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on Corporate Finance |
| By: | Ingela Alger (Boston College) |
| Abstract: | The paper derives the optimal organizational response of a bank (the principal) which faces a risk of collusion between the credit manager (the agent) and the credit-seeking firms. The bank can deter collusion either through internal incentives or by distorting the credit contracts. The model thus explicitly takes into account the interaction between internal (collusion) risks and external (default) risks in the optimal design of the internal organization as well as of the credit contracts. We investigate this question in two settings. In the first one, we adopt the standard assumption that the agent is always willing to collude (is corruptible) if that increases his monetary payoff. In the second one, he is corruptible with some probability only, and honest otherwise. A novel feature of our approach is to allow for screening among corruptible and honest agents. We find that if the probability that the agent is honest is sufficiently large, collusion occurs in equilibrium. |
| Date: | 2006–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:648&r=cfn |
| By: | Lund, Diderik (Department of Economics, Copenhagen Business School) |
| Abstract: | Levy and Arditti (1973) introduced depreciable assets into the Modigliani and Miller (1958) model, and analyzed the implications for the cost of capital. Assuming that the firm reinvests indefinitely to maintain a constant expected cash flow, they found that depreciation increases the cost of capital before and after tax. Most of their assumptions are maintained. However, commitment to perpetual reinvestment is in most cases not a reasonable assumption. Without it, depreciation decreases the cost of capital before and after tax. The effect of depreciation is less in absolute value than in Levy and Arditti, but not insignificant. |
| Keywords: | Cost of capital; depreciation; corporate taxes |
| JEL: | G31 H25 |
| Date: | 2006–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cbsnow:2003_003&r=cfn |
| By: | Hellström, Jörgen (Department of Economics, Umeå University); Simonsen, Ola (Department of Economics, Umeå University) |
| Abstract: | This paper empirically tests whether an open limit order book contains information about future short-run stock price movements. To account for the discrete nature of price changes, the integer-valued autoregressive model of order one is utilized. A model transformation has an advantage over conventional count data approaches since it handles negative integer-valued price changes. The empirical results reveal that measures capturing offered quantities of a share at the best bid- and ask-price reveal more information about future short-run price movements than measures capturing the quantities offered at prices below and above. Imbalance and changes in offered quantities at prices below and above the best bid- and ask-price do, however, have a small and significant effect on future price changes. The results also indicate that the value of order book information is short-term. |
| Keywords: | Negative integer-valued data; time series; INAR; finance; stock price; open limit order book |
| JEL: | C25 G12 G14 |
| Date: | 2006–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0687&r=cfn |
| By: | Simonsen, Ola (Department of Economics, Umeå University) |
| Abstract: | This paper studies the impact of news announcements on trade durations in stocks on the Stockholm Stock Exchange. The news are categorized into four groups and the impact on the time between transactions is studied. Times before, during and after the news release are considered. Econometrically, the impact is studied within an autoregressive conditional duration model using intradaily data for six stocks.The empirical results reveal that news reduces the duration lengths before, during and after news releases as expected by the theoretical litterature on durations and information flow. |
| Keywords: | Finance; transaction data; intraday; market microstructure; ACD |
| JEL: | C12 C32 C41 G14 |
| Date: | 2006–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0688&r=cfn |
| By: | Simonsen, Ola (Department of Economics, Umeå University) |
| Abstract: | This thesis comprises four papers concerning trade durations and limit order book information. Paper [1], [2] and [4] study trader durations, e.g., the time between stock transactions in intra-day data. Paper [3] focus on the information content in the limit order book concerning future price movements in stock transaction data. <p> Paper [1] considers conditional duration models in which durations are in continuous time but measured in grouped or discretized form. This feature of recorded durations in combination with a frequently traded stock is expected to negatively influence the performance of conventional estimators for intraday duration models. A few estimators that account for the discreteness are discussed and compared in a Monte Carlo experiment. An EM-algorithm accounting for the discrete data performs better than those which do not. Empirically, the incorporation of level variables for past trading is rejected in favour of change variables. This enables an interpretation in terms of news effects. No evidence of asymmetric responses to news about prices and spreads is found. <p> Paper [2] considers an extension of the univariate autoregressive conditional duration model to which durations from a second stock are added. The model is empirically used to study duration dependence in four traded stocks, Nordea, Föreningssparbanken, Handelsbanken and SEB A on the Stockholm Stock Exchange. The stocks are all active in the banking sector. It is found that including durations from a second stock may add explanatory power to the univariate model. We also find that spread changes have significant effect for all series. <p> Paper [3] empirically tests whether an open limit order book contains information about future short-run stock price movements. To account for the discrete nature of price changes, the integer-valued autoregressive model of order one is utilized. A model transformation has an advantage over conventional count data approaches since it handles negative integer-valued price changes. The empirical results reveal that measures capturing offered quantities of a share at the best bid- and ask-price reveal more information about future short-run price movements than measures capturing the quantities offered at prices below and above. Imbalance and changes in offered quantities at prices below and above the best bid- and askprice do, however, have a small and significant effect on future price changes. The results also indicate that the value of order book information is short-term. <p> Paper [4] This paper studies the impact of news announcements on trade durations in stocks on the Stockholm Stock Exchange. The news are categorized into four groups and the impact on the time between transactions is studied. Times before, during and after the news release are considered. Econometrically, the impact is studied within an autoregressive conditional duration model using intradaily data for six stocks. The empirical results reveal that news reduces the duration lengths before, during and after news releases as expected by the theoretical litterature on durations and information flow. |
| Keywords: | Finance; Maximum likelihood; Estimation; ACD; News; Multivariate; Intraday; Market microstructure; Granger causality; Time series; INAR; Stock price; Open limit order book |
| JEL: | C12 C22 C25 C32 C41 C51 G12 G14 |
| Date: | 2006–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0689&r=cfn |
| By: | Laarni Bulan; Christopher J. Mayer; C. Tsuriel Somerville |
| Abstract: | We examine the extent to which uncertainty delays investment and the effect of competition on this relationship using a sample of 1,214 condominium developments in Vancouver, Canada built from 1979-1998. We find that increases in both idiosyncratic and systematic risk lead developers to delay new real estate investments. Empirically, a one-standard deviation increase in the return volatility reduces the probability of investment by 13 percent, equivalent to a 9 percent decline in real prices. Increases in the number of potential competitors located near a project negate the negative relationship between idiosyncratic risk and development. These results support models in which competition erodes option values and provide clear evidence for the real options framework over alternatives such as simple risk aversion. |
| JEL: | D4 D52 E23 R3 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12486&r=cfn |
| By: | R. Cesari; C. D'Adda |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:537&r=cfn |
| By: | B. Luppi |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:539&r=cfn |
| By: | R. Andergassen |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:542&r=cfn |
| By: | Sam Bucovetsky (Department of Economics, York University); Amihai Glazer (Department of Economics, University of California-Irvine) |
| Abstract: | Many mechanisms (such as auctions) efficiently allocate a good to the firm which most highly values it. But sometimes the owner of the asset or good may wish to transfer it only if it is not too valuable to potential buyers. The allocation problem becomes especially difficult when the potential buyers have private information about the asset’s value. We describe several mechanisms which are efficient, or nearly so. We also show that rent seeking, and lobbying, rather than merely wasting resources, can lead to allocations which are close to efficient. |
| Keywords: | Rent seeking; Lobbying; Auctions; Asymmetric information |
| JEL: | D44 D72 D82 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:050619&r=cfn |