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on Corporate Finance |
| By: | Thomas H. Noe; Michael J. Rebello; Ramana Sonti |
| Abstract: | We model corporate governance in a world with competitive securities markets as well as markets for corporate assets. We show that varying the liquidity and opacity of corporate assets, the vitality of the market for corporate control, and the costs of enforcing shareholder rights to cash flows leads to a plethora of institutional designs. When asset liquidity is high, shareholder rights are enforced through the option to liquidate as in a mutual fund. When the opacity of corporate assets is relatively high and asset liquidity is relatively low, firms will eschew reliance on board monitoring and instead rely on shareholder activism. An increase in the cost of ownership concentration, by increasing the inefficiency of shareholder activism, will increase the reliance on board activism and decrease the reliance on CEO compensation. Decreases in the cost of enforcement of shareholder rights and the opacity of corporate assets, and increased raider activity further strengthen the preference for activist boards. |
| Keywords: | governance, asset liquidity, institutional design |
| JEL: | G20 G34 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:sbs:wpsefe:2008fe09&r=cfn |
| By: | Thomas H. Noe; Michael J. Rebello; Thomas A. Rietz |
| Abstract: | We show that introducing an external capital market with information asymmetry into a product market model reduces opportunistic substitution of sub-standard goods and encourages producers to concentrate on long-run reputation building. We test this result with a laboratory experiment. We find that, when the problem of product market opportunism is moderate, i.e., reputation formation equilibria exist when firms raise external funds but not when they rely on internal funds, external financing results in much higher (roughly double) economic surplus. This external finance premium results primarily from higher levels of output caused by the reduced likelihood or market failure. |
| Keywords: | adverse selection, financing, reputation |
| JEL: | C91 D82 G31 G32 L15 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:sbs:wpsefe:2008fe12&r=cfn |
| By: | Vivian W. Fang; Thomas H. Noe; Sheri Tice |
| Abstract: | This paper investigates the relation between stock liquidity and firm performance. We find that firms with liquid stocks have better firm performance as measured by the market-to-book ratio. This result holds even when we include industry or firm fixed effects, control for idiosyncratic risk, control for endogenous liquidity with instrumental variables, or use alternative measures of liquidity. To identify the causal effect of liquidity on firm performance, we study an exogenous shock to liquidity---the decimalization of stock trading---and document that the increase in liquidity around decimalization improved firm performance. We next investigate the causes of liquidity’s beneficial effect and find support for liquidity enhancing performance by increasing the information content of market prices, and strengthening the incentive effects of performance based compensation contracts. We find no evidence that liquidity enhances blockholder intervention. Finally, momentum trading, analyst coverage, investor overreaction and liquidity’s valuation effects do not appear to drive our results. |
| Keywords: | Stock Market Liquidity; Firm Performance; Feedback Mechanism; Managerial Compensation; Blockholder Intervention. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:sbs:wpsefe:2008fe14&r=cfn |
| By: | Tim Jenkinson |
| Abstract: | This clinical paper analyses a new way of conducting IPOs which has recently been introduced in the U.K. The essential feature of Accelerated IPOs (aIPOs) is that investors form syndicates to bid for the entire offering, and then execute an immediate IPO (within a week). Vendors can use an auction to determine whether the valuation is higher in private equity, trade, or public equity hands. aIPOs address two problems that regulators and academics have associated with conventional IPOs conducted via bookbuilding: inaccurate valuation and questionable use of discretion over allocation. Conflicts of interest are avoided as the advisors who organise aIPOs work for the investors rather than the issuing company. |
| Keywords: | Initial Public Offerings, Private Equity, Auctions |
| JEL: | G10 G24 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:sbs:wpsefe:2008fe19&r=cfn |
| By: | Viviana Fanelli; Silvana Musti |
| Abstract: | This paper provides CDS option pricing in a probability setting equipped with a subfiltration structure. The evolution of the defaultable term structure is modelled using the approach developed in Heath et al. (1992) when the spot rate and the forward rate affect the volatility term. The Euler-Maruyama stochastic integral approximation and the Monte Carlo method are applied to develop a numerical algorithm for pricing. Finally, the Antithetic Variables technique is used to reduce the variance of estimations. |
| Keywords: | HJM model, Cox process, Monte Carlo method, CDS option |
| JEL: | C63 G13 G33 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:ufg:qdsems:26-2007&r=cfn |
| By: | Viviana Fanelli; Silvana Musti |
| Abstract: | In this paper a simulation approach for defaultable yield curve is developed within the Heath et al. (1992) framework. The default event is modelled using the Cox process when the stochastic intensity repre sents the credit spread. The forward credit spread volatility function is affected by the entire credit spread term structure. Cox process properties and the Monte Carlo simulations technique are used for pricing defaultable bonds. |
| Keywords: | HJM model, Cox process, Bond price, Monte Carlo method |
| JEL: | C63 G13 G33 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:ufg:qdsems:27-2007&r=cfn |