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on Corporate Finance |
| By: | Seung Jung Lee; Kelly E. Posenau; Viktors Stebunovs |
| Abstract: | We extend the framework used in Aikman, Kiley, Lee, Palumbo, and Warusawitharana (2015) that maps vulnerabilities in the U.S. financial system to a broader set of advanced and emerging economies. Our extension tracks a broader set of vulnerabilities and, therefore, captures signs of different types of crises. The typical anatomy of the evolution of vulnerabilities before and after a financial crisis is as follows. Pressures in asset valuations materialize, and a build-up of imbalances in the external, financial, and nonfinancial sectors follows. A financial crisis is typically followed by a build-up of sovereign debt imbalances as the government tries to deal with the consequences of the crisis. Our early warnings indicators which aggregate these vulnerabilities predict banking crises better than the Credit-to-GDP gap at long horizons. Our indicators also predict the severity of banking crises and the duration of recessions, as they take into account possible spill-over and amplification channels of financial stress to from one to another sector in the economy. Our indicators are of relevance for macroprudential and crisis management, in part, because they perform better than the Credit-to-GDP gap and do not suffer from the gaps econometric flaws. |
| Keywords: | Credit-to-GDP gap ; Crisis management ; Financial vulnerabilities ; Early warning system ; Financial crises ; Banking crises ; Currency crises ; Macroprudential policy |
| JEL: | C82 D14 G01 G12 G21 G23 G32 H63 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1191&r=cfn |
| By: | M. Dietsch; K. Düllmann; H. Fraisse; P. Koziol; C. Ott |
| Abstract: | Using a unique and comprehensive data set on the two largest economies of the Eurozone – France and Germany – this paper first proceeds to a computation of the Gordy formula relaxing the ad hoc size-dependent constraints of the Basel formulas. Our study contributes to Article 501 of the Capital Requirements Regulation (CRR) requesting analysis the consistency of own funds requirements with the riskiness of SMEs. In both the French and the German sample, results suggest that the relative differences between the capital requirements for large corporates and those for SMEs (in other words the capital relief for SMEs) are lower in the Basel III framework than implied by empirically estimated asset correlations. Results show that the SME Supporting Factor in the CRR/CRDIV is able to compensate the difference between estimated and CRR/CRDIV capital requirements for loans in the corporate portfolio. |
| Keywords: | SME Supporting Factor, Asset correlation, Basel III, Minimum Capital requirements, Asymptotic Single Risk factor Model, SME finance. |
| JEL: | G21 G33 C13 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:decfin:23&r=cfn |
| By: | Lining Yu; Wolfgang Karl Härdle; Lukas Borke; Thijs Benschop |
| Abstract: | In this paper we propose a new measure for systemic risk: the Financial Risk Meter (FRM). This measure is based on the penalization parameter () of a linear quantile lasso regression. The FRM is calculated by taking the average of the penalization parameters over the 100 largest US publicly traded financial institutions. We demonstrate the suitability of this risk measure by comparing the proposed FRM to other measures for systemic risk, such as VIX, SRISK and Google Trends. We find that mutual Granger causality exists between the FRM and these measures, which indicates the validity of the FRM as a systemic risk measure. The implementation of this project is carried out using parallel computing, the codes are published on www.quantlet.de with keyword FRM. The R package RiskAnalytics is another tool with the purpose of integrating and facilitating the research, calculation and analysis methods around the FRM project. The visualization and the up-to-date FRM can be found on http://frm.wiwi.hu-berlin.de. |
| Keywords: | Systemic Risk, Quantile Regression, Value at Risk, Lasso, Parallel Computing |
| JEL: | C21 C51 G01 G18 G32 G38 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2017-003&r=cfn |
| By: | O. de Bandt; B. Camara; A. Maitre; P. Pessarossi |
