Rodrigo Wagner

Destroying collateral: asset security and the financing of firms

Posting collateral encourages credit provision under the assumption that lenders can appropriate the pledged assets in case of default. When institutions work imperfectly, though, banks discount the value of effective collateral, thereby reducing lending volume. This process has been described in US states with difficult foreclosure procedures, but here we show that it also matters for poor countries after a violent conflict, when collateralizable assets have a heightened probability of being destroyed. We use firm-level data on loans in Sub-Saharan Africa to show that to get a loan, firms in countries with recent conflict need to pledge additional collateral. While some OLS offer supporting evidence, the effect is larger and more precisely estimated when we use quantile regressions to focus on the subgroup of firms that face tougher collateral requirements, which suggests that this effect is heterogeneous within countries. This mechanism is a novel channel that relates peace to economic growth and convergence through financial markets.

Implicit Bailouts and the Debt of Wholly State-Owned Enterprises

Around a tenth of the global bond market is issued by State Owned Enterprises (SOEs) that do not have shares floating on public markets. Many of them are SOE banks. Sometimes governments avoid a direct capitalization of these SOEs and instead allow them to issue debt, assuming bond markets can “discipline” the company. Nonetheless bond buyers may expect that in case the SOE defaults there will be an implicit guarantee from the Treasury, either because of “too big to fail” problems or because of contagion to the sovereign bond. In this paper we use data from global bond markets in the last 20 years finding that in fact SOEs tend to get cheaper finance, on average some 30 to 80 basis points below comparable firms. This effect seems stronger for State Owned Banks than for Industrials and part of it can be rationalized by better credit rating given fundamentals. Our central results are robust to many alternative tests and do not seem to be caused by the characteristics of the issuance or the size of the firm. The bond market perceives that holding debt SOEs is on average safer, consistent with the view of an implicit state guarantee, which has implications for banking regulation and corporate governance.

Implicit Bailouts and the Debt of Wholly State Owned Corporations

Around a tenth of the global bond market is issued by State Owned Enterprises (SOEs) that do not have shares floating on public markets. Many of them are SOE banks. Sometimes governments avoid a direct capitalization of these SOEs and instead allow them to issue debt, assuming bond markets can “discipline” the company. Nonetheless bond buyers may expect that in case the SOE defaults there will be an implicit guarantee from the Treasury, either because of “too big to fail” problems or because of contagion to the sovereign bond. In this paper we use data from global bond markets in the last 20 years finding that in fact SOEs tend to get cheaper finance, on average some 30 to 80 basis points below comparable firms. This effect seems stronger for State Owned Banks than for Industrials and part of it can be rationalized by better credit rating given fundamentals. Our central results are robust to many alternative tests and do not seem to be caused by the characteristics of the issuance or the size of the firm. The bond market perceives that holding debt SOEs is on average safer, consistent with the view of an implicit state guarantee, which has implications for banking regulation and corporate governance.

The Birth and Growth of New Export Clusters: Which Mechanisms Drive Diversification?

The transition into non-traditional export activities attracts important policy and academic attention. Using international trade data, we explore how alternative linkages relate to the take-off and acceleration of export industries. Concretely, we run a horse-race among alternative Marshallian linkages across sectors: input-output relations, technology and labor. Technology has a predictive power depending on the specification used. We consistently find, however, that export take-offs are more likely to occur in sectors that are upstream to already competitive export industries. Our findings, which are mostly driven by developing economies, are consistent with Albert Hirschman’s 60-years old view that the forces behind upstream linkages fueled the growth of new competitive industries in the developing world.

Does Feedback to Business-Plans Impact New Ventures? Evidence from a Field Experiment

Financial models assume startups learn from feedback, but it is hard to test it empirically. First, because demand and supply of information are endogenous. Second, because business education and acceleration bundle feedback with confounding treatments. This paper is the first randomized experiment testing how unsolicited written feedback impacts fundraising of high-stakes entrepreneurs. All 88 teams entered a global accelerator and received

How Sensitive to Fundamentals is the Cost of Debt? Evidence from Commodities Boom and Bust

40,000. A random half of them additionally received feedback to business-plans. Treated startups fundraised on average

Does the Bond Market Discipline State Owned Enterprises

15,000 more, being more likely to get funding and to survive. Results are consistent with feedback improving ventures, rather than just screening them

Doing Growth Diagnostics in Practice: A 'Mindbook'

Corporate bond yields depend on a company’s fundamentals. However, the Finance literature has difficulty quantifying this relation due to endogeneity bias. Current operating margins, market capitalization, and Tobin’s Q can proxy for fundamentals but also are caused by the corporate cost of debt due to, for example, the costs of financial distress. To solve this challenge, this paper links oil and mining corporate bonds with the price of the underlying commodity that the issuer produces. We explore the sensitivity of corporate debt to the fundamentals in a context in which commodity debt is being downgraded, given that 4 out of 10 current defaults come from commodity companies. Our analysis finds that, on average, a 10% drop in commodity prices increases bond yields by 30 basis points. The effect of commodity prices is stronger for bonds with a shorter maturity and for companies that are smaller, have more leverage, or have poor operating margins. However, the relation is highly asymmetric. Whereas an increase in price has no statistically significant effect, a 10% fall in the commodity increases the cost of debt by 40 to 70 basis points. Our evidence supports theories in which bondholders price a company’s downside.Commodity producing corporations have trillions of dollars in outstanding debt. In that context, the bust in commodity prices has raised concerns about the sustainability of this debt and its systemic impacts. But so far the literature lacks estimates of how sensitive is this corporate debt to the swings of a commodity. Our paper separates this commodity effect from other confounding macroeconomic and firm characteristics. Using global bonds from 2003 to 2015 we find that, on average, a 10% change in a commoditys price has a moderate effect on the bond yields of its producers. Yields to maturity change only 15 basis points in the opposite sense; an effect that is only a tenth of the one of commodity stocks. Nonetheless, the sensitivity of bonds is highly heterogeneous. It gets amplified in bonds of shorter maturity; as well as when companies are smaller, more leveraged, less profitable and less hedged. The sensitivity comes mostly from drops in commodities, being 5 times more elastic than average. We also explore different beliefs about the persistence in commodity prices. Transitory commodity changes impact only shorter maturities and firms with high leverage. Longer maturities react more to permanent price changes. Hedged firms are less reactive to both types. In conclusion, finance becomes more costly but it does not dry up with a bust in commodity prices. Consistent with Shillers (2008) view, hedging limits the amplification of real shocks into financial markets. Our methods are of independent interest for conducting stress-tests.

Phytotoxic activity of root absorbed glyphosate in corn seedlings (Zea mays L.)

Around a tenth of the global bond market is issued by State Owned Enterprises (SOEs) that do not have shares floating on public markets. Many of them are SOE banks. Sometimes governments avoid a direct capitalization of these SOEs and instead allow them to issue debt, assuming bond markets can “discipline” the company. Nonetheless bond buyers may expect that in case the SOE defaults there will be an implicit guarantee from the Treasury, either because of “too big to fail” problems or because of contagion to the sovereign bond. In this paper we use data from global bond markets in the last 20 years finding that in fact SOEs tend to get cheaper finance, on average some 30 to 80 basis points below comparable firms. This effect seems stronger for State Owned Banks than for Industrials and part of it can be rationalized by better credit rating given fundamentals. Our central results are robust to many alternative tests and do not seem to be caused by the characteristics of the issuance or the size of the firm. The bond market perceives that holding debt SOEs is on average safer, consistent with the view of an implicit state guarantee, which has implications for banking regulation and corporate governance.