nep-cfn New Economics Papers
on Corporate Finance
Issue of 2008‒01‒12
four papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Bank consolidation and lending policies to small business: Differences across geographical areas By Enrico Beretta; Silvia Del Prete
  2. Balance-sheet ratios and stock returns: An analysis for Italian banks By Angela Romagnoli
  3. Bank profitability and taxation By Ugo Albertazzi; Leonardo Gambacorta
  4. What captures liquidity risk? A comparison of trade and order based liquidity factors By Lorán Chollete; Randi Næs; Johannes A. Skjeltorp

  1. By: Enrico Beretta (Bank of Italy, Branch of Genoa, Research Office); Silvia Del Prete (Bank of Italy, Branch of Florence, Research Office)
    Abstract: Using Bank of Italy data on Italian banks in the period 1990-2004, the paper analyses the short and long-run effects of the concentration of the banking industry on the availability of credit to small and medium-sized firms. Our study employs a bank-based approach and investigates the differential effects of banking consolidation in the various geographical areas, in order to capture the influence of the different economic contexts. Our research also considers the different groups of intermediaries involved, as well as the role of “new entry” banks and of those not involved in consolidations (e.g. rivals). We find that banks’ specialization in terms of credit policy seems to be affected by M&As. On the one hand, the portion of credit allocated to small businesses decreases in the long run after mergers, which result in a more pronounced size change and a more complex organizational structure; this effect is stronger in the South and in the North East of Italy. On the other hand, in the case of acquisitions, banking groups improve their “expertise” in small business lending. These results hold in all the main geographical areas, except for the southern regions, where – everything being equal – small firms are riskier and banks’ takeovers are motivated mainly by the need to allow financial restructuring. However, in this market, the entry of new banks and close relationships between local banks and agglomerations of small firms partly offset the lower specialization on small business financing induced by acquisitions.
    Keywords: mergers and acquisitions, small business lending, regional analysis
    JEL: G21 G34 O18
    Date: 2007–11
  2. By: Angela Romagnoli (Bank of Italy)
    Abstract: The paper assesses whether the monthly returns of the listed shares of Italian banks are predicted by changes in balance-sheet indicators. The sample covers the period from January 1997 to June 2003. Estimates use both unadjusted and risk-adjusted returns. Results show that the stock returns of Italian banks are positively related to past profitability, liquidity, and asset quality, while they are not significantly affected by banksÂ’ capital ratios. Furthermore, in the sample period an increase in traditional lending activity leads to higher stock returns.
    Keywords: bank stock returns, bank-specific accounting ratios
    JEL: C14 G12 G21
    Date: 2007–11
  3. By: Ugo Albertazzi (Banca d'Italia); Leonardo Gambacorta (Banca d'Italia)
    Abstract: This paper investigates how bank profitability is affected by corporate income tax (CIT) using aggregate data on the banking sector of the main industrialized countries for the period 1981-2003. Two main novelties emerge with respect to the existing literature. First, the paper explicitly considers that CIT is not specific to the banking sector, so that changes in the CIT rate can affect both banks and borrowing firmsÂ’ behaviour. Thus, with the help of a simple theoretical model we derive a set of predictions about the impact of CIT on banksÂ’ income statement. Second, by considering all the main components of banksÂ’ profit and loss accounts, we are able to test such predictions and to disentangle the extent to which a bank is able to shift its tax-burden onto its borrowers, depositors, and purchasers of fee-generating services. It turns out that CIT has a substantial impact on the composition of banking sector revenues but cannot explain large differences in the level of profitability across countries.
    Keywords: tax-shifting, corporate income tax, bank profitability
    JEL: C53 G20 G21
    Date: 2007–11
  4. By: Lorán Chollete; Randi Næs (Norges Bank (Central Bank of Norway)); Johannes A. Skjeltorp (Norges Bank (Central Bank of Norway))
    Abstract: Is the effect of liquidity risk on asset prices sensitive to our choice of liquidity proxy? In addressing this fundamental question, we achieve two main results. First, when we estimate factor models on a broad range of liquidity measures we uncover a profound distinction between trade and order based liquidity. Second, although the order based factor provides a better signal of available liquidity, we find that only the factor related to information risk explains expected returns both in a theoretical liquidity-CAPM model and in a linear pricing framework. Our results suggest a surprising fragility of liquidity-based asset pricing.
    Keywords: CPAM, Liquidity risk, Liquidity factor, Order based measure, Trade based measure, Information risk
    JEL: G12 G14
    Date: 2007–06–28

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