MULTIDIMENSIONAL DYNAMIC RISK MEASURE VIA CONDITIONAL g‐EXPECTATION

This paper deals with multidimensional dynamic risk measures induced by conditional g‐expectations. A notion of multidimensional g‐expectation is proposed to provide a multidimensional version of nonlinear expectations. By a technical result on explicit expressions for the comparison theorem, uniqueness theorem, and viability on a rectangle of solutions to multidimensional backward stochastic differential equations, some necessary and sufficient conditions are given for the constancy, monotonicity, positivity, and translatability properties of multidimensional conditional g‐expectations and multidimensional dynamic risk measures; we prove that a multidimensional dynamic g‐risk measure is nonincreasingly convex if and only if the generator g satisfies a quasi‐monotone increasingly convex condition. A general dual representation is given for the multidimensional dynamic convex g‐risk measure in which the penalty term is expressed more precisely. It is shown that model uncertainty leads to the convexity of risk measures. As to applications, we show how this multidimensional approach can be applied to measure the insolvency risk of a firm with interacting subsidiaries; optimal risk sharing for ‐tolerant g‐risk measures, and risk contribution for coherent g‐risk measures are investigated. Insurance g‐risk measure and other ways to induce g‐risk measures are also studied at the end of the paper.     

美国保险公司破产研究及对我国的启示

保险公司的破产会给保单持有人、股东以及保险保障基金等造成很大的损失。鉴于国内相关案例和数据的缺乏,本文主要参考美国的文献和数据,分析了1978年～2009年美国保险公司破产案例,研究发现虽然保险公司破产的触发事件主要是损失准备金不足、非充分定价、公司业务的快速增长、子公司破产和投资失败等,但导致保险公司破产的根本原因却...     

Is Acting Prosocially Beneficial for the Credit Market?

This article argues that behaving prosocially reduces regional finance differentials in terms of interest and insolvency rates. This is because prosociality implies more transparent information and cooperation among the parties engaged in a financial contract. The context of study is Italy, well known for its regional economic and financial disparities. The analysis is developed through a cross-regional two period panel model during the years 1998 and 2003. Empirical evidence shows that regions with a higher proportion of prosocial individuals report lower interest and insolvency rates. When legal enforcement is included in the specified model, evidence suggests that more efficient third-party enforcement can transmit a stronger sense of legal abidance and facilitate the internalisation of social norms of cooperation.     

Does the common law power to grant cross‐border insolvency assistance apply to an insolvency winding‐up that is voluntary? The reaction to Singularis from Singapore and Hong Kong

In many common law jurisdictions, the common law power of courts to grant assistance in respect of foreign insolvency proceedings exists independently of statute. The nature of the power, however, continues to generate debate. Obiter dicta of the Privy Council suggests that no assistance is available where the foreign proceeding is a voluntary winding‐up. This article evaluates the position by reference to Singapore and Hong Kong decisions and concludes that a refusal to grant assistance in circumstances involving an insolvent voluntary winding‐up is inconsistent with the principle of modified universalism and that a broader recognition test should be adopted.     

Chapter 11 and Asbestos: Encouraging Private Enterprise or Conspiring to Avoid Liability?

This paper explores the American bankruptcy system -- especially the Chapter 11 code -- which since 1978 has allowed insolvent companies the opportunity to restructure and reorganise with the benefit of court protection from creditors. Particular attention is focused on asbestos companies, such as Johns--Manville, which have been among the most consistent and controversial filers for bankruptcy under Chapter 11. The history of asbestos and Chapter 11 is explored, against the backdrop of the burgeoning asbestos crisis, caused by increasing mortality and litigation. Some of the business and ethical issues involved are highlighted by examining in detail a recent bankruptcy (Federal Mogul/T&N in 2001) that has implications in both Britain and America. Chapter 11 bankruptcy is evaluated, particularly in the light of the trend towards similar mechanisms of insolvency in the UK, Europe and the rest of the world. It is concluded that, certainly as regards the experience with asbestos, Chapter 11 offers an inefficient and inequitable method of rehabilitating or rescuing failing businesses.     

Corporate financial soundness and its impact on firm performance: implications for corporate debt restructuring in Slovenia

This article studies the extent of corporate leverage and range of excessive debt of Slovenian firms during the recent financial crisis. Half of all firms (of those with some non-zero debt and at least one employee) are found to face an unsustainable debt-to-EBITDA leverage ratio beyond 4, accounting for almost 80% of total outstanding debt. Moreover, a good quarter of all firms experience debt-to-EBITDA ratios exceeding 10 and hold almost half of total aggregate net debt. We then examine how this financial distress affects firm performance in terms of productivity, employment, exports, investment and survival. We find that, while less important during the good times (pre-recession period), lack of firms’ financial soundness during the period of financial distress becomes a critical factor constraining firm performance. The extent of financial leverage and ability to service the outstanding debt are shown to inhibit firms’ productivity growth as well as the dynamics of exports, employment and investment. Micro and small firms are found to suffer relatively more than larger firms from high leverage in terms of export and employment performance during the recession period.     

Proposal for a capital market-based guaranty scheme for the financial industry

In this paper, we introduce a capital market-based financial guaranty system as an alternative to current insurance guaranty funds and deposit insurance systems. The guaranty system secures clients’ claims for the event of default by the financial company using a special purpose vehicle which issues bonds to investors. The proposed system, analogous to a credit-linked note, consists of one guaranty vehicle for each financial company. In a first step, we present equations in order to derive the two main input parameters of the special purpose vehicle: the premium and the principal. Subsequently, we analyze the impact of different investment actions taken by the financial companies protected by the guaranty vehicle on various shortfall measures. We find that it will be necessary to restrict the investment volume of investors from the financial industry in order to avoid systematic risk within the proposed guaranty scheme. By deriving practical implications, we show that the capital market-based solution has some key benefits compared to current deposit insurance and insurance guaranty schemes.     

Franchisor Insolvency in Australia: Profiles,Factors, and Impacts

Franchisor failure is enduring and important in terms of cost, nationally and internationally. This article presents research into Australian franchisor firms that went into a form of bankruptcy protection known in Australia as “voluntary administration.” The research was driven by the commonality and divergence of the interests of franchisors and franchisees. The article provides an insight into franchisor failure and its effect on franchisees. It presents the substantial literature survey that was used to frame questions for franchisor administrators to understand issues associated with franchisors in administration. The limited data demonstrate diversity in the treatment of franchisees during the franchisor's administration. In Australia, franchisees remain a captive, financially committed counterparty during insolvency and potentially deliver a great financial benefit to the franchisor's creditors. The article concludes that administration of franchisors does not take into account the distinct relationship between franchisors and their franchisees and provides policy recommendations to address this matter.     

How Does the Stock Market View Bank Regulatory Capital Forbearance Policies?

During the subprime crisis, the Federal Deposit Insurance Corporation (FDIC) has shown, once again, laxity in resolving and closing insolvent institutions. Ronn and Verma (1986) call the tolerance level below which a bank closure is triggered the regulatory policy parameter. We derive a model in which we make this parameter stochastic and bank specific to infer the stock market view of the regulatory capital forbearance value. For 565 U.S. listed banks during 1990 to 2012, the countercyclical forbearance fraction in capital, most substantial in recessions, could represent 17%, on average, of the market valuation of bank equity and could go as high as 100%.