nep-cfn New Economics Papers
on Corporate Finance
Issue of 2006‒03‒25
six papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Credit Scoring for Vietnam’s Retail Banking Market: Implementation and Implications for Transactional versus Relationship Lending By Thanh Dinh Thi Huyen; Kleimeier Stefanie
  2. Protected by the family? How closely-held family firms protect minority shareholders By PABLO MARTIN
  3. The pecking order of cross-border investment By Christian Daude; Marcel Fratzscher
  4. Risk Sharing through Financial Markets with Endogenous Enforcement of Trades By Thorsten Koeppl
  5. Optimal Dynamic Risk Sharing when Enforcement is a Decision Variable By Thorsten Koeppl
  6. Commercializing Small Farms: Reducing Transaction Costs By Prabhu Pingali; Yasmeen Khwaja; Madelon Meijer

  1. By: Thanh Dinh Thi Huyen; Kleimeier Stefanie (METEOR)
    Abstract: As banking markets in developing countries are maturing, banks face competition not only from other domestic banks but also from sophisticated foreign banks. Combined with a dramatic growth of consumer credit and increased regulatory attention to risk management, the development of a well-functioning credit assessment framework is essential. As part of such a framework, we propose a credit scoring model for Vietnamese retail loans. First, we show how to identify those borrower characteristics that should be part of a credit scoring model. Second, we illustrate how such a model can be calibrated to achieve the strategic objectives of the bank. Finally, we assess the use of credit scoring models in the context of transactional versus relationship lending.
    Keywords: financial economics and financial management ;
    Date: 2006
  2. By: PABLO MARTIN (Instituto de Empresa)
    Abstract: Most companies in the world are owned by families, and a majority of them are registered in countries where the legal protection of minority shareholders is weak. Is family control the consequence of the lack of investor protection? It is known that agency problems among owners actually increase in family-ownership situations, so family control by itself may not be an efficient substitute for the legal protection of minority investors. In this article we analyze successful strategies used by Canadian and Latin American business groups and firms to increase the satisfaction of their minority shareholders and to limit the incentives of the controlling shareholders to abuse them.
    Keywords: Corporate governance, Family firms, Investor protection
    Date: 2006–01
  3. By: Christian Daude (University of Maryland at College Park, Department of Economics, 3105 Tydings Hall College Park, MD 20742, USA.); Marcel Fratzscher (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
    Abstract: Is there a pecking order of cross-border investment in that countries become financially integrated primarily through some types of investment rather than others? Using a novel database of bilateral capital stocks for all types of investment – FDI, portfolio equity securities, debt securities as well as loans – for a broad set of 77 countries, we show that such a pecking order indeed exists. Motivated by the theoretical work on the capital structure of firms, the paper focuses on two key determinants of this pecking order: information frictions and the quality of host country institutions. Overall, we find that in particular FDI, and to some extent also loans, are substantially more sensitive to information frictions than investment in portfolio equity and debt securities. We also show that the share as well as the size of FDI that a country receive are largely insensitive to institutional factors in host countries, while portfolio investment is by far the most sensitive to the quality of institutions. This provides new evidence in favor of some hypotheses but contradicts others put forward in the theoretical literature on trade in financial assets.
    Keywords: foreign investment; pecking order; capital flows; information frictions; institutions; home bias; gravity.
    JEL: F34 G11 F21
    Date: 2006–02
  4. By: Thorsten Koeppl (Department of Economics, Queen's University)
    Abstract: When people share risk in financial markets, intermediaries provide costly enforcement for most trades and, hence, are an integral part of financial markets' organization. We assess the degree of risk sharing that can be achieved through financial markets when enforcement is based on the threat of exclusion from future trading as well as on costly enforcement intermediaries. Starting from constrained efficient allocations and taking into account the public good character of enforcement we study a Lindahl-equilibrium where people invest in asset portfolios and simultaneously choose to relax their borrowing limits by paying fees to an intermediary who finances the costs of enforcement. We show that financial markets always allow for optimal risk sharing as long as markets are complete, default is prevented in equilibrium and intermediaries provide costly enforcement competitively. In equilibrium, costly enforcement translates into both agent-specific borrowing limits and price schedules that include a separate default premium. Enforcement costs - or, equivalently, default premia - increase borrowing costs, while interest rates per se depend on the change in enforcement over time.
    Keywords: Limited Commitment, Enforcement Intermediaries, Lindahl-equilibrium, Endogenous Borrowing Constraints
    JEL: C73 D60 G10 H41 K42
    Date: 2004–12
  5. By: Thorsten Koeppl (Department of Economics, Queen's University)
    Abstract: Societies provide institutions that are costly to set up, but able to enforce long-run relationships. We study the optimal decision problem of using self-governance for risk sharing or governance through enforcement provided by these institutions. Third-party enforcement is modelled as a costly technology that consumes resources, but permits the punishment of agents who deviate from ex-ante specified allocations. We show that it is optimal to employ the technology whenever commitment problems prevent first-best risk sharing, but never optimal to provide incentives exclusively via this technology. Commitment problems then persist and the optimal incentive structure changes dynamically over time with third-party enforcement monotonically increasing in the relative inequality between agents.
    Keywords: Limited Commitment, Risk Sharing, Third-party Enforcement
    JEL: C73 D60 D91 K49
    Date: 2005–01
  6. By: Prabhu Pingali (Agricultural and Development Economics Division, Food and Agriculture Organization); Yasmeen Khwaja; Madelon Meijer (Agricultural and Development Economics Division, Food and Agriculture Organization)
    Abstract: Broad changes are taking place in agrifood systems worldwide. These changes are driven by economic development, increase in per caput incomes, changing technology and urbanization. Consumers are changing their dietary preferences and shopping habits, resulting in substantial organizational and institutional changes throughout the food marketing chain. Growing concentration at all levels is taking place, particularly in the retail sector, and private sector standards for food quality and safety are proliferating. Increasingly exchange is arranged through the use of contracts. These changes have significant implications for growth, poverty and food security. For the small farmer in particular there are difficulties to meet the standards and contractual requirements. They are faced with a new set of transaction costs that emerge from dealing with a food system characterized by different rules, regulations and players. Increased transactions costs deter entry of small farmers into the market. This paper looks at required interventions aimed at reducing transaction costs to encourage increased farmer participation in competitive markets.
    Keywords: Food systems, Agricultural commercialization, Transaction costs, Small farmers, Policy.
    JEL: Q13 Q18 D23
    Date: 2005

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