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on Corporate Finance |
| By: | Mihir A. Desai; Robert J. Yetman |
| Abstract: | In the absence of owners, how effective are the constraints imposed by the state in promoting effective firm governance? This paper develops state-level indices of the legal and reporting rules facing not-for-profits and examines the effects of these rules on not-for-profit behavior. Stronger non-distribution constraints are associated with greater charitable expenditures and foundation payouts while more stringent reporting requirements are associated with lower insider compensation. The paper also examines how governance influences an alternative metric of not-for-profit performance %uF818 the provision of social insurance. Stronger governance measures are associated with intertemporal smoothing of resources and greater activity in response to negative economic shocks. |
| JEL: | L30 G30 H40 K20 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11140&r=cfn |
| By: | Sandeep Kapur (School of Economics, Mathematics & Statistics, Birkbeck College); Allan Timmermann |
| Abstract: | We analyse the equilibrium consequences of performance-based contracts for fund managers. Managerial remuneration is tied to a fund's absolute performance and its performance relative to rival funds. Investors choose whether or not to delegate their investment to better-informed fund managers; if they delegate they choose the parameters of the optimal contract subject to the fund manager's participation constraint. We find that the impact of relative performance evaluation on the equilibrium equity premium and on portfolio herding critically depends on whether the participation constraint is binding. Simple numerical examples suggest that the increased importance of delegation and relative performance evaluation may lower the equity premium. |
| Keywords: | portfolio delegation, relative performance evaluation, equity premium |
| JEL: | G11 G12 G23 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:0503&r=cfn |
| By: | Quant,Marieke; Borm,Peter; Maaten,Rogier |
| Abstract: | The concede-and-divide rule is a basic solution for bankruptcy problems with two claimants. An extension of the concede-and-divide rule to bankruptcy problems with more than two claimants is provided. This extension not only uses the concede-and-divide principle in its procedural definition, but also preserves the main properties of the concede-and-divide rule. |
| JEL: | C79 D63 D74 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200520&r=cfn |
| By: | Marianne Bertrand; Sendhil Mullainathan |
| Abstract: | The strong positive relationship between corporate cash flow and investment has been interpreted through the lens of both agency- and non-agency-based models. In this paper, we distinguish between these two interpretations using project-level data in the oil and gas industry. The specific projects we consider are auctioned-off leases that give mineral exploration rights to tracts of federal land. We find the standard positive relationship between investment and cash flow in this data, in that positive shocks to residual cash flow (netting out firm and time effects) are associated with higher spending on these leases. Interestingly, the increased investment comes from an increase in the price paid per tract with little to no change in the total number of tracts or total acreage of land bought. The positive association between price and cash flow holds even after controlling for a set of tract and firm characteristics that might be ex-ante related to expected return on a given tract. This data is most useful, however, because we can directly observe the eventual productivity of each of these projects. We find that the increase in price induced by higher cash flow is associated with lower average productivity. In fact, the total number of productive tracts does not increase with cash flow. In other words, while higher cash flow is associated with higher spending on these projects, higher cash flow does not lead to higher revenues from these projects. Combining this finding with the lack of a quantity response, we conclude that our results are best described by an agency model where managers use cash flow to simplify their job (or live a ``quiet life'') rather than ``empire-build.'' |
| JEL: | G3 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11126&r=cfn |
| By: | Hanno Lustig |
| Abstract: | I introduce bankruptcy into a complete markets model with a continuum of ex ante identical agents who have power utility. Shares in a Lucas tree serve as collateral. The model yields a large equity premium, a low risk-free rate and a time-varying market price of risk for reasonable risk aversion. Bankruptcy gives rise to a second risk factor in addition to aggregate consumption growth risk. This liquidity risk is created by binding solvency constraints. The risk is measured by one moment of the wealth distribution, which multiplies the standard Breeden-Lucas stochastic discount factor. This captures the aggregate shadow cost of the solvency constraints. The economy is said to experience a negative liquidity shock when this growth rate is high and a large fraction of agents faces severely binding solvency constraints. These shocks occur in recessions. The average investor wants a high excess return on stocks to compensate for the extra liquidity risk, because of low stock returns in recessions. In that sense stocks are "bad collateral". The adjustment to the Breeden-Lucas stochastic discount factor raises the unconditional risk premium and induces time variation in conditional risk premia. |
