nep-cfn New Economics Papers
on Corporate Finance
Issue of 2014‒06‒28
sixteen papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Banking and Sovereign Debt Crises in a Monetary Union Without Central Bank Intervention By Jing Cheng; Meixing Dai; Frédéric Dufourt
  2. Determinants of financial inclusion in Mexico based on the 2012 National Financial Inclusion Survey (ENIF) By Ximena Pena; Carmen Hoyo; David Tuesta
  3. Access to Credit: Awareness and Use of Formal and Informal Credit Institutions By Alejandra Campero; Karen Kaiser  
  4. Bank Competition and Account Penetration: Evidence from Mexico By Ana Georgina Marín; Rainer  Schwabe   
  5. Competitive Environment, Indebtedness and Asset Specificity: Evidence from Spanish Firms By Manuel Sánchez Valadez
  6. Performance des post Public to Private transactions en France By Olivier MEIER; Aurélie SANNAJUST
  7. IFRS and the need for non-financial information By Tristan Boyer; Elena Chane-Alune
  8. Do shareholders really own the firm? By Tristan BOYER
  9. Which Securities Regulation Promotes Crowdinvesting? By Hornuf, Lars; Schwienbacher, Armin
  10. The Equity Premium in a DSGE Model with Limited Asset Market Participation By Lorenzo Menna; Patrizio Tirelli
  11. Option pricing in an imperfect world By Gianluca Cassese
  12. Banks as Secret Keepers By Tri Vi Dang; Gary Gorton; Beng Holmstrom; Guillermo Ordonez
  13. Sovereign and bank CDS spreads: two sides of the same coin for European bank default predictability? By Avino, Davide; Cotter, John
  14. New financial development indicators: with a critical contribution to inequality empirics By Asongu, Simplice
  15. On the substitution of institutions and finance in investment By Asongu, Simplice
  16. Dividend Persistence and Equity Agency Costs in Banking: Evidence from the Financial Crisis By Benoît D'Udekem

  1. By: Jing Cheng (Université de Strasbourg (BETA), CNRS); Meixing Dai (Université de Strasbourg (BETA), CNRS); Frédéric Dufourt (Aix-Marseille UniversitÈ (Aix-Marseille School of Economics), CNRS-GREQAM & EHESS and Institut Universitaire de France)
    Abstract: We analyze the conditions of emergence of a twin banking and sovereign debt crisis within a monetary union in which: (i) the central bank is not allowed to provide direct financial support to stressed member states or to play the role of lender of last resort in sovereign bond markets, and (ii) the responsibility of fighting against large scale bank runs, ascribed to domestic governments, is ensured through the implementation of a financial safety net (banking regulation and government deposit guarantee). We show that this broad institutional architecture, typical of the Eurozone at the onset of the financial crisis, is not always able to prevent the occurrence of a twin banking and sovereign debt crisis triggered by pessimistic investors' expectations. Without significant backstop by the central bank, the financial safety net may actually aggravate, instead of improve, the financial situation of banks and of the government.
    Keywords: banking crisis, sovereign debt crisis, bank runs, financial safety net, liquidity regulation, government deposit guarantee, self-fulfilling propheties
    JEL: E32 E44 F3 F4 G01 G28
    Date: 2014–06
  2. By: Ximena Pena; Carmen Hoyo; David Tuesta
    Abstract: Even though 97% of the population in Mexico has at least one access point into the financial system, only 38% has some sort of saving or credit product in a formal financial institution. These figures show the insufficient use of the formal financial system and highlight the importance of analysing the determinant factors for financial inclusion in Mexico in more depth. This paper explores the factors determining financial inclusion in Mexico from the demand side, based on information from the 2012 National Financial Inclusion Survey (ENIF in the Spanish acronym). In order to identify the relevant factors, we have built financial inclusion indicators using the multiple correspondences method of analysis, taking into account whether people have credit and savings products, whether jointly (Aggregate Indicator) or individually (Savings Indicator and Credit Indicator). Using a non-linear regression analysis we endeavour to explain the factors influencing financial inclusion, bearing in mind not only whether people are banked, but also the possession of a set of formal financial products. In addition, we carry out the same analysis for the sub-group in the informal labour market, the sector of the population which generally suffers most financial exclusion. The results obtained for a range of financial inclusion indicators, both for the total population and for workers in informal sectors, show the need for making detailed analyses in order to encourage more participation in the formal financial system, by designing specific public policies for each population group depending on their socio-economic circumstances and geographical location.
