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on Corporate Finance |
| By: | Torben G. Andersen (Northwestern University and CREATES); Oleg Bondarenko (University of Illinois at Chicago); Viktor Todorov (Northwestern University and CREATES); George Tauchen (Duke University) |
| Abstract: | We analyze the high-frequency dynamics of S&P 500 equity-index option prices by constructing an assortment of implied volatility measures. This allows us to infer the underlying fine structure behind the innovations in the latent state variables driving the movements of the volatility surface. In particular, we focus attention on implied volatilities covering a wide range of moneyness (strike/underlying stock price), which load differentially on the different latent state variables. We conduct a similar analysis for high-frequency observations on the VIX volatility index as well as on futures written on it. We find that the innovations in the risk-neutral intensity of the negative jumps in the S&P 500 index over small time scales are best described via non-Gaussian shocks, i.e., jumps. On the other hand, the innovations over small time scales of the diffusive volatility are best modeled as Gaussian with occasional jumps. |
| Keywords: | VPIN, high-frequency data, implied volatility, jump activity, Kolmogorov-Smirnov test, stable process, stochastic volatility, VIX index |
| JEL: | C51 C52 G12 |
| Date: | 2013–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2013-52&r=cfn |
| By: | Jennifer Blouin (University of Pennsylvania); Harry Huizinga (Tilburg University and CEPR); Luc Laeven (International Monetary Fund and CEPR); Gaëtan Nicodème (European Commission, ULB, CESifo and CEPR) |
| Abstract: | This paper examines the impact of thin capitalization rules that limit the tax deductibility of interest on the capital structure of the foreign affiliates of US multinationals. We construct a new data set on thin capitalization rules in 54 countries for the period 1982-2004. Using confidential data on the (internal) leverage of foreign affiliates of US multinationals, we find that thin capitalization rules affect multinational firm capital structure in a significant way. Specifically, restrictions on an affiliate’s ratio of overall debt to assets reduce this ratio on average by 1.9%, while restrictions on the ratio of an affiliate’s borrowing from the parent company to its equity reduce this ratio by 5.7%. Also, restrictions on borrowing from the parent reduce the overall debt to assets ratio of the affiliate by 3.5%, which shows that rules targeting internal debt have an indirect effect on the overall indebtedness of affiliate firms. Thin capitalization rules mitigate the traditional effect of corporate taxation on affiliate debt, while their impact on affiliate leverage is higher if their application is automatic rather than discretionary. Finally, we exploit variation over time in thin capitalization rules to show that the first year impact of new capitalization rules on affiliate leverage is significant albeit less than its long-term effect. Overall, our results show than thin capitalization rules, which thus far have been understudied, have a substantial effect on capital structure within multinational firms. |
| Keywords: | Thin capitalization rule; Multinational firm; Capital structure; Taxation |
| JEL: | G32 H25 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:btx:wpaper:1323&r=cfn |
| By: | Kerstin Lopatta (University of Oldenburg - Accounting and Corporate Governance & ZenTra); Magdalena Tchikov (University of Oldenburg - Accounting and Corporate Governance & ZenTra); Finn Marten Körner (University of Oldenburg & ZenTra) |
| Abstract: | Rating agencies strive to assign reliable, objective and comparable credit ratings as an indicator on one consistent scale. We test empirically how rating agencies meet their promise of providing objective and comparable assessments of credit risk of an issuer and thus creditworthiness. Logistic regressions of ratings across agencies and market sectors point to highly significant differences of ratings for issuers in the 11 market sectors in our sample. Based on inter-sectoral comparisons, we detect a systematically positive rating bias for financial issuers, while issuers operating in the cyclical consumer goods sector face relatively disadvantageous credit ratings. Our results indicate that the current assessment models and measurement standards do not only contain issuers’ credit risk but to a considerable extent also an assessment of industry and operating risk. Credit ratings should therefore not be equated with the likelihood of default as is often done in empirical applications. Stakeholders and especially investors – as well as researchers – should be aware of this misconception and not refer to ratings as pure measures of default risk. |
| Keywords: | credit ratings, credit risk, default probabilities, comparability |
| JEL: | G14 G15 G24 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:zen:wpaper:22&r=cfn |