nep-cfn New Economics Papers
on Corporate Finance
Issue of 2006‒09‒11
eight papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Markov-Perfect Nash Equilibria in Models with a Single Capital Stock By Engelbert J. Dockner; Florian O.O. Wagener
  2. Corporate Governance, Crony capitalism and Economic Crisis: Should the US Business Model replace the Asian Way of 'Doing Business'? By Ajit Singh; Ann Zammit
  3. Why Do Contracts Differ between VC Types? Market Segmentation versus Corporate Governance Varieties By Julia Hirsch; Uwe Walz
  4. The Equity Trap, the Cost Capital and the Firm´s Growth Path By Lindhe, Tobias; Södersten, Jan
  5. Developer's Expertise and the Dynamics of Financial Innovation: Theory and Evidence By Helios Herrera; Enrique Schroth
  6. A Theory of Liquidity and Regulation of Financial Intermediation By Emmanuel Farhi; Mikhail Golosov; Aleh Tsyvinski
  7. The Economics of Private Equity By Smit, J.T.J.
  8. Limiting Limited Liability By Guiseppe Dari-Mattiacci

  1. By: Engelbert J. Dockner (University of Vienna, Austria); Florian O.O. Wagener (CeNDEF, Universiteit van Amsterdam)
    Abstract: Many economic problems can be formulated as dynamic games in which strategically interacting agents choose actions that determine the current and future levels of a single capital stock. We study necessary conditions that allow us to characterize Markov perfect Nash equilibria (MPNE) for these games. These conditions result in an auxiliary system of ordinary differential equations that helps us to explore stability, continuity and differentiability of MPNE. The techniques are used to derive detailed properties of MPNE for several games including the exploitation of a finite resource, the voluntary investment in a public capital stock, and the inter-temporal consumption of a reproductive asset.
    Keywords: Capital accumulation games; Markov equilibria; Resource games; Differential games
    JEL: C73 D92 Q22
    Date: 2006–06–22
  2. By: Ajit Singh; Ann Zammit
    Abstract: This paper considers the Greenspan/Summers/IMF (GSI) argument that the Asian way of doing business was the deep cause of the Asian crisis. The IMF reform programme for the crisis-affected Asian countries suggested they should abandon the Asian business model and adopt the US corporate model. The main findings are: a) contrary to GSI doctrine, poor corporate governance and lack of competition are not common characteristics of the Asian business model; b) that the stock-market based US business model has severe limitations for developing country corporations, not least because of imperfect share prices and the imperfect market for corporate control.
    Keywords: Asian and US corporate models; stock markets; Asian crisis
    JEL: D21 G3 O1
    Date: 2006–06
  3. By: Julia Hirsch (University of Frankfurt); Uwe Walz (University of Frankfurt)
    Abstract: The main objective of the present paper is to disentangle observed differences in the design of contracts across VC types into firm selection effects and corporate governance differences between VC types (different contracts). Based on a theoretical approach developed in the first part of the paper, we investigate in the second part these issues empirically by using a unique, hand-collected German data set consisting of all contractual details of VC investments into 290 entrepreneurial firms in the period 1990-2004. By employing various matching procedures, we show that VC types differ in both firm choice and corporate governance approach.
    Keywords: Venture Capital, Corporate Governance, Matching, Contract Design
    JEL: G24 G32 G34
    Date: 2006–05–19
  4. By: Lindhe, Tobias (Finansdepartementet); Södersten, Jan (Department of Economics)
    Abstract: This paper reconsiders Sinn’s (1991) nucleus theory of the corporation by comparing two different regimes for the equity trap. In the first of these, all cash paid to the shareholders is taxed as dividends, in the second, shareholders are allowed a tax-free return of capital contributed through new issues. A substantial difference is found between the regimes in the seize of initial equity injections, although in both regimes, no dividends are paid until a new long-run equilibrium is reached. Contrary to Sinn, we find that with optimal behavior, the cost of new equity is lower than suggested by conventional formulae.
    Keywords: dividend taxation; equity trap; cost of capital; nucleus theory; growth path
    JEL: H24 H25 H32
    Date: 2006–09–05
  5. By: Helios Herrera (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM)); Enrique Schroth (HEC Lausanne)
    Abstract: We study product innovation and imitation in the market of corporate underwriting with a dynamic model where client switching costs and the bankers' expertise in deal structuring characterize the life cycle of a security. While the clientele loyalty allows positive rent extraction, the superior expertise can account for the documented market leadership of the innovator. As expertise on product structuring is acquired by imitators, the innovator's market share advantage decreases. Also, the speed of entry by imitators increases for later generation products. Our predictions are consistent with well documented evidence on the market share leadership of innovators. We also present new evidence from equity-linked and derivative corporate products that supports the dynamic predictions of our learning model.
    Keywords: Innovation and imitation, first-mover advantages, learning
    JEL: G24 L12 L89
    Date: 2005–08
  6. By: Emmanuel Farhi; Mikhail Golosov; Aleh Tsyvinski
    Date: 2006–09–02
  7. By: Smit, J.T.J. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: The development of theory about private equity during the last decades follows the pattern of economic development. While buyouts have found their origin in restructuring we observe more recently a trend of facilitating growth, where the firm and financier follow a path of acquisitions. A traditional valuation analysis approaches the investment problem from the perspective of a single transaction. New trends ask for an expanded valuation framework, not only to evaluate individual acquisitions but to shape the strategic thinking process. This address describes a framework for applying real options and game theory to strategy planning and valuation. It treats an acquisition strategy as a package of corporate real options, actively managed by the firm in a context of competitive responses or changing market conditions. Combining the quantitative options models developed in finance with game theory principles from economics and the qualitative insights from strategic management theory provides a richer framework that helps us better understand the restructuring of fragmented markets.
    Keywords: private equity;waardering;financiering;acquisities;buy-and-build;reele opties;speltheorie;
    Date: 2003–03–31
  8. By: Guiseppe Dari-Mattiacci (ACLE, Universiteit van Amsterdam, and George Mason University, Arlington, Virginia, USA)
    Abstract: Limited liability may result in inefficient accident prevention, because a relevant portion of the expected harm is externalized on victims. This paper shows that under some restrictive conditions further limiting liability by means of a liability cap can improve caretaking.
    Keywords: insolvency; judgment proof; liability; bankruptcy; liability cap
    JEL: K13 K32 L59
    Date: 2006–08–09

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