nep-cfn New Economics Papers
on Corporate Finance
Issue of 2007‒04‒09
six papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Managing Adverse Dependence for Portfolios of Collateral in Financial Infrastructures By Alejandro García; Ramazan Gençay
  2. What's in a name and when does it matter? The hot and cold market impacts on underpricing of certification, reputation and conflicts of interest in venture capital backed Korean IPOs By Alan Hughes; Jaeho Lee
  3. Sentiment in foreign exchange markets: Hidden fundamentals by the back door or just noise? By Rafael R. Rebitzky
  4. The Effects of Short-Term Liabilities on Profitability: The Case of Germany By Christopher F. Baum; Dorothea Schaefer; Oleksandr Talavera
  5. Underpricing in Turkey: Comparison of the IPO Methods By Guray Kucukkocaoglu
  6. The Relationship between Corporate Governance Indicators and Firm Value: A Case Study of Karachi Stock Exchange By Attiya Y. Javed; Robina Iqbal

  1. By: Alejandro García; Ramazan Gençay
    Abstract: We propose a framework that allows a portfolio manager to quantify the probability of simultaneous losses in multiple assets of a collateral portfolio. Using this framework, we propose a methodology to conduct stress tests on the market value of the portfolio of collateral when undesirable extreme dependence occurs. This framework permits us to quantify the potential impact on the portfolio returns of systemic events that change, or 'break down', the historical comovement structure, imposing an adverse extreme dependence.We illustrate our framework using securities pledged as collateral in the Canadian securities clearing and settlement system.
    Keywords: Econometric and statistical methods; Financial markets; Financial stability
    JEL: G00 G10 C10
    Date: 2007
  2. By: Alan Hughes; Jaeho Lee
    Abstract: This article analyses the impact of the participation of venture capital (VC) firms on underpricing in 372 businesses brought to IPO during the period 1999-2001 in KOSDAQ. Korea's second-tier stock market, KOSDAQ, has grown dramatically since 1999 and about half of the firms listed in KOSDAQ during this period were VC-backed, thus providing a good testing ground for empirical analysis. We measure VC participation in terms of pre IPO share-ownership by VC firms and attempt to differentiate IPO impacts between VCs grouped in terms of their reputation (measured by their dominance of the VC market, and by their affiliation in terms of ownership by banks and security companies). In estimating impacts we control for a wide range of variables which may affect the extent of underpricing. These include uncertainty inducing factors such as the age, size, profitability, leverage, and technical riskiness (measured by sector and R&D intensity) of the firm brought to IPO. We also control for market conditions using proxies for hot and cold market effects based on the numbers of contemporaneous IPOs, underpricing trends and market price movements. Finally in addition to allowing for the impact of underwriting quality we control for share overhang and price revision effects. We find that, controlling for other relevant factors, pre-IPO ownership by VCs has an insignificantly negative impact on underpricing in both hot and cold markets. However in cold markets reputational effects within the VC group do matter. In those conditions the top 3 VCs and those owned by or affiliated with banks are significantly associated with lower underpricing. The same is true for the quality of underwriting. However in hot market conditions none of these effects are present.
    Keywords: Initial Public Offering; Underpricing; Venture Capital; Certification; Conflict of Interest, Informational Advantage
    JEL: G14 G20 G34
    Date: 2006–12
  3. By: Rafael R. Rebitzky (University of Hannover)
    Abstract: Foreign exchange markets have to deal next to hard facts with lots of expectations and emo-tions. One of the major puzzles in international finance remains the “exchange rate discon-nect puzzleâ€. Analyzing sentiment in foreign exchange markets, it appears in fact that senti-ment contains some forward looking information. Particularly due to the unknown economic relevance of sentiment in foreign exchange markets so far, we first analyze the relationship between fundamentals and sentiment in order to reveal underlying forces of the latter; sec-ond we accomplish our analysis by concentrating on popular expectation concepts and con-sidering threshold effects. Third, we evaluate sentiment by testing on accuracy and on for-ward looking elements of subsequent exchange rate returns
    Keywords: Foreign exchange market, sentiment, bootstrap, threshold
    JEL: G14 F31
    Date: 2007–02–02
  4. By: Christopher F. Baum (Boston College); Dorothea Schaefer (DIW Berlin); Oleksandr Talavera (DIW Berlin)
    Abstract: Using data from Germany this paper examines the direct effect of non-financial firms' use of short-term versus long-term liabilities. We develop a structural model of a firm's value maximization problem that predicts that profitability of the firm will change if firms alter their use of short-term versus long-term liabilities. We find that firms that rely more heavily on short-term liabilities are likely to be more profitable
    Keywords: profitability, short-term liabilities, maturity structure, capital structure
    JEL: G32 G30
    Date: 2007–02–02
  5. By: Guray Kucukkocaoglu (Baskent University)
    Abstract: This paper addresses the question of what kind of selling and underwriting procedure might be preferred for controlling the amount and volatility of underpricing in the Istanbul Stock Exchange (ISE). Using 1993-2005 firm and issue data, we compare the three substantially different IPO methods available in the ISE. One is very similar to the book building mechanism used in the U.S., another is the fixed price offer, and the third one is the sale through the stock exchange method. The empirical analysis reveals significant first day underpricing of 7.01% in fixed price offer, 11.47% in book building mechanism, and 15.68% in sale through the stock exchange method. Finally, we also show that fixed price offers can better control the impact of market information on underpricing than sale through the stock exchange method
    Keywords: ipo, book building, fixed price offer, istanbul stock exchange, emerging market
    JEL: G15
    Date: 2007–02–02
  6. By: Attiya Y. Javed (Pakistan Institute of Development Economics, Islamabad); Robina Iqbal (Quaid-i-Azam University, Islamabad)
    Abstract: We investigated whether differences in quality of firm-level corporate governance can explain the firm-level performance in a cross-section of companies listed at Karachi Stock Exchange. Therefore, we analysed the relationship between firm-level value as measured by Tobin’s Q and total Corporate Governance Index (CGI) and three sub-indices: Board, Shareholdings and Ownership, and Disclosures and Transparency for a sample of 50 firms. The results indicate that corporate governance does matter in Pakistan. However, not all elements of governance are important. The board composition and ownership and shareholdings enhance firm performance, whereas disclosure and transparency has no significant effect on firm performance. We point out that those adequate firm-level governance standards can not replace the solidity of the firm. The low production and bad management practices
    Keywords: Corporate Governance, Firm Performance, Tobin’s Q, Agency Problem, Board Size, Shareholdings, Disclosures, Leverage, Code of Corporate Governance
    JEL: G12 G34 G38
    Date: 2007

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