nep-cfn New Economics Papers
on Corporate Finance
Issue of 2004‒12‒12
thirteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  2. An Analysis of Financial Analysts Optimism in Long-term Growth Forecasts By Byunghwan Lee; John OBrien; K. Sivaramakrishnan
  3. The effect of different needs, decisionmaking processes and network-structures on investor behavior and stock market dynamics: a simulation approach Abstract: Striking investor and stock market behaviour have been recurrent items in the worldwide press for the recent past. Crashes and hypes like the Internet bubble are often hard to explain using existing finance frameworks. Therefore, the authors provide a complementing multitheoretical framework that is built on existing finance research to describe and explain investors behaviour and stock market dynamics. This framework is built on three main components: needs, decision making theory, and (social) network effects. This framework will be used to build a future simulation model of investor behaviour and to generate stock market dynamics. A brief outline of the design of these simulation experiments will be given. By Hoffmann, A.O.I.; Jager, W.
  4. Dynamic behavior of value and growth stocks By Wouters, T.; Plantinga, A.
  5. Capital structure and managerial compensation : the effects of remuneration seniority By Calcagno,R.; Renneboog,L.
  6. Creditor- and debtor-oriented corporate bankruptcy regimes revisited By Franken,S.
  7. Asset Price Shocks, Real Expenditures, and Financial Structure: A Multi-Country Analysis By Robert S. Chirinko; Leo de Haan; Elmer Sterken
  8. Changes in the financial management of housing corporations in the Netherlands : case research in two housing corporations By Bogt, H.J. ter
  9. Performance pay and adverse selection By Moen, Espen R.; Rosén, Åsa
  10. Dynamic Optimal Capital Structure and Technical Change By Lööf, Hans
  12. An Extension of the Markov-Switching Model with Time-Varying Transition Probabilities: Bull-Bear Analysis of the Japanese Stock Market By Akifumi Isogai; Satoru Kanoh; Toshifumi Tokunaga

  1. By: João Pedro W. de Azevedo
    Abstract: Several economic models have described the theoretical causes and onsequences of 'credit rationing' and 'under-investment'; one string of this literature shows the long-run effects of initial wealth distribution and entrepreneurial ability on the process of occupational choice and performance, and its consequences on inequality. Surprisingly, there is very little micro-level evidence on the existence and effects of 'credit rationing' in the context of developing countries. This is the contribution of the current paper. Using a survey of 4,553 entrepreneurs in 51 slums in Rio de Janeiro, this paper uses mean and quantile regression estimates to shows the effects of the type of initial capital, credit constraints, and human capital factors on entrepreneurs' performance. The main findings of the the paper are that entrepreneurs that were able to self-finance their business start-up presented earnings 16% greater than entrepreneurs that had to borrow their initial capital. In addition, entrepreneurs that explicitly claimed to be credit constrained performed substantially worse than their observationally identical counterparts, even if they were credit worthy. Both, initial source of funding and liquidity constraint presented greater effects on the highest quantiles. In terms of human capital, the current study shows positive and statistically significant returns for both years of schooling and experience, with higher returns on the lowest quantiles, indicating the potential role of these factors on inequality reduction.
    JEL: J24 J62 J44
    Date: 2004
  2. By: Byunghwan Lee; John OBrien; K. Sivaramakrishnan
    Abstract: Evidence suggests that long-term EPS growth forecasts of financial analysts are by and large optimistic. In particular, we test whether the Availability Heuristic (Tversky and Kahneman 1973) is descriptive of analysts’ forecasting behavior, and whether this heuristic can help explain the nature of optimism in growth forecasts. The Availability Heuristic predicts differential processing of information about current versus terminal economic conditions. Specifically, analysts’ forecasts will systematically underestimate (overestimate) growth in contraction (expansion) periods. Our results confirm this prediction. We find strong evidence of a negative association between past growth and realized forecast errors which varies across business cycles in a predictable manner. Following Chan et al (2003), we estimate a growth forecasting model, adjusting for the effects of the Availability Heuristic and business cycle. We find that under these conditions analysts’ long-term growth forecasts show significant explanatory power.
    Date: 2004–12
  3. By: Hoffmann, A.O.I.; Jager, W. (Groningen University)
    Date: 2004
  4. By: Wouters, T.; Plantinga, A. (Groningen University)
    Abstract: The difference between the performance of growth and value portfolios presents an interesting puzzle for researchers in finance. Most studies showed that value stocks outperform growth stocks. This is the so-called value premium. In this article, we try to find an answer to the question as to why value stocks generate superior returns to growth stocks by dividing growth and value stocks into switching- and fixed-style stocks. We show that the difference in returns between value and growth stocks is caused by frequently rebalancing portfolios and find a value premium for the switching-style stocks and a growth premium for the fixed-style stocks. We will try to find an explanation for this phenomenon using the behavioral finance explanation that investors are unable to process information correctly. We use earnings announcement return data to test whether expectations of investors about future growth are too extreme.
    Date: 2004
  5. By: Calcagno,R.; Renneboog,L. (TILEC (Tilburg Law and Economics Center))
    Date: 2004
  6. By: Franken,S. (TILEC (Tilburg Law and Economics Center))
    Date: 2004
  7. By: Robert S. Chirinko; Leo de Haan; Elmer Sterken
    Abstract: This paper examines the response of the economies of 11 EU countries, Japan, and the United States to shocks in housing and equity prices. The effects are assessed with a Structural Vector Auto Regressive (SVAR) model, and four key findings emerge. First, the impacts of asset price shocks are heterogeneous across countries. Second, these heterogeneous responses are systematically related to cross-country variation in financial structure, and we are thus able to document the importance of a wealth/balance sheet channel for consumption and an equity finance channel forinvestment. Third, for a given country, housing shocks have a much greater impact than equity shocks. Fourth, variance decompositions indicate that monetary policy reacts to equity price shocks but not to housing price shocks. These results highlight the important role played by asset prices on real activity, and fuel the debate about the inclusion of asset prices in the formulation of monetary policy.
