nep-cfn New Economics Papers
on Corporate Finance
Issue of 2011‒07‒21
six papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. The Deep-Pocket Effect of Internal Capital Markets: An Empirical Analysis By Xavier Boutin; Giacinta Cestone; Chiara Fumagalli; Giovanni Pica; Nicolas Serrano-Velarde
  2. Prima de riesgo del mercado utilizada para España: Encuesta 2011 By Fernandez, Pablo; Aguirreamalloa, Javier; Corres, Luis
  3. GFC-Robust Risk Management Under the Basel Accord Using Extreme Value Methodologies By Michael McAleer; Paulo Araújo Santos; Juan-Ángel Jiménez-Martín; Teodosio Pérez Amaral
  4. The Tobin Tax A Review of the Evidence By Neil McCulloch; Grazia Pacillo
  5. Venture-backed IPOs - grandstanding and clusterings By Grell, Kevin Berg
  6. Fee Structure, Financing, and Investment Decisions: The Case of REITs By Pierpaolo Pattitoni; Barbara Petracci; Massimo Spisni

  1. By: Xavier Boutin; Giacinta Cestone; Chiara Fumagalli; Giovanni Pica; Nicolas Serrano-Velarde
    Abstract: We provide evidence suggesting that incumbent firms' access to group deep pockets has a negative impact on entry in product markets. Relying on a unique French data set on business groups, our paper shows that entry in manufacturing industries is negatively related to the cash reserves hoarded by incumbent-affiliated groups. In line with theoretical predictions, we find that the impact on entry of group cash holdings is more important in environments where financial constraints are pronounced and in more financially dependent sectors. Our findings suggest that internal capital markets operate within corporate groups and affect the product market behavior of affiliated firms by mitigating financial constraints.
    Date: 2011
  2. By: Fernandez, Pablo (IESE Business School); Aguirreamalloa, Javier (IESE Business School); Corres, Luis (IESE Business School)
    Abstract: Este documento resume 1.502 respuestas a una encuesta por e-mail realizada a directivos de empresas, a analistas y a profesores de universidad. Los resultados más relevantes de la encuesta son: 1) gran dispersión de las repuestas (los profesores utilizan primas entre 3 y 8%, los analistas entre 2 y 11,9%, y las empresas entre 1,5 y 15%); 2) un elevado número de empresas no utilizan la prima de riesgo del mercado (bastantes de ellas utilizan un WACC mínimo, una TIR mínima... otras utilizan criterios como ebitda/ventas, PER…); 3) la prima promedio utilizada por las empresas (6,1%) es superior a la utilizada por los profesores (5,5%) y a la utilizada por los analistas (5,6%); 4) muchos profesores y directivos justifican la prima que utilizan con libros y artículos publicados (aunque con la misma fuente se utilizan primas de mercado muy diferentes).
    Keywords: Prima riesgo mercado; equity premium; required market risk premium; historical market risk premium; expected market risk premium; risk premium; market risk premium;
    JEL: G12 G31 M21
    Date: 2011–05–03
  3. By: Michael McAleer (Erasmus University Rotterdam, Tinbergen Institute, The Netherlands, Complutense University of Madrid, and Institute of Economic Research, Kyoto University); Paulo Araújo Santos (Escola Superior de Gestão e Tecnologia de Santarém and Center of Statistics and Applications University of Lisbon); Juan-Ángel Jiménez-Martín (Department of Quantitative Economics Complutense University of Madrid); Teodosio Pérez Amaral (Department of Quantitative Economics Complutense University of Madrid)
    Abstract: In McAleer et al. (2010b), a robust risk management strategy to the Global Financial Crisis (GFC) was proposed under the Basel II Accord by selecting a Value-at-Risk (VaR) forecast that combines the forecasts of different VaR models. The robust forecast was based on the median of the point VaR forecasts of a set of conditional volatility models. In this paper we provide further evidence on the suitability of the median as a GFC-robust strategy by using an additional set of new extreme value forecasting models and by extending the sample period for comparison. These extreme value models include DPOT and Conditional EVT. Such models might be expected to be useful in explaining financial data, especially in the presence of extreme shocks that arise during a GFC. Our empirical results confirm that the median remains GFC-robust even in the presence of these new extreme value models. This is illustrated by using the S&P500 index before, during and after the 2008-09 GFC. We investigate the performance of a variety of single and combined VaR forecasts in terms of daily capital requirements and violation penalties under the Basel II Accord, as well as other criteria, including several tests for independence of the violations. The strategy based on the median, or more generally, on combined forecasts of single models, is straightforward to incorporate into existing computer software packages that are used by banks and other financial institutions.
