nep-cfn New Economics Papers
on Corporate Finance
Issue of 2006‒04‒22
twelve papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. The Capital Structure of Multinational Companies Under Tax Competition By Paolo Panteghini
  2. Dissecting dividend decisions: some clues about the effects of dividend taxation from recent UK reforms By Steve Bond; Michael Devereux; Alexander Klemm
  3. Optimal Asset Allocation Based on Utility Maximization in the Presence of Market Frictions By Alessandro Bucciol; Raffaele Miniaci
  4. Does the Stock Market React to Unsolicited Ratings? By Patrick Behr; André Güttler
  5. La diversité au cœur de la finance : la finance informelle By Michel Lelart
  6. Why Do IPO Auctions Fail? By Ravi Jagannathan; Ann E. Sherman
  7. CLOSED-END FUND BETAS By Michael Bleaney; R. Todd Smith
  8. Investment Taxes and Equity Returns By Clemens Sialm
  9. Credit Market Failures and Policy By Enrico Minelli; Salvatore Modica
  10. Household Finance By John Y. Campbell
  11. Debt Instruments and Policies in the New Millennium: New Markets and New Opportunities By Eduardo Borensztein; Barry Eichengreen; Ugo Panizza
  12. Production and Financial Policies under Asymmetric Information By J.H. Dreze; E. Minelli; M. Tirelli

  1. By: Paolo Panteghini
    Abstract: This article studies the relationship between debt policies of multinational companies (MNCs) and governments' tax strategies. In the first part, it is shown that the ability to shift income from high to low-tax countries affects MNCs' financial choices. In the second part we show how MNCs' financial decisions can affect the tax strategies of two governments competing to attract income. Furthermore we show that, for reasonable levels of risk aversion, the use of an equally weighted portfolio is surprisingly consistent with an expected utility maximizing behavior.
  2. By: Steve Bond (Institute for Fiscal Studies and Nuffield College, Oxford); Michael Devereux (Institute for Fiscal Studies and University of Warwick); Alexander Klemm (Institute for Fiscal Studies)
    Abstract: We present empirical evidence which suggests that a big increase in dividend taxation for UK pension funds in July 1997 affected the form in which some UK companies chose to make dividend payments, but otherwise had limited effects on both the level of dividend payments and the level of investment. These findings are consistent with a version of the 'new view' of dividend taxation. We also identify a group of firms whose dividend choices are difficult to reconcile with (stock market) value maximisation.
    Date: 2005–08
  3. By: Alessandro Bucciol; Raffaele Miniaci
    Abstract: We develop a model of optimal asset allocation based on a utility framework. This applies to a more general context than the classical mean-variance paradigm since it can also account for the presence of constraints in the portfolio composition. Using this approach, we study the distribution of a measure of wealth compensative variation, we propose a benchmark and portfolio efficiency test and a procedure to estimate the implicit risk aversion parameter of a power utility function. Our empirical analysis makes use of the S&P 500 and industry portfolios time series to show that although the market index cannot be considered an efficient investment in the mean-variance metric, the wealth loss associated with such an investment is statistically different from zero but rather small (lower than 0.5%). The wealth loss is at its minimum for a representative agent with a constant risk aversion index not higher than 5. Furthermore we show that, for reasonable levels of risk aversion, the use of an equally weighted portfolio is surprisingly consistent with an expected utility maximizing behavior.
  4. By: Patrick Behr; André Güttler
    Date: 2006–04
  5. By: Michel Lelart (LEO - Laboratoire d'économie d'Orleans - - [CNRS : UMR6221] - [Université d'Orléans] - [])
    Abstract: La finance recouvre beaucoup de produits et de services qui, entre des pays voisins, sont comparables et souvent assez proches. Il n'en est pas de même entre les pays développés et les pays en voie de développement où les pratiques financières reposent sur des relations personnelles souvent très étroites. Il en est ainsi aussi bien pour les pratiques individuelles (usuriers, banquiers ambulants...) que pour les pratiques collectives (les tontines...)
