nep-cfn New Economics Papers
on Corporate Finance
Issue of 2006‒12‒04
twelve papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. OWNERSHIP AND CONTROL STRUCTURES AND PERFORMANCE OF FIRMS IN BRAZIL By Dante Mendes Aldrighi; Alessandro Vinicius Marques de Oliveira
  2. Linking Real Activity and Financial Markets: The Bonds, Equity, and Money (BEAM) Model By Céline Gauthier; Fu Chun Li
  3. All Bad, All of the Time? Related Lending and Financial Development By Robert Cull; Stephen Haber; Masami Imai
  4. Financial systems and banking crises: An assessment By Ruiz-Porras, Antonio
  5. Long memory and non-linearity in Stock Markets By Bond, Derek; Dyson, Kenneth
  6. Modelling and Forecasting Volatility of Returns on the Ghana Stock Exchange Using GARCH Models By Frimpong, Joseph Magnus; Oteng-Abayie, Eric Fosu
  7. Firm-Specific Capital and the New Keynesian Phillips Curve By Woodford, Michael
  8. Financial Accelerator Effects in the Balance Sheets of Czech Firms By Horvath, Roman
  9. Liquidity, Risk Taking, and the Lender of Last Resort By Repullo, Rafael
  10. How Should Monetary Policy Respond to Asset-Price Bubbles? By Gruen, David; Plumb, Michael; Stone, Andrew

  1. By: Dante Mendes Aldrighi; Alessandro Vinicius Marques de Oliveira
    Date: 2006
  2. By: Céline Gauthier; Fu Chun Li
    Abstract: The authors estimate a small monthly macroeconometric model (BEAM, for bonds, equity, and money) of the Canadian economy built around three cointegrating relationships linking financial and real variables over the 1975–2002 period. One of the cointegrating relationships allows the identification of a supply shock as the only shock that permanently affects the stock market, and a demand shock that leads to important transitory stock market overvaluation. The authors propose a monetary policy reaction function in which the impact of a permanent inflation shock on the overnight rate is simulated and the future path of the overnight rate adjusted accordingly, to prevent any forecast persistent deviation from the inflation target. They introduce a technical innovation by showing under which conditions permanent shocks can be identified in a vector error-correction model with exogenous variables.
    Keywords: Financial markets; Financial stability
    JEL: C5 E4
    Date: 2006
  3. By: Robert Cull (World Bank); Stephen Haber (Stanford University); Masami Imai (Economics and East Asian Studies, Wesleyan University)
    Abstract: Does related lending, the practice of bankers extending credit to their own enterprises, help financial development by allowing bankers to assess risk ex ante and monitor borrowers ex post, or does it hinder financial development by creating a mechanism for bankers to loot their own banks? Drawing on both cross-country regressions and case studies we argue that whether related lending is positive or pernicious depends on the institutional context in which it takes place. Our results indicate that when rule of law is strong, related lending is positive for financial development. Our results also suggest when there are strong institutions of corporate governance, related lending is positive for financial development. Finally, our results suggest that depositor monitoring is positively associated with financial development, but that it is perhaps too blunt an instrument to detect when related lending is being used in ways that benefit (or hurt) banks. Taken as a group, our results indicate that there is no single “best policy” regarding related lending. Whether or not policy makers should deter bankers from extending credit to themselves and their business associates crucially depends on institutional context.
    Date: 2006–04
  4. By: Ruiz-Porras, Antonio
    Abstract: Traditionally an old concern among economists has referred to the effects that specific financial systems may have on economic performance. Here we investigate the “stylised facts” among financial systems and banking crises by using individual and principal-components indicators and sets of OLS regressions. The study relies on a set of banking fragility, financial structure and development indicators for a sample of 47 economies between 1990 and 1997. The stylised facts suggest that financial development is associated to financial systems leaded by stock and securities markets. Furthermore the evidence suggests that such association is magnified during episodes of borderline or systemic banking crises. Thus what our findings might suggest is that banking crises may encourage financial development and the transformation of financial systems into market-based ones.
    Keywords: Financial systems; banking crises; financial structure; financial development
    JEL: G1 C2 F4
    Date: 2006–01–05
  5. By: Bond, Derek; Dyson, Kenneth
    Abstract: In this paper the long memory and non-linear properties of share prices in the UK’s Stock Exchange and AIM are explored. The results suggest that the most commonly traded shares exhibit long memory thus raising interesting issues about the validity of normal assumptions of market efficiencies.