    Keywords: Financial Inclusion, Personal finance, Financial institutions
    JEL: G21 G23 G28 O16
    Date: 2014–06
  3. By: Alejandra Campero; Karen Kaiser  
    Abstract: In this paper we study the determinants of use of formal and informal credit sources. Given that awareness is a necessary step towards use of credit, in order to control for the possible selection bias we decompose the decision to use credit as a two stage decision process in which first, households form their choice set by deciding which type of institutions they want to consider as possible lenders (awareness), and then choose among them (use). Additionally, we allow for correlation between being aware of a specific source of credit and using it. We find evidence that supports the hypothesis that the formal and informal credit markets in Mexico attend different segments of the population. However, our results also show that informal lending sources' characteristics are valued per-se by consumers in certain situations, such as emergencies.
    Keywords: Credit demand, consideration set, informal credit, formal credit, Mexico
    JEL: D1 D14 G2
    Date: 2013–06
  4. By: Ana Georgina Marín; Rainer  Schwabe   
    Abstract: This paper documents a positive relation between bank competition and the penetration of bank accounts at the municipal level in Mexico. To account for potential biases in our regressions due to the endogeneity of market structure, we employ a two-stage estimation approach based on an equilibrium structural model. Our preferred estimate implies that moving from a monopoly to a duopoly will lead to an increase of 1,016 accounts per 10,000 adults, a 42% increase over the cross-municipality mean. This is comparable to the effect of large increases in per capita income and years of schooling, or the establishment of an additional branch by a bank who is already present in the local market. Our results suggest that competition policy should be given a prominent role in the financial inclusion agenda.
    Keywords: Financial inclusion, banking, competition
    JEL: O16 G21 L13 D43
    Date: 2013–10
  5. By: Manuel Sánchez Valadez
    Abstract: In the firm's competitive strategy act together their financial decision and their decisions in the product markets. Even if in the last three decades the theoretical and empirical literature has growth, still are topics few explored. One of them is the relationship between firm's asset specificity, as a characteristic of the competitive environment, and their indebtedness as competitive tool. This paper tries answer if additionally to the level of specificity in the firm's assets the corporations use their indebtedness as another tool in their competitive strategy. The results show that the asset specificity influences in different way the firms' debt, the effect differs accordingly at the debt' maturity and the competitive environment faced.
    Keywords: Asset specificity, Indebtedness, Competitive strategy
    JEL: G32 L10
    Date: 2013–10
  6. By: Olivier MEIER; Aurélie SANNAJUST
    Abstract: L’analyse de la performance post Public to Private transactions est un aspect de la revue
    Keywords: going private, performance, stratégie, social.
    JEL: G24 G34
    Date: 2014–06–16
  7. By: Tristan Boyer; Elena Chane-Alune
    Abstract: We aim at giving a general view of the context in which appears the latest
    Keywords: Corporate Governance, IFRS, Financial information, Non-Financial information
    JEL: G30 G14 M41
    Date: 2014–06–16
  8. By: Tristan BOYER
    Abstract: The object of this contribution is to address the question of the ownership of the firm. Both law and economics shape representations of the world: law focuses on rules and justice; economics focuses on efficiency and allocation. They describe common situations and "objects'' such as firms and their functioning, both with positive (analytical) and normative perspectives. However, their descriptions and remedies for the issues which they tackle are very different due to the differences in their philosophical and sociological goals. The Law & Economics perspective can be described as the use of the economics theoretical framework upon issues of law. In this perspective, law issues are addressed as any other economic phenomenon through the prism of efficiency. From this perspective, law is contingent upon normative conditions of economic theory and the best solution arises after a standard process of optimisation. This paper will set out a reversal of that epistemological position: instead of using economic representations to improve the state of law, representations of law will be aimed at testing and improving the economic analytical framework. Since corporate governance issues are structured by domestic laws as well as by economic regulations, legal representations will be discussed in light of economic corporate governance analysis.
