|
on Corporate Finance |
| By: | Fernandez, Pablo (IESE Business School); Aguirreamalloa, Javier (IESE Business School); Corres, Luis (IESE Business School) |
| Abstract: | The average Market Risk Premium (MRP) used in 2011 by professors for the USA (5.7%) is higher than the one used by analysts (5.0%) and companies (5.6%). The standard deviation of the MRP used in 2011 by analysts (1.1%) is lower than the ones of companies (2.0%) and professors (1.6%). Most previous surveys have been interested in the Expected MRP, but this survey asks about the Required MRP. The paper also contains the references used to justify the MRP, comments from 58 persons that do not use MRP, and comments of 110 that do use MRP. The comments illustrate the various interpretations of the required MRP and its usefulness. Professors, analysts and companies that cite Ibbotson as their reference use MRP for USA between 2% and 14.5%, and the ones that cite Damodaran as their reference use MRP between 2% and 10.8%. |
| Keywords: | equity premium; required equity premium; expected equity premium; historical equity premium; |
| JEL: | G12 G31 M21 |
| Date: | 2011–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0918&r=cfn |
| By: | Fernandez, Pablo (IESE Business School); del Campo, Javier (IESE Business School) |
| Abstract: | The average Market Risk Premium (MRP) used in 2010 by professors in the United States (6.0%) was higher than the one used by their colleagues in Europe (5.3%). We also report statistics for 33 countries: the average MRP used in 2010 ranges from 3.6% (Denmark) to 10.9% (Mexico). 29% of the professors decreased the MRP in 2010, 16% increased it and 55% used the same MRP. The dispersion of the MRP used was high: the average range of MRP used by professors for the same country was 7.4% and the average standard deviation was 2.4%. Most previous surveys have been interested in the Expected MRP, but this survey asks about the Required MRP. The paper also contains the references that professors use to justify their MRP, and comments from 85 professors that illustrate the various interpretations of what is the required MRP. |
| Keywords: | equity premium puzzle; required equity premium; expected equity premium; historical equity premium; |
| JEL: | G12 G31 M21 |
| Date: | 2011–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0911&r=cfn |
| By: | Ceja, Lucia (IESE Business School); Tapies, Josep (IESE Business School) |
| Abstract: | This paper analyzes formally stated corporate values, a key topic of concern in the field of family businesses. More specifically, the study aims to contribute to the literature by enabling a deeper understanding of the differences and similarities of the corporate values at the foundation of the world's top 100 largest family-owned firms and non-family businesses. According to the study findings, the values of integrity, respect, and customers are the top three most-mentioned values in both family-owned businesses and non-family companies. Likewise, there are distinct values that are mentioned often by family-owned firms and seldom stated or not stated at all by non-family businesses. These values tend to be more people-oriented; emphasize collectivity more than individuality; and support a long-term perspective and a sense of stewardship and responsibility toward the future of the family and the community in which the business operates. |
| Keywords: | family-owned firms; corporate values; positive psychology; family-business values; |
| Date: | 2011–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0916&r=cfn |
| By: | Fernandez, Pablo (IESE Business School); del Campo, Javier (IESE Business School) |
| Abstract: | The average MRP used by analysts in the United States and Canada (5.1%) was similar to the one used by their colleagues in Europe (5.0%), and United Kingdom (5.2%). But the average MRP used by companies in the United States and Canada (5.3%) was smaller than the one used by companies in Europe (5.7%), and United Kingdom (5.6%). The dispersion of the MRP used was high, but lower than that of the MRP used by professors: the average range of MRP used by analysts (companies) for the same country was 5.7% (4.1%) and the average standard deviation was 1.7% (1.2%). These statistics were 7.4% and 2.4% for the professors. Most previous surveys have been interested in the Expected MRP, but this survey asks about the Required MRP. The paper also contains the references that analysts and companies use to justify their MRP, and comments from 89 respondents that illustrate the various interpretations of what is the required MRP. |
| Keywords: | market risk premium; required equity premium; expected equity premium; historical equity premium; |
| JEL: | G12 G31 M21 |
| Date: | 2011–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0912&r=cfn |
