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on Corporate Finance |
| By: | Christopher F. Baum (Boston College; DIW Berlin); James G. Bohn (UHY Advisors); Atreya Chakraborty (University of Massachusetts-Boston) |
| Abstract: | We examine the relationship between outcomes of securities fraud class action lawsuits and board turnover rates. Our results indicate that the outcome of a class action is a good indicator of the underlying, unobservable merit of the action. Consistent with the merit hypothesis, board turnover rates are higher in the period following the filing of a lawsuit that is ultimately settled than one that is dismissed. Turnover propensities are more sensitive to outcome for CEOs and for individuals named as defendants in the lawsuits. Turnover rates of both inside and outside directors are higher when external equity ownership is more concentrated. |
| Keywords: | Securities fraud class actions, board turnover, corporate governance |
| JEL: | G32 K22 |
| Date: | 2007–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:664&r=cfn |
| By: | Orazio P. Attanasio (University College London); Monica Paiella (Bank of Italy) |
| Abstract: | This paper builds a unifying framework based on the theory of intertemporal consumption choices that brings together the limited participation-based explanation of the C-CAPM poor empirical performance and the transaction costs-based explanation of incomplete portfolios. Using the implications of the consumption model and observed household consumption and portfolio choices, we identify the preference parameters of interest and a lower bound for the costs rationalizing non-participation in financial markets Assuming isoelastic preferences, we estimate the coefficient of relative risk aversion at 1.7 and a cost bound of 0.4 percent of non-durable consumption. Our estimate of the preference parameter is theoretically plausible and the bound sufficiently small to be likely to be exceeded by the actual total (observable and unobservable) costs of participating in financial markets. |
| Keywords: | limited participation in financial markets, fixed participation costs, Euler equation for consumption. |
| JEL: | E21 G11 G12 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_620_07&r=cfn |
| By: | Alejandro Bedoya; Roque Fernández; Celeste González; Sergio Pernice; Jorge M. Streb |
| Abstract: | We describe the evolution of three types of corporate securities in Argentina, namely, corporate bonds, asset-backed securities and deferred checks. Corporate bonds (obligaciones negociables) were legally authorized in 1988, and after a tax reform in 1991 they became an important financing vehicle. Asset backed securities (fideicomisos), legally created in 1995, have been issued since 1996. They typically bundle together small credits of a similar category. Deferred checks (cheques de pago diferido) exist since 1993, alongside standard checks. They can be negotiated on the exchange since 2003, and are akin to commercial paper. Corporate bonds have been overwhelmingly issued by large firms and banks, with an average issue size of 53 million dollars. Asset backed securities have an average value of 9 million dollars. Deferred checks are typically used by smaller firms, and those traded on the exchange of the Buenos Aires board of trade have an average value of 9 thousand dollars. |
| Keywords: | private securities, corporate bonds, asset-backed securities, deferred checks |
| JEL: | G3 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:cem:doctra:347&r=cfn |
| By: | Roque B. Fernández; Sergio Pernice; Jorge M. Streb |
| Abstract: | Conventional theory leads to expect bonds to be a financing vehicle for large firms because of economies of scale and contracting costs. We find both in our econometric evidence for firms quoted on Latin American stock exchanges, and in our survey results for Argentina, that size of assets is a robust determinant of the use of bond finance. This result, together with the fact that there are few firms that are large in terms of market value, can help understand why Argentina, as well as Latin America, has small bond markets in terms of the ratio of the stock of bonds to GDP. Since firm value represents the present value of the cash flows against which the firm borrows, the outstanding stock of corporate bonds is as small as the size of Argentine firms. |
| Keywords: | debt structure, leverage, short term debt, corporate bonds, firm size, firm value |
| JEL: | G3 E6 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:cem:doctra:348&r=cfn |
| By: | Olga Bourachnikova (LaRGE (Laboratoire de Recherche en Gestion et en Economie), FSEG, ULP, Strasbourg I, Pôle Européen de Gestion et d’Economie, Strasbourg.) |
| Abstract: | The Behavioral Portfolio Theory (BTP) developed by Shefrin and Statman (2000) considers a probability weighting function rather than the real probability distribution used in Markowitz’s Portfolio Theory (1952). The optimal portfolio of a BTP investor, which consists in a combination of bonds and lottery ticket, can differ from the perfectly diversified portfolio of Markowitz. We found that this particular form of portfolio is not due to the weighting function. In this article we explore the implication of weighting function in the portfolio construction. We prove that the expected wealth criteria (used by Shefrin and Statman), even if the objective probabilities were deformed, is not a sufficient condition for obtaining significantly different forms of portfolio. Not only probabilities but also future outcomes have to be transformed. |
