nep-cfn New Economics Papers
on Corporate Finance
Issue of 2018‒07‒23
thirteen papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Contagion spillovers between sovereign and financial European sector from a Delta CoVaR approach By Javier Ojea Ferreiro
  2. Decision Sciences, Economics, Finance, Business, Computing, and Big Data: Connections By Chia-Lin Chang; Michael McAleer; Wing-Keung Wong
  3. What do you say and how do you say it: Information disclosure in Latin American firms By Diego Téllez; Maximiliano González; Alexander Guzmán; María Andrea Trujillo
  4. Sample separation and the sensitivity of investment to cash flow: Is the monotonicity condition empirically satisfied? By Alfonsina Iona; Leone Leonida
  5. On Hidden Problems of Option Pricing By Olkhov, Victor
  6. Leverage limits and bank risk: new evidence on an old question By Choi, Dong Boem; Holcomb, Michael R.; Morgan, Donald P.
  7. European banks after the global financial crisis: Peak accumulated losses, twin crises and business models By Leo de Haan; Jan Kakes
  8. Time-varying capital requirements and disclosure rules: Effects on capitalization and lending decisions By Imbierowicz, Björn; Kragh, Jonas; Rangvid, Jesper
  9. Bank Lending in the Knowledge Economy By DellAriccia, Giovanni; Kadyrzhanova, Dalida; lev, ratnovski; Minoiu, Camelia
  10. State-Owned Enterprises: Rationales for Mergers and Acquisitions By Massimo FLORIO; Matteo FERRARIS; Daniela VANDONE
  11. Asymmetric Risk Impacts of Chinese Tourists to Taiwan By Chia-Lin Chang; Shu-Han Hsu; Michael McAleer
  12. Why do banks use derivatives? An analysis of the Italian banking system By Luigi Infante; Stefano Piermattei; Raffaele Santioni; Bianca Sorvillo

  1. By: Javier Ojea Ferreiro (Department of Quantitative Economics, Complutense University of Madrid (UCM), Somosaguas, 28223,Spain.)
    Abstract: I examine the evolution of contagion indexes between the European financial sector and the sovereign sector (Austria, Belgium, France, Germany, Italy, Netherlands and Spain) during the European sovereign credit crisis. Contagion indexes, Delta CoVaR and Delta CoES, reflect events associated with extreme left tail returns and interdependencies between defaults different than those observed in tranquil times. These measures reveal very useful information concerning risk management. I use a copula approach with time-varying parameters to capture changes in the tail dependence between returns in the financial and the sovereign sectors. I employ a Switching Markov model to identify the most stressful moments of the contagion indicators. The results point out the emergence of Greek debt crisis on March 2010 and the vulnerable situation of Spain and Italy in summer 2011 as the main periods where the contagion from the sovereign to the financial sector was stronger. The decrease in contagion was gradual since the speech made by the ECB on July 26th,2012. The statistical significance of the change in the contagion indicators is checked using boostrap tests.
    Keywords: CoVaR; Copula; European sovereign credit crisis; systemic risk.
    JEL: G18 G21 G32 G38
    Date: 2018–05
  2. By: Chia-Lin Chang (Department of Applied Economics and Department of Finance National Chung Hsing University, Taiwan.); Michael McAleer (Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute Erasmus School of Economics Erasmus University Rotterdam, The Netherlands and Department of Quantitative Economics Complutense University of Madrid, Spain And Institute of Advanced Sciences Yokohama National University, Japan.); Wing-Keung Wong (Department of Finance, Fintech Center, and Big Data Research Center, Asia University, Taiwan and Department of Medical Research China Medical University Hospital And Department of Economics and Finance Hang Seng Management College, Hong Kong, China and Department of Economics, Lingnan University, Hong Kong, China.)