| By: | Fernandez, Pablo (IESE Business School) |
| Abstract: | Este documento contiene 201 preguntas que me han formulado en los últimos años alumnos, antiguos alumnos y otras personas (jueces, árbitros, clientes…). Se han recopilado para ayudar al lector a recordar, aclarar, reforzar, matizar y, en su caso, discutir, conceptos útiles en finanzas. La mayoría de las preguntas tienen una respuesta clara, pero otras son matizables. Las preguntas se agrupan en 12 apartados: contabilidad y finanzas, flujos, endeudamiento, tasas de descuento, valoración, transacciones, divisas, bolsa e inversión, intangibles, creación de valor, eficiencia, noticias de prensa y crisis 2007… A todas las preguntas les sigue una respuesta breve. El Anexo 1 contiene un índice de términos y 150 preguntas de autoevaluación. El Anexo 2 contiene comentarios a versiones anteriores de este documento. |
| Keywords: | flujo; beneficio; intangibles; rentabilidad exigida; rentabilidad; prima mercado; valor contable; creación valor; |
| JEL: | G12 G31 M21 |
| Date: | 2011–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0913&r=cfn |
| By: | Fernandez, Pablo (IESE Business School) |
| Abstract: | Este documento contiene 21 preguntas sencillas de exámenes de finanzas. También contiene sus respuestas y 525 respuestas erróneas que, por respeto a sus autores (todos ellos poseían títulos universitarios superiores de diversos países), se denominan soluciones "innovadoras", "progresistas" o "innovadoras y revolucionarias". Los objetivos de este documento son: - Refrescar al lector algunos conceptos. - Observar la variedad de respuestas. - Procurar no repetir errores cometidos en el pasado. El documento también ayuda a calibrar la capacidad de asimilación de las cuestiones financieras y contables por parte de los alumnos y directivos. |
| Keywords: | Free Cash Flow; Flujo accionistas; valoración empresas; VAN; |
| JEL: | G12 G31 M21 |
| Date: | 2011–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0910&r=cfn |
| By: | Fernandez, Pablo (IESE Business School); Aguirreamalloa, Javier (IESE Business School); Corres, Luis (IESE Business School) |
| Abstract: | This paper contains the statistics of the Equity Premium or Market Risk Premium (MRP) used in 2011 for 56 countries. We got answers for 85 countries, but we only report the results for 56 countries with more than 6 answers. Most previous surveys have been interested in the Expected MRP, but this survey asks about the Required MRP. The paper also contains the references used to justify the MRP, comments from persons that do not use MRP, and comments from persons that do use MRP. |
| Keywords: | equity premium; required equity premium; expected equity premium; historical equity premium; |
| JEL: | G12 G31 M21 |
| Date: | 2011–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0920&r=cfn |
| By: | Owolabi, Oluwarotimi (Brunel University); Pal, Sarmistha (Brunel University) |
| Abstract: | The paper argues that networked firms are likely to have an advantage in securing external finance in countries with weak legal and judicial institutions since it helps financial institutions to minimize the underlying agency costs of lending. An analysis of recent BEEPS data from fifteen Central and Eastern European (CEE) countries lends some support to this hypothesis. Even after controlling for other factors, firms affiliated to business associations are more likely to secure bank finance. Importance of being associated with business networks is particularly evident among firms who borrow from private domestic and foreign banks, as these new banks attempt to minimize costs of adverse selection. Networking however discriminates against the small and medium sized firms' access to bank loans in the CEE regions. Results are robust in both single cross-section and panel data analyses. |
| Keywords: | business networks, agency costs, external firm financing, bank loans, transition economies, endogeneity |
| JEL: | G21 G30 L14 M20 P21 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5738&r=cfn |
| By: | George M. Constantinides (Center for Reserach in Security Prices, University of Chicago and NBER, Booth School of Business, USA); Jens Carsten Jackwerth (Department of Economics, University of Konstanz, Germany); Alexi Savov (Leonard N. Stern School of Business, New York University, USA) |
| Abstract: | We document that the leverage-adjusted returns on S&P 500 index call and put portfolios are decreasing in their strike-to-price ratio over 1986-2009, contrary to the prediction of the Black-Scholes-Merton model. We test a large number of plausible factor models in order to learn what drives the violations of the Black-Scholes-Merton model. Consistent with the picture that crisis-related factors operate across the equities and index options markets, factors which capture jumps in market volatility, jumps in the market index, and changes in liquidity work reasonably well in explaining the cross-section of index option returns, even when we impose the restriction that the premia are estimated from the universe of equities. Furthermore, the factor that captures jumps in market volatility also reduces the pricing errors of the 25 Fama-French portfolios by more than Size and only a bit less than Value. |
