nep-cfn New Economics Papers
on Corporate Finance
Issue of 2008‒07‒20
five papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Why is it so Hard to Value Intangibles? Evidence from Investments in High-Technology Start-Ups By GAVIN C REID; JULIA A SMITH
  2. Moral Behavior in Stock Markets: Islamic finance and socially responsible investment By Pitluck, Aaron Z.
  5. Diversification Properties of Investments in Shipping By Michael B. Grelck; Stefan Prigge; Lars Tegtmeier; Mihail Topalov

    Abstract: The paper uses a range of primary-source empirical evidence to address the question: ‘why is it to hard to value intangible assets?’ The setting is venture capital investment in high technology companies. While the investors are risk specialists and financial experts, the entrepreneurs are more knowledgeable about product innovation. Thus the context lends itself to analysis within a principal-agent framework, in which information asymmetry may give rise to adverse selection, pre-contract, and moral hazard, post-contract. We examine how the investor might attenuate such problems and attach a value to such high-tech investments in what are often merely intangible assets, through expert due diligence, monitoring and control. Qualitative evidence is used to qualify the more clear cut picture provided by a principal-agent approach to a more mixed picture in which the ‘art and science’ of investment appraisal are utilised by both parties alike.
    Keywords: venture capital, high technology, accounting information, intangible assets, financial reporting.
    JEL: G11 G24 M41 O3
    Date: 2008–06
  2. By: Pitluck, Aaron Z.
    Abstract: This paper addresses the puzzle of why the inclusion of non-financial social justice or religious criteria by professional fund managers has been so popular in Malaysia and yet has had to date relatively little influence in the United States stock market. Drawing from over 125 ethnographic interviews with financial workers in Malaysia, this paper argues that moral investment behavior in stock markets is shaped primarily by ‘market structure’ rather than by ‘mandates.’ In both countries mandates are a weak form of social control of fund manager’s behavior. This is because mandates are not principal-agent contracts but are primarily marketing exercises and cultural tools. Social investing in the United States is weak because it relies solely on mandates to communicate clients’ ethical desires to their fund managers. Islamic and Ethical finance in Malaysia is strong because Islamic social movements have reformed the Malaysian stock market’s structure. Specifically, a uniform interpretation of Islamic investing was institutionalized with the creation of a nearly-unique quasi-governmental body. As a consequence, Islamic principles systematically influence the behavior of corporations listed in Malaysia, at present narrowly, but with the potential for wider influence in future. The paper closes with implications for social investment in the United States.
    Keywords: Investor Behavior; Ethics; Malaysia; United States; Islamic Finance; Socially Responsible Investment
    JEL: G11 O53 Z10 G20 A13 A14 P52
    Date: 2008–03–15
    Abstract: The aim of this study is to confirm empirically the implications of the theory about the law-finance-growth nexus. In order to verify the predictions of the theory, a panel data including three different types of data is used. All the data are referred to Italian provinces. The empirical analysis shows that between firms’ growth and financial development there is a first-order relationship, while between firms’ growth and legal enforcement as measured by the efficiency of the judicial system there is a second-order relationship.
    Keywords: enforcement; judicial efficiency; financial development; firm’s growth
    JEL: G20 K4
    Date: 2008
  4. By: James B. Ang
    Abstract: Although theory emphasizes the role of financial market frictions in explaining income inequality, there is little empirical research exploring how financial development and financial sector reforms influence the evolution of income inequality. This paper examines how finance impacts on income inequality in India using annual time series data for over half a century. The results indicate that while financial development helps reduce income inequality, financial liberalization seems to have exacerbated income inequality in India. Our results are robust to the use of different measures for financial development and financial liberalization.
    JEL: G28 O16 O53
    Date: 2008–06
  5. By: Michael B. Grelck; Stefan Prigge; Lars Tegtmeier; Mihail Topalov
    Abstract: In contrast to the more established alternative asset classes like real estate or hedge funds, there is not much research available for investments in shipping. This article contributes to closing this gap in the literature and investigates the diversification properties of investments in shipping. During our sample period from January 1999 to December 2007, an investment in shipping stocks earned an attractive risk-return combination. From an overall perspective, we find almost no indications within our analytical framework that the addition of an investment in shipping stocks to a base portfolio of stocks and bonds worsened diversification. In most cases, the Sharpe ratios increased considerably but were, with some noticeable exceptions, statistically insignificant. Some details should be noticed: Firstly, the composition of the shipping stocks portfolio mattered much. Compared with the MSCI World Marine Index, which is a capitalization-weighted aggregate of 10 stocks, the diversification benefit of the broader and equally-weighted shipping stocks portfolio of our Research Index with 41 stocks was much more pronounced and partially even statistically significant which is a rare event for the test developed by Gibbons et al. [1989]. Secondly, diversification properties were not stable through the course of time with larger diversification benefits during the bear market from March 2000 to March 2003 compared to the bull market from April 2003 to October 2007. However, the latter are statistically more reliable. Our positive overall view of the diversification properties of shipping stocks is based on a single full stock market cycle. The generalizability of our results is an open question and requires further research.
    Date: 2008–05

This nep-cfn issue is ©2008 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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