nep-cfn New Economics Papers
on Corporate Finance
Issue of 2009‒05‒09
five papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Testing the Modigliani-Miller theorem directly in the lab: a general equilibrium approach By Jianying Qiu; Prashanth Mahagaonkar
  2. Economic Factors Influencing Corporate Capital Structure in Three Asian Countries: Evidence from Japan, Malaysia and Pakistan By Mahmud, Muhammad; Herani, Gobind M.; Rajar, A.W.; Farooqi, Wahid
  3. The determinants of net interest income in the Mexican banking system: an integrated model By Joaquín Maudos Villarroya; Liliana Solís
  4. Factores determinantes de la salida a bolsa en España By Joaquín Farinos; Vicente Sanchis
  5. Moral Hazard and Capital Requirements in a Lending Model of Credit Denial By Eric Van Tassel

  1. By: Jianying Qiu; Prashanth Mahagaonkar
    Abstract: In this paper, we directly test the Modigliani-Miller theorem in the lab. Applying a general equilibrium approach and not allowing for arbitrage among firms with different capital structures, we are able to address this issue without making any assumptions about individuals' risk attitudes and initial wealth positions. We find that, consistent with the Modigliani-Miller theorem, experimental subjects well recognized the increased systematic risk of equity with increasing leverage and accordingly demanded higher rate of return. Furthermore, the correlation between the value of the debt and equity is -0.94, which is surprisingly comparable with the -1 predicted by the Modigliani-Miller theorem. Yet, a U shape cost of capital seems to organize the data better.
    Keywords: The Modigliani-Miller Theorem, Experimental Study, Decision Making under Uncertainty, General Equilibrium
    JEL: G32 C91 G12 D53
    Date: 2009–05
  2. By: Mahmud, Muhammad; Herani, Gobind M.; Rajar, A.W.; Farooqi, Wahid
    Abstract: This study is an attempt to determine the factors that influence a firm’s choice of capital structure in three Asian countries: Japan, Malaysia and Pakistan. The specific objective is to investigate if country’s economic factors play a significant role in determining capital structure between markets. These countries are chosen in order to represent three different stages of economic development. Literature review reveals that considerable research has been made in the industrialized countries on the similar topic. Capital structure is one of the most complex areas of strategic financial decision making due to its interrelationship with macroeconomic variables. This study reveals that per capita GNP growth for Japan and Malaysia is significantly related to capital structure of firm and higher economic growth tends to cause to use more long term debt. These results for Pakistan are different from those other two countries. This also shows that inefficiencies coupled with high leverage may entangle Pakistani firms in debt trap. The indicator of prime lending rate is the most decisive factor affecting demand for credit for Japan and Malaysia. It is evident from the analysis that financial liberalization provides major support in the development of capital structure and overall corporate sector in all the three countries.
    Keywords: Capital Structure; Business Cycle; Liquidity; Economic Growth
    JEL: G32 G33 G10 O40
    Date: 2009–04–20
  3. By: Joaquín Maudos Villarroya (Universitat de València); Liliana Solís (Universitat de València)
    Abstract: This paper analyzes net interest income in the Mexican banking system over the period 1993-2005. Taking as reference the seminal work by Ho and Saunders (1981) and subsequent extensions by other authors, our study models the net interest margin simultaneously including operating costs and diversification and specialization as determinants of the margin. The results referring to the Mexican case show that its high margins can be explained mainly by average operating costs and by market power. Although non-interest income has increased in recent years, its economic impact is low. El trabajo analiza el margen de intermediación de la banca Mexicana en el periodo 1996-2005. Tomando como referencia el trabajo seminal de Ho and Saunders (1981) y extensiones posteriores de otros autores, nuestro estudio modeliza el margen de intermediación incluyendo simultáneamente los costes operativos y la diversificación y especialización como determinantes del margen. Los resultados referidos al caso mexicano muestran que los altos márgenes vienen explicados principalmente por los costes medios operativos y por el poder de mercado. Si bien los ingresos no financieros han aumentando en los últimos años, su impacto económico es reducido.
    Keywords: Banca, Margen financiero, Costes operativos, Poder de Mercado, Ingresos no financieros. banking, net interest income, operating cost, non-interest income
    JEL: G21 L10
    Date: 2009–06
  4. By: Joaquín Farinos (Universitat de València); Vicente Sanchis (Universitat de València)
    Abstract: Though the going public decision has been addressed by several theories, empirical research is particularly scarce to European countries. This is the first research in the Spanish market that investigates ex ante and ex post characteristics of IPO firms, using a large database of private held firms that potentially may go public. Some of our results are consistent with previous studies. Our evidence suggests that firms that go public are young firms with large capital expenditures previously to the IPO. However, a firm's need to finance activity is not the main motive to go public, but to achieve the proper conditions to rebalance firm's economic and financial structure. Our results are consistent with the portfolio rebalancing motive and the hypothesis of windows of opportunity to go public. Aunque la decisión de salir a bolsa ha sido abordada desde diferentes teorías, la investigación empírica sobre esta cuestión es escasa en los mercados de la Europa continental. En España éste es el primer trabajo que realiza una investigación tanto ex ante como ex post de esta decisión empleando para ello una amplia base de datos de empresas que potencialmente podrían salir a bolsa mediante una oferta pública de títulos (OPI). Nuestros resultados son, en parte, consistentes con la evidencia obtenida en otros países de nuestro entorno. La evidencia que obtenemos sugiere que las empresas que deciden salir a bolsa son empresas jóvenes que han realizado una intensa inversión en activo fijo previamente a la OPI y que no buscarían con su salida a bolsa la obtención directa de recursos para financiar su actividad sino, por el contrario, propiciar las condiciones para poder reequilibrar su estructura económica y financiera. Nuestra evidencia empírica está de acuerdo con los motivos de reequilibrar la cartera de los propietarios y la hipótesis de las ventanas de oportunidad.
    Keywords: Decisión de salir a bolsa, oferta pública inicial going public decision, initial public offering
    JEL: G10 G30 G32
    Date: 2009–03
  5. By: Eric Van Tassel
    Abstract: In this paper we analyze a repeated game in which an intermediary offers unsecured loans to entrepreneurs using future credit denial to induce repayment. To finance the loans, the intermediary uses a combination of equity capital and external funds. We focus on a moral hazard problem that emerges between the intermediary and the less informed external investors over a costly loan monitoring choice. The presence of informed borrowers in the lender’s portfolio turns out to act as a substitute for capital requirements. The result is that the lending strategy utilized by the intermediary minimizes the moral hazard problem but implies the intermediary’s balance sheet is fragile to exogenous risk.
    Keywords: Moral hazard; Capital requirements; Bank regulation; Repayment incentives
    JEL: G21 G28 O16
    Date: 2009–05

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