nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2009‒01‒31
two papers chosen by
Philip Yu
Hong Kong University

  1. A Discrete-Choice Model Approach to Optimal Congestion Change By Strøm, Steinar; Vislie, Jon
  2. What Determines the Financing Decision in Corporate Takeovers: Cost of Capital, Agency Problems or the Means of Payment? By Martynova, M.; Renneboog, L.D.R.

  1. By: Strøm, Steinar (University of Turin); Vislie, Jon (Dept. of Economics, University of Oslo)
    Abstract: We model the choice of transportation mode in a simplified Hotelling-like city, with a fixed number of total travellers, fixed road capacity and with no trade-off between when to travel and the time spent in a queue. A person that chooses to take her own car will inflict a congestion cost on all travellers. To get the travellers to internalise these external costs, a congestion charge has to be imposed. We derive an optimal congestion charge within in a discrete-choice framework, with a benevolent government maximising expected tax-adjusted social surplus. The congestion charge to be imposed on private driving, beyond the opportunity cost – equal to the fare on public transportation – is shown to be a weighted average of a Ramsey-like term (capturing the goal to raise public revenue) and a Pigou-term capturing the environmental cost of a person’s private driving. This property is similar to the optimal environmental tax derived by Sandmo (1975). However, the behavioural assumption underlying the present framework is quite different from the standard theory of consumer choice adopted by Sandmo.
    Keywords: Discrete choice; urban transport; congestion; congestion charges
    JEL: D11 H23 L13 L91
    Date: 2008–04–10
  2. By: Martynova, M.; Renneboog, L.D.R. (Tilburg University, Center for Economic Research)
    Abstract: While the means of payment in takeovers has been a focal point in the takeover literature, what has largely been ignored is the analysis of how the takeover bid is financed and what its impact is on the expected value creation of the takeover. This paper investigates the sources of transaction financing in European corporate takeovers launched during the period 1993- 2001 (the fifth takeover wave). Using a unique dataset, we show that the external sources of financing (debt and equity) are frequently employed in takeovers involving cash payments. Acquisitions with the same means of payment but different sources of transaction funding are quite distinct. For instance, a significantly negative price revision following the announcement of a takeover is not unique to the equity-paid M&As; it is also observed in any other deals that involve equity financing (including cash-paid and mixed-paid M&As). Also, acquisitions financed with internally generated funds significantly underperform those financed with debt. Our multinomial logit and nested logit analyses show that the takeover financing decision is influenced by the bidder’s pecking order preferences, its growth potential, and its corporate governance environment, all of which are related to the cost of external capital. There is also evidence that the choice of equity versus internal cash or debt financing is influenced by the bidder’s strategic preferences with respect to the means of payment. We find no evidence of financing decisions driven by agency conflicts between managers and shareholders or between shareholders and creditors.
    Keywords: mergers and acquisitions;takeovers;means of payment;financing decision;cost of capital;agency problem;pecking order;corporate governance regulation;nested logit.
    JEL: G34
    Date: 2008

This nep-dcm issue is ©2009 by Philip Yu. 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.