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on Corporate Finance |
| By: | Luigi Benfratello (Università di Torino); Fabio Schiantarelli (Boston College); Alessandro Sembenelli (Università di Torino) |
| Abstract: | This paper contains a detailed empirical investigation of the effect of local banking development on firms' innovative activities, using a rich data set on innovation at the firm level for a large number of Italian firms over the 90's. There is evidence that banking development affects the probability of process innovation, particularly for small firms and for firms in high(er) tech sectors and in sectors more dependent upon external finance. There is also some evidence that banking development reduces the cash flow sensitivity of fixed investment spending, particularly for small firms, and that it increases the probability they will engage in R&D. |
| Keywords: | Banks, Financial Development, Innovation, R&D, Investment |
| JEL: | D24 G21 G38 |
| Date: | 2005–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:631&r=cfn |
| By: | Ajit Singh; Jack Glen; Ann Zammitt; Rafael De-Hoyas; Alaka Singh; Bruce Weisse |
| Abstract: | In 1992 a blue-ribbon group of US economists led by Michael Porter concluded that the US stock market-based corporate model was misallocating resources and jeopardising US competitiveness. The faster growth of US economy since then and the supposed US lead in the spread of information technology has brought new legitimacy to the stock market and the corporate model, which is being hailed as the universal standard. Two main conclusions of the analysis presented here are: (a) there is no warrant for revising the blue-ribbon groupÕs conclusion; and (b) even US corporations let alone developing country ones would be better off not having stock market valuation as a corporate goal. |
| Keywords: | Shareholder wealth, Information technology, Stock-market efficiency |
| JEL: | G1 G3 |
| URL: | http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp315&r=cfn |
| By: | Jyrki Ali-Yrkkö (ETLA, the Research Institute of the Finnish Economy) |
| Abstract: | This study analyses how public R&D financing impacts companies. Our main goal is to study whether public and private R&D financing are substitutes or complements, and whether this impact differs between financially constrained and unconstrained companies. Our company-level panel data cover the period from 1996 to 2002. The statistical method employed in the research takes into account the possibility that receiving public support may be an endogenous factor. Our results suggest that public R&D financing does not crowd out privately financed R&D. Instead, receiving a positive decision to obtain public R&D funds increases privately financed R&D. Furthermore, our results suggest that this additionality effect is bigger in large firms than in small firms. |
| Keywords: | Public finance, R&D, substitute, financial constraint |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:epr:enepwp:030&r=cfn |
| By: | Peter Nippel; Christian Pierdzioch; Andrea Schertler |
| Abstract: | We study the link between underpricing of initial public offerings (IPOs) and index excess returns in secondary markets. We use a theoretical model to argue that underpricing of IPOs raises investors’ attention and, thereby, triggers investments in secondary markets. Our theoretical model implies that such investments should give rise to positive index excess returns in secondary markets. The results of our empirical tests, based on a dataset of stocks from the Neuer Markt and the Nouveau Marché, are in line with the implication of our theoretical model. |
| Keywords: | underpricing, index excess returns, IT firms |
| JEL: | G14 N24 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1259&r=cfn |
| By: | Pasquale Lucio Scandizzo (University of Rome II) |
| Abstract: | Financing technology poses a special challenge to economic institutions for several reasons. First, the uncertainty surrounding all the investment decisions is particularly acute and pervasive in the case of R&D, as well as developing and testing process and product innovation. Second, while the banks appear to have an important role to play, for many types of innovative businesses, they cannot be the sole source of financing. Third, technology ventures appear to face a basic trade off between profit and growth, which may be exacerbated by a difficult relationship with a credit institution. The paper examines these questions both theoretically and empirically, focusing on the US market as the leading financial center capable of providing imaginative solutions and on the Arab countries as a case study of developing economies facing a financial and institutional constraints. |
| Keywords: | Innovation, finance; growth, new economy, risk evaluation, credit supply, Arab countries, government policies, science and technology parks |
| Date: | 2004–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:43&r=cfn |
| By: | Willi Semmler; Lars Grüne (Economics New School University) |
| Abstract: | Using standard preferences for asset pricing has not been very successful to match asset price characteristics such as the risk-free interest rate, equity premium and the Sharpe ratio to time series data. Behavioral finance has recently proposed more realistic preferences such as preferences with loss aversion to model asset pricing. Research has now started to explore the implications of behaviorally founded preferences for asset price characteristics. Yet the solution to those models is intricate and depends on the solution techniques employed. In this paper a stochastic version of a dynamic programming method with adaptive grid scheme is applied to compute the above mentioned asset price characteristics of a model with loss aversion in preferences. Since, as shown in Grüne and Semmler (2004), our method produces only negligible errors it is suitable to be used as solution technique for such models with more intricate decision structure. |
| Keywords: | asset pricing, preferences with loss aversion, behavioral finance, equity premium, dynamic programming |
| JEL: | G1 G12 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:199&r=cfn |
| By: | Sikandar Hussain; M. Shahid Ebrahim |
