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on Corporate Finance |
| By: | Charlotte Christiansen; Angelo Ranaldo (School of Economics and Management, University of Aarhus, Denmark) |
| Abstract: | We analyze the financial integration of the new EU member states’ stock markets using the coexceedance variable that counts the number of large negative returns on a given day across the countries. We use a multinomial logit model to investigate which factors influence the coexceedance variable, separately for geographical effects, asset class effects, volatility effects, and persistence effects. The effects differ for negative (large negative returns) and positive (large positive returns) coexceedance variables. The coexceedance variables for the old and the new EU countries are influenced differently. The effects on the new EU coexceedance variables change after the EU enlargement in 2004. |
| Keywords: | Emerging markets, EU enlargement, EU Member States, Extreme returns, Financial integration, New EU Member States, Stock Markets |
| JEL: | C25 F36 G15 |
| Date: | 2007–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2007-34&r=cfn |
| By: | Ingmar Nolte; Valeri Voev (School of Economics and Management, University of Aarhus, Denmark) |
| Abstract: | We propose a unified framework for estimating integrated variances and covariances based on simple OLS regressions, allowing for a general market microstructure noise specification. We show that our estimators can outperform, in terms of the root mean squared error criterion, the most recent and commonly applied estimators, such as the realized kernels of Barndorff-Nielsen, Hansen, Lunde & Shephard (2006), the two-scales realized variance of Zhang, Mykland & Aït-Sahalia (2005), the Hayashi & Yoshida (2005) covariance estimator, and the realized variance and covariance with the optimal sampling frequency derived in Bandi & Russell (2005a) and Bandi & Russell (2005b). For a realistic trading scenario, the efficiency gains resulting from our approach are in the range of 35% to 50%. |
| Keywords: | High frequency data, Realized volatility and covariance, Market microstructure |
| JEL: | G10 F31 C32 |
| Date: | 2008–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2008-31&r=cfn |
| By: | Viktor Todorov; Tim Bollerslev (School of Economics and Management, University of Aarhus, Denmark) |
| Abstract: | We provide a new theoretical framework for disentangling and estimating sensitivity towards systematic diffusive and jump risks in the context of factor pricing models. Our estimates of the sensitivities towards systematic risks, or betas, are based on the notion of increasingly finer sampled returns over fixed time intervals. In addition to establish- ing consistency of our estimators, we also derive Central Limit Theorems characterizing their asymptotic distributions. In an empirical application of the new procedures using high-frequency data for forty individual stocks and an aggregate market portfolio, we find the estimated diffusive and jump betas with respect to the market to be quite dif- ferent for many of the stocks. Our findings have direct and important implications for empirical asset pricing finance and practical portfolio and risk management decisions. |
| Keywords: | Factor models, systematic risk, common jumps, high-frequency data, realized variation |
| JEL: | C13 C14 G10 G12 |
| Date: | 2007–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2007-15&r=cfn |
| By: | Christopher F. Baum (Boston College; DIW Berlin); Mustafa Caglayan (University of Sheffield); Oleksandr Talavera (Aberdeen Business School, Robert Gordon University) |
| Abstract: | We investigate the impact of debt on a panel of U.S. manufacturing firms' capital investment behavior as the underlying firm-specific and macroeconomic uncertainty changes. Our estimates show that the influence of leverage on capital investment may be stimulating or mitigating depending on the effects of uncertainty. |
| Keywords: | capital investment, leverage, uncertainty |
| JEL: | E22 G31 D81 |
| Date: | 2008–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:686&r=cfn |
| By: | Santiago Carbó Valverde; Francisco Rodríguez-Fernández; Gregory F. Udell |
| Abstract: | SME investment opportunities depend on the level of financing constraints that firms face. Earlier research has mainly focused on the controversial argument that cash flow-investment correlations increase with the level of these constraints. We focus on bank loans rather than cash flow. Our results show that investment is sensitive to bank loans for unconstrained firms but not for constrained firms, and trade credit predicts investment, but only for constrained firms. We also find that unconstrained firms use bank loans to finance trade credit provided to other firms. Our results illustrate alternative mechanisms that firms employ both as borrowers and lenders. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-08-04&r=cfn |
| By: | Renée B. Adams; Hamid Mehran |
| Abstract: | The subprime crisis highlights how little we know about the governance of banks. This paper addresses a long-standing gap in the literature by analyzing board governance using a sample of banking firm data that spans forty years. We examine the relationship between board structure (size and composition) and bank performance, as well as some determinants of board structure. We document that mergers and acquisitions activity influences bank board composition, and we provide new evidence that organizational structure is significantly related to bank board size. We argue that these factors may explain why banking firms with larger boards do not underperform their peers in terms of Tobin's Q. Our findings suggest caution in applying regulations motivated by research on the governance of nonfinancial firms to banking firms. Since organizational structure is not specific to banks, our results suggest that it may be an important determinant for the boards of nonfinancial firms with complex organizational structures such as business groups. |
| Keywords: | Bank management ; Bank mergers ; Corporate governance ; Bank directors ; Competition |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:330&r=cfn |
| By: | Robin Greenwood; Samuel Hanson; Jeremy C. Stein |
| Abstract: | We argue that time-series variation in the maturity of aggregate corporate debt issues arises because firms behave as macro liquidity providers, absorbing the large supply shocks associated with changes in the maturity structure of government debt. We document that when the government funds itself with relatively more short-term debt, firms fill the resulting gap by issuing more long-term debt, and vice-versa. This type of liquidity provision is undertaken more aggressively: i) in periods when the ratio of government debt to total debt is higher; and ii) by firms with stronger balance sheets. Our theory provides a new perspective on the apparent ability of firms to exploit bond-market return predictability with their financing choices. |
