nep-cfn New Economics Papers
on Corporate Finance
Issue of 2014‒10‒13
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. 'Entry and Exit with Financial Frictions' By Patrick Macnamara
  2. Banking regulation and supervision in the next 10 years and their unintended consequences By D. Nouy
  3. Better Together? Retail Chain Performance Dynamics in Store Expansion Before and After Mergers By Mitsukuni Nishida; Nathan Yang
  4. Credit access after consumer bankruptcy filing: new evidence By Jagtiani, Julapa; Li, Wenli
  5. Ex Ante Capital Position, Changes in the Different Components of Regulatory Capital and Bank Risk By B. Camara; L. Lepetit; A. Tarazi
  6. Heterogeneous Tax Sensitivity of Firm-level Investments By Egger, Peter; Erhardt, Katharina; Keuschnigg, Christian
  7. How did we get to where we are now? Reflections on 50 years of macroeconomic and financial econometrics By Michael Wickens

  1. By: Patrick Macnamara
    Abstract: This paper considers a model of firm dynamics to study how well aggregate shocks account for fluctuations in the entry and exit of establishments. To do this, I construct measures of aggregate financial and technology shocks. Under reasonable parameters, the model indicates that financial shocks (and not technology shocks) have contributed to the majority of cyclical fluctuations in entry and exit rates. In particular, the reduction in entry and the increase in exit during the 2007-09 recession have contributed to the slow recovery of output and hours that followed.
    Date: 2014
  2. By: D. Nouy
    Abstract: In the paper, we deal with the unexpected effects of new regulations and supervision and provide recommendations to ensure their effectiveness. New regulations essentially aim at strengthening the solvency and the liquidity of financial institutions. However, some technical aspects of these regulations, particularly regarding the effect on deleveraging, the use of a non-risk weighted leverage ratio and regulatory arbitrage require continuous monitoring. In addition, banking supervision is evolving toward more intrusive approach, more stress test exercises and an increasing role of macro prudential supervision. These changes in supervisory approach also require an efficient management of communication in order to avoid market overreaction and banks? ex ante inefficient behaviour. Supervisors have to anticipate and manage these unintended effects. The European Banking Union will help address these challenges by setting a single supervisory mechanism, a single resolution mechanism and a single deposit insurance scheme.
    Keywords: Basel III, CRD IV, regulatory arbitrage, stress test, macro prudential supervision, Banking Union.
    JEL: G21 G23 G28
    Date: 2013
  3. By: Mitsukuni Nishida (Johns Hopkins Carey Business School); Nathan Yang (Yale School of Management)
    Abstract: We study firm performance dynamics in retail growth using a dynamic model of expansion that allow these dynamics to operate through an unobserved serially correlated process. The model is estimated with data on convenience-store chain diffusion across Japanese prefectures from 1982 to 2012, whereby an actual merger between two chains takes place in 2001. Given the presence of serial correlation and selection biases in observed revenue, we combine particle filtering methods for dynamic games with control functions in revenue regressions. The estimated structural model provides us insights about how performance dynamics evolve before and after the merger. In particular, we demonstrate that the performance dynamics for the merged entity do not improve following the merger.
    Keywords: Dynamic discrete choice; Firm size spillovers; Industry dynamics; Learning-by-doing; Market Concentration; Merger analysis; Particle filter; Revenue regression; Serial correlation
    JEL: L10 L25 L81 G34
    Date: 2014–09
  4. By: Jagtiani, Julapa (Federal Reserve Bank of Philadelphia); Li, Wenli (Federal Reserve Bank of Philadelphia)
    Abstract: Supersedes Working Paper No. 13-24 This paper uses a unique data set to shed new light on credit availability to consumer bankruptcy filers. In particular, the authors’ data allow them to distinguish between Chapter 7 and Chapter 13 bankruptcy filings, to observe changes in credit demand and credit supply explicitly, and to differentiate existing and new credit accounts. The paper has four main findings. First, despite speedy recovery in their risk scores after bankruptcy filing, most filers have much reduced access to credit in terms of credit limits, and the impact seems to be long lasting (well beyond the discharge date). Second, the reduction in credit access stems mainly from the supply side as consumer inquiries recover significantly after the filing, while credit limits remain low. Third, new lenders do not treat Chapter 13 filers more favorably than Chapter 7 filers. In fact, Chapter 13 filers are much less likely to receive new credit cards than Chapter 7 filers even after controlling for borrower characteristics and local economic environment. Finally, the authors find that Chapter 13 filers overall end up with a slightly larger credit limit amount than Chapter 7 filers (both after the filing and after discharge) because they are able to maintain more of their old credit from before bankruptcy filing. The authors’ results cast doubt on the effectiveness of the current bankruptcy system in providing relief to bankruptcy filers and especially its recent push to get debtors into Chapter 13.
    Keywords: Bankruptcy; Credit limit; Credit performance; Financial crisis; Bankruptcy reform
    JEL: G01 G02 G28 K35
    Date: 2014–08–07
  5. By: B. Camara; L. Lepetit; A. Tarazi
    Abstract: We investigate the impact of changes in capital of European banks on their risk-taking behavior from 1992 to 2006, a time period covering the Basel I capital requirements. We specifically focus on the initial level and type of regulatory capital banks hold. First, we assume that risk changes depend on banks' ex ante regulatory capital position. Second, we consider the impact of an increase in each component of regulatory capital on banks? risk changes. We find that, for highly capitalized, adequately capitalized and strongly undercapitalized banks, an increase in equity or in subordinated debt positively affects risk. Moderately undercapitalized banks tend to invest in less risky assets when their equity ratio increases but not when they improve their capital position by extending hybrid capital or subordinated debt. On the whole, our conclusions support the need to implement more explicit thresholds to classify European banks according to their capital ratios but also to clearly distinguish pure equity from hybrid and subordinated instruments.
    Keywords: Bank Risk, Bank Capital, Capital regulation, European banks.
    JEL: G21 G28
    Date: 2013
  6. By: Egger, Peter (ETH Zuerich); Erhardt, Katharina (ETH Zuerich); Keuschnigg, Christian (Institute for Advanced Studies, Vienna and University of St. Gallen)
    Abstract: Firms are heterogeneous in size, productivity, ownership concentration, governance, financial structure and other dimensions. This paper introduces a stylized theoretical framework to account for such differences and to explain the heterogeneous tax sensitivity of firm-level investments across firm types. We econometrically test the theoretical predictions, taking account of selection of firms into different regimes. We find important differences in the tax sensitivity of investment of small entrepreneurial and larger managerial firms in different financial regimes that are largely in line with theoretical results.
    Keywords: Corporate tax, personal taxes, firm heterogeneity, access to capital, manager-shareholder conflicts
    JEL: D22 G32 H25 L21
    Date: 2014–09
  7. By: Michael Wickens
    Abstract: This lecture is about how best to evaluate economic theories in macroeconomics and finance, and the lessons that can be learned from the past use and misuse of evidence. It is argued that all macro/finance models are ‘false’ so should not be judged solely on the realism of their assumptions. The role of theory is to explain the data, They should therefore be judged by their ability to do this. Data mining will often improve the statistical properties of a model but it does not improve economic understanding. These propositions are illustrated with examples from the last fifty years of macro and financial econometrics.
    Keywords: Theory and evidence in economics, DSGE modelling, time series modelling, asset price modelling
    JEL: B1 C1 E1 G1
    Date: 2014–09

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