    Keywords: finance informelle ; secteur informel ; microfinance
    Date: 2006–03–30
  6. By: Ravi Jagannathan; Ann E. Sherman
    Abstract: We document a somewhat surprising regularity: of the many countries that have used IPO auctions, virtually all have abandoned them. The common explanations given for the lack of popularity of the auction method in the U.S., viz., issuer reluctance to try a new experimental method, and underwriter pressure towards methods that lead to higher fees, do not fit the evidence. We examine why auctions have failed and verify, to the extent possible, that they are consistent with what academic theory predicts. Both uniform price and discriminatory auctions are plagued by unexpectedly large fluctuations in the number of participants. The free rider problem and the winner’s curse hamper price discovery and discourage investors from participating in auctions. That may explain the inaccurate pricing and poor aftermarket performance of IPOs using auctions.
    JEL: G24 G28 G32
    Date: 2006–04
  7. By: Michael Bleaney; R. Todd Smith
    Abstract: The CAPM can explain closed-end fund (CEF) discounts as a consequence of the higher betas on CEF shares than on their underlying portfolios. The difference in betas is much greater for international funds and for bond funds than for domestic equity funds. CEF shares carry both more idiosyncratic risk (usually) and more systematic risk than their portfolios, and also exhibit excess volatility. The difference in betas reflects the sensitivity of CEF price returns to market returns, after controlling for portfolio returns. The influence of home market returns on international fund prices is particularly marked in UK funds.
  8. By: Clemens Sialm
    Abstract: This paper investigates whether investors are compensated for the tax burden of equity securities. Effective tax rates on equity securities vary due to frequent tax reforms and due to persistent differences in propensities to pay dividends. The paper finds an economically and statistically significant relationship between risk-adjusted stock returns and effective personal tax rates using a new data set covering tax burdens on a cross-section of equity securities between 1927 and 2004. Consistent with tax capitalization, stocks facing higher effective tax rates tend to compensate taxable investors by generating higher before-tax returns.
    JEL: G12 H20 E44
    Date: 2006–04
  9. By: Enrico Minelli; Salvatore Modica
    Abstract: In a simplified version of the Stiglitz–Weiss (1981) model of the credit market we characterize optimal policies to correct market failures. Widely applied policies, notably interest–rate subsidies and investment subsidies, are compared to the theoretical optimum. Some comments on the trade-off between credit subsidy and infrastructural investment are added in the conclusions.two governments competing to attract income. Furthermore we show that, for reasonable levels of risk aversion, the use of an equally weighted portfolio is surprisingly consistent with an expected utility maximizing behavior.
  10. By: John Y. Campbell
    Abstract: The welfare benefits of financial markets depend in large part on how effectively households use these markets. The study of household finance is challenging because household behavior is difficult to measure accurately, and because households face constraints that are not captured by textbook models, including fixed costs, uninsurable income risk, borrowing constraints, and contracts that are non-neutral with respect to inflation. Evidence on participation, diversification, and the exercise of mortgage refinancing options suggests that many households are reasonably effective investors, but a minority make significant mistakes. This minority appears to be poorer and less well educated than the majority of more successful investors. There is some evidence that households understand their own limitations, and try to avoid financial strategies that require them to make decisions they do not feel qualified to make. Some financial products involve a cross-subsidy from naive households to sophisticated households, and this can inhibit the emergence of products that would promote effective financial decision making by households.
    JEL: G12
    Date: 2006–04
  11. By: Eduardo Borensztein (InterAmerican Development Bank); Barry Eichengreen (University of California, Berkeley); Ugo Panizza (InterAmerican Development Bank)
    Abstract: Spreads on sovereign bonds are at an all-time low, at least since the current era of emerging economy bond markets began in the 1990s. This paper examines the current state of the international and domestic bond markets and asks whether the current favorable trends will constitute a durable change or a temporary fad and discusses what the IDB and other international financial institutions can do to help consolidate the positive trends and prevent new sudden stop episodes in Latin America.
    Keywords: debt; finance
    Date: 2006–04
  12. By: J.H. Dreze; E. Minelli; M. Tirelli
    Abstract: We propose an extension of the standard general equilibrium model with production and incomplete markets to situationsin which (i) private investors have limited information on the returns of specific assets, (ii) managers of firms have limited information on the preferences of individual shareholders. The extension is obtained by the assumption that firms are not traded directly but grouped into ‘sectorial’ funds. In our model the financial policy of the firm is not irrelevant. We establish the existence of equilibria and discuss the nature of the inefficiencies introduced by the presence of asymmetric information. We also illustrate the properties of the model in three simple examples.

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