We study how sovereign wealth fund (SWF) investments affect the credit risk of target companies as measured by the change in their credit default swap (CDS) spreads around the investment announcement. We find that the CDS spread of target companies decreases, on average, following an SWF investment. The reduction in the CDS spread is higher when the SWF is established by a politically stable non-democratic country that has a neutral political relationship with the host country of the target company. Our results suggest that creditors expect SWFs to protect target companies from bankruptcy when it is in the interest of their home country to build political goodwill in the host country of the company.

We evaluate the size and power of different statistical tests and adjustment methods for matching-portfolio models to detect abnormal changes in credit default swap (CDS) spreads. The sign-test generally dominates the signed-rank test in terms of size, and dominates both the t-test and the signed-rank test in terms of power. Traditional adjustment methods often lead to a misspecified sign-test. We propose a new and parsimonious method (the spread-matched method), which leads to a well-specified and more powerful sign-test. The superiority of the spread-matched method is particularly evident for observations characterized by extreme levels of CDS spread. Analyses of CDS samples differing by contract maturity, data source, and time period confirm these results. We perform an event study on rating downgrades to illustrate how the choice of tests and adjustment methods can affect inference.

In this work, we study the reallocation of shares to retail and institutional investors, measured as the difference between the allocation declared before the initial public offering (IPO) and the effective allotment decided by the underwriter after the bookbuilding process. The reallocation is disaggregated into three components, two of which are under the direct control of the underwriter: the initial allocation, and the demand satisfaction ratio. The empirical analysis is based on a sample of 193 hybrid IPOs issued in Italy between 1997 and 2012. Controlling for firm and IPO characteristics, we find that the IPO shares are typically shifted toward institutional investors when positive information is collected during the bookbuilding process. The IPO pricing and share reallocation are found to be interdependent, and reallocation is used in combination with partial adjustment to reward institutional investors.

We explore how and when venture capital (VC) alleviates the financial constraints of portfolio companies. Using a sample comprising 128 VC-backed companies and 233 non-VC-backed companies identified by propensity score matching, we estimate an error-correction model by accounting for the fact that the investment curve may be U shaped because of capital market imperfections. Our findings show that VC leads the investment curve to flatten in portfolio companies, which indicates an alleviation of financial constraints. This effect, however, is economically and statistically significant only after companies receive a follow-on round of VC financing. Because follow-on rounds, on average, do not involve larger amounts invested but have stronger informative content than initial rounds of investment, we interpret this result to indicate the importance of VC certification for the alleviation of financial constraints in portfolio companies. Evidence regarding the access to credit by VC-backed companies confirms this interpretation of the results.

We estimate the treatment effect of guaranteed loans on the growth of a large sample of French small and medium-sized enterprises (SMEs). The nature of our sample allows us to estimate the treatment effect up to 10 years after the treatment and to consider several performance measures and moderating factors. Our findings indicate that beneficiaries of guaranteed loans experience significantly higher growth in sales, employment, and total assets than otherwise similar companies. The effects are long lasting, do not entail a slowdown in productivity growth, are mostly driven by organic growth rather than by external acquisitions, and are larger in firms that are typically more financially constrained (young or small). Guaranteed-loan beneficiaries are also more likely to survive than non-beneficiaries. Our results are consistent across different identification strategies (matching, difference-in-differences, instrumental variable estimation) and control group choices.