English

This quantitative study examines the reasons for changes in the leverage levels of the firms in GIPSI countries (Greece, Ireland, Portugal, Spain, and Italy), following the development of the sovereign debt crisis that began in 2009. This research belongs to the empirical literature studying the effects on firm leverage of reduced bank credit supply caused by that crisis. For all the sample firms and for each firm typology, that is, unlisted, listed, unlisted family, unlisted nonfamily, listed family and listed nonfamily, and for the entire period being analysed, the sample means of the debt-to-assets ratio in each year were calculated. The results show that owing to the lack of bank credit, unlisted firms reduced their leverage, whereas listed companies generally maintained their indebtedness, thanks to their access to financial markets. In spite of their orientation to socio-emotional wealth and its protection, unlisted family firms could not decrease their debt-to-assets ratio significantly less than unlisted nonfamily firms, due to the restriction of capital offered by banks. In contrast, the inclination toward the consolidation of socio-emotional wealth possibly enabled listed family firms to take advantage of the scarcity in bank capital to increase their leverage via bond issues, while listed nonfamily firms reduced the proportion of debt they employed, as the perpetuation of the business for future generations is not an issue for them.   Key words: Sovereign debt, capital structure, socio-emotional wealth, family and nonfamily firms, listed and unlisted firms.  

Voluntary IFRS Adoption by Unlisted European Firms: Impact on Earnings Quality and Cost of Debt

This paper investigates the impact of the voluntary adoption of International Financial Reporting Standards (IFRS) by unlisted firms on both their financial reporting quality and cost of debt. Using a large international sample of unlisted EU companies for which the choice of IFRS is voluntary, we find that IFRS adoption has a positive impact on financial reporting quality and results in a decrease in the cost of debt. In addition, unlisted firms adopting IFRS are more likely to be acquired or go public in the years subsequent to the adoption, relative to other unlisted firms. We document a tangible benefit of voluntary IFRS adoption by unlisted firms.

Financial reporting in family firms: a socioemotional wealth approach toward information quality

ABSTRACT The strategic choices of family firms are influenced by economic and noneconomic reference points. We contend that the preservation of the affect-related values a family derives from its ownership position in a firm (that is, socioemotional wealth [SEW]) affects financial reporting quality and earnings management strategies. Using the voluntary International Financial Reporting Standards (IFRS) adoption by Italian unlisted family firms as a natural laboratory setting, we found that the level of SEW endowment impacts on financial reporting quality. Furthermore, we observe that IFRS adoption is associated with less accrual, but higher real activity manipulation for increasing levels of SEW endowment.

Listing advantages around the world

Using the firm-level data of 33 countries over 10 years (2008–2017), we find that the listed firms have lower returns on assets than the similar unlisted firms, in most countries. The result is associated with a higher capital-labor ratio of listed firms, implying that the listed firms face less financial constraints. Moreover, we investigate the institutional factors that exacerbate or mitigate the listing advantages (i.e., ROA difference) across the countries. Compared to English origin law, countries with German and Scandinavian legal origins strongly narrow the listing advantages but the French legal origin shows mixed results. Overall, the listing advantages seem narrowed with stronger creditor’s rights but show unclear associations with the strength of corporate governance.

Determinants of capital structure in the Norwegian salmon aquaculture industry

Determinants of firm-level capital structure in the Norwegian salmon farming industry, which is a highly cyclical industry, are investigated with an emphasis on differences between listed and private companies. Capital structure is represented by long- and short-term debt, total debt, and liquidity. Using a unique panel data set of all Norwegian salmon farming companies, the econometric results show that profitability is negatively linked to short-term and total debt, and positively associated with liquidity; i.e., growth firms have lower liquidity. The listed firms rely less on long- and short-term debt (and hence total debt) than do unlisted firms, and have higher liquidity, which may reduce their bankruptcy risk, but can lead to a lower return. The results are reviewed in light of the theories of capital structure and should be useful for salmon farming companies and firms in other cyclical industries to evaluate the benefits of going public.

Effects of outside directors on firms’ investments and performance: Evidence from a quasi-natural experiment in Japan

This study presents evidence on the impact of outside directors on firms’ investment behavior and performance with a focus on the recent quasi-natural experiment that rapidly increased the number of outside directors in listed firms. Using a panel of Japanese firms, we compare listed and unlisted firms and conduct instrumental variable estimations to examine causal relationships. The results indicate that the rapid increase in the number of outside directors among listed firms did not promote active investments or risk-taking behavior. In addition, it had no significant impacts on the profitability and productivity of the firms.

Cheap-stock tunneling around preemptive rights

Preemptive rights are thought to protect minority shareholders from cheap-stock tunneling by a controlling shareholder. We show that preemptive rights, while making cheap-stock tunneling more difficult, cannot prevent it when asymmetric information about the value of the offered shares makes it impossible for the minority to know whether these shares are cheap or overpriced. Our analysis can help explain why sophisticated investors in unlisted firms and regulators of listed firms do not rely entirely on preemptive rights to address cheap-stock tunneling, supplementing them with other restrictions on equity issues.

Do Stock Market Cycles affect Unlisted Firms' Investment Activities?

We investigate the impact of stock market cycles on unlisted firms' investment activities. We find that bull markets is associated with increased capital expenditures, new establishments, and employment growth in the unlisted corporate sector, while bear markets is associated with a decrease in these investment activities. The favorable effect takes one year to materialize while the adverse effect takes place contemporaneously. Both effects are transitory and vanish after two years. The effects are stronger for unlisted firms with high capital requirements and facilitated in areas with a dense presence of listed firms. In addition, the magnitude of the effect is attenuated depending on the availability of alternative financing sources such as private equity and bank lending. We also find evidence suggesting stock market cycles partly impact the unlisted firm market through merger and acquisition activities by publicly listed firms.