| Abstract: | This paper investigates the impact of financial development on property valuation in a rational expectations framework by modeling the agency theoretic perspective of risk averse investors (property owners) and financiers (banks/ capital markets). In contrast to previous research, we consider a setting in which financiers possess no inherent information processing or monitoring advantages. We demonstrate that property financing is undertaken in a pecking order of increasing pareto-efficiency (with reduction in its overall costs and a subsequent increase in the value of the underlying collateral) in a three staged process as financial architecture advances from a partially liberalized bank to the developed stage of capital markets. The primary solution is obtained in the rudimentary stage of commercial banks (in a specialized banking system), where the default-free mortgages are pareto-optimal to defaulting mortgages in accordance with the prognosis of Scott (1976) and Stulz and Johnson (1985). A pareto-improvement of the first solution is obtained by removing the restriction on ownership of property for financiers such as universal banks and pension funds, insurance companies, etc. This solution resolves the real estate version of the asset location puzzle (see Geltner and Miller, 2001). A further pareto-enhancement of this equilibrium is obtained under financial innovation by embedding the above default-free mortgage with options (in the form of a participating mortgage) in accordance with the prognosis of Green (1984), Haugen and Senbet (1981, 1987) and Schnabel (1993). Our results yield implications for financial system development. Our analysis predicts that an optimal financial system will configure itself skewed towards capital markets irrespective of the source of its origination (from specialized banking system or universal banking system). We also rationalize the co-existence of banks and financial markets in a well-developed financial system |
| Keywords: | Financial Deepening; Financial Innovation; Financial Liberalization; Pareto-optimal Mortgage Design; Risk Management. |
| JEL: | D58 G12 G2 G32 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:24&r=cfn |
| By: | basab dasgupta (economics university of connecticut) |
| Abstract: | Credit markets with asymmetric information often prefer credit rationing as a profit maximizing device. This paper asks whether the presence of informal credit markets reduces the cost of credit rationing, that is, whether it can alleviate the impact of asymmetric information based on the available information. We used a dynamic general equilibrium model with heterogenous agents to assess this. Using Indian credit market data our study shows that the presence of informal credit market can reduce the cost of credit rationing by separating high risk firms from the low risk firms in the informal market. But even after this improvement, the steady state capital accumulation is still much lower as compared to incentive based market clearing rates. Through self revelation of each firm's type, based on the incentive mechanism, banks can diversify their risk by achieving a separating equilibrium in the loan market. Incentive mechanism helps banks to increase capital accumulation in the long run by charging lower rates and lending relatively higher amount to the less risky firms. Another important finding of this study is that self revelation leads to very significant welfare improvement, as measured by consumption equivalence |
| Keywords: | informal credit and capital accumulation |
| JEL: | O16 O17 |
| Date: | 2005–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:sce:scecf5:366&r=cfn |
| By: | Daniela Fabbri (Université de Lausanne); Anna Maria Cristina Menichini (University of Salerno, CELPE and CSEF) |
| Abstract: | We study a general equilibrium model where agents’ preferences, productivity and labor endowments depend on their health status, and occupational choices affect individual health distributions. Efficiency typically requires agents of the same type to obtain different expected utilities if assigned to di¤erent occupations. Under mild assumptions, workers with riskier jobs must get higher expected utilities if health a¤ects production capabilities. The same holds if health affects preferences and health enhancing consumption activities are sufficiently effective, so that income and health are substitutes. The converse obtains when health a¤ects preferences, but health enhancing consumption activities are not very effective, and hence income and health are complements. Competitive equilibria are first-best if lottery contracts are enforceable, but typically not if only assets with deterministic payoffs are traded. Compensating wage differentials which equalize the utilities of workers in different jobs are incompatible with ex-ante efficiency. Finally, absent asymmetric information, there exist deterministic cross-jobs transfers leading to ex-ante efficiency. |
| Keywords: | Creditor Rights, Trade Credit, Banking Credit, Financial Constraints, Asset Tangibilityy |
| JEL: | G32 |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:146&r=cfn |
| By: | Fiorella De Fiore (Directorate General Research, European Central Bank, Postfach 160319, 60066 Frankfurt am Main, Germany); Harald Uhlig (School of Business and Economics,WiPol 1, Humboldt University, Spandauer Str. 1, 10178 Berlin, Germany) |
| Abstract: | We present a dynamic general equilibrium model with agency costs, where heterogeneous firms choose among two alternative instruments of external finance - corporate bonds and bank loans. We characterize the financing choice of firms and the endogenous financial structure of the economy. The calibrated model is used to address questions such as - What explains differences in the financial structure of the US and the euro area? What are the implications of these differences for allocations? We find that a higher share of bank finance in the euro area relative to the US is due to lower availability of public information about firms'credit worthiness and to higher efficiency of banks in acquiring this information. We also quantify the effect of differences in the financial structure on per-capita GDP. |
| Keywords: | Financial structure; agency costs; heterogeneity. |
| JEL: | E20 E44 C68 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20050547&r=cfn |