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on Corporate Finance |
| By: | Loriane Py; Antoine Bozio; Delphine Irac |
| Abstract: | R&D and innovation are seen as key determinants of productivity and competitiveness and it has been recognized that the low growth performances of EU countries of the last decades can largely be attributable to their poor research performance, as compared to the US. As a consequence, most EU countries, in particular since the adoption of the Lisbon strategy, have provided tax incentives to increase business R&D, which still remains below the targeted level of 2% of GDP. In the actual context of large public deficit and given the amount of public spending involved, it is crucial to evaluate the impact and effectiveness of these policies. The aim of this paper is to contribute to this literature by evaluating the impact of the research tax credit system on both R&D investments and innovation. In our empirical analysis, we focus on the 2008 French reform, which was marked by the adoption of a pure volume-based scheme.Our empirical analysis relies on an ex post econometric evaluation of the 2008 reform. It is based on the combination of four datasets over the period 2004-2010: i) the yearly survey on R&D investments conducted by the French Ministry of Research which contains detailed information on firms' R&D, ii) the PATSTAT dataset of the European Patent Office which enables us to measure innovation at the firm-level (as measured by a count of the number of patents) iii) the tax files which enables us to identify all the firms in France which benefit from the research tax credit as well as it amount, and iv) the FIBEN dataset of the Banque de France which is used to control for firms' economic and financial characteristics. Our final sample includes 48,111 firms, from which 51.3% have taken advantage of the research tax credit. Our econometric strategy relies on the implementation of a difference in difference which amounts to comparing R&D and innovation outcome for firms which benefit from the research tax credit and for those which do not, before and after the implementation of the reform. The fact that each year in France, nearly 49% of firms which are registered in the R&D survey and which have positive R&D expenditures do not ask for the research tax credit can have several explanations: firms might not be aware of the policy, their R&D activities might not be eligible to the tax credit, asking for the research tax credit might be too complex and costly or firms might want to avoid a tax audit. Nevertheless, as we cannot exclude the possibility of a selection bias in the sample of treated and control firms, we also implemented propensity score matching analysis and are currently trying to refine our empirical strategy by using the suppression of the research tax credit ceiling. Our preliminary results suggest that firms which did benefit from the R&D tax credit relative to those that did not ask for it have significantly increased their R&D expenditures after the 2008 reform. Our results also show that the estimated elasticity differs when we focus on the intensive margin (i.e. when the sample is limited to firms which already ask for the research tax credit before the reform) as the reform led to a large number of firm entry in the tax credit scheme which are relatively smaller in terms of R&D investments. More importantly, we do not find evidence of a significant impact on innovation as measured by the number of patents at the firm level, up to 2 years after the implementation of the reform. Though the time span of analysis is short and that patenting can take more years, these preliminary results suggest that the effects of research tax credit on innovation might be more limited than expected. Finally, our results enable us to shed light on the relative effectiveness of the volume scheme as compared to the incremental one. |
| Keywords: | France, Tax policy, Impact and scenario analysis |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:006356:6873&r=cfn |
| By: | Moen, Jon R. (Federal Reserve Bank of Cleveland); Tallman, Ellis W. (Federal Reserve Bank of Cleveland) |
| Abstract: | Before the Panic of 1907 the large New York City banks were able to maintain the call loan market’s liquidity during panics, but the rise in outside lending by trust companies and interior banks in the decade leading up the panic weakened the influence of the large banks. Creating a reliable source of liquidity and reserves external to the financial market like a central bank became obvious after the panic. The lack of a lender of last resort for investment banks engaged in bank-like activities during the crisis of 2007-09 revealed a similar need for an external liquidity source. |
| Keywords: | Bank panic; stock market; credit rationing; rehypothecation |
| JEL: | G01 N21 |
| Date: | 2014–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1408&r=cfn |
| By: | Balteanu, Irina (Bank of Spain); Erce, Aitor (European Stability Mechanism) |
| Abstract: | This paper provides a set of stylized facts on the mechanisms through which banking and sovereign distress feed into each other, using a large sample of emerging economies over three decades. We first define “twin crises” as events where banking crises and sovereign defaults combine, and further distinguish between those banking crises that end up in sovereign debt crises, and vice-versa. We then assess what differentiates “single” episodes from “twin” ones. Using an event analysis methodology, we study the behavior around crises of variables describing the balance sheet interconnection between the banking and public sectors, the characteristics of the banking sector, the state of public finances, and the macroeconomic context. We find that there are systematic differences between “single” and “twin” crises across all these dimensions. Additionally, we find that “twin” crises are heterogeneous events: taking into account the proper time sequence of crises that compose “twin” episodes is important for understanding their drivers, transmission channels and economic consequences. Our results shed light on mechanisms surrounding feedback loops of sovereign and banking stress. |
