Logistic regression and probability of default of developing countries debt

This paper presents a logistic regression model for determining the default probability of developing countries debt. The study incorporates 79 countries over a period of 19 years. The model predicted the default of Mexico, Brazil, and Argentina two years in advance. Results indicate that the model has high predictive power.     

Who survives? A cross-country comparison

How capital structure, dividend policy, and corporate governance vary across countries has been the focus of recent studies, but how resources are reallocated in response to poor performance has not received as much attention. This paper argues that the market for corporate control and the formal bankruptcy/liquidation processes of a country are two key mechanisms through which corporate assets are reallocated. Ideally, an economy would only allow the best users of economic resources to retain the right to use those assets and any sub-optimal use would result in either a take-over by a more proficient owner or an asset sale. We present evidence that equity market delistings occur more frequently in countries with strong shareholder rights. Furthermore, both strong creditor and shareholder rights increase the use of bankruptcy, relative to acquisitions, as a mechanism to resolve financial distress. We also present some evidence that these mechanisms are not as effective in Japan.     

The Predictive Value of Earnings, Cash flows and Accruals in the Period Surrounding the Asian Financial Crisis: Evidence from Hong Kong, Malaysia, Singapore and Thailand

This paper examines the predictive value of earnings, operating cash flows and accruals in Hong Kong, Malaysia, Singapore and Thailand for the period 1994–2001. We also examine the impact of the Asian financial crisis of 1997 on the predictive power of the accounting performance measures. We regress future cash flows and future excess returns on earnings (or cash flows and accruals) for the periods 1994–1996 (pre‐crisis period), 1997–1998 (crisis period) and 1999–2001 (post‐crisis period). Our findings indicate that the accounting measures have explanatory power for 1‐year ahead cash flows. Our analyses of 1‐year ahead excess returns indicate that investors may have undervalued the accounting measures in the pre‐ and post‐crisis periods, and overvalued the measures during the crisis period.     

The not-so-secret-agent: Professional monitors,hierarchies and implementation

Abstract. It is well-known that, when agents in an organization possess private information that is unverifiable by an outside party, games where agents simply announce their information can have multiple equilibria that may impede the successful implementation of the organization's objectives. We show that the introduction of a professional monitor (e.g. auditor, regulator, supervisor) can help to destroy the “bad' equilibria when agents have private information but have incomplete info rmation about others' information. Received: 21 May 1998 / Accepted: 26 May 2000     

CAPITAL FORMATION AND THE INTERNET

The Internet is expected to play a significant role in the capital-raising process. Internet investment banks like Wit Capital and WR Hambrecht are supposed to make the IPO process more equitable by giving retail investors access to deals and pricing deals more accurately, thereby leaving less "money on the table" and lowering the cost of going public.
This article argues that the Internet will not replace, but will likely "supplement," the current system. The certification function provided by traditional investment banks and their relationships with institutional investors will continue to be important determinants of a successful offering. Thus, although Internet banks will get pieces of IPO transactions, the lead managers of such deals will continue to be older firms with well-established reputations and ties with institutions.
Nevertheless, the Internet is expected to play a larger role in the case of public bond offerings. Because the issuance of bonds is a repetitive business and the pricing is much simpler, the authors predict that the Internet will significantly reduce the costs of issuing bonds and perhaps limit the role of traditional investment banks in this process.     

Pricing on the Internet

It is often claimed that e-commerce has created a more competitiveenvironment by encouraging the entry of new online firms andby enabling buyers to search easily for the lowest prices. Thelimited evidence that exists paints a mixed picture. Many onlinemarkets are advertising- and technology-intensive, creatinga tendency towards growing concentration. Price search is imperfectand firms can dampen price competition by increasing productheterogeneity and switching costs. In many sectors, online firmsmay come to acquire some market power. We look at the formsof pricing that are likely to emerge in such markets, includingthe greater use of price discrimination and auction-like tradingarrangements.     

Affiliated firms and financial support: Evidence from Indian business groups

We investigate the functioning of internal capital markets in Indian Business Groups. We document that intragroup loans are an important means of transferring cash across group firms and are typically used to support financially weaker firms. Evidence suggests that an important reason for providing support may be to avoid default by a group firm and consequent negative spillovers to the rest of the group. Consistent with such spillovers, the first bankruptcy in a group is followed by significant drops in external financing, investments and profits of other firms in the group and an increase in their bankruptcy probability.     

Measuring the Accuracy of Federal Reserve Forecasts

Markets across the world pay enormous attention to every economic forecast made by Federal Reserve governors, particularly those from the chair. This article develops a new way that the academic literature can assess the accuracy of these Federal Reserve forecasts. In particular, our proposed method allows for both general and specific predictions to be assessed, while also accounting for the macroeconomic volatility that prevails at the time of the forecast. To develop this measure, we expand upon a methodology proposed by the Wall Street Journal to score the accuracy of forecasts made by the Fed. Our results show that Alan Greenspan was consistently the most accurate forecaster among Fed governors, while the most recent chair in our sample, Janet Yellen, has performed relatively poorly. More generally, we find that the chairs have become less accurate over time with their forecasts and have also tended to make fewer specific predictions.     

The impact of regulation FD on the information environment: evidence from the stock market response to stock split announcements

This paper examines the information environment effects of regulation fair disclosure (Reg FD). We investigate the stock market response to stock splits in the pre- and post-regulation periods. We find that abnormal returns around split announcement are positive in both periods, but the magnitude of the returns is smaller in the post-FD period relative to the pre-FD period. The difference between the pre- and post-FD period abnormal returns persists even after we control for factors that may affect split announcement returns. We also find that the magnitude of the association between announcement returns and the unexpected portion of the split factor has increased post-regulation. Our analysis of performance trends for split firms reveals that patterns of profitability and changes in profitability in the years around stock splits are similar in the pre- and post-FD periods. However, we find that announcement returns are associated with lagged profitability changes in the pre-FD period, but with future profitability changes in the post-FD period. Collectively, our results imply that Reg FD has reduced information asymmetry and improved price efficiency.