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on Corporate Finance |
| By: | Dirk Hackbarth (Finance Department, Kelley School of Business, University of Indiana); Jianjun Miao (Department of Economics, Boston University); Erwan Morellec (HEC, University of Lausanne and FAME) |
| Abstract: | This paper develops a framework for analyzing the impact of macroeceomic conditions on credit risk and dynamic capital structure choice. We begin by observing that when cash flows depend on current economic conditions, there will be a benefit for firms to adapt their default and financing policies to the position of the economy in the business cycle phase. We then demonstrate that this simple observation has a wide range of implications for corporations. Notably, we show that our model can replicate observed debt levels and the countercyclicality of leverage ratios. We also demonstrate that it can reproduce the observed term structure of credit spreads and generate strictly positive credit spreads for very short maturities. Finally, we characterize the impact of macroeconomic conditions on the pace and size of capital structure changes, and debt capacity. A number of new predictions follow. |
| Keywords: | Dynamic capital structure; Credit spreads; Macroeconomic conditions |
| JEL: | G12 G32 G33 |
| Date: | 2004–05 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp125&r=cfn |
| By: | Julien Hugonnier (HEC, University of Lausanne and FAME); Erwan Morellec (Simon School of Business, University of Rochester) |
| Abstract: | In the standard real options approach to investment under uncertainty, agents formulate optimal policies under the assumptions of risk neutrality or perfect capital markets. However in most situations, corporate executives face incomplete markets either because they receive compensation packages that restrict their portfolios or because cash flows from the firm's investment opportunities are not spanned by those of existing assets. The present paper examines the impact of managerial risk aversion on investment decisions when the manager is exposed to idiosyncratic risk. In the paper, the investment policy selected by the manager reflects a trade-off between his incentives to reduce risk and the need to ensure sufficient efficiency to prevent control challenges. The analysis demonstrates that risk aversion induces the manager to speed up investment, leading to a significant erosion of the value of the option to wait and to investment near the zero net present value threshold. |
| Keywords: | Incomplete markets; Risk aversion; Real options |
| JEL: | G11 G12 G13 |
| Date: | 2004–05 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp122&r=cfn |
| By: | Martin T. Bohl; Janusz Brzeszczynski |
| Abstract: | In this paper, we provide empirical evidence on the impact of institutional investors on stock market returns dynamics in Poland. The Polish pension system reform in 1999 and the associated increase in institutional ownership due to the investment activities of pension funds are used as an unique institutional characteristic. Performing a variant of the event study methodology in an asymmetric GARCH framework we find robust empirical evidence that the increase of institutional ownership has changed the autocorrelation and volatility structure of aggregate stock returns. However, the findings do not support the hypothesis that institutional investors have destabilized stock prices. The results are interpretable in favor of a stabilizing effect on index stock returns induced by institutional trading.</font></p> |
| Keywords: | institutional traders, Polish stock market, pension fund investors, stock market volatility, asymmetric GARCH models |
| JEL: | G14 G23 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:hwe:certdp:0501&r=cfn |
| By: | Keith Nurse |
| Abstract: | The signs of a transition in the global gender order appear, in part, to be linked to the conjunctural shift in the global capitalist accumulation process. The main observation is that men’s traditional roles in the workplace, at home and in school have been eroding with the shift towards a knowledge-based and services world-economy. However, the transition in the gender order is more than merely a matter of economic adjustment and industrial respecialization. The transition has much to do with the impact of the antisystemic movements and changes in the politics of identity such as the rise of feminism and the women’s movement, the feminization of both male consumption culture and the workplace, the gay rights movement and the resistance to empire and racialized masculinities (Nurse 2004). These trends have evoked a counter-movement and a counter-discourse on male marginalization, demasculinization and the feminization of masculinity in core countries (Bly 1990) as well as in peripheral areas (Miller 1991). The erosion of the male superiority myth has specifically affected the hegemonic status of the white male subject. |
| Date: | 2004–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp020&r=cfn |
| By: | Brian Lucey; Svitlana Voronkova |
| Abstract: | This paper examines the linkages between the Russian stock market and those of its largest neighbors in Central and Eastern Europe, and the world stock markets over the 10 year period 1995-2004. What we find is that there was a major change in the nature of these relationships after the so called Russian Crisis of 1997-1998. The nature of this change is such that we can no longer rely on the the traditional methods used to examine linkages between equity markets. Using a more appropriate set of tools we find that the major influences on the Russian stock market have become the equity markets of the European Union and the USA. There is very little evidence of influence from (or to) regional markets such as Poland or Hungary. Classification- |
| Keywords: | Stock Market Integration, CEE Stock markets, Russian Stock Market, Cointegration |
| Date: | 2005–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp054&r=cfn |
| By: | Colm Kearney; Margaret Lynch |
