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on Corporate Finance |
| By: | Luigi Guiso (Università degli Studi di Sassari); Monica Paiella (Bank of Italy) |
| Abstract: | We use household survey data to construct a direct measure of absolute risk aversion based on the maximum price a consumer is willing to pay to buy a risky asset. We relate this measure to a set of consumers’ decisions that in theory should vary with attitude towards risk. We find that elicited risk aversion has considerable predictive power for a number of key household decisions such as choice of occupation, portfolio selection, moving decisions and exposure to chronic diseases in ways consistent with theory. We also use this indicator to address the importance of self-selection when relating indicators of risk to individual saving decisions. |
| Keywords: | risk aversion, heterogeneous preferences, choice under risk, entrepreneurship, self selection. |
| JEL: | D1 D8 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_546_05&r=cfn |
| By: | Réal Labelle (HEC Montréal); Alain Schatt (Université de Franche-Comté) |
| Abstract: | (VF)Cette étude empirique a pour objet de vérifier s’il existe une relation entre la structure de propriété et la qualité de la communication financière des entreprises françaises. Nos résultats indiquent que la relation entre la dilution de l’actionnariat et la qualité des relations avec les investisseurs n’est pas linéaire mais curvilinéaire.(VA)The objective of this empirical study is to test the hypothesized relation between ownership structure and the quality of financial reporting of French firms. The results confirm that the relation between shareholding dilution and the quality of investors’ relations is not linear but curvilinear. |
| Keywords: | communication financière;relations avec les investisseurs;rapports annuels;structure de propriété;financial disclosure;relations with investors;annual report;ownership structure |
| JEL: | G32 M41 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:dij:wpfarg:1050701&r=cfn |
| By: | Leonardo Gambacorta (Bank of Italy, Economic Research Department) |
| Abstract: | The aim of this paper is to study cross-sectional differences in banks interest rates. It adds to the existing literature in two ways. First, it analyzes systematically the micro and macroeconomic factors that influence the price-setting behaviour of banks. Second, by using banks’ prices (rather than quantities) it provides an alternative way of disentangling loan supply from loan demand shift in the bank lending channel literature. The results, derived from a sample of Italian banks, suggest that heterogeneity in the banking rates pass-through exists only in the short run. Consistently with the literature, interest rates on short-term lending of liquid and well-capitalized banks react less to changes in money market rates. Also banks with a high proportion of long-term lending tend to modify their prices less. Heterogeneity in the pass-through on the interest rate on current accounts depends mainly on banks’ liability structure. Bank size is never relevant. |
| Keywords: | monetary policy transmission; interest rates; bank lending channel |
| JEL: | E44 E51 E52 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_542_05&r=cfn |
| By: | Cécile Carpentier; Jean-Marc Suret |
| Abstract: | Some analysts and policy makers consider that the growth of New Technology Based Firms (NTBF) is impeded by an insufficient supply of capital. In Canada, as in other jurisdictions, the public authorities have interceded to fill this equity gap by increasing the supply of funds. However, several researchers contend that this gap is mainly associated with information asymmetry that particularly affects technological firms. Agency and moral hazard problems explain why it can be time consuming and costly to get outside equity. We propose the first analysis of these indirect costs of financing. These costs are partially intangible and can be determined only through a field survey and case analyses. In this study, we identify the elements that generate indirect costs of financing and estimate the costs and time frames associated with 18 financing rounds undertaken by 12 NTBF in Quebec, where the supply of venture capital is very abundant. We show that these costs are indeed substantial and heavily penalize small companies, especially during the initial financing round and prior to the commercialization phase. Thus, the classic government intervention policies intended to increase the supply of funds may be largely ineffectual. More specific training and support actions would likely be more effective. <P>Certains analystes et décideurs politiques considèrent que la croissance des nouvelles entreprises technologiques est contrainte par une offre insuffisante de capital. Au Canada, comme dans d’autres juridictions, les pouvoirs publics sont intervenus pour corriger cette lacune des marchés en augmentant l’offre de capital. Toutefois, la plupart des chercheurs défendent que cette lacune est essentiellement due aux problèmes d’asymétrie informationnelle, qui touchent particulièrement les entreprises technologiques. Les problèmes d’agence et d’anti-sélection qui en découlent rendent l’obtention de capital longue et coûteuse. Dans la présente étude, nous étudions les coûts et délais associés à l’obtention de capital de risque par douze entreprises technologiques, au cours de 18 rondes de financement distinctes. L’étude est menée au Québec, où l’offre de capital de risque est particulièrement abondante. Nous observons que les coûts associés à l’obtention du capital sont considérables et de nature à pénaliser les entreprises, notamment au cours des rondes initiales de financement. L’intervention gouvernementale classique, qui consiste à augmenter l’offre de capital, semble donc largement inefficace. D’autres types d’intervention, qui viseraient à encadrer et aider les dirigeants dans la recherche de fonds, devraient être étudiés. |
| Keywords: | financing, indirect costs, public policy, SME, venture capital, capital de risque, coûts indirects, financement, PME, politique publique |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2005s-25&r=cfn |
| By: | Marcello Pericoli (Bank of Italy, Economic Research Department) |