| JEL: | G11 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:dul:wpaper:07-07rs&r=cfn |
| By: | Taylor, Svetlana M. (Cardiff Business School) |
| Abstract: | This paper examines the relationship between the board structure of UK firms and the accuracy of individual analysts' earnings forecasts with respect to information asymmetry and agency theory. We hypothesize that managers of firms complying with the recommendations of The Code of Best Practice may have "less to hide" and, subsequently, provide more information to outsiders (including analysts), thus facilitating more accurate analysts' forecasts. We find that analysts are more optimistic, but less accurate, for firms with a greater proportion of non-executive directors. This indicates that non-executive directors are inefficient at addressing the agency disclosure problem (at least in terms of the accuracy of analysts. earnings forecasts). |
| Keywords: | Financial analysts; Forecast accuracy; Corporate governance; Panel data |
| JEL: | G14 G29 G34 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:accfin:2007/2&r=cfn |
| By: | Régis Blazy (CREFI-LSF, Luxembourg University, Luxembourg School of Finance, Luxembourg.); Laurent Weill (LARGE, Université Robert SchumanInstitut d’Etudes Politiques,Strasbourg.) |
| Abstract: | This research investigates how bankruptcy law influences the design of debt contracts and the investment choice through the sanction of faulty managers. We model a lending relationship between a small firm and a monopolistic bank which decides the loan rate. The firm may perform asset substitution, which is punished by the Law through legal sanctions. These sanctions are implemented in case of costly bankruptcy only. This way of resolving financial distress can be avoided yet, if a private agreement is achieved. First, – when sanctions are high – we show that costly bankruptcy may be preferred by honest firms over private negotiation. Thus costly bankruptcy cannot be avoided under a severe legal environment. However, as the bank internalizes the rules of default, debt contracts are designed so that this situation never happens at equilibrium (“legal efficiency”). Second, a peculiar legislation may incite banks to accept generalized moral hazard (“economic inefficiency”). Then, the legislator can indirectly enforce economic efficiency. However he must consider effects beyond the simple comparison between legal sanctions and bankruptcy costs, and focus on the impact of such legal sanctions on the design of the debt contract. Simulated results show that even small changes of legal sanctions may have drastic effects on the firm’s investment policy. Besides, it appears that extreme severity (i.e. 100% of the manager’s wealth is subject to legal sanctions) is not needed to ensure economic efficiency. Last, in some cases, the legislator may have the choice between several levels of legal sanctions all leading to economic efficiency: when choosing between them, the legislator affects the profit sharing only. |
| Keywords: | Bankruptcy, Credit Lending, Moral Hazard, Sanctions |
| JEL: | G33 D82 D21 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:dul:wpaper:07-06rs&r=cfn |
| By: | Groh, Alexander P. (IESE Business School); Baule, Rainer (University of Goettingen); Gottschalg, Oliver (HEC School of Management) |
| Abstract: | We use a CCA model to calculate implied idiosyncratic risks of LBO transactions. A decisive model feature is the consideration of amortization. From the model, the asset value volatility and the equity value volatility can be derived via a numerical procedure. For a sample of 40 LBO transactions we determine the necessary model parameters and calculate the transactions' implied idiosyncratic risks. We discuss the expected model sensitivities and verify them by variation of the input parameters. With the knowledge of the returns to the equity investors of the LBOs we are able to calculate Sharpe Ratios on individual transaction levels for the first time, thereby fully incorporating the superimposed leverage risks. |
| Keywords: | Idiosyncratic Risk; Private Equity; Benchmarking; |
| JEL: | G13 G24 G32 |
| Date: | 2007–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0682&r=cfn |
| By: | Reint Gropp; Frederic Boissay |
| Abstract: | Using a unique data set on trade credit defaults among French firms, we investigate whether and how trade credit is used to relax financial constraints. We show that firms that face idiosyncratic liquidity shocks are more likely to default on trade credit, especially when the shocks are unexpected, firms have little liquidity, are likely to be credit constrained or are close to their debt capacity. We estimate that credit constrained firms pass more than one fourth of the liquidity shocks they face on to their suppliers down the trade credit chain. The evidence is consistent with the idea that firms provide liquidity insurance to each other and that this mechanism is able to alleviate the consequences of credit constraints. In addition, we show that the chain of defaults stops when it reaches firms that are large, liquid, and have access to financial markets. This suggests that liquidity is allocated from large firms with access to outside finance to small, credit constrained firms through trade credit chains. |
