nep-cfn New Economics Papers
on Corporate Finance
Issue of 2012‒04‒03
nine papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Estimating Relative Risk Aversion, Risk-Neutral and Real-World Densities using Brazilian Real Currency Options By José Renato Haas Ornelas; José Santiago Fajardo Barbachan; Aquiles Rocha de Farias
  2. The impact of the recent financial crisis on bank loan interest rates and guarantees. By Giorgio Calcagnini; Fabio Farabullini; Germana Giombini
  4. On the Non-Exclusivity of Loan Contracts: An Empirical Investigation By Degryse, Hans; Ioannidou , Vasso; von Schedvin, Erik
  5. Collateralization, Bank Loan Rates and Monitoring: Evidence from a Natural Experiment By Cerqueiro, Geraldo; Ongena, Steven; Roszbach, Kasper
  6. Private Equity and Employees By Olsson, Martin; Tåg, Joacim
  7. Financial sector in resource-dependent economies By Kurronen, Sanna
  8. Generalized Tests of Investment Fund Performance By Márcio Laurini
  9. Regulation, credit risk transfer with CDS, and bank lending By Pausch, Thilo; Welzel, Peter

  1. By: José Renato Haas Ornelas; José Santiago Fajardo Barbachan; Aquiles Rocha de Farias
    Abstract: Building Risk-Neutral Densities (RND) from options data can provide market-implied expectations about the future behavior of a financial variable. This paper uses the Liu et all (2007) approach to estimate the option-implied risk-neutral densities from the Brazilian Real/US Dollar exchange rate distribution. We then compare the RND with actual exchange rates, on a monthly basis, in order to estimate the relative risk-aversion of investors and also obtain a real-world density for the exchange rate. We are the first to calculate relative risk-aversion and the option-implied real world Density for an emerging market currency. Our empirical application uses a sample of exchange-traded Brazilian Real currency options from 1999 to 2011. The RND is estimated using a Mixture of Two Log-Normals distribution and then the real-world density is obtained by means of the Liu et al. (2007) parametric risk-transformations. Our estimated value of the relative risk aversion parameter is around 2.7, which is in line with other articles that have estimated this parameter for the Brazilian Economy. Our out-of-sample evaluation results showed that the RND has some ability to forecast the Brazilian Real exchange rate. However, when we incorporate the risk aversion into RND in order to obtain a Real-world density, the outof- sample performance improves substantially. Therefore, we would suggest not using the “pure” RND, but rather taking into account risk aversion in order to forecast the Brazilian Real exchange rate.
    Date: 2012–03
  2. By: Giorgio Calcagnini (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo"); Fabio Farabullini (Bank of Italy); Germana Giombini (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo")
    Abstract: The paper analyzes the role of guarantees on loan interest rates before and during the recent financial crisis in Italian firm financing. The paper improves on existing literature by distinguishing between real and personal guarantees. Further, the paper investigates the potential different role of guarantees in the bank-borrower relationship during the recent financial crisis. This paper draws from individual Italian bank and firm data taken from the Banks’ Supervisory Reports to the Bank of Italy and the Central Credit Register over the period 2006-2009. Our analysis demonstrates that collateral affects the cost of credit of Italian firms by systematically reducing the interest rate of secured loans, while personal guarantees increase it. These effects are amplified during the crisis. Furthermore, guarantees are a more powerful instrument for ex-ante riskier borrowers than for safer borrowers. Indeed, riskier borrowers obtain significantly lower interest rates on secured loans than interest rate they would be charged on unsecured loans.
    Keywords: Financial crisis, Guarantees, Multilevel model.
    JEL: E43 G21 D82
    Date: 2012
  3. By: Mohd Azmi Mohd Noor Author_Email: mnmazmi@ (Universiti Utara Malaysia); Dr. Faudziah Hanim Bt Fadzil (Universiti Utara Malaysia)
    Keywords: Corporate Governance, Board, Audit Committee, Firms’ Performance
    JEL: M0
    Date: 2011–10
  4. By: Degryse, Hans (Department of Finance); Ioannidou , Vasso (Department of Fin); von Schedvin, Erik (Research Department, Central Bank of Sweden)
    Abstract: A string of theoretical papers shows that the non-exclusivity of credit contracts generates important negative contractual externalities. Employing a unique dataset, we identify how these externalities affect the supply of credit. Using internal information on a creditor’s willingness to lend, we find that a creditor reduces its credit supply when a borrower obtains a loan at another creditor (an “outside loan”). Consistent with the theoretical literature, the effect is more pronounced the larger the outside loans and it is muted if the initial creditor’s existing and future loans retain seniority over the outside loans and are secured with valuable collateral.
