nep-cfn New Economics Papers
on Corporate Finance
Issue of 2011‒08‒09
seven papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Asset pricing and Modigliani-Miller theorem with spirit of capitalism By Jizheng Huang; Heng-fu Zou
  2. In search of an alternative to shareholder value maximization By Gaël Giraud; Cécile Renouard
  3. Disentangling the Link Between Stock and Accounting Performance in Acquisitions By Andre Betzer; Marc Goergen
  4. Detection of Crashes and Rebounds in Major Equity Markets By Wanfeng Yan; Reda Rebib; Ryan Woodard; Didier Sornette
  5. Nearly optimal asset allocations in retirement By Pfau, Wade Donald
  6. Investment and capital structure of partially private regulated firms By Cambini, Carlo; Spiegel, Yossi
  7. Global Asset Pricing By Karen K. Lewis

  1. By: Jizheng Huang (China Economics and Management Academy, CUFE); Heng-fu Zou (China Economics and Management Academy, CUFE)
    Abstract: This paper investigates a equilibrium theory of capital asset pricing with spirit of capitalism. It is an attempt to put together ideas from the modern finance literature and the literature on stochastic growth models. Using methods adopted in Brock (1982), an equivalent characterization of equilibrium by first-order conditions for optimal growth is investigated. We also consider the Modigliani-Miller theorem with spirit of capitalism.
    Keywords: Spirit of capitalism, equilibrium, Optimal growth, Social-status
    JEL: G1 G10 G11 G12
    Date: 2011
  2. By: Gaël Giraud (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, ESCP-Europe - Campus de Paris); Cécile Renouard (ESSEC - ESSEC Business School)
    Abstract: This paper argues that mainstream economic theory, far from providing an indisputable plea in favor of shareholder value-maximization, offers striking arguments showing quite the opposite : profit-maximization cannot be a legitimate goal for private firms. This opens the door for a widening of a company's goal. We argue that it should include the concern of all the stakeholders of a company, and cannot be adequately addressed uniquely by Pigouvian taxes or by property rights. Coming to terms with this broad understanding of a company's goal should imply the internalization of the stakeholders' concern within the legal structure of the firm -- as in the case of the SCIC in France or the CIC in the UK.
    Keywords: Corporate social responsibility, shareholder value, stakeholder value, incomplete markets, limited liability, property rights, collateral, cooperative.
    Date: 2011–07
  3. By: Andre Betzer (University of Wuppertal); Marc Goergen (Cardiff Business School and European Corporate Governance Institute (ECGI))
    Abstract: While empirical studies that use event-study methodology find on average that the gains from mergers and acquisitions are positive, those focusing on accounting figures tend to find a significant drop in performance. We argue that each of the four possible combinations between positive or negative abnormal stock returns and accounting performance is due to a distinct acquisition motive. We find strong empirical evidence in support of this claim.
    Keywords: Mergers and acquisitions, performance measurement, synergies, preemption, overvaluation, corporate governance, agency problems
    JEL: G34 G3 G14
    Date: 2011–07
  4. By: Wanfeng Yan; Reda Rebib; Ryan Woodard; Didier Sornette
    Abstract: Financial markets are well known for their dramatic dynamics and consequences that affect much of the world's population. Consequently, much research has aimed at understanding, identifying and forecasting crashes and rebounds in financial markets. The Johansen-Ledoit-Sornette (JLS) model provides an operational framework to understand and diagnose financial bubbles from rational expectations and was recently extended to negative bubbles and rebounds. Using the JLS model, we develop an alarm index based on an advanced pattern recognition method with the aim of detecting bubbles and performing forecasts of market crashes and rebounds. Testing our methodology on 10 major global equity markets, we show quantitatively that our developed alarm performs much better than chance in forecasting market crashes and rebounds. We use the derived signal to develop elementary trading strategies that produce statistically better performances than a simple buy and hold strategy.
    Date: 2011–07
  5. By: Pfau, Wade Donald
    Abstract: An important and frequently studied question for retirees is: what is the optimal asset allocation during retirement? This article provides a brief but simple message that conservative asset allocations in retirement are quite acceptable after all. A wide range of asset allocations tend to provide very similar results in terms of sustainable withdrawal rates for given probabilities of failure. For example, with Monte Carlo simulations based on historical data parameters, a 4.4 percent withdrawal rate for a 30-year horizon could be supported with a 10 percent chance of failure using a 50/50 asset allocation of stocks and bonds. But the range of stock allocations supporting a withdrawal rate within 0.1 percentage points of this maximum extend from 27 to 87 percent. Though asset allocation will also impact the amount which can be left as bequests, it is the case that relatively low stock allocations can support retirees just as well for a given failure rate and retirement duration.
    Keywords: retirement planning; safe withdrawal rates; asset allocation
    JEL: G11 C15 D14
    Date: 2011–07–31
  6. By: Cambini, Carlo; Spiegel, Yossi
    Abstract: We develop a model that examines the capital structure and investment decisions of regulated firms in a setting that incorporates two key institutional features of the public utilities sector in many countries: firms are partially owned by the state and regulators are not necessarily independent. Among other things, we show that firms invest more, issue more debt, and are allowed to charge higher prices when they are more privatized and when the regulator is more independent and more pro-firm.
    Keywords: debt; government ownership; investment; regulation; regulatory climate; regulatory independence
    JEL: G32 L33 L51
    Date: 2011–08
  7. By: Karen K. Lewis
    Abstract: Financial markets have become increasingly global in recent decades, yet the pricing of internationally traded assets continues to depend strongly upon local risk factors, leading to several observations that are difficult to explain with standard frameworks. Equity returns depend upon both domestic and global risk factors. Further, local investors tend to overweight their asset portfolios in local equity. The stock prices of firms that begin to trade across borders increase in response to this information. Foreign exchange markets also display anomalous relationships. The forward rate predicts the wrong sign of future movements in the exchange rate, implying that traders can make profits by borrowing in lower interest rate currencies and investing in higher interest rate currencies. Furthermore, the sign of the foreign exchange premium changes over time, a fact difficult to reconcile with consumption variability. In this review, I describe the implications of the current body of research for addressing these and other global asset pricing challenges.
    JEL: G11 G12 G13 G14 G15
    Date: 2011–07

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