nep-cfn New Economics Papers
on Corporate Finance
Issue of 2015‒06‒13
28 papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Bankruptcy law and bank financing By Gicoamo Rodano; Nicolas Serrano-Velarde; Emanuele Tarantino
  2. Securities trading by banks and credit supply: Micro-evidence By Abbassi, Puriya; Iyer, Rajkamal; Peydró, José-Luis; Tous, Francesc R.
  3. Securities Transactions Taxes and Financial Crises By Benoît Carmichael; Jean Armand Gnagne; Kevin Moran
  4. Competing with Superstars By Ammann, Manuel; Horsch, Philipp; Oesch, David
  5. The Certification Role of Pre-IPO Banking Relationships: IPO Underpricing and Post-IPO Performance in Japan By Yoshiaki Ogura
  6. The Econometrics of Networks: A Review By Daniel Felix Ahelegbey
  7. Microfinanzas en el Perú: Solvencia y Rentabilidad en las Cajas Municipales de Ahorro y Crédito By Gambetta Podesta, Renzo
  8. Banks’ Risk Endogenous to Strategic Management Choices By Delis, Manthos; Hasan, Iftekhar; Tsionas, Efthymios
  9. Vertical flexibility, outsourcing and the financial choices of the firm By M. Moretto; G. Rossini
  10. The Effect of Board Directors from Countries with Different Genetic Diversity Levels on Corporate Performance By Delis, Manthos; Gaganis, Chrysovalantis; Hasan, Iftekhar; Pasiouras, Fotios
  11. Is financial instability male-driven? Gender and cognitive skills in experimental asset markets By Carlos Cueva Herrero; Aldo Rustichini
  12. Corporate taxation and investment: Evidence from the Belgian ACE reform By aus dem Moore, Nils
  13. The Capacity of Trading Strategies By Thesmar , David; Landier , Augustin
  14. The Relationship between Banking Competition and Stability in Developing Countries: The Case of Libya By Troug, Haytem Ahmed; Sbia, Rashid
  15. The Information in Systemic Risk Rankings By Federico Nucera; Bernd Schwaab; Siem Jan Koopman; André Lucas
  16. Do Banks Satisfy the Modigliani-Miller Theorem? By Aboura, Sofiane; Lépinette-Denis, Emmanuel
  17. Four Centuries of Return Predictability By Golez, Benjamin; Koudijs, Peter
  18. Modern Methods of Evaluation of Cost and Capital Structure with Attention to the Risks By Minasyan, Vigen
  19. Women Leaders and Social Performance: Evidence from Financial Cooperatives in Senegal By Anaïs A Périlleux; Ariane Szafarz
  20. The Long-Term Effects of Hedge Fund Activism By Lucian A. Bebchuk; Alon Brav; Wei Jiang
  21. A Nonlinear Approach for Predicting Stock Returns and Volatility with the Use of Investor Sentiment Indices By Stelios Bekiros; Rangan Gupta; Clement Kyei
  22. Geographical Vibrancy and Firm Performance By Ovtchinnikov , Alexei; Cooper , Michael
  23. Scale economies in pension fund investments: A dissection of investment costs across asset classes By Dirk Broeders; Arco van Oord; David Rijsbergen
  24. Where the Risks Lie: A Survey on Systemic Risk By Colliard , Jean-Edouard; Perignon , Christophe
  25. Are Ethical and Social Banks Less Risky? Evidence from a New Dataset By Marlene Karl
  26. Mesuring Liquidity Mismatch in the Banking Sector By Bai, Jennie; Krishnamurthy, Arvind; Weymuller, Charles-Henri
  27. Testing for the Presence of Asymmetric Information in the Oil Market: A VAR Approach By Troug, Haytem Ahmed; Sbia, Rashid
  28. A Macroeconomic Framework for Quantifying Systemic Risk By He, Zhiguo; Krishnamurthy, Arvind

  1. By: Gicoamo Rodano (Bank of Italy); Nicolas Serrano-Velarde (Bocconi University); Emanuele Tarantino (University of Mannheim)
    Abstract: Exploiting the timing of the 2005-06 Italian bankruptcy law reforms, we disentangle the effects of reorganization and liquidation in bankruptcy on bank financing and firms’ investment. A 2005 reform introduces procedures facilitating loan renegotiation. The 2006 reform subsequently strengthens creditor rights in liquidation. The first reform increases interest rates and reduces investment. The second reform reduces interest rates and spurs investment. Our results highlight the importance of identifying the distinct effects of liquidation and reorganization, as these procedures address differently the tension in bankruptcy law between the continuation of viable businesses and the preservation of repayment incentives.
