nep-cfn New Economics Papers
on Corporate Finance
Issue of 2014‒02‒02
seven papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Firm Age, Investment Opportunities, and Job Creation By Manuel Adelino; Song Ma; David T. Robinson
  2. Islamic home financing and ownership transfer to the customer: Models compared By Hasan, Zubair
  3. Information Asymmetry and Power in a Surveillance Society By Lightfoot, Geoffrey; Wisniewski, Tomasz
  4. Ring fencing Volcker’s Rule? : The Liikanen Report and justifications for ring fencing and separate legal entities revisited By Marianne, Ojo
  5. Locus of control and investment in risky assets By Salamanca N.; Fouarge D.; Montizaan R.M.; Grip A. de
  6. Risk allocation under liquidity constraints By Herings P.J.J.; Csóka P.
  7. What determines the interest margin? An analysis of the German banking system By Karmann, Alexander; Bühn, Andreas; Pedrotti, Marco

  1. By: Manuel Adelino; Song Ma; David T. Robinson
    Abstract: This paper asks whether startups react more to changing investment opportunities than more mature firms do. We use the fact that a region's pre-existing industrial structure creates exogenous variation in the severity of its exposure to nation-wide manufacturing shocks to develop an instrument for changing investment opportunities, and examine employment creation in the non-tradable sector as a response to those opportunities. Startups are much more responsive to changing local economic conditions than older firms. Moreover, their responsiveness doubles in areas with better access to small business finance, suggesting that financing constraints are an important brake on job creation in the startup sector. Although we focus mostly on the non-tradable sector for empirical identification, our results extend to other sectors of the economy, indicating that the mechanisms we uncover are economically pervasive. This suggests that factors like organizational flexibility and innovativeness may be important drivers of job creation among startups.
    JEL: G21 G3 J2 J21 J23 J63
    Date: 2014–01
  2. By: Hasan, Zubair
    Abstract: In my latest article on Islamic home financing models in the ISRA Journal June 2013, I had shown that the Zubair Diminishing Balance Model (ZDBM) is free of return compounding and the transfer of ownership to the customer perfectly matches the payments’ rate; the two norms Islamic models must meet. It is satisfying to note that Nabil in the same issue of the journal takes up these issues in a comprehensive and tightly argued conceptual paper and convincingly vindicates my position on the compounding issue. However, he argues that the transfer of ownership in the ZDBM also does not meet the ideal even as it is closer to the norm than other constructs. The objective of this brief note is to clarify my position on this latter issue.
    Keywords: Shari’ah norms; home financing, ZDBM; MMP; Segmental murabahah
    JEL: G2 G21
    Date: 2014–01–22
  3. By: Lightfoot, Geoffrey; Wisniewski, Tomasz
    Abstract: In this paper we look at how information in societies is organized and how power relationships arise as a consequence of this organization. We argue that many of the observed information asymmetries are not happenstance and, drawing from a wealth of scholarship from the economics and finance literature, we posit that outcomes are inevitably detrimental. The paper concentrates on the techniques that foster information imbalances, such as media and propaganda, knowledge production, educational systems, legal and organizational structures, exclusive information networks, and surveillance. We conclude that in the absence of greater transparency, the deleterious effects of unequal access to information will continue and deepen.
    Keywords: Information Asymmetry; Power; Surveillance; Secrecy
    JEL: G38 I31 O31 Z13
    Date: 2014–01–22
  4. By: Marianne, Ojo
    Abstract: The predecessor paper to this publication, “Volcker/Vickers Hybrid”: The Liikanen Report and Justifications For Ring Fencing and Separate Legal Entities, considered the merits, objectives and cost-benefit attributes of respective models associated with the Vickers Report, Liikanen Report and Volckers Rule – by way of reference to the degree of separation of legal entities or banking activities involved, as well as whether an outright ban or prohibition on proprietary trading is involved. This paper is aimed at highlighting why ring fencing not only presents a more feasible and cost effective option to other models, but also why its degree of flexibility provides the more appropriate balance in a financial environment whose trend is increasingly inclined towards conglomeration.
    Keywords: Vickers Report; Volcker’s Rule; Liikanen Report; ring fencing; cross-sector services’ risks; liquidity risks; systemic risks; capital requirements; leverage ratios
    JEL: G2 G28 K2
    Date: 2014–01–22
  5. By: Salamanca N.; Fouarge D.; Montizaan R.M.; Grip A. de (GSBE)
    Abstract: Using representative household panel data, we show that the investment behavior of households is related to the economic locus of control of household heads. A households internal locus of control in economic issues is positively related to its decision to hold risky assets as well as its share of risky investments. We find evidence that these relations are due to a lower perception of the risk of investing in risky assets Those who have an internal economic locus of control perceive less variance in risky assets, which makes these assets more attractive. The relation between investmentin risky assets and locus of control cannot be explained by risk and time preferences or by personality traits such as optimism and the Big Five traits. Furthermore, the relation is independent of household socioeconomic background in terms of wealth or knowledge-- it holds for sophisticated and unsophisticated households alike.
    Keywords: Personal Finance; Household Behavior and Family Economics: Other; Portfolio Choice; Investment Decisions;
    JEL: G11 D14 D19
    Date: 2013
  6. By: Herings P.J.J.; Csóka P. (GSBE)
    Abstract: Risk allocation games are cooperative games that are used to attribute the risk of a financial entity to its divisions. In this paper, we extend the literature on risk allocation games by incorporating liquidity considerations. A liquidity policy specifies state-dependent liquidity requirements that a portfolio should obey. To comply with the liquidity policy, a financial entity may have to liquidate part of its assets, which is costly. The definition of a risk allocation game under liquidity constraints is not straight-forward, since the presence of a liquidity policy leads to externalities. We argue that the standard worst case approach should not be used here and present an alternative definition. We show that the resulting class of transferable utility games coincides with the class of totally balanced games. It follows from our results that also when taking liquidity considerations into account there is always a stable way to allocate
    Keywords: Cooperative Games; General Financial Markets: General (includes Measurement and Data);
    JEL: C71 G10
    Date: 2013
  7. By: Karmann, Alexander; Bühn, Andreas; Pedrotti, Marco
    Abstract: This paper analyzes the determinants of the interest margin of German banks over the period 1995-2007, explicitly addressing differences among different bank groups. We use three empirical models to focus on the following aspects: the time evolution of the interest margin, the average differences across groups, and the presence of autoregressive effects. For each model our results show that the interest margin can be mainly explained by market power and inefficiency, the influence of which is particularly high for cooperative banks. The Winner s Curse phenomenon and the cross-subsidization strategy negatively influence the margin of private banks. --
    JEL: G21 G21 G21
    Date: 2013

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