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on Corporate Finance |
| By: | Cars Hommes (University of Amsterdam); Florian Wagener (University of Amsterdam) |
| Abstract: | Traditional finance is built on the rationality paradigm. This chapter discusses simple models from an alternative approach in which financial markets are viewed as complex evolutionary systems. Agents are boundedly rational and base their investment decisions upon market forecasting heuristics. Prices and beliefs about future prices co-evolve over time with mutual feedback. Strategy choice is driven by evolutionary selection, so that agents tend to adopt strategies that were successful in the past. Calibration of "simple complexity models" with heterogeneous expectations to real financial market data and laboratory experiments with human subjects are also discussed. |
| Keywords: | Asset pricing; heterogeneous beliefs; empirical validation; forecasting experiments |
| JEL: | C13 C91 C92 D84 G12 |
| Date: | 2008–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20080054&r=cfn |
| By: | Massimiliano Affinito (Banca d'Italia); Matteo Piazza (Banca d'Italia) |
| Abstract: | Linguistic and cultural differences, different legal and supervisory frameworks, relationship lending have been repeatedly mentioned as barriers to European retail banking integration. We investigate whether these barriers have affected integration within national boundaries, using an index of localism of regional banking systems as a measure of market integration. If local banks are established and flourish because asymmetric information makes entry difficult for non-incumbents (DellÂ’Ariccia, 2001) or regulatory and governance rules prevent entry from outside (Berger et al., 1995), we should find a significant relationship between indicators of these barriers and measures of the localism of banking systems. Our results show that this is indeed the case for asymmetric information, while findings are more blurred for supervisory practices. |
| Keywords: | banking integration, barriers, asymmetric information |
| JEL: | G21 G28 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_666_08&r=cfn |
| By: | Clougherty, Joseph A; Duso, Tomaso |
| Abstract: | It is commonly perceived that firms do not want to be outsiders to a merger between competitor firms. We instead argue that it is beneficial to be a non-merging rival firm to a large horizontal merger. Using a sample of mergers with expert-identification of relevant rivals and the event-study methodology, we find rivals generally experience positive abnormal returns at the merger announcement date. Further, we find that the stock reaction of rivals to merger events is not sensitive to merger waves; hence, ‘future acquisition probability’ does not drive the positive abnormal returns of rivals. We then build a conceptual framework that encompasses the impact of merger events on both merging and rival firms in order to provide a schematic to elicit more information on merger type. |
| Keywords: | Acquisitions; Event-Study; Mergers; Rivals |
| JEL: | G14 G34 L22 M20 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6867&r=cfn |
| By: | Pierre-Yves Gomez (EM Lyon - Institut Français de Gouvernement des Entreprises); Peter Wirtz (Université Lumière (Lyon 2) – COACTIS (EA 4161) et IFGE) |
| Abstract: | (VF)L’un des traits distinctifs du système de gouvernance à l’allemande est la représentation paritaire des salariés au sein des conseils de surveillance des grandes entreprises. Souvent considérée comme «culturellement» allemande, le présent article montre cependant qu’une supposée «tradition allemande» de cogestion relève du mythe. Le régime de gouvernance allemand est plutôt le fruit du contexte politique et institutionnel dramatique de la fin des années 1940 qui a vu des luttes et la mobilisation des acteurs politiques, économiques et syndicaux. Pour expliquer qu’un consensus institutionnel sur la cogestion ait finalement eu lieu en Allemagne dans une période de chaos institutionnel, nous montrons le rôle méconnu joué par l’Église catholique allemande. À la fois étrangère par nature à la question du gouvernement des entreprises, mais fortement impliquée dans les réflexions sur l’organisation du pouvoir économique avant et après la seconde guerre mondiale, elle a constitué une «institution socle» à partir de laquelle les effets de mobilisation ont pu générer un consensus sur la cogestion, qui s’est s’institutionnalisé dans le modèle dual paritaire, considéré depuis comme «typiquement germanique».(VA) Codetermined supervisory boards with half of the directors representing employees are one of the distinctive features of the German corporate governance system. This is often supposed to be rooted in typically “German culture”. The present contribution reveals however that this supposedly “German tradition” is a myth. The specific regime of codetermined supervisory boards is rather the outcome of the dramatic political and institutional circumstances of the late nineteen-forties, having witnessed a fierce fight and the mobilization of various actors ranging from politicians and industrialists to trade unionists. On the way to an institutional consensus, the German catholic church played a significant, albeit seldom recognized, role. It acted as a “base institution” positively influencing the efforts of mobilization in favor of board codetermination and making an agreement possible. |