    Keywords: financial distress, financial contracting, renegotiation, multi-bank borrowing, bankruptcy courts
    JEL: G33 K22
    Date: 2015–06
  2. By: Abbassi, Puriya; Iyer, Rajkamal; Peydró, José-Luis; Tous, Francesc R.
    Abstract: We analyze securities trading by banks and the associated spillovers to the supply of credit.Empirical analysis has been elusive due to the lack of securities register for banks. We use a unique, proprietary dataset that has the investments of banks at the security level for 2005-2012 in conjunction with the credit register from Germany. Analyzing data at the security level for each bank in each period, we find that during the crisis, banks with higher trading expertise increase their overall investments in securities, especially in those that had a larger price drop. The quantitative effects are largest for trading-expertise banks with higher capital and in securities with lower rating and long-term maturity. In fact, there are no differential effects for triple-A rated securities. Moreover, banks with higher trading expertise reduce their overall supply of credit in crisis times - i.e., for the same borrower at the same time, trading-expertise banks reduce lending relative to other banks. This effect is more pronounced for trading-expertise banks with higher capital, and the credit reduction is binding at the firm level. Finally, these differential effects for trading-expertise banks are not present outside the crisis period.
    Keywords: banking,investments,bank capital,credit supply,risk-taking
    JEL: G01 G21 G28
    Date: 2015
  3. By: Benoît Carmichael; Jean Armand Gnagne; Kevin Moran
    Abstract: This paper assesses the impact that a widely-based Securities Transaction Tax (STT) could have on the likelihood of systemic financial crises. We apply the methodology developed by Demirgüç-Kunt and Detragiache (1998) [IMF Staff Papers 45 (1)] to a panel dataset of 34 OECD countries for the sample 1973 – 2012, using a measure of a country’s average bid-ask spread in financial markets as a proxy for the likely effect of a STT on transactions costs. Our results indicate that the establishment of a STT could sizeably increase the risk of financial crises.
    Keywords: Securities Transaction Tax, Tobin Tax, Regulation, Financial Crises
    JEL: E13 G15 G17
    Date: 2015
  4. By: Ammann, Manuel; Horsch, Philipp; Oesch, David
    Abstract: This paper investigates the effect of superstar CEOs on their competitors. Exploiting shocks to CEO status due to prestigious media awards, we document a significant positive stock market performance of competitors of superstar CEOs subsequent to the award. The effect is more pronounced for competitors who have not received an award themselves, who are geographically close to an award winner and who are not entrenched. We observe an increase in risk-taking, operating performance and innovation activity of superstars’ competitors as potential channels for this positive performance. Our results suggest a positive overall welfare impact of corporate superstar systems due to the incentivizing effect on superstars’ competitors.
