Board social capital and stock price crash risk

Review of Quantitative Finance and Accounting - We show how board social capital influences stock price crash risk. Considering that directors are embedded in two kinds of social...     

Valuation of insurers’ contingent capital with counterparty risk and price endogeneity

This study develops a structural framework to value insurers’ contingent capital with counterparty risk (CR) and overcomes the problem of price endogeneity (PE) in the valuation model. Our results on the focal contingent capital instrument – catastrophe equity put option (CatEPut) – indicate that prices can be significantly overestimated without considering CR and be significantly underestimated without considering PE. This study also examines how CatEPuts affect the buyer’s probability of default (PD). Our results show that buying a CatEPut lowers the PD for high-risk insurers, but not necessarily so for low-risk insurers; however, without taking CR and PE into account, one may significantly overestimate the credit enhancement provided by the CatEPuts.     

Optimal clearing margin,capital and price limits for futures clearinghouses

We provide a model for a futures clearinghouse to use for setting optimal levels of clearing margin, capital and price limits, which minimizes the costs to clearing firms and simultaneously protects the clearinghouse from default by clearing firms. We show how to estimate the capital requirement, which supports the clearinghouse’s residual default risk that is not covered by the clearing margin. We apply our model to the Winnipeg Commodity Exchange and demonstrate that price limits reduce the sum of optimal clearing margin and capital to a level that is substantially lower than that required in the absence of price limits.     

The role of social capital in price efficiency: International evidence

This study finds that firms with higher social capital and trust, as measured by firm environmental and social (E&S) performance, demonstrate better stock price efficiency. The result in a sample of 45 countries remains robust to alternative approaches addressing the endogeneity concerns. This relation is mainly derived from a firm's E&S engagements related to third parties and the whole of society, which regulate the firm's information environment after accounting for other influences. The positive role of E&S performance is further shaped by the firm's associated macro-level trust and social capital, as proxied by the market's cultural and institutional factors.     

On the Design of Contingent Capital with a Market Trigger

Contingent capital (CC), which aims to internalize the costs of too‐big‐to‐fail in the capital structure of large banks, has been under intense debate by policy makers and academics. We show that CC with a market trigger, in which direct stakeholders are unable to choose optimal conversion policies, does not lead to a unique competitive equilibrium unless value transfer at conversion is not expected ex ante. The “no value transfer” restriction precludes penalizing bank managers for taking excessive risk. Multiplicity or absence of equilibrium introduces the potential for price uncertainty, market manipulation, inefficient capital allocation, and frequent conversion errors.     

On market price of risk in Asian capital markets around the Asian flu

This study investigates a contemporaneous relationship between realized market risk premia, and conditional variance and covariance in nine Asian markets and the US. The time period for this study is before, during, and after the Asian financial crisis. A contemporaneous state-dependent capital asset pricing model (CAPM) that allows for negative and positive market prices of variance and covariance risk is investigated. In the light of significant upstate and downstate reward to local and world variance risk for all markets and all periods, we conclude that a market return-generating process is a piecewise function of local and world variance over time. Furthermore, a cross-sectional analysis of upstate and downstate market prices of variance and covariance risk indicates that reward to risk is a mix of reward to local and world variance, depending on the ever-changing correlation with the world market. Our findings are consistent with the one-factor conditional international CAPM.     

人力资源管理会计:人力资本与财务资本相结合的理论框架

进入知识经济时代,人力资源与人力资本的重要性凸现,奠基于工业经济时代的会计理论与方法体系将面临严重的挑战.人力资源管理会计突破了以往会计学只研究"物尽其用"的局限,把"物尽其用"置于"人尽其才"的基础上,有助于重构一个与知识经济时代相适应、以人力资本为主导并与财务资本相结合的会计理论与方法体系.     

Foreign capital raising by Indian firms: An examination of domestic stock price response

We examine the domestic stock price response to foreign capital issuance by Indian firms. Firms have extensively used foreign equity and convertible foreign debt sources since 1994. The role of foreign investment bankers, size of the issue, firm's growth opportunities, and other factors are examined in the cross-sectional analysis of domestic stock price response. We find that firms experience positive stock price response to both equity and debt issues abroad, with greater response to issuance of American Depositary Receipts (ADRs), and financing high corporate growth.     

Determinants of target capital structure: The case of dual debt and equity issues

We examine whether market and operating performance affect corporate financing behavior because they are related to target leverage. Our focus on firms that issue both debt and equity enhances our ability to draw inferences. Consistent with dynamic trade-off theories, dual issuers offset the deviation from the target resulting from accumulation of earnings and losses. Our results also imply that high market-to-book firms have low target debt ratios. On the other hand, consistent with market timing, high stock returns increase the probability of equity issuance but have no effect on target leverage.     

Insurance Guaranty Schemes in a Contingent Claims Setting

The introduction of an insurance guaranty scheme can have significant influence on the pricing and capital structures in a competitive market. This contribution summarizes the major findings of a working paper written by Schmeiser and Wagner (Working Papers on Risk Management and Insurance (IVW-HSG), No. 80, 2010). The effect on competitive equity-premium combinations is studied while considering a framework with policyholders and equity holders where guaranty fund charges are volume-based, as levied in existing schemes. Several settings with regard to the origin of the fund contributions are assessed and the immediate effects on the incentives of the policyholders and equity holders are analyzed through a one-period contingent claim approach. One result is that introducing a guaranty scheme in a market with competitive conditions entails a shift of equity capital towards minimum solvency requirements. Hence adverse incentives may arise with regard to the overall security level of the industry.     

