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on Corporate Finance |
| By: | M. V. Ibrahimo; C. P. Barros |
| Abstract: | This paper proposes a principal-agent model between banks and firms with risk and asymmetric information. A mixed form of finance to firms is assumed. The capital structure of firms is a relevant cause for the final aggregate level of investment in the economy. In the model analyzed, there may be a separating equilibrium, which is not economically efficient, because aggregate investments fall short of the first-best level. Based on European firm-level data, an empirical model is presented which validates the result of the relevance of the capital structure of firms. The relative magnitude of equity in the capital structure makes a real difference to the profits obtained by firms in the economy. |
| Keywords: | Risk, asymmetric information, credit and capital structure. |
| JEL: | D81 D82 G21 G32 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp52010&r=cfn |
| By: | Reint Gropp (Department of Finance, Accounting and Real Estate, European Buisness School, Germany); Hendrik Hakenes (Institut für Finanzmarkttheorie, Leibniz Universität Hannover, Germany); Isabel Schnabel (Chair of Financial Economics, Johannes Gutenberg-Universität Mainz, Germany) |
| Abstract: | This paper empirically investigates the effect of government bail-out policies on banks outside the safety net. We construct a measure of bail-out perceptions by using rating information. From there, we construct the market shares of insured competitor banks for any given bank, and analyze the impact of this variable on banks’ risk-taking behavior, using a large sample of banks from OECD countries. Our results suggest that government guarantees strongly increase the risk-taking of competitor banks. In contrast, there is no evidence that public guarantees increase the protected banks’ risk-taking, except for banks that have outright public ownership. These results have important implications for the effects of the recent wave of bank bail-outs on banks’ risk-taking behavior. |
| Keywords: | Government bail-out, implicit and explicit government guarantees, banking competition, risk-taking |
| JEL: | G21 G28 L53 |
| Date: | 2010–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:jgu:wpaper:1003&r=cfn |
| By: | Basak Akbel; Monika Schnitzer (University of Munich) |
| Abstract: | We analyze the optimal debt structure of multinational corporations choosing between centralized or decentralized borrowing. We identify how this choice is affected by creditor rights and bankruptcy costs, taking into account managerial incentives and coinsurance considerations. We find that partially centralized borrowing structures are optimal with either weak or strong creditor rights. For intermediate levels of creditor rights fully decentralized (centralized) borrowing structures are optimal if managers have strong (weak) empire building tendencies. Decentralized borrowing is more attractive for companies focussing on short-term profitability. Credits are rather taken in countries with better creditor rights and more efficient insolvency systems. |
| Keywords: | Multinational corporations, capital structure, creditor rights, coinsurance, internal capital markets |
| JEL: | G32 F23 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:304&r=cfn |
| By: | Tobias Berg (Technische Universität München, Department of Financial Management and Capital Markets, Arcisstr. 21, 80290 Munich, Germany.) |
| Abstract: | This study calibrates the term structure of risk premia before and during the 2007/2008 financial crisis using a new calibration approach based on credit default swaps. The risk premium term structure was flat before the crisis and downward sloping during the crisis. The instantaneous risk premium increased significantly during the crisis, whereas the long-run mean of the risk premium process was of the same magnitude before and during the crisis. These findings suggest that (marginal) investors have become more risk averse during the crisis. Investors were, however, well aware that risk premia will revert back to normal levels in the long run. JEL Classification: G12, G13. |
| Keywords: | credit risk, risk premia, equity premium, mean reversion, structural models of default. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101165&r=cfn |