    Keywords: Competition; Firm performance; Risk-taking; Innovation; Awards; CEO
    JEL: G30 G31 G32 G34 J31 J33 L25
    Date: 2015–05
  5. By: Yoshiaki Ogura (School of Political Science and Economics, Waseda University, Japan)
    Abstract: We find empirical evidence that pre-IPO relationships with commercial banks through lending and investment via their venture capital subsidiaries significantly reduces IPO underpricing, whereas the affiliation between a lead underwriter and venture backing the IPO company does not. We also obtain evidence for lower post-IPO risk and return for firms with a pre-IPO banking relationship. These findings suggest that a pre-IPO banking relationship certifies the low risk of an IPO firm, whereas investorsf concerns about conflicts of interest are not significant. Given the fact that institutional investors are a minority in the allocation of IPO stocks in Japan, the former effect is expected to come mainly from reducing either the investorsf winnerfs curse or the signaling incentive of IPO firms, rather than from the reduction in the information rent for institutional investors participating in the book-building process.
    Keywords: IPO underpricing, winnerfs curse, information revelation, conflict of interests, relationship banking
    JEL: G21 L14 D82
    Date: 2015–03
  6. By: Daniel Felix Ahelegbey (Department of Economics, University of Venice Cà Foscari)
    Abstract: Recent advances in empirical finance has seen a growing interest in the application of network models to analyse contagion, spillover effects and risk propagation channels in the system. While interconnectivity among financial institutions have been widely studied, only a few papers review networks in finance and they do not focus on the econometrics aspects. This paper surveys the state of the arts for statistical inference and application of networks from a multidisciplinary perspective, and specifically in the context of systemic risk. We contribute to the literature on network econometrics by relating network models to multivariate analysis with potential applications in econometrics and finance.
    Keywords: Bayesian inference, Graphical models, Model selection, Systemic risk.
    JEL: C11 C15 C52 G01 G17
    Date: 2015
  7. By: Gambetta Podesta, Renzo
    Abstract: This Report use a resampling based on Monte Carlo simulation techniques to calculate distribution for the losses observed in the loans portfolios during 2013 and 2014 for each of the Municipal Savings and Credit Loan Banks in Peru. With these results two key variables are analyzed; regulatory capital ratios are compared with the unexpected losses to verify levels of solvency and the income statements are used to achieve a differently measure of the commons accountant financial profitability ratios for better allocation to the adjusted returns of credit risk of each institution. The analysis was conducted with information from RCD (Reporte Crediticio de Deudores), regulatory report submitted for the SBS (Superintendencia de Banca y Seguros) where we can find detailed information for each debtor like debt amount granted by the financial system, delinquency indicators, guarantees, credit provisions, among others. Distributions of losses are computed repeatedly through the nonparametric bootstrap resampling method from the original population to calculate the desired statistics after each iteration. The results show that the simple profitability ratios differ from those calculated in the simulation because they would not take into account the real risks they face to achieve such returns. In terms of solvency the result is mixed, the regulatory capital requirement for credit risk in some Cajas would be underestimated even they would not be covering the legal minimum.
    Keywords: RARORAC, Credit Risk, Expected Shortfall, Montecarlo Simulation,Expected losses, Unexpected losses,Microfinances
    JEL: C14 C15 G21
    Date: 2015–03
  8. By: Delis, Manthos; Hasan, Iftekhar; Tsionas, Efthymios
    Abstract: Use of variability of profits and other accounting-based ratios in order to estimate a firm's risk of insolvency is a well-established concept in management and economics. This paper argues that these measures fail to approximate the true level of risk accurately because managers consider other strategic choices and goals when making risky decisions. Instead, we propose an econometric model that incorporates current and past strategic choices to estimate risk from the profit function. Specifically, we extend the well-established multiplicative error model to allow for the endogeneity of the uncertainty component. We demonstrate the power of the model using a large sample of U.S. banks, and show that our estimates predict the accelerated bank risk that led to the subprime crisis in 2007. Our measure of risk also predicts the probability of bank default both in the period of the default, but also well in advance of this default and before conventional measures of bank risk.