| JEL: | G32 H63 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14087&r=cfn |
| By: | Luc Laeven; Ross Levine |
| Abstract: | This paper conducts the first empirical assessment of theories concerning relationships among risk taking by banks, their ownership structures, and national bank regulations. We focus on conflicts between bank managers and owners over risk, and show that bank risk taking varies positively with the comparative power of shareholders within the corporate governance structure of each bank. Moreover, we show that the relation between bank risk and capital regulations, deposit insurance policies, and restrictions on bank activities depends critically on each bank's ownership structure, such that the actual sign of the marginal effect of regulation on risk varies with ownership concentration. These findings have important policy implications as they imply that the same regulation will have different effects on bank risk taking depending on the bank's corporate governance structure. |
| JEL: | G18 G2 G3 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14113&r=cfn |
| By: | Sharon Katz |
| Abstract: | This study explores how firms' ownership structures affect their earnings quality and long-term performance. Focusing on a unique sample of private firms for which there is financial data available in the years before and after their initial public offering (IPO), I differentiate between those that have private equity sponsorship (PE-backed firms) and those that do not (non-PE-backed firms). The findings indicate that PE-backed firms generally have higher earnings quality than those that do not have PE sponsorship, engage less in earnings management and report more conservatively both before and after the IPO. Further, PE-backed firms that are majority-owned by PE sponsors exhibit superior long-term stock price performance after they go public. These results stem from the professional ownership, tighter monitoring, and reputational considerations exhibited by PE sponsors. |
| JEL: | G0 G24 G3 M1 M41 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14085&r=cfn |
| By: | B. LEYMAN; K. SCHOORS; P. COUSSEMENT |
| Abstract: | We analyze the debt dynamics of corporations that reorganize under Belgian court-supervised restructuring, using a unique sample of small corporations. Small firms systematically accumulate unsecured trade credit and unpaid taxes and social contributions in the running up to bankruptcy-reorganization. First, small firms accumulate overdue taxes and social contributions, pushing the government administration in the unintended role of lender of last resort during the pre-bankruptcy period. Second, we find that the pecking order theory and specific trade credit theories predict the levels of trade credit accumulated during the pre-bankruptcy period very well. Our findings suggest that pre-bankruptcy dynamics strongly affect the debt structure at the moment of initiation of the procedure and in this way the ultimate outcome of the restructuring process. |
| Keywords: | court-supervised reorganization; bankruptcy; pecking order theory |
| JEL: | G33 G38 K20 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:08/507&r=cfn |
| By: | B. LEYMAN; K. SCHOORS |
| Abstract: | We use a unique dataset to analyze the contract renegotiation between a debtor and its secured bank creditors during Belgian court-supervised reorganization. We find that secured banks with higher collateralization succeed in renegotiating higher debt repayments during the court-supervised post-confirmation stage. There is also mild evidence that secured bank creditors renegotiate higher loan repayments during the court-supervised post-confirmation stage if the debtor’s assets are more redeployable. The proceeds of asset sales are used to generously repay secured banks and there is some evidence that secured banks push for those sales. Our findings are consistent with theory suggesting that secured creditors prefer liquidation above court-supervised reorganization. |
| Keywords: | Bankruptcy, bank lending, collateral, liquidation rights |
| JEL: | G10 G20 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:08/508&r=cfn |
| By: | B. LEYMAN; K. SCHOORS; P. COUSSEMENT |
| Abstract: | Unlike Chapter 11 in the U.S., the Belgian reorganization legislation requires that distressed firms remain under court-supervision during plan execution. In principle, the court-supervised post confirmation stage takes a fixed period of 24 months. Using a unique sample of small Belgian firms, we analyze both the likelihood of failure and the time spent before transfer to bankruptcy-liquidation during this post-confirmation stage. More profitable debtors are less likely to fail. If banks are secured by collateral with high liquidation value, debtors are more likely to fail. The mandatory repayment of government debt, like unpaid taxes and social contributions, also renders the distressed firm more likely to fail. Judicial discretion sharply affects the likelihood of failure in a sub sample of individual debtors seeking to preserve a sole proprietorship. |
| Keywords: | court-supervised reorganization; bankruptcy; insolvency legislation |
| JEL: | G33 G38 K20 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:08/509&r=cfn |
| By: | Mikel Larreina |
| Abstract: | In recent times the financial services industry has experienced a major transformation, in which markets and players have been globalised and consolidated. Certain financial centres have concentrated on financial firms and markets, engendering considerable research on the foundations of their pre-eminence. Nevertheless, the growth of financial centres in peripheral regions has not been conveniently analysed, despite the fact that financial activity may play a major role in some economies. This paper provides a thorough survey of state-of-the-art literature, both on the transformation of the financial marketplace, and on the rise of global financial centres, devoting especial attention to the appearance of peripheral financial centres. The Scottish case is studied, among other aspects, through the use of Input-Output multipliers, to determine the dramatic role financial services have to play in this region’s economy. This approach advanced may be adapted to other locations, to help to assess the specific impact of financial centres and to draw attention to possible problems arising from overdependence on their activity. |
| Keywords: | Financial centres, Scotland, financial cluster, Input-Output, regional economy. |
| JEL: | R11 R15 G29 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:san:crieff:0805&r=cfn |