nep-cfn New Economics Papers
on Corporate Finance
Issue of 2011‒07‒13
six papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. French firm's financing choices: towards a reconciliation of the static trade-off theory and the pecking order theory? By Gharsalli Mazen
  2. Partial Least Square Discriminant Analysis (PLS-DA) for bankruptcy prediction By Carlos Serrano-Cinca; Begoña Gutiérrez-Nieto
  3. Credit Reporting, Access to Finance and Identification Systems: International Evidence By Caterina Giannetti; Nicola Jentzsch
  4. Credit ratings and credit risk By Jens Hilscher; Mungo Wilson
  5. On the Predictability of Stock Prices: A Case for High and Low Prices. By Massimiliano Caporin; Angelo Ranaldo; Paolo Santucci de Magistris
  6. What drives bank securitisation? The Spanish experience. By Cardone Riportella, Clara; Samaniego Medina, Reyes; Trujillo Ponce, Antonio

  1. By: Gharsalli Mazen (ICI - Laboratoire Information, Coordination, Incitations - Institut Télécom - Télécom Bretagne - Université de Bretagne Occidentale - Brest : EA2652 - Université européenne de Bretagne)
    Abstract: The main purpose of this study is to examine the validity of the static trade-off theory and the pecking order theory using a French panel data. Our empirical tests provide that we can not formally reject either of the two theories explaining financing behavior. However, they confirm the importance of considerations provided by the static trade-off theory. On the contrary, when we combine the adjustment model and the pecking order model we find that the statistical power of the hierarchical model is improved and the choice of financing of French firms confirms the greatest explanatory power of the pecking order hypotheses.
    Keywords: capital structure, trade-off theory, pecking order theory
    Date: 2012–01–04
  2. By: Carlos Serrano-Cinca; Begoña Gutiérrez-Nieto
    Abstract: This paper uses Partial Least Square Discriminant Analysis (PLS-DA) for the prediction of the 2008 USA banking crisis. PLS regression transforms a set of correlated explanatory variables into a new set of uncorrelated variables, which is appropriate in the presence of multicollinearity. PLS-DA performs a PLS regression with a dichotomous dependent variable. The performance of this technique is compared to the performance of 8 algorithms widely used in bankruptcy prediction. In terms of accuracy, precision, F-score, Type I error and Type II error, results are similar; no algorithm outperforms the others. Behind performance, each algorithm assigns a score to each bank and classifies it as solvent or failed. These results have been analyzed by means of contingency tables, correlations, cluster analysis and reduction dimensionality techniques. PLS-DA results are very close to those obtained by Linear Discriminant Analysis and Support Vector Machine.
    Keywords: bankruptcy; financial ratios; banking crisis; solvency; data mining; PLS-DA
    Date: 2011–06
  3. By: Caterina Giannetti (Jena Graduate School Human Behaviour in Social and Economic Change); Nicola Jentzsch (DIW Berlin)
    Abstract: Credit reporting systems are an important ingredient for financial markets. These systems are based upon the unique identification of borrowers, which is enabled if a compulsory identification system exists in a country. We present evidence derived from difference-in-difference analyses on the impact of the interplay of credit reporting and identification systems on financial access and intermediation in 172 countries during years of 2000 to 2008. Our results suggest that the introduction of an identification system has a positive effect on financial intermediation (bank credit to deposits) and financial access (private credit to GDP), especially in countries where there is also a credit reporting system. This effect exists net of other country characteristics.
    Keywords: Credit markets, information asymmetries, identification
    JEL: G21 O12 O16
    Date: 2011–06–30
  4. By: Jens Hilscher (International Business School, Brandeis University); Mungo Wilson (University of Oxford)
    Abstract: This paper investigates the information in corporate credit ratings. We examine the extent to which firms' credit ratings measure raw probability of default as opposed to systematic risk of default, a firm's tendency to default in bad times. We find that credit ratings are dominated as predictors of corporate failure by a simple model based on publicly available financial information (`failure score'), indicating that ratings are poor measures of raw default probability. However, ratings are strongly related to a straightforward measure of systematic default risk: the sensitivity of firm default probability to its common component (`failure beta'). Furthermore, this systematic risk measure is strongly related to credit default swap risk premia. Our findings can explain otherwise puzzling qualities of ratings.
    Keywords: Credit Rating, Credit Risk, Default Probability, Forecast Accuracy, Systematic Default Risk
    JEL: G12 G24 G33
    Date: 2011–06
  5. By: Massimiliano Caporin (University of Padova); Angelo Ranaldo (Swiss National Bank); Paolo Santucci de Magistris (University of Padova)
    Abstract: Contrary to the common wisdom that asset prices are barely possible to forecast, we show that high and low prices of equity shares are largely predictable. We propose to model them using a simple implementation of a fractional vector autoregressive model with error correction (FVECM). This model captures two fundamental patterns of high and low prices: their cointegrating relationship and the long memory of their difference (i.e. the range), which is a measure of realized volatility. Investment strategies based on FVECM predictions of high-low US equity prices as exit-entry signals deliver a superior performance even on a risk-adjusted basis.
    Keywords: high and low prices, predictability of asset prices, range, fractional cointegration, exit-entry trading signals, chart-technical analysis.
    JEL: G11 C53
    Date: 2011–06
  6. By: Cardone Riportella, Clara; Samaniego Medina, Reyes; Trujillo Ponce, Antonio
    Abstract: This paper analyses the reasons why Spanish banks securitised in the period 2000–2007 on such a large scale that Spain has become the European country with the second-largest issuance volume after the UK. The results obtained by applying a logistic regression model to a sample of 408 observations indicate that liquidity and the search for improved performance are the decisive factors in securitisation. We find no evidence to support hypotheses regarding credit risk transfer and regulatory capital arbitrage. Our study also presents a more detailed analysis that differentiates between asset and liability securitisation programmes.
    Keywords: Securitisation; ABS; CDO; Credit risk transfer; Regulatory capital arbitrage;
    JEL: G21 G28

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