nep-cfn New Economics Papers
on Corporate Finance
Issue of 2010‒06‒18
three papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Credit Whitin the Firm By Luigi Guiso; Luigi Pistaferri; Fabiano Schivardi
  2. Strategic Effects of Regulatory Capital Requirements in Imperfect Banking Competition By Eva Schliephake; Roland Kirstein
  3. Empirical analysis of hedging strategies By Magid Maatallah

  1. By: Luigi Guiso (European University Institute and EIEF); Luigi Pistaferri (Stanford University, NBER, IZA and SIEPR); Fabiano Schivardi (Cagliari University and EIEF)
    Abstract: We exploit time variation in the degree of development of local credit markets and matched employer-employee data to assess the role of the rm as an internal credit market. In less developed local credit markets rms can oer a atter wage-tenure prole than rms in more developed credit markets to lend implicitly to their workers or oer a steeper prole to implicitly borrow from their workers. We nd that rms located in less nancially developed markets oer wages that are lower at the beginning of tenure and grow faster than those oered by rms in more nancially developed markets, helping rms nance their operations by raising funds from workers. Because we control for local market eects and only exploit time variation in the degree of local nancial development induced by an exogenous liberalization, the eect we nd is unlikely to re ect unobserved local factors that systematically aect wage tenure proles. The size of implicit loans is larger for rms with more problematic access to bank credit and workers less likely to face credit constraints. The amount of credit generated by implicit lending within the rm is economically important and can be as large as 30% of bank lending. Consistent with credit market imperfections opening up trade opportunities within the rm, we nd that the internal rate of return of implicit loans lies between the rate at which workers savings are remunerated in the market and the rate rms pay on their loans from banks.
    JEL: J3 L2 G3
    Date: 2009
  2. By: Eva Schliephake (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Roland Kirstein (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: This paper analyses the competitive effects of capital requirement regulation on an oligopolistic credit market. In the first stage, banks choose the structure of refinancing their assets, thereby making an imperfect commitment to a loan capacity as a function of the chosen degree of capitalization and the regulatory capital requirement. In the second stage, loan price competition takes place. It is shown that a capital requirement regulation may not only decrease the supply of credit through an increased marginal cost effect but can have an additional collusive enhancing effect resulting in even higher credit prices and increased profits for the banks.
    Keywords: equity regulation, oligopoly, capacity constraint
    JEL: G21 K23 L13
    Date: 2010–05
  3. By: Magid Maatallah (DPMMS - Statistical Laboratory - University of Cambridge, Financial Mathematics Group / Heriot-Watt university - Heriot-Watt University)
    Abstract: We compare the performance of various hedging strategies for index CDO tranches across a variety of models and hedging methods during the recent credit crisis. Our empirical analysis shows evidence for market incompleteness: a large proportion of the risk in CDO tranches appears to be unhedgeable. We also show that, unlike what is commonly assumed, dynamic models do not necessarily perform better the static models, nor do high-dimensional bottom-up models perform better than simpler top-down models. Moreover, top-down and regression-based hedging would have provided significantly better hedges than bottom-up hedging with single name CDS during the Lehman Brothers default event. Our empirical study also reveals that while significantly large moves -” jumps” -do occur in the CDS, index and tranche spreads, these jumps do not necessarily occur on default dates of index constituents, an observation which contradicts the intuition conveyed by some recently proposed credit risk models.
    Keywords: portfolio credit risk models, default contagion, spread risk, sensitivity-based hedging
    Date: 2010–06–06

This nep-cfn issue is ©2010 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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