nep-cfn New Economics Papers
on Corporate Finance
Issue of 2016‒02‒04
six papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. The countercyclical capital buffer in spain: an analysis of key guiding indicators By Christian Castro; Ángel Estrada; Jorge Martínez
  2. Taming macroeconomic instability: Monetary and macro prudential policy interactions in an agent-based model By Lilit Popoyan; Mauro Napoletano; Andrea Roventini
  3. How firms borrow in international bond markets: securities regulation and market segmentation By Alberto Fuertes; José María Serena
  4. DO OPTION TRADERS TARGET FIRMS WITH POOR EARNINGS QUALITY By Cristhian Mellado; Surendranath R. Jory; Thanh N. Ngo
  5. The role of bank credit in business financing in Poland By Anna Białek-Jaworska; Natalia Nehrebecka
  6. Corporate cash-pool valuation in a multi-firm context: a closed formula By Berlinger, Edina; Bihary, Zsolt; Walter, György

  1. By: Christian Castro (Banco de España); Ángel Estrada (Banco de España); Jorge Martínez (Banco de España)
    Abstract: This paper analyses a group of quantitative indicators to guide the Basel III countercyclical capital buffer (CCB) in Spain. Using data covering three stress events in the Spanish banking system since the early 1960s, we describe a number of conceptual and practical issues that may arise with the Basel benchmark buffer guide (i.e. the credit-to-GDP gap) and study alternative specifications plus a number of complementary indicators. In this connection, we explore ways to deal with structural changes that may lead to some shortcomings in the indicators. Overall, we find that indicators of credit ‘intensity’ (where we propose the ratio of changes in credit to GDP), private sector debt sustainability, real estate prices and external imbalances can usefully complement the credit-to-GDP gap when taking CCB decisions in Spain.
    Keywords: countercyclical capital buffer, credit-to-GDP gap, guiding indicators, build-up phase, credit intensity, real estate prices, external imbalances, private sector debt sustainability, macroprudential policy
    JEL: E58 G01 G21 G28 G32
    Date: 2016–01
  2. By: Lilit Popoyan (Laboratory of Economics and Management (Pisa) (LEM)); Mauro Napoletano (OFCE); Andrea Roventini (Department of economics)
    Abstract: We develop an agent-based model to study the macroeconomic impact of alternative macro prudential regulations and their possible interactions with different monetary policy rules.The aim is to shed light on the most appropriate policy mix to achieve the resilience of the banking sector and foster macroeconomic stability. Simulation results show that a triple-mandate Taylor rule, focused on output gap, inflation and credit growth, and a Basel III prudential regulation is the best policy mix to improve the stability of the banking sector and smooth output fluctuations. Moreover, we consider the dfferent levers of Basel III andtheir combinations. We find that minimum capital requirements and counter-cyclical capital buffers allow to achieve results close to the Basel III first-best with a much more simplifiedregulatory framework. Finally, the components of Basel III are non-additive: the inclusionof an additional lever does not always improve the performance of the macro prudentialregulation
    Keywords: Macro prudential policy; Basel III regulation; Financial stability; Monetary policy; Agent-based computational economics
    JEL: C63 E52 E6 G1 G21 G28
    Date: 2015–12
  3. By: Alberto Fuertes (Banco de España); José María Serena (Banco de España)
    Abstract: We investigate how firms in emerging economies choose among the different international bond markets: global, US144A and Eurobond markets. By exploiting the connection between the market of issuance and regulatory disclosure of information, we show that firms with poorer credit quality, less ability to absorb flotation costs and more informational asymmetries issue debt in US144A and Eurobond markets, where regulation is lighter and information is less public. On the contrary, firms issuing global bonds – subject to full SEC requirements – are financially sounder and larger. This exercise also shows that, following the global crisis, firms are more likely to tap less regulated debt markets. The results are supported by descriptive evidence, univariate non-parametric analyses, and conditional and multinomial logit analyses. To research the issue, we have constructed a novel dataset containing information on firms’ debt securities issuance and their financial accounts for the period 2000-2014. To account for firms’ complex structures, we look at the balance sheet of the guarantor of debt, which need not be the issuing company. The dataset comprises 3,944 debt securities, guaranteed by firms of 36 emerging economies, which amount to a total of 1.2 USD trillion in debt issued.