| Keywords: | bank crises; sovereign debt |
| JEL: | E44 F34 G01 H63 |
| Date: | 2014–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:184&r=cfn |
| By: | Peter Benczur; Cosmin L. Ilut |
| Abstract: | This paper presents direct evidence for relational contracts in sovereign bank lending. Unlike the existing empirical literature, its instrumental variables method allows for distinguishing a direct influence of past repayment problems on current spreads (a "punishment" effect in prices) from an indirect effect through higher expected future default probabilities ("loss of reputation"). Such a punishment provides positive surplus to lenders after a default and decreases the borrower's present discounted value of the net benefits of future borrowing, which create dynamic incentives. Using data on bank loans to developing countries between 1973-1981 and constructing continuous variables for credit history, we find evidence that most of the influence of past repayment problems is through the direct, punishment channel. |
| JEL: | C73 D86 F34 G12 G14 G15 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20391&r=cfn |
| By: | Ramana Nanda; Tom Nicholas |
| Abstract: | We find a negative relationship between bank distress and the level, quality and trajectory of firm-level innovation during the Great Depression, particularly for R&D firms operating in capital intensive industries. However, we also show that because a sufficient number of R&D intensive firms were located in counties with lower levels of bank distress, or were operating in less capital intensive industries, the negative effects were mitigated in aggregate. Although Depression era bank distress was associated with the stifling of innovation, our results also help to explain why technological development was still robust following one of the largest shocks in the history of the U.S. banking system. |
| JEL: | G21 N22 O30 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20392&r=cfn |
| By: | Wisniewski, Tomasz Piotr; Yekini, Liafisu Sina |
| Abstract: | This paper uses the tools of computational linguistics to analyze the qualitative part of the annual reports of UK listed companies. More specifically, the frequency of words associated with praise, concreteness and activity is measured and used to forecast future stock returns. We find that our language indicators predict subsequent price increases, even after controlling for a wide range of factors. Elevated values of the linguistic variables, however, are not symptomatic of exacerbated risk. Consequently, investors are advised to peruse the annual report narrative, as it contains valuable information that may still not have been discounted in the prices. |
| Keywords: | Content Analysis, Annual Reports, Stock Market Returns |
| JEL: | G12 G14 M41 |
| Date: | 2014–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:58107&r=cfn |
| By: | Cardow, Andrew; Wilson, Willam |
| Abstract: | Abstract Purpose –This paper addresses corporate governance issues around the use of celebrity independent directors in closely held financial institutions. Design/methodology/approach – The authors employ the failure of Lombard Finance, a closely held New Zealand finance company to illustrate the agency conflict between directors, who were nominally independent, and outside debt holders. This approach is taken as New Zealand finance companies were unique in that they are predominantly closely held bank like firms who sourced the bulk of their funds from retail fixed term deposits. Findings The research highlights the conflict inherent when utilising independent celebrity directors as spokespeople for closely held finance companies in a small loosely regulated market. Originality/value This research contributes to the discussion surrounding independent celebrity directors and their influence in the collapse of closely held finance companies at a particular time in recent history. |
| Keywords: | Independent directors, finance companies New Zealand |
| JEL: | G3 G32 |
| Date: | 2014–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:58111&r=cfn |
| By: | Berdin, Elia; Gründl, Helmut |
| Abstract: | Low interest rates are becoming a threat to the stability of the life insurance industry, especially in countries such as Germany, where products with relatively high guaranteed returns sold in the past still represent a prominent share of the total portfolio. This contribution aims to assess and quantify the effects of the current low interest rate phase on the balance sheet of a representative German life insurer, given the current asset allocation and the outstanding liabilities. To do so, we generate a stochastic term structure of interest rates as well as stock market returns to simulate investment returns of a stylized life insurance business portfolio in a multi-period setting. Based on empirically calibrated parameters, we can observe the evolution of the life insurers' balance sheet over time with a special focus on their solvency situation. To account for different scenarios and in order to check the robustness of our findings, we calibrate different capital market settings and different initial situations of capital endowment. Our results suggest that a prolonged period of low interest rates would markedly affect the solvency situation of life insurers, leading to relatively high cumulative probability of default for less capitalized companies. -- |
| Keywords: | Life Insurers,Interest Rate Guarantees,Risk Assessment,Solvency II |
| JEL: | G22 G23 G17 E58 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:65&r=cfn |