nep-cfn New Economics Papers
on Corporate Finance
Issue of 2007‒11‒03
seven papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. The Asian Crisis Contagion: A Dynamic Correlation Approach Analysis By Essahbi Essaadi; Jamel Jouini; Walih Khallouli
  2. Can macroeconomic variables explain long term stock market movements? A comparison of the US and Japan By Andreas Humpe; Peter Macmillan
  3. Do Inflation-Linked Bonds Still Diversify? By Marie Brière; Ombretta Signori
  4. Crisis-Robust Bond Portfolios By Marie Brière; Ariane Szafarz
  5. Financial Dependence and Firm Survival in Interwar Britain By David Chambers
  6. Small is Beautiful but Size Matters: The Asymmetric Impact of Uncertainty and Sunk Costs on Small and Large Businesses By Ghosal, Vivek
  7. Concentration, Competition, Efficiency and Profitability of the Turkish Banking Sector in the Post-Crises Period By Abbasoğlu, Osman Furkan; Aysan, Ahmet Faruk; Gunes, Ali

  1. By: Essahbi Essaadi (Unité d'Analyse Quantitative Appliquée (UAQUAP)-ISG Tunis and GATE (UMR 5824 CNRS),); Jamel Jouini (F.S.E.G.N., E.S.S.A.I. and L.E.G.I., Université 7 Novembre de Carthage, Tunisie, GREQAM, Université de la Méditerranée, France); Walih Khallouli (Unité d'Analyse Quantitative Appliquée (UAQUAP) and ESSEC, Université de Tunis, Tunisie)
    Abstract: In this paper, we are interested in testing for contagion caused by the Thai bath collapse in July 1997. In line with earlier work, shift-contagion is defined as a structural change in the international propagation mechanisms of financial shocks. We adopt the Bai and Perron’s (1998) structural break approach to detect the endogenous break points in the pair-wise time-varying correlations between Thailand and seven Asian stock market returns. Our approach allows solving the misspecification problem of crisis window. Our results indicate the existence of shift-contagion in the Asian crisis caused by the crisis in Thailand.
    Keywords: sequential selection procedure, shift-contagion, time-varying correlation
    JEL: C22 G15
    Date: 2007–10
  2. By: Andreas Humpe; Peter Macmillan
    Abstract: Within the framework of a standard discounted value model we examine whether a number of macroeconomic variables influence stock prices in the US and Japan. A cointegration analysis is applied in order to model the long term relationship between industrial production, the consumer price index, money supply, long term interest rates and stock prices in the US and Japan. For the US we find the data are consistent with a single cointegrating vector, where stock prices are positively related to industrial production and negatively related to both the consumer price index and a long term interest rate. We also find an insignificant (although positive) relationship between US stock prices and the money supply. However, for the Japanese data we find two cointegrating vectors. We find for one vector that stock prices are influenced positively by industrial production and negatively by the money supply. For the second cointegrating vector we find industrial production to be negatively influenced by the consumer price index and a long term interest rate. These contrasting results may be due to the slump in the Japanese economy during the 1990s and consequent liquidity trap.
    Keywords: Stock Market Indices, Cointegration, Interest Rates.
    JEL: C22 G12 E44
    Date: 2007–10
  3. By: Marie Brière (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussel and Credit Agricole Asset Management SGR, Paris.); Ombretta Signori (Credit Agricole Asset Management SGR, Paris.)
    Abstract: This paper examines the dynamics of conditional volatilities and correlations of three asset classes: inflation-linked (IL) bonds, nominal bonds and equities in the United States and Europe for the period 1997-2007. Using a DCC-MVGARCH model, we highlight the significant change that has taken place in the dynamics of correlations and volatilities since 2003. Inflation-linked bonds have become much more volatile and, at the same time, much more highly correlated with nominal bonds. Monthly portfolio optimization since 1997, using our estimates of conditional correlations and volatilities, clearly demonstrates the decreasing weight of inflation-linked bonds in an optimal allocation. This weighting should now be partially reallocated to equities in a US portfolio, while in Europe, the decreased weight of IL bonds is redistributed, with about one-third going to equities and two-thirds to nominal bonds.