    Keywords: Monetary policy; Asset prices; structural VAR. JEL codes: E44; E52; E2
    JEL: E44 E52 E2
    Date: 2004–11
  8. By: Bogt, H.J. ter (Groningen University)
    Abstract: The Dutch housing sector saw some major changes since about 1990. After decades of strong central government regulation and support, the social rented sector and housing corporations had to become more autonomous and financially independent. Consequently, housing corporations had to implement several changes in their financial management and other management control aspects. On the basis of research questions which were based on contingency theory and sociological institutional theory, case research was conducted in two housing corporations, a relatively large and a relatively small one. The research shows that the large corporation implemented more radical changes in its financial management and operational management. Further, the results indicate that the two corporations implemented the changes because they were striving for more economic efficiency and continuity of their organization. However, as sufficient numerical data were lacking, it was not really possible to evaluate the development of economic efficiency. The research findings also suggest that, apart from economic rationality, a striving for socially rational behaviour also may have influenced the changes which were implemented in the two corporations. This means that contingency theory as well as institutional theory provided aspects that were relevant to explain the changes in financial management which were implemented by the two corporations.
    Date: 2004
  9. By: Moen, Espen R. (Norwegian School of Management (BI)); Rosén, Åsa (Swedish Institute for Social Research, Stockholm University)
    Abstract: We study equilibrium wage contracts in a labour market with adverse selection and moral hazard. Firms offer incentive contracts to their employees to motivate them to exert effort. Providing incentives comes, however, at a cost, as it leads to misallocation of effort across tasks. With ex ante identical workers, the optimal wage contract is linear, and the equilibrium resource allocation optimal. With ex ante heterogenous workers, firms may increase the incentive power of the wage contract to attract the better workers. The resulting equilibrium is separating, in the sense that workers self-select on contracts. Furthermore, the contracts offered to the good workers are too high powered compared to the contracts that maximise welfare.
    Keywords: -
    Date: 2001–12–18
  10. By: Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: The importance of capital structure is explored by comparing existing archetypes of financial systems through a new methodological application. Differences in firms’ cost of capital show that capital structure is relevant in R&D and other investment decisions. The conclusions are that 1) there are large and also unexpected cross-country differences in determinants to optimal capital structure; 2) observed leverage is often different from target in both equity (or stock market based) and debt (or bank based) dominated systems; 3) faster speed towards the target is observed in the equity based system indicating a higher flexibility.
    Keywords: Capital structure; dynamic adjustment; panel data; optimal leverage; financial markets; cross-country comparison; technological change; creative destruction.
    JEL: C23 C51 G32 O16 O31
    Date: 2004–12–09
  11. By: Maria-Helena A. Dias; Joilson Dias; Charles L. Evans
    Abstract: The objective of this paper is to show an alternative technique to smooth time series from Monte Carlo Simulations. The technique considers that time series can contain more than one structural break, coming from movements in coefficients of trend or from intercept. The Hodrick-Prescott Filter (HP) does not provide identification of such possible breaks in order to smooth trend from the series to analyze its cyclical component. If the series are relatively stable, this problem may not have relevant implications. Otherwise, for economies relatively unstable, trend movements may interfere in the specification of the cyclical component, and Hodrick-Prescott smoothing could lead empiricists to achieve simplistic forms to economic cycles. In the context, we present an empirical methodology that allows structural breaks in any point of time, from coefficients or from intercepts. We apply this recursive technique to different models with variations in trend, from coefficients and from intercepts, using series simulated by Monte Carlo. Moreover, we compare the results of both techniques to the Brazilian GDP.
    JEL: E32 C22
    Date: 2004
  12. By: Akifumi Isogai; Satoru Kanoh; Toshifumi Tokunaga
    Abstract: This paper attempts to extend the Markov-switching model with time-varying tansition probabilities(TVTP). The tansition probabilities in the conventional TVTP model are functions of exogenous variables that are time-dependent but with constant coefficients. In this paper the coefficient parameters that express the sensitivities of the exogenous variables are also allowed to vary with time. Using data on Japanese monthly stock returns, it is shown that the explanatory power of the extended model is superior to conventional models.
    Keywords: Gibbs sampling, Kalman filter, Marginal likelihood, Market dynamics, Time-varying sensitivity
    Date: 2004–11
  13. By: André Proite; Maria da Conceição Sampaio de Sousa
    Abstract: We estimate DEA (Data Envelopment Analysis) technical efficiency scores for 1170 Brazilian hospitals included in the SUS (Central Health System) using a recently proposed method that combines bootstrap and jackknife resampling to eliminate the influence of outliers and possible measurement and recording errors in the data. We use the variable returns to scale variants of the DEA method. After computing the efficiency scores, we use econometric methods, especially quantile regression, to investigate the determinants of those scores. Our results confirm the importance of the scale effect (measured by the total number of services) over the technical efficiency of this sector, controlled by the average permanence in the hospital, its average costs and human capital variables. Regarded to hospital's management, we highlight the negative effects of non-profit organizations over the efficiency, which differs from the empirical literature due the usage of quantile regression in this paper. Excessive specialization also has a negative effect over the efficiency scores, pointing out the existence of an optimal mix between specialization and generalization hospitals' characteristics. As for property, private hospitals have its performance negatively affected for those units over the 30th efficiency quantile, suggesting that market failure effects are important in this sector.
    JEL: C5 C6 C14
    Date: 2004

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