| JEL: | G30 D92 G20 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:fra:franaf:179&r=cfn |
| By: | Fernandez, Pablo (IESE Business School); Carabias, Jose M. (IESE Business School) |
| Abstract: | En este documento se cuantifica la creación de valor para los accionistas de Repsol entre diciembre de 1991 y diciembre de 2006. En ese período, el aumento de la capitalización de Repsol fue de 27.479 millones de euros; el aumento del valor para los accionistas fue de 25.346 millones de euros, y la creación de valor para los accionistas fue de 7.401 millones de euros (expresado en euros de 2006). La rentabilidad media anual para los accionistas de Repsol fue del 14,1%, mientras que la del IBEX 35 fue del 15,4%. La inflación media fue del 3,4%. La rentabilidad para los accionistas de Repsol fue positiva todos los años, excepto en 1994 y en 2000-2002. La capitalización de Repsol durante estos años osciló entre el 6% y el 10,8% de la capitalización del IBEX 35. En diciembre de 1991, Repsol fue la tercera empresa por capitalización (tras Telefónica y Endesa). En 2006, Repsol fue la quinta empresa por capitalización del IBEX 35 (tras SAN, Telefónica, BBVA y Endesa). |
| Keywords: | creación valor para accionistas; aumento valor para accionistas; rentabilidad para accionistas; |
| JEL: | G12 G31 M21 |
| Date: | 2007–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0675&r=cfn |
| By: | Fernandez, Pablo (IESE Business School); Carabias, Jose M. (IESE Business School) |
| Abstract: | En 2006, Banco Santander fue -entre las 123 empresas que cotizaron en el mercado continuo- la que más valor creó para sus accionistas, seguida de Endesa, Telefónica, Arcelor, BBVA e Iberdrola. Veintiuna empresas destruyeron valor, siendo EADS la que más valor destruyó. La empresa más rentable para sus accionistas en 2006 fue Inmocaral (en 2005 fue Sniace). Sólo doce empresas tuvieron una rentabilidad negativa para sus accionistas, y 64 de las 123 proporcionaron una rentabilidad inferior a la del IBEX 35 (36%). 107 empresas proporcionaron a sus accionistas una rentabilidad superior a la de los bonos del Estado. Las diez mayores empresas supusieron el 57% de la capitalización total. Las 37 empresas más pequeñas sólo representaron el 1% de la capitalización total. En los años 1994, 1997-1998, 2000-2006, y en el promedio del período 1992-2006, las empresas pequeñas fueron más rentables que las grandes. |
| Keywords: | Creación de valor; rentabilidad para accionistas; capitalización bursátil; Aumento valor para accionistas; relación entre tamaño y rentabilidad; ROE y rentabilidad para accionistas; |
| JEL: | G12 G31 M21 |
| Date: | 2007–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0676&r=cfn |
| By: | Fernandez, Pablo (IESE Business School); Carabias, Jose M. (IESE Business School) |
| Abstract: | En este documento se cuantifica la creación de valor para los accionistas de Bankinter entre diciembre de 1991 y diciembre de 2006. En ese periodo el aumento de la capitalización de Bankinter fue 3.866 millones de euros, el aumento del valor para los accionistas fue 5.205 millones de euros, y la creación de valor para los accionistas fue 3.876 millones de euros (expresado en euros de 2006). La rentabilidad media anual para los accionistas de Bankinter fue 18,1%, sensiblemente superior a la del IBEX 35 (15,4%): cada euro invertido en acciones de Bankinter en diciembre de 1991 se convirtió en 12,17€ en diciembre de 2006, mientras que 1 euro invertido en el IBEX 35 se convirtió en 8,52€. La inflación media fue 3,3%. La rentabilidad para los accionistas de Bankinter fue positiva en 10 de los 15 años analizados. La capitalización de Bankinter durante estos años osciló entre el 0,83% y el 1,6% de la capitalización del IBEX 35. En diciembre de 1991, Bankinter fue la 18ª empresa por capitalización del IBEX, mientras que en enero de 2007 fue la 24ª empresa. Bankinter fue el 2º banco más rentable para sus accionistas (entre los 23 bancos internacionales analizados) en el periodo 2003-2006. |
| Keywords: | creación valor para accionistas; aumento valor para accionistas; rentabilidad para accionistas; |
| JEL: | G12 G31 M21 |
| Date: | 2007–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0678&r=cfn |
| By: | Fernandez, Pablo (IESE Business School); Carabias, Jose M. (IESE Business School) |
| Abstract: | En este documento se cuantifica la creación de valor para los accionistas de Endesa (ELE), de Iberdrola (IBE) y Unión Fenosa (UNF) entre diciembre de 1991 y diciembre de 2006. En ese periodo, el aumento de la capitalización (en millardos de euros) fue: ELE 33,4; IBE 26,3 y UNF 10,5. La creación de valor para los accionistas fue: ELE 29,9; IBE 23,9 y UNF 9,6. La rentabilidad ponderada de los accionistas en estos 15 años fue: ELE 19,1%; IBE 19,5% y UNF 21,6%. Las rentabilidades simples a lo largo de estos 15 años (ELE 18,5%; IBE 19,1% y UNF 21,6%) fueron sensiblemente superiores a la del IBEX 35 (15,4%). La inflación media fue 3,3% y los tipos de interés de los bonos a 10 años cayeron desde el 11,3% al 4%. La rentabilidad media debida a este descenso de los tipos se estima en un 5,2%. |
