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on Corporate Finance |
| By: | Frabrice Collard; Sujoy Mukerji; Kevin Sheppard; Jean-Marc Tallon |
| Abstract: | This paper assesses the quantitative impact of ambiguity on the historically observed equity premium. We consider a Lucas-tree pure—exchange economy with a single agent where we introduce two key non-standard assumptions. First, the agent’s beliefs about the dividend/consumption process is ambiguous, i.e., she is uncertain about the exact probability distribution governing the realization of future dividends and consumption. Second, the agent’s preferences are sensitive to this ambiguity, a property formalized using the smooth ambiguity model. The consumption and dividend process is assumed to evolve according to a hidden state model, popularized by Bansal and Yaron (2004), where a persistent latent state variable describes temporary shocks to the mean of consumption growth prospects. We further extend the model to allow for uncertainty about the magnitude of the persistence of the latent state. The agent’s beliefs are ambiguous due to the uncertainty about the conditional mean of the probability distribution on consumption and dividends in the next period. We show that in this model ambiguity is endogenously dynamic, for example, increasing during recessions. This results in an endogenously volatile and (counter-)cyclical equity premium. We calibrate the level of ambiguity aversion to match only the first moment of the risk-free rate in data, and ambiguity to match the uncertainty conditional on the historical growth path, and evaluate the model using moderate levels of risk aversion. We find that this simple modification of a Lucas-tree model accounts for a large part of the historical equity premium, both in terms of its level and variation over time. |
| Keywords: | Ambiguity aversion, asset pricing, equity premium puzzle |
| JEL: | G12 E21 D81 C63 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:550&r=cfn |
| By: | Amanda Carmignani (Bank of Italy); Alessio D'Ignazio (Bank of Italy) |
| Abstract: | We exploit Italian Central Credit Register data to investigate the effectiveness of subsidized credit programs for public financing to firms via the banking system. The effect of public incentives depends on the availability of financial resources for the beneficiary firms. Financially constrained firms are likely to use the subsidies to expand output, while less constrained firms will, at least partly, use the funds to replace more costly resources. Focusing on the relationship between bank credit and subsidized loans, we find that larger firms substitute public financing for bank lending, while there is not such evidence for smaller firms. The estimated degree of substitution is substantial, ranging from an estimated 70 per cent to 84 per cent. |
| Keywords: | financial subsidies, credit constraints, banking |
| JEL: | G2 H2 O16 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_803_11&r=cfn |
| By: | Bali Swain, Ranjula (Department of Economics); Varghese, Adel (Department of Economics,) |
| Abstract: | We evaluate the effect of delivery mechanisms for training provided by facilitators of self help groups (SHGs). Indian SHGs are unique in that they are mainly NGOformed microfinance groups but later funded by commercial banks. We correct for both membership and training endogeneity. Training impacts assets but not income. Underlying conditions that benefit training include better infrastructure (as in paved roads), linkage model type, and training organizer. |
| Keywords: | Asia; India; microfinance; impact studies; training; Self Help Groups |
| JEL: | G21 I32 O12 |
| Date: | 2011–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2011_009&r=cfn |
| By: | Nygaard, Knut (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | The recently introduced gender quota on Norwegian corporate boards dramatically increased the share of female directors. This reform offers a natural experiment to investigate changes in corporate governance from forced increases in gender diver- sity, and whether these changes in turn impact firm performance. I find that investors anticipate the new directors to be more effective in firms with less information asymmetry between insiders of the firm and outsiders. Firms with low information asymmetry experience positive and significant cumulative abnormal returns (CAR) at the introduction of the quota, whereas firms with high information asymmetry show negative but insignificant CAR. |
| Keywords: | Natural experiment; Regulation; Corporate governance; Gender quota. |
| JEL: | G34 G38 |
| Date: | 2011–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2011_005&r=cfn |
| By: | Kalogeras, Nikos; Pennings, Joost M.E.; Kuikman, Joost; Doumpos, Michael |
| Abstract: | In this paper, the financial/ownership structures of agribusiness co-operatives (co-ops) are analyzed in order to examine whether new co-op models perform better than the more traditional ones. The assessment procedure introduces a new financial decision-aid approach, which is based on data-analysis techniques in combination with a Preference Ranking Organization Method of Enrichment Evaluations (PROMETHEE II). The application of this multi-criteria decision-aid approach allows the rank ordering of the co-ops on the basis of the most prominent financial ratios. The financial ratios were selected using principal component analysis. This analytical procedure reduces the dimensionality of large numbers of interrelated financial performance measures. We assess the financial success of selected EU agribusiness co-ops for the period 1999-2007. Results show that there is no clear-cut evidence that co-op models used to attract outside equity perform better than the more traditional models. This suggests that ownership structure of co-ops is not a decisive factor for their financial success. |
| Keywords: | Agribusiness cooperatives, financial success, multicriteria decision-aid analysis, Agribusiness, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea11:103774&r=cfn |
| By: | Rüdiger Fahlenbrach; Robert Prilmeier; René M. Stulz |
| Abstract: | We investigate whether a bank’s performance during the 1998 crisis, which was viewed at the time as the most dramatic crisis since the Great Depression, predicts its performance during the recent financial crisis. One hypothesis is that a bank that has an especially poor experience in a crisis learns and adapts, so that it performs better in the next crisis. Another hypothesis is that a bank’s poor experience in a crisis is tied to aspects of its business model that are persistent, so that its past performance during one crisis forecasts poor performance during another crisis. We show that banks that performed worse during the 1998 crisis did so as well during the recent financial crisis. This effect is economically important. In particular, it is economically as important as the leverage of banks before the start of the crisis. The result cannot be attributed to banks having the same chief executive in both crises. Banks that relied more on short-term funding, had more leverage, and grew more are more likely to be banks that performed poorly in both crises. |
| JEL: | G21 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17038&r=cfn |
| By: | Annamaria Conti; Marie C. Thursby; Frank Rothaermel |
| Abstract: | We examine the potential for technology startups to use patents and founders, friends and family money (FFF money) as signals to attract business angel and venture capital funds, patents reflect technology quality and FFF money reflects founder commitment. We find that if investors value technology quality more (less) than founder commitment, the optimal mix of signals is a relatively higher (lower) use of patents than FFF money. Regardless of investor preferences, high quality founders should invest more in both signals than in the absence of private information. This investment is inversely related to the opportunity cost of investing in the signals. We test these predictions empirically and find evidence in support of this proposition. When we distinguish between venture capitalist and business angel investment, we find that patents serve as a signal for venture capitalists and FFF money is a signal for business angels (but not vice versa). |
| JEL: | G24 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17050&r=cfn |