| Keywords: | cogestion;mobilisation;institution socle;Eglise catholique;codetermination;mobilization;base institution; catholic church. |
| JEL: | K22 P11 G30 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:dij:wpfarg:1080601&r=cfn |
| By: | Peter Wirtz (Université Lumière (Lyon 2) – COACTIS (EA 4161) et IFGE) |
| Abstract: | (VF)Les « meilleures pratiques » de gouvernance font l’objet de plusieurs rapports officiels (rapports Viénot I, Viénot II et Bouton). Au-delà du discours tenu par les instances patronales qui en font la promotion, ces pratiques rentrent-elles dans les mœurs ? C’est-à-dire, les entreprises s’approprient-elles le discours des codes de gouvernance ? Nous tentons dans le présent article d’apporter un début de réponse à cette question pour le cas de la France. Pour ce faire, nous proposons de décrire la dynamique d’adoption déclarée des «meilleures pratiques» de gouvernance par les entreprises françaises cotées. À défaut de vérifier les pratiques effectives des entreprises, une telle étude des déclarations permet d’apprécier la légitimité du discours sur la gouvernance, au-delà du cercle de ses premiers promoteurs. L’analyse des déclarations des entreprises françaises cotées montre que le nombre d’entreprises déclarant se conformer aux standards promus par les codes de gouvernance augmente de façon constante et couvre désormais la grande majorité des entreprises cotées. Le discours sur les «meilleures pratiques» de gouvernance a aujourd’hui atteint une légitimité telle que, même des entreprises au capital relativement verrouillé qui subissent peu la pression des investisseurs institutionnels anglo-saxons se sentent désormais obligées de se déclarer conformes aux standards des codes de bonne conduite. Ceci semble indiquer un certain mimétisme dans l’adoption du discours standard sur la gouvernance qui, pourtant, n’est pas le seul possible, mais a initialement été développé en référence à un type d’entreprise bien particulier. (VA) Corporate governance “best practices” have been codified in several official reports (Viénot I, Viénot II and Bouton). But do they receive any attention from actors beyond the circle of their initial promoters? Do firms actually adopt the discourse? The present paper tries to answer this question for the case of France through an analysis of the annual declarations of listed companies concerning their governance practices. This analysis reveals the fact that the dominant discourse on corporate governance “best practice” has attained a degree of legitimacy such that even companies with a rather concentrated control structure feel compelled to state their conformity with the governance standards. This likely indicates a certain extent of mimetic behavior with respect to financial communication. |
| Keywords: | codes de «meilleures pratiques»; gouvernance d’entreprise; institutionnalisation; discours dominant; codes of “best practice”; corporate governance; institutionalization; dominant discourse. |
| JEL: | G30 M1 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:dij:wpfarg:1080602&r=cfn |
| By: | Eklund, Johan E (JIBS and CESIS); Desai, Sameeksha (Max Planck Institute of Economics) |
| Abstract: | We apply the accelerator principle to measure the functional efficiency of capital markets. We estimate the elasticity of capital with respect to output using a panel of firms across 44 countries, and compare the results with existing approaches. Furthermore, we correlate our measure with corporate governance institutions. |
| Keywords: | Allocation of capital; accelerator principle; functional efficiency |
| JEL: | C00 G32 P00 |
| Date: | 2008–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0132&r=cfn |
| By: | Vladimir I. Ivanov; Ronald W. Masulis |