| Abstract: | The recent implementation of the Basel III framework has re-ignited the debate around the link between capital, performance and capital requirements in the banking sector. There is a dominant view in the earlier empirical literature in favor of a positive effect of capital on banking performance. Using panel data gathered for the supervision of French banks, we also find evidence of the beneficial effect of higher capital, but try to go one step further by distinguishing between regulatory and voluntary capital. Using a two-step estimation procedure, taking advantage of the variability of data since the crisis, and controlling for many factors (risk, asset composition, etc), we show that voluntary capital, i.e. capital held by banks irrespective of their regulatory requirements, turns out to be the sole component of capital that positively affects performance, as measured by the return on asset (ROA). In contrast, the effect of regulatory capital on the ROA appears insignificant, indicating that over the 2007-2014 period increasing capital requirements have not been detrimental to banking performance in France. |
| Keywords: | Bank capital; Performance; ROA, Capital requirements; Financial crisis. |
| JEL: | G01 G21 G28 G32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:decfin:24&r=cfn |
| By: | E. Avisoa |
| Abstract: | This paper analyses the technical efficiency of European co-operative banks compared to European commercial banks from 2006 to 2014. For this we use the B-convexity method, an innovative approach in frontier efficient models estimation, to measure banks’ technical efficiency; we also analyse the influence of certain variables on the level of efficiency. Our findings show that: a) a principal component analysis indicates that cooperative banks’ balance sheet are oriented towards lending activities while commercial banks are more oriented towards securities and derivatives activities; b) on average, the technical efficiency of the banks in our sample significantly decreased between 2007 and 2009, before recovering markedly between 2010 and 2012 and stabilizing over the period 2013-2014; c) there is no significant difference in technical efficiency between European cooperative banks and commercial banks, although we observe a slight superiority of commercial banks; d) French cooperative banks have higher levels of technical efficiency than their European peers; and (e) technical efficiency is positively impacted by the banks’ size, suggesting that large banks tend to have higher technical efficiency than smaller banks. This is in line with a trend towards concentration to improve technical efficiency in the European banking sector. |
| Keywords: | European banking; cooperative banks; technical efficiency; B-convexity; non-parametric frontier approach. |
| JEL: | C14 C67 G21 G30 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:decfin:25&r=cfn |
| By: | Rosnan, Chotard (CREAR - Center of Research in Econo-finance and Actuarial sciences on Risk / Centre de Recherche Econo-financière et Actuarielle sur le Risque); Michel, Dacorogna (SCOR SE); Marie, Kratz (Essec Business School) |
| Abstract: | In this study we empirically explore the capacity of historical VaR to correctly predict the future risk of a financial institution. We observe that rolling samples are better able to capture the dynamics of future risks. We thus introduce another risk measure, the Sample Quantile Process, which is a generalization of the VaR calculated on a rolling sample, and study its behavior as a predictor by varying its parameters. Moreover, we study the behavior of the future risk as a function of past volatility. We show that if the past volatility is low, the historical computation of the risk measure underestimates the future risk, while in period of high volatility, the risk measure overestimates the risk, confirming that the current way financial institutions measure their risk is highly procyclical. |
| Keywords: | backtest; risk measure; sample quantile process; stochastic model; VaR; volatility |
| JEL: | C13 C22 C52 C53 G01 G33 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:essewp:dr-16018&r=cfn |
| By: | Milos Markovic (Centre d'Economie de la Sorbonne); Michael A. Stemmer (Centre d'Economie de la Sorbonne) |
| Abstract: | Using a unique dataset of unlisted Serbian firms during the period between 2005 and 2012, we analyze the impact of internal financial constraints on firm growth with respect to several firm-level characteristics. We also assess potential effects created by the 2008-2009 Global Financial Crisis. To do so, we rely on panel data models, which estimate via GMM cash flow sensitivities of firm growth, following the dynamic specification of Guariglia et al. (2011). Controlling for investment opportunities, our results show that Serbian firms face high financial constraints and exhibit generally a high reliance on retained earnings for firm growth. We do not find evidence for a crisis effect, potentially due to ex ante accumulated internal funds. Conventional firm characteristics such as age, size or overall performance largely determine the dependency on cash for firm growth. Moreover, foreign-owned companies seem to escape the financing gap by tapping other resources. A comparison with Belgian firms contrasts our results with an advanced country setting |