| Keywords: | index option returns, option mispricing, volatility jumps, price jumps, liquidity, market efficiency |
| JEL: | G11 G13 G14 |
| Date: | 2011–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1117&r=cfn |
| By: | Antoine Martin; Bruno M. Parigi |
| Abstract: | We construct a model in which bank capital regulation and financial innovation interact. Innovation takes the form of pooling and tranching of assets and the creation of separate structures with different seniority, different risk, and different capital charges, a process that captures some stylized features of structured finance. Regulation is motivated by the divergence of private and social interests in future profits. Capital regulation lowers bank profits and may induce banks to innovate in order to evade the regulation itself. We show that structured finance can improve welfare in some cases. However, innovation may also be adopted to avoid regulation, even in cases where it decreases welfare. |
| Keywords: | Bank capital ; Bank reserves ; Banking law |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:492&r=cfn |
| By: | Michal Kowalik |
| Abstract: | The paper derives optimal capital requirements, when the bank’s quality is private information. The supervisor can inspect the bank and punish the undercapitalized one with recapitalization and downsizing. The cost of bank’s capital and its ability to sell its assets are crucial for the bank’s incentive to reveal its quality truthfully. The paper provides following policy implications. First, sensitivity of capital requirements to the bank’s quality should be low in good times and high in bad times. Second, a leverage ratio should be accompanied by a requirement that the bank selling its assets retains part of them. Third, using results from supervisory inspection on the secondary market for the bank’s assets increases the bank’s incentive to misreport its quality. Fourth, implementation of the sensitive capital requirements cannot rely solely on information revealed on the market for the bank’s assets. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp11-02&r=cfn |
| By: | Francisco Covas; Shigeru Fujita |
| Abstract: | This paper studies the quantitative properties of a general equilibrium model where a continuum of heterogeneous entrepreneurs are subject to aggregate as well as idiosyncratic risks in the presence of a borrowing constraint. The calibrated model matches the highly skewed wealth and income distributions of entrepreneurs. The authors provide an accurate solution to the model despite the significant nonlinearities that are absent in the economy with uninsurable labor income risk. The model is capable of generating the average private equity premium of roughly 3 percent and a low risk-free rate. The model also produces procyclicality of the risk-free rate and countercyclicality of the average private equity premium. The countercyclicality of the average equity premium is largely driven by tightening (loosening) of financing constraints during recessions (booms). |
| Keywords: | Risk ; Private equity ; Business cycles |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:11-18&r=cfn |
| By: | Galina Hale; Assaf Razin; Hui Tong |
| Abstract: | Data show that better creditor protection is correlated across countries with lower average stock market volatility. Moreover, countries with better creditor protection seem to have suffered lower decline in their stock market indexes during the current financial crisis. To explain this regularity, we use a Tobin q model of investment and show that stronger creditor protection increases the expected level and lowers the variance of stock prices in the presence of credit crunches. There are two main channels through which creditor protection enhances the performance of the stock market: (1) The credit-constrained stock price increases with better protection of creditors; (2) The probability of a credit crunch leading to a binding credit constraint falls with strong protection of creditors. We find strong empirical support for both predictions using data on stock market performance, amount and cost of credit, and creditor rights protection for 52 countries over the period 1980-2007. In particular, we find that crises are more frequent in countries with poor creditor protection. Using propensity score matching we also show that during crises stock market returns fall by more in countries with poor creditor protection. |