    Keywords: corporate governance, agency theory, law & economics, property rights, stakeholder approach
    JEL: K0 K11 G30 M14 M52
    Date: 2014–06–16
  9. By: Hornuf, Lars; Schwienbacher, Armin
    Abstract: In this paper, we show that too strong investor protection may harm small firms and, thus, entrepreneurial initiatives. This situation is particularly relevant in crowdinvesting, which refers to a recent financial innovation originating on the Internet. In general, securities regulation offers exemptions to prospectus and registration requirements. From an analysis of selected countries, we offer first evidence that portals shape the securities contracts they provide to startups based on these exemptions. This, in turn, can limit the amount of capital raised by the firms as well as the type of investors participating in the campaigns. Finally, we offer a ‘law and finance’ analysis of recent reforms of securities regulation in different countries that have been initiated as a means to encourage crowdinvesting.
    Keywords: crowdinvesting; crowdfunding; securities regulation; investor protection
    JEL: G20 G18 G38 K22
    Date: 2014–03–20
  10. By: Lorenzo Menna; Patrizio Tirelli
    Abstract: Models based on the representative agent assumption cannot rationalize observed equity premia. In response to this, exchange economy models have introduced agents heterogeneity, typically in the form of bond and equity holders. We reconsider the issue introducing Limited Asset Market Participation in an otherwise standard medium scale DSGE model. Our model fits financial and macroeconomic data well. We obtain that the correlation between asset holders consumption and financial returns strongly increases in the share of agents excluded from financial markets participation, The predicted unconditional equity premium is therefore large. Further, the strong correlation between dividends and Ricardian households' consumption unambiguously increases precautionary savings and reduces the riskless rate.
    Keywords: asset pricing, equity premium, limited asset market participation, business cycle, DSGE, sticky prices.
    JEL: E32 G12
    Date: 2014–06
  11. By: Gianluca Cassese
    Abstract: In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage property. We show that prices are coherent if and only if the set of pricing measures is non empty, i.e. if pricing by expectation is possible. We then obtain a decomposition of coherent prices highlighting the role of bubbles. Eventually we show that under very weak conditions the coherent pricing of options allows for a very clear representation from which it is possible, as in the original work of Breeden and Litzenberger, to extract the implied probability. Eventually we test this conclusion empirically via a new non parametric approach.
    Keywords: Arbitrage, Bid/Ask spreads, Bubbles, Coherence, Risk-neutral probability, Transaction costs.
    JEL: G12 C14
    Date: 2014–06
  12. By: Tri Vi Dang (Department of Economics, Columbia University); Gary Gorton (Department of Economics, Yale University); Beng Holmstrom (Department of Economics, MIT and NBER); Guillermo Ordonez (Department of Economics, University of Pennsylvania)
    Abstract: Banks are optimally opaque institutions. They produce debt for use as a transaction medium (bank money), which requires that information about the backing assets – loans – not be revealed, so that bank money does not fluctuate in value, reducing the efficiency of trade. This need for opacity conflicts with the production of information about investment projects, needed for allocative efficiency. Intermediaries exist to hide such information, so banks select portfolios of information-insensitive assets. For the economy as a whole, firms endogenously separate into bank finance and capital market/stock market finance depending on the cost of producing information about their projects.
