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on Corporate Finance |
| By: | Giebel, Marek; Kraft, Kornelius |
| Abstract: | This paper tests for the sensitivity of R&D to financing constraints conditional on restrictions in external financing. Financing constraints of firms are identified by an exogenously calculated rating index. Restrictions in external financing are determined by (i) the specific time period (crisis vs. non-crisis) and (ii) the balance sheet strength of the firm's main bank in terms of bank capital. Results of difference-in-differences estimations utilizing three time periods: 2002-2006 (pre-crisis) 2007-2009 (crisis) and 2010-2012 (post-crisis) support the theoretical prediction that financing constraints affect R&D. Moreover, we find that the effect of firm financing constraints is more intense (i) in times of stress on financial markets and (ii) when the firm faces restrictions in external financing. Additionally, our results indicate that on average the effect does not persist over time. |
| Keywords: | R&D investment,financing constraints,credit rating,financial crisis,bank capital,external financing of innovation |
| JEL: | G01 G21 G24 G30 O16 O30 O31 O32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:20018&r=all |
| By: | Rochelle M. Edge; J. Nellie Liang |
| Abstract: | We evaluate how a country’s governance structure for macroprudential policy affects its implementation of Basel III macroprudential capital buffers. We find that the probabilities of using the countercyclical capital buffer (CCyB) are higher in countries that have financial stability committees (FSCs) with stronger governance mechanisms and fewer agencies, which reduces coordination problems. These higher probabilities are more sensitive to credit growth, consistent with the CCyB being used to mitigate systemic risk. A country’s probability of using the CCyB is even higher when the FSC or ministry of finance has direct authority to set the CCyB, perhaps because setting the CCyB involves establishing a new macro-financial analytical process to regularly assess systemic risks and allows these new entities to influence the process. These results are consistent with elected officials creating the FSCs with the strongest governance and fewer agencies for functional delegation reasons, but most FSCs are created for symbolic political reasons. |
| Keywords: | Delegation; Financial stability committees; Credit growth; Macroprudential policy; Countercyclical capital buffer; Bank regulators |
| JEL: | G21 G28 H11 P16 |
| Date: | 2020–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-16&r=all |
| By: | Bermin, Hans-Peter (Knut Wicksell Centre for Financial Studies, Lund University); Holm, Magnus (Hilbert Capital) |
| Abstract: | In this paper we show that a Kelly trader is indifferent to trade the derivative if and only if the no-arbitrage price is uniquely given by the minimal martingale measure no-arbitrage price, thus providing a natural selection mechanism for option pricing in incomplete markets. We also show that the unique Kelly indifference price results in market equilibrium, in the sense that no Kelly trader can improve the magnitude of his instantaneous Sharpe ratio, by trading the derivative, given the actions of the other market participants. |
| Keywords: | Option pricing; Incomplete markets; Hansen-Jagannathan bound; Minimal martingale measure; Kelly Indifference price; Kelly Equilibrium |
| JEL: | G20 |
| Date: | 2019–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:luwick:2019_003&r=all |
| By: | Aïd, René; Callegaro, Giorgia; Campi, Luciano |
| Abstract: | We design three continuous-time models in finite horizon of a commodity price, whose dynamics can be affected by the actions of a representative risk-neutral producer and a representative risk-neutral trader. Depending on the model, the producer can control the drift and/or the volatility of the price whereas the trader can at most affect the volatility. The producer can affect the volatility in two ways: either by randomizing her production rate or, as the trader, using other means such as spreading false information. Moreover, the producer contracts at time zero a fixed position in a European convex derivative with the trader. The trader can be price-taker, as in the first two models, or she can also affect the volatility of the commodity price, as in the third model. We solve all three models semi-explicitly and give closed-form expressions of the derivative price over a small time horizon, preventing arbitrage opportunities to arise. We find that when the trader is price-taker, the producer can always compensate the loss in expected production profit generated by an increase of volatility by a gain in the derivative position by driving the price at maturity to a suitable level. Finally, in case the trader is active, the model takes the form of a nonzero-sum linear-quadratic stochastic differential game and we find that when the production rate is already at its optimal stationary level, there is an amount of derivative position that makes both players better off when entering the game. |
| Keywords: | price manipulation; fair game option pricing; martingale optimality principle; linear-quadratic stochastic differential games |
| JEL: | C73 |
| Date: | 2020–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:103815&r=all |
| By: | James Driver; Adam Kolasinski; Jared Stanfield |
| Abstract: | We analyze a unique dataset that separately reports research and development expenditures for a large panel of public and private firms. Definitions of “research” and “development” in this dataset, respectively, correspond to definitions of knowledge “exploration” and “exploitation” in the innovation theory literature. We can thus test theories of how equity ownership status relates to innovation strategy. We find that public firms have greater research intensity than private firms, inconsistent with theories asserting private ownership is more conducive to exploration. We also find public firms invest more intensely in innovation of all sorts. These results suggest relaxed financing constraints enjoyed by public firms, as well as their diversified shareholder bases, make them more conducive to investing in all types of innovation. Reconciling several seemingly conflicting results in prior research, we find private-equity-owned firms, though not less innovative overall than other private firms, skew their innovation strategies toward development and away from research. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:20-14&r=all |