Narrow Results

In this study, we investigate the heterogeneous signaling effects of government research and development (R&D) grants on corporate bank financing regarding various types of grants. While the literature primarily focuses on the information asymmetry between banks and receivers, this study focuses on the more fundamental aspect of disparate signals sent from various types of subsidies. We categorize public R&D subsidies into three types: project-based, special grants and general subsidies. By using data from Chinese listed firms between 2008 and 2018, we find that R&D projects have positive certification effects on corporate external financing, special funds do not have significant effects, and general subsidies send negative signals regarding firm quality, resulting in the reduction of long-term bank loans of recipients. However, the negative signaling effects of general subsidies are found to be counteracted by political connections, suggesting that the signal associated with political capital could be greater than that associated with firm quality.

There is ample evidence on how bank structure (bank concentration, development of the banking sector, and presence of foreign banks) is related to credit supply and economic growth. However, little is known about how bank structure affects credit supply when the banking sector itself is in crisis and thus credit supply is impaired. The paucity of studies in examining the relationship between bank structure and credit supply during financial crisis is probably due to the complication that bank structure itself is significantly related to financial crisis. In this study, we avoid the endogeneity problem caused by the correlation between bank structure and financial crisis by studying the stock price performance of firms in 20 emerging countries during the 2008 financial crisis because the financial hardship in these countries was caused exogenously by the crisis originated from the U.S. We find firms that are more dependent on external financing tend to suffer greater stock price declines. However, the severity of the decline is significantly smaller for firms in countries with higher level of bank concentration, greater advancement in banking sector, and higher level of foreign bank presence. The results suggest that bank concentration, bank development, and foreign bank presence all contribute to the alleviation of liquidity crunch caused by crisis transmitted from other countries.

This study examines whether and how US bank holding companies that early adopted Statement of Financial Accounting Standards (SFAS) 133, “Accounting for Derivative Instruments and Hedging Activities,” experience changes in their external financing activities relative to banks that did not early adopt the standard. Consistent with predictions, the study shows that early adopters hold higher and experience greater changes in their leverage compared with nonearly adopters. In addition, early adopters experience greater shifts in weights of liabilities other than insured deposits in banks’ funding mix. This finding is consistent with banking literature which states that banks have shifted towards nondeposit debts to finance their balance sheet growth.

Although the extant literature on corporate finance has largely focused on capital investments, relatively less attention has been paid to identify how research and development (R&D) related investments are financed. This study empirically tests the relationship between the different financing sources used by firms and their intensity of R&D in the rapidly growing economy of China. Furthermore, we posit that the firm’s choice to adopt the finance source for R&D will change if the firm is likely to be in financial constraints. This study finds out an empirical evidence that internally generated cash flows, bank debt, and seasonal public offerings (SPOs) stipulate a positive impact on R&D of Chinese firms, whereas the issuance of bond impacts it negatively. The study also confirms that financially constrained firms perceive the impact of financing sources on their R&D differently than non-financially constrained firms do. Results also slightly differ between high-tech and non-high-tech firms.

Subsidies from the government and financial resources from external investors play critical roles in supporting firm innovations. We develop a model to empirically investigate the role of firm innovation efficiency in government subsidy allocations and the joint effect of innovation efficiency and government subsidies on external investor decision-making in China. We collect panel data from 337 firms in China over ten years (2011–2021). The results show an inverted U-shaped relationship between innovation efficiency and government subsidies. Both government subsidies and innovation efficiency are positively associated with external financing. Government subsidies positively moderate the impact of innovation efficiency on external financing. The findings provide empirical evidence of the complex relationships among firm innovation efficiency, government subsidies and external financing. In this study, insights are provided into how Chinese government officials and external investors interpret signals of firm innovation. The findings of this study can also be used by managers to attract financial resources and by investors to make investment decisions.

Economic intuition and theories suggest that banks are motivated to voluntarily disclose information and signal their quality, for example, through early adoption of accounting standards, to better access capital markets. Examining accounting standards from January 1995 to March 2008, I find that US bank holding companies (BHCs) with lower profitability and higher risk profiles are more likely to choose early adoption. This evidence is consistent with a BHC’s incentive to better access external financing through information disclosure and signaling. Moreover, a counter-signaling effect of decisions not to early adopt is first identified because early-adopting BHCs are not necessarily the least risky and the most profitable. I also find the counter-signaling effect to be most evident when an accounting standard has no effect on the financial statement proper (i.e., only disclosure requirements). This finding complements prior research that managers treat recognition and disclosure differently and that financial statement users weigh more on recognized than disclosed values. Finally, the results show that early adopters generally experience higher fund growth in uninsured debts than matched late adopters in economic expansions, times when BHCs are most motivated to obtain funds. This finding is consistent with the bank capital structure literature that banks have shifted towards nondeposit debts to finance their balance sheet growth.