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on Corporate Finance |
| By: | Michael R. King; Dan Segal |
| Abstract: | The authors show that the widening of a foreign firm's U.S. investor base and the improved information environment associated with cross-listing on a U.S. exchange each have a separately identifiable effect on a firm's valuation. The increase in valuation associated with cross-listing is transitory, not permanent. Valuations of Canadian firms peak in the year of cross-listing and fall monotonically thereafter, regardless of the level of U.S. investor holdings or the ownership structure of the firm. Cross-listed firms with a 20 per cent or more blockholder attract a similar number of U.S. institutional investors as widely held firms, on average, but experience a lower increase in valuation at high levels of investor recognition. While U.S. investors are less willing to invest in firms with dual-class shares, these firms benefit more from cross-listing even when they fail to widen their U.S. investor base, suggesting that the reduction in information asymmetry between controlling and minority investors has a separate impact on valuation for firms where agency problems are greatest. |
| Keywords: | Financial markets; International topics |
| JEL: | G12 G15 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-44&r=cfn |
| By: | Francisco Covas; Wouter J. den Haan |
| Abstract: | The authors show that debt and equity issuance are procyclical for most listed U.S. firms. The procyclicality of equity issuance decreases monotonically with firm size. At the aggregate level, however, the authors' results are not conclusive: issuance is countercyclical for very large firms that, although few in number, have a large effect on the aggregate because of their enormous size. If firms use the standard one-period contract, then the shadow price of external funds is procyclical and the cyclicality decreases with firm size. This property generates equity to be procyclical and--as in the data--the procyclicality decreases with firm size. Other factors that cause equity to be procyclical in the model are a countercyclical price of risk and a countercyclical cost of equity issuance. The model (i) generates a countercyclical default rate, (ii) magnifies shocks, and (iii) generates a stronger cyclical response for small firms, whereas the model without equity does the exact opposite. |
| Keywords: | Financial stability; Business fluctuations and cycles |
| JEL: | E3 G1 G3 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-45&r=cfn |
| By: | Kjell Bjørn Nordal (Norges Bank (Central Bank of Norway)) |
| Abstract: | I evaluate a bank's incentives to implement a risk sensitive regulatory capital rule and to invest in improved risk measurement. The decision making is analyzed within a real options framework where optimal policies are derived in terms of threshold levels of risk. I also evaluate the situation where exercise or non-exercise of the options to implement or invest are signals about the underlying quality of the loan portfolio. The framework is used for a numerical evaluation of banks' decision of whether to use internal rating based models for credit risk (the IRB-approach) under the new Basel accord (Basel II), where the dynamic behavior of risk is described by an Ohrnstein-Uhlenbeck process. I discuss empirical implications of the evaluation framework. |
| Keywords: | Risk measurement, capital structure, real options, Basel II |
| JEL: | G13 G21 G28 G32 |
| Date: | 2006–12–11 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2006_12&r=cfn |
| By: | Lily Qiu; Gerard Hoberg |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bro:econwp:2006-17&r=cfn |
| By: | Pablo Casas-Arce; Albert Saiz |
| Abstract: | The authors develop a legal contract enforcement theory of the own versus lease decision. The allocation of ownership rights will minimize enforcement costs when the legal system is inefficient. In particular, when legal enforcement of contracts is costly, there will be a shift from arrangements that rely on such enforcement (such as a rental agreement) toward other forms that do not (such as direct ownership). The authors then test this prediction and show that costly enforcement of rental contracts hampers the development of the rental housing market in a cross-section of countries. They argue that this association is not the result of reverse causation from a developed rental market to more investor-protective enforcement and is not driven by alternative institutional channels. The results provide supportive evidence on the importance of legal contract enforcement for market development and the optimal allocation of property rights. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:06-21&r=cfn |
| By: | Henry Aray (Department of Economic Theory and Economic History, University of Granada.) |
| Abstract: | In this article I analyze the Spanish stock market in an international setting. Using a simple Markov regime switching model I get a time varying measure of the effect of the return on a Latin American portfolio on the Spanish stock returns. The evidence can be summarized as follows. First, I find that this effect is positive and no so large. However, it has increased since the mid-nineties. Second, evidence for the returns on size portfolios shows that most of the effect accrues indirectly through common risk factors. The portfolio composes of stocks with small capitalization is the most affected. Nevertheless, the relative effect of the Latin America to the effect of the world only increases for the portfolio composes of stocks with big capitalization since the mid-nineties. Third, evidence for the returns on sector portfolios shows that the most active sectors investing in Latin America are the most affected. Fourth, I conclude that there is no a positive relationship between â-risk and flows of foreign direct investment. |