    Keywords: Endogenous bank risk; Strategic management choices
    JEL: C3 C30 G2 G21
    Date: 2015–06–01
  9. By: M. Moretto; G. Rossini
    Abstract: We investigate the relationship between the extent of vertical flexibility and the underlying financial choices of a firm. By vertical flexibility we mean the opportunity to outsource a necessary input and to reverse the choice as input market conditions dictate. A firm simultaneously selects the portion of equity and debt and its vertical setting. Debt is provided by a lender that requires the payment of a fixed coupon over time and, as a collateral, an option to buy out the firm in certain circumstances. Debt leads to the same level of flexibility acquired by an unlevered firm. However, investment to set up a flexible technology occurs earlier. An alternative to debt is the involvement of venture capital for the production of the input. We explore this second avenue finding that the extent of outsourcing adopted is lower than for the unlevered firm, but the firm invests earlier.
    JEL: C61 G31 G32 L24
    Date: 2015–06
  10. By: Delis, Manthos; Gaganis, Chrysovalantis; Hasan, Iftekhar; Pasiouras, Fotios
    Abstract: We link genetic diversity in the country of origin of firms’ board members with corporate performance via board members’ nationality. We hypothesize that our approach captures deep-rooted differences in cultural, institutional, social, psychological, physiological, and other traits that cannot be captured by other recently measured indices of diversity. Using a panel of firms listed in the North American and U.K. stock markets, we find that adding board directors from countries with different levels of genetic diversity (either higher or lower) increases firm performance. This effect prevails when we control for a number of cultural, institutional, firm-level, and board member characteristics, as well as for the nationality of the board of directors. To identify the relationship, we use as instrumental variables for our diversity indices the migratory distance from East Africa and the level of ultraviolet exposure in the directors’ country of nationality.
    Keywords: Genetic diversity; corporate performance; nationality of board members
    JEL: G0 G00 G30 M21
    Date: 2015–06–01
  11. By: Carlos Cueva Herrero (Dpto. Análisis Económico Aplicado); Aldo Rustichini (University of Minnesota)
    Abstract: The hypothesis that price stability would reliably increase with the fraction of women operating in financial markets has been frequently suggested in policy discussions. To test this hypothesis we conducted 10 male-only, 10 female-only and 10 mixed-gender experimental asset markets, and compared the effects of gender composition, confidence, risk attitude and cognitive skills. Male and female markets have comparable volatility and deviations from fundamentals, whereas mixed-gender markets are substantially more stable. On the other hand, higher average cognitive skills of the group are associated with reduced market volatility. Individual-level analysis shows that subjects with higher cognitive skills trade more rationally and earn significantly higher profits; similarly, mixed markets exhibit more rational behavior, particularly for traders with lower cognitive skills. Our results are demonstrated to hold in other experimental asset market studies, suggesting that a mixed-gender composition reduces mispricing across different types of asset markets.
    Keywords: asset market experiment, mispricing, price bubbles, gender, cognitive ability
    JEL: C91 C92 G02 G11 J16
    Date: 2015–05
  12. By: aus dem Moore, Nils
    Abstract: We contribute to the empirical literature on the relationship between corporate taxes and investment. We exploit the introduction of the so-called ACE corporate tax reform in Belgium that came into effect in January 2006 to evaluate this relationship in a quasiexperimental setting based on firm-level accounting data. To identify the causal effect of the reform on capital spending of Belgian corporations, we focus on the indirect effect of taxes on investment via their impact on free cash-flow. We use the systematic variation of the cash-flow sensitivity of investment between small and medium versus large firms to form treatment and control groups for difference-in-differences (DiD) estimations. Our benchmark results provide highly significant and robust estimates that correspond to an increase in investment activity by small and medium-sized firms of about 3 percent in response to the ACE reform. We substantiate the robustness of our results by means of triple differences estimations (DDD) that use a matched sample of French companies as an additional dimension of contrast.
