Manuel Adelino (Duke University); Miguel A. Ferreira (Nova SBE); Mariassunta Giannetti (Stockholm School of Economics); Pedro Pires (Nova SBE)
We show that trade credit in production networks is important for the transmission of unconventional monetary policy. We find that firms with bonds eligible for purchase under the European Central Bank’s Corporate Sector Purchase Program act as financial intermediaries and extend more trade credit to their customers. The increase in trade credit flows is more pronounced from core countries to periphery countries and towards financially constrained customers. Customers increase investment and employment in response to the additional financing, while suppliers with eligible bonds increase their customer base, potentially favoring upstream industry concentration. Our findings suggest that the trade credit channel of monetary policy produces heterogeneous effects on regions, industries, and firms.
Monetary policy, Trade credit, Corporate bonds, Investment, Employment
Stefano Cassella (Tilburg University); Antonino Emanuele Rizzo (Nova SBE)
Strengthening U.S. shareholders' right to sue a corporation and its executives leads to significant equity value loss. Using exogenous judicial turnover to generate variation in shareholders' right to sue, we establish that only 15% of this loss stems from mechanisms hypothesized by prior literature (e.g., incremental legal expenses for the corporation). Instead, the value reduction is likely due to a worsening of firms' overall governance. Our evidence indicates that worse governance and equity value loss are due to a specific mechanism: stronger shareholders' right to sue impairs the threat of takeovers, and thus reduces the disciplining role of the market.
shareholder litigation, lawsuits, federal courts, judicial ideology, firm value, law and finance, takeover threat, investor protection, deterrence, governance
Irem Demirci (Nova SBE); Piet Eichholtz (Maastricht University); and Erkan Yönder (Ozyegin University)
This paper investigates whether corporate diversification by property type and by geography reduces the costs of debt capital. It employs asset-level information on the portfolios of U.S. REITs to measure diversification and looks at two of their main sources of debt capital: 1,173 commercial mortgages and 952 bank loans. The paper finds that diversification across different property types does indeed dependably reduce the cost of these different types of debt. The effect is about 7 basis points for bank loans if a firm’s property Herfindahl Index is lowered by one standard deviation and this effect gets stronger for REITs with worse financial health – as measured by the interest coverage ratio. The corresponding effect for commercial mortgages is around 22 basis points for collateral diversification by property type. After the crisis, the salience of the collateral asset increases. For diversification across regions, we do not find a consistent relationship between real asset diversification and loan pricing.
(published in The Journal of Real Estate Finance and Economics)