    Keywords: non-exclusivity; contractual externalities; credit supply; debt seniority
    JEL: G21 G34 L13 L14
    Date: 2012–02–01
  5. By: Cerqueiro, Geraldo (Universidade Católica Portuguesa); Ongena, Steven (CentER - Tilburg University and CEPR, Department of Finance); Roszbach, Kasper (Research Department, Central Bank of Sweden)
    Abstract: We study a change in the Swedish law that exogenously reduced the value of all outstanding company mortgages, i.e., a type of collateral that is comparable to the floating lien. We explore this natural experiment to identify how collateral determines borrower quality, loan terms, access to credit and bank monitoring of business term loans. Using a differences-in-differences approach, we find that following the change in the law and the loss in collateral value borrowers pay a higher interest rate on their loans, receive a worse quality assessment by their bank, and experience a substantial reduction in the supply of credit by their bank. The reduction in collateral value also precedes a decrease in bank monitoring intensity and frequency of both the collateral and the borrower, consistent with models in which the pledging of risky assets incentivizes banks to monitor.
    Keywords: Collateral; credit rationing; differences-in-differences; floating lien; loan contracts; monitoring; natural experiment
    JEL: D82 G21
    Date: 2012–02–01
  6. By: Olsson, Martin (Research Institute of Industrial Economics (IFN)); Tåg, Joacim (Research Institute of Industrial Economics (IFN))
    Abstract: Using linked employer-employee data from Sweden, a difference-in-difference approach, and 201 private equity buyouts undertaken between 1998 and 2004, we show that unemployment risk declines and labor income increases for employees in the wake of a private equity buyout. Unemployment risk declines despite lower employment growth for continuing establishments – attributable to hiring freezes rather than to layoffs – and a lack of change in firm level employment growth. A plausible explanation is relaxed financial constraints: the effects are strongest in industries dependent on external finance for growth, for non-divisional buyouts, and for buyouts just prior to 2001.
    Keywords: Buyouts; Employment; Financial Constraints; LBO; Private Equity; Restructuring
    JEL: G24 G32 G34 J20 L25
    Date: 2012–03–26
  7. By: Kurronen, Sanna (BOFIT)
    Abstract: This paper examines financial sector characteristics in resource-dependent economies. Using a unique dataset covering 133 countries, we present empirical evidence that the banking sector tends to be smaller in resource-dependent economies, even when controlling for several other factors which have been shown to have a significant effect on financial sector development in previous studies. Moreover, the threshold level at which the increasing resource-dependence begins to be harmful for domestic banking sector is very low. We also find evidence that the use of market-based and foreign financing is more common in resource-dependent economies. Further, we argue that a relatively small financial sector used to cater the needs of the resource sector might be unfavorable for emerging businesses, thereby hampering economic diversification and reinforcing the resource curse.
    Keywords: resource dependence; resource curse; financial sector; banks; panel data
    JEL: G20 O16 O57 Q32
    Date: 2012–03–22
  8. By: Márcio Laurini (IBMEC Business School)
    Abstract: The paper discusses the use of statistical methods in the comparison of investment fund performance indicators. The analysis is based on the robust statistics proposed by Ledoit and Wolf (2008), for the pairwise comparison of funds and two generalizations for sets of multiple investment funds. The multiple investment fund tests use the Wald and Distance Metric statistics, based on estimation by Generalized Method of Moments using HAC matrices. In order to correct power limitations in the GMM estimation in the case of a large number of moment conditions, the test distributions are obtained through block-bootstrap procedures. We applied the proposed procedures to daily return data for the largest 97 actively managed equity funds in the Brazilian market, covering the period from July 2006 to July 2008. The results indicate that there are no significant differences in the performances of the 97 funds in the sample, both in pairwise and joint comparisons, thus providing what is believed to be the first Brazilian market evidence for the so-called herding hypothesis.
    Keywords: Sharpe Ratio, GMM, Investment Analysis
    JEL: G11 G14
    Date: 2012–03–22
  9. By: Pausch, Thilo; Welzel, Peter
    Abstract: We integrate Basel II (and III) regulations into the industrial organization approach to banking and analyze the interaction between capital adequacy regulation and credit risk transfer with credit default swaps (CDS) including its effect on lending behavior and risk sensitivity of a risk-neutral bank. CDS contracts may be used to hedge a bank's credit risk exposure at a certain (potentially distorted) price. Regulation is found to induce the risk-neutral bank to behave in a more risk-sensitive way: Compared to a situation without regulation the optimal volume of loans decreases more as the riskiness of loansincreases. CDS trading is found to interact with the former effect when regulation accepts CDS as an instrument to mitigate credit risk. Under the substitution approach in Basel II (and III) a risk-neutral bank will over-, fully or under-hedge its total exposure to credit risk conditional on the CDS price being downward biased, unbiased or upward biased. However, the substitution approach weakens the tendency to over-hedge or under-hedge when CDS markets are biased. This promotes the intention of the Basel II (and III) regulations to 'strengthen the soundness and stability of banks'. --
    Keywords: Banking,regulation,credit risk
    JEL: G21 G28
    Date: 2012

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