nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2019‒03‒18
two papers chosen by
Alexander Harin
Modern University for the Humanities

  1. External Balance Sheet Risks in Ireland By Galstyan, Vahagn; Herzberg, Valerie
  2. Investment and the WACC: new micro evidence for France By Juan Carluccio; Clément Mazet-Sonilhac; Jean-Stéphane Mésonnier

  1. By: Galstyan, Vahagn (Central Bank of Ireland); Herzberg, Valerie (Central Bank of Ireland)
    Abstract: Large external imbalances have been a persistent feature of most advanced economies, including Ireland. This is despite significant deleveraging of the Irish banking sector since the financial crisis. Given the presence of internationally oriented activities with little Irelandrelated business, early-warning indicator metrics related to the international investment position require adjustments in order to serve as useful monitoring tools.We propose to focus on a metric related to the net external debt liabilities of a narrow set of domestic Irish banks: a closer monitoring of the external balance-sheet risk is warranted when the net external debt liabilities of domestic banks exceed 17 per cent of modified gross national income.
    Date: 2018–10
    URL: http://d.repec.org/n?u=RePEc:cbi:fsnote:9/fs/18&r=all
  2. By: Juan Carluccio; Clément Mazet-Sonilhac; Jean-Stéphane Mésonnier
    Abstract: We exploit a new dataset of consolidated balance sheets for some 1,850, mostly nonlisted, French corporate groups, in order to investigate the relationship between corporate investment and the cost of capital. Our empirical model is motivated by a standard Q-theory of investment and relates the rate of investment to a proxy for profits, the cost of capital and firm- and sector-level controls. We notably construct firm-level measures of the weighted average cost of capital (WACC) that account for industry-specific values of the cost of equity and reflect the actual capital structure of firms. We find a confirmation that a high WACC drags down investment: a one SD increase in the real WACC (+2 pp) is associated on average with a reduction by 0.65 pp in the investment rate. The effect is somewhat larger for manufacturing firms and when firms are highly leveraged or more dependent on external finance. We also investigate the impact of lower competition or higher uncertainty on business investment and do not find evidence in support of any role of these two factors in France in recent years.
    Keywords: Business Investment, Cost of Capital, Uncertainty, Competition
    JEL: G31 G32
    Date: 2019
    URL: http://d.repec.org/n?u=RePEc:bfr:banfra:710&r=all

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