nep-cfn New Economics Papers
on Corporate Finance
Issue of 2006‒12‒09
six papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Do ICT Skill Shortages Hamper Firms’ Performance? By John Forth; Geoff Mason
  2. Moral Hazard Contracts: Does One Size Fit All? By Alexander K. Koch; Eloïc Peyrache
  3. The Impacts of Capital Adequacy Requirements on Emerging Markets By Ray Barrell; Sylvia Gottschalk
  4. Credit rationing and asset value By A. Affuso
  5. Policies to Improve Turkey's Resilience to Financial Market Shocks By Anne-Marie Brook
  6. The Impact of Changing Demographics and Pensions on The Demand for Housing and Financial Assets By Lubo Schmidt; Aleš ?Cerný and David Miles

  1. By: John Forth; Geoff Mason
    Abstract: In light of the increased relative demand for skilled labour associated with Information and Communication Technologies (ICTs), we combine survey data for UK enterprises in 1999 with post-survey financial data for the same enterprises to assess the impact of ICT skill shortages on firms’ financial performance. There is clear evidence that ICT skill shortages have an indirect negative impact on performance through the restrictions that such deficiencies place on ICT adoption and on the intensity of ICT use post-adoption. However, there is only weak evidence of skill shortages impinging directly on performance at given levels of ICT adoption and utilisation.
    Date: 2006–09
  2. By: Alexander K. Koch (Royal Holloway, University of London and IZA Bonn); Eloïc Peyrache (HEC School of Management, Paris)
    Abstract: Incentive theory predicts that contract terms should respond to differences in agents’ productivities. Firms’ practice of anonymous contracts thus appears puzzling. We show that such a "one-size-fits-all" approach can be reconciled with standard agency theory if careers are marked by frequent transitions between employers, and agents have career concerns because complete long-term contracts are not feasible.
    Keywords: anonymous contracts, career concerns, incentive contracts, reputation
    JEL: D80 J33 L14 M12
    Date: 2006–11
  3. By: Ray Barrell; Sylvia Gottschalk
    Abstract: We investigate the macroeconomic impacts of changes in capital adequacy requirements, as developed in the Basel Capital Accords, on Brazil and Mexico. Changes in the capital adequacy requirements of international and domestic banks are considered, since the former adopted the Basel Capital Accord in 1988 and the latter in the mid-90s. Unlike most papers in the budding literature on the effects of the Basel Capital Accords on developing countries, we adopt an empirical approach, grounded in a general equilibrium macroeconometric model, which allows us to examine indirect transmission mechanisms. We first estimate a reduced financial block for Brazil and Mexico, which we integrate into the National Institute's General Equilibrium Model (NiGEM). We then simulate a shock to domestic and international capital adequacy ratios. The simulations show that an increase in capital adequacy ratios-either domestic or international-has adverse impacts on Brazilian and Mexican GDPs. A moderate credit crunch occurs in both cases and in both countries and is accompanied by a rise in lending rates. However, there are important differences in banks' reaction to tighter solvency ratios in each country. In Brazil, international and domestic banks adjust their portfolios by switching from higher-risk loans (private sector) to zero-risk loans (sovereign and public sector), instead of increasing their capital provisions. Sovereign lending, and hence government spending, thus rises sharply in Brazil. This offsets the negative impacts of the fall in private investment that follows the credit crunch. In Mexico, sovereign lending from domestic banks remains largely unaffected by changes in capital adequacy ratios, whereas foreign loans to the Mexican public sector decrease. In both cases, the Mexican private sector bears the bulk of the adjustment of domestic and foreign banks to the new regulatory rules. These findings suggest the existence of a financial "crowding-out", where government borrowing replaces private sector borrowing in domestic banks loans portfolios. Household borrowing including housing loans represents around 5 per cent of GDP in Mexico and about 8 per cent of GDP in Brazil, on average over 1997-2004. These ratios are considerably lower than those of countries such as the UK and the US. In 2000, for instance, total consumer credit in the UK and the US amounted to 73 and 78 per cent of GDP respectively (See Byrne and Davis 2003). This may account for our finding that consumer credit in both countries is not sensitive to changes in solvency ratios. Nonetheless, our simulations show that household consumption in Brazil and Mexico drops following a rise in capital adequacy ratios. The transmission mechanism is carried out through household net wealth. Higher solvency ratios lead to higher interest rates, which, other things unchanged, increase net interest payments of households and thus their net financial wealth. In our model, lower financial wealth results into lower consumption. Overall, given an increase of ½ percentage point in solvency ratios, we found that GDP falls by 3.5 per cent in Brazil, and by 2.2 per cent in Mexico.