Short-termist Investment and Time Preferences

This paper investigates the effect of shareholder and manager time preferences on short-termist investment behavior. Our theoretical analysis shows that managerial future orientation curtails short-termism whereas shareholder patience exacerbates it. We test these predictions by comparing the effects of time preferences on investment horizons of listed and unlisted firms in a sample of European firms. Based on the assumption that unlisted firms suffer from less asymmetric information, the effects of future orientation on investment horizons that are exclusive to listed firms provide weak support for our hypotheses. When considering future orientation on a national level, we find some evidence for firms in more future-oriented countries investing more long-term oriented. We can however not confirm the widespread notion that firms in more future-oriented countries suffer from less short-termism.

Bank Credit and Market-Based Finance for Corporations: The Effects of Minibond Issuances

Does a diversification of funding sources affect the financing conditions for firms? To answer this question we study a regulatory reform which allowed unlisted firms to issue minibonds. Using the Italian Credit Register, we compare new loans granted to issuer firms with new loans concurrently granted to similar non-issuer firms. We find that issuer firms obtain lower interest rates on bank loans of the same maturity than non-issuer firms, suggesting an improvement in their bargaining power with banks. Issuer firms also reduce the amount of used bank credit, expand their total and fixed assets, and raise their leverage.

Managerial entrenchment, financial constraints, and investment choice in unlisted firms

AbstractThis paper examines how internally generated cash is allocated for investment in unlisted firms in the post‐global financial crisis period. We estimate models using a panel data set from unlisted firms in the United Kingdom from 2009 to 2014. With the use of a commercially available credit rating and a widely used index in the literature to proxy for external financial constraints, the paper concludes that less financially constrained firms display a higher investment‐cash flow sensitivity. This association has been consistent across the post‐global financial crisis period. We find some evidence to suggest that investment inefficiencies reduce investment‐cash flow sensitivity, and this is intensified in the presence of external financial constraints. We extend the investment choice literature in the presence of financial constraints using evidence from unlisted firms. We also enhance the investment choice literature by incorporating the managerial entrenchment effect along with financial constraints. Provision of financial support for private entities is a crucial policy focus for any government. We call for policymakers to enhance microfinancing options for unlisted firms to reduce the impact from external financial frictions.

The Employee Is Always Right: Employee Satisfaction and Corporate Performance in Brazil

Abstract I investigate the effect of employee satisfaction on corporate performance based on an extensive dataset of 114,004 online reviews of Brazil’s 1,000 largest listed and unlisted firms from 2013 to 2018 posted at a local subsidiary of Glassdoor. I find that overall employee satisfaction is positively associated with firm performance and that this relationship is likely to be economically relevant. Among the four dimensions of employee well-being, the link with performance is most evident for the dimension on culture, followed by career opportunities. On the other hand, the dimension on compensation and benefits was the least connected with firm performance. Taken together, these results support the view that intrinsic motivators are more relevant for superior performance than extrinsic ones popularized by the carrot and stick approach to management. I also find that the influence of employee satisfaction on performance is likely to be asymmetrical, in the sense that workplaces characterized by low satisfaction among workers are more likely to lead to poor performance than best-in-class companies are likely to produce superior performance. To my knowledge, this is the first paper to document an asymmetrical link between firm value and employee satisfaction, as well the first one to investigate this issue in an emerging economy using online reviews.

Under pressure: Listing status and disinvestment in Japan

We provide the first large sample comparisons of disinvestment by listed and unlisted firms using data on Japanese firms from 2001–2017. Listed firms disinvest 2.0% more than unlisted firms and their disinvestment is also more sensitive to investment opportunities. Additionally, firms that disinvest show improvements in return on assets and increases in future investment. Finally, we find that disinvestment increases with foreign ownership and falls with ownership by financial institutions.

Cash holdings of listed and unlisted firms: new evidence from the euro area

This paper examines the cash holdings behavior of listed and unlisted firms. We argue that unlisted firms, which are smaller, face a greater wedge between the cost of external and internal finance and as a result they need to rely more on the later. Relying on internal funds means that firms have a precautionary motive to hold cash. We test our theory using an unbalanced panel of mainly small medium enterprises within the euro area over the period 2003–2017 paying special attention to the role of financial pressure, financial constraints and the recent financial crisis. Our findings reveal that unlisted firms hold more cash than their listed counterparts due to precautionary motives. In addition, when considering the effect of financial pressure, the results show that the difference in cash holdings between listed and unlisted firms exhibit a ‘U-shaped’ relationship. Finally, unlisted firms have a higher sensitivity to save cash out of cash flow than listed firms. Our results are robust to using different specifications and different financial pressure measures.

Earnings management strategies during financial difficulties: A comparison between listed and unlisted French companies

This paper investigates and compares the earnings management strategies of listed and unlisted firms during situations involving financial difficulties. The evidence from a sample of 6407 French non-financial entities from 2009 to 2016 shows that, in the presence of severe financial problems, both listed and unlisted entities exhibit income-increasing earnings manipulation carried out through real activities rather than discretionary accruals. The findings consistently reveal a more extensive use of income-increasing earnings management behaviours among listed firms compared to unlisted entities, especially in the presence of high levels of indebtedness. Thus, they provide full support for the “opportunistic behaviour” hypothesis about the earnings management behaviours of listed firms, at least in the context where firms are highly dependent on external debt and the institutional setting does not provide strong protection to creditors. Finally, the results indicate that, under such circumstances, entities trade off earnings manipulation strategies and define earnings management behaviours based on the probability of being detected, rather than looking at the cost of such earnings management tools.