    Abstract: Das Paper leistet einen Beitrag zur empirischen Literatur über den Zusammenhang von Unternehmensbesteuerung und Investitionstätigkeit. Konkret wird auf Basis von Bilanzdaten ermittelt, welchen Effekt die im Jahr 2006 vollzogene Einführung einer zinsbereinigten Gewinnsteuer in Belgien auf die Investitionsquote der betroffenen Unternehmen hatte. Systematische Unterschiede in der Cashflow-Abhängigkeit der Investitionen zwischen kleinen und mittleren Firmen einerseits und Großunternehmen andererseits bilden dabei die Grundlage für die Anwendung eines Differenz-von-Differenzen-Ansatzes. Die Schätzungen weisen auf eine hoch signifikante und robuste Steigerung der Investitionstätigkeit kleiner und mittlerer Unternehmen um etwa drei Prozent hin. Die Robustheit dieses Ergebnisses wird durch Schätzungen erhärtet, in denen eine Kontrollgruppe aus französischen Unternehmen als weitere Ebene im Differenz-von-Differenzen-Ansatz verwendet wurde.
    Keywords: corporate income taxation,investment,capital budgeting,allowance for corporate equity,difference-in-differences
    JEL: H25 H32 H22 G31 G38
    Date: 2014
  13. By: Thesmar , David; Landier , Augustin
    Abstract: Due to non-linear transaction costs, the financial performance of a trading strategy decreases with portfolio size. Using a dynamic trading model a la Garleanu and Pedersen (2013), the authors derive closed-form formulas for the performance-to-scale frontier reached by a trader endowed with a signal predicting stock returns. The decay with scale of the realized Sharpe ratio is slower for strategies that (1) trade more liquid stocks (2) are based on signals that do not fade away quickly and (3) have strong frictionless performance. For an investor ready to accept a Sharpe reduction by 30%, portfolio scale (measured in dollar volatility) is given by a simple formula that is a function of the frictionless Sharpe, a measure of price impact, and a measure of the speed at which the signal fades away. They apply the framework to four well-known strategies. Because stocks have become more liquid, the capacity of strategies has increased in the 2000s compared to the 1990s. Due to high signal persistence, the capacity of a "quality" strategy is an order of magnitude larger than the others and is the only one highly scalable in the mid-cap range.
    Keywords: trading costs; asset pricing anomalies; asset management; arbitrage
    JEL: G11 G12
    Date: 2015–03–26
  14. By: Troug, Haytem Ahmed; Sbia, Rashid
    Abstract: In our paper, we examined the relationship between non-performing loans, as a measure of stability, and concentration, as a measure of competition, in the Libyan banking sector. We used aggregate quarterly data for the 15 commercial banks in the country during the period 2002-2013. A broad set of tests were conducted to measure the relationship between the two variables, and alternative robustness tests were conducted to assure our core finding that less competition in the banking sector leads to a more resilient banking sector. Thus, our results offer empirical support against “competition–stability” theory and conform to the “competition–fragility” literature. We conclude by recommending the need to inspect in more detail (on a bank by bank level) the relationship between competition and fragility in developing countries in general and in Libya in particular.
    Keywords: Banking competition, Financial stability, developing countries, Oil exporting countries, Libya.
    JEL: C50 C58 G00 G21
    Date: 2015
  15. By: Federico Nucera (Luiss Guido Carli University, Rome, Italy); Bernd Schwaab (European Central Bank, Frankfurt, Germany); Siem Jan Koopman (Faculty of Economics and Business Administration, VU University Amsterdam); André Lucas (Faculty of Economics and Business Administration, VU University Amsterdam)
    Abstract: We propose to pool alternative systemic risk rankings for financial institutions using the method of principal components. The resulting overall ranking is less affected by estimation uncertainty and model risk. We apply our methodology to disentangle the common signal and the idiosyncratic components from a selection of key systemic risk rankings that are recently proposed. We use a sample of 113 listed financial sector firms in the European Union over the period 2002-2013. The implied ranking from the principal components is less volatile than most individual risk rankings and leads to less turnover among the top ranked institutions. We also find that price-based rankings and fundamentals based rankings deviated substantially and for a prolonged time in the period leading up to the financial crisis. We test the adequacy of our newly pooled systemic risk ranking by relating it to credit default swap premia.