| JEL: | G0 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11132&r=cfn |
| By: | Chaaban, J.; Réquillart, V.; Trévisiol, A. |
| Abstract: | The paper aims to identify whether production characteristics, such as technical efficiency and returns to scale, affect takeovers. Applying a two-stage procedure on original panel data on french ceese manufacturers, the paper first estimates firm-specific productive efficiency and scale economies using Data Envelopment Analysis. The paper then uses the findings of the first stage to evaluate a random effects logit model of the determinants of takeover in the french cheese industry for the period 1985-2000. The paper finds that technical efficiency is not a significant determinat of takeovers, whereas the nature of scale economies is. Firms with Decreasing Returns to Scale (i. e. an over-sized production capacity) face a higher risk of takeover. This suggests that cheese manufacturers have been seeking to expand their milk processing capacities by acquiring large firms. This proves to be an indirect consequence of the non-transferable milk quota regime affecting the scarce milk input commodity. ...French Abstract : Ce papier vise à identifier si les caractéristiques de production, telles que l'efficacité et les économies d'échelle, affectent le rachat des entreprises. Appliquant une méthode à deux étapes sur des données originales de panel issue de l'industrie fromagère en France, on estime d'abord les économies d'échelles et l'efficacité technique pour chaque firme en utilisant la méthode Data Envelopment Analysis DEA. On utilise les résultats de la première étape pour estimer un modèle de logit aléatoire des déterminants du rachat des entreprises dans l'industrie fromagère française pour la période 1985-2000. Les résultats montrent que les économies d'échelle, et non l'efficacité technique, sont un facteur essentiel dans la décision d'acquisition d'une entreprise par une autre. On montre aussi que les entreprises rachetées ont des rendements décroissants (donc une structure et une taille relativement grande), des charges financières élevées (traduisant un certain endettement) mais ne constituent pas de coopératives. |
| Keywords: | TECHNICAL EFFICIENCY; TAKEOVERS; MARKET STRUCTURE; DATA ENVELOPMENT ANALYSIS; PANEL DATA; CHEESE INDUSTRY ; INDUSTRIE FROMAGERE; CONCENTRATION D'ENTREPRISES; MODELE; ECONOMIE D'ECHELLE; EFFICACITE; PANEL |
| JEL: | C23 L11 L66 |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:rea:inrawp:200416&r=cfn |
| By: | Mauro Napoletano, Domenico Delli Gatti, Giorgio Fagiolo, Mauro Gallegati |
| Abstract: | This paper studies how the interplay between technological shocks and financial variables shapes the properties of macroeconomic dynamics. Most of the existing literature has based the analysis of aggregate macroeconomic regularities on the representative agent hypothesis (RAH). However, recent empirical research on longitudinal micro data sets has revealed a picture of business cycles and growth dynamics that is very far from the homogeneous one postulated in models based on the RAH. In this work, we make a preliminary step in bridging this empirical evidence with theoretical explanations. We propose an agent-based model with heterogeneous firms, which interact in an economy characterized by financial-market imperfections and costly adoption of new technologies. Monte-Carlo simulations show that the model is able jointly to replicate a wide range of stylised facts characterizing both macroeconomic time-series (e.g. output and investment) and firms' microeconomic dynamics (e.g. size, growth, and productivity). |
| Keywords: | Financial Market Imperfections, Business Fluctuations, Economic Growth, Firm Size, Firm Growth, Productivity Growth, Agent-Based Models. |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2005/03&r=cfn |
| By: | Henry Kim |
| Abstract: | This paper solves an incomplete market model with infinite number of agents and exogenous borrowing constraints described in den Haan, Judd and Juillard (2004). We apply the idea of “barrier methods” to convert optimization problem with borrowing constraints as inequalities into a problem with equality constraints, and the converted model is solved by a second-order perturbation method. The simulation results of impulse responses and second moments match the standardized features of incomplete market models. Accuracy of the solution is in a reasonable range but significantly decreases when the economy is near the borrowing limit or moves away from the steady state. |
| Keywords: | perturbation, barrier method, borrowing constraint, incomplete market, accuracy. |
| JEL: | C63 C68 C88 F41 |
| URL: | http://d.repec.org/n?u=RePEc:tuf:tuftec:0504&r=cfn |