| Abstract: | Although the extreme tails of the distributions of equity returns tend to exhibit more negative than positive returns, very few studies have analysed how pervasive is skewness across entire distributions. We use daily returns on 6 international stock market indices from Britain, France, Germany, Italy, Japan and the United States over 24 years from January 1978 to February 2002 to search for skewness in the tails, in different intervals, and in the entire distributions using binomial distribution tests and two distribution free tests, the Wilcoxon Rank Sum Test and the Siegel Tukey test. We find limited evidence of statistically significant skewness in the tails, with more skewness closer to the means. Classification- |
| Keywords: | Asymmetric returns, skewness, international equity markets. |
| Date: | 2005–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp040&r=cfn |
| By: | Philip R. Lane; Gian Maria Milesi-Ferretti |
| Abstract: | The founders of the Bretton Woods System sixty years ago were primarily concerned with orderly exchange rate adjustment in a world economy that was characterized by widespread restrictions on international capital mobility. In contrast, the rapid pace of financial globalization during recent years poses new challenges for the international monetary system. In particular, large gross cross-holdings of foreign assets and liabilities means that the valuation channel of exchange rate adjustment has grown in importance, relative to the traditional trade balance channel. Accordingly, this paper empirically explores some of the inter-connections between financial globalization and exchange rate adjustment and discusses the policy implications. Classification- |
| Keywords: | Financial integration, capital flows, external assets and liabilities |
| Date: | 2005–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp044&r=cfn |
| By: | Magnus Jonsson (Sveriges Riksbank); Paul Klein (University of Western Ontario) |
| Abstract: | In time series from the United States, the relationship between the money to income ratio and the nominal interest rate is a negative and stable one. In Swedish data, there is no such stable relationship. In this paper, we argue that this difference can be explained by the differences in the shock processes that have hit the two countries. Using a dynamic general equilibrium model driven by shock processes estimated to fit the two countries, we find that we can account for the main properties of the data remarkably well. |
| Date: | 2005–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpda:0504001&r=cfn |
| By: | Loren Tauer |
| Abstract: | The Dixit entry/exit real option model, modified to accommodate a milk price support regime, was applied to the entry/exit decisions of New York dairy farmers. Results varied by farm size, but for the 500-cow farm the entry milk price is $19.09 and the exit milk price is $11.66 when farmers were allowed to continuously enter and exit the industry. With no option to ever return to dairy farming, the exit milk price falls to $10.00. |
| JEL: | G |
| Date: | 2005–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0504018&r=cfn |
| By: | Guido Fioretti (University of Bologna) |
| Abstract: | Some empirical investigations are pointing to the fact that high-tech firms are subject to credit rationing to a higher extent than the average. This excess of credit rationing may not be due to information asymmetries, but rather to the inability of credit institutions to screen projects in novel fields. This article provides a model of this phenomenon and explores its implications in the light of recent changes in the screening procedures of major banks. In particular, the changes to be made in order to comply with the ``Basel II'' accord emphasize the impact of screening procedures on credit rationing. |
| Keywords: | Credit rationing, High-Tech Firms, Internal Rating Systems, Basel II |
| JEL: | G |
| Date: | 2005–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0504021&r=cfn |
| By: | Yuen Ping Ho (Entrepreneurship Centre, National University of Singapore); Poh Kam Wong (Entrepreneurship Centre, National University of Singapore) |
| Abstract: | In this paper, we focus on two barriers to entry that may hinder the formation of new firms: capital requirements and regulatory business cost. The contribution of this paper is twofold: we compare different types of financing sources to address the issue of capital requirement and we utilise a new measure of business cost by constructing a composite index using data from the World Bank’s Doing Business Database. Using cross-sectional data on 36 countries that participated in the 2002 Global Entrepreneurship Monitor, we attempt to establish if financing sources and business costs have different impact on three different types of entrepreneurial activity: opportunity-driven, necessity driven and high-growth potential entrepreneurship. Three types of financing sources are analysed: traditional debt financing, Venture Capital financing, and informal investments. The findings show that only informal investments significantly influence the propensity to be entrepreneurs.Regulatory business costs were found to deter opportunity driven entrepreneurship, but had no impact on other types of entrepreneurial activity. |
| Keywords: | entrepreneurial activity, financing, venture capital, informal investment, business cost |
| JEL: | L |
| Date: | 2005–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504025&r=cfn |
| By: | Erwan Morellec (HEC, University of Lausanne and FAME); Alexei Zdhanov (University of Rochester) |
| Abstract: | This paper presents a dynamic model of takeovers based on the stock market valuations of merging firms. The model incorporates competition and imperfect information and determines the terms and timing of takeovers by solving option exercise games between bidding and target shareholders. The implications of the model for returns to stockholders are consistent with the available evidence. Notably, the model predicts that (1) returns to target shareholders should be larger than returns to bidding shareholders, and (2) returns to bidding share-holders can be negative if there is competition for the acquisition of the target. In addition, the model generates new predictions relating these returns to the drift, volatility and correlation coefficient of the bidder and the target stock returns and to the dispersion of beliefs regarding the benefits of the takeover. |
| Keywords: | takeovers; real options; competition; learning. |
| JEL: | G13 G34 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp126&r=cfn |