nep-cfn New Economics Papers
on Corporate Finance
Issue of 2009‒10‒03
six papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Can behavioral finance models account for historical asset prices? By ap Gwilym, Rhys
  2. Comparing Apples with....Apples : how to make (more) sense of subjective rankings of constraints to business By Hallward-Driemeier, Mary; Aterido, Reyes
  3. Informal Finance: A Theory of Moneylenders By Andreas Madestam
  4. Price-increasing competition: the curious case of overdraft versus deferred deposit credit By Brian T. Melzer; Donald P. Morgan
  5. What Types of Small and Medium-sized Businesses Are Utilizing New Financial Products? By Yamori, Nobuyoshi
  6. A proposal for modeling real options through fuzzy expert system By G. Mastroleo; G. Facchinetti; Carlo Alberto Magni

  1. By: ap Gwilym, Rhys
    Abstract: I construct a behavioral model of asset pricing in which agents choose whether to base their expectations on chartist or fundamental forecasts. I simulate the model in order to test its efficacy in explaining the moments and time series properties of the FTSE All-Share index, and find that the model cannot be rejected as the data generating process.
    Keywords: Behavioral finance; Asset pricing
    JEL: G12
    Date: 2009–09
  2. By: Hallward-Driemeier, Mary; Aterido, Reyes
    Abstract: The use of expert or qualitative surveys to rank countries’ business investment conditions is widespread. However, within the economic literature there are concerns about measurement error and endogeneity based on characteristics of the respondents, raising questions about how well the data reflect the underlying reality they are trying to measure. This paper examines these concerns using data from 79,000 firms in 105 countries. The findings show that first, qualitative rankings correlate well with quantitative measures of the business environment, using both quantitative measures from within the survey and from external sources. Second, there are systematic variations in perceptions based on firm characteristics - focusing in particular on size and growth performance. However, it is not that an optimistic view of the business environment is simply the expression of a firm’s own performance. Rather, firm size and performance affect the relative importance of certain constraints, particularly in areas such as finance, time with officials/inspectors, corruption, and access to reliable electricity. The results also show that much of the variation in subjective responses by firm types is largely due to differences in the objective conditions across firm types. There is little evidence that size and performance have non-linear effects in how constraining a given objective condition is reported to be. Overall, concerns about endogeneity remain in using business environment indicators to explain firm performance, but this stems primarily from the fact that who you are and how well you are doing can affect the conditions you face rather than whether the indicator used is qualitative or quantitative.
    Keywords: Microfinance,E-Business,Transport Economics Policy&Planning,Debt Markets,Access to Finance
    Date: 2009–09–01
  3. By: Andreas Madestam (Bocconi University)
    Abstract: I study the coexistence of formal and informal finance in underdeveloped credit markets. While weak institutions constrain formal banks, shallow pockets hamper informal lenders. In such economies, informal finance has two effects. By increasing the investment return it decreases borrowers’ relative payoff following default, inducing banks to lend more liberally (disciplinary effect). By channeling bank capital it reduces banks’ agency costs from lending directly to borrowers, limiting banks’ extension of borrower credit (rent-extraction effect). Among other things, the model shows that informal interest rates are higher, borrower welfare lower, and informal finance more prevalent when the rent-extraction effect prevails, consistent with stylized facts in poor societies.
    Keywords: Credit Markets, Financial Development, Institutions, Market Structure
    JEL: O12 O16 O17 D40
    Date: 2009–09
  4. By: Brian T. Melzer; Donald P. Morgan
    Abstract: We find that banks charge more for overdraft credit when depositors have access to a potential substitute: deferred deposit ("payday") credit. We attribute this rise in prices partly to adverse selection created by banks' practice of charging a flat fee regardless of the overdraft amount--pricing that favors depositors prone to large overdrafts. When deferred deposit credit priced per dollar borrowed is available, depositors prone to small overdrafts switch to that option. That selection works against banks; large overdrafts cost more to supply and, if depositors default, banks lose more, so prices rise. Consistent with this adverse-selection hypothesis, we document that the average dollar amount per returned check at banks and other depository institutions increases when depositors have access to deferred deposit credit. Beyond documenting another case of price-increasing competition, our findings bear on theories of adverse selection in credit markets and contribute to the debate over the pros and cons of payday credit.
    Keywords: Overdrafts ; Bank competition ; Banks and banking - Service charges ; Bank deposits
    Date: 2009
  5. By: Yamori, Nobuyoshi
    Abstract: The increased diversification of fund rising methods among small and medium-sized businesses has been a major policy challenge in recent years, and private financial institutions are proactively striving to disseminate new financial technologies. However, this does not necessarily mean that every small and medium-sized business benefits from such technologies. It is difficult to analyze this aspect based on ready-made data. Fortunately, this paper can analyze the current status and challenges of the utilization of new financial products among small and medium-sized businesses by using unique survey questionnaires (Kansai RIETI Questionnaires). The results of responses from more than 2,000 companies showed that most companies began utilizing new financial products due to introductions by main banks, and it was seen that the diversification of fund rising methods among small and medium-sized businesses has developed as a result of efforts made by policy-making authorities and financial institutions. However, the rate of utilization of each financial method is as low as a few percentage points, and extremely small businesses or cash-strapped companies has not improved in terms of fund risings. Improved diversification was mainly found in excellent small and medium-sized businesses.
    Keywords: Financing Products; SME Finance; Relationship Banking; Main Bank.
    JEL: G32 G21
    Date: 2009–09
  6. By: G. Mastroleo; G. Facchinetti; Carlo Alberto Magni
    Abstract: This paper presents a proposal for evaluating real options. The existing models are not widely used by corporate managers as they are formally complex, rather difficult to understand and rest on strong implicit assumptions. We propose a possible alternative by using a fuzzy expert system that takes into consideration both quantitative variables and qualitative variables, aggregating them through a simple modular approach.
    Date: 2009–09–20

This nep-cfn issue is ©2009 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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