    Date: 2006–02
  4. By: A. Affuso
    Abstract: This paper investigates the effect of real assets as collateral on the economy. I show how credit rationing is mitigated by the exsistence of bad firms whether it is linked to the value of distressed assets. Indeed, when loans are collateralized and firms are credit constrained, the amount borrowed is determined by the value of the collateral. The model builds on Stiglitz and Weiss (1981) and Shleifer and Vishny (1992) to show that there exists a link between firms’ debt capacities and asset values in case of distress and the classical credit rationing model. Such as in the paper of Shleifer and Vishny, I endogenize the assets price. The price depends on whether there are firms that repurchase the assets. In fact, it depends on the number of bad firms in the economy as well as on the liquidity of good firms. I show that is possible to have a separating equilibrium only if there exists a number of bad firms that go bankrupt and if there exist good firms with sufficient liquidity. Each firm derives positive externalities from the existence of other firms. Indeed, the optimal leverage of firms depends on the possibility of repurchasing the assets. In this model the financial intermediaries play a role because they arise as internal markets for assets.
    Keywords: Adverse selection, credit rationing, real assets, asymmetric information, public subsidies
    JEL: D82 H23
    Date: 2006
  5. By: Anne-Marie Brook
    Abstract: Since the crisis of 2001, an impressive package of fiscal consolidation and institutional reform has created a strong foundation for economic growth. As a result, GDP growth has been strong and stable, inflation has fallen, and the public debt burden has been significantly reduced. Yet the current account deficit is large, exchange rate movements have been volatile, and the recent increase in inflation and rising levels of private sector external debt draw attention to Turkey?s vulnerabilities and to the need for additional policies to contain risks. This paper summarises the vulnerabilities of the Turkish economy and the steps that can be taken to improve macroeconomic resilience to shocks. This Working Paper relates to the 2006 Economic Survey of Turkey ( <P>Les politiques pour renforcer la résilience de la Turquie aux chocs émanant des marchés financiers <BR>Depuis la crise de 2001, un remarquable programme d'assainissement économique et de réforme institutionnelle a créé de robustes fondations pour la croissance économique. En conséquence, l'expansion du PIB a été forte et stable, l'inflation a décru et le fardeau de la dette publique a été nettement allégé. Cependant, le déficit de la balance courante est élevé, les fluctuations du taux de change sont irrégulières et l'accélération récente de l'inflation comme la montée de l'endettement attirent l'attention sur les points vulnérables de la Turquie et sur la nécessité de prendre de nouvelles initiatives pour contenir les risques. Ce document recense les points vulnérables de l'économie turque et présente les mesures susceptibles d'améliorer la résilience macroéconomique aux chocs. Ce Document de travail se rapporte à l’Étude économique de la Turquie 2006 (
    Keywords: fiscal policy, politique fiscale, monetary policy, politique monétaire, shocks, resilience, Turkey, debt sustainability, échanges sud-sud
    JEL: E52 E60 F40 H60
    Date: 2006–11–29
  6. By: Lubo Schmidt; Aleš ?Cerný and David Miles
    Abstract: Using a calibrated OLG model with several sources of uncertainty we find that the impact of ageing and of reform of social security upon the demand for housing and the level of owner occupation is substantial. The overall structure of household asset holdings - in particular the split between real and financial assets - is sensitive to demographics and to the generosity of state run, pay-as-you go pensions. The interaction between social security reform and housing market conditions is significant and suggests that any changes in pension rules will have substantial knock on effects on the housing market.
    Date: 2006–01

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