    Keywords: Banks vs. Capital Markets, Financial Intermediation, Information and Opacity, Optimal Portfolio, Private Money
    JEL: G21 D82 G11 G14 E44
    Date: 2014–06–01
  13. By: Avino, Davide; Cotter, John
    Abstract: This paper investigates the relationship between sovereign and bank CDS spreads with reference to their ability to convey timely signals on the default risk of European sovereign countries and their banking systems. For a sample including six major European economies, we find that sovereign and bank CDS spreads are cointegrated variables at the country level. We then perform a more in-depth investigation of the underlying price discovery mechanisms, and find that both variables have an important price discovery role in the period preceding the financial crisis of 2007-2009. However, during the global financial crisis and the subsequent European sovereign debt crisis, sovereign CDS spreads dominate the price discovery process. Our findings strongly suggest that, especially during crisis periods, sovereign CDS spreads incorporate more timely information on the default probability of European banks than their corresponding bank CDS spreads. Price discovery measures based on CDS prices could be used as market triggers to increase equity levels at financial institutions and in the various forms of contingent capital
    Keywords: Credit default swap spreads; price discovery; information flow; financial crisis; banks; sovereign risk; bank capital; contingent capital
    JEL: D8 G01 G12 G14 G20
    Date: 2013–06
  14. By: Asongu, Simplice
    Abstract: The employment of financial development indicators without due consideration to country/regional specific financial development realities remains an issue of substantial policy relevance. Financial depth in the perspective of money supply is not equal to liquid liabilities in every development context. This paper introduces complementary indicators to the existing Financial Development and Structure Database (FDSD). Dynamic panel system GMM estimations are applied. Different specifications, non-overlapping intervals and control variables are used to check the consistency of estimated coefficients. Our results suggest that from an absolute standpoint (GDP base measures), all financial sectors are pro-poor. However, three interesting findings are drawn from measures of sector importance. (1) The expansion of the formal financial sector to the detriment of other financial sectors has a disequalizing income effect. (2) Growth of informal and semi-formal financial sectors at the expense of the formal financial sector has an income equalizing effect. (3) The positive income redistributive effect of semi-formal finance in financial sector competition is higher than the corresponding impact of informal finance. It unites two streams of research by contributing at the same time to the macroeconomic literature on measuring financial development and responding to the growing field of economic development by means of informal financial sector promotion and microfinance. The paper suggests a practicable way to disentangle the effects of the various financial sectors on economic development. The equation of financial depth in the perspective of money supply to liquid liabilities has put on the margin the burgeoning informal financial sector in developing countries. The phenomenon of mobile banking is such an example.
    Keywords: Financial Development; Shadow Economy; Poverty; Inequality; Africa
    JEL: E00 G20 I30 O17 O55
    Date: 2013–09–15
  15. By: Asongu, Simplice
    Abstract: The Ali (2013, EB) findings on the nexuses among institutions, finance and investment could have an important influence on policy and academic debates. This paper relaxes his hypotheses on the conception, definition and measurement of finance and institutions because they are less realistic to developing countries to which the resulting policy implications are destined. We dissect with great acuteness the contextual underpinnings of financial development dynamics and elucidate why the Acemoglu & Johnson (2005) justification provided for the measurement of property rights institutions (PRI) is lacking in substance. Using updated data (1996-2010) from 53 African countries, we provide more robust evidence on the substitution of institutions and finance in investment. Results under many baseline and augmented scenarios are not consistent with the underlying paper. Justifications for the differences in findings are discussed. As a policy implication, the Ali (2013, EB) findings for countries with poor financial systems may not be relevant for Africa.
    Keywords: Finance; Institutions; Investment: Property Rights; Africa
    JEL: E0 G20 G24 O55 P14
    Date: 2014–01–04
  16. By: Benoît D'Udekem
    Abstract: By persisting in paying dividends during crises, banks not only weaken their liquidity and solvency positions; they also exacerbate systemic risks. However, the drivers of such persistence remain elusive. In this paper, we analyse the propensity of US banks to omit or cut dividends during the 2007-09 financial crisis. We observe that banks pay dividends to mitigate agency costs, maintain their reputation, and preserve market access. We conclude that agency costs, rather than size, induce banks to continue paying dividends during periods of greater cash flow uncertainty. We also conclude that bank managers trade off solvency against favourable funding.
    Keywords: banks; dividends; agency costs; market access
    JEL: G21 G28 G35
    Date: 2014–06–20

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