    Abstract: This paper provides a review of some connecting literature in Decision Sciences, Economics, Finance, Business, Computing, and Big Data. We then discuss some research that is related to the six cognate disciplines. Academics could develop theoretical models and subsequent econometric and statistical models to estimate the parameters in the associated models. Moreover, they could then conduct simulations to examine whether the estimators or statistics in the new theories on estimation and hypothesis have small size and high power. Thereafter, academics and practitioners could then apply their theories to analyze interesting problems and issues in the six disciplines and other cognate areas.
    Keywords: Decision sciences; Economics; Finance; Business; Computing; Big data; theoretical models; Econometric and statistical models; Applications.
    JEL: A10 G00 G31 O32
    Date: 2018–03
  3. By: Diego Téllez; Maximiliano González; Alexander Guzmán; María Andrea Trujillo
    Abstract: Firms in Latin America could differentiate themselves by adopting better information disclosure practices. In this paper, we construct an Information Disclosure Index (IDI) for a sample of 454 firms in the six largest Latin America countries. We look at 3.191 company reports and show that firms with better disclosure practices have better market valuation (Tobin’s Q) and operating performance (ROE). We then measure the tone of the information disclosed using word content analysis, and find that uncertainty in tone is negatively associated with higher firm valuation (Tobin’s Q) and better financial performance (ROE).
    Keywords: Disclosure Content analysis Corporate governance Firm value
    JEL: G15 G34
    Date: 2017–02–25
  4. By: Alfonsina Iona (Queen Mary University of London); Leone Leonida (King’s Business School, King’s College London)
    Abstract: This paper studies whether the monotonicity condition of the investment-cash flow sensitivity is satisfied empirically. We show that if this condition holds, then the point of sample separation does not affect the monotonic relationship between the sensitivities of any two complementary classes of observations. Our test, based upon observable averages of the investment-cash flow sensitivity, rejects the monotonicity condition for any common metric of financing constraints we use. The testing procedure we propose reconciles the conflicting findings of the literature about the shape of the investment-cash flow sensitivity.
    Keywords: Investment-cash flow sensitivity, Monotonicity condition, Sample separation
    JEL: G30 G32
    Date: 2018–07–05
  5. By: Olkhov, Victor
    Abstract: This paper gives new look on option pricing and Black-Scholes-Merton equation within economic space point of view. We argue reasons for economic space definition and it’s application for options pricing. Our approach allows review classical Black-Sholes-Merton model and discovers hidden complexity of option pricing. We derive Black-Sholes-Merton equation on n-dimensional economic space and argue new tough problems.
    Keywords: Option Pricing, Black-Scholes-Merton Equations, Economic Space
    JEL: C02 G12 G17
    Date: 2016–08
  6. By: Choi, Dong Boem (Federal Reserve Bank of New York); Holcomb, Michael R. (Federal Reserve Bank of New York); Morgan, Donald P. (Federal Reserve Bank of New York)
    Abstract: The supplementary leverage ratio (SLR) rule recently imposed on the very largest U.S. banks has revived the question of whether banks sidestep such rules by shifting toward riskier, higher-yielding assets. Using difference-in-difference analysis, we find that, after the SLR was finalized in 2014, covered banks shifted their portfolio toward riskier (risk-weighted) assets and higher-yielding securities compared to other large banks not subject to the rule. The shifts are sizable and tend to be larger at banks more constrained ex ante by the leverage limit. Despite increased asset risk, overall bank risk (book and market measures) did not increase, suggesting the higher capital required under the new rule offset the risk-shifting. Taken together, our findings reinforce regulators’ long-standing concerns about risk-shifting around leverage limits and suggest that the recent recalibration will curb those incentives without necessarily increasing bank risk.