    Keywords: Value-at-Risk (VaR), DPOT, daily capital charges, robust forecasts, violation penalties, optimizing strategy, aggressive risk management, conservative risk management, Basel, global financial crisis.
    JEL: G32 G11 C53 C22
    Date: 2011–07
  4. By: Neil McCulloch (Institute of Development Studies (IDS), University of Sussex); Grazia Pacillo (Department of Economics, University of Sussex)
    Abstract: The debate about the Tobin Tax, and other financial transaction taxes (FTT), gives rise to strong views both for and against. Unfortunately, little of this debate is based on the now considerable body of evidence about the impact of such taxes. This review attempts to synthesise what we know from the available theoretical and empirical literature about the impact of FTTs on volatility in financial markets. We also review the literature on how a Tobin Tax might be implemented, the amount of revenue that it might realistically produce, and the likely incidence of the tax. We conclude that, contrary to what is often assumed, a Tobin Tax is feasible and, if appropriately designed, could make a significant contribution to revenue without causing major distortions. However, it would be unlikely to reduce market volatility and could even increase it.
    Keywords: Tobin tax, financial transaction taxes, volatility, revenue, incidence, feasibility
    JEL: G15 G18 H22 H27
    Date: 2010–12
  5. By: Grell, Kevin Berg (Department of Business and Economics)
    Abstract: The previous theoretical literature on IPOs has been carried out under the assumption of a free supply of new issues, emphasizing how the valuation and magnitude of new issues can be explained by mechanisms on the demand side. This model explains grandstanding and IPO clusterings based on supply side dynamics and adverse selection between venture capitalists and their investors. We derive the optimal divestment pattern of venture capitalists in the process of gaining reputation. From this we show how grandstanding and IPO clusterings are linked to financial constraints, and how competition for funding strengthens this result. Finally, we argue that the social loss in this context has three major components. Besides under- and overinvestment in new funds, some companies are divested too soon, in order for venture capitalists to signal good ability of project selection.
    Keywords: Venture capital; VC-backed IPOs; grandstanding
    JEL: D81 D82 G24
    Date: 2010–09–24
  6. By: Pierpaolo Pattitoni (Department of Management, University of Bologna, Italy; The Rimini Centre for Economic Analysis (RCEA), Rimini, Italy); Barbara Petracci (Department of Management, University of Bologna, Italy); Massimo Spisni (Department of Management, University of Bologna, Italy)
    Abstract: We propose a model to show how the fee structure of listed Real Estate Investment Trusts (REITs) can increase instead of decrease Management Company opportunistic behaviors. Distinguishing between performance fees paid on the fund market value and management fees paid either on the Net Asset Value (NAV) or on the Gross Asset Value (GAV), we show that only the former aligns the Management Company and shareholder interests. In particular, we demonstrate that management fees lead Management Companies to make suboptimal financing and investment decisions in order to maximize their own wealth at the expense of shareholders. We test the predictions of the model empirically using a panel of Italian listed REITs.
    Keywords: Real Estate Investment Trusts, Fees, Debt, Investment
    JEL: G20 G23 G28 C23
    Date: 2011–07

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