| Keywords: | Financial constraints; firm growth; transition countries; dynamic panel data; GMM |
| JEL: | C23 D92 E44 G32 L25 O16 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:17012&r=cfn |
| By: | Shai Bernstein; Emanuele Colonnelli; Xavier Giroud; Benjamin Iverson |
| Abstract: | How do different bankruptcy approaches affect the local economy? Using U.S. Census microdata at the establishment level, we explore the spillover effects of reorganization and liquidation on geographically proximate firms. We exploit the random assignment of bankruptcy judges as a source of exogenous variation in the probability of liquidation. We find that within a five-year period, employment declines substantially in the immediate neighborhood of the liquidated establishments, relative to reorganized establishments. Most of the decline is due to lower growth of existing establishments and, to a lesser extent, reduced entry into the area. The spillover effects are highly localized and concentrate in the non-tradable and service sectors, particularly when the bankrupt firm operates in the same sector. These results suggest that liquidation leads to a reduction in consumer traffic to the local area and to a decline in knowledge spillovers between firms. The evidence is inconsistent with the notion that liquidation leads to creative destruction, as the removal of bankrupt businesses does not lead to increased entry nor the revitalization of the area. |
| JEL: | G33 R12 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23162&r=cfn |
| By: | Maria Angelina Valadares Silva (FEP-UP, School of Economics and Management, University of Porto); António Melo Cerqueira (FEP-UP, School of Economics and Management, University of Porto); Elísio Brandão (FEP-UP, School of Economics and Management, University of Porto) |
| Abstract: | In this paper we analyze the determinants of the leverage choice of German firms and analyze which financial theory better explains the leverage ratio, more specifically the trade-off theory, the pecking order theory, the agency theory and the market timing theory. Additionally, we examine three effects: year, economic crisis and industry. The goal is to see if the results change when we introduce these effects. We estimate our econometric model by using panel data and Ordinary Least Squares. Our sample includes 443 non-financial German companies over the period of 2005 to 2014. To test the impact on the results to the use of debt with different maturities we use two regressions: total debt and long-term debt. The independent variables that we examine are: market-to-book, size, profitability, tangibility, risk and non-debt tax shield. The results show that the main theories apply to German firms and all explanatory variables are statistically significant. We can also conclude that the three effects are relevant in the capital structure for German firms. With regard to the economic crisis effect, the results show that the variable size become statistically significant during the period 2009 to 2014. |
| Keywords: | Capital structure, trade-off theory, pecking order theory, market timing theory, Fama and French industry classification |
| JEL: | C33 G10 G32 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:588&r=cfn |
| By: | Shimano, Norihito |
| Abstract: | Over the past decades, there has been a change in the pattern of capital accumulation, especially in developed countries. Although the profit rate and profit share recovered after the 1980s and 1990s, the rate of capital accumulation remained stagnant in many developed countries in the same period. This phenomenon is called “investment-profit puzzle” because the movement of the rate of capital accumulation is thought to be mainly determined by that of the profit rate or profit share. In this study, I examine the effect of financialization on the “investment-profit puzzle” in the Japanese economy. The profit rate and profit share of Japanese NFCs began to recover from the mid-1990s, whereas the rate of capital accumulation did not recover during the same period. This study reveals that pro-shareholder income distribution, namely, the rise in profit share that is evoked by financializationin in Japanese NFCs is the main cause of the “investment-profit puzzle” in the Japanese economy. In Japanese non-manufacturing industries, increasing profit share depress domestic demand and capital accumulation while it contributes to profit rate recovery. The trend of non-manufacturing industries determines the “investment-profit puzzle” in the Japanese economy. |
| Keywords: | Financialization, capital accumulation, income distribution, investment function, demand regime |
| JEL: | B50 E12 G31 |
| Date: | 2017–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76830&r=cfn |