    Keywords: bond markets, securities regulation, debt choice, Rule 144, Eurobond, Global bond.
    JEL: G15 G18 G32
    Date: 2016–02
  4. By: Cristhian Mellado; Surendranath R. Jory; Thanh N. Ngo
    Abstract: We study the behaviour of investors trading options on the stock of firms with abnormal level of production costs, discretionary expenditure and accruals, i.e., firms that are suspects of engaging in earnings management. We differentiate between real earnings management and accruals management since the time it takes for each to unravel is not the same and they differ in their opacity. Our findings suggest that option traders pay attention to suspect financial reporting and that the motivations to trade in put options are, at least in part, related to earnings management at the underlying firms. We document a strong and positive association between put-call implied volatility and the proxies for earnings management.
    JEL: G14 M41 D82
    Date: 2016–01–27
  5. By: Anna Białek-Jaworska (Faculty of Economic Sciences, University of Warsaw); Natalia Nehrebecka (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)
    Abstract: The purpose of the paper is to verify the applicability of the pecking order theory to Polish non-finance companies’ inclination to use credit-based financing, as well as to indicate the long-term and short-term bank credit use determinants, including the monetary policy impact and the year effect. The analysis covers a sample of 800,000 observations across the period 1995-2011, using the GMM sys-tem method. The impact of foreign and government ownership, the share of exports, profitability, liquidity, fixed assets collateral and monetary policy are the determinants of the long-term and short-term bank loan in business financing investigated in the study. For small and medium-sized enterprises, a negative correlation is found between profitability and both long- and short-term loan financing, as well as between liquidity and short-term loan financing, ac-cording to what the pecking order theory assumes. A negative impact of restrictive monetary policy effected via interest rate and rate of exchange channels on Polish firms’ decisions as regards financing their business with short-term bank loan is found. The effect of the current and previous period payment gridlocks on short-term bank loan financing experienced by small and medium-sized enterprises should help banks adjust their loan offer to SMEs’ needs. The correlation between the bankruptcy risk level and companies’ short-term borrowing decisions – positive in the group of large firms and ad-verse among SMEs – should guide banks’ loan committees when modifying their creditworthiness analysis and loan application verification procedures. The use of (S)VAR panel method for investigating the response of the bank loan financing level to the interest rate, exchange rate and credit risk disturbance (shock) are the original aspects of the study. The empirical evidence that a higher share of liquid securities in assets reduces the use of short-term loan and that in small firms its level in a previous period is positively correlated with the use of short-term bank loan financing is the added value of the paper.
    Keywords: bank loan, long-term bank loan, short-term bank loan, pecking order theory, system GMM, (S)VAR
    JEL: G32 E52 G21 C23 C33
    Date: 2016
  6. By: Berlinger, Edina; Bihary, Zsolt; Walter, György
    Abstract: Following our earlier paper on the subject, we present a general closed formula to value the interest savings due to a multi-firm cash-pool system. Assuming normal distribution of the accounts the total savings can be expressed as the product of three independent factors representing the interest spread, the number and the correlation of the firms, and the time-dependent distribution of the cash accounts. We derive analytic results for two special processes one characterizing the initial build-up period and the other describing the mature period. The value gained in the stationary system can be thought of as the interest, paid at the net interest spread rate on the standard deviation of the account. We show that pooling has substantial value already in the transient period. In order to increase the practical relevance of our analysis we discuss possible extensions of our model and we show how real option pricing technics can be applied here.
    Keywords: cash management, analytical solution, Brown motion, mean reversion, real option pricing
    JEL: G15 G21 G32
    Date: 2016–01–20

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