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on Corporate Finance |
| By: | Martina Nardon (Department of Applied Mathematics, University of Venice); Paolo Pianca (Department of Applied Mathematics, University of Venice) |
| Abstract: | In this contribution, we consider options written on stocks which pay cash dividends. Dividend payments have an effect on the value of options: high dividends imply lower call premia and higher put premia. While exact solutions to problems of evaluating both European and American call options and European put options are available in the literature, for American-style put options early exercise may be optimal at any time prior to expiration even in the absence of dividends. In this case numerical techniques, such as lattice approaches, are required. Discrete dividends produce a shift in the tree; as a result, the tree is no longer reconnecting beyond any dividend date. Methods based on non-recombining trees give consistent results, but they are computationally expensive. We analyze binomial algorithms and performed some empirical experiments. |
| Keywords: | Options on stocks, discrete dividends, binomial lattices |
| JEL: | C63 G13 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:vnm:wpaper:178&r=cfn |
| By: | Marco Corazza (Department of Applied Mathematics, University of Venice); Stefania Funari (Department of Applied Mathematics, University of Venice); Federico Siviero (Cohen & Company, Subsidiary of London) |
| Abstract: | In this paper we propose a deterministic methodology for creditworthiness evaluation based on the Multi-Criteria Decision Analysis (MCDA) method known as MUlticriteria RAnking MEthod (MURAME). This approach allows to rank the firms according to their credit risk characteristics and to sort them into a prefixed number of homogeneous creditworthiness groups. Moreover, the methodology allows to estimate ex-post proxies of the probabilities of default and of the probabilities of transition. Then, we apply the proposed approach to check its capability to evaluate the creditworthiness in real cases; in particular, we consider the case of an important north eastern Italian bank. |
| Keywords: | Multi-Criteria Decision Analysis (or MCDA), MUlti-criteria RAnking MEthod (or MURAME), credit risk assessment |
| JEL: | C02 G20 G32 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:vnm:wpaper:177&r=cfn |
| By: | Annabel Vanroose (Centre Emile Bernheim, CERMi, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and Section for Economic, Monetary and Financial Policy, Vrije Universiteit Brussel.) |
| Abstract: | This paper identifies factors that explain why microfinance institutions are reaching more clients in some countries than in others. To that end, the paper applies a cross-country analysis on a unique dataset covering 115 countries. Results indicate that the microfinance sector is more present in the richer countries of the developing world. It also reaches more clients in countries that receive more international support. Population density plays also a positive role, which could explain why the sector is still underdeveloped in rural areas. The level of industrialisation and inflation do not seem to influence microfinance outreach, while regional dummies do. |
| Keywords: | microfinance, financial sector development, aid, developing world |
| JEL: | G21 G28 O57 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:08-036&r=cfn |
| By: | Peresetsky , Anatoly (BOFIT); Karminsky, Alexander (BOFIT) |
| Abstract: | The paper presents an econometric study of the two bank ratings assigned by Moody's Investors Service. According to Moody’s methodology, foreign-currency long-term deposit ratings are assigned on the basis of Bank Financial Strength Ratings (BFSR), taking into account “external bank support factors” (joint-default analysis, JDA). Models for the (unobserved) external support are presented, and we find that models based solely on public information can reasonably well approximate the ratings. It appears that the observed rating degradation can be explained by growth of the banking system as a whole. Moody’s has a special approach for banks in developing countries and Russia in particular. The models help reveal the factors that are important for external bank support. |
| Keywords: | banks; ratings; rating model; risk evaluation; early warning system |
| JEL: | G21 G32 |
| Date: | 2008–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2008_017&r=cfn |
| By: | Bjuggren, Per-Olof (Jönköping International Business School); Eklund, Johan (Ratio); Wiberg, Daniel (Jönköping International Business School) |
| Abstract: | By examining a large number of Swedish listed firms, we analyse how institutional and foreign owners affect investment performance. To measure investment performance Mueller and Reardon’s (1993) marginal q is used, although derived directly from Tobin’s average q. Marginal q measures the ratio of the return on investment to the cost of capital. Our findings show that both domestic and foreign institutional owners positively influence firm performance. Furthermore a non-linear relation between institutional ownership concentration and performance is found. This is consistent with positive incentive effects and negative entrenchment effects. During the last decades the ownership structure of Swedish firms has undergone dramatic changes: institutional and foreign investors have been increasing their stakes, whereas Swedish households have decreased in importance. Controlling owners, often founding families, remain in control by resorting to an extensive use of dual-class shares. The practice of dual-class shares which separates cash-flow rights and control rights is also found to be an important determinant of firm performance that eradicates the positive influence of institutional ownership. |