    Keywords: systemic risk contribution; risk rankings; forecast combination; financial regulation; banking supervision
    JEL: G01 G28
    Date: 2015–06–01
  16. By: Aboura, Sofiane; Lépinette-Denis, Emmanuel
    Abstract: The capital structure of banks has become the focus of an extended debate among policy-makers, regulators and academics. The seminal Modigliani-Miller (1958) theorem is seen as supportive of regulators' drive to require higher equity capital to banks. This raises the question on to what extent does Modigliani-Miller theorem hold for banks. This article brings a new insight of the Modigliani-Miller theorem by considering the implicit government guarantee offered to banks. Our theorem shows that a bank does not satisfy the Modigliani-Miller theorem. The main result indicates that banks will favor leverage instead of equity.
    Keywords: Modigliani-Miller; Banks; Leverage; Regulation;
    JEL: G3 G21 G28
    Date: 2015–04
  17. By: Golez, Benjamin (University of Notre Dame); Koudijs, Peter (Stanford University)
    Abstract: We analyze four centuries of stock prices and dividends in the Dutch, English, and U.S. market. With the exception of the post-1945 period, the dividend-to-price ratio is stationary and predicts returns throughout all four centuries. "Excess volatility" is thus a pervasive feature of financial markets. The dividend-to-price ratio also predicts dividend growth rates in all but the most recent period. Cash-flows were therefore much more important for price movements before 1945, and the dominance of discount rate news is a relatively recent phenomenon. This is consistent with the increased duration of the stock market in the recent period.
    JEL: G12 G17 N20
    Date: 2015–01
  18. By: Minasyan, Vigen (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: Deterining the structure and the correct calculation of the value of capital the company is a major theoretical and practical problems Corporate Finance. As you know, the maximization of the company's values ??- the main purpose of financial management, and on how the rest of the proportion of between equity and debt capital, risk and return depends company, and, therefore, the welfare of its owners. Most general recommendation is to determine the capital structure based on market ratio between debt and equity. However, in first place, the proportion of the market often do not accord with those values, the results are obtained estimations. Ie because of the weak market efficiency, input data contradict the results which are calculated based on them. Second, not all companies have representative market quotation. The question arises: how to correctly evaluate the capital and its market structure for individual projects and companies in general?
    Keywords: evaluation, capital cost, capital structure, risks
    Date: 2015–05
  19. By: Anaïs A Périlleux; Ariane Szafarz
    Abstract: How do women leaders such as board members and top managers influence the social performance of organizations? This paper addresses the question by exploiting a unique database from a Senegalese network of 36 financial cooperatives. We scrutinize the loan-granting decisions, made jointly by the locally elected board and the top manager assigned by the central union of the network. Our findings are threefold. First, female-dominated boards favor social orientation. Second, female managers tend to align their strategy with local boards' preferences. Third, the central union tends to assign male managers to female-dominated boards, probably to curb the boards’ social orientation.
    Keywords: Gender; Governance; Leadership; Microfinance; Africa; Senegal
    JEL: G20 J54 O16 G34 O55 L31
    Date: 2015–05–27
  20. By: Lucian A. Bebchuk; Alon Brav; Wei Jiang
    Abstract: We test the empirical validity of a claim that has been playing a central role in debates on corporate governance—the claim that interventions by activist hedge funds have a negative effect on the long-term shareholder value and corporate performance. We subject this claim to a comprehensive empirical investigation, examining a long five-year window following activist interventions, and we find that the claim is not supported by the data. We find no evidence that activist interventions, including the investment-limiting and adversarial interventions that are most resisted and criticized, are followed by short-term gains in performance that come at the expense of long-term performance. We also find no evidence that the initial positive stock-price spike accompanying activist interventions tends to be followed by negative abnormal returns in the long term; to the contrary, the evidence is consistent with the initial spike reflecting correctly the intervention’s long-term consequences. Similarly, we find no evidence for pump-and-dump patterns in which the exit of an activist is followed by abnormal long-term negative returns. Our findings have significant implications for ongoing policy debates.