| Abstract: | We examine the effect of investments by corporate venture capitalists (CVCs) on the governance structures of venture backed IPOs. One of the main differences between CVCs and traditional venture capitalists (TVCs) is that the former often invest for strategic reasons and enter into various types of strategic alliances with their portfolio firms that last well beyond the IPO. We argue that the presence of such strategic alliances will have a significant impact on the governance structure of CVC backed firms when they go public and in the following years. Using a sample of venture backed IPOs, we evaluate several hypotheses concerning the role of CVCs in the corporate governance of newly public firms. We find that strategic CVC backed IPOs have weaker CEOs and more outsiders on the board and on the compensation committee than a carefully selected sample of matching firms. In addition, the probability of forced CEOs turnover is higher for strategic CVC backed IPOs, while at the same time these firms use staggered boards more frequently. In contrast, the governance structures of purely financial CVC backed IPO firms and their matching firms do not exhibit any significant differences. |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2008-15&r=cfn |
| By: | Vink, D.; Thibeault, A. (Vlerick Leuven Gent Management School) |
| Abstract: | The capital market in which the asset-backed securities are issued and traded is composed of three main categories: ABS, MBS and CDOs. We were able to examine a total number of 3,951 loans (worth €730.25 billion) of which 1,129 (worth €208.94 billion) have been classified as ABS. MBS issues represent 2,224 issues (worth €459.32 billion) and 598 are CDO issues (worth €61.99 billion). We have investigated how common pricing factors compare for the main classes of securities. Due to the differences in the assets related to these securities, the relevant pricing factors for these securities should differ, too. Taking these three classes as a whole, we have documented that the assets attached as collateral for the securities differ between security classes, but that there are also important univariate differences to consider. We found that most of the common pricing characteristics between ABS, MBS and CDO differ significantly. Furthermore, applying the same pricing estimation model to each security class revealed that most of the common pricing characteristics associated with these classes have a different impact on the primary market spread exhibited by the value of the coefficients. The regression analyses we performed demonstrated econometrically that ABS, MBS, and CDOs are in fact different financial instruments. |
| Keywords: | asset securitization, asset-backed securitisation, bank lending, default risk, risk management, spreads, leveraged financing |
| JEL: | G21 G24 G32 |
| Date: | 2008–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:vlg:vlgwps:2008-04&r=cfn |
| By: | Bandyopadhyay, Arindam; Saha, Asish |
| Abstract: | Assessment of individual bank’s need for economic capital will enable them to understand their actual solvency position for internal management of capital and evaluating the larger strategic issues like expanding or contracting its risk appetite to generate returns. This paper is an attempt to empirically demonstrate the process of estimating bank's mark to market measure of economic capital on an integrated basis. Such measure will help the bank as well as the regulator to understand the bank's solvency position on a regular basis. The top down approach followed in this paper will also assist the bank to measure Risk Adjusted Return on its entire business and examine its economic value addition on an integrated basis. |
| Keywords: | Bank Solvency; Economic Capital; Integrated Risk Management |
| JEL: | G15 G32 G21 |
| Date: | 2008–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:9098&r=cfn |
| By: | Hirshleifer, David; Teoh, Siew Hong |
| Abstract: | Prevailing models of capital markets capture a limited form of social influence and information transmission, in which the beliefs and behavior of an investor affects others only through market price, information transmission and processing is simple (without thoughts and feelings), and there is no localization in the influence of an investor on others. In reality, individuals often process verbal arguments obtained in conversation or from media presentations, and observe the behavior of others. We review here evidence concerning how these activities cause beliefs and behaviors to spread, affect financial decisions, and affect market prices; and theoretical models of social influence and its effects on capital markets. Social influence is central to how information and investor sentiment are transmitted, so thought and behavior contagion should be incorporated into the theory of capital markets. |
| Keywords: | capital markets; thought contagion; behavioral contagion; herd behavior; information cascades; social learning; investor psychology; accounting regulation; disclosure policy; behavioral finance; market efficiency; popular models; memes |
| JEL: | M41 D83 Z13 G0 D85 |
| Date: | 2008–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:9142&r=cfn |