| Keywords: | Corporate governance; institutions; ownership; performance; Tobin’s q; marginal q; |
| JEL: | C23 G30 L25 |
| Date: | 2008–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ratioi:0128&r=cfn |
| By: | Pirvu, Cerasela; Giurca Vasilescu, Laura; Mehedintu, Anca |
| Abstract: | Nowadays, the importance of the SME field becomes more and more a real basis for establishing and developing a modern, dynamic knowledge-based economy because their capacity to stimulate private ownership and entrepreneurial skills; to be flexible and to adapt quickly to a changing market; to generate new jobs. The accession of Romania to the European Union involve a lot of challenges and among them, the SME development plays a central role. So, the Romanian Government settled up the main priorities regarding the development of the small business sector: creating a business environment supportive of SME development and growth; developing SME competitiveness; improving SME access to financing; improving SME export performance; promoting an entrepreneurial culture and strengthening management performance. An intrinsic constituent of this process is represented by the access of the companies to the financing which must be made in correlation with the adopted strategy of development, because this development needs time and, necessarily, the existence of the financing sources. The choice of these sources depends on the financial structure of the enterprise, on its financial situation. So, enterprises can choose between the internal sources and the external sources, the difference between these both being represented by their stability, their independence, their cost and the priority of the owners of capital in the situation of a bankruptcy. Even if the internal sources are most often preferred by the managers because they assure the independence of the enterprise, these are not always sufficient. In that case, companies use the external financing sources which also have advantages as the deductibility of the expenses with the interests, what makes them less expensive. |
| Keywords: | SMEs; financing; credit banking; risks; Romania |
| JEL: | O16 G32 G21 |
| Date: | 2008–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11788&r=cfn |
| By: | Thomas Bloch |
| Abstract: | In this paper, we investigate how bank mergers affect bank revenues and present empirical evidence that mergers among banks have a substantial and persistent negative impact on merging banks’ revenues. We refer to merger related negative effects on banks’ revenues as dissynergies and suggest that they are a result of organizational diseconomies, the loss of customers and the temporary distraction of management from day-to-day operations by effecting the merger. For our analyses we draw on a proprietary data set with detailed financials of all 457 regional savings banks in Germany, which have been involved in 212 mergers between 1994 and 2006. We find that the negative impact of a merger on net operating revenues amounts to 3% of pro-forma consolidated banks’ operating profits and persists not only for the year of the merger but for up to four years post-merger. Only thereafter mergers exhibit a significantly superior performance compared to their respective pre-merger performance or the performance of their non-merging peers. The magnitude and persistence of merger related revenue dissynergies highlight their economic relevance. Previous research on post-merger performance mainly focuses on the effects from mergers on banks’ (cost) efficiency and profitability but fails to provide clear and consistent results. We are the first, to our knowledge, to examine the post-merger performance of banks’ net operating revenues and to empirically verify significant negative implications of mergers for banks’ net operating revenues. We propose that our finding of negative merger related effects on banks’ operating revenues is the reason why previous research fails to show merger related gains. |
| JEL: | G21 G34 L25 C23 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:fra:franaf:192&r=cfn |
| By: | Thomas Bloch |
| Abstract: | In this paper, we examine the impact of mergers among German savings banks on the extent to which these savings banks engage in small business lending. The ongoing consolidation in the banking industry has sparked concerns about the continuous availability of credit to small businesses which has been further fueled by empirical studies that partly confirm a reduction in small business lending in the aftermath of mergers. However, using a proprietary data set of German savings banks we find strong evidence that in Germany merging savings banks do not significantly change the extent to which they lend to small businesses compared to prior to the merger or compared to the contemporaneous lending by non-merging banks. We investigate the merger related effects on small business lending in Germany from a bank-level perspective. Furthermore, we estimate small business lending and its continuous adjustment process simultaneously using recent General Method of Moments (GMM) techniques for panel data as proposed by Arellano and Bond (1991). |
| JEL: | G21 G28 G34 C23 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:fra:franaf:193&r=cfn |