nep-cfn New Economics Papers
on Corporate Finance
Issue of 2009‒08‒30
two papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Modeling non performing loans probability in the commercial banking system: efficiency and effectiveness related to credit risk in Italy By Bernardo Maggi; Marco Guida
  2. Corporate Equality and Equity Prices: Doing Well While Doing Good? By Shihe Fu; Liwei Shan

  1. By: Bernardo Maggi; Marco Guida (Dipartimento di Economia, Sapienza University of Rome Italy)
    Abstract: In this paper we model the effect of the non performing loans on the cost structure of the commercial banking system. With this aim, we comment on an increase in the non performing loans by studying the consequences of such a change on the cost function and compute the probability of failure of maintaining a performing loan as such. In so doing we are convinced that geography does matter and evaluate the risk propensity of the bank towards the non performing loans accordingly. We finally stress that traditional efficiency indicators of cost elasticity do not fit properly with such a problem and propose a measure based on the costs for managing and monitoring the loans which, according to the related density function, will reveal effectively as non performing.
    Keywords: Non performing loans probability, Bank management, Cost function, Efficiency and effectiveness indicators, Flexible forms
    JEL: G21 D24 C33 C51 L23
    Date: 2009–04
  2. By: Shihe Fu; Liwei Shan
    Abstract: Two competing hypotheses, value enhancing and value discounting, state that implementing socially responsible corporate policies can have positive or negative effects on firm value. This paper tests how a specific type of social responsibility–corporate equality–affects firm value. Corporate equality is measured by the corporate equality index (CEI). This index quantifies how companies treat their gay, lesbian, bisexual, and transgender employees, consumers, and investors. Using a sample of CEI-rated, publicly traded firms in the U.S., we find that, between 2002 and 2006, firms with a higher degree of corporate equality have higher stock returns and higher market valuation (Q). We provide suggestive, causal evidence that corporate equality enhances firm value through better performance in product markets and labor markets: Firms with a higher degree of corporate equality also tend to have larger sales, higher profit margins, higher employee productivity, and attract more employees. These results are robust to the inclusion of unobserved firm-heterogeneities. Overall, our results support the value-enhancing effects of corporate social responsibility.
    Keywords: Corporate equality; social responsibility; socially responsible investment; stock returns; performance.
    JEL: G11 G12 J70 M14
    Date: 2009–09–08

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