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

  1. Do small family businesses have a peculiar attitude toward growth? Evidence from French SMEs. By Anaïs Hamelin
  2. Behavior Finance and Estimation Risk in Stochastic Portfolio Optimization By José Luiz Barros Fernandes; Juan Ignacio Peña; Benjamin Miranda Tabak
  3. Linking Financial and Macroeconomic Factors to Credit Risk Indicators of Brazilian Banks By Marcos Souto; Benjamin M. Tabak; Francisco Vazquez
  4. Profit Taxation and Finance Constraints By Christian Keuschnigg; Evelyn Ribi
  5. An Alternative Formula to Price American Options. By Rocío Elizondo; Pablo Padilla; Mogens Bladt

  1. By: Anaïs Hamelin (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and LaRGE, Institut d’Etudes Politiques, Université de Strasbourg, France.)
    Abstract: This paper uses a very large sample of French SMEs to study growth of family owned firms. Firms range from total-family to minority control. The estimated relationship accounts for firm characteristics of size and, age, sector, and financial solvency. The results show that firms with greater family control are prone to exhibit lower rates of sales growth than feasible, given financial performance. Because firm growth is limited not by financing constraints but by family-related attitudes, increasing firm growth requires policies that shape incentives in small family businesses.
    Keywords: Small Business, Family control, Growth, Sustainable growth, Capital budgeting.
    JEL: G31 G32 M13 M21
    Date: 2009–08
  2. By: José Luiz Barros Fernandes; Juan Ignacio Peña; Benjamin Miranda Tabak
    Abstract: The objective of this paper is twofold. The first is to incorporate mental accounting, loss-aversion, asymmetric risk-taking behavior, and probability weighting in a multi-period portfolio optimization for individual investors. While these behavioral biases have previously been identified in the literature, their overall impact during the determination of optimal asset allocation in a multi-period analysis is still missing. The second objective is to account for the estimation risk in the analysis. Considering 26 daily index stock data over the period from 1995 to 2007, we empirically evaluate our model (BRATE – Behavior Resample Adjusted Technique) against the traditional Markowitz model.
    Date: 2009–04
  3. By: Marcos Souto; Benjamin M. Tabak; Francisco Vazquez
    Abstract: This study constructs a set of credit risk indicators for 39 Brazilian banks, using the Merton framework and balance sheet information on the banks’ total assets and liabilities. Despite the simplifying assumptions, the methodology captures well several stylized facts in the recent history of Brazil. In particular, it identifies deterioration in the credit risk indicators of the banking sector, following the crisis in the early 2000s. The risk indicators were regressed against a number of macro-financial variables at both individual and systemic level, showing that an increase in the system EDF, interest rates, and CDS spreads will lead to a deterioration of the individual expected default probability.
    Date: 2009–07
  4. By: Christian Keuschnigg (University of St. Gallen (IFF-HSG), CEPR and CESifo); Evelyn Ribi (University of St. Gallen (IFF-HSG))
    Abstract: In the absence of financing frictions, profit taxes reduce investment by their effect on the user cost of capital. With finance constraints due to moral hazard, investment becomes sensitive to cash-flow and own equity of firms. We propose a corporate finance model of investment and derive three central results: (i) Even small taxes impose first order welfare losses on financially constrained firms; (ii) ACE and cashflow tax systems, which are investment neutral in the neoclassical model, are no longer neutral when firms are finance constrained. (iii) When banks are active and provide external finance together with monitoring services, the two systems not only reduce investment, but are also no longer equivalent. With active banks, investment is subject to double moral hazard and the timing of tax payments becomes important. The ACE system gives tax relief at the return stage and provides better incentives than a cash-flow tax which gives tax relief upfront.
    Keywords: Finance constraints, profit tax, cash-flow tax, ACE tax
    JEL: G38 H25
    Date: 2009
  5. By: Rocío Elizondo; Pablo Padilla; Mogens Bladt
    Abstract: We give a new way to price American options, using Samuelson´s formula. We first obtain the option price corresponding to a European option at time t, weighting it by the probability that the underlying asset takes the value S at time t. This factor is given by the solution of the Fokker-Planck (Kolmogorov) equation for the transition probability density. The main advantage of this approach is that we can introduce systematically the effect of macroeconomic factors. If a macroeconomic framework is given by a dynamic system in the form of a set of ordinary differential equations we only have to solve a partial differential equation, for the transition probability density. In this context, we verify, for the sake of consistency, that this formula is consistent with the Black-Scholes model.
    Keywords: American options, Fokker-Planck, Black-Scholes, Samuelson, density probability function.
    JEL: C00 C02 G10 G13
    Date: 2009–08

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