The equilibrium price of futures contracts: A result drawn from capital asset pricing model

A recent study shows that separation theorems in the stock and forward market literatures may not hold in an integrated financial market; therefore, the securities market may influence futures trading. This article investigates the securities market influence on the futures price. The result shows that although the futures price incorporates the investor's expectation about the future spot price, it generally is not a best estimate of the spot price. In addition, it is shown that the speculative activity can destabilize the cash market for some commodities, if initially, the underlying cash price is highly volatile.     

Security prices in a production economy with durable capital

Security prices and physical stocks of capital are determined jointly in a rational expectations economy as functions of a set of exogenous stochastic factors. Investors employ firm marginal productivity of capital to allocate savings across firms. Firm capital stocks adjust to exogenous shocks across many periods. Security price functions in period t are derived in the cases of constrained and unconstrained firm capital in t. The risk premia in security returns include two sets of terms. One set, corresponding to traditional asset pricing models, relates cash flows directly to the stochastic factors. The second set captures interfirm effects which arise because firm capital in each period t is durable.     

Equilibrium mispricing in a capital market with portfolio constraints

This article develops a general equilibrium, continuous timemodel where portfolio constraints generate mispricing betweenredundant securities. Constrained consumption-portfolio optimizationtechniques are adapted to incorporate redundant, possibly mispricedsecurities. Under logarithmic preferences, we provide explicitconditions for mispricing and closed-form expressions for alleconomic quantities. Existence of an equilibrium where mispricingoccurs with positive probability is verified in a specific case.In a more general setting, we demonstrate the necessity of mispricingfor equilibrium when agents are heterogeneous enough. The constructionof a representative agent with stochastic weights allows usto characterize prices and allocations, given mispricing occurs.     

Tax treatment of dividends and capital gains and the dividend decision under dual income tax

The paper analyses efficiency aspects of a dual income tax system with a higher tax on capital gains than dividends. It argues that apart from the distortions to investments claimed in earlier literature, the system puts even more emphasis in creating incentives for entrepreneurs to participate in tax planning. The paper suggests that the owner of a closely held company can avoid all personal taxes on entrepreneurial income by two tax-planning strategies. The first is the avoidance of distributions, which would be taxed at the tax rate on labour income. These funds would instead be invested in the financial markets. The second strategy is a distribute and call-back policy, converting retained profits into new equity capital. Interestingly, the outcome is that investment in real capital is not distorted in the long-run equilibrium. Empirical evidence using microdata is also provided.      

Investment dynamics with fixed capital adjustment cost and capital market imperfections

This paper examines the implications of financing frictions on capital stocks and on capital accumulation in the presence of non-convex costs of adjusting the capital stock. In this setup finance has an influence on both, the level of capital and the timing of investment. Finance and productivity are complements and finance influences investment the strongest when firms wish to significantly adjust capital for fundamental reasons. These theoretical considerations are confronted with UK data. While finance is mostly irrelevant for long-term capital decision, the short-run investment function shows a significant impact of finance, which is also strongest for strong fundamental investment incentives.     

International financial integration through the law of one price: The role of liquidity and capital controls

This paper takes advantage of the fact that some stocks trade both in domestic and international markets to characterize the degree of international financial integration. The paper argues that the cross-market premium (the ratio between the domestic and the international market price of cross-listed stocks) provides a valuable measure of international financial integration and the effectiveness of capital controls. Using autoregressive (AR) models to estimate convergence speeds and non-linear threshold autoregressive (TAR) models to identify non-arbitrage bands, the paper shows that price deviations across markets are rapidly arbitraged away and bands are narrow, particularly so for liquid stocks. The paper also shows that regulations on cross-border capital flows effectively segment domestic markets. As expected, the effects of both types of capital controls are asymmetric but in the opposite direction: controls on outflows induce positive premia, while controls on inflows generate negative premia. Both vary with the intensity of capital controls.     

学会与资本斡旋

企业金融力,正在成为中国企业的核心竞争力。如果说我们依靠强大的生产能力、研发能力、营销能力、管理能力赢得了过去30年竞争的话,那么我们将依靠企业金融力引领未来30年     

Should corporate debt include a rating trigger?

Recent corporate debt offerings have included a covenant specifying a pre-determined payment to debtholders when the debt is downgraded. We examine the incentive for equityholders to increase firm risk (and the associated costs) when debt includes a “rating trigger.” Equityholders of firms with a low-risk profile and operating flexibility choose debt with a trigger, while equityholders of firms with a high-risk profile and less flexibility choose regular debt. A trigger that requires an equity infusion better mitigates conflicts between equityholders and debtholders than a trigger paid by liquidating assets. A trigger that increases the coupon rate is not optimal.     

Collusion with intertemporal price dispersion

We develop a theory of optimal collusive intertemporal price dispersion. Dispersion clouds consumer price awareness, encouraging firms to coordinate on dispersed prices. Our theory generates a collusive rationale for price cycles and sales. Patient firms can support optimal collusion at the monopoly price. For less patient firms, monopoly prices must be punctuated with fleeting sales. The most robust structure involves price cycles that resemble Edgeworth cycles. Low consumer attentiveness enhances the effectiveness of price dispersion by reducing the payoff to deviations involving price reductions. However, for sufficiently low attentiveness, price rises are also a concern.