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on Corporate Finance |
| By: | Huizinga, Harry; Laeven, Luc; Nicodeme, Gaetan |
| Abstract: | This paper presents a model that relates a multinational firm's optimal debt policy to taxation and to non-tax factors such as the desire to prevent bankruptcy. The model yields the predictions that a multinational's indebtedness in a country depends on national tax rates and differences between national and foreign tax rates. These differences matter as multinationals have an incentive to shift debt to high-tax countries. The predictions of the model are tested with the aid of a broad European data set combining firm-level data and information on the international tax treatment of dividend and interest streams. Corporate debt policy indeed appears to reflect national corporate tax rates and international corporate tax rate differences but not non-resident dividend withholding taxes. |
| Keywords: | corporate taxation; debt shifting; financial structure |
| JEL: | F23 G32 H25 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5882&r=cfn |
| By: | Arnold, Lutz G. |
| Abstract: | This paper gives a complete characterization of the equilibria in Shleifer and Vishny's (1997) model of "Limits of Arbitrage". We show that expected wealth (the arbitrageurs' objective function) is a possibly non-concave function of investment and that the relation between investment and prices is not necessarily continuous or single-valued or well-defined. As a result, "anything is possible": non-existence or multiplicity of equilibria may arise, and sunspots may govern the equilibrium selection in the latter case. |
| Keywords: | behavioral finance, limits of arbitrage, existence of an equilibrium, sunspots |
| JEL: | G |
| Date: | 2006–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:bay:rdwiwi:732&r=cfn |
| By: | Elisa Luciano; Wim Schoutens |
| Abstract: | We discuss a Lévy multivariate model for financial assets which incorporates jumps, skewness, kurtosis and stochastic volatility. We use it to describe the behavior of a series of stocks or indexes and to study a multi-firm, value-based default model. Starting from an independent Brownian world, we introduce jumps and other deviations from normality, including non-Gaussian dependence. We use a sto- chastic time-change technique and provide the details for a Gamma change. The main feature of the model is the fact that - opposite to other, non jointly Gaussian settings - its risk neutral dependence can be calibrated from univariate derivative prices, providing a surprisingly good fit. |
| Keywords: | Lévy processes, multivariate asset modelling, copulas, risk neutral dependence. |
| JEL: | G12 G10 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:29&r=cfn |
| By: | Fousseni Chabi-Yo |
| Abstract: | The author develops a strategy for utilizing higher moments and conditioning information efficiently, and hence improves on the variance bounds computed by Hansen and Jagannathan (1991, the HJ bound) and Gallant, Hansen, and Tauchen (1990, the GHT bound). The author's bound incorporates variance risk premia. It reaches the GHT bound when non-linearities in returns are not priced. The author also provides an optimally scaled bound with conditioning information, higher moments, and variance risk premia that improves on the Bekaert and Liu (2004, the BL bound) optimally scaled bound. This bound reaches the BL bound when nonlinearities in returns are not priced. When the conditional first four moments are misspecified, the author's optimally scaled bound remains a lower bound to the variance on pricing kernels, whereas the BL bound does not. The author empirically illustrates the behaviour of the bounds using Bekaert and Liu's (2004) econometric models. He also uses higher moments and conditioning information to provide distance measures that improve on the Hansen and Jagannathan distance measures. The author uses these distance measures to evaluate the performance of asset-pricing models. Some existing pricing kernels are able to describe returns ignoring the impact of higher moments and variance risk premia. When accounting for the impact of higher moments and variance risk premia, these same pricing kernels have difficulty in explaining returns on the assets and are unable to price non-linearities or higher moments. |
| Keywords: | Financial markets; Market structure and pricing |
| JEL: | G12 G13 C61 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-38&r=cfn |
| By: | Goderis,Benedikt; Marsh,Ian W.; Vall Castello,Judith; Wagner,Wolf (Tilburg University, Center for Economic Research) |
| Abstract: | One of the most important recent innovations in financial markets has been the development of credit derivative products that allow banks to more actively manage their credit portfolios than ever before. We analyze the effect that access to these markets has had on the lending behavior of a sample of banks, using a sample of banks that have not accessed these markets as a control group. We find that banks that adopt advanced credit risk management techniques (proxied by the issuance of at least one collateralized loan obligation) experience a permanent increase in their target loan levels of around 50%. Partial adjustment to this target, however, means that the impact on actual loan levels is spread over several years. Our findings confirm the general efficiency enhancing implications of new risk management techniques in a world with frictions suggested in the theoretical literature. |
| Keywords: | credit risk transfer;risk management;bank lending |
| JEL: | G21 G31 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2006100&r=cfn |
| By: | Carlsson, Evert (Department of Economics, School of Business, Economics and Law, Göteborg University); Erlandzon, Karl (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | This paper investigates the diversification demand of an agent, who is faced with the alternative to swap aggregate labour-income risk for equity-exposure, through her individual account in a mandatory-pension scheme. The framework for the analysis is a life-cycle model of a borrowing-constrained individual´s consumption- and portfolio-choice in the presence of uncertain labour-income and realistically calibrated tax- and pension systems. Pension benefits stem from both defined benefit and notionally defined contributions part, the latter being indexed to stochastic aggregate labour-income. We show that agents, depending on age and swap premium, agents will be either buyers or sellers of such a swap, and that inter-generational risk sharing can therefore be achieved. <p> |
| Keywords: | Life-cycle; portfolio choice; pensions; Shiller-swap |
| JEL: | D91 G11 G23 |
| Date: | 2006–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0233&r=cfn |
| By: | Dam, Lammertjan (Groningen University) |
| Abstract: | We analyze corporate social responsibility (CSR) in a general equilibrium stock market model with uncertainty in production. Production generates non-market costs and consumers take this into account when they construct their portfolio. We deduce empirically testable hypotheses and analyze how CSR affects various financial performance indicators. We show that our model offers an excellent explanation of the seemingly contradictory findings in the existing empirical literature. We stress that our findings are not a result of assumptions on the operational level of the firm. We conclude that there is a clear and direct association between CSR and different measures of corporate financial performance. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugccs:200603&r=cfn |
| By: | Osler, Carol; Mende, Alexander; Menkhoff, Lukas |
| Abstract: | This paper makes three contributions to our understanding of the price discovery process in currency markets. First, it provides evidence that this process cannot be the familiar one based on adverse selection and customer spreads, since such spreads are inversely related to a trade's likely information content. Second, the paper suggests three potential sources for the pattern of customer spreads, two of which rely on the information structure of the market. Third, the paper suggests an alternative price discovery process for currencies, centered on inventory management strategies in the interdealer market, and provides preliminary evidence for that process. |
| Keywords: | Bid-ask spread, foreign exchange, asymmetric information, microstructure, price discovery, interdealer, inventory, market order, limit order |
| JEL: | F31 G14 G15 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-351&r=cfn |