nep-cfn New Economics Papers
on Corporate Finance
Issue of 2006‒02‒05
twelve papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. The Return to the Firm Investment in Human Capital By Rita Almeida; Pedro Carneiro
  2. False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas. By Olivier Scaillet; Laurent Barras; Russell R. Wermers
  3. Bond Market and Stock Market Integration in Europe By Robert-Paul Berben; W. Jos Jansen
  4. The Risk-Return Trade-Off in Human Capital Investment By Charlotte Christiansen; Juanna Schröter Joensen
  5. Asymmetric Price Adjustment in the Dutch Mortgage Market By Leo de Haan; Elmer Sterken
  6. Financing the New Economy: Are ICT Firms Really That Different? By Allard Bruinshoofd; Leo de Haan
  7. Using structural shocks to identify models of investment By John M. Roberts
  8. Microfinance and Female Empowerment By Sylvain Dessy; Jacques Ewoudou
  9. IAS/IFRS in Belgium: Quantitative Analysis of the Impact on the Tax Burden of Companies. By Jacqueline Haverals
  10. A general formula for the WACC By André Farber; Roland Gillet; Ariane Szafarz
  11. Hope springs eternal…French bondholders and the Soviet Repudiation (1915-1919). By John Landon-Lane; Kim Oosterlinck
  12. Subsidies and financial performances of the microfinance institutions: Does management matter? By Marek Hudon

  1. By: Rita Almeida (World Bank and IZA Bonn); Pedro Carneiro (University College London, IFS, cemmap and IZA Bonn)
    Abstract: In this paper we estimate the rate of return to firm investments in human capital in the form of formal job training. We use a panel of large firms with unusually detailed information on the duration of training, the direct costs of training, and several firm characteristics such as their output, workforce characteristics and capital stock. Our estimates of the return to training vary substantially across firms. On average it is -7% for firms not providing training and 24% for those providing training. Formal job training is a good investment for many firms and the economy, possibly yielding higher returns than either investments in physical capital or investments in schooling. In spite of this, observed amounts of formal training are very small.
    Keywords: on-the-job training, panel data, production function, rate of return
    JEL: C23 D24 J31
    Date: 2006–01
  2. By: Olivier Scaillet (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and HEC, Genève, Suisse); Laurent Barras (HEC, Genève, Suisse); Russell R. Wermers (University of Maryland - Robert H. Smith School of Business, Department of Finance)
    Abstract: Standard tests designed to identify mutual funds with non-zero alphas are problematic, in that they do not adequately account for the presence of lucky funds. Lucky funds have significant estimated alphas, while their true alphas are equal to zero. To address this issue, this paper quantifies the impact of luck with new measures built on the False Discovery Rate (FDR). These FDR measures provide a simple way to compute the proportion of funds with genuine positive or negative performance as well as their location in the cross-sectional alpha distribution. Using a large cross-section of U.S. domestic-equity funds, we find that about one fifth of the funds in the population truly yield negative alphas. These funds are dispersed in the left tail of the alpha distribution. We also find a small proportion of funds with truly positive performance, which are concentrated in the extreme right tail of the alpha distribution.
    Keywords: Mutual Fund Per formance, False Discovery Rate, Multiple Testing.
    JEL: G11 G23 C12
    Date: 2005–11
  3. By: Robert-Paul Berben; W. Jos Jansen
    Abstract: This paper investigates whether there has been a structural increase in financial market integration in nine European countries and the US in the period 1980-2003. We employ a GARCH model with a smoothly time-varying correlation to estimate the date of change and the speed of the transition between the low and high correlation regimes. Our test produces strong evidence of greater comovement across the board for both stock markets and government bond markets. Dates of change and speeds of adjustment vary widely across country linkages. Stock market integration is a more gradual process than bond market integration. The impact of European monetary union (EMU) is rather limited, as it has mainly affected the timing of bond market correlation gains (but hardly their size) and has had little discernible effect on stock market integration.
    JEL: G21 L13
    Date: 2005–12
  4. By: Charlotte Christiansen; Juanna Schröter Joensen (Department of Economics, University of Aarhus, Denmark)
    Abstract: In this paper we analyze investments in human capital assets in a way which is standard for financial assets, but not (yet) for human capital assets. We study mean-variance plots of human capital assets. We compare the properties of human capital returns using a performance measure and by sing tests for mean-variance spanning. A risk-return trade-off is revealed, hich is not only related to the length of education but also to the type of education. We identify a range of educations that are efficient in terms of investment goods, and a range of educations that are inefficient, and may be chosen for consumption purposes.
    Keywords: Educational Choice; Efficient Frontier; Human Capital Investment; Mean-Variance Analysis
    JEL: I21 J24
    Date: 2006–02–01
  5. By: Leo de Haan; Elmer Sterken
    Abstract: We analyze the mortgage interest rate setting behavior of the four largest banks in the Dutch mortgage market using advertised interest rates at a daily frequency from October 1997 to July 2003. We find that the pass-through of funding cost changes into mortgage interest rates on 5 and 10 year loans differs among these banks. Further, there is evidence of asymmetric price adjustment, in the sense that funding cost increases are more quickly passed on than decreases.
    JEL: G21 L13
    Date: 2005–12
  6. By: Allard Bruinshoofd; Leo de Haan
    Abstract: Did ICT firms behave very differently from non-ICT firms during the global ICT boom-bust cycle on the stock markets? To answer this question we analyze the financial behavior of a sample of North-American and Western European firms during 1991-2002. We document that ICT firms are indeed what they are always said to be: relatively information intensive and risky firms. We show that they therefore hold more precautionary cash and have lower leverage targets. Though ICT firms issued more equity and debt during the boom, this was broadly unrelated to stock market conditions, in contrast to the prediction of the market timing view. ICT firms did not build up excessive cash reserves that lead to overinvestment. All in all, the financial management of ICT firms has not been all that different from non-ICT firms.
