nep-cfn New Economics Papers
on Corporate Finance
Issue of 2007‒11‒10
seven papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Japan's Paradoxical Response to the new 'Global Standard' in Corporate Governance By John Buchanan; Simon Deakin
  2. Testing for Bubbles in Housing Markets: A Panel Data Approach By Vyacheslav Mikhed; Petr Zemcik
  3. Derivative usage in risk management by non- financial firms: Evidence from Greece By KAPITSINAS, SPYRIDON
  4. Progressive Taxation and Corporate Liquidation: Analysis and Policy Implications By Elettra Agliardi; Rossella Agliardi
  5. Credit risk and Basel II: Are non-profit firms financially different? By Barbara Luppi; Massimiliano Marzo; Antonello E. Scorcu
  6. Last Resort Gambles, Risky Debt and Liquidation Policy By Elettra Agliardi; Rainer Andergassen
  7. Information in Balance Sheets for Future Stock Returns: Evidence from Net Operating Assets By Dimitrios D. Thomakos; George Papanastasopoulos; Tao Wang

  1. By: John Buchanan; Simon Deakin
    Abstract: We suggest, on the basis of empirical research into the implementation of recent legal reforms, that Japan is not moving inexorably towards a 'global standard' in corporate governance, based on external monitoring and a market for corporate control. Japanese corporate governance is nevertheless changing: in part as an indirect response to legal initiatives, new structures and practices are emerging, aimed at providing greater flexibility in decision-making, while retaining the organisational core of the Japanese firm. The paradoxical effect of legal reforms aimed, in large part, at transplanting the global standard, may be to renew the distinctive Japanese model of the corporation.
    Keywords: corporate governance, company law reform, Japan
    JEL: G34 K22
    Date: 2007–09
  2. By: Vyacheslav Mikhed; Petr Zemcik
    Abstract: We employ recently developed cross-sectionally robust panel data tests for unit roots and cointegration to find whether house prices reflect house-related earnings. We use U.S. data for Metropolitan Statistical Areas, with house price measured by the weighted-repeated-sales index, and cash flows either by market tenant rents or estimates of a fair market rent. In our full sample periods, an error-correction model is not appropriate, i.e. there is a bubble. We then combine overlapping ten-year periods, price-rent ratios, and the panel data tests to construct a bubble indicator. The indicator is high for the late 1980s, early 1990s and since the late 1990s for both panels. Finally, evidence based on panel data Granger causality tests suggests that house price changes are helpful in predicting changes in rents and vice versa.
    Keywords: Cointegration, panel data, unit root, bubble, house prices, rents.
    JEL: G12 R21 R31 C33
    Date: 2007–10
    Abstract: This paper presents evidence on the use of derivative contracts in the risk management process of the Greek non-financial firms. The survey was conducted by sending a questionnaire to 110 non-financial firms and its results are compared with the findings of previous surveys: 33,9 percent of non-financial firms in Greece use derivatives, mainly to hedge their exposure to interest rate risk. The major source of concern for derivatives users is the accounting treatment of the contracts and the disclosure requirement. Non-financial firms in Greece use sophisticated methods of risk assessment and report having a documented corporate policy with respect to the use of derivatives, while at the same time consider the domestic economic environment not to be favorable of derivative usage. Non-financial firms that chose not to use derivatives responded that they do so because of insufficient exposure to risks.
    Keywords: risk management; financial risk; derivatives; corporate finance; Greece
    JEL: G32
    Date: 2007
  4. By: Elettra Agliardi (University of Bologna and The Rimini Centre for Economics Analysis, Italy.); Rossella Agliardi (University of Bologna)
    Abstract: This paper contributes to the debate on alternative corporate tax schemes, employing a rigorous real option methodology which has never been used to study both liquidation policy and taxation. Different tax systems are considered, according to whether the tax regime is progressive or flat and losses are deductible or not. The critical liquidation threshold is derived as a function of interest expenses, the firmÕs driving parameters and the tax rates and taxation brackets. It is shown that only the adoption of a flat tax plan does not interfere with the firmÕs liquidation policy, while any progressive tax schedule can slow down or speed up the closure policy.
    Keywords: Corporate debt, default risk, progressive tax, real options.
    JEL: G3 G32 G33 G12 H2 H32
    Date: 2007–07
  5. By: Barbara Luppi (CEFIN and University of Modena and Reggio Emilia, Italy); Massimiliano Marzo (University of Bologna and The Rimini Centre for Ecomonic Analysis, Italy); Antonello E. Scorcu (University of Bologna and The Rimini Centre for Ecomonic Analysis, Italy)
    Abstract: We estimate a model of credit risk for portfolios of Small and Medium-sized enterprises, conditional on being a non-profit or for-profit firms. The estimation is based on a unique dataset on Italian firms provided by a large commercial bank. We show that the main variables to identify creditworthiness are different for non-profit andcrucial for non-profit firms. Classification-JEL: G21, G28
    Keywords: SME finance; Basel II; Retail banking; Non-profit
    Date: 2007–07
  6. By: Elettra Agliardi (University of Bologna and The Rimini Centre for Economics Analysis, Italy.); Rainer Andergassen (University of Bologna)
    Abstract: This paper develops a real option model in which the interaction between debt, liquidation policy and risky investments is studied. We consider a manager who owns the firm and faces the opportunity to invest in risky pro jects which may bo ost current profits at the cost of bankruptcy if they turn out to be unsuccessful. These investments are "last resort gambles" in the sense that, if successful, they save the company from insolvency, while, if unsuccessful, they make liquidation unavoidable. We show that last resort gamble strategies delay liquidation. We study how the liquidation and the last resort gamble strategies are affected by the firmÕs capital structure.
    Keywords: Last resort gambles; risky investments; liquidation policy; real options.
    JEL: G3 G32 G33
    Date: 2007–07
  7. By: Dimitrios D. Thomakos (University of Peloponnese, Greece and The Rimini Centre for Economics Analysis, Italy.); George Papanastasopoulos (University of Peloponnese, Greece); Tao Wang (Queens College, City University of New York, USA)
    Abstract: In this paper, we extend the work of Hirshleifer, Hou, Teoh and Zhang (2004) on the Òsustainability effectÓ by directly linking the implications of NOA (net operating assets) and NOA components for the sustainability of current earnings performance with future stock returns. After controlling for current profitability, we find a strong negative relation of NOA with future stock returns. Moreover, the results indicate that this relation is associated with the sustainability implications of the underlying components of NOA. We also find that the hedge strategies on NOA and those NOA components that indicate low sustainability of current profitability generate positive abnormal returns and constitute statistical arbitrage opportunities. The findings on the sources of the NOA anomaly indicate a significant role for earnings management but no significant role for growth. However, it is found that the interaction of earnings management and growth is an important contributing factor in the anomaly. Overall, our evidence suggests that the interpretation of the NOA anomaly requires investor's limited attention on accounting distortions arising from earnings management.
    Keywords: Net operating assets (NOA), sustainability effect, earnings management, growth.
    Date: 2007–07

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