nep-cfn New Economics Papers
on Corporate Finance
Issue of 2007‒08‒08
six papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. With Good Reputation Size Does not Matter: Issue Frequency and the Determinants of Debt Maturity By Rokkanen, Nikolas
  2. Liquidity and Arbitrage in Options Markets: A Survival<br />Analysis Approach By Laurent Deville; Fabrice Riva
  3. French IPO returns and subsequent security offerings:<br />Signaling hypothesis versus market feedback hypothesis By Edith Ginglinger; Anne-Marie Faugeron-Crouzet; Vasumathi Vijayraghavan
  4. Cash holdings, corporate governance and financial constraints By Edith Ginglinger; Khaoula Saddour
  5. Tests d’arbitrage sur options: une analyse empirique des cotations de market-makers By David Ardia
  6. Flexible Budgeting under Uncertainty: A Real Options Perspective By Ekholm, Bo-Göran; Wallin, Jan

  1. By: Rokkanen, Nikolas (Swedish School of Economics and Business Administration)
    Abstract: This paper examines empirically the effect firm reputation has on the determinants of debt maturity. Utilising data from European primary bond market between 1999 and 2005, I find that the maturity choice of issuers with a higher reputation is less sensitive to macroeconomic conditions, market credit risk-premiums, prevailing firm credit quality and size of the debt issue. The annualised coupon payments are shown to be a significant factor in determining the debt maturity and reveal a monotonously increasing relationship between credit quality and debt maturity once controlled for. Finally, I show that issuers lacking a credit rating have an implied credit quality positioned between investment-grade and speculative-grade debt.
    Keywords: corporate debt maturity; credit risk; debt seniority; subordination; macroeconomic; reputation
    Date: 2007–02–07
  2. By: Laurent Deville (DRM - Dauphine Recherches en Management - [CNRS : UMR7088] - [Université Paris Dauphine - Paris IX]); Fabrice Riva (DRM - Dauphine Recherches en Management - [CNRS : UMR7088] - [Université Paris Dauphine - Paris IX])
    Abstract: This paper examines the determinants of the time it takes for an index options market to return to no arbitrage values after put-call parity deviations, using intraday transactions data from the French index options market. We employ survival analysis to characterize how limits to arbitrage influence the expected duration of arbitrage deviations. After controlling for conventional limits to arbitrage, we show that liquidity-linked variables are associated with a faster reversion of arbitrage profits. The introduction of an ETF also affects the survival rates of deviations but this impact essentially stems from the reduction in the level of potential arbitrage profits.
    Keywords: Limits to arbitrage, liquidity, survival analysis, index options, ETFs
    Date: 2007–07–12
  3. By: Edith Ginglinger (DRM - Dauphine Recherches en Management - [CNRS : UMR7088] - [Université Paris Dauphine - Paris IX]); Anne-Marie Faugeron-Crouzet; Vasumathi Vijayraghavan
    Abstract: In this article, we look at two competing hypotheses to explain IPO underpricing in France when a seasoned offering follows the IPO. The first hypothesis assumes that the initial underpricing is a signal from a high quality firm in the anticipation of a subsequent equity issue at a higher price. The second competing hypothesis assumes that the market transmits to managers their valuation of the company. Our database examines two types of subsequent risky issuances: on the one hand, stocks and on the other hand, hybrid issuances (such as convertible bonds, bonds with attached warrants, and stocks with attached warrants). Further, in the French market, firms may be introduced through different mechanisms, which are not equally compatible with both hypotheses. We show that the initial underpricing is greater if a stock issuance rather than other security offerings of a convertible nature subsequently follow the IPO. We find evidence in favor of the signaling hypothesis in the case of fixed price IPOs. For the auction-like procedures, we show that the initial investors' demand, rather than post-IPO performance, determines the type of security that is issued, but has no effect on the financing decision itself. The market feedback hypothesis is therefore only weakly supported: a poor market message does not keep managers from expanding, but rather encourages them to use stage financing rather than straight equity.
    Keywords: IPOs, seasoned equity offerings, convertible bond issues, signaling hypothesis, market-feedback hypothesis
    Date: 2007–07–24
  4. By: Edith Ginglinger (DRM - Dauphine Recherches en Management - [CNRS : UMR7088] - [Université Paris Dauphine - Paris IX]); Khaoula Saddour (DRM - Dauphine Recherches en Management - [CNRS : UMR7088] - [Université Paris Dauphine - Paris IX])
    Abstract: We examine the relation between cash holdings, quality of governance and financial constraints. We find that firms with strong shareholder rights hold more cash, contrary to the predictions of agency theory. This result is partly due to the positive correlation that exists between governance quality measures and the degree of financial constraint faced by the firm. We show that governance quality has no impact on cash holdings by financially unconstrained firms. It does, however, have a positive impact on the cash holdings of certain financially constrained firms, particularly family firms. Anti-takeover provisions give these firms extra flexibility, enabling them to issue shares without the founding family losing control, and provide an alternative to high cash holdings.
    Keywords: cash holdings; financial constraints; governance
    Date: 2007–07–13
  5. By: David Ardia (Department of Quantitative Economics)
    Abstract: Cet article analyse les opportunités d’arbitrage sur le marché des options ODAX dans un cadre intra-journalier. Les tests d’arbitrage se basent sur la borne inférieure de prix et sur la relation de parité put-call. Pour éliminer le biais de synchronisation et tenir compte des frais de transaction, la méthodologie considère le future comme sous-jacent ainsi que la fourchette de prix. Les résultats montrent de très faibles taux de violation des conditions de non-arbitrage. De plus, les gains d’arbitrages résiduels ne constituent pas de gains substantiels pour les market-makers.
    Keywords: Options sur indice; tests d’arbitrage; borne inférieure; parité put-call
    JEL: G13 G14
    Date: 2007–07–26
  6. By: Ekholm, Bo-Göran (Swedish School of Economics and Business Administration); Wallin, Jan (Swedish School of Economics and Business Administration)
    Abstract: This paper examines the relationships between uncertainty and the perceived usefulness of traditional annual budgets versus flexible budgets in 95 Swedish companies. We form hypotheses that the perceived usefulness of the annual budgets as well as the attitudes to more flexible budget alternatives are influenced by the uncertainty that the companies face. Our study distinguishes between two separate kinds of uncertainty: exogenous stochastic uncertainty (deriving from the firm’s environment) and endogenous deterministic uncertainty (caused by the strategic choices made by the firm itself). Based on a structural equations modelling analysis of data from a mail survey we found that the more accentuated exogenous uncertainty a company faces, the more accentuated is the expected trend towards flexibility in the budget system, and vice versa; the more endogenous uncertainty they face, the more negative are their attitudes towards budget flexibility. We also found that these relationships were not present with regard to the attitudes towards the usefulness of the annual budget. Noteworthy is, however, that there was a significant negative relationship between the perceived usefulness of the annual budget and budget flexibility. Thus, our results seem to indicate that the degree of flexibility in the budget system is influenced by both general attitudes towards the usefulness of traditional budgets and by the actual degree of exogenous uncertainty a company faces and by the strategy that it executes.
    Keywords: Budget criticism; flexible budgets; uncertainty; real options reasoning; structural equations modelling
    Date: 2006–11–09

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