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on Corporate Finance |
| By: | M. Vittoria Levati (Max Planck Institute of Economics, Jena - Strategic Interaction Group); Jianying Qiu (Department of Finance, University of Vienna); Prashanth Mahagaonkar (Max Planck Institute of Economics, Jena - Entrepreneurship, Growth and Public Policy Group) |
| Abstract: | We present an experiment designed to test the Modigliani-Miller theorem. Applying a general equilibrium approach and not allowing for arbitrage among firms with different capital structures, we find that, in accordance with the theorem, participants well recognize changes in the systematic risk of equity associated with increasing leverage and, accordingly, demand higher rate of return. Yet, this adjustment is not perfect: subjects underestimate the systematic risk of low-leveraged equity whereas they overestimate the systematic risk of high-leveraged equity, resulting in a U-shaped cost of capital. A (control) individual decision-making experiment, eliciting several points on individual demand and supply curves for shares, provides some support for the theore |
| Keywords: | Modigliani-Miller theorem, Experiments, Decision making under risk, General equilibrium |
| JEL: | G32 C91 G12 D53 |
| Date: | 2011–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2011-021&r=cfn |
| By: | Marco Pagano (Università di Napoli Federico II, CSEF, EIEF and CEPR); Giovanni Pica (Università di Salerno and CSEF) |
| Abstract: | How does finance affect employment and inter-industry job reallocation? We present a model that predicts that financial development (i) increases employment and/or labor productivity and wages, with a smaller impact at high levels of the equilibrium wage and financial development; (ii) may induce either more or less reallocation of jobs depending on whether shocks to profit opportunities or to cash flow predominate; (iii) amplifies the output and employment losses in crises, firms that rely most on banks for liquidity being hit the hardest. Testing these predictions on international industry-level data for 1970-2003, we find that standard measures of financial development are indeed associated with greater employment growth, although only in non-OECD countries, and are not correlated with labor productivity or real wage growth. Moreover, they correlate negatively with inter-industry dispersion of employment growth. Finally, there is some evidence of a “dark side” of financial development, in that during banking crises employment grows less in the industries that are more dependent on external finance and those located in the more financially developed countries. |
| Keywords: | financial development, employment, investment, access to finance |
| JEL: | E24 J20 O16 O40 |
| Date: | 2011–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:283&r=cfn |
| By: | Rünger, Silke |
| Abstract: | The German tax reform act 2001 changed the corporate tax system from a full imputation system to a half income system. Along with this change, the taxation of equity investments changed as well. Using data on 459 disposals of minority blocks over the period 1997-2006, this paper analyzes the effect of TRA 2001 on the demand for corporate shares of different owner types and on corporate ownership concentration. We show that TRA 2001 was able to fulfill government's expectations about an increase in blocks bought by individual owners. With respect to ownership concentration, we find tax incentives not to be strong enough to lead to a reduction in overall concentration of corporate ownership. -- |
| Keywords: | corporate ownership,marginal tax rate on equity,minority blocks,Germany |
| JEL: | G11 G34 H24 H32 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:arqudp:114&r=cfn |
| By: | Schanz, Deborah; Theßeling, Holger |
| Abstract: | For more than 50 years, researchers around the world have been searching for a solution to Blacks famous 'dividend-puzzle'. However, despite tremendous efforts in different fields of economics, the influence of taxation on the distribution policy of firms has remained elusive and is still subject to extensive debate amongst scholars, professionals and politicians alike. In this paper, we try to shed some light on the discussion by presenting new empirical evidence from German tax reforms. Using a sample containing all firms listed at the Frankfurt stock exchange in the years from 1993 to 2009, we find robust evidence, that the switch from a split-rate tax system with full imputation to a shareholder relief system in 2002 and the change to a flat tax system in 2009 led to significant changes in the payout behavior of German firms. In line with the 'traditional view' of dividend taxation, German decision-makers cut back their dividend payments in response to the reduced advantageousness of dividends in comparison to capital gains after the reform. -- |
| Keywords: | Dividends,Taxation,Payout Policy |
| JEL: | G30 G35 H24 H25 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:arqudp:115&r=cfn |
| By: | Kroencke, Tim A.; Schindler, Felix; Schrimpf, Andreas |
| Abstract: | This paper provides a comprehensive analysis of portfolio choice with popular foreign exchange (FX) investment styles such as carry trades and strategies commonly known as FX momentum, and FX value. We investigate if diversification benefits can be achieved by style investing in FX markets relative to a benchmark allocation consisting of U.S. bonds, U.S. stocks, and international stocks. Overall, our results suggest that there are significant improvements in international portfolio diversification due to style-based investing in FX markets (both in the statistical, and most importantly, in the economic sense). These results prevail for the most important investment styles after accounting for transaction costs due to re-balancing of currency positions, and also hold in out-of-sample tests. Moreover, these gains do not only apply to a mean-variance investor but we also show that international portfolios augmented by FX investment styles are superior in terms of second and third order stochastic dominance. Thus, even an investor who dislikes negatively skewed return distributions would prefer a portfolio augmented by FX investment styles compared to the benchmark. -- |
| Keywords: | International Diversification,Foreign Exchange Speculation and Hedging,Carry Trades,Stochastic Dominance,Investment Styles |
| JEL: | G11 G12 G15 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:11028&r=cfn |
| By: | Iain Fraser; Katsuyuki Shibayama |
| Abstract: | In this paper we consider the option value of the environment employing a general equilibrium growth model with a stochastic technology. In our model, as in existing studies, because of irreversibility, the environment has significant real option value. However, unlike the existing literature in which the uncertainty of the value of the environment is given exogenously, the value of the environment is endogenously determined. In our model, the elasticity of substitution eta between the environment and consumption plays a crucial role. We show that the option value, and hence, the optimal decision are both affected by eta not only quantitatively but also qualitatively. |
| Keywords: | real option values; environment; general equilibrium; elasticity of substitution |
| JEL: | G13 Q31 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1107&r=cfn |
| By: | Elasrag, hussein |
| Abstract: | Islamic finance is one of the fastest growing segments of global financial industry. In some countries, it has become systemically important and, in many others, it is too big to be ignored.Islamic finance is based on shariah, an Arabic term that often is translated to “Islamic law.”Shariah provides guidelines for aspects of Muslim life, including religion, politics, economics,banking, business, and law.The basic sources of Shari’ah are the Qur’an and the Sunna, which are followed by the consensus of the jurists and interpreters of Islamic law. The central feature of the Islamic finance system is the prohibition in the Qur’an of the payment and receipt of interest (or riba). Islamic finance is a rapidly growing industry. While it represents a small proportion of the global finance market (estimated at 1%-5% of global share), the Islamic finance industry has experienced double-digit rates of growth annually in recent years (estimated at 10%- 20% annual growth). Industry experts estimate that assets held under Islamic finance management doubled between 2007 and 2010 to reach around $1 trillion. This paper tries to note the main Principal of Islamic finance. In addition to discuss the Improvement can be made in several areas to promote and enhance the providing Islamic financial services. |
| Keywords: | ISLAMIC FINANCE;ISLAMIC ECONOMICS;Shari'ah law; Islamic Bonds;ISLAMIC BANKING; |
| JEL: | G2 O16 G21 |
| Date: | 2011–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:30197&r=cfn |