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on Corporate Finance |
| By: | Fabio Filipozzi; Kersti Harkmann |
| Abstract: | We study whether it is possible to find optimal hedge ratios for a foreign currency bond portfolio to lower significantly the risk and increase the risk adjusted return of a portfolio. The analysis is conducted from the perspective of euro area based investors to whom short-selling restrictions might apply. The ordinary least squares approach is challenged with the optimal hedge ratios found by the DCC-GARCH approach in order to investigate whether time-varying hedging is superior to the standard constant hedge ratios found by OLS. We find that hedging significantly lowers the portfolio risk in domestic currency terms and improves the Sharpe ratios for both single instrument and equally weighted multi asset portfolios. Optimal hedging using the standard OLS approach and using time-varying hedging give similar results, the latter being superior to the first in terms of risk-adjusted return. |
| Keywords: | optimal hedge ratios, portfolio risk hedging |
| JEL: | C32 C58 G11 G15 G23 G32 |
| Date: | 2014–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2014-5&r=cfn |
| By: | Alissa Amico |
| Abstract: | Corporate governance frameworks in the Middle East and North Africa region have undergone a substantial evolution in the past decade. Better enforcement of corporate governance rules and regulations has in the past three years emerged as both a policy challenge and a priority for the region. This emphasis on better enforcement reflects a number of trends including political changes in some countries of the region, the global call for better surveillance of the adoption of governance rules as well as low investor engagement in the region. This paper examines key developments in public and private corporate governance enforcement in the region. It highlights the growing level of public enforcement as expertise within the securities regulators is growing. The paper provides policy recommendations on specific aspects of governance frameworks such as the treatment of related party transactions and board member responsibilities which - if better regulated - could result in more effective governance enforcement in the region. |
| Keywords: | enforcement, corporate governance, Middle East and North Africa, investor engagement, company law, securities regulator, listing requirements, stock exchange, commercial courts, minority shareholder, shareholder rights, redress, board appointment |
| JEL: | G38 K22 K42 |
| Date: | 2014–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dafaae:15-en&r=cfn |
| By: | Tatiana Didier (World Bank); Sergio L. Schmukler (World Bank and Hong Kong Institute for Monetary Research) |
| Abstract: | This paper documents the major trends in debt (bank and bond) markets in emerging economies since the early 1990s, when these markets started expanding. The paper shows that banks have increased in size in most emerging economies though from low bases. But bond markets have expanded even more, gaining importance relative to banks. The nature of financing has also changed. Local currency bond financing has expanded, the extent of dollarization of loans and bonds has declined, and the maturity of public and private sector bonds has typically increased. However, not all regions have moved in the same direction. Eastern Europe for instance increased its foreign currency debt before the global financial crisis. Relative to developed countries, emerging countries' financial systems still remain in many aspects underdeveloped. Except in a few cases, liquidity in secondary bond markets has been declining. And the public sector captures a significant share of bond markets. |
| JEL: | G00 G20 G21 G23 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:172014&r=cfn |
| By: | Mohamed Belkhir; Sabri Boubaker; Wael Rouatbi |
| Abstract: | The current study investigates the determinants of going private (GP) in France. It contrasts a sample of 161 firms that went private between 1997 and 2009 with a propensity-score-matched sample of firms that remained public during the same period. The results indicate that, unlike for firms that remain public, the largest controlling shareholders (LCSs) of GP firms control their firms using an incommensurately small fraction of ultimate cash flow rights. This is consistent with the view that agency problems between large and minority shareholders make public firms less attractive to investors, which reduces the benefits of staying public and encourages the LCSs to take their firms private or accept takeover offers. Additional results show that GP firms have more undervalued stock prices and higher free cash flows than non-GP firms. Expected interest tax shields, low growth opportunities, and pre-GP takeover interest do not seem to affect the probability of GP. |
| Keywords: | Going private; Ownership structure; Large shareholders; Corporate governance |
| JEL: | G32 G34 |
| Date: | 2014–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-605&r=cfn |
| By: | Andries, Alin Marius; Brown, Martin |
| Abstract: | This paper investigates to what extent risk management and corporate governance mitigate the involvement of banks in credit boom and bust cycles. Using a unique, handcollected dataset on 156 banks from Central and Eastern Europe during 2005-2012, we assess whether banks with stronger risk management and corporate governance display more moderate credit growth in the pre-crisis credit boom as well as a smaller credit contraction and fewer credit losses in the crisis period. With respect to bank governance we document that a higher share of financial experts on the supervisory board is associated with more rapid credit growth in the pre-crisis period and a larger contraction of credit in the crisis period, but not with larger credit losses. With respect to risk management we document that a strong risk committee is associated with more moderate pre-crisis credit growth but not with fewer credit losses in the crisis. We find no evidence of an organizational learning process among crisishit banks: those banks with the largest credit losses during the crisis are least likely to improve their risk management in the aftermath of the crisis |
| Keywords: | Credit boom and busts, corporate governance, risk management |