    Keywords: inflation-linked bonds, optimal allocation, portfolio choice, conditional volatility, conditional correlation.
    JEL: G11 G12
    Date: 2007–10
  4. By: Marie Brière (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.); Ariane Szafarz (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and DULBEA, Brussels.)
    Abstract: This paper defines a “crisis-robust portfolio” that satisfies the minimal crisis-to-quiet time volatility ratio. This type of portfolio is less demanding for the investor than a regime-wise asset allocation. Although general, the concept of a crisis-robust portfolio is especially pertinent when applied to the bond market, which offers a flight-to-quality trade-off during crises (all volatilities increase but most correlations decrease). Using three categories of bonds (sovereign, investment grade corporate, and high yield corporate) in the U.S. and Eurozone for the period 1998-2007, we demonstrate the composition of crisis-robust portfolios and discuss the stabilizing role played by low-quality bonds during crises.
    Keywords: financial crisis, portfolio management, bonds, fly-to-quality.
    JEL: G11 G15 N20
    Date: 2007–10
  5. By: David Chambers
    Abstract: Was the London Stock Exchange (LSE) little more than a Dickensian den of speculation, or did it make a contribution to industrial development in interwar Britain? The interwar stock market laboured under problems of weak disclosure, inadequate investor protection and ineffective underwriting. New manufacturing industries were the most vulnerable to resulting asymmetric information problems. Drawing on a new database of IPOs on the London Stock Exchange between 1919 and 1938, I conclude that new manufacturing firms were finance-constrained. Consistent with the Rajan-Zingales financial dependence hypothesis, this result reflects the weak interwar institutional environment. The disastrous IPO survival rates of the late 1920s provide further evidence of this weak environment. Yet, when issue activity rebounded strongly in the following decade, a dramatic improvement in survival ensued, due, in part, to the efforts of the LSE. This was an early example of the "light touch" regulatory approach for which London has subsequently become renowned.
    Keywords: IPOs, Survival, Regulation, Investment
    JEL: G3 G24 N2 L26
    Date: 2007
  6. By: Ghosal, Vivek
    Abstract: Against the backdrop of the theories developed in the real options and financing constraints literatures, this paper examines the impact of profit uncertainty and sunk costs on firms’ entry and exit decisions. For our empirical analysis, we compile an extensive dataset containing information on 267 U.S. manufacturing industries over a 30-year period containing industry-specific information on the number of firms and establishments, the size distribution of establishments, measures of sunk capital costs and profit uncertainty, among others. Our dynamic panel data estimates show that greater uncertainty about profits, especially in conjunction with higher sunk costs, results in (1) a marked decrease in the number of small firms and establishments; (2) a less skewed size distribution of firms and establishments; and (3) a marginal increase in industry output concentration. In sharp contrast, large establishments seem virtually unaffected. The results point to uncertainty in conjunction with sunk costs fundamentally affecting firms’ decision-making and altering the structure of industries by putting smaller businesses at a disadvantage.
    Keywords: Uncertainty; sunk costs; real options; financing constraints; decision-making; small businesses.
    JEL: L40 G10 O30 L11 D80
    Date: 2007–07
  7. By: Abbasoğlu, Osman Furkan; Aysan, Ahmet Faruk; Gunes, Ali
    Abstract: After 2001 crisis, the macroeconomic environment led to important changes in Turkish banking sector which has experienced a process of concentration by involving in merger and acquisition activities and liquidation of some insolvent banks. Using the data from the detailed balance sheets of the banks that operated in the years from 2001 to 2005, we examine the degree of concentration and degree of competition in the market by applying Panzar and Rosse’s approach. We also explore the existence of relationship between efficiency and profitability of the banks taking into account the internationalization of banking. Our results do not suggest the existence of relationship between concentration and competition. There is also no robust relationship between efficiency and profitability.
    Keywords: Concentration; Competition; Efficiency; Profitability of the Turkish Banking Sector
    JEL: G15 G20
    Date: 2007

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