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on Corporate Finance |
| By: | Marcello Pericoli (Bank of Italy, Economic Research Department); Massimo Sbracia (Bank of Italy, Economic Research Department) |
| Abstract: | This paper analyzes the Risk Appetite Index (RAI), a measure of investors’ risk aversion proposed by Kumar and Persaud (2001, 2002). We show that the RAI distinguishes between risk and risk aversion only under theoretically restrictive assumptions on the distribution of returns and the shocks affecting assets’ riskiness. However, by comparing the RAI with a measure of risk aversion derived from the CAPM — a model that does not require those restrictive assumptions — we find that estimates are surprisingly similar. We explain this result by proving that, under a certain condition, the RAI can approximate the risk aversion parameter of a CAPM. This occurs if the ratio between the variance of the returns on assets and the variance of the riskiness of assets is sufficiently small—a condition that is met in our sample. |
| Keywords: | CAPM, risk aversion |
| JEL: | G11 G12 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_586_06&r=cfn |
| By: | Georges Dionne; Sadok Laajimi; Sofiane Mejri; Madalina Petrescu |
| Abstract: | In this paper, we investigate the hybrid contingent claim approach with publicly traded Canadian companies listed on the Toronto Stock Exchange. Our goal is to assess how combining their continuous valuation by the market with the value given in their financial statements improves our ability to predict their probability of default. Our results indicate that the predicted structural probabilities of default (PDs from the structural model) contribute significantly to explaining default probabilities when PDs are included alongside the retained accounting variables. We also show that quarterly updates to the PDs add a large amount of dynamic information to explain the probabilities of default over the course of a year. This flexibility would not be possible with a reduced-form model. We also conducted a preliminary analysis of correlations between sructural probabilities of default for the firms in our database. Our results indicate that there are substantial correlations in the studied data. |
| Keywords: | Default risk, public firm, structural model, reduced form model, hybrid model, probit model, Toronto Stock Exchange, correlations between default probabilities |
| JEL: | G21 G24 G28 G33 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:0613&r=cfn |
| By: | Diana Marina Del COlle, (Bank of Italy,Research Department, Turin Branch); Paolo Finaldi Russo (Bank of Italy, Economic Research Department, Rome); Andrea Generale (Bank of Italy, Economic Research Department, Rome) |
| Abstract: | The analysis of the determinants and the effects on firm performance of venture capital finance for a sample of Italian enterprises indicates that small, young and more innovative firms are more likely to be financed by a venture capitalist. Our results confirm that venture capital can help reduce financial constraints for firms that are more difficult for external investors to evaluate. We also show that larger firms resort to venture capitalists when their indebtedness with banks is high and we find evidence that venture capital financing is more frequent after periods of high growth and investment, a result that points to the advisory role of the venture capitalist. A novel result emerges; venture capital also finances firms with multiple banking relationships. In the presence of multiple lending, banks could have greater difficulty monitoring firms with asymmetric information; moreover, if firms default, banks are likely to have a weaker bargaining position. In these cases, the amount of bank credit is probably near its limit and firms need to resort to venture capital, a contract that reduces the amount of guarantees needed to access external finance. |
| Keywords: | Venture capital, Private equity |
| JEL: | G24 G32 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_584_06&r=cfn |
| By: | Michael Fritsch; Dirk Schilder |
| Abstract: | We examine the role of spatial proximity for Venture Capital (VC) investments in Germany. The main database is a survey of 85 personal interviews with representatives of different types of financial institutions. The analysis shows that spatial proximity is far less important for VC investments than is often believed. For example, the results indicate that syndication is partly used as an alternative to spatial proximity. Telecommunication does not work as a substitute for face-to-face contact. On the whole, regional proximity is not a dominant factor in VC partnerships. Therefore, the absence of VC firms in a region does not appear to cause a severe regional equity gap. |
| Keywords: | Venture Capital, spatial proximity, start-up financing |
| JEL: | G24 O16 D21 M13 R12 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:esi:egpdis:2006-14&r=cfn |
| By: | Anusha Chari; Peter Blair Henry |
| Abstract: | We use a new firm-level dataset to examine the efficiency of investment in emerging economies. In the three-year period following stock market liberalizations, the growth rate of the typical firm's capital stock exceeds its pre-liberalization mean by an average of 5.4 percentage points. Cross-sectional changes in investment are significantly correlated with the signals about fundamentals embedded in the stock price changes that occur upon liberalization. Panel data estimations show that a 1-percentage point increase in a firm's expected future sales growth predicts a 4.1-percentage point increase in its investment; country-specific changes in the cost of capital predict a 2.3-percentage point increase in investment; firm-specific changes in risk premia do not affect investment. |
| JEL: | E F G |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12186&r=cfn |
| By: | Andrew Ang; Li Gu; Yael V. Hochberg |
| Abstract: | Recent studies suggest that the underperformance of IPOs in the post-1970 sample may be a small sample effect or “Peso” problem. That is, IPO underperformance may result from observing too few star performers ex-post than were expected ex-ante. We develop a model of IPO performance that captures this intuition by allowing returns to be drawn from mixtures of outstanding, benchmark, or poor performing states. We estimate the model under the null of no ex-ante average IPO underperformance and construct small sample distributions of various statistics measuring IPO relative performance. We find that small sample biases are extremely unlikely to account for the magnitude of the post-1970 IPO underperformance observed in data. |
| JEL: | G12 G14 G32 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12203&r=cfn |