CEF.UP – FIN Seminar/Webinar

Thursday – October 24^th, 2024 at 1:00 p.m. | Room 305| Online

The VAT Trap: How Consumption Tax Hikes Make Firms Pay Out More and Invest Less

Martin Jacob  – IESE Business School, University of Navarra (Spain)

Abstract:

“Using comprehensive firm-level data for 54 countries, we document that, contrary to standard economic theory, value-added tax (VAT) increases cause firms to permanently increase their cash payout and to reduce their investment. We reconcile these surprising findings using an OLG model where agents have finite lives. We show that VAT increases can come with unintended negative consequences on capital accumulation. Furthermore, the negative effects of VAT on capital accumulation critically hinge on the country’s culture. The more the country’s attitudes are oriented toward the consumption of current generations, the greater the negative consequences of VAT on capital accumulation and growth.”

CEF.UP – FIN Seminar/Webinar

Thursday – November 28^th, 2024 at 1:00 p.m. | Room 305| Online

“Poison Bonds“

Rex Wang Renjie  – VU Amsterdam University (Netherlands), Tinbergen Institute (Netherlands)

Abstract:

“This paper documents the rise of “poison bonds”—corporate bonds that allow bondholders to demand immediate repayment in change-of-control events. The share of poison bonds among new issues has grown substantially in recent years, from below 20% in the 1990s to over 60% since the mid-2000s, predominantly driven by investment-grade issues. We show that a key factor behind this rise is shareholders’ aversion to poison pills, leading firms to issue poison bonds as an alternative. Moreover, our analysis suggests that this practice can entrench incumbent managers and destroy shareholder value. Holding a portfolio of firms that remove poison pills but promptly issue poison bonds generates negative abnormal returns of -7.3% per year. Our findings have important implications for the agency theory of debt: (i) more debt may not discipline the management; and (ii) even without financial distress, managerial entrenchment can lead to agency conflicts between shareholders and creditors.”

CEF.UP – FIN Seminar/Webinar

Thursday – January 23^rd, 2025 at 1:00 p.m. | Room 305| Online

“Co-investment Games Under Uncertainty“

Benoît Chevalier-Roignant – Emlyon Business School (France)

Abstract:

“There are many business situations in which investments by a supplier and a producer (“coinvestments”) are both necessary for either of them to grasp a business opportunity (e.g., emergence of hydrogen-powered vehicles). One of these two firms, typically the one facing a lower cost (“low-cost firm”), may be more willing to invest, but the cautionary attitude of the firm with a larger cost (“large-cost firm”) delays the coinvestment. We model supply-chain interactions in a tractable way to derive the firms’ net present values upon coinvestment and determine their Nash equilibrium investment (timing) strategies. These situations are likely to be affected by evolving market circumstances, in particular due to changes in the demand dynamics and endogenous decision (say, by the supplier) to conduct research and development (R\&D) to reduce production costs. We investigate these model extensions, which confirm the robustness of our key result.”