| By: | Venier, Guido |
| Abstract: | A new alternative diffusion model for asset price movements is presented. In contrast to the popular approach of Brownian motion it proposes deterministic diffusion for the modelling of stock price movements. These diffusion processes are a new area of physical research and can be created by the chaotic behaviour of rather simple piecewise linear maps, but can also occur in chaotic deterministic systems like the famous Lorenz system. The reason for the investigation on deterministic diffusion processes as suitable model for the behaviour of stock prices is, that their time series can obey certain stylized facts of real world stock market time series. For example they can show fat tails of empirical log returns in union with varying volatility i.e. heteroscedacity as well as slowly decaying autocorrelations of squared log returns. These phenomena could not be explained by a simple Brownian motion and have been the most criticism to the lognormal random walk. The scope is to show that deterministic diffusion models can explain the occurrence of those empirical observed stylized facts and to discuss the implications for economic theory with respect to market efficiency and option pricing. |
| Keywords: | stock pricing;chaos theory;deterministic diffusion; heteroscedasticity;fat tails;long range dependence;stylized facts of economic time series;fractional brownian motion;levy stable distributions;brownian motion;black scholes;option pricing;CAPM;market efficiency |
| JEL: | G14 D58 G13 C32 D53 G12 Z0 D79 |
| Date: | 2007–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:9146&r=cfn |
| By: | Hirshleifer, David; Teoh, Siew Hong |
| Abstract: | Prevailing models of capital markets capture a limited form of social influence and information transmission, in which the beliefs and behavior of an investor affects others only through market price, information transmission and processing is simple (without thoughts and feelings), and there is no localization in the influence of an investor on others. In reality, individuals often process verbal arguments obtained in conversation or from media presentations, and observe the behavior of others. We review here evidence concerning how these activities cause beliefs and behaviors to spread, affect financial decisions, and affect market prices; and theoretical models of social influence and its effects on capital markets. Social influence is central to how information and investor sentiment are transmitted, so thought and behavior contagion should be incorporated into the theory of capital markets. |
| Keywords: | capital markets; thought contagion; behavioral contagion; herd behavior; information cascades; social learning; investor psychology; accounting regulation; disclosure policy; behavioral finance; market efficiency; popular models; memes |
| JEL: | M41 D83 Z13 G0 D85 |
| Date: | 2008–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:9164&r=cfn |
| By: | Aung Kyaw |
| Abstract: | Small and medium enterprises (SMEs) share the biggest part in Myanmar economy in terms of number, contribution to employment, output, and investment. Myanmar economic growth is thus totally dependent on the development of SMEs in the private sector. Today, the role of SMEs has become more vital in strengthening national competitive advantage and the speedy economic integration into the ASEAN region. However, studies show that SMEs have to deal with a number of constraints that hinder their development potential, such as the shortage in power supply, unavailability of long-term credit from external sources and many others. Among them, the financing problem of SMEs is one of the biggest constraints. Such is deeply rooted in demand and supply issues, macroeconomic fundamentals, and lending infrastructure of the country. The government’s policy towards SMEs could also lead to insufficient support for the SMEs. Thus, focusing on SMEs and private sector development as a viable strategy for industrialization and economic development of the country is a fundamental requirement for SME development. This paper recommends policies for stabilizing macro economic fundamentals, improving lending infrastructures of the country and improving demand- and supply-side conditions from the SMEs financing perspective in order to provide a more accessible financing for SMEs and to contribute in the overall development of SMEs in Myanmar thereby to sharpen national competitive advantage in the age of speedy economic integration. |
| Keywords: | Small and medium enterprise (SME), Small and medium-scale enterprises, Financing, Competitiveness, Myanmar, Japan, ASEAN, Southeast Asia, Finance |
| JEL: | G23 G28 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper148&r=cfn |