| JEL: | G21 G32 P34 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2014:14&r=cfn |
| By: | Verwijmeren, P. |
| Abstract: | The financial world does not have the best reputation. One of the problems is the perceived lack of integrity of financial markets, which is fuelled by examples of financial misconduct. I argue that with financial data becoming more widely available and constantly improving, financial researchers could help in identifying suspicious behavior in financial markets. I will provide examples of potentially fraudulent behavior surrounding executive compensation and security issuance. Allegedly, companies have backdated executives’ stock options and as such have increased executives’ effective compensation, and there might be widespread insider trading before the announcements of privately placed securities. Systematic analyses of the available data could detect these examples of misconduct. Overall, forensic finance has the potential to detect suspicious behavior and as such could play an important role in understanding and improving the integrity of the financial world. |
| Keywords: | Financial markets, executive compensation, stock options price, insider trading, financial research, forensic finance |
| JEL: | G12 G14 G24 G28 G3 K14 |
| Date: | 2014–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:ems:euriar:76906&r=cfn |
| By: | Shimizu, Chihiro |
| Abstract: | How exactly should one estimate property investment returns? Investors in property aim to maximize capital gains from price increases and income generated by the property. How are the returns on investment in property determined based on its characteristics, and what kind of market characteristics does it have? Focusing on the Tokyo commercial property market and residential property market, the purpose of this paper was to break down and measure the micro-structure of property investment returns in as much detail as possible. In Japan, the characteristics of property suitable for investment are dubbed “kin-shin-dai” (close, new, and large). That is, investors believe that investment returns are high for properties that are very convenient in terms of transportation (close to the city center), new buildings (relatively new properties), and large-scale real estate (large design or floor space). Therefore, this paper first measured how the asset prices, income, and asset price-income ratios (discount rate) that comprise property investment returns change based on differences in these property characteristics. Second, the reliability/distortion of information that can be observed on the property investment market was measured. Much of the information available on the property investment market is property price information determined by property appraisers. However, it is known that property appraisal prices are unable to appropriately reflect actual property market trends. Therefore, using enterprise value data for REIT investment management companies comprised of REIT investment unit prices (share prices) available on capital markets, this paper proposed a method of estimating property investment returns corresponding to changes in capital markets, as well as clarifying the distortion in property investment returns that are formed based on property appraisal prices. Looking at the results obtained, for commercial property, as building floor space increased, it had the effect of raising both the income and price while lowering the discount rate. In particular, compared to residential property, the results showed that a higher investment return can be obtained from commercial property by investing in larger-scale properties. Building age lowered the asset price and income for both commercial and residential property, but the effect was especially strong for residential property. Furthermore, there was a significant divergence between discount rates and risk premiums formed by asset markets and those formed by capital markets, and the results showed that a greater difference was generated while the market was shrinking. This finding suggests that looking at property investment returns that are estimated based on asset market information alone could lead to erroneous investment decisions. |
| Keywords: | Present Value Model, discount rate, quality-adjusted price index, hedonic approach, heterogeneity, Tobin’s q, Risk premium |
| JEL: | E3 G19 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:hit:remfce:12&r=cfn |
| By: | Joel F. Houston (University of Florida and Hong Kong Institute for Monetary Research); Chen Lin (The University of Hong Kong and Hong Kong Institute for Monetary Research); Junbo Wang (City University of Hong Kong and Hong Kong Institute for Monetary Research) |
| Abstract: | In this paper, we examine the existence of a cross-monitoring effect between bank debt and public debt by exploring the effects that loan defaults have on the lead arranger's perceived monitoring ability in the public debt markets. Generating a sample of major loan defaults among U.S. firms between 2002 and 2010, we empirically test the effects that these loans had on the bond returns of publicly traded firms that had existing loans made by the same lead lender as the defaulting firm. We show that the abnormal returns of these "affected firms" are negative and statistically significant. Moreover, these abnormal returns are economically significant - with a mean about -1% when measured over an eleven day window surrounding the announcement of the defaulting loan. Interestingly, we find that these results are even stronger if the defaulting firm had a strong and/or long-standing relationship with its lead lender. We also find that the negative bond market effect is particularly strong if the defaulting loan is an important deal to the lender, if it is a recently originated loan, and if the borrower has better governance, higher profitability and higher firm value in the loan origination year. In contrast, the negative bond market effect is weakened if the affected firms have more intensive analyst coverage and higher firm values. Taken together, these results strongly confirm the existence of a cross-monitoring effect between bank debt and public debt. |
| JEL: | G30 G33 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:162014&r=cfn |