    Keywords: Basel III regulation; bank risk; leverage limit; regulatory arbitrage; reaching for yield
    JEL: G20 G21 G28
    Date: 2018–06–01
  7. By: Leo de Haan; Jan Kakes
    Abstract: This paper takes stock of European banks' accumulated losses since 2007 and relates these to bank characteristics. In line with previous studies, we find that large, market-oriented banks were particularly hit by the 2007-2009 global financial crisis whereas smaller, retail-oriented banks weathered these years relatively well. In subsequent years, however, the picture reversed and retail-oriented banks were most affected. Over the entire period, medium-sized banks suffered most losses and often needed state aid. This suggests that measures to contain systemic risk, such as capital surcharges and bail-in requirements, are as relevant for these institutions as they are for the largest banks.
    Keywords: Bank profitability; Business model; Financial crisis
    JEL: G01 G21
    Date: 2018–07
  8. By: Imbierowicz, Björn; Kragh, Jonas; Rangvid, Jesper
    Abstract: We investigate how banks' capital and lending decisions respond to changes in bankspecific capital and disclosure requirements. We find that an increase in the bankspecific regulatory capital requirement results in a higher bank capital ratio, brought about via less asset risk. A decrease in the requirement implies more lending to firms but also less Tier 1 capital and higher bank leverage. We do not observe differences between confidential and public disclosure of capital requirements. Our results empirically illustrate a tradeoff between bank resilience and a fostering of the economy through more bank lending using banks' capital requirement as policy instrument.
    Keywords: capital requirement,bank lending,bank capital structure,capital disclosure rules
    JEL: G21 G28
    Date: 2018
  9. By: DellAriccia, Giovanni; Kadyrzhanova, Dalida; lev, ratnovski; Minoiu, Camelia
    Abstract: We study bank portfolio allocations during the transition of the real sector to a knowledge economy in which firms increasingly use intangible assets. We show that higher corporate investment in intangible assets slows down banks' commercial lending. Banks reallocate the resulting lending capacity to other assets, notably mortgages. The findings are consistent with financial intermediation frictions due to lower collateral value of corporate intangible assets. Additional tests rule out alternative explanations such as higher mortgage demand. We estimate that higher corporate intangible assets conservatively explain 25-40% of the decline in bank commercial lending since the mid-1980s.
    Keywords: bank lending; commercial loans; corporate intangible assets; real estate loans
    JEL: E22 E44 G21
    Date: 2018–06
  10. By: Massimo FLORIO (Department of Economics, Management and Quantitative methods, Università degli Studi di Milano, Italy); Matteo FERRARIS (Istituto Superiore Mario Boella, Turin, Italy); Daniela VANDONE (Department of Economics, Management and Quantitative methods, Università degli Studi di Milano, Italy)
    Abstract: The paper contributes to the empirical literature on M&A deals performed by SOEs with a detailed analysis of the reported rationales from a sample of SOE-led acquisitions over the last decade. The sample includes 355 worldwide M&A deals performed by SOEs as acquirers over the period 2002-2012. The data set was obtained by combining firm-level information from two sources, Zephyr and Orbis (Bureau Van Dijk). The analysis is on a case-by-case basis for the rationales of the sample. Overall, the most important message arising from our analysis is that rescue of firms in financial distress is a relatively minor one role played by contemporary SOEs in spite of the Great Recession, while shareholder value maximization and long term strategic goals are more frequently the objective of the observed deals.
    Keywords: State-owned enterprises, M&As, nationalization, privatization
    JEL: L32 L33 G34
    Date: 2018–01
  11. By: Chia-Lin Chang (Department of Applied economics, Department of Finance National Chung Hsing University, Taiwan.); Shu-Han Hsu (Department of Applied economics National Chung Hsing University, Taiwan.); Michael McAleer (Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute Erasmus School of Economics Erasmus University Rotterdam, The Netherlands and Department of Quantitative Economics Complutense University of Madrid, Spain And Institute of Advanced Sciences Yokohama National University, Japan.)