| Keywords: | Economic stabilization ; Stocks - Rate of return |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2011-13&r=cfn |
| By: | COCCORESE, Paolo (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy) |
| Abstract: | In this paper we develop an empirical two-stage model of competition for the banking industry that incorporates the choice of capacity in the form of new branches. It is estimated using data on Italian banks for the years 1995-2009. The results show that the conduct of banks is significantly more competitive than a Bertrand-Nash equilibrium, and support the rejection of the simple one-stage specification, which underestimates the degree of competition. In the Fudenberg and Tirole (1984)’s taxonomy, banks are found to behave as ‘fat cats’, overinvesting in the branch network so as to keep prices high and accommodate entry. |
| Keywords: | bank branch network; competition; market structure; conduct |
| JEL: | G21 L10 L13 |
| Date: | 2011–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:sal:celpdp:0118&r=cfn |
| By: | Burkart, Mike; Gromb, Denis; Mueller, Holger M; Panunzi, Fausto |
| Abstract: | We study the role of legal investor protection for the efficiency of the market for corporate control. Stronger legal investor protection limits the ease with which an acquirer, once in control, can extract private benefits at the expense of non-controlling investors. This, in turn, increases the acquirer’s capacity to raise outside funds to finance the takeover. Absent effective competition for the target, the increased outside funding capacity does not make efficient takeovers more likely, however, because the bid price, and thus the acquirer’s need for funds, increase in lockstep with his pledgeable income. In contrast, under effective competition, the increased outside funding capacity makes it less likely that the takeover outcome is determined by the bidders’ financing constraints--and thus by their internal funds--and more likely that it is determined by their ability to create value. Accordingly, stronger legal investor protection can improve the efficiency of the takeover outcome. Taking into account the interaction between legal investor protection and financing constraints also provides new insights into the optimal allocation of voting rights, sales of controlling blocks, and the role of legal investor protection in cross-border mergers and acquisitions. |
| Keywords: | corporate control; efficiency; investor protection; takeovers |
| JEL: | G32 G34 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8397&r=cfn |
| By: | Antoinette Schoar; Ebonya L. Washington |
| Abstract: | This paper examines the extent to which the corporate governance structure of a firm arises endogenously in response to its performance. We demonstrate that following periods of abnormally good performance managers are more likely to call special meetings and to propose and pass governance measures that are contrary to shareholder interests (based on IRRC classification). These results are driven primarily by firms that are characterized as having poor governance according to either the GIM Index or the proportion of activist shareholders. Following these special meeting we find that next quarter performance of the firm is negative. Our results are consistent with an interpretation of shareholder inattention to governance following good firm performance or a desire to reward management for good past performance. Overall our evidence seems more consistent with the former interpretation. |
| JEL: | G34 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17061&r=cfn |
| By: | Deniz Igan; Prachi Mishra; Thierry Tressel |
| Abstract: | Has lobbying by financial institutions contributed to the financial crisis? This paper uses detailed information on financial institutions’ lobbying and mortgage lending activities to answer this question. We find that lobbying was associated with more risk-taking during 2000-07 and with worse outcomes in 2008. In particular, lenders lobbying more intensively on issues related to mortgage lending and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing originations of mortgages. Moreover, delinquency rates in 2008 were higher in areas where lobbying lenders’ mortgage lending grew faster. These lenders also experienced negative abnormal stock returns during the rescue of Bear Stearns and the collapse of Lehman Brothers, but positive abnormal returns when the bailout was announced. Finally, we find a higher bailout probability for lobbying lenders. These findings suggest that lending by politically active lenders played a role in accumulation of risks and thus contributed to the financial crisis. |
| JEL: | G21 P16 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17076&r=cfn |