    Keywords: Efficient Markets; Long Memory; Nonlinear Models
    JEL: G14 C22
    Date: 2006–09
  6. By: Frimpong, Joseph Magnus; Oteng-Abayie, Eric Fosu
    Abstract: This paper models and forecasts volatility (conditional variance) on the Ghana Stock Exchange using a random walk (RW), GARCH(1,1), EGARCH(1,1), and TGARCH(1,1) models. The unique ‘three days a week’ Databank Stock Index (DSI) is used to study the dynamics of the Ghana stock market volatility over a 10-year period. The competing volatility models were estimated and their specification and forecast performance compared with each other, using AIC and LL information criteria and BDS nonlinearity diagnostic checks. The DSI exhibits the stylized characteristics such as volatility clustering, leptokurtosis and asymmetry effects associated with stock market returns on more advanced stock markets. The random walk hypothesis is rejected for the DSI. Overall, the GARCH (1,1) model outperformed the other models under the assumption that the innovations follow a normal distribution.
    Keywords: Ghana Stock Exchange; developing financial markets; volatility; GARCH model
    JEL: C52 G15 G10 C22
    Date: 2006–10–07
  7. By: Woodford, Michael
    Abstract: A relation between inflation and the path of average marginal cost (often measured by unit labor cost) implied by the Calvo (1983) model of staggered pricing – sometimes referred to as the "New Keynesian" Phillips curve – has been the subject of extensive econometric estimation and testing. Standard theoretical justifications of this form of aggregate-supply relation, however, either assume (1) the existence of a competitive rental market for capital services, so that the shadow cost of capital services is equated across firms and sectors at all points in time, despite the fact that prices are set at different times, or (2) that the capital stock of each firm is constant, or at any rate exogenously given, and so independent of the firm’s pricing decision. But neither assumption is realistic. The present paper examines the extent to which existing empirical specifications and interpretations of parameter estimates are compromised by reliance on either of these assumptions. The paper derives an aggregate-supply relation for a model with monopolistic competition and Calvo pricing in which capital is firm specific and endogenous, and investment is subject to convex adjustment costs. The aggregate-supply relation is shown to again take the standard New Keynesian form, but with an elasticity of inflation with respect to real marginal cost that is a different function of underlying parameters than in the simpler cases studied earlier. Thus the relations estimated in the empirical literature remain correctly specified under the assumptions proposed here, but the interpretation of the estimated elasticity is different; in particular, the implications of the estimated Phillips-curve slope for the frequency of price adjustment is changed. Assuming a rental market for capital results in a substantial exaggeration of the infrequency of price adjustment; assuming exogenous capital instead results in a smaller underestimate.
    JEL: G00 G0
    Date: 2005–02–08
  8. By: Horvath, Roman
    Abstract: The paper examines a financial accelerator mechanism in analyzing determinants of corporate interest rates. Using a panel of the financial statements of 448 Czech firms from 1996–2002, we find that balance sheet indicators matter interest rates paid by firms. Market access is particularly important in this regard. The strength of corporate balance sheets seem to vary with firm size. There is also evidence that monetary policy has a stronger effect on smaller than on larger firms. On the other hand, we find no asymmetry in the monetary policy effects over the business cycle.
    Keywords: balance sheet channel; financial accelerator; interest rates; monetary policy transmission
    JEL: G32 E52
    Date: 2006–11–14
  9. By: Repullo, Rafael
    Abstract: This paper studies the strategic interaction between a bank whose deposits are randomly withdrawn and a lender of last resort (LLR) that bases its decision on supervisory information on the quality of the bank’s assets. The bank is subject to a capital requirement and chooses the liquidity buffer that it wants to hold and the risk of its loan portfolio. The equilibrium choice of risk is shown to be decreasing in the capital requirement and increasing in the interest rate charged by the LLR. Moreover, when the LLR does not charge penalty rates, the bank chooses the same level of risk and a smaller liquidity buffer than in the absence of an LLR. Thus, in contrast with the general view, the existence of an LLR does not increase the incentives to take risk, while penalty rates do.
    JEL: G00 G0
    Date: 2005–02–28
  10. By: Gruen, David; Plumb, Michael; Stone, Andrew
    Abstract: We present a simple macroeconomic model that includes a role for an asset-price bubble. We then derive optimal monetary policy settings for two policymakers: a skeptic, for whom the best forecast of future asset prices is the current price; and an activist, whose policy recommendations take into account the complete stochastic implications of the bubble. We show that the activist’s recommendations depend sensitively on the detailed stochastic properties of the bubble. In some circumstances the activist clearly recommends tighter policy than the skeptic, but in others the appropriate recommendation is to be looser. Our results highlight the stringent informational requirements inherent in an activist policy approach to handling asset-price bubbles.
    JEL: G00 G0
    Date: 2005–05–24
  11. By: Ricardo Ratner Rochman; William Eid Junior
    Date: 2006
  12. By: Aieda Batistela de Sirqueira; Aquiles Elie Guimarães Kalatzis
    Date: 2006

This nep-cfn issue is ©2006 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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