Testing financing constraints on firm investment using variable capital

We consider a dynamic multifactor model of investment with financing imperfections, adjustment costs and fixed and variable capital. We use the model to derive a test of financing constraints based on a reduced form variable capital equation. Simulation results show that this test correctly identifies financially constrained firms even when the estimation of firms’ investment opportunities is very noisy. In addition, the test is well specified in the presence of both concave and convex adjustment costs of fixed capital. We confirm empirically the validity of this test on a sample of small Italian manufacturing companies.     

The Basel Committee proposals for a new capital accord: implications for Italian banks

Following a few general considerations on the recently proposed revision of the Basel Agreement on capital adequacy, this paper focuses on the first pillar of the Basel Committee proposals, the handling of capital requirements for credit risk in the banking book. The Basel Committee envisages an approach alternatively based on external ratings or on internal rating systems for the determination of the minimum capital requirement related to bank loan portfolios. This approach supports a system of capital requirements that is more sensitive to credit risk. On the basis of specific assumptions, these requirements provide a measure of the value at risk (VaR) produced by models used by major international banks. We first address the impact of the standardised and (internal ratings-based) IRB foundation approach using general data on Italian banks loans' portfolios default rates. We then simulate the impact of the proposed new rules on the corporate loan portfolios of Italian banks, using the unique data set of mortality rates recently published by the Bank of Italy. Three main conclusions emerge from the analysis: (i) the standardised approach implicitly penalizes Italian banks in their interbank funding as their rating is generally below AA/Aa, (ii) the average default rate experienced by Italian banks is higher than the one implied in the benchmark risk weight (BRW) proposed by the Basel Committee for the IRB foundation approach, thereby potentially leading to an increase in the regulatory risk weights, and (iii) the risk-weight is based on an average asset correlation that is significantly higher than the one historically recorded within the Italian banks' corporate borrowers. These findings support the need for a significant revision of the basic inputs and assumptions of the Basel proposals. Finally, in relation to the conditions that allow the capital market to effectively discipline banks, we comment on the proposals advanced in relation to the third pillar of the new capital adequacy scheme.     

An Analysis of European Banks' SND Issues and its Implications for the Design of a Mandatory Subordinated Debt Policy

During the last twenty years an increasing number of proposals to improve bank market discipline through the introduction of a mandatory subordinated debt policy (MSDP) have been presented and critically discussed by academic economists and bank regulators. While theoretical issues are key in this debate, a proper understanding of the market for banks' subordinated notes and debentures (SND) and the main features of securities is also considered relevant for the potential introduction, design and goals setting of such a policy. This paper builds on information concerning issuers, investors, markets, pricing and the technical features of securities to critically discuss these aspects. Data on over 1800 European banks SND issues completed during the 1988–2000:Q1 period together with information on primary and secondary market functioning are presented.     

Neuerscheinungen versicherungswissenschaftlicher Bücher – Ausführliche Hinweise –

Ohne Zusammenfassung Ausgew?hlt von Dr. Andrea Uber, Berlin     

TRANSITIONS OUT OF UNEMPLOYMENT: THE ROLE OF SOCIAL NETWORKS' TOPOLOGY AND FIRMS' RECRUITMENT STRATEGIES

In this paper we study the effects of job contact networks on out‐of‐unemployment transitions. We find that social connections produce sizable increases in upward mobility from unemployment and, caeteris paribus, symmetric network topologies perform better than asymmetric ones. Furthermore, in scale‐free networks the probability of transitions out of unemployment increases in the exponent of the power‐law degree distribution, but its value is much lower than the one attainable in Poisson random networks. In addition, and most interestingly, these results strongly depends on the different hypotheses on the firms' recruitment strategy.     

Perceptions of assortment variety: The effects of congruency between consumers’ internal and retailers’ external organization

This research shows that consumers’ perceptions of variety and satisfaction are dependent upon how the assortment is organized, both internally by the consumer and externally by the retailer. The results of three laboratory studies indicate that for familiar categories, congruency between a consumer's internal categorization structure and the external store layout leads to higher perceptions of variety and higher satisfaction with product choices, while for unfamiliar product categories, congruency between shopping goals and external structure leads to lower perceptions of variety but increased satisfaction with the store's assortment. However, if retailers institute external category filters congruent with consumers’ internal shopping goals that allow them to bypass products, consumers have both lower variety perceptions and satisfaction with the assortment offering.     

Capital market equilibrium with externalities, production and heterogeneous agents

The paper studies general equilibrium in an economy with externalities, production and heterogeneous agents. The model developed builds on Brock [Brock, W.A., 1982. Asset prices in a production economy. In: McCall, J.J. (Ed.), The Economics of Information and Uncertainty. University of Chicago Press, Chicago, pp. 1–43] and Merton [Merton, R.C., 1987. A simple model of capital market equilibrium with incomplete information. Journal of Finance 42, 483–510]; it involves both a stock market and a market for loans, together with negative externalities produced by a subset of firms. Importantly, the technological production structure of the firms is reflected in the properties of the shares traded in the stock market. Agents are heterogeneous in their financial choices, potentially discriminating against the firms producing a negative externality. The model sheds light on the utility costs of the discriminating behavior and on the impact on the price of the stock issued by the firm which is responsible for the externality. The model is used to study the factors which may magnify or reduce the impact of discrimination. A set of discriminated firms may be seriously affected only if the discriminating investors command a large portion of overall wealth and/or they do not represent important diversification instruments. The model can be applied to understanding the effects of socially responsible investment, whereby investors discriminate against companies belonging to some sectors which are perceived as socially dangerous or unethical.     

Neutral carbon tax and environmental targets in Brazil

We evaluate the effects of a carbon tax in the Brazilian economy using an input–output framework. First, we consider the impacts of a carbon tax of US$ 10 and US$ 50/metric ton of CO₂ equivalent. As usual, the adoption of the carbon tax generates adverse effects on GDP, wages and jobs in the short term, but reduces emissions and generates new government revenues, especially in the case of the greater tax. Second, we consider a broader tax system reform. In this reform, we replace distortionary taxes by a tax on value added. To compensate for the loss of government revenue, we assume a carbon tax with equivalent revenue. We find that the net effect is a GDP increase of 0.47%, the creation of 533 thousand jobs and reduction of 1.6 million tons of CO₂ emissions. Both scenarios exempt exports and levy imports to correct adverse effects on the country’s competitiveness.