    Abstract: Since 2008, when Taiwan’s President Ma Ying-Jeou relaxed the Cross-Strait policy, China has become Taiwan’s largest source of international tourism. In order to understand the risk persistence of Chinese tourists, the paper investigates the short-run and long-run persistence of shocks to the change rate of Chinese tourists to Taiwan. The daily data used for the empirical analysis is from 1 January 2013 to 28 February 2018. McAleer’s (2015) fundamental equation in tourism finance is used to link the change rate of tourist arrivals and the change in tourist revenues. Three widely-used univariate conditional volatility models, namely GARCH(1,1), GJR(1,1) and EGARCH(1,1), are used to measure the short-run and long-run persistence of shocks, as well as symmetric, asymmetric and leverage effects. Three different Heterogeneous AutoRegressive (HAR) models, HAR(1), HAR(1,7) HAR(1,7,28), are considered as alternative mean equations for capturing a variety of long memory effects. The mean equations associated with GARCH(1,1), GJR(1,1) and EGARCH(1,1) are used to analyse the risk persistence of the change in Chinese tourists. The exponential smoothing process is used to adjust the seasonality around the trend in Chinese tourists. The empirical results show asymmetric impacts of positive and negative shocks on the volatility of the change in the number of Group-type and Medical-type tourists, while Individual-type tourists display a symmetric volatility pattern. Somewhat unusually, leverage effects are observed in EGARCH for Medical-type tourists, which shows a negative correlation between shocks in tourist numbers and the subsequent shocks to volatility. For both Group-type and Medical-type tourists, the asymmetric impacts on volatility show that negative shocks have larger effects than do positive shocks. The leverage effect in EGARCH for Medical-type tourists implies that larger shocks would decrease volatility in the change in the numbers of Medical-type tourists. These results suggest that Taiwan tourism authorities should act to prevent the negative shocks for the Group-type and Medical-type Chinese tourists to dampen the shocks that arise from having fewer Chinese tourists to Taiwan.
    Keywords: Asymmetric risk; Leverage; Risk persistence; Tourist revenues; Conditional volatility models; Heterogeneous AutoRegressive (HAR) models.
    JEL: G32 C22 C58
    Date: 2018
  12. By: Luigi Infante (Bank of Italy); Stefano Piermattei (Bank of Italy); Raffaele Santioni (Bank of Italy); Bianca Sorvillo (Bank of Italy)
    Abstract: The derivatives market has experienced quick growth all over the world in the last two decades. Banks decide to participate in the derivatives market either to hedge against unexpected movements in economic variables or for trading and broker-dealer activities. This paper analyses, by means of multivariate descriptive statistical tools, the determinants of Italian banks’ use of derivatives over a long time horizon (2003-2017) by using quarterly Bank of Italy supervisory data. We find that size and being part of a banking group positively affect banks’ use of derivatives. Moreover, banks mainly employ derivatives for hedging purposes, especially to hedge against interest rate and credit risks. Finally, derivatives represent a hedging alternative to capital and liquidity. Our results are robust to different specifications that take into account the classification of derivatives by purpose (hedging versus trading) and the distinction between dealer versus end-user banks.
    Keywords: banking, derivatives, financial risks, hedging
    JEL: G21 G32
    Date: 2018–06
  13. By: Blanche Segrestin (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique); Andrew Johnston (University of Sheffield [Sheffield]); Armand Hatchuel (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Shareholders are in law excluded from management, unless they are appointed as directors or employed as managers. But, at the same time they keep control rights. The separation is therefore incomplete and this is an issue when managerial autonomy is considered as a condition for stakeholder management and corporate social responsibility. Past research on the separation between ownership and control has extensively studied the distinction between shareowners and directors, but less the distinction between directors and managers. In this article, we investigate why management has emerged as a distinctive function, and how the law receives it. Our study shows that it only has accommodated it but overlooked the rationales behind the historical emergence of management. The lack of conceptualization of the management in law allowed reforms in the second half of the twentieth century that have weakened managerial discretion, and the separation of ownership and control. Our article thus calls for further research in law and management to reappraise the status of managers.
    Keywords: Management history,Manager,company law,corporate governance,innovation
    Date: 2018–06–20

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