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on Corporate Finance |
| By: | Régis Blazy; Bertrand Chopard; Agnès Fimayer; Jean-Daniel Guigou |
| Abstract: | We study the French dilemma associated with court administered resolution of corporate financial distress of firms, in which bankruptcy courts have to combine both social efficiency (maintaining employment) and ex post financial efficiency (determining the best issue for financial distress, proxied here by the global recovery rate). We discuss this dilemma empirically, using a large sample of decisions of French commercial courts concerning the future of bankrupt firms (reorganization, sale as a going concern or liquidation). Addressing this dilemma, we discuss the determinants of bankruptcy courts’ selection between rival offers in sales as a going concern. Finally, we evaluate the financial cost of the French pro debtor system through the recovery rates of various claimants. Our main results are: (1) French commercial courts actively work to protect employment by facilitating continuation and reducing the domino effects of bankruptcy. (2) the courts’ choice between rival buyout offers confirms that social considerations prevail in the arbitration of bankruptcy courts. (3) Continuations through reorganization plans generate the highest recovery rates for all classes of creditors. (4) Contrary to the expected trade-off between social and financial efficiency, courts also enact measures to increase debt recovery once continuation has been chosen. However, for sales, recovery rates are inhibited by asset illiquidity and/or by the courts’ attempt to promote a firm’s continuation through sales at a low price. |
| Keywords: | Bankruptcy, Reorganization; Liquidation; Recovery rate. |
| JEL: | G33 K22 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2009-12&r=cfn |
| By: | Sun, Jianjun; Yamori, Nobuyoshi |
| Abstract: | In China, regional disparities are important. We examine the difference in the sensitivity of investment to cash flow between firms in inland regions and those in coastal regions. By using the financial data of Chinese listed firms, we found that firms in inland regions rely more on their internal funds in terms of their investment activities than those in coastal regions and that the sensitivity gap between inland and coastal firms widened in the recent contractionary monetary policy period. This suggests that firms in inland regions are harder to obtain outside funds due to unfavorable social and economic environments for inland firms. Our findings suggest that capital markets in China respond rationally to the potential impact of regional disparities on a firm’s performance. |
| Keywords: | sensitivity of investment to cash flow; sensitivity gap; regional disparities; Chinese economy |
| JEL: | G14 G31 O16 |
| Date: | 2009–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14858&r=cfn |
| By: | Mathieu Gatumel (Centre d'Economie de la Sorbonne) |
| Abstract: | For many assets and liabilities there exist deep and liquid markets so that the market value are reasily observed. However, for non-hedgeable risks, the market value of liabilities must be estimated. The Draft Solvency II Directive suggests in article 75 that the valuation of technical provisions (for non hedgeable risks) shall be the sum of a best estimate and a market value margin measuring the cost of risk. The market value margin is calculated as the present value of the cost of holding the solvency capital requirement for non-hedgeable risks during the whole run-off period of the in-force portfolio. One of the majour input of the market value margin is the cost-of-capital rate which corresponds to the risk premium applied on each unit of risk. According to European Commission (2007), European insurance and Reinsurance Federation (2008), and Chief Risk Officer Forum (2008), a single cost-of-capital rate shall be used by all insurance undertakings and for all lines of business. This paper aims at analyzing the cost-of-capital rate given by European Insurance and Reinsurance Federation (2008), and Chief Risk Officer Forum (2008). In particular, we highlight that it is very difficult to assess a cost-of- capital rate by using either the frictional cost approach or the full industry information beta methodology. Nevertheless, we highlight also that it seems to be irrelevant to use only one risk premium or all the risks and all the companies. We show that risk is not characterized by a fixed prices. In fact, the price of risk depends on the basket of risks at which it belongs, the risk level considered and the time period. |
| Keywords: | Market value margin, cost-of-capital rate, diversification effect, risk level. |
| JEL: | G12 G20 G22 G32 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:b08094&r=cfn |
| By: | Dong Chuhl Oh |
| Date: | 2009–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:814577000000000197&r=cfn |