    JEL: G12 G23 G32 G34 G35 G38 K22
    Date: 2015–06
  21. By: Stelios Bekiros (European University Institute (EUI) and IPAG Business School); Rangan Gupta (Department of Economics, University of Pretoria and IPAG Business School); Clement Kyei (Department of Economics, University of Pretoria)
    Abstract: The sentiment-based investor indices SBW and SPLS introduced by Baker and Wurgler (2006, 2007) and Huang et al. (2015) respectively are commonly reported to predict monthly stock returns, yet based on a linear causality framework. However, the latter may lead to misspecification and lack of robustness. We provide statistical evidence that the relationship between stock returns, SBW and SPLS is characterized by structural instability and inherent nonlinearity. Moreover, using a nonparametric causality approach, we show that SBW and not SPLS is in fact a stronger predictor of market returns and volatility, as opposed to previous empirical evidence.
    Keywords: Investor sentiment; stock markets; nonlinear dependence
    JEL: C22 C32 C53 G10 G11
    Date: 2015–06
  22. By: Ovtchinnikov , Alexei; Cooper , Michael
    Abstract: Recent work has shown that where a firm is located matters for such things as dividend and investment policy, governance, liquidity, equity and debt issuance, and risk exposure. These effects seem to exist, in part, because of managements' desire to minimize agency problems related to monitoring and relationship building that vary as a function of firm distance from agents. The authors expand the current location literature by showing that firm location characteristics, not just distance per se, are important. They develop a geographical-based vibrancy index using important location characteristics from the Urban Economics literature that measure local economic health. We show that the vibrancy index not only predicts firm policy variables such as investment and leverage, but also predicts firm performance and firm value. The local effects are strong, adding up to a 50% increase in explanatory power above industry effects. Our results indicate that the local vibrancy of a firm headquarters is an important determinant of firm policies and profitability.
    Keywords: geography; firm location; vibrancy; firm characteristics; firm performance
    JEL: G10 G11 G23
    Date: 2015–03–16
  23. By: Dirk Broeders; Arco van Oord; David Rijsbergen
    Abstract: Using a unique dataset of 225 Dutch occupational pension funds with a total of 928 billion euro of assets under management, we provide a comprehensive analysis of the relation between investment costs and pension fund size. Our dataset is free from self-reporting biases and decomposes investment costs for 6 asset classes in management costs and performance fees. A pension fund that has 10 times more assets under management, has on average 7.67 basis points lower annual investment costs. These economies of scale are solely driven by management costs. Robustness checks show that this key finding does not vary over different pension fund sizes. Economies of scale do, however, differ per asset class. We find significant economies of scale in fixed income, equity and commodity portfolios, but not in real estate investments, private equity and hedge funds. We also find that large pension funds pay significantly higher performance fees for equity, private equity and hedge fund investments.
    Keywords: pension funds; asset management; management costs; performance fees
    JEL: G11 G12 G23
    Date: 2015–06
  24. By: Colliard , Jean-Edouard; Perignon , Christophe
    Abstract: The authors review the extensive literature on systemic risk and connect it to the current regulatory debate. While they take stock of the achievements of this rapidly growing field, they identify a gap between two main approaches. The first one studies different sources of systemic risk in isolation, uses confidential data, and inspires targeted but complex regulatory tools. The second approach uses market data to produce global measures which are not directly connected to any particular theory, but could support a more efficient regulation. Bridging this gap will require encompassing theoretical models and improved data disclosure.