    Keywords: Cash Management; Market Timing; Capital Structure; ICT
    JEL: C33 C43 E41 G3
    Date: 2005–12
  7. By: John M. Roberts
    Abstract: This paper uses the response of investment to identified structural shocks to investigate some key issues, including the nature of adjustment costs and investment's responsiveness to user cost. In the estimation, the model parameters are chosen to match as closely as possible the impulse responses from an identified VAR. In the preferred results, both investment- and capital-stock adjustment costs are important; the size of the capital-stock adjustment costs is in line with estimates from firm-level studies; the investment-adjustment costs suggest rapid adjustment of investment to its desired level; and the estimated elasticity of substitution between capital and other inputs is considerably smaller than one. There is, however, an important sensitivity: The VAR's identified aggregate demand shock leads to a large crowding out effect--when output expands, investment falls. When this shock is included among those matched, the elasticity of substitution is near one and only investment adjustment costs are important.
    Date: 2005
  8. By: Sylvain Dessy; Jacques Ewoudou
    Abstract: In the informal economy of developing countries, female entrepreneurs face a comparative disadvantage for operating high-productivity activities, owing to the prevalence of patriarchal forms of business regulations. Yet, for microfinance institutions (MFIs) to succeed in enhancing female empowerment, increased access to credit must enable female entrepreneurs to tap into the range of high-productivity activities. So when the costs of legality are too high in developing countries, and the informal economy becomes the only affordable venue for operating a business venture, this paper shows that access to microfinancee services becomes only necessary, but not sufficient for female empowerment. Based upon a game-theoretic model of activity choices by ex ante homogeneous women, we argue that conditioning well-trained women's access to credit to the adoption of high-productivity activities may enable MFIs to induce the emergence of networks of female entrepreneurs large enough to mitigate patriarchal practices that raise the costs of operating such activities in the informal economy.
    Keywords: Microfinance, female entrepreneurship, supermodular games
    JEL: D13 J16
    Date: 2006
  9. By: Jacqueline Haverals (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels)
    Abstract: The adoption of IAS/IFRS in the European Union is part of the European Commission’s globaltax harmonisation policy whose aim is to establish a common (consolidated) corporate tax base. The paper shows that the impact of an IAS/IFRS- based tax accounting on the effective tax burden of Belgian companies is large and not uniform across sectors. Some sectors, like construction and automotive vehicles, experience much larger increases in effective tax burdens than others. Globally the impact is relatively important. The analysis is conducted thanks to the European Tax Analyzer, a multi-period forward looking program. In a European context, an IAS/IFRS-based tax accounting will increase the effective corporate tax burdens in all selected countries. However it will most probably maintain the current tax competitive positions of EU countries. The expected broadening of the tax base could constitute an opportunity to reduce the corporate income tax rate without changing the overall effective burden.
    Keywords: International Accounting Standards/International Financial Reporting Standards, Effective Tax Burden, Tax Accounting.
    JEL: H21 H25
    Date: 2005–09
  10. By: André Farber (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.); Roland Gillet (Université de Paris I and Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels); Ariane Szafarz (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels, and DULBEA, Université Libre de Bruxelles.)
    Abstract: Recent controversies testify that the tax shield valuation remains a hot topic in the financial literature. Basically, two methods have been proposed to incorporate the tax benefit of debt in the present value computation: The adjusted present value(APV), and the classical weighted average cost of capital (WACC). This note clarifies the relationship between these two apparently different approaches by offering a general formula for the WACC. This formula encompasses earlier results obtained by Modigliani and Miller (1963) and Harris and Pringle (1985).
    Keywords: WACC, APV, tax shield
    JEL: G31 G32
    Date: 2005–04
  11. By: John Landon-Lane (Rutgers University, The State University of New-Jersey, Department of Economics); Kim Oosterlinck (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.)
    Abstract: By their extreme nature, repudiations rarely occur. History is therefore crucial to analyze their impact on bond prices. This paper provides an empirical study based on an original database: prices of a Tsarist bond traded in Paris before and after its repudiation by the Soviets. A structural vector autoregression is used to identify shocks to this bond that are orthogonal to shocks hitting a proxy for the Paris bond market, the French 3% rente. French market shocks are thus disentangled from repudiation specific shocks hitting the Russian bond. Consistent with expectations no major Russian shocks appears before the 1917 revolution. For 1918, shocks are mainly related with bailouts or hopes of partial bailouts. In 1919, however, the nature of shocks changes as they can be explained either by the negotiations with the Soviets or by the fate of the White Armies. In view of these elements, we argue that the bonds’ value were subject to a “Peso problem”. Their prices essentially reflected expected extreme events that never took place.
    Keywords: repudiation, sovereign debt, secession, Russia, Soviet, war, country break-up.
    JEL: F34 G1 N24
    Date: 2005–11
  12. By: Marek Hudon (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels)
    Abstract: This paper uses a unique database from a leading microfinance rating agency to assess the impact of the management of microfinance institutions (MFIs) on their financial performances and the amount of subsidies they have received. The results show that the main management attributes influencing the return on assets are the technical, organisational and communication competences of the top managers. For-profit and non-profit institutions reach similar performances, but cooperatives exhibit worse results. Finally, while the board members’ personnel involvement and professional competences is correlated to the amount of subsidies received by the institutions, the well-managed MFIs do not seem to have previously received significantly more subsidies than others.
    Keywords: microfinance, subsidies, management, governance, non-profit.
    JEL: L31 M54 O16 Q14
    Date: 2006–01

This nep-cfn issue is ©2006 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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