| Abstract: | This paper evaluates the use of risk-neutral probability density functions implied in 3-month interest-rate futures options to assess market perceptions regarding future monetary policy moves options allow the information content implied in simpler derivatives to be extended by providing indicators for asymmetry and extreme values. First, a cubic spline is implemented to evaluate the densities. Second, the methodology is applied to quotes on deposits denominated in US dollars, euros and sterling from January 1999 toMay 2004 results show that markets correctly forecast the monetary easing of 2001 in the United States in the course of the second half of 2000, but not in the euro area and the United Kingdom. The evidence for the tightening cycle of 1999 is mixed: markets expected an increase in euro area policy rates at the beginning of 1999 expectations were less clear for the United States’ interest-rate increases. In the case of the United Kingdom the increase was not foreseen. |
| Keywords: | risk-neutral density, cubic spline, monetary policy, interest-rate futures options |
| JEL: | C52 E58 G13 G14 G15 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_545_05&r=cfn |
| By: | Robert R. Bliss; George C. Kaufman |
| Abstract: | In the U.S., as in most countries with well- developed securities markets, derivative securities enjoy special protections under insolvency resolution laws. Most creditors are “stayed” from enforcing their rights while a firm is in bankruptcy. However, many derivatives contracts are exempt from these stays. Furthermore, derivatives enjoy netting and close-out, or termination, privileges which are not always available to most other creditors. The primary argument used to motivate passage of legislation granting these extraordinary protections is that derivatives markets are a major source of systemic risk in financial markets and that netting and close- out reduce this risk. To date, these assertions have not been subjected to rigorous economic scrutiny. This paper critically reexamines this hypothesis. These relationships are more complex than often perceived. We conclude that it is not clear whether netting, collateral, and/or close-out lead to reduced systemic risk, once the impact of these protections on the size and structure of the derivatives market has been taken into account. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-05-03&r=cfn |
| By: | Jonathan N. Millar |
| Abstract: | Regressions of investment on Tobin's Q are misspecified in the presence of capital gestation lags because they don't distinguish between the value of existing capital and the value of capital at a future date. Current investment should be determined by the anticipated shadow value of capital at the gestation horizon. Under homogeneity conditions analogous to Hayashi[1982], this value is equal to the forecast of an adjusted version of Q. This misspecification helps to explain many pathologies in the literature: attenuated estimates of the coefficient on Q, low R2, and serially-correlated errors. Regressions using aggregate data suggest that (1) endogeneity problems associated with the standard regression of investment on Q can can be eliminated by reversing the regression, (2) forecastable changes in Q provide additional information about investment not captured in current Q, and (3) specifications that explicitly account for gestation lags yield capital adjustment costs of a more reasonable magnitude. |
| Keywords: | Capital investments ; Tobin's q |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2005-28&r=cfn |
| By: | Silvio John Camilleri (Banking & Finance Dept., FEMA - University of Malta) |
| Abstract: | Researchers often assume that stock market indices are the best possible yardstick in terms of market efficiency. The paper investigates this concept using data from the Malta Stock Exchange (MSE). The fact that a significant number of MSE shares do not trade everyday, may imply that the most liquid shares on this exchange are more efficient than the market index, whose value is dependent on shares of varying liquidity levels - including the less liquid ones. The paper applies various tests to compare the pricing efficiency of the MSE Index to that of the most liquid share quoted on the exchange. It is found that the MSE Index is still more efficient than the latter share. |
| Keywords: | Malta Stock Exchange, Non-Synchronous Trading, Stock Markets. |
| JEL: | G12 G14 |
| Date: | 2005–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0507006&r=cfn |
| By: | Sukanto Bhattacharya |
| Abstract: | In this paper we propose and computationally demonstrate a synthetic protective put strategy for real options. Specifically, we deal with the problem of deferral option when an outright deferral is not permissible due to competitive pressures. We demonstrate that in such a situation an appropriate strategy would be to invest in the new project in phases rather than doing it all at once. By setting the owner’s equity in the project equal to the price of a call option on the value of the project, we set up the replicating portfolio for a protective put on the project. Our method is a logical extension of the financial protective put in the real options scenario and is rather simple and practicable for businesses to adopt and apply. |
| Keywords: | synthetic protective put, replicating portfolio, deferral option |
| JEL: | G |
| Date: | 2005–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0507005&r=cfn |
| By: | Miroslav Misina (Bank of Canada) |
| Abstract: | Changes in risk perception have been used in various contexts to explain shorter-term developments in financial markets, as part of a mechanism that amplifies fluctuations in financial markets, as well as in accounts of “irrational exuberance.” This approach holds that changes in risk perception affect actions undertaken in risky situations, and create a discrepancy between the risk attitude implied by those actions and the a priori description of risk attitude as summarized by the Arrow-Pratt coefficients of risk aversion. The author characterizes this discrepancy by introducing the notion of risk perception within the expected utility theory, and proposes the concept of implied risk aversion as a summary measure of risk attitudes implied by agents’ actions. Properties of implied risk aversion are related to an individual’s future outlook. Key ideas are illustrated using an asset-pricing model. |
| Keywords: | risk attitudes, risk perception, expectations, asset prices |
| JEL: | D81 D84 G12 |
| Date: | 2005–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpga:0507004&r=cfn |