    Keywords: Banking; Macroprudential Regulation; Systemically Important Financial In- stitutions; Financial Crises; Too-Big-To-Fail
    JEL: G01 G32
    Date: 2015–04–13
  25. By: Marlene Karl
    Abstract: This paper introduces a new and comprehensive dataset on “alternative” banks in EU and OECD countries. Alternative banks (e.g. ethical, social or sustainable banking) experienced a recent increase in media interest and have been hailed as an answer to the financial crisis but no research exists on their stability. This paper studies whether alternative banks differ from conventional banks in terms of riskiness. For this I construct a comprehensive dataset of alternative banks and compare their riskiness with an adequately matched control group of conventional banks using mean comparison and panel regression techniques. The main result is that alternative banks are significantly more stable (in terms of z-score) than their conventional counterparts. The results are robust to different estimation methods and data specifications. Alternative banks also have lower loan to asset ratios and higher customer deposit ratios than conventional banks.
    Keywords: Ethical banking, social banking, bank risk, financial crisis
    JEL: G21 G32 E44 M14
    Date: 2015
  26. By: Bai, Jennie (Georgetown University); Krishnamurthy, Arvind (Stanford University); Weymuller, Charles-Henri (French Treasury)
    Abstract: This paper expands on Brunnermeier, Gorton and Krishnamurthy (2011) and implements a liquidity measure, "Liquidity Mismatch Index (LMI)," to gauge the mismatch between the market liquidity of assets and the funding liquidity of liabilities. We construct the LMIs for 2882 bank holding companies during 2002-2014 and investigate the time-series and cross-sectional patterns of banks' liquidity and liquidity risk. The aggregate banking sector liquidity worsens from +$5 trillion before the crisis to -$3 trillion in 2008, and reverses back to the pre-crisis level in 2009. We also show how a liquidity stress test can be conducted with the LMI metric, and that such a stress test as an effective macroprudential tool could have revealed the liquidity need of the banking system in the late 2007. In the cross section, we find that banks with more liquidity mismatch have a higher crash probability in the financial crisis and have a higher chance to borrow from the government during the financial crisis. Thus our LMI measure is informative regarding both individual bank liquidity risk as well as the liquidity risk of the entire banking system.
    JEL: G21 G28
    Date: 2015–03
  27. By: Troug, Haytem Ahmed; Sbia, Rashid
    Abstract: This paper aims at providing empirical support to claims made by officials in oil-producing countries that investors in the New York stock Exchange market are involved in the disruption of oil production in some OPEC countries. The claims state that some investors in the NYSE are financing militias in those countries to close down oilfields and ports, and buy oil before this incident occurs. By doing so, they have access to information that no one else in the market has, and make profits from this information. Using a VAR model approach to detect this phenomenon, and being inspired by the asymmetric information theory, we fail to support those claims. We tried to put this theory under investigation by running test on three oil disruption incidents that occurred in 2013, and all of the results turned out to be insignificant. Nevertheless, this approach was able to detect a period which might involve asymmetric information in the NYSE. In addition, using a VAR model enabled us to measure the duration and magnitude of the effect of a shock in volumes of trade on oil prices in that market.
    Keywords: stock Exchange market,OPEC countries, NYSE, Asymmetric Information, Oil Market
    JEL: C50 C58 G02 G14
    Date: 2015
  28. By: He, Zhiguo (University of Chicago); Krishnamurthy, Arvind (Stanford University)
    Abstract: Systemic risk arises when shocks lead to states where a disruption in financial intermediation adversely affects the economy and feeds back into further disrupting financial intermediation. We present a macroeconomic model with a financial intermediary sector subject to an equity capital constraint. The novel aspect of our analysis is that the model produces a stochastic steady state distribution for the economy, in which only some of the states correspond to systemic risk states. The model allows us to examine the transition from "normal" states to systemic risk states. We calibrate our model and use it to match the systemic risk apparent during the 2007/2008 financial crisis. We also use the model to compute the conditional probabilities of arriving at a systemic risk state, such as 2007/2008. Finally, we show how the model can be used to conduct a macroeconomic "stress test" linking a stress scenario to the probability of systemic risk states.
    JEL: E44 G12 G20
    Date: 2015–03

This nep-cfn issue is ©2015 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.