| Keywords: | creación valor para accionistas; rentabilidad ponderada accionistas; aumento valor para accionistas; rentabilidad para accionistas; rentabilidad debida cambios tipos interés; capitalización; |
| JEL: | G12 G21 G31 |
| Date: | 2007–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0679&r=cfn |
| By: | Fernandez, Pablo (IESE Business School); Carabias, Jose M. (IESE Business School) |
| Abstract: | En este documento se cuantifica la creación de valor para los accionistas del Santander (SAN), del BBVA, del Banco Popular (POP) y de Bankinter (BKT) entre diciembre de 1991 y diciembre de 2006. En ese periodo, el aumento de la capitalización (en millardos de euros) fue: SAN 85,7; BBVA 61; POP 14,9 y BKT 3,9. La creación de valor para los accionistas fue: SAN 20,7; BBVA 25,4; POP 13,4 y BKT 3,9. La rentabilidad ponderada de los accionistas en estos 15 años fue: SAN 14%; BBVA 17%; POP 20,7% y BKT 19,5%. Las rentabilidades simples a lo largo de estos 15 años (SAN 18,7%; BBVA 20,1%; POP 19,3% y BKT 18,1%) fueron sensiblemente superiores a la del IBEX 35 (15,4%). La inflación media fue 3,3% y los tipos de interés de los bonos a 10 años cayeron desde el 11,3% al 4%. La rentabilidad media debida a este descenso de los tipos se estima en un 5,2%. |
| Keywords: | creación valor para accionistas; rentabilidad ponderada accionistas; aumento valor para accionistas; rentabilidad para accionistas; rentabilidad debida cambios tipos interés; capitalización; |
| JEL: | G12 G31 G32 |
| Date: | 2007–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0680&r=cfn |
| By: | Kevin J. Lansing |
| Abstract: | This paper derives a general class of intrinsic rational bubble solutions in a standard Lucas-type asset pricing model. I show that the rational bubble component of the price-dividend ratio can evolve as a geometric random walk without drift. The volatility of bubble innovations depends exclusively on fundamentals. Starting from an arbitrarily small positive value, the rational bubble expands and contracts over time in an irregular, wholly endogenous fashion, always returning to the vicinity of the fundamental solution. I also examine a near-rational solution in which the representative agent does not construct separate forecasts for the fundamental and bubble components of the asset price. Rather, the agent constructs only a single forecast for the total asset price that is based on a geometric random walk without drift. The agent's forecast rule is parameterized to match the moments of observable data. In equilibrium, the actual law of motion for the price-dividend ratio is stationary, highly persistent, and nonlinear. The agent's forecast errors exhibit near-zero autocorrelation at all lags, making it difficult for the agent to detect a misspecification of the forecast rule. Unlike a rational bubble, the near-rational solution allows the asset price to occasionally dip below its fundamental value. Under mild risk aversion, the near-rational solution generates pronounced low-frequency swings in the price-dividend ratio, positive skewness, excess kurtosis, and time-varying volatility--all of which are present in long-run U.S. stock market data. An independent contribution of the paper is to demonstrate an approximate analytical solution for the fundamental asset price that employs a nonlinear change of variables. |
| Keywords: | Stock - Prices ; Forecasting |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2007-10&r=cfn |
| By: | Fernandez, Pablo (IESE Business School); Carabias, Jose M. (IESE Business School) |
| Abstract: | En este artículo se muestra que es un error enorme utilizar las betas calculadas con datos históricos para calcular la rentabilidad exigida a las acciones o para medir la gestión de una cartera de valores. Por 7 razones: porque cambian mucho de un día para otro; porque dependen de qué índice bursátil se tome como referencia. porque dependen mucho de qué periodo histórico (5 años, 3 años,…) y de qué rentabilidades (mensuales, anuales,…) se utilicen para su cálculo; porque con mucha frecuencia no sabemos si la beta de una empresa es superior o inferior a la beta de otra empresa; porque tienen muy poca relación con la rentabilidad posterior de las acciones; y porque la correlación (y la R2) de las regresiones que se utilizan para su cálculo son muy pequeñas. Debido a estas 7 razones podemos afirmar que o bien la beta calculada con datos históricos no es una buena aproximación al riesgo de la empresa, o bien el CAPM no funciona (hay más factores que afectan a su rentabilidad exigida, además de la covarianza de la rentabilidad de una empresa con la rentabilidad del mercado, la tasa sin riesgo y la prima de riesgo del mercado), o bien, ambas cosas a la vez. |
| Keywords: | beta; rentabilidad exigida a las acciones; rentabilidad para los accionistas; |
| JEL: | G12 G31 M21 |
| Date: | 2007–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0685&r=cfn |