| Keywords: | Markov switching model, maximum likelihood estimation, stock returns. |
| JEL: | C22 G15 |
| Date: | 2006–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:gra:wpaper:06/12&r=cfn |
| By: | Jean-Bernard Chatelain (PSE - Paris-Jourdan Sciences Economiques - [CNRS : UMR8545] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Normale Supérieure de Paris], EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre]) |
| Abstract: | Cet article montre que le taux de marge de l'entreprise, le capital et l'espérance du taux d'utilisation des capacités de production dépendent de sa structure financière (le ratio dette/fonds propres) lorsque l'investissement est irréversible face à l'incertitude et lorsqu'il y a asymétrie d'information entre l'entrepreneur et ses prêteurs. Le taux de marge dépend positivement de la probabilité d'excès de demande et donc négativement du capital. Le capital s'accroît avec le ratio du taux de marge rapporté au coût du capital. Une contrainte financière sur le capital accroît la probabilité d'excès de demande, ce qui entraîne une hausse simultanée du<br />prix. |
| Keywords: | Taux de marge, structure financière |
| Date: | 2006–12–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00118639_v1&r=cfn |
| By: | Jean-Bernard Chatelain (PSE - Paris-Jourdan Sciences Economiques - [CNRS : UMR8545] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Normale Supérieure de Paris], EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre]); Bruno Amable (PSE - Paris-Jourdan Sciences Economiques - [CNRS : UMR8545] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Normale Supérieure de Paris]); Kirsten Ralf (PSE - Paris-Jourdan Sciences Economiques - [CNRS : UMR8545] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Normale Supérieure de Paris]) |
| Abstract: | This paper studies how credit rationing affects endogenous growth when capital and debt are related to the firm´s internal net worth, taken as collateral. The accumulation of firm´s net worth determines the growth rate of capital and the growth rate of the economy. The relation between growth and interest rate is then negative without requiring convex adjustment costs on investment. |
| Keywords: | Endogenous growth, investment, credit rationing |
| Date: | 2006–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00112521_v1&r=cfn |
| By: | Jean-Bernard Chatelain (PSE - Paris-Jourdan Sciences Economiques - [CNRS : UMR8545] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Normale Supérieure de Paris], EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre]) |
| Abstract: | This note shows that, with pre-set price and capital decisions of firms facing uncertainty and financial market imperfections, price, mark up and the expected degree of capacity utilization (resp. capital) decreases (resp. increases) with the firm internal net worth. |
| Keywords: | Capital, Pricing, capital market imperfections |
| Date: | 2006–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00119409_v1&r=cfn |
| By: | Anandarajan , Asokan (School of Management, New Jersey Institute of Technology); Hasan , Iftekhar (Rensselaer Polytechnic Institute, Bank of Finland Research); McCarthy , Cornelia (School of International and Public Affairs, Columbia University) |
| Abstract: | The objective of this study is to examine whether and to what extent Australian banks use loan loss provisions (LLPs) for capital management, earnings management and signalling. We examine if there were changes in the use of LLPs due to the implementation of banking regulations consistent with the Basel Accord of 1988 which made loan loss reserves no longer part of Tier I capital in the numerator of the capital adequacy ratio. We find some evidence to indicate that Australian banks use LLPs for capital management, but no evidence of a change in this behaviour after the implementation of the Basel Accord. Our results indicate that banks in Australia use LLPs to manage earnings. Further, listed commercial banks engage more aggressively in earnings management using LLPs than unlisted commercial banks. We also find that earnings management behaviour is more pronounced in the post-Basel period. Overall, we find a significant understating of LLPs in the post-Basel period relative to the pre-Basel period. This indicates that reported earnings may not reflect the true economic reality underlying those numbers. Finally, Australian banks do not appear to use LLPs for signalling future intentions of higher earnings to investors. |
| Keywords: | capital management; earnings management; signalling; Australian banks |
| JEL: | C23 G14 M41 |
| Date: | 2006–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2006_023&r=cfn |
| By: | Mälkönen , Ville (VATT (Government Institute for Economic Research)); Vesala , Timo (Bank of Finland Research) |
| Abstract: | We study the adverse selection problem in imperfectly competitive credit markets and illustrate the circumstances where a separating equilibrium emerges, even without collateral. The borrowers are heterogeneous in their preferences concerning the banks. Separation obtains in market segments where the ‘high risk’ borrowers receive credit from their preferred bank. The ‘low risk’ borrowers choose the ex-ante less-preferred bank that offers loan contracts with lower interest rates. The availability of credit will be maximized under an intermediate level of competition, a prediction that is supported by recent empirical evidence. |
| Keywords: | asymmetric information; credit rationing; bank differentiation |
| JEL: | D43 D82 G21 L13 